Right to Buy

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pages: 525 words: 153,356

The People: The Rise and Fall of the Working Class, 1910-2010 by Selina Todd

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call centre, collective bargaining, conceptual framework, credit crunch, deindustrialization, deskilling, Downton Abbey, financial independence, full employment, income inequality, manufacturing employment, Neil Kinnock, New Urbanism, Red Clydeside, rent control, Right to Buy, rising living standards, sexual politics, strikebreaker, The Spirit Level, unemployed young men, union organizing, upwardly mobile, urban renewal, Winter of Discontent, women in the workforce, young professional

The Act also took control for council rent levels out of the hands of local authorities by demanding that they set rents at market rates, meaning that much council accommodation was immediately made far more expensive that privately rented property. At the same time, council tenants were given the right to buy their home, although it was possible for local authorities to delay or veto the implementation of this right.6 In the 1960s the housing expert J.B. Cullingworth had warned policymakers that ‘the dissatisfaction at rising rents may eventually develop into something more significant.’7 In the 1970s his prophecy came true. Council tenants experienced 23 per cent rent rises between 1971 and 1974.8 Campaigns and rent strikes erupted, many of them instigated by married women living on council estates. Some of these women were already involved in organizing the amenities that their landlords had failed to provide. By the 1970s Betty Ennis of Coventry’s Willenhall estate was working full-time at the city’s GEC factory ‘but three nights a week I used to work in the youth club’, which the Residents’ Association ran for Willenhall’s increasing number of teenagers.

‘Why They Were Jailed’, Daily Mirror (15 January 1975), p. 5. 5. Tomlinson, Ricky, p. 154. 6. In fact they had only briefly been unable to buy their home. The Conservatives had enshrined the ‘right to buy’ in the 1936 Housing Act. This was revoked by Bevan’s 1948 Housing Act, but Harold Macmillan reinstated the right to buy just six years later. That said, this remained a theoretical right for most tenants until the 1970s. Prior to 1972, local authorities had great autonomy over whether or not to sell council houses. Heath’s government changed this by demanding that councils give a robust justification of why they could not sell off their council housing stock to tenants. They also provided an incentive, by allowing councils to use some of the profits to build new houses for their poorest residents. See Forrest and Murie, Selling the Welfare State, pp. 43–8. 7.

The Mahoneys were suffering no worse than the majority of their neighbours.14 To those living in such conditions, council housing offered almost unbelievable luxury. Council houses built before the mid-1950s tended to be of far higher quality than privately rented housing – or indeed many owner-occupied houses. Bevan’s Housing Act of 1948 stipulated generous provision for council houses, with spacious rooms and an indoor bathroom. In 1957 Donnison’s national survey found that most would-be home-movers ‘are likely to prefer the larger newer, and better-equipped dwellings available to the Council tenant’, rather than taking their chances in the private sector.15 By 1964, 80 per cent of households renting from a local authority enjoyed sole use of a sink, a fixed bath, a washbasin, a hot water supply and a toilet. Only 61 per cent of owner-occupiers had these amenities and only 57 per cent of private tenants.16 Commercial builders and landlords, who were primarily concerned to make a profit, lacked any incentive to modernize their accommodation at a time when many people were desperate for any kind of home.


pages: 317 words: 101,475

Chavs: The Demonization of the Working Class by Owen Jones

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Asperger Syndrome, banking crisis, Berlin Wall, British Empire, call centre, collapse of Lehman Brothers, credit crunch, deindustrialization, Etonian, facts on the ground, falling living standards, first-past-the-post, ghettoisation, Gini coefficient, hiring and firing, housing crisis, Hugh Fearnley-Whittingstall, illegal immigration, income inequality, informal economy, low skilled workers, low-wage service sector, mass immigration, Neil Kinnock, Occupy movement, pension reform, place-making, Plutocrats, plutocrats, race to the bottom, Right to Buy, rising living standards, The Bell Curve by Richard Herrnstein and Charles Murray, The Spirit Level, too big to fail, unpaid internship, upwardly mobile, We are the 99%, wealth creators, Winter of Discontent, women in the workforce, working-age population

We've only just very recently moved to a situation where we're building more social homes per year than we're losing under the right-to-buy.' Rising demand for housing pushed prices up, encouraging disastrous house-price bubbles. Housing became increasingly unaffordable for huge swathes of the population. Millions of people were condemned to languish for years on council housing waiting lists. Little wonder that the number of homeless Britons soared by 38 per cent between 1984 and 1989 alone. The policy also drove a wedge through working-class Britain, creating a divide between homeowners and council tenants. Right-to-buy meant that the best housing stock was sold off; and it was the relatively better-off council tenants who were becoming homeowners. Those who remained council tenants tended to be poorer and in the worst homes. By 1986, nearly two-thirds of tenants were from the bottom 30 per cent in terms of income, and only 18 per cent were from the richest half.

Caroline Flint's proposals could never have been implemented, because they were illegal under existing laws: councils were not permitted to make people homeless. But she had fuelled the now widespread political sentiments that council tenants were freeloaders. Flint expressed surprise at how social mixing in council housing had declined and levels of unemployment had shot up on estates over the last thirty years. Unless she was grossly incompetent at her job, she would have known that this was the legacy of right-to-buy. The least disadvantaged tenants had bought their homes, while the Tories-followed by New Labour-had refused to build any more. That meant that the remaining, ever-diminishing most in need. According to the late Alan Walter, a lifelong council tenant and former chairman of Defend Council Housing, this demonization also has political purposes. 'They promote this idea that anyone who wants to get on aspires to be a homeowner, and only those who can't do any better will live in council housing.'

As the 1970s drew to a close, before the Thatcher government launched the 'rightto-buy' scheme, more than rwo in five of us lived in council housing. Today the figure is nearer one in ten, with tenants of housing associations and co-operatives representing half as many again." Councils were prevented from building new homes and, over the last eleven years, the party of Bevan has refused toinvest money in the remaining houses under local authority control. As council housing collapsed, remaining stock was prioritized for those most in need. 'New tenants coming in, almost exclusively in order to meet stringent criteria, will either be single parents with dependent children, [or] people out of institutions including prisons,' explained the late Alan Walter, a lifelong council tenant and chairman of the pressure group Defend Council Housing. 'And therefore they are, almost by definition, those without work.'


pages: 232 words: 77,956

Private Island: Why Britain Now Belongs to Someone Else by James Meek

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Affordable Care Act / Obamacare, Berlin Wall, business continuity plan, call centre, clean water, Deng Xiaoping, Etonian, HESCO bastion, housing crisis, illegal immigration, Martin Wolf, medical bankruptcy, Mikhail Gorbachev, post-industrial society, pre–internet, price mechanism, Right to Buy, risk tolerance, road to serfdom, Ronald Reagan, Rubik’s Cube, Skype, sovereign wealth fund, Washington Consensus, working poor

The number of new homes being built is barely above a hundred thousand. To understand how it came to this, you have to go back to 1979, when Margaret Thatcher began forcing local authorities to sell council houses to any sitting tenant able and eager to buy, at discounts of up to 50 per cent. It was one of those rare policies that still seems to contain in its very name the entire explanation of what it means: ‘Right to Buy’. Cherished by Tories and New Labour alike as an electoral masterstroke, it offered a life-changing fortune to a relatively small group of people, a group that, not by coincidence, contained a large number of swing voters. Right to Buy differed from the period’s other privatisations in many ways. It was tightly linked to the buyer’s personal use of the asset being privatised. If the Royal Mail had been sold on the same principle buyers would have got a discount on the share price based on the number of letters they’d posted over their lifetime.

Whether councils, given the chance, could have carried out the vast renovation programme that the housing associations are successfully pursuing (few who have lived in British cities for a generation, even if they don’t live on a council estate, can fail to have noticed how much less grotty the estates look) is a question that can’t be answered. The successful renovation of 70,000 council houses carried out in Birmingham after its council tenants voted against stock transfer in 2002 suggests that they could. But housing associations are dominant now in the place council housing used to be, and as the effects of Right to Buy, increasing population and the failure of the market to build enough houses to cope with it have become apparent, successive governments have turned to housing associations to fill the gap. In 2005, the housing association wave came to the Cranbrook Estate. Rather than try to transfer its stock in one go, Tower Hamlets has done it estate by estate. Its preferred bidder for Cranbrook was Swan Housing Association, created in the 1990s to own and run a set of former new-town homes in Basildon, Essex.

‘I think there should be a fairer way of asking people to leave their accommodation,’ she said. Council tenants face a jail sentence if they try to sublet. I asked Quinn if a relative could move in so as to avoid the bedroom tax. ‘That defeats the purpose of having a second bedroom,’ she said. ‘Why shouldn’t I have a home I don’t have to share with anyone? I could have my granddaughter move in. But if I had her, my daughter would have to give up the family credit. There’s a way round it but somebody else has to lose money.’ One of the curious things about Quinn’s situation is that the government would love to give her £100,000, but she’s not prosperous enough to qualify for it. That figure is the maximum discount on the market price a council tenant who exercises Right to Buy can now claim in London. Given that her flat would be worth at least £300,000, Quinn could, in theory, buy it, sell it on and pocket the difference.


pages: 578 words: 141,373

Concretopia: A Journey Around the Rebuilding of Postwar Britain by John Grindrod

Berlin Wall, garden city movement, housing crisis, Jane Jacobs, megastructure, Neil Kinnock, New Urbanism, Right to Buy, side project, The Death and Life of Great American Cities, urban decay, urban planning, urban renewal, urban sprawl, women in the workforce, young professional

I think the trouble will be if they sell them all off and they get sold to buy-to-let people and it’s less well-off people living in them but still really transient, so you don’t have the benefit of it being council tenants where at least they’re permanent, at least they’ve got a stake.’ Had the gentrification already begun? ‘The thing is you can’t really tell that easily because there’s a whole lot of artists wandering around who almost by definition sort of are middle class. I know there’s at least one guy on this corridor who bought his flat because it was stylish rather than because it was cheap. So I guess he’s a gentrifier. And there’s a couple of others that are renting flats – I assume they’re renting them from people who used right-to-buy to buy them – but they’re trendier than your average. I’d be really interested keeping an eye on what happens here after they finish doing it all up in 2014.

In Coed Eva, the neighbourhood Jo and her husband Jim had lived on in the new town of Cwmbran near Cardiff, the social mix had been encouraged by the development corporation, who’d built houses for both council tenants and private buyers. ‘Below the school field it was development corporation,’ remembered Jo, ‘and above that it was private.’ ‘In the end you want your social mix,’ explained Jim. Before the development of Coed Eva in the late sixties, the new town had embodied a much more traditional postwar socialist model of building, with little or no private ownership. ‘There was an awful lot of public housing. It’s mixed now, but it wasn’t then. It was all housing for rent.’ But then among the thousands of council houses landed smaller estates of private housing: by 1978 over a fifth of all Cwmbran’s houses were privately owned. ‘They were worried then about creating a different sort of ghetto.

They put forward three alternative names, with locals voting to rebrand the area as Riverside Dene. I remembered Shirley Meehan’s comment in 1972 – ‘the view, if you avoid looking at the riverbanks, is beautiful’ – and reflected how fast cities and attitudes can change, and how alien recent history can seem. A new generation of residents is now moving into Scotswood Road. Some, like Margaret and Ken’s grandson, are descendants of former council tenants made good; others have little or no connection to the area, or knowledge of its past. Notes 1 Dan Smith in Chris Foote Wood, T. Dan Smith, Northern Writers, 2010, p56 2 Kenneth Galley in John Holliday, ed, City Centre Redevelopment, Charles Knight, 1973, p228 3 T. Dan Smith, October 1958, quoted in Evening Chronicle 21/10/86, p8 4 Guardian, 4/4/62, p8 5 Miles Glendinning and Stefan Muthesius, Tower Block, Yale University Press, 1994, p166 6 Liberal Alderman William McKeag in Chris Foote Wood, T.


pages: 230 words: 79,229

Respectable: The Experience of Class by Lynsey Hanley

Berlin Wall, cuban missile crisis, David Brooks, delayed gratification, Etonian, full employment, housing crisis, illegal immigration, invisible hand, liberation theology, low skilled workers, mutually assured destruction, Neil Kinnock, Norman Mailer, Own Your Own Home, Right to Buy, Ronald Reagan, strikebreaker, upwardly mobile, Winter of Discontent

First, through the dismantling of trades union power, which had helped to integrate the jobless into the wider working population by establishing and then protecting rights and benefits when they were out of work. Second, through negative propaganda, in tacit collusion between government and newspaper owners, which sought to isolate the badly off and the bolshy from an upwardly mobile, consumerist working class. Third, through populist policy-making: the Right to Buy, which divided local authority tenants into the ‘aspirational’ and the ‘non-aspirational’ depending on whether or not they bought their council house, being a prime example. The idea that working-class respectability no longer exists appeals to people who believe that the social and political changes of the last thirty-five years have sorted the wheat from the chaff. From this viewpoint, anyone who proved they could string a sentence together and brush their own hair has – rightfully, it’s believed – gained admittance to the swollen middle class, leaving behind a disreputable and undeserving lumpenproletariat to wallow in their own shite.

The outer wards of Nottingham, containing estates built to house workers at local pits and textile factories, are among those in the country sending the fewest young people to university. Most estates are no longer half-empty but still suffer from geographical isolation and, increasingly, the effects of Right to Buy combined with those of Buy to Let, where former council homes are bought by private landlords who are unconcerned with maintenance or neighbourhood stability. Most council tenants may be in work, but receive such low wages that they cannot survive without housing benefit. The geographer Danny Dorling notes that across England as a whole there are plenty of houses with many spare bedrooms, but because they tend to be owned privately and inhabited by the well-off, the government doesn’t consider them ‘spare’ in the way that they feel free to regard bedrooms in the social sector as ‘spare’ and therefore liable to be sanctioned.5 In London, against an opposing trend elsewhere in the country for once-grand family homes to become nurseries and care homes, mini-mansions which were converted into flats mid-century are being turned back into single family homes, with multiple en-suites, live-in nanny quarters and two-storey basements to house the gym, wine cellar and cinema.

The majority culture in Britain favours owning your own home, even though it has become less, not more common to do so. Many who favour renting, because of the flexibility it offers, eventually make the decision to buy a home if they can afford it simply because private renting in Britain is expensive, inconvenient and legally biased towards landlords as opposed to tenants. Some council tenants who believe that, in an ideal world, the Right to Buy should not exist have nevertheless bought their homes because they recognize the stability and the possibility of economic advancement it brings. In my experience, ‘getting on’ has meant a constant assessment of what is important and what isn’t, in order to avoid having to swallow a lot of bullshit related to notions of consumption and distinction. What’s regarded as such depends on the individual, though to me it has always meant trying to work out what is necessary to a comfortable lifestyle – now that I can afford one – and what is simply ‘the done thing’ to own.


pages: 613 words: 151,140

No Such Thing as Society by Andy McSmith

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anti-communist, Ayatollah Khomeini, Berlin Wall, Big bang: deregulation of the City of London, Bob Geldof, British Empire, Brixton riot, call centre, cuban missile crisis, Etonian, F. W. de Klerk, Farzad Bazoft, feminist movement, fixed income, Francis Fukuyama: the end of history, friendly fire, full employment, glass ceiling, God and Mammon, greed is good, illegal immigration, index card, John Bercow, liberal capitalism, light touch regulation, Live Aid, loadsamoney, long peace, means of production, Mikhail Gorbachev, mortgage debt, mutually assured destruction, negative equity, Neil Kinnock, North Sea oil, Northern Rock, old-boy network, popular capitalism, Right to Buy, Ronald Reagan, Rubik’s Cube, Sloane Ranger, South Sea Bubble, spread of share-ownership, strikebreaker, The Chicago School, union organizing, upwardly mobile, urban decay, Winter of Discontent, young professional

In Conservative-run Westminster, the council leader Lady Porter, who was one of Britain’s richest women (as the daughter of the founder of Tesco), was illicitly arranging for council tenants to be shipped out of marginal wards to be replaced by owner-occupiers, who were assumed to be more likely to vote Conservative. Some of the council tenants were decanted into a tower block infested with asbestos. When the scandal came to light in 1991, Lady Porter and others were ordered to pay surcharges originally set at £21m. The government’s first assault on the authority of local councillors was the legislation compelling them to sell council houses to any tenant who wished to buy. For years, there had been tension between council tenants who aspired to be property owners, and councillors – not necessarily Labour councillors – who argued that their duty to house the homeless required them not to deplete their stock of council housing. The Thatcher government cut through this argument by forcing councils to sell, at discounts of up to 60 per cent, and banning them from using the proceeds to build new council properties.

The Thatcher government cut through this argument by forcing councils to sell, at discounts of up to 60 per cent, and banning them from using the proceeds to build new council properties. They had to use it to repay debt. Norwich Council already ran a scheme that gave tenants the right to buy newly built homes, which preserved the stock of council houses, but the council’s attempt to fight the legislation in the high court brought them up against the wholly unsympathetic Lord Denning, Master of the Rolls. A million and a quarter former tenants took this cheap route to homeownership, raising £18 billion for public funds and turning hundreds of thousands of Labour voters into Conservatives, while for the first time in post-war memory, homeless beggars became a fixture on city streets. Another government tactic, condemned in the Church of England report, was to reduce progressively the amounts that councils received in government grants.

Spending on the NHS and on personal social services was to go up by at least 3 per cent a year above inflation. Child benefit and pensions would also be substantially increased. Unnecessary car journeys were to be discouraged by abolishing the tax disc and making up the lost tax through higher petrol duty. The number of prisoners was to be reduced through lower sentences for non-violent offences. There was to be a huge programme of council-house building and repairs. Local authorities were to be given more powers than ever before, including in some cases the power to convert private schools into state schools. The charitable status enjoyed by Eton and other public schools was to be abolished, along with everything that the upper classes seemed to enjoy most, including corporal punishment (then still practised in schools), the House of Lords and fox-hunting.


pages: 443 words: 98,113

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay by Guy Standing

3D printing, Airbnb, Albert Einstein, Amazon Mechanical Turk, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Bernie Sanders, Big bang: deregulation of the City of London, bilateral investment treaty, Bonfire of the Vanities, Bretton Woods, Capital in the Twenty-First Century by Thomas Piketty, carried interest, cashless society, central bank independence, centre right, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, credit crunch, crony capitalism, crowdsourcing, debt deflation, declining real wages, deindustrialization, Doha Development Round, Donald Trump, Double Irish / Dutch Sandwich, ending welfare as we know it, eurozone crisis, falling living standards, financial deregulation, financial innovation, Firefox, first-past-the-post, future of work, gig economy, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, housing crisis, income inequality, information retrieval, intangible asset, invention of the steam engine, investor state dispute settlement, James Watt: steam engine, job automation, John Maynard Keynes: technological unemployment, labour market flexibility, light touch regulation, Long Term Capital Management, lump of labour, Lyft, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, means of production, mini-job, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, nudge unit, Occupy movement, offshore financial centre, oil shale / tar sands, open economy, openstreetmap, patent troll, payday loans, peer-to-peer lending, Plutocrats, plutocrats, Ponzi scheme, precariat, quantitative easing, remote working, rent control, rent-seeking, ride hailing / ride sharing, Right to Buy, Robert Gordon, Ronald Coase, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, sharing economy, Silicon Valley, Silicon Valley startup, Simon Kuznets, sovereign wealth fund, Stephen Hawking, Steve Ballmer, structural adjustment programs, TaskRabbit, The Chicago School, The Future of Employment, the payments system, Thomas Malthus, Thorstein Veblen, too big to fail, Uber and Lyft, Uber for X, Y Combinator, zero-sum game, Zipcar

The UK’s present housing crisis has its origins in Thatcher’s decision in the 1980s to give council tenants the ‘right to buy’ their homes at a substantial discount, a subsidy scheme that decimated the stock of social housing. Nearly 2 million tenants have since taken advantage of the scheme. Financial liberalisation also meant mortgages became easier to obtain. Home ownership peaked in 2003, when 71 per cent of homes in England were owned outright or with a mortgage. Subsequently, while outright ownership went on growing, the share of mortgaged housing plummeted. Something similar happened in the rental sector. The share of social housing continued to decline, spurred by the coalition government’s decision to increase the ‘right-to-buy’ discount. The number of households renting from private landlords more than doubled between 2001 and 2015 to 5.4 million, a fifth of all households.

Yet the government’s response has been to pile on more subsidies that make the situation worse. It has stoked demand for homes to buy, raising prices further, while the supply of affordable properties is dwindling, worsened by extending the ‘right to buy’ to housing associations and forcing local councils to sell their most valuable properties. The subsidies help the better-off with the wherewithal to start on the housing ladder, magnifying inequality. The ‘help-to-buy’ scheme, introduced by the coalition and expanded in 2015, has been billed as the biggest home ownership programme since Thatcher introduced the ‘right to buy’ for council houses. The £22 billion scheme, which runs to 2020, comprises interest-free loans and a subsidised savings account (Help-to-Buy ISA) for a deposit to buy new-build homes up to £250,000 (£450,000 in London) and mortgage guarantees to buy homes up to £600,000.

The number of households renting from private landlords more than doubled between 2001 and 2015 to 5.4 million, a fifth of all households. By 2025, a quarter will be renting privately, according to predictions by PwC, the accountancy firm.31 For those aged twenty to thirty-nine, ‘Generation Rent’, a majority will be doing so. The number of landlords has also increased, from 1.5 million just before the financial crash to over 2 million. They own 5 million properties, including more than a third of all former council houses sold under the ‘right-to-buy’ programme. While 80 per cent of landlords own just one property, according to the Bank of England, the remaining 420,000 own on average eight properties. Some own hundreds. In a market of contrived scarcity, the shrinking supply of affordable properties for home-buyers and tenants has pushed up rental incomes and prospective capital gains. According to mortgage lender Kent Reliance, in 2014–15 landlords made £112 billion in rent and capital gains, an annual return of 12.5 per cent per property.


pages: 409 words: 118,448

An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy by Marc Levinson

affirmative action, airline deregulation, banking crisis, Big bang: deregulation of the City of London, Boycotts of Israel, Bretton Woods, Capital in the Twenty-First Century by Thomas Piketty, car-free, Carmen Reinhart, central bank independence, centre right, clean water, deindustrialization, endogenous growth, falling living standards, financial deregulation, floating exchange rates, full employment, George Gilder, Gini coefficient, global supply chain, income inequality, income per capita, indoor plumbing, informal economy, intermodal, invisible hand, Kenneth Rogoff, knowledge economy, late capitalism, linear programming, lump of labour, manufacturing employment, new economy, Nixon shock, North Sea oil, oil shock, Paul Samuelson, pension reform, price stability, purchasing power parity, refrigerator car, Right to Buy, rising living standards, Robert Gordon, rolodex, Ronald Coase, Ronald Reagan, Simon Kuznets, statistical model, strikebreaker, structural adjustment programs, Thomas Malthus, total factor productivity, unorthodox policies, upwardly mobile, War on Poverty, Washington Consensus, Winter of Discontent, Wolfgang Streeck, women in the workforce, working-age population, yield curve, Yom Kippur War, zero-sum game

The place to start was not by attacking the trade unions or by selling off British Steel, but by letting people own their homes. In 1979, her government introduced a bill granting tenants in housing owned by local authorities, known as “council housing,” the right to buy their units at prices far below market value. This was privatization for the masses: three in ten British households lived in publicly owned housing. Those who had been council tenants for over twenty years could buy their house or apartment at a 50 percent discount; if they were uncertain, they could pay a hundred-pound deposit and preserve their right to buy at a fixed price for two years. The local authority that was selling the property was obliged to offer a mortgage.18 Right to Buy, as it was known, targeted a core Labour constituency. Most of the council estates had been built under Labour governments, and their residents were reliable Labour voters.

Most of the council estates had been built under Labour governments, and their residents were reliable Labour voters. By the spring of 1983, two-and-a-half years after Parliament enacted Right to Buy into law, 274,650 council tenants in England alone had acquired their homes. A poll showed that 59 percent of people who had voted for Labour in 1979 and subsequently bought their own homes would not vote for Labour again. Right to Buy was privatization conducted at a level that made sense to average people. As it went forward, gathering public support, the political obstacles to privatizing state-owned companies fell away.19 Privatization of state-owned enterprises was not a new idea in 1979. The Conservative government led by Winston Churchill had sold British Steel into private ownership in the early 1950s, and the government of German chancellor Konrad Adenauer had sold a majority of the shares of Volkswagen through a public offering in 1961.

Labor productivity rose much more slowly during her eleven years in office than it had during the previous decade. Several years of strong growth in the second half of the 1980s followed several years of poor economic performance, but the notion that the Conservative turn restored the British economy to rude health is simply not right.29 Some people in Great Britain fared well thanks to Thatcher’s policies. Over a million working-class families had the opportunity to become homeowners thanks to Right to Buy, although large numbers of them had to sell after discovering that homeownership required more than their incomes would permit. Those with capital prospered in the friendlier investment climate, and those seeking to start businesses found their paths eased by the state’s new interest in entrepreneurship. Coincidently, the eastern coast of Scotland and the isles to the north flourished thanks to the need for labor to drill for, produce, and transport North Sea oil.


pages: 434 words: 150,773

When the Iron Lady Ruled Britain by Robert Chesshyre

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Berlin Wall, Big bang: deregulation of the City of London, British Empire, corporate raider, deskilling, Etonian, Fall of the Berlin Wall, financial deregulation, full employment, housing crisis, manufacturing employment, mass immigration, means of production, Neil Kinnock, North Sea oil, oil rush, Plutocrats, plutocrats, Right to Buy, Ronald Reagan, school choice, Silicon Valley, the market place, trickle-down economics, union organizing, wealth creators, young professional

The estate was built in the mid-seventies, home to six thousand people, its flats linked by mile upon mile of asphalt walkway, and connected by bridges to other estates of equally formidable reputation. From one office, staff administer eleven thousand of the least desirable homes in the country. Seven years after Mrs Thatcher had boosted the ideal of a property-owning democracy by compelling local authorities to offer council houses for sale, not a single one of those eleven thousand tenants had bought the roof over his head. Between them the residents owed the borough five million pounds in rent arrears. Well over three-quarters of them fervently wanted to go elsewhere, a wish that will be fulfilled for only a tiny minority. On the ground floor many windows are permanently boarded, the occupants preferring life in a half-light to the near certainty of being burgled when they go out.

Two small fires were started at other schools in the next two days. The local reporter told me that there was at least one arson in Skem each week. Skelmersdale is not a natural community with social and occupational gradations. Its inhabitants are totally removed from the experience of most of Britain. The professionals who service the town, with very few exceptions – some of those are ‘missionaries’ like clergymen – live elsewhere. Eighty per cent of council tenants – the vast majority of the town – receive some form of housing benefit. Some unmarried mothers are so socially incompetent that the idea of going to a community centre for a cup of tea – in the words of a social worker – ‘freaks them out, they can’t handle it’. Even the Scouser accent sets them apart. Unlike a Yorkshire or Lancashire accent, it is an entirely working-class accent. With rare exceptions, the minute a Scouser opens his mouth, fellow countrymen can accurately pin him down as a man likely to be without skills or higher education.

He was seeking to create a national mood music familiar to all who have lived under authoritarian governments. It was not what we have been accustomed to in Britain. Thatcher was already assaulting the last redoubts from which effective opposition could be deployed – education authorities and turbulent councils; now her acolytes were turning on the freedom to think differently. Although celebrated as the advocate of such liberties as the right to buy shares (and to drink in pubs all day), Thatcher was proving reluctant to tolerate the bedrock freedom – the right to oppose. She did manage to unite the media by her obsessive pursuit of the former MI5 man Peter Wright’s memoir Spycatcher. Two or three separate issues were cynically rolled into one in order to suppress both public knowledge and discussion of the power and accountability of the security services and of specific allegations, such as whether Roger Hollis, the former head of MI5, had been a spy and whether elements within MI5 had tried to destabilize Harold Wilson’s government.


pages: 519 words: 136,708

Vertical: The City From Satellites to Bunkers by Stephen Graham

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1960s counterculture, Berlin Wall, Buckminster Fuller, Buy land – they’re not making it any more, Chelsea Manning, Commodity Super-Cycle, creative destruction, deindustrialization, digital map, drone strike, Edward Glaeser, Edward Snowden, energy security, Frank Gehry, ghettoisation, Google Earth, Gunnar Myrdal, high net worth, housing crisis, Howard Zinn, illegal immigration, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, late capitalism, mass immigration, means of production, megacity, megastructure, moral panic, mutually assured destruction, new economy, New Urbanism, nuclear winter, oil shale / tar sands, planetary scale, Plutocrats, plutocrats, post-industrial society, Project Plowshare, rent control, Richard Florida, Right to Buy, Ronald Reagan, Skype, South China Sea, the built environment, The Death and Life of Great American Cities, trickle-down economics, urban decay, urban planning, urban renewal, urban sprawl, white flight, WikiLeaks, William Langewiesche

‘Developers getting … land at a fraction of its true value, on the promise of future profits that mysteriously never arrive; a revolving door between local authorities and regeneration consultancy and PR firms.’79 The impact of speculation on central land values, and the huge profits to be made from replacing the neglected remnants of social and municipal housing with elite housing towers, radically undermines the chances that large-scale social housing will survive in London’s core. Instead, as in New York, the super-elite is taking to the skies. Sometimes, London’s better-quality modernist towers – such as Ernö Goldfinger’s Trellick Tower – have escaped the wrecking ball. Instead, exploiting Thatcher’s ‘right to buy’ for council tenants, their apartments are now privatised and sold at high prices to design-conscious elites (often professional architects).

Worse still, the only way London’s boroughs can now generate even tiny amounts of capital for ‘affordable’ housing – which still remains very expensive and out of reach of the genuinely poor – is through contributions from the developers of elite luxury towers in the form of ‘planning gain’.77 (Even this fig leaf now faces abolition from the Tory government.) London’s remaining estates of social and council housing – and the inherited legacies of modernist mass social housing such as the Heygate Estate in Southwark on the South Bank – meanwhile, are being ‘regenerated’ in ways that displace residents, re-engineer the areas as upper-middle-class or elite housing, and offer token units of affordable housing by way of camouflage. In such cases, the crumbling legacies of visions of mass social housing organised vertically with high levels of space, services and greenery are erased, to be directly replaced by new elite towers.


pages: 346 words: 90,371

Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane, John Muellbauer

agricultural Revolution, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, basic income, Bretton Woods, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, debt deflation, deindustrialization, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, garden city movement, George Akerlof, ghettoisation, Gini coefficient, Hernando de Soto, housing crisis, Hyman Minsky, income inequality, information asymmetry, knowledge worker, labour market flexibility, labour mobility, land reform, land tenure, land value tax, Landlord’s Game, low skilled workers, market bubble, market clearing, Martin Wolf, means of production, money market fund, mortgage debt, negative equity, Network effects, new economy, New Urbanism, Northern Rock, offshore financial centre, Pareto efficiency, place-making, price stability, profit maximization, quantitative easing, rent control, rent-seeking, Richard Florida, Right to Buy, rising living standards, risk tolerance, Second Machine Age, secular stagnation, shareholder value, the built environment, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, universal basic income, urban planning, urban sprawl, working poor, working-age population

In the years following the policy’s introduction there were proportionately fewer purchases of less popular types of housing such as high-rise flats, and as a result local authorities were generally left with homes of lower quality (Forrest and Murie, 1986). Moreover, as wealthier tenants were better placed to take up the Right to Buy, the social rented sector saw a greater concentration of the poorest and most disadvantaged households. While in 1979 20% of households in the top decile of the income distribution lived in social housing, by 2004‒–05 this had fallen to close to zero (Hills, 2007). This phenomenon has been described as the ‘residualisation’ of the social rented sector (Stephens et al., 2005). Right to Buy has also been criticised for representing poor value for money for taxpayers who funded the initial building of the council houses, subsidised the substantial discounts offered to tenants and then – once the homes were sold – missed out on the rental income that would otherwise have been received.

Inspired by the party’s strategy in the 1950s, the newly elected government sought to dramatically increase homeownership and achieve the long-held Conservative goal of transforming the country into a ‘property owning democracy’. The first step towards this came in October 1980 when the government passed its first Housing Act, launching its flagship ‘Right to Buy’ policy, compelling councils to sell social homes to their occupiers (see Box 4.5). Further reforms completed the transformation of the housing sector. Much remaining council housing was transferred to the housing association sector, largely driven by the political desire to keep official public sector borrowing down. The stage was set for the revival of the private rented sector by the Housing Act of 1988’s removal of rent regulation and introduction of the Assured Shorthold Tenancy.

Under this new, liberal settlement the problem of rent would not be tackled directly at all, but the ability to be on the winning side of the equation would be offered to a greater proportion of society than ever before. Box 4.5 The Right to Buy The Right to Buy allowed public housing tenants to purchase their homes at a heavily discounted price. During Margaret Thatcher’s time in office 1.5 million publicly owned houses were privatised in what she described as ‘one of the most important revolutions of the century’ (Linklater, 2013). This led to a significant rise in owner-occupancy throughout the 1980s and 1990s and a marked decline in the number of people living in the social rented sector. The Right to Buy was controversial from the start and the effects of the policy are still debated today. Some hail it as a great success which provided ownership and an asset with appreciating value to many who would otherwise have been prevented from gaining access to property (Stephens et al., 2005).


pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

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Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liberal capitalism, light touch regulation, Long Term Capital Management, Louis Pasteur, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, Plutocrats, plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, éminence grise

And when the two coincide the result is doubly deadly.31 The symbols are no longer court shoes, pocket watches and received pronunciation but much more subtle: reading broadsheet newspapers, eating fresh vegetables, knowing what is on in the theatre, and the post-code in which you live. The clustering of advantage and disadvantage is huge.32 There are neighbourhood effects: increasingly, the poor live in the same wards and housing estates so they are less dispersed throughout the whole community. Thatcher’s introduction of the right to buy council houses may have extended owner occupation, but it had the disastrous social consequence of dividing the working class into the employed mortgage-paying haves and the non-mortgage-paying have-nots. In 1979, 40 per cent of the adult population lived in the social rented sector; today, that figure is just 12 per cent. Most of the desirable housing has been sold off and the remainder increasingly comprises large, soulless housing estates with dense concentrations of people who live on benefit.

The owners and managers had indulged the unworthy inmates by giving them good bread and allowing them to go outside during the day. An equivalent complaint today would be that a local authority had sent poor children on a week’s holiday to Blackpool.21 The Mayhew/Daily Mail view of the poor still has its pitch-perfect followers today, but now they are arguably even more callous. For all his pigeon-holing of the poor, at least Mayhew was so concerned by the phenomenon that he documented their plight and daily lives with accuracy and enormous depth. Today the poor are simply written off as caricatures and mocked as a tribal underclass. The outburst of malicious jokes about chavs – council housed and vile – in the mid-2000s was a classic example. No attempt was made to understand the lifestyles and choices of this newly stigmatised subculture.

Even worse, the electorate tends to vote for councillors on national rather than local issues, not least because they have so little local power. Thus, after a long period of Conservative government, by 1997 there were very few Tory councillors because of anti-(national) Tory voting. Labour found itself in a mirror-image position by 2010. There has already been a shift of power to local authorities, but the trend should be accelerated.32 Local authorities should be able to raise between a third and a half of their revenue from local sales, property and income taxes, and they should be able to design their own spending plans. There should be genuine experimentation in a plethora of social, educational, health and policing policies. In other words, the role of local councillor should become more significant and their pay should rise, which would attract better candidates.


pages: 223 words: 10,010

The Cost of Inequality: Why Economic Equality Is Essential for Recovery by Stewart Lansley

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banking crisis, Basel III, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Branko Milanovic, Bretton Woods, British Empire, business process, call centre, capital controls, collective bargaining, corporate governance, corporate raider, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, Goldman Sachs: Vampire Squid, high net worth, hiring and firing, Hyman Minsky, income inequality, James Dyson, Jeff Bezos, job automation, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market bubble, Martin Wolf, mittelstand, mobile money, Mont Pelerin Society, Myron Scholes, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, Tyler Cowen: Great Stagnation, Washington Consensus, Winter of Discontent, working-age population

By the mid-1990s, what one commentator has described as an ‘almost unassailable mantra’ had become almost universal in British boardrooms.175 To encourage managers to take this direction, a new form of remuneration package was introduced, one in which executives were paid increasingly in stock options. This was, at least initially, seen by the American management gurus who promoted the idea as a way of linking executive pay to company success as measured by changes in the share price. Stock options—which operate by giving an executive the right to buy a given amount of stock at a certain price at a later date—provided a very strong incentive to top executives to maximise the share price as that was the mechanism by which they would be paid. By 2001, more than half of America’s top 200 chief executives had ‘mega-options’, which by now had grown to an average value of more than $50 million. In this way, executives were able to build personal fortunes on a scale previously enjoyed only by entrepreneurs.

Challenge, September, 2002. 256 Guardian, 19.11.03. 257 Time, 26 February, 2011. 258 H Williams, Britain’s Power Elites, Constable, 2006, p 164. 259 N Matthiason & Y Bessaoud, Growth in City Donations to the Conservative Party, Bureau for Investigative Journalism, February 2011. 260 CRESC, 2009, op. cit. p 23. 261 G Soros, ‘The Crisis and What to do About It’, New York Review of Books, 4 December, 2008. 7 LIVING ON BORROWED TIME One evening in late 2004, a couple who had been living in a small council house in Bradford for ten years got an unexpected knock on the door from a mortgage salesman. The broker, working on commission, was cold calling people on the estate to see if they could be persuaded to buy their council house. The couple, aged 53 and 58, were both unemployed and living on benefits. One suffered from chronic arthritis while the other had only one lung. Although they were hardly strong candidates to take out a mortgage, they were given the hard sell and signed the papers that evening. A few weeks later, they started payments on a 25-year £55,000 mortgage provided by a Manchester-based bank called London Scottish.

Although the couple were told the repayments would be no more than the rent, this was only true for the first twelve months. A year on reality set in. The repayments rose sharply, the couple fell into arrears and the lender tried to repossess their home. They were only saved from eviction with the help of their family and a new payment plan which still absorbed a very large chunk of the couple’s benefits. The same year, a 55-year old lady living in a council house in Cheshire was approached in a similar way by another ‘door-to-door’ mortgage broker working for Home and County Mortgages Ltd, a Cheshire-based company specializing in right-tobuy-sales. The lady was a part-time cook working for the local council, with both very modest earnings and a history of credit problems. Because her earnings were insufficient to get a normal mortgage, she was persuaded to take out a self-certificated loan, one where very limited, if any, checks are made on declared earnings.


pages: 369 words: 120,636

Commuter City: How the Railways Shaped London by David Wragg

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Beeching cuts, British Empire, financial independence, joint-stock company, joint-stock limited liability company, Louis Blériot, North Sea oil, railway mania, Right to Buy, South Sea Bubble, urban sprawl, V2 rocket, Winter of Discontent, yield management

Another unforeseen but inevitable result of this was that many operators failed to invest in modernisation of their trams or their infrastructure for fear that they would in effect be making a gift of their investment to the local authority. Many of the tram companies found the exacting demands of the legislation onerous and there were undoubtedly those who were glad to be relieved of the burden of tram ownership. Cheap fares did attract the volume of traffic, but costly tram networks needed to be kept busy all day. Unlike the railways, there was no goods traffic to augment revenues, and unlike the railways, their responsibilities did not end with the track and the vehicles. Not every tram company saw matters in this way. When the Provincial concern was forced off Portsea Island after Portsmouth Corporation exercised its right to buy, the company immediately crossed to the other side of the harbour and set up an operation running between Gosport and Fareham, happily in not one but two adjoining council areas which made municipal ownership more difficult.

Schoolboys used to take a delight in swinging their satchels through the air and against seats to send a cloud of soot and dust into the air of an already murky compartment. The allure of the suburbs Wartime had not only interrupted railway modernisation, and especially electrification, it had also stopped housing development, whether it was the private estates built by developers or the slum clearance public or council housing planned by local authorities. While the London County Council had built new estates at places such as Streatham, the supply of building land within its area was already scarce during the 1930s and so it had started to build ‘out-county’ estates, with those at Becontree, St Helier and Downham becoming three of the largest public housing estates in the world by the outbreak of war in 1939. Faced with large numbers of homeless families who had been bombed out of their homes, the need for new housing post-war was even more acute, and for a while slum clearance was put on hold while the dispossessed were housed.

Indeed, in some places, such as Carlisle, the city imposed its ancient right to charge a duty on everything entering its boundaries, and then again on everything leaving. Local authority rates were another matter, and the railways were rated very heavily for the amount of land that they occupied, as local authorities saw the railway as a cash cow to be milked. One of the best examples of this was at Huyton, near Liverpool, where in 1849 the London & North Western Railway provided 35 per cent of the rates paid to the parish council, despite occupying less than 1 per cent of the land. The system of rating for the railways had to evolve, and it took case law to decide on a fair basis, with the rental value of stations and other premises used as a basis for the rates, but for the actual length of line, the local authorities based their charges on the companies’ receipts, making it more of a local tax or duty than rates.


pages: 401 words: 112,784

Hard Times: The Divisive Toll of the Economic Slump by Tom Clark, Anthony Heath

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Affordable Care Act / Obamacare, British Empire, Carmen Reinhart, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, deindustrialization, Etonian, eurozone crisis, falling living standards, full employment, Gini coefficient, hiring and firing, income inequality, interest rate swap, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, low skilled workers, mortgage debt, new economy, Northern Rock, obamacare, oil shock, Plutocrats, plutocrats, price stability, quantitative easing, Right to Buy, Ronald Reagan, science of happiness, statistical model, The Wealth of Nations by Adam Smith, unconventional monetary instruments, War on Poverty, We are the 99%, women in the workforce, working poor

Already by the time of the census in 2011, home ownership was down 5 percentage points on the last nationwide count in 2001, the first such decline in a century.15 Looking ahead, the National Housing Federation projects that the 73% of the English population that lived in owner-occupied housing in 2001 will fall to just 64% in 2021, returning the statistic to where it stood in the first days of Margaret Thatcher's ‘right to buy’.16 When John Prescott, the seaman turned deputy prime minister, made headlines in the 1990s by revealing that (surprise, surprise!) with his MP's salary he no longer lived a working-class life, he was widely misquoted as having said ‘We're all middle class now’. In fact, he remained far too mindful of Britain's social divisions to have made such a claim; but the misattribution stuck because it seemed somehow to capture the spirit of the times and – so he told me – the message that parts of the Labour high command were trying to put across.17 The promise that the great bulk of society could be on its way up at the same time was always questionable (and indeed questioned); but half a generation ago it had sufficient credibility to be regarded as winning political rhetoric.

On the suicide note story, see Keir Mudie and Nigel Nelson, ‘Bedroom Tax victim commits suicide: Grandmother Stephanie Bottrill blames government in tragic note’, Daily Mirror, 12 May 2013, at: www.mirror.co.uk/news/uk-news/suicide-bedroom-tax-victim-stephanie–1883600#ixzz2efG7r8A0 On the UN representative's intervention, see Amelia Gentleman, ‘“Shocking” bedroom tax should be axed, says UN investigator’, Guardian, 11 September 2013, at: www.theguardian.com/society/2013/sep/11/bedroom-tax-should-be-axed-says-un-investigator 58. The exact number is 1.85 million. Department for Communities/Office for National Statistics, ‘Local authority housing statistics: 2011–12’, 2012, at: www.gov.uk/government/uploads/system/uploads/attac­hment_data/file/39457/Local_authority_hous­ing_statistics_2011_12_v4.pdf 59. Zedlewski et al., Families Coping Without Earnings, pp. viii, 8–13. Chapter 9: The veil of complacency 1. Jahoda et al., Marienthal, pp. 19, 43–4. 2. Orwell, The Road to Wigan Pier, p. 70. 3. John Rawls, A Theory of Justice, Harvard University Press, Cambridge, MA, 1971. 4. Franklin Roosevelt, Second Inaugural Address, 20 January 1937. 5.

He promptly submitted job-seeking log books and a letter to explain the oversight, but to no avail. ‘Winston’ is – proudly and remarkably – free of debt, though only, he says, because he was brought up to save for a buffer against rainy days. But ‘since I suffered the sanction’, he explains, ‘I had to use what little money I had saved’. His past thrift no longer offers any protection; he is facing hard times entirely exposed. With the council's housing office and the revenue's child tax credit office in similarly mean-spirited mood to the job centre, he tells Kafkaesque tales of letters going missing between bureaucracies and of the arrival of missives summoning him to appointments on dates that have already passed. He sums up the last six months as time spent ‘lost in the department of work and pensions’. As the retrenchment of private industry in the initial recession was slowly replaced by the public retrenchment of the Coalition's cuts between 2011 and 2013, our analysis of hundreds of thousands of YouGov market research interviews suggests that, while the financial mood of the nation stabilised, the public's feelings about family, friends and community continued to darken.55 And, in the case of people like ‘Winston’, the link between such pessimism and the stance of the public authorities is not hard to grasp.


pages: 322 words: 77,341

I.O.U.: Why Everyone Owes Everyone and No One Can Pay by John Lanchester

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asset-backed security, bank run, banking crisis, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black-Scholes formula, Celtic Tiger, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, diversified portfolio, double entry bookkeeping, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, George Akerlof, greed is good, hindsight bias, housing crisis, Hyman Minsky, intangible asset, interest rate swap, invisible hand, Jane Jacobs, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, laissez-faire capitalism, light touch regulation, liquidity trap, Long Term Capital Management, loss aversion, Martin Wolf, money market fund, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, new economy, Nick Leeson, Norman Mailer, Northern Rock, Own Your Own Home, Ponzi scheme, quantitative easing, reserve currency, Right to Buy, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, South Sea Bubble, statistical model, The Great Moderation, the payments system, too big to fail, tulip mania, value at risk

Just as experimental science had its roots in alchemy, so the study of probability had its roots in gambling: the first investigations into risk grew out of the curiosity of gamblers. Chance, and risk, began to be things which could be managed. An essential tool in doing so would be the category of financial instruments called derivatives. Derivatives themselves are a long-standing feature of financial markets. At their simplest, a farmer will agree to a price for his next harvest a few months in advance; and the right to buy this harvest is a derivative, which can itself be sold. The name comes from the fact that a derivative’s value derives from the underlying products. Today, the simplest forms of derivatives are options and futures. An option gives you the right, but not the obligation, to either buy or sell something at a specified future date for a specified price. Example: You spend $500 on an option to buy a Ferrari for $50,000 in a year’s time.

The United Kingdom and United States are two of those countries. This isn’t exclusively, or even primarily, a preoccupation of the political left. In Britain, it was Margaret Thatcher who spoke of a vision of a “property-owning democracy” and who, more energetically than any other modern politician, pursued policies designed to increase the level of home ownership, extending mortgage tax relief and introducing a new right for council-house tenants to buy their own homes. There was a strong political tinge to these ideas, involving the belief that home owners were—to put it bluntly—more likely to be both small c and big C conservative. In America, it was the unlikely figure of Herbert Hoover who began the drive to create government policies favoring home ownership.1 Hoover would later be a model of complacent conservatism at its sleepiest, which is why it’s all the odder that he saw home ownership as such a crusade.


pages: 471 words: 109,267

The Verdict: Did Labour Change Britain? by Polly Toynbee, David Walker

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banking crisis, Big bang: deregulation of the City of London, Bob Geldof, call centre, central bank independence, congestion charging, Corn Laws, Credit Default Swap, decarbonisation, deglobalization, deindustrialization, Etonian, failed state, first-past-the-post, Frank Gehry, gender pay gap, Gini coefficient, high net worth, hiring and firing, illegal immigration, income inequality, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, labour market flexibility, market bubble, mass immigration, millennium bug, moral panic, North Sea oil, Northern Rock, offshore financial centre, pension reform, Plutocrats, plutocrats, Ponzi scheme, profit maximization, purchasing power parity, Right to Buy, shareholder value, Skype, smart meter, stem cell, The Spirit Level, too big to fail, University of East Anglia, working-age population, Y2K

Nothing was done about the growing anomalies of the hated council tax, neither a full-blown property tax of the kind most other countries had, nor a local tax on income. If Whitehall provided 80 per cent of local funding, councils’ autonomy was necessarily going to be limited. Further inquiries only repeated the question. Labour gave councils freedom to spend funds from housing sales under the Right to Buy and to borrow ‘prudentially’. The Local Government Act 2000 ended personal surcharges for councillors, fining them for decisions taken in office, unlike anything that applied to MPs or ministers. Instead, councillors were to answer for their conduct to a new quango, the Standards Board for England. It promptly pursued a Cornish councillor for making disparaging remarks about a constituent’s home baking.

The judges, usually cautious, also used the HRA to fix a right to privacy in cases involving Naomi Campbell and Max Mosley. Government and public had black-and-white notions of security yet were uncertain when a right to protection against something became an entitlement to a service or benefit. The HRA and the judges were confused too. How could the statute give a Somali migrant a right to a council house? Could you have a claim on something that elected representatives had built, after complex decisions about tax, spending and need? The public, egged on by the media, were aghast: ‘rights’ offended embedded ideas of fairness. But the public were also dead keen on their own rights in context. Labour mishandled the politics, reacting petulantly to adverse judicial decisions under the HRA and blankly refusing to explain to an increasingly hostile public the teasing ambiguities at the heart of the enterprise.

Half the pupils were on free school meals, and they spoke between them sixty-five languages. They included both the children of diplomats from war-torn Somalia or Iran, who benefit from strong encouragement from parents, and the children of poor rural foreign families not literate even in their own language. Migration into the eastern part of Enfield was big and fast, yet far from unusual. It was a tiny miracle that the local authority coped so well and it is puzzling how little impact this social transformation had on borough politics. In theory Oakthorpe’s eleven-year-olds could choose the borough’s surviving state-maintained grammar school. Or rather, it might choose them, if they passed its tests. English secondary education remained partially selective and the survival of the grammars proved how confused the government was.


pages: 261 words: 86,905

How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester

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asset allocation, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamonds, Bretton Woods, BRICs, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, commoditize, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, financial innovation, Flash crash, forward guidance, Gini coefficient, global reserve currency, high net worth, High speed trading, hindsight bias, income inequality, inflation targeting, interest rate swap, Isaac Newton, Jaron Lanier, joint-stock company, joint-stock limited liability company, Kodak vs Instagram, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, negative equity, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Plutocrats, plutocrats, Ponzi scheme, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, Right to Buy, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, South Sea Bubble, sovereign wealth fund, Steve Jobs, survivorship bias, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trickle-down economics, Washington Consensus, wealth creators, working poor, yield curve

If you made the same choice, but the share you didn’t buy went up, that was a Chinese loss—you’d lost compared with what would have happened. That is a vivid practical way of thinking about opportunity costs. options A type of financial derivative that gives the holder the right, but not the obligation, to buy or sell something at a specific price on a specific date. Apple shares today are $420. Say you think that Apple’s share price is going up. You buy the right to buy Apple shares for $500 in six months’ time. If Apple shares have risen to $550, then when the time comes you buy them for $500 and sell them for $550 and have made an immediate profit; if the share price is less than $500, you don’t exercise your option and instead just walk away, and all you’ve lost is the cost of the option. The same process works in reverse: you can buy an option to sell the share when it’s falling.

The provision of employment and training for apprentices is an explicit part of this. There will need to be a sharp increase in levels of social housing. The role model here is Singapore, which as well as consistently being voted the most open economy in the world—a beacon to free marketers everywhere—has the highest level of state and social housing in the world. The world capital of the free market is also the world capital of council houses. Not all the lessons of Singapore are about free markets. More generally, there will need to be a focus on material well-being in the round, and broader measures of quality of life than the mere narrow focus on GDP. In Denmark, a judge earns more than a cleaner: two and a half times more.89 How does that work out for them? The Danes report the highest level of life satisfaction of anyone in the world.


pages: 475 words: 155,554

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

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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, 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, working-age population, zero-sum game

The ‘property-owning democracy’, as Mrs Thatcher defined it, is over. She inherited home ownership levels of 57 per cent, which rose to 65 per cent as the first of 2 million council homes were sold under her ‘Right To Buy’ policy. Home ownership reached 71 per cent, at which point Gordon Brown voiced the aspiration that it rise to 80 per cent. It is now back down to 65 per cent. It might be reasonable to suggest Right to Buy was a generational giveaway to Britons born in the 1950s and 1960s. It seems difficult to imagine how it could be repeated. If you strip out the ‘one-off’ of Right To Buy sales, the like-for-like percentage is now already below Mrs Thatcher’s 57 per cent. Lastly, if – as some bond traders believe – the 1.3 million Britons with an interest-only mortgage and an inadequate repayment vehicle are enduring ‘glorified renting’, then you can take the home ownership figure down to around 50 per cent, or where we were in 1971 – or roughly German levels.

Progressive voices keen to redistribute through benefits have said very little about the overarching negative redistribution caused by the trebling of house prices. All political parties claim to want to foster ‘social mobility’, yet it seems that where you live will be determined more now by where your parents lived. The recent history of property in Britain is wrapped up in notions of freedom and the social mobility of owner-occupation and right-to-buy. Yet right now, Britain faces a return to a more traditional relationship with the land, in which property is the principal agent for holding back opportunity-for-all. The property ladder was a one-off opportunity for a lucky generation-and-a-half. Now we are back to a kind of neo-feudalism, in which your quality of life depends on who your parents are, and what they owned. 6 Three Funerals, Two Banking Systems and a Wedding Dramatis personae Bob Diamond, Barclays, various (1996–2012), chief executive (2010–12) Cristiano Ronaldo, Portuguese footballer Alistair Darling, UK chancellor of the exchequer (2007–10) John Varley, Barclays chief executive (2004–11) Eric Daniels, Lloyds chief executive (2003–11) Peter Sands, Standard Chartered chief executive (2006–) Fred Goodwin, Royal Bank of Scotland chief executive (2001–08) Monty Slater, prospective RBS customer, Stockport James Crosby, HBoS chief executive (2001–06); non-executive, then deputy chairman of the FSA (2004–09) Andy Hornby, HBoS chief executive (2006–08) Christine Lagarde, French finance minister (2007–11) Beth Jacobson, former loan officer, Wells Fargo Sheila Dixon, mayor of Baltimore Brad Setser, economist, subsequently US Treasury Joe Cassano, AIG Financial Products, Mayfair, London Lord Turner, chairman of the FSA (2008–13) Lord Myners, Treasury minister Mervyn King, governor of the Bank of England (2003–13) Shriti Vadera, adviser to Gordon Brown, Business Department minister Hector Sants, FSA chief executive (2007–12) Marcus Agius, chairman of Barclays (2007–12) On 13 May 2007 Bob Diamond had only one aim: to give a wide berth to Cristiano Ronaldo.

Lastly, if – as some bond traders believe – the 1.3 million Britons with an interest-only mortgage and an inadequate repayment vehicle are enduring ‘glorified renting’, then you can take the home ownership figure down to around 50 per cent, or where we were in 1971 – or roughly German levels. In other words, the Thatcher ‘property-owning democracy’ was really only a property-owning generation given a one-off gift of their council houses. It undoubtedly felt very real to those who benefited, but it is not proving to be a genuinely transformational and enduring force. At the very least, very high house prices are undoing the political promise of the property-owning democracy. Arguably, though, the property-owning democracy is a myth. The underside of the boom in property prices is beginning to be seen not just in the broken, or perhaps missing, lower rungs of the housing ladder, but also in the state of the finances of those who took out mortgages at the top of the boom.


pages: 288 words: 16,556

Finance and the Good Society by Robert J. Shiller

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Alvin Roth, bank run, banking crisis, barriers to entry, Bernie Madoff, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, cognitive dissonance, collateralized debt obligation, collective bargaining, computer age, corporate governance, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Donald Trump, Edward Glaeser, eurozone crisis, experimental economics, financial innovation, financial thriller, fixed income, full employment, fundamental attribution error, George Akerlof, income inequality, information asymmetry, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, loss aversion, Louis Bachelier, Mahatma Gandhi, Mark Zuckerberg, market bubble, market design, means of production, microcredit, moral hazard, mortgage debt, Myron Scholes, Occupy movement, passive investing, Ponzi scheme, prediction markets, profit maximization, quantitative easing, random walk, regulatory arbitrage, Richard Thaler, Right to Buy, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, self-driving car, shareholder value, Sharpe ratio, short selling, Simon Kuznets, Skype, Steven Pinker, telemarketer, The Market for Lemons, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, Vanguard fund, young professional, zero-sum game, Zipcar

One example of a derivatives market is a forward market for a commodity, in which one can sign a contract to buy from another a commodity or a property for future delivery at a speci ed date at a speci ed price. Another example is a futures market for a commodity, which is the same as a forward market except that it occurs on an organized exchange with established standards for quality, margining, and so forth. There are also markets for options: with an option one can purchase the right to buy something, say a stock or a bond, at a speci ed future date for a speci ed future price. Yet another example is a swap market: in a swap, such as a foreign exchange swap, two parties agree to exchange nancial instruments (in this example two currencies) at a speci ed time in the future at a prespeci ed exchange rate. There is a derivative price in each of these markets: the price of the forward, future, option, or swap.

Instead we have a large home-owning population in the United States and other more developed countries. This did not happen by accident. The concept of a “property-owning democracy” was developed by Conservative British member of Parliament Noel Skelton in the 1920s and 1930s. His cause was taken up by Prime Minister Harold Macmillan in the 1950s, with a home building program, and Prime Minister Margaret Thatcher in the 1970s, with a program to sell council houses (public housing managed by local councils) to their renter inhabitants. In the United States major policies to promote homeownership came in the 1930s with President Franklin D. Roosevelt’s New Deal. The Federal Housing Administration was created in 1934 to provide for government insurance of new mortgages, and the Federal National Mortgage Association (later called Fannie Mae) was created in 1938 to buy mortgages from their originators to support the housing market.


pages: 272 words: 19,172

Hedge Fund Market Wizards by Jack D. Schwager

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asset-backed security, backtesting, banking crisis, barriers to entry, beat the dealer, Bernie Madoff, Black-Scholes formula, British Empire, Claude Shannon: information theory, cloud computing, collateralized debt obligation, commodity trading advisor, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, diversification, diversified portfolio, Edward Thorp, family office, financial independence, fixed income, Flash crash, hindsight bias, implied volatility, index fund, intangible asset, James Dyson, Long Term Capital Management, margin call, market bubble, market fundamentalism, merger arbitrage, money market fund, oil shock, pattern recognition, pets.com, Ponzi scheme, private sector deleveraging, quantitative easing, quantitative trading / quantitative finance, Right to Buy, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Rubik’s Cube, Sharpe ratio, short selling, statistical arbitrage, Steve Jobs, systematic trading, technology bubble, transaction costs, value at risk, yield curve

The purchase of a call option provides the buyer with the right—but not the obligation—to purchase the underlying item at a specified price, called the strike or exercise price, at any time up to and including the expiration date. A put option provides the buyer with the right—but not the obligation—to sell the underlying item at the strike price at any time prior to expiration. (Note, therefore, that buying a put is a bearish trade, while selling a put is a bullish trade.) The price of an option is called a premium. As an example of an option, an IBM April 130 call gives the purchaser the right to buy 100 shares of IBM at $130 per share at any time during the life of the option. The buyer of a call seeks to profit from an anticipated price rise by locking in a specified purchase price. The call buyer’s maximum possible loss will be equal to the dollar amount of the premium paid for the option. This maximum loss would occur on an option held until expiration if the strike price was above the prevailing market price.

His directness made this an unexpectedly compelling interview for me. Clark began our conversation by telling his story from the time he finished school at the age of 17. I did my A levels a year early, and left school at the age of 17. I knew nothing about university. No one in my family had been to university. You came from a working-class background? I was the third generation, all living in the same council house—government housing is what I guess you would call in the U.S.—on the outskirts of London. I didn’t know my father; he didn’t hang around. I lived with my mother, brother, and grandparents. My mother was always working, so I was sort of half-raised by my grandparents. One day, I got a call from Grant, a school friend who now works here—a call for which I am eternally grateful. He was considered one of the posh kids at school because his parents actually owned their own house.


pages: 368 words: 32,950

How the City Really Works: The Definitive Guide to Money and Investing in London's Square Mile by Alexander Davidson

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accounting loophole / creative accounting, algorithmic trading, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Big bang: deregulation of the City of London, capital asset pricing model, central bank independence, corporate governance, Credit Default Swap, dematerialisation, discounted cash flows, diversified portfolio, double entry bookkeeping, Edward Lloyd's coffeehouse, Elliott wave, Exxon Valdez, forensic accounting, global reserve currency, high net worth, index fund, inflation targeting, intangible asset, interest rate derivative, interest rate swap, John Meriwether, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Nick Leeson, North Sea oil, Northern Rock, pension reform, Piper Alpha, price stability, purchasing power parity, Real Time Gross Settlement, reserve currency, Right to Buy, shareholder value, short selling, The Wealth of Nations by Adam Smith, transaction costs, value at risk, yield curve, zero-coupon bond

The bank will have assumed all the risk by itself and so must have confidence in the deal. Issuers are often attracted to a bought deal because it gives instant liquidity. Rights issues If a UK company wants to raise more than 5 per cent of its existing market capitalisation, it must use a rights issue. The company will issue new shares to existing shareholders pro rata to their existing holdings. In a ‘1 for 5’ rights issue, shareholders will have the right to buy one further new share for every five they hold. The process takes perhaps six to eight weeks, twice the length of a conventional share offering. Through a rights issue, shareholders have an opportunity to acquire new shares without paying their stockbroker a commission. They do not have to buy and, if they are to do so, must be convinced that the company will use the cash properly. If the rights issue is to pay off debt, shareholders should assess the chances of success before they subscribe.

In this chapter, we focus on those that are relevant for retail investors, which are options, futures, warrants, contracts for difference and spread betting. Options Options may be over the counter (OTC) or exchange traded (see Chapter 8). If you are a retail investor, a traded option on exchange is accessible. It enables you to bet on the movement of individual shares, or of indices, currencies, commodities or interest rates, or may be used for hedging. Through an option, you have the right to buy or sell a security at a pre-determined price, the exercise price, within a specified period. The option is geared, which means that the underlying share or other asset is under control for the comparatively small upfront cost of the premium, which is the market price of the option. The premium is a small percentage of the option’s size. For every buyer of an option, there is a seller, also known as a writer.

The London Stock Exchange (LSE) introduced them in late 2002 in an early move to obtain a significant presence in derivatives after its failed attempt the previous year to buy the London International Financial Futures Exchange (LIFFE). So far, covered warrants in the FTSE 100 index have proved the most popular in a market that has been slow to take off. The covered warrant is a security and not a contract. As with options, traders in covered warrants pay a small premium, which is the amount they pay for the right to buy or sell the underlying asset, and the warrants are split into calls and puts. As time passes, the covered warrant becomes less valuable, which is reflected in a declining premium. Every covered warrant is normally traded before its maturity date and is covered because the issuer covers its position by simultaneously buying the underlying stock or financial instrument in the market. Covered warrants are expensive compared with some equivalent derivative products and cannot be shorted, but the spread (the difference between the buying and selling price) is often narrow, and the packaging is user-friendly.


pages: 349 words: 134,041

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das

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accounting loophole / creative accounting, Albert Einstein, Asian financial crisis, asset-backed security, beat the dealer, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business process, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, commoditize, complexity theory, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, disintermediation, diversification, diversified portfolio, Edward Thorp, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, financial innovation, fixed income, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, John Meriwether, locking in a profit, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, mega-rich, merger arbitrage, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mutually assured destruction, Myron Scholes, new economy, New Journalism, Nick Leeson, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, Right to Buy, risk-adjusted returns, risk/return, Satyajit Das, shareholder value, short selling, South Sea Bubble, statistical model, technology bubble, the medium is the message, the new new thing, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

Derivatives, with their leverage and off-balance sheet nature, were ideal. This spawned numerous jokes. The best known goes like this: ‘How many workers does it take for Toyota to make a motor car?’ ‘Four. One to design it, one to build it and two to trade the long bond.’5 The most famous form of zaiteku was the ‘Japanese warrants arbitrage’. Japanese companies issued bonds with attached equity warrants; the warrants gave the buyer the right to buy shares in the company, effectively a call option on the shares; the company received the premium for the option as a low interest rate on its borrowing. The Japanese companies competed with each other to get lower interest rates. Dealers competed with each other to give the Japanese companies lower interest rates. The coupon on the bonds reached zero and in some cases the cost of the debt was negative.

DAS_C07.QXP 8/7/06 200 4:45 PM Page 200 Tr a d e r s , G u n s & M o n e y Failing the model test My first real taste of model failure was spectacular. I had had a few blow-ups before but they had been manageable, I had kept my job. Then, I did a six month currency option for $1,000 million. It was for a very good client. The sales desk put lots of pressure on me: I foolishly obliged. It was an Australian dollar (A$) put/US dollar (US$) call with a strike price of A$1:$US0.7210. I was giving the client the right to buy US$1,000,000,000 from me. In return, they would give me A$1,386,962,552. They would only exercise the option if the A$ fell below US$0.7210, say to US$0.70. I traded in the currency markets to hedge the option. This meant that I sold A$/bought $US according to our pricing model. The idea is that you match the delta of the option with the delta of the currency trade. If the A$ was weaker and the option was likely to be exercised, then I sold more A$/buying more $US.

Financial engineering quickly replaced actual engineering in most businesses. Who’s fooling whom? Convertible bonds are a venerable product. A convertible bond gives the holder the right to exchange the bond for shares in the issuer; you give up your entitlement to future interest and return of capital in return for a fixed number of shares. It is a bond combined with an equity option. The equity option gives the holder the right to buy shares in the issuer. In return for giving the investor the share options, the issuer of the convertible bond gets lower interest rates. I have issued convertibles, structured convertibles and traded convertibles. Issuers are generally told that they were selling equity at a premium to the current market price. They get lower cost funding and debt with longer maturity than they would normally.


pages: 224 words: 69,494

Mobility: A New Urban Design and Transport Planning Philosophy for a Sustainable Future by John Whitelegg

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active transport: walking or cycling, Berlin Wall, British Empire, car-free, conceptual framework, congestion charging, corporate social responsibility, decarbonisation, energy transition, eurozone crisis, glass ceiling, Intergovernmental Panel on Climate Change (IPCC), megacity, meta analysis, meta-analysis, New Urbanism, peak oil, post-industrial society, price mechanism, Right to Buy, smart cities, telepresence, the built environment, The Death and Life of Great American Cities, The Spirit Level, transit-oriented development, urban planning, urban sprawl

Another example is limiting quota of new car registration in an attempt to curb unsustainable levels of automobile ownership (Song, 2013). This has since been further tightened by 37.5% to 150,000 per year in 2017. Up until the end of March 2014, Beijing, Shanghai, Guiyang, Guangzhou, Shijiazhuang, Tianjin and Guangzhou had already joined in similar efforts to restrain car ownership. Shanghai has adopted the Singapore-style Certificate of Entitlement for new car purchase, which means bidding at an auction for the right to buy a new car.” In addition to measures to restrict car use there are measures to improve urban public transport: “On the other hand, priority has now been transferred towards developing Urban Public Transport (UPT) at the national strategy level, especially Rapid Mass Transit (RMT) through the Twelfth Five-Year Plan. RMT, which includes Subway/Metro, Bus Rapid Transit (BRT) within cities, as well as inter-city High-Speed Rail (HSR), is now undergoing massive growth (Newman, Kenworthy and Glazebrook, 2013).

EEA (2013) has quantified the proportionate responsibility of transport emissions in the totality of air pollution: “The contribution of transport to air quality ..was responsible for 58% of all NOx emissions…and 27% of PM 2.5 emissions..and the contribution of urban and local traffic to PM10 concentration is 35%, while it is up to 64% in the case of NO2 concentrations.” Air quality policy and practice in the UK is a clear case of policy failure and decisions at all levels not to do anything to improve air quality (Whitelegg, 2013). Local authorities in the UK have a legal duty under the 1995 Environment Act to monitor air quality, declare Air Quality Management Areas (AQMAs) if air quality fails to meet the EU standard and put in place an Air Quality Action Plan (AQAP) to improve air quality. There are approximately 405 AQMAs in the UK and there is no documented case in the UK of the removal of the AQMA designation because the AQAP has improved air quality and solved the problem.

There are approximately 405 AQMAs in the UK and there is no documented case in the UK of the removal of the AQMA designation because the AQAP has improved air quality and solved the problem. There is a stark contrast between the accumulated knowledge on the severe effects of poor air quality on human health (39,450 deaths pa in the UK) and the gross inadequacy of the policy response. The Lancaster City Council Air Quality Strategy (Lancaster City Council 2013) does not contain a single action or intervention that the local authority will initiate or implement that is likely to produce an improvement in air quality. This is a serious public policy and public health failure. The statutory responsibility for improving air quality has been in place for 20 years and there is still no action plan that contains actions and this is in spite of the clear evidence in the strategy that air pollution deaths occupy the 3rd rank after smoking (1) and obesity (2).


pages: 740 words: 217,139

The Origins of Political Order: From Prehuman Times to the French Revolution by Francis Fukuyama

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Admiral Zheng, agricultural Revolution, Andrei Shleifer, Asian financial crisis, Ayatollah Khomeini, barriers to entry, Berlin Wall, blood diamonds, California gold rush, cognitive dissonance, colonial rule, conceptual framework, correlation does not imply causation, currency manipulation / currency intervention, demographic transition, Deng Xiaoping, double entry bookkeeping, endogenous growth, equal pay for equal work, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, Francisco Pizarro, Hernando de Soto, hiring and firing, invention of agriculture, invention of the printing press, Khyber Pass, labour market flexibility, land reform, land tenure, means of production, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, RAND corporation, rent-seeking, Right to Buy, Scramble for Africa, selective serotonin reuptake inhibitor (SSRI), spice trade, Stephen Hawking, Steven Pinker, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Washington Consensus, zero-sum game

First and foremost was the centralized source of authority that held an effective monopoly of military power over a defined piece of territory—what we call a state. Peace was kept not by a rough balance of power between groups of kin but by the state’s army and police, now a standing force that could also defend the community against neighboring tribes and states. Property came to be owned not by groups of kinfolk but by individuals, who increasingly won the right to buy and sell it at will. Their rights to that property were enforced not by kin but by courts and legal systems that had the power to settle disputes and compensate wrongs. In time, moreover, social rules were formalized as written laws rather than customs or informal traditions. These formal rules were used to organize the way that power was distributed in the system, regardless of the individuals who exercised power at any given time.

Serfs usually first graduated to the status of renters on the property of their lords, whose usufructuary rights might be limited to their lifetimes or sometimes transmissible to their children. Some rights to land were mainmortable—that is, they passed to their children only if their children lived with them; otherwise they reverted to the landowner. In the eighteenth century, the abolition of mainmort became one of the great causes of liberal reformers. In other cases, peasants graduated to the status of landowners with complete rights to buy, sell, and hand down their land as they saw fit. On the eve of the French Revolution, peasants owned 50 percent of the land in France, more than twice as much as the nobles.3 Tocqueville points out that lords by then had long since ceased to play any real role in governing their peasants, which is why their residual rights to collect a variety of fees or to force the peasants to use their mills or winepresses was so bitterly resented.4 Precisely the opposite happened in Eastern Europe.

Like the American Declaration of Independence, however, the Glorious Revolution did establish the principle of popular consent, leaving it up to succeeding generations to widen the circle of those considered the “people” in a political sense. The significance of the Glorious Revolution is not that it marked the onset of secure property rights in England, as some have argued.34 Strong property rights had been established centuries earlier. Individuals, including women, exercised the right to buy and sell property as far back as the thirteenth century (see chapter 14). The Common Law and the multiplicity of royal, county, and hundred courts allowed nonelite landowners to litigate property disputes outside of the jurisdiction of the local lord. A strong capitalist economy had already emerged by the late seventeenth century, as had a growing middle class who were participants in the struggle against Stuart absolutism.


pages: 2,045 words: 566,714

J.K. Lasser's Your Income Tax by J K Lasser Institute

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Affordable Care Act / Obamacare, airline deregulation, asset allocation, collective bargaining, distributed generation, employer provided health coverage, estate planning, Home mortgage interest deduction, intangible asset, medical malpractice, medical residency, money market fund, mortgage debt, mortgage tax deduction, passive income, Ponzi scheme, profit motive, rent control, Right to Buy, telemarketer, transaction costs, urban renewal, zero-coupon bond

The IRS disallowed the deduction and the Tax Court agreed, holding that a donor receives a benefit by merely having the right to attend the event. To claim a deduction for the price of the tickets the couple should have returned them to the charity. Donation for the right to buy athletic stadium tickets. If you contribute to a public or nonprofit college or university and receive the right to buy preferential seating at the school’s athletic complexes, you may deduct 80% of the contribution to the school. The 80% deduction also applies where your contribution gives you the right to buy seating in stadium skyboxes, suites, or special viewing areas. The cost of any tickets you buy is not deductible. The deduction is allowed only to the extent that you receive the right to buy tickets rather than the tickets themselves. For example, if in exchange for a substantial donation you receive a season ticket worth $200, your payment is reduced by $200 before applying the 80% deductible percentage.

However, “token” items and certain membership benefits, as described in 14.3, do not have to be described or valued. There is also an exception if the contribution is to a religious organization and the only benefits received are “intangible” religious benefits, such as admission to religious ceremonies; these do not have to be described or valued, but the statement must indicate that they are the sole benefits provided. - - - - - - - - - - Filing Tip Right To Buy Athletic Stadium Tickets The IRS considers 20% of the amount paid for the right to buy college or university athletic seating to be the fair market value of the right. You may deduct 80% (14.3). When your payment is $312.50 or more, you are considered to have made a contribution of at least $250 ($250 = 80% of $312.50), requiring a written acknowledgment from the charity. - - - - - - - - - - Deadline for 2012 donation acknowledgments.

You received the X stock when it had a market value of $25; you report $25, the value of the property received. The $25 value is also your basis for the stock. Corporate benefit may be treated as constructive dividend. On an audit, the IRS may charge that a benefit given to a shareholder-employee should be taxed as a constructive dividend. For example, the Tax Court agreed with the IRS that a corporation’s payment for a license that gave the sole shareholder the right to buy season tickets to Houston Texans football games was a constructive dividend. 4.8 Taxable Stock Dividends The most frequent type of stock dividend is not taxable: the receipt by a common stockholder of a corporation’s own common stock as a dividend (4.6). Taxable stock dividends. The following stock dividends are taxable: Stock dividends paid to holders of preferred stock. However, no taxable income is realized where the conversion ratio of convertible preferred stock is increased only to take account of a stock dividend or split involving the stock into which the convertible stock is convertible.

The Handbook of Personal Wealth Management by Reuvid, Jonathan.

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asset allocation, banking crisis, BRICs, collapse of Lehman Brothers, correlation coefficient, credit crunch, cross-subsidies, diversification, diversified portfolio, estate planning, financial deregulation, fixed income, high net worth, income per capita, index fund, interest rate swap, laissez-faire capitalism, land tenure, market bubble, merger arbitrage, negative equity, new economy, Northern Rock, pattern recognition, Ponzi scheme, prediction markets, Right to Buy, risk tolerance, risk-adjusted returns, risk/return, short selling, side project, sovereign wealth fund, statistical arbitrage, systematic trading, transaction costs, yield curve

Approximately 75–80 per cent of the amount invested will be invested in Payoff profile Megabank 170% FTSE 100 note at maturity Amount payable per share 400 350 300 250 200 150 100 50 0 -100% -75% -50% -25% 0% 25% 50% 75% Percentage change in the FTSE 100 index Super Tracker Figure 1.4.1 Index Payoff profile Megabank 170% FTSE 100 note 100% 125% 150% ឣ 38 PORTFOLIO INVESTMENT _________________________________________________ Call options provide growth related to the underlying index 100 1% Charges 19% Call options 80% Fixed-interest bond Plus growth Plus interest Fixed-interest bond provides 100% return providing the issuer has not defaulted Launch Figure 1.4.2 Maturity Elements of Megabank capital-protected FTSE 100 note the fixed-interest bond, and its credit worthiness is vital to the security of the product. The second element is the derivative strategy, in this case a simple five-year call option on the FTSE 100 index. This gives the owner the right to buy the FTSE 100 index in five years’ time at today’s (strike) price. In our example the amount allocated for options can buy 1.70 call options – that gives the 170 per cent participation rate. If the index is lower than the strike price at maturity, then the call options expire worthless. The final element is costs. In constructing the Megabank capital-protected FTSE 100 note, the issuer (Megabank) has to balance the need to make the participation rate (170 per cent) as high as possible, which will help sales of the note, against how much it is taking in charges.

If you are not a legally married couple or in a civil partnership but nevertheless wish to ‘re-use’ the Nil Rate Band twice then only way to do so is using a Nil Rate Band discretionary trust. There are also specific circumstances when there is a positive advantage in continuing to use the Nil Rate Band discretionary trust where otherwise you might well Rely on the transferable Nil Rate band. These may include but are not limited to: ɀ The desire to avoid assets being available to the local authority in the event of the survivor going into care. By leaving assets to a trust on the first death those assets cannot be taken into account by the local authority for these purposes. Also, where a house is involved divided ownership between a trust and a surviving spouse will reduce the value of that asset for inheritance tax purposes. ɀ The spouse or civil partner may be in a second marriage/civil partnership and may wish to benefit children from an earlier relationship on the first death.


pages: 387 words: 120,155

Inside the Nudge Unit: How Small Changes Can Make a Big Difference by David Halpern

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Affordable Care Act / Obamacare, availability heuristic, carbon footprint, Cass Sunstein, centre right, choice architecture, cognitive dissonance, collaborative consumption, correlation does not imply causation, Daniel Kahneman / Amos Tversky, endowment effect, happiness index / gross national happiness, hindsight bias, illegal immigration, job satisfaction, Kickstarter, libertarian paternalism, light touch regulation, market design, meta analysis, meta-analysis, Milgram experiment, nudge unit, peer-to-peer lending, pension reform, presumed consent, QR code, quantitative easing, randomized controlled trial, Richard Feynman, Richard Thaler, Right to Buy, Ronald Reagan, Rory Sutherland, Simon Kuznets, skunkworks, the built environment, theory of mind, traffic fines, World Values Survey

(In 2014, with the help of Oliver Letwin, we did finally get a prompt on to the envelopes at least – it led to an immediate and sharp increase in visits to the energy regulator’s website about how consumers could switch to better deals.) We lost similar battles with the energy department over the structure of their Green Deal finance scheme; with the Department for Communities over changes to right to buy in social housing (though this finally fell into place in early 2015); with the Department of Health over simplifications around organ donation; and the HMRC and welfare departments over reducing fraud and error in benefits. Sometimes battles are lost because Ministers take a political judgement that they do not want to pursue an idea. This may be because they don’t think it fits with their own political or ethical beliefs, or because they are uneasy about how the public or media might react.

The Early Intervention Foundation (EIF), created in around 2012, is working through the cost-effectiveness of early interventions to address a range of social problems. At the same time as they are collating the evidence, they are working with a range of local authorities across the UK to systematically try out new and old approaches, and seeking to plug the gaps in what we still don’t know. Though still young, the EIF reviews have already caused a stir. For example, their systematic review of domestic violence interventions offended some when it showed that one of the most popular interventions, focusing on gender relations, did not work. Similarly, an early finding of their work that many local authorities were using interventions in populations and in ways that were known to be ineffective risked causing offence, but also has helped to encourage shifts in spending to more effective interventions.

The ONS measurement programme From April 2011, the UK’s Office for National Statistics started asking more than 100,000 Britons a year the following questions on its integrated household panel survey: How satisfied are you with your life nowadays? How happy did you feel yesterday? How anxious did you feel yesterday? To what extent do you feel the things you do in your life are worthwhile? Responses are coded on a scale of 0–10. The samples are constructed to produce representative samples within each local authority area each year, and nationally representative samples on a quarterly basis. The final conclusion was that four questions – or experimental measures – were included in the national survey (see box), while a wider range of more detailed questions was included in smaller sample supplementary surveys. To minimise bias from previous questions – for example, people tend to report lower well-being if they have previously been asked a series of questions about politics – the well-being questions were put early on in the survey, just after the factual questions about age and other demographics.


pages: 304 words: 22,886

Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler, Cass R. Sunstein

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Al Roth, Albert Einstein, asset allocation, availability heuristic, call centre, Cass Sunstein, choice architecture, continuous integration, Daniel Kahneman / Amos Tversky, desegregation, diversification, diversified portfolio, endowment effect, equity premium, feminist movement, fixed income, framing effect, full employment, George Akerlof, index fund, invisible hand, late fees, libertarian paternalism, loss aversion, Mahatma Gandhi, Mason jar, medical malpractice, medical residency, mental accounting, meta analysis, meta-analysis, Milgram experiment, money market fund, pension reform, presumed consent, profit maximization, rent-seeking, Richard Thaler, Right to Buy, risk tolerance, Robert Shiller, Robert Shiller, Saturday Night Live, school choice, school vouchers, transaction costs, Vanguard fund, Zipcar

For those who are especially skeptical of malpractice lawsuits, we have an even more ambitious proposal: patients should be presumed to be permitted to sue only for intentional or reckless wrongdoing—and not for mere negligence. (Negligence is normally defined as the failure to meet what is called the “ordinary standard of care,” a vague concept that tends to make lawyers fight and judges scratch their heads. Intentional or reckless wrongdoing is a harder standard for plaintiffs to meet.) Under this approach, patients would be offered a right to “buy” a stronger liability right, but it would cost them a bit. This approach would undoubtedly mean that waivers would be common. The offer to “buy” should be accompanied by relevant information, so that people know what they are effectively losing if they fail to accept that offer. The general point is that if fully informed, some people would purchase a kind of insurance, in the form of a right to sue, but many others would prefer to take their chances.

By April 16 no fewer than three thousand windshields in the Seattle area were reported to have been “pitted,” and Seattle’s mayor promptly wrote the governor and President Eisenhower: “What appeared to be a localized outbreak of vandalism in damaged auto windshields and windows in the northern part of Washington State has now spread throughout the Puget Sound area. . . . Urge appropriate federal (and state) agencies be instructed to cooperate with local authorities on emergency basis.” In response, the governor created a committee of scientists to investigate this ominous and startling phenomenon. 63 64 HUMANS AND ECONS Their conclusion? The damage, such as it was, was probably “the result of normal driving conditions in which small objects strike the windshields of cars.” A later investigation, supporting the scientists’ conclusion, found that brand new cars lacked pits.

When walking through an American airport any time since 2002, one is bound to hear the following announcement: “The Department of Homeland Security has raised the National Threat Advisory to Orange.” Aside from putting our toiletries into a one-quart zip-lock bag, exactly what actions are we expected to take as a result of this warning? A look at the Homeland Security Web site provides the answer. We are told: “All Americans should continue to be vigilant, take notice of their surroundings, and report suspicious items or activities to local authorities immediately.” Weren’t we supposed to be doing this at level Yellow? It is a safe bet that these announcements are useless. (Much more useful would be a supply of one-quart zip-lock bags for absentminded travelers; and many airports do in fact provide these.) • Feedback can be improved in many activities. Consider the simple task of painting a ceiling. This task is more difficult than it might seem because ceilings are nearly always painted white, and it can be hard to see exactly where you have painted.


pages: 364 words: 103,162

The English by Jeremy Paxman

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back-to-the-land, British Empire, colonial rule, Corn Laws, Etonian, game design, George Santayana, global village, Isaac Newton, James Hargreaves, Khartoum Gordon, mass immigration, Neil Kinnock, Own Your Own Home, Ralph Waldo Emerson, Right to Buy, sensible shoes, urban sprawl, women in the workforce

The Abbey National Bank, originally a building society, began life as two organizations, one of which, the Abbey Road, had the declared ambition of enabling young men to buy their homes, in order that they could vote, while the National Building Society additionally hoped to convince them there were better things to spend money on than drink. It was a mark of Margaret Thatcher’s deep understanding of some of the instincts of the English (neither the Scots nor the Welsh ever took to her in quite the same way) that she recognized the power of the urge to own property, forcing municipal authorities to give their tenants the right to buy. The consequences of this obsession can be seen in every town in the land. Drive through an English suburb – any suburb – and the thing that strikes you is the fact that almost everyone has given their house a name. Why? There’s a perfectly adequate numbering system, which would make sure the mail got to the right address a lot more easily than any randomly ordered list of Shady Leas, Mon Repos or Dunroamins.

Within fifty years of the docking of the Empire Windrush at Tilbury, disembarking 492 Jamaican immigrants, the racial complexion of the country had changed utterly. Mass immigration to Britain had been concentrated on England and most cities of any size contained areas where white people had become a rarity. In those places, talking about immigrants as ‘ethnic minorities’ was beginning to sound decidedly perverse. By 1998, it was white children who had become a minority at local-authority secondary schools in inner London and even in the suburbs they made up only 60 per cent of the secondary-school population. Over a third of inner London’s children did not even have English as their first language.3 If the English people had changed, so too had the towns in which most of them lived. In his wartime celebration of Englishness, The Lion and the Unicorn, George Orwell managed to escape the dreamy right-wing pastiche about England being all hedgerows and gardens.


pages: 868 words: 147,152

How Asia Works by Joe Studwell

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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

Only the usurers are happy: the independent farmers are mired in poverty while the sugar yield on the land farmed by the Benedictos is a paltry 52 tonnes per hectare, more than 50 per cent less than post-land reform sugar farmers in Taiwan and China (after 1978) achieved. As elsewhere in the Philippines, the beneficiaries of land reform have even greater need of credit, marketing and agricultural extension support than those in north-east Asia did. They are almost always farm labourers, used to being told what to do, rather than the more autonomous tenants who were given the right to buy land in Japan, Korea and Taiwan, or occupy it rent-free in China. Yet where credit and technical support was present in every village in north-east Asia, the Filipinos get almost nothing. Ninety-seven per cent of land reform beneficiaries in Negros told a provincial survey they have received zero support.77 It is hardly surprising that an emblematic image one sees in Negros is the ‘reform’ family that immediately leased its land back to the landowner and now sits around a karaoke TV set bought with the proceeds of the rental advance.

The basic reality of life in the countryside is that land belongs to the collectives, not to individuals, and this has consequences. The most important consequence is that, unlike in Japan, Korea and Taiwan, farmers cannot sell their plots to private buyers. Collective-owned land is unsaleable in law. It can only be converted into government-owned land, in which case compensation is paid to farmers up to a statutory maximum equivalent to thirty years’ rental. Local authorities, however, can sell land converted to state ownership for development. This typically occurs at a big mark-up. Thirty years’ rent may sound like a lot, but China’s historically low yields per person (as opposed to per hectare) have also meant low rents; land redeployed for development or for commercial farming, by contrast, is massively more valuable. In Japan, Korea and Taiwan, many farmers became rich after the Second World War through the re-zoning of farmland – like Nishiyama Kōichi, who went from peasant to millionaire by virtue of selling some of his land to a developer.

A trend to dispossessing farmers has been escalating for a decade, mainly because central government has never reconciled the supply of local government funding with the responsibilities it places on local governments to provide welfare services. In recent years, Beijing has curtailed local governments’ capacity to tax farmers but has not replaced the lost income with central government grants. Instead, local authorities have had to borrow money through off-balance sheet companies they set up.14 When payments on such debts cannot be met from the profits of the businesses they run themselves, they turn to sale of farmland. The media has focused on the conversion and sale of household farms for real estate and factories. But another fast-rising phenomenon is the leasing of former family farms for commercial agribusiness.


pages: 1,042 words: 266,547

Security Analysis by Benjamin Graham, David Dodd

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activist fund / activist shareholder / activist investor, asset-backed security, backtesting, barriers to entry, capital asset pricing model, carried interest, collateralized debt obligation, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, fear of failure, financial innovation, fixed income, full employment, index fund, intangible asset, invisible hand, Joseph Schumpeter, locking in a profit, Long Term Capital Management, low cost carrier, moral hazard, mortgage debt, Myron Scholes, p-value, Right to Buy, risk-adjusted returns, risk/return, secular stagnation, shareholder value, The Chicago School, the market place, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, zero-coupon bond

It should be borne in mind that the effect of these provisions is to preserve only the principal or par value of the privileged issue against dilution. If a convertible is selling considerably above par, the premium will still be subject to impairment through additional stock issues or a special dividend. A simple illustration will make this clear. A bond is convertible into stock, par for par. The usual antidilution clauses are present. Both bond and stock are selling at 200. Stockholders are given the right to buy new stock, share for share, at par ($100). These rights will be worth $50 per share, and the new stock (or the old stock “ex-rights”) will be worth 150. No change will be made in the conversion basis, because the new stock is not issued below the old conversion price. However, the effect of offering these rights must be to compel immediate conversion of the bonds, since otherwise they would lose 25% of their value.

In other words, in this field the usual presumption of superior knowledge and judgment on the part of the management should not obtain, and any criticism offered in good faith deserves careful consideration by the stockholders. Abuse of Managerial Compensation. Numerous cases have come to light in which the actions of the management in the matter of its own compensation have been open to serious question. Most of these relate to the years before 1933. In the case of Bethlehem Steel Corporation, cash bonuses clearly excessive in amount were paid. In the case of American Tobacco Company, rights to buy stock below the market price, of an enormous aggregate value, were allotted to the officers. These privileges to buy stock are readily subject to abuse. In the case of Electric Bond and Share Company, the management permitted itself to buy many shares of stock at far below market price. When later the price of the stock collapsed to a figure less than the subscription price, the obligation to pay for the shares was cancelled, and the sums already paid were returned to the officers.

Its answer will depend upon the extent to which the corporation’s success is due to their unique or surpassing ability, and this must be very difficult to determine with assurance. But it may not be denied that devious and questionable means were frequently employed to secure these large bonuses to the management without full disclosure of their extent to the stockholders. Stock-option warrants (or long-term subscription rights) to buy shares at low prices, proved an excellent instrument for this purpose—as we have already pointed out in our discussion of stockholder-management relationships. In this field complete and continued publicity is not only theoretically desirable but of practical utility as well. The legislation of 1933–1934 marks an undeniable forward step in this regard, since the major facts of managerial compensation must now be disclosed in registration statements and in annual supplements thereto (Form 10-K).


pages: 613 words: 200,826

Unreal Estate: Money, Ambition, and the Lust for Land in Los Angeles by Michael Gross

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Albert Einstein, Ayatollah Khomeini, bank run, Bernie Madoff, California gold rush, clean water, corporate raider, Donald Trump, estate planning, family office, financial independence, Irwin Jacobs, Maui Hawaii, McMansion, mortgage debt, Norman Mailer, offshore financial centre, oil rush, passive investing, pension reform, Ponzi scheme, Right to Buy, Robert Bork, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Steve Wozniak, The Predators' Ball, transcontinental railway, yellow journalism

By the late sixties, the money to pay for Cornfeld’s fun was mostly coming from Germany, where he’d started out selling Dreyfus funds to U.S. servicemen; however, he ended up selling so many IOS fund shares to German nationals that by 1969, 60 percent of its business, about $100 million a month, half of it in cash, was being generated there, according to Cantor. The IOS system had been designed to turn its salesmen into zealots and it reached its apotheosis in Germany. As they rose in the IOS hierarchy based on the revenue from their share sales, thousands of salesmen (known as investment counselors) earned not only their own commissions but a piece of the commissions of those beneath them in the structure, and finally, the right to buy shares in the parent company; this was considered the pot of gold at the end of the IOS rainbow, and it made many of its sales managers millionaires, on paper at least. Not that there wasn’t still real cash to burn, and Cornfeld did, entering the investment banking business in the late sixties by both underwriting offerings and making large investments via its funds in everything from the hot conglomerate stocks of what became known as the Go-Go era on Wall Street to real estate, oil exploration, and hotels.

Hilton had promised each of them the listing that the family decided to give it to none of them. We didn’t want any hard feelings. Anyway, we feel the house will sell itself.” The house and, as his son Barron put it, “essentially all of his wealth, principally in the form of Hilton Hotels stock,” then worth about $164 million, had been left to the Conrad N. Hilton Foundation, founded to assist Roman Catholic nuns. Barron would fight for years for the right to buy that stock at its 1979 price, finally prevailing in 1988, when its value had risen to almost $700 million. In an out-of-court settlement, Barron got 4 million shares outright and another 6 million in a charitable trust (that reverts to the foundation on his death), and the foundation got the remaining 3.5 million shares; the battle solidified Barron’s control of Hilton Hotels. Like his father, Barron committed to giving most of his fortune to the Hilton Foundation.

One source of his animus was likely what happened when he hired former Los Angeles chief of police Tom Reddin as the boss of American Protection’s 1,100 security guards, who watched over facilities stretching from downtown L.A. to the airport, where they screened passengers and guarded incoming flights. A year later, Reddin resigned after an argument with Resnick. Six months after that, in a sting operation likely initiated by the embittered former top cop, three of Resnick’s former employees at LAX were arrested on charges they’d sold two pounds of pure heroin to undercover officers, and a federal organized crime task force and state and local authorities were reportedly looking into American Protection’s role in what appeared to be a case of massive fraud against an airline, possibly involving New York Mafia figures. Resnick denied any involvement and said that rogue employees had been dismissed months before. Two weeks later, American Protection sued Reddin for stealing customers and trade secrets. Reddin called the suit baseless, explaining that he never solicited customers, though he had taken on some “who could no longer condone [their] business practices.”

The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

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air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business process, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, labour market flexibility, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, new economy, North Sea oil, oil shock, open economy, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, Right to Buy, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, the payments system, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K, zero-sum game

The first was the rapid retreat of U.S. forces in the face of masses of Chinese military crossing the Yalu River into North Korea in the winter of 1950; the second, our humiliation in abandoning South Vietnam in 1975. We may have lost the battles, but not the war. Both Communist China and Communist Vietnam have been struggling to loosen their central-planning straitjackets for the economic freedom of capitalism, while trying not to say out loud what they are doing. In 2006, America's Merrill Lynch, following Citigroup a year earlier, obtained the right to buy, sell, and market Vietnamese shares on Ho Chi Minh City's fledgling stock exchange. When Bill Gates, the world's richest capitalist, visited Hanoi, he was greeted by Vietnam's top Communist Party leaders and mobbed in admiration. Will miracles never cease? Ideas do matter. Indeed America's capitalistic ideas appeared mightier than our sword. P erhaps more than any of the other major countries addressed in this book, India symbolizes most powerfully both the productiveness of market capitalism and the stagnation of socialism.

The role of judges and the Russian courts, which were notoriously corrupt, has been redefined to reduce opportunities for bribery and the political manipulation of verdicts. For instance, laws promulgated in 2001 removed many economically meaningless requirements for businesses to obtain licenses, inspections, and product certifications—red tape that had been an open-ended invitation for official corruption. (Low-wage bureaucratic jobs were thus in great demand.) Property rights have been extended in recent years, though struggles over rights to buy and sell farmland reflect much the same Communist ideological hangover that exists in China. Except to challenge the power of the Kremlin, the Russian people are free—to travel, to congregate, and to engage in all the trappings of democratic societies. The Russian economy is today best described as a market economy backed by a still-imperfect rule of law. A significant segment of the nation's most valued assets is in the hands of the state or of Kremlin allies.

Rights to land in the countryside, where 737 million Chinese reside, is another matter. Granting property rights to farmland is too unambiguous a break with Communist traditions to be countenanced easily. Farmers can lease land and sell products in open markets, but they have no legal rights to the land they till, and so cannot buy or sell it or use it as collateral for loans. In recent decades, as urbanization has encroached on rural China, local authorities have seized enormous expanses, granting as compensation only a small fraction of what the land would be worth as part of an urban enclave. Such seizures have been one of the main contributors to recent rising levels of protests and unrest. A top Chinese police official reported that the number of public protests nationwide rose to seventy-four thousand in 2004 from ten thousand a decade earlier.


pages: 376 words: 121,254

Cocaine Nation: How the White Trade Took Over the World by Thomas Feiling

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anti-communist, barriers to entry, crack epidemic, deindustrialization, illegal immigration, informal economy, inventory management, land reform, Lao Tzu, mandatory minimum, moral panic, offshore financial centre, RAND corporation, Right to Buy, Ronald Reagan, trade route, upwardly mobile, yellow journalism

Goods and goodies have become indispensable to our personal happiness as well as that of the wider economy. As pleasure and profitability become paramount, and the global drug economy continues to thrive, the distinction between a chocolate cake, a fine single malt and a line of cocaine has become blurred. Many consumers would argue that if they have the money to pay for all three, they have the right to buy all three. Drug sub-cultures still exist. They are a way of life and an important part of the self-identity of some young people. Asking some teenagers to give up smoking cigarettes is tantamount to asking them to give up their credibility in the only peer support system they have. Drug use was so important to a specific sub-culture of the 1960s that it was regarded by friends and foes alike as an ideological statement.

In France they’ve gone up three-fold over the same period, and in Germany they’ve gone up fourfold. In all three countries, more than half of those arrests were for possession of cannabis. Europe is clearly caught between the prohibitionist model and the harm reduction model, and is failing to resolve the contradictions implicit in both.10 The pressure to break this stalemate is coming from cities with large drug-using populations, where the local authorities are straining at the leash to reform their drugs policies. In 2001, Portugal introduced a pioneering law which decriminalized the possession of all illicit substances for personal use.11 Law 30/2000 did not legalize drug use or possession, but it did put an end to the use of penal sanctions. Some users face fines, others are recommended for treatment through Commissions for the Dissuasion of Drug Addiction.

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

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Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, labour market flexibility, late capitalism, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Death and Life of Great American Cities, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

The second (popularized by Oliver Williamson) supposes that rational choices are made from within a subset of all possibilities that are themselves rationally chosen, i.e., balancing the costs of obtaining information against the benefits. Thus one interpretation effectively abandons conventional assumptions of rationality; the other transforms it into metarationality. { 362} call option comparative advantage competitive advantage competitive equilibrium competitive market convexity derivative division of labor economic rent Glossary The right to buy a security at a fixed price (even if its market price has risen in the meantime). Thus you share the upside, but not the downside, of its movements. In return for this, you pay a premium. A country (or less commonly an individual) has a comparative advantage in the activities that it is relatively best at. See page 84. Distinguish from competitive (absolute) advantage. A firm has a competitive (absolute) advantage in activities that it performs better than other firms.

In New York, Robert Moses, an unelected official, gathered autocratic power in an environment of ostensible democracy. Would it not be better if wise men came together, in a single institution, to assemble the evidence, consider it dispassionately, and set the direction for the industry? That is what central planning in a democratic society is intended to achieve. In 1947, the British electricity industry was nationalized. Most Culture and Prosperity {Ill} of the business was already owned by local authorities. The importance of the change was that it brought the generation and distribution of electricity under central government control. In the decades immediately after the World War II, there were great expectations for the peaceful exploitation of nuclear energy. Britain had developed a limited nuclear technology for military purposes and had experimented with adaptations designed to produce commercial supplies of electricity.


pages: 725 words: 221,514

Debt: The First 5,000 Years by David Graeber

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Admiral Zheng, anti-communist, back-to-the-land, banks create money, Bretton Woods, British Empire, carried interest, cashless society, central bank independence, colonial rule, commoditize, corporate governance, David Graeber, delayed gratification, dematerialisation, double entry bookkeeping, financial innovation, fixed income, full employment, George Gilder, informal economy, invention of writing, invisible hand, Isaac Newton, joint-stock company, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, oil shock, Paul Samuelson, payday loans, place-making, Ponzi scheme, price stability, profit motive, reserve currency, Right to Buy, Ronald Reagan, seigniorage, sexual politics, short selling, Silicon Valley, South Sea Bubble, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transatlantic slave trade, transatlantic slave trade, tulip mania, upwardly mobile, urban decay, working poor, zero-sum game

Economically, the apparatus is pure dead weight; all the guns, surveillance cameras, and propaganda engines are extraordinarily expensive and really produce nothing, and no doubt it’s yet another element dragging the entire capitalist system down—along with producing the illusion of an endless capitalist future that laid the groundwork for the endless bubbles to begin with. Finance capital became the buying and selling of chunks of that future, and economic freedom, for most of us, was reduced to the right to buy a small piece of one’s own permanent subordination. In other words, there seems to have been a profound contradiction between the political imperative of establishing capitalism as the only possible way to manage anything, and capitalism’s own unacknowledged need to limit its future horizons lest speculation, predictably, go haywire. Once it did, and the whole machine imploded, we were left in the strange situation of not being able to even imagine any other way that things might be arranged.

We don’t know the mechanisms that brought this world about, but the role of debt was surely significant. The creation of thousands of Hindu temples alone must have involved hundreds of thousands, even millions, of interest-bearing loans—since, while Brahmins were themselves forbidden to lend money at interest, temples were not. We can already see, in the earliest of the new law-codes, the Laws of Manu, the way that local authorities were struggling to reconcile old customs like debt peonage and chattel slavery with the desire to establish an overarching hierarchical system in which everyone knew their place. The Laws of Manu carefully classify slaves into seven types depending on how they were reduced to slavery (war, debt, self-sale …) and explain the conditions under which each might be emancipated—but then go on to say that Sudras can never really be emancipated, since, after all, they were created to serve the other castes.14 Similarly, where earlier codes had established a 15-percent annual rate of interest, with exceptions for commercial loans,15 the new codes organized interest by caste: stating that one could charge a maximum of 2 percent a month for a Brahmin, 3 percent for a Ksatriya (warrior), 4 percent for a Vaisya (merchant), and 5 percent for a Sudra—which is the difference between 24 percent annually on the one extreme and a hefty 60 percent on the other.16 The laws also identify five different ways interest can be paid, of which the most significant for our concerns is “bodily interest”: physical labor in the creditor’s house or fields, to be rendered until such time as the principal is cleared.


pages: 741 words: 179,454

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

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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, 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, 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, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, labour market flexibility, 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, 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 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

In a typical accumulator contract, the investor commits to purchase, or accumulate, a fixed number of shares per day at a pre-agreed price (the accumulator price) for a fixed period, typically 3–12 months. The accumulator price is set typically 10–20 percent below the market price of the shares at the time you enter the contract. If the market price of the shares rises above a prespecified level (the knock-out price), the investor’s right to buy the shares knocks out, limiting upside gains. The knock-out price typically is set 5 percent above the market price of the shares at the time you enter the contract. If the market price remains below the knock-out price, the investor continues to accumulate the shares. If the market price falls below the accumulator price (typically a decline of more than 10–20 percent from the commencement of the contract), the investor must keep purchasing the shares, meaning unlimited downside risk.

Officials did not grasp that interest costs would be higher if rates fell. Italian law only allows councils to restructure funding arrangements if it leaves them in a better position than before. The banks claimed that Milan was a financially sophisticated party and understood the transactions. In 2009, around 600 Italian town councils disclosed losses from derivative transactions entered into in the belief that they were hedges. Around 700 German local authorities were also found to have similar problems. In Austria the state-owned railway made a loss of €420 million on derivatives, suing a bank alleging that risks had not been disclosed. It is unclear whether Jefferson County, Harvard, and Milan had been fooled by bankers or were foolish in entering into transactions without understanding the risks. Michael Lewis’ warning that munis were a financial backwater was wrong.


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The Power Makers by Maury Klein

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Albert Einstein, Albert Michelson, Augustin-Louis Cauchy, British Empire, business climate, invention of radio, invention of the telegraph, Isaac Newton, James Watt: steam engine, Louis Pasteur, luminiferous ether, margin call, Menlo Park, price stability, railway mania, Right to Buy, the scientific method, trade route, transcontinental railway, working poor

In 1885, however, Coffin dispensed with Goff and began putting together his own sales staff with district offices in major cities. He also poured money into advertising in electrical journals to promote the virtues of the Thomson-Houston system. Like Edison, Coffin accepted the securities of fledgling central station companies as part payment for the equipment they bought; unlike Edison, he refused stock and took only bonds. These bonds he put into a series of trusts and offered Thomson-Houston stockholders the right to buy stock in the trusts. When these trusts were finally dissolved, they returned two dollars for every dollar invested.23 By 1886 all Thomson-Houston equipment was being sold by its own salesmen under the company’s own name. Coffin used the funds from the sale of trust stocks to enlarge the Lynn factory and to buy smaller rival firms, some of which he first intimidated by suing them for infringing Thomson’s patented regulator.

He promptly galvanized the organization into a forceful advocate of the Allied effort with a brilliant if relentless propaganda campaign, a successful fund-raising effort, and a ruthlessly efficient drive to stamp out war profiteering in the state. Although he won widespread praise for his wartime work, Insull was obliged to neglect his companies during those years. By 1919 he found some of them struggling because of strains imposed by the war.26 During the war a political movement gained momentum in Illinois to strip the newly created State Public Utility Commission of its regulatory powers and return them to local authorities in the guise of “home rule.” As wartime costs spiraled, utilities found themselves squeezed and pleaded for rate increases that were long delayed or not granted. By January 1919 no fewer than seventy-one transportation companies had gone into receivership, with many others not far behind. The political imbroglio over rates and service affected Insull’s companies in different ways. Commonwealth Edison, PSCNI, and Middle West Utilities got through the troubles unscathed, but the elevated railway companies floundered badly, and Peoples Gas stood at the brink of collapse.