Satyajit Das

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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

Under a range of leading imprints, including Financial Times Prentice Hall, we create world-class print publications and electronic products bringing our readers knowledge, skills and understanding which can be applied whether studying or at work. To find out more about Pearson Education publications, or tell us about the books you’d like to find, you can visit www.pearsoned.co.uk DAS_A01.QXD 5/3/07 8:01 PM Page vi Traders, Guns & Money Knowns and unknowns in the dazzling world of derivatives Satyajit Das DAS_A01.QXD 5/3/07 8:01 PM Page vii PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE Tel: +44 (0)1279 623623 Fax: +44 (0)1279 431059 Website: www.pearsoned.co.uk First published in Great Britain in 2006 © Satyajit Das 2006 The right of Satyajit Das to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN: 978-0-273-70474-4 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalogue record for this book is available from the Library of Congress All rights reserved.

Satyajit Das is an international expert in the dazzling world of financial derivatives and has 25 years’ experience in the financial markets. He has had a foot on both sides of the derivatives equation, having worked for banks (the “sell side”) such as the Commonwealth Bank of Australia, Citicorp Investment Bank and Merrill Lynch and, as Treasurer of the TNT Group, for clients (the “buy side”). He now acts as a consultant advising banks and corporations and presenting seminars throughout the world on the slippery subject of derivatives. “Make room for another must-read on the shelves of any City or Wall Street trader, salesman, or victim. Traders, Guns & Money is filled with dirty little secrets, some old and some new. Anyone who has worked on a trading floor will nod and laugh. Those who have not will shake their heads and cry.

Das is the author of a number of highly regarded standard reference books on derivatives including Swaps/Financial Derivatives (2004, Wiley), Structured Products & Hybrid Securities (2001, Wiley) and Credit Derivatives, CDOs and Structured Credit Products (2005, Wiley). Outside the wild world of derivatives, Das is passionate about real wildlife and is co-author (with Jade Novakovic) of In Search of the Pangolin: The Accidental Eco-Tourist (2006, New Holland), a unique travel narrative focused on eco-tourism. SATYAJIT DAS No money is ever really made in financial markets. Markets merely transfer wealth. As to how to make money? Well, it is basically theft, misrepresentation, lies, cheating, deception or force. It is impossible to make the staggering amounts made in derivatives in good years honestly. “IN MOST BUSINESSES, THE NATURE OF THE PRODUCT IS A KNOWN KNOWN. WE DO NOT SPEND A LOT OF TIME DEBATING THE USE OF OR OUR NEED FOR A PAIR OF SHOES.


pages: 327 words: 90,542

The Age of Stagnation by Satyajit Das

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9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Albert Einstein, Alfred Russel Wallace, Anton Chekhov, Asian financial crisis, banking crisis, Berlin Wall, bitcoin, Bretton Woods, BRICs, British Empire, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, disintermediation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, happiness index / gross national happiness, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, labour mobility, light touch regulation, liquidity trap, Long Term Capital Management, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, Mikhail Gorbachev, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, passive income, peak oil, peer-to-peer lending, pension reform, Plutocrats, plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Ronald Reagan, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, TaskRabbit, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

Originally published as A Banquet of Consequences by Penguin Random House Australia in August 2015 Published 2016 by Prometheus Books The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril. Copyright © 2015 by Satyajit Das. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, digital, electronic, mechanical, photocopying, recording, or otherwise, or conveyed via the Internet or a website without prior written permission of the publisher, except in the case of brief quotations embodied in critical articles and reviews. Trademarked names appear throughout this book. Prometheus Books recognizes all registered trademarks, trademarks, and service marks mentioned in the text.

Conti-Zilsberger Inquiries should be addressed to Prometheus Books 59 John Glenn Drive Amherst, New York 14228 VOICE: 716–691–0133 FAX: 716–691–0137 WWW.PROMETHEUSBOOKS.COM 20 19 18 17 16 5 4 3 2 1 The Library of Congress has cataloged the printed edition as follows: Names: Das, Satyajit, author. Title: The age of stagnation : why perpetual growth is unattainable and the global economy is in peril / Satyajit Das. Description: Amherst, NY : Prometheus Books, 2016. | Includes bibliographical references and index. Identifiers: LCCN 2015037561| ISBN 9781633881587 (hardback) | ISBN 9781633881594 (ebook) Subjects: LCSH: Economic development. | Economic policy. | Stagnation (Economics) | BISAC: BUSINESS & ECONOMICS / International / Economics. | POLITICAL SCIENCE / Public Policy / Economic Policy. | BUSINESS & ECONOMICS / Economic Conditions.

Christopher Wood, The Bubble Economy: Japan's Extraordinary Speculative Boom of the ’80s and the Dramatic Bust of the ’90s, Solstice Publishing, 2006. The Global Financial Crisis John Authers, The Fearful Rise of Markets: A Short View of Global Bubbles and Synchronised Meltdowns, FT Prentice Hall, 2010. William D. Cohan, House of Cards: How Wall Street's Gamblers Broke Capitalism, Allen Lane, 2009. Satyajit Das, Traders, Guns, and Money: Knowns and Unknowns in the Dazzling World of Financial Derivatives, FT Prentice Hall, 2006. ——, Extreme Money: The Masters of the Universe and the Cult of Risk, Penguin Books Australia, 2014. Andrew Gamble, The Spectre at the Feast: Capitalist Crisis and the Politics of Recession, Palgrave MacMillan, 2009. Simon Johnson and James Kwak, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, Pantheon Books, 2010.


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

—Convergence “...an amusing, down-to-earth look behind the scenes of the derivatives market ...There were several times I laughed out loud....” —www.runningofthebools.typepad.com Extreme Money Masters of the Universe and the Cult of Risk Satyajit Das Vice President, Publisher: Tim Moore Associate Publisher and Director of Marketing: Amy Neidlinger Executive Editor: Jim Boyd Editorial Assistant: Pamela Boland Development Editor: Russ Hall Senior Marketing Manager: Julie Phifer Assistant Marketing Manager: Megan Graue Cover Designer: Chuti Prasertsith Managing Editor: Kristy Hart Project Editor: Jovana San Nicolas-Shirley Proofreader: San Dee Phillips Indexer: Larry Sweazy Senior Compositor: Gloria Schurick Manufacturing Buyer: Dan Uhrig © 2011 by Satyajit Das This book is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services or advice by publishing this book.

—Philip Augar, Author of Reckless: The Rise and Fall of the City Praise for Traders, Guns & Money “...a distinctly timely book...tries to reach out to the mathematically challenged to explain how the world of derivatives “really” works...explaining not only the high-minded theory behind the business and its various products but the sometimes sordid reality of the industry, illustrated by lively anecdotes...very up to date, covering some of the new areas of finance, such as credit derivatives...also gives an excellent sense of the all-important cultural aspect of the business, detailing the complexities of trading-floor politics, the dangerously skewed incentive systems, the obsession with money and the cultural chasm that separates derivative traders from many of their clients—and from many other parts of the bank.” —Gillian Tett, Financial Times, London “...an acerbic expose...Funny, readable and peppered with one-liners from Groucho Marx, “Traders, Guns & Money” offers an ideal primer for anyone tempted to take a walk on the derivative side.” —James Pressley, Bloomberg “Long before the 2008-09 credit crisis and collapse, one of the strongest warnings about the dangers of derivatives came from Satyajit Das.... it reads more like a crime novel than a financial book.” —Barry Ritholtz “...a scalpel of a book that pulls back the skin on the derivatives and risk management industry to expose the blood, guts and circulatory system underneath.” —Nina Mehta, Financial Engineering News “Traders, Guns & Money is one the most entertaining investment books I’ve read in a long time...this is possibly the best insider account of a career in investments since Michael Lewis’s book Liar’s Poker.”

Printed in the United States of America First Printing August 2011 ISBN-10: 0-13-279007-6 ISBN-13: 978-0-13-279007-9 Pearson Education LTD. Pearson Education Australia PTY, Limited. Pearson Education Singapore, Pte. Ltd. Pearson Education North Asia, Ltd. Pearson Education Canada, Ltd. Pearson Educatión de Mexico, S.A. de C.V. Pearson Education—Japan Pearson Education Malaysia, Pte. Ltd. Library of Congress Cataloging-in-Publication Data Das, Satyajit. Extreme money : masters of the universe and the cult of risk / Satyajit Das. p. cm. ISBN 978-0-13-279007-9 (hbk. : alk. paper) 1. Money. 2. Finance. I. Title. HG221.D257 2012 332—dc22 For Jade Novakovic without whom there is nothing “It is hard to change Gods.” Fyodor Dostoevsky, The Possessed Contents Prologue: Hubris Part I: Faith Chapter 1 Mirror of the Times Some Kinda Money Trading Places The Invention of Money Barbarous Relic The Real Thing The Hotel New Hampshire Collapse Money Machines Debt Clock Money Is Nothing The Mirrored Room Chapter 2 Money Changes Everything Mrs.


pages: 430 words: 109,064

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

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

There were interest rate swaps that changed their terms based on currency exchange rates. Each of these trades was a customized combination of bonds, swaps, and options that was virtually impossible for a typical client to accurately value; the dealer would charge a large fee, break the transaction into its component parts, and hedge them individually at a much lower cost. Derivatives expert Satyajit Das has outlined the abusive economics of these transactions. Describing the mechanics of a typical inverse floater, he wrote, “Chairman Greenspan might wax lyrical about the unbundling of risks but we spent most of our waking hours frantically rebundling the risks and stuffing them down the throats of any investor we could find.”74 Because these derivatives were zero-sum trades—one party’s loss was the other’s profit—one side could be badly burned.

On Brooksley Born, see Rick Schmitt, “Prophet and Loss,” Stanford Magazine, March–April 2009, available at http://www.stanfordalumni.org/news/magazine/2009/marapr/features/ born.html; Manuel Roig-Franzia, “Credit Crisis Cassandra: Brooksley Born’s Unheeded Warning Is a Rueful Echo 10 Years On,” The Washington Post, May 26, 2009, available at http://www.washingtonpost.com/wp-dyn/content/article/2009/05/25/AR2009052502108.html; and “The Warning,” Frontline (PBS television broadcast October 20, 2009), available at http://www.pbs.org/wgbh/pages/frontline/warning/. 10. Frank Partnoy, F.I.A.S.C.O.: Blood in the Water on Wall Street (New York: W. W. Norton, 2009), 59. For another account of the derivatives industry, see Satyajit Das, Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives (Harlow, England: Prentice Hall, 2006). 11. Bank for International Settlements, Semi-Annual OTC Derivatives Statistics, available at http://www.bis.org/statistics/derstats.htm. 12. Quoted in Frank Partnoy, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets (New York: Henry Holt, 2004), 163. 13.

Monica Langley, Tearing Down the Walls: How Sandy Weill Fought His Way to the Top of the Financial World … and Then Nearly Lost It All (New York: Wall Street Journal Books, 2004), 270. Losses on mergers and acquisitions arbitrage also contributed to the decision to downsize the proprietary trading operation. 72. Nassim Taleb, Foreword to Pablo Triana, Lecturing Birds on Flying: Can Mathematical Theories Destroy the Financial Markets? (Hoboken, NJ: Wiley, 2009), xiii. 73. Semiannual OTC Derivatives Statistics, supra note 15, at Table 19. 74. Satyajit Das, Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives (Harlow, England: Prentice Hall, 2006), 47. For an explanation of a leveraged inverse floater, see ibid. at 45–50. 75. On the transactions that created these losses, see Frank Partnoy, F.I.A.S.C.O.: Blood in the Water on Wall Street (New York: W. W. Norton, 2009), 90–93, 155–69; and Das, Traders, Guns and Money, supra note 74, at 101–4. 76.


pages: 311 words: 99,699

Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe by Gillian Tett

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accounting loophole / creative accounting, asset-backed security, bank run, banking crisis, Black-Scholes formula, break the buck, Bretton Woods, business climate, collateralized debt obligation, commoditize, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, easy for humans, difficult for computers, financial innovation, fixed income, housing crisis, interest rate derivative, interest rate swap, locking in a profit, Long Term Capital Management, McMansion, money market fund, mortgage debt, North Sea oil, Northern Rock, Renaissance Technologies, risk tolerance, Robert Shiller, Robert Shiller, Satyajit Das, short selling, sovereign wealth fund, statistical model, The Great Moderation, too big to fail, value at risk, yield curve

Particular thanks are due to Richard Beales, Chris Brown-Humes, Jamie Chisholm, Joanna Chung, Paul J. Davies, Aline Van Duyn, Francesco Guerrera, Jennifer Hughes, Sam Jones, Michael Mackenzie, David Oakley, Anousha Sakoui, Saskia Scholtes, Henny Sender, Gary Silverman, and Peter Thal-Larsen. Janet Tavakoli, Satyajit Das, and Arturo Cifuentes were some of the few mavericks who were willing to speak openly to FT about the looming credit dangers at an early stage. In various stages of writing, Adam Ridley, Charles Morris, Keith Hart, Henry Fajemirokun, and Satyajit Das read various drafts and offered extremely helpful comments. Henny Sender also offered very kind logistical support. Pascal Spreen, Shannon Gitlin, and Madhavi Pulapaka conducted research. Merryn Somerset Webb has been a wonderful source of support over the years. Sophia Arnold and Martha Mehta provided intellectual inspiration and welcome laughter.


pages: 416 words: 106,582

This Will Make You Smarter: 150 New Scientific Concepts to Improve Your Thinking by John Brockman

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23andMe, Albert Einstein, Alfred Russel Wallace, banking crisis, Barry Marshall: ulcers, Benoit Mandelbrot, Berlin Wall, biofilm, Black Swan, butterfly effect, Cass Sunstein, cloud computing, congestion charging, correlation does not imply causation, Daniel Kahneman / Amos Tversky, dark matter, data acquisition, David Brooks, delayed gratification, Emanuel Derman, epigenetics, Exxon Valdez, Flash crash, Flynn Effect, hive mind, impulse control, information retrieval, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, Jaron Lanier, John von Neumann, Kevin Kelly, lifelogging, mandelbrot fractal, market design, Mars Rover, Marshall McLuhan, microbiome, Murray Gell-Mann, Nicholas Carr, open economy, Pierre-Simon Laplace, place-making, placebo effect, pre–internet, QWERTY keyboard, random walk, randomized controlled trial, rent control, Richard Feynman, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, Satyajit Das, Schrödinger's Cat, security theater, selection bias, Silicon Valley, stem cell, Steve Jobs, Steven Pinker, Stewart Brand, the scientific method, Thorstein Veblen, Turing complete, Turing machine, Vilfredo Pareto, Walter Mischel, Whole Earth Catalog, zero-sum game

Anthony Aguirre The Paradox Nature appears to contradict itself with the utmost rarity, and so a paradox can be an opportunity for us to lay bare our cherished assumptions. Eric Topol Hunting for Root Cause: The Human “Black Box” Each of us is gradually being morphed into an event-data recorder by virtue of our digital identity and presence on the Web. David Rowan Personal Data Mining We need to [mine] our own output to extract patterns that turn our raw personal data stream into predictive, actionable information. Satyajit Das Parallelism in Art and Commerce [Damien] Hirst was the artist of choice for conspicuously consuming hedge-fund managers, who were getting very rich. Laurence C. Smith Innovation In the world of science, innovation stretches the mind to find an explanation when the universe wants to hold on to its secrets just a little longer. Kevin Hand The Gibbs Landscape The systems we have designed and built are inefficient and incomplete in the utilization of energy to do the work of civilization’s ecosystems.

Indeed, as the work of Daniel Kahneman, Daniel Gilbert, and Christakis and Fowler demonstrate so powerfully, accurate individual-level data tracking is key to understanding how human happiness can be quantified, how our social networks affect our behavior, how diseases spread through groups. The data is already out there. We just need to encourage people to tap it, share it, and corral it into knowledge. Parallelism in Art and Commerce Satyajit Das Expert, financial derivatives and risk; author, Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives and Extreme Money Confluence of factors is highly influential in setting off changes in complex systems. A common example is in risk—the “Swiss cheese” theory. Losses occur only if all controls fail and the holes in the Swiss cheese align. Confluence—the coincidence of events in a single setting—is well understood.


pages: 831 words: 98,409

SUPERHUBS: How the Financial Elite and Their Networks Rule Our World by Sandra Navidi

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activist fund / activist shareholder / activist investor, assortative mating, bank run, barriers to entry, Bernie Sanders, Black Swan, Bretton Woods, butterfly effect, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, commoditize, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, diversification, East Village, Elon Musk, eurozone crisis, family office, financial repression, Gini coefficient, glass ceiling, Goldman Sachs: Vampire Squid, Google bus, Gordon Gekko, haute cuisine, high net worth, hindsight bias, income inequality, index fund, intangible asset, Jaron Lanier, John Meriwether, Kenneth Arrow, Kenneth Rogoff, knowledge economy, London Whale, Long Term Capital Management, Mark Zuckerberg, mass immigration, McMansion, mittelstand, money market fund, Myron Scholes, NetJets, Network effects, offshore financial centre, old-boy network, Parag Khanna, Paul Samuelson, peer-to-peer, performance metric, Peter Thiel, Plutocrats, plutocrats, Ponzi scheme, quantitative easing, Renaissance Technologies, rent-seeking, reserve currency, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, rolodex, Satyajit Das, shareholder value, Silicon Valley, sovereign wealth fund, Stephen Hawking, Steve Jobs, The Future of Employment, The Predators' Ball, too big to fail, women in the workforce, young professional

According to a McKinsey study, “global debt has grown by $57 trillion . . . outpacing world GDP growth” and “no major economy has decreased its debt-to-GDP ratio since 2007.”3 In the decades preceding the crisis, an increasingly greater share of GDP had been based on financial services, which in turn had been based on credit growth. However, financialization only contributes to growth up to a certain point before this trend reverses.4 As finance takes up an increasingly larger share of GDP, investment in the real economy falls.5 The author and former banker Satyajit Das notes that “[at] its peak, the finance industry generated 40 percent of corporate profits.”6 As a result finance decoupled from the economy, and while Wall Street got richer, everyone else got poorer, thereby increasing the wealth gap. Financialization has also contributed significantly to corporate ownership and control, which has expanded and strengthened elite networks even further. What does the financial services industry actually do?

Cecchetti and Enisse Kharroubi, “Reassessing the Impact of Finance on Growth,” Bank for International Settlements, Working Papers No. 381, July 2012, http://www.bis.org/publ/work381.htm. 5. Ôzgûr Orhangazi, “Financialization and Capital Accumulation in the Non-Financial Corporate Sector,” Political Economy Research Institute, University of Massachusetts Amherst, Working Paper Series Number 149, October 2007, http://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1120&context=peri_workingpapers. 6. Satyajit Das, The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril (New York: Prometheus Books, 2016) 598, Kindle edition. 7. “The American Middle Class Is Losing Ground,” Pew Research Center, December 9, 2015, http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground. 8. Lawrence Mishel, Elise Gould, and Josh Bivens, “Wage Stagnation in Nine Charts,” Economic Policy Institute, January 6, 2015, http://www.epi.org/publication/charting-wage-stagnation. 9.


pages: 464 words: 121,983

Disaster Capitalism: Making a Killing Out of Catastrophe by Antony Loewenstein

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activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, American Legislative Exchange Council, anti-communist, Asian financial crisis, British Empire, Capital in the Twenty-First Century by Thomas Piketty, Chelsea Manning, clean water, collective bargaining, colonial rule, corporate social responsibility, Corrections Corporation of America, Edward Snowden, facts on the ground, failed state, falling living standards, Ferguson, Missouri, financial independence, full employment, G4S, Goldman Sachs: Vampire Squid, housing crisis, illegal immigration, immigration reform, income inequality, Julian Assange, mandatory minimum, market fundamentalism, mass incarceration, Naomi Klein, neoliberal agenda, obamacare, Occupy movement, offshore financial centre, open borders, private military company, profit motive, Ralph Nader, Ronald Reagan, Satyajit Das, Scramble for Africa, Slavoj Žižek, stem cell, the medium is the message, trade liberalization, WikiLeaks

There were countless times during my travels when I felt helpless, overwhelmed by the stories recounted to me. I often questioned the usefulness of journalism itself, keenly aware of the limitations of the medium to bring significant changes where they were needed. In particular, I was struck by how often people felt like slaves to an economic system over which they had no control. Financial consultant Satyajit Das writes that “the rule of extreme money is that everybody borrows, everybody saves, everybody is supposed to get wealthier. But only skilled insiders get richer, running and rigging the game.”8 This book uncovers these covert players, exposes their tactics, recognizes the financial, social, and political groups that have created this mess, and makes the case for change. But bringing this change requires first an acknowledgement of what we are fighting, and who we are.

“Capitalism in Crisis: Richard Wolff Urges End to Austerity, New Jobs Program, Democratising Work,” Democracy Now!, March 25, 2013. 6“The Guardian View on Taming Corporate Power,” Guardian, December 13, 2014. 7Universities across the United States have begun far more aggressively to investigate the reality of capitalism in their courses and to assess the damage it can cause. Jennifer Schuessler, “In History Departments, It’s Up With Capitalism,” New York Times, April 6, 2013. 8Satyajit Das, Extreme Money: Masters of the Universe and the Cult of Risk (Upper Saddle River, NJ: FT Press, 2011), p. 21. 9Matt Taibbi, The Divide: American Injustice in the Age of the Wealth Gap (New York: Spiegel & Grau, 2014), p. xx. 10Ibid., p. 12. 11Aditya Chakrabortty, “Outsourced and Unaccountable: This Is the Future of Local Government,” Guardian, December 16, 2014. 12Noam Chomsky, “The Responsibility of Intellectuals, Redux,” Boston Review, September/October 2011. 13Claire Provost and Matt Kennard, “Hamburg at Forefront of Global Drive to Reverse Privatisation of City Services,” Guardian, November 12, 2014. 14Rebecca Solnit, A Paradise Built in Hell: The Extraordinary Communities that Arise in Disaster (London: Penguin, 2010), p. 9.


pages: 320 words: 87,853

The Black Box Society: The Secret Algorithms That Control Money and Information by Frank Pasquale

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Affordable Care Act / Obamacare, algorithmic trading, Amazon Mechanical Turk, American Legislative Exchange Council, asset-backed security, Atul Gawande, bank run, barriers to entry, basic income, Berlin Wall, Bernie Madoff, Black Swan, bonus culture, Brian Krebs, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chelsea Manning, Chuck Templeton: OpenTable, cloud computing, collateralized debt obligation, computerized markets, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, Debian, don't be evil, drone strike, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, Filter Bubble, financial innovation, financial thriller, fixed income, Flash crash, full employment, Goldman Sachs: Vampire Squid, Google Earth, Hernando de Soto, High speed trading, hiring and firing, housing crisis, informal economy, information asymmetry, information retrieval, interest rate swap, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, Julian Assange, Kevin Kelly, knowledge worker, Kodak vs Instagram, kremlinology, late fees, London Interbank Offered Rate, London Whale, Marc Andreessen, Mark Zuckerberg, mobile money, moral hazard, new economy, Nicholas Carr, offshore financial centre, PageRank, pattern recognition, Philip Mirowski, precariat, profit maximization, profit motive, quantitative easing, race to the bottom, recommendation engine, regulatory arbitrage, risk-adjusted returns, Satyajit Das, search engine result page, shareholder value, Silicon Valley, Snapchat, Spread Networks laid a new fibre optics cable between New York and Chicago, statistical arbitrage, statistical model, Steven Levy, the scientific method, too big to fail, transaction costs, two-sided market, universal basic income, Upton Sinclair, value at risk, WikiLeaks, zero-sum game

Hidden confl icts of interest have long haunted Wall Street fi rms, so it would be foolish to argue that secret algorithms somehow hijacked or corrupted American fi nance.163 But it would also be a mistake to pass over questions concerning technology in finance, because modeling methods and automation have vastly expanded the sector’s capacity to bluff those who are supposed to manage risk and detect deception. As former trader Satyajit Das memorably puts it, “No trader making $1 million + a year is going  to take questions from an auditor making $50,000 a year”— especially when the trader has myriad models to prove the wisdom of his position.164 Admittedly, my illustrations are not comprehensive. Some might say that they are unrepresentative, skewed toward go-go years of reckless speculation. Note, however, political scientist Daniel Carpenter’s contention that “there is value in studying a singular process not because it stands in for so many others, but because it influences so many others.”165 Given how wealthy the boom years made so many in finance, and how unscathed the bust has left them, few aspiring traders and bankers would think of them as a cautionary FINANCE’S ALGORITHMS 137 tale.

See also Meredith SchrammStrosser, “The ‘Not So’ Fair Credit Reporting Act: Federal Preemption, Injunctive Relief, and the Need to Return Remedies for Common Law Defamation to the States,” Duquesne Business Law Journal 14 (2012): 169. 163. For historical accounts of corrupt or confl icted practices, see Galbraith, The Great Crash of 1929; Fred Schwed, Where Are the Customers’ Yachts? (New York: Wiley, 2006); Henwood, Wall Street: How it Works; Robert Kuttner, The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity (2010), 112, 231. 164. Satyajit Das, Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives (Great Britain: FT Press, 2006), 144. 165. Daniel Carpenter, Reputation and Power: Organizational Image and Pharmaceutical Regulation at the FDA (Princeton, NJ: Princeton University Press, 2010), 20. 166. Quoted in Brian McKenna, “How Will Gillian Tett Connect with the Natives of the U.S. Left?,” CounterPunch, March 4, 2011, http://www.counter punch.org/2011/03/04 /how-will-gillian-tett-connect-with-the-natives-of-the -us-left /. 167.


pages: 422 words: 113,830

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips

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algorithmic trading, asset-backed security, bank run, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, collateralized debt obligation, computer age, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, diversification, Doha Development Round, energy security, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, George Gilder, housing crisis, Hyman Minsky, imperial preference, income inequality, index arbitrage, index fund, interest rate derivative, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, large denomination, Long Term Capital Management, market bubble, Martin Wolf, Menlo Park, mobile money, money market fund, Monroe Doctrine, moral hazard, mortgage debt, Myron Scholes, new economy, oil shale / tar sands, oil shock, old-boy network, peak oil, Plutocrats, plutocrats, Ponzi scheme, profit maximization, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, Satyajit Das, shareholder value, short selling, sovereign wealth fund, The Chicago School, Thomas Malthus, too big to fail, trade route

Mohamed El-Erian, president of the Harvard Management Company, wrote in early 2007, “Over the past two years, markets have developed powerful liquidity factories,” in forms ranging from private equity to hedge funds, “as more investors have embraced debt in an attempt to increase the impact of their investments.” These “market drivers of liquidity,” he argued, “currently exceed influences coming from traditional monetary policy instruments.”18 To David Tice at the Prudent Bear Fund, credit derivatives had enabled “a credit apparatus unlike any in history with endless capacity to create ‘money’-like debt instruments.”19 Derivatives expert Satyajit Das called the new quasi currency “candyfloss money,” explaining that “by the early 2000s, the new liquidity factory had created a money pyramid that had no parallel in history.”20 Bill Gross, from the bond-market viewpoint, made a pointed analogy in his October 2007 Investment Outlook:Remember those old economics textbooks that told you how a $1 deposit at your neighborhood bank could be multiplied by five or six times in a magical act of reserve banking?

Andrews, “Fed and Regulators Shrugged as the Subprime Crisis Spread,” New York Times, December 18, 2007. 17 “Credit Turmoil ‘Has Hallmarks of Bank Run,’ ” Financial Times, September 2, 2007. 18 Mohamed El-Erian, “In the New Liquidity Factories, Buyers Must Still Beware,” Financial Times, March 22, 2007. 19 David W. Tice, “Report to Shareholders,” Prudent Bear Funds, Inc., April 30, 2007. 20 Satyajit Das, “Credit Crunch: The New Diet Snack of Financial Markets,” www.prudentbear.com, September 5, 2007. 21 Bill Gross, “What Do They Know?”Investment Outlook, www.pimco.com, October 2007. 22 “Testimony of Robert J. Shiller Before the Joint Economic Committee of Congress,” Washington, D.C., September 19, 2007, pp. 1-2. 23 “The R-Word Surfaces on Wall Street,” Financial Times, September 10, 2007. 24 Ibid. 25 “A New Light on Housing’s Role in U.S.


pages: 257 words: 71,686

Swimming With Sharks: My Journey into the World of the Bankers by Joris Luyendijk

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activist fund / activist shareholder / activist investor, bank run, barriers to entry, Bonfire of the Vanities, bonus culture, collapse of Lehman Brothers, collective bargaining, corporate raider, credit crunch, Credit Default Swap, Emanuel Derman, financial deregulation, financial independence, Flash crash, glass ceiling, Gordon Gekko, high net worth, hiring and firing, information asymmetry, inventory management, job-hopping, light touch regulation, London Whale, Nick Leeson, offshore financial centre, regulatory arbitrage, Satyajit Das, selection bias, shareholder value, sovereign wealth fund, the payments system, too big to fail

All the veterans have been laid off and nobody of the new generation is staying with the same firm for a whole career.’ You might think: morose drunken talk. But the fundamental conflicts of interest he identified do exist and when I met him again a few times in a sober state his story remained the same. Risk and compliance is disparaged not only by front-office bankers but by most insiders. In Traders, Guns and Money, former middle-office veteran Satyajit Das defines the department as those who ‘keep lists of all documents that need to be shredded in case of a problem’. This is almost the opposite of what the man at the party and others working in internal control functions signed up for. I want to do a good job, they claimed. But my own bank stops me from doing it. Why, then, did they not sound the alarm? I looked up the man I had met at the party one more time and his face almost contorted with frustration: ‘What am I going to do, at 41?


pages: 481 words: 125,946

What to Think About Machines That Think: Today's Leading Thinkers on the Age of Machine Intelligence by John Brockman

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3D printing, agricultural Revolution, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, algorithmic trading, artificial general intelligence, augmented reality, autonomous vehicles, basic income, bitcoin, blockchain, clean water, cognitive dissonance, Colonization of Mars, complexity theory, computer age, computer vision, constrained optimization, corporate personhood, cosmological principle, cryptocurrency, cuban missile crisis, Danny Hillis, dark matter, discrete time, Douglas Engelbart, Elon Musk, Emanuel Derman, endowment effect, epigenetics, Ernest Rutherford, experimental economics, Flash crash, friendly AI, functional fixedness, Google Glasses, hive mind, income inequality, information trail, Internet of things, invention of writing, iterative process, Jaron Lanier, job automation, John Markoff, John von Neumann, Kevin Kelly, knowledge worker, loose coupling, microbiome, Moneyball by Michael Lewis explains big data, natural language processing, Network effects, Norbert Wiener, pattern recognition, Peter Singer: altruism, phenotype, planetary scale, Ray Kurzweil, recommendation engine, Republic of Letters, RFID, Richard Thaler, Rory Sutherland, Satyajit Das, Search for Extraterrestrial Intelligence, self-driving car, sharing economy, Silicon Valley, Skype, smart contracts, speech recognition, statistical model, stem cell, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, strong AI, Stuxnet, superintelligent machines, supervolcano, the scientific method, The Wisdom of Crowds, theory of mind, Thorstein Veblen, too big to fail, Turing machine, Turing test, Von Neumann architecture, Watson beat the top human players on Jeopardy!, Y2K

BART KOSKO Thinking Machines = Old Algorithms on Faster Computers JULIA CLARKE The Disadvantages of Metaphor MICHAEL MCCULLOUGH A Universal Basis for Human Dignity HAIM HARARI Thinking About People Who Think Like Machines HANS HALVORSON Metathinking CHRISTINE FINN The Value of Anticipation DIRK HELBING An Ecosystem of Ideas JOHN TOOBY The Iron Law of Intelligence MAXIMILIAN SCHICH Thought-Stealing Machines SATYAJIT DAS Unintended Consequences ROBERT SAPOLSKY It Depends ATHENA VOULOUMANOS Will Machines Do Our Thinking for Us? BRIAN CHRISTIAN Sorry to Bother You BENJAMIN K. BERGEN Moral Machines LAURENCE C. SMITH After the Plug Is Pulled GIULIO BOCCALETTI Monitoring and Managing the Planet IAN BOGOST Panexperientialism AUBREY DE GREY When Is a Minion Not a Minion? MICHAEL I. NORTON Not Buggy Enough THOMAS A.

Our machines allow us to produce many more thoughts than were ever produced before, with innovation becoming an exercise in finding the right thought in the set of all possible thoughts. As much as having our own ideas, ingenuity will lie in the proper exploration of such ready-made sets of thought. Measuring the cognitive space of all possible thoughts will be as awe-inspiring as astronomy’s exploration of the universe. Maybe Mahler’s potential Sixtieth is as awesome as his Sixth. UNINTENDED CONSEQUENCES SATYAJIT DAS Former banker; author, Extreme Money and Traders, Guns, and Money In his novel Gravity’s Rainbow, Thomas Pynchon identifies the confusion about the subject and object of inquiries: “If they can get you asking the wrong questions, they don’t have to worry about answers.” Thinking about machines that think poses more questions about human beings than about the machines or artificial intelligence.


pages: 182 words: 53,802

The Production of Money: How to Break the Power of Banks by Ann Pettifor

Ben Bernanke: helicopter money, Bernie Madoff, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, clean water, credit crunch, Credit Default Swap, cryptocurrency, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, distributed ledger, Donald Trump, eurozone crisis, fiat currency, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, interest rate derivative, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, light touch regulation, London Interbank Offered Rate, market fundamentalism, Martin Wolf, mobile money, Naomi Klein, neoliberal agenda, offshore financial centre, Paul Samuelson, Ponzi scheme, pushing on a string, quantitative easing, rent-seeking, Satyajit Das, savings glut, secular stagnation, The Chicago School, the market place, Thomas Malthus, Tobin tax, too big to fail

Only then could we hope to restore stability, prosperity and social justice to a polarised and dangerously unequal world. Only then could we hope to manage the challenge of climate change. CHAPTER 1 Credit Power Modern finance is generally incomprehensible to ordinary men and women … The level of comprehension of many bankers and regulators is not significantly higher. It was probably designed that way. Like the wolf in the fairy tale: ‘All the better to fleece you with.’ Satyajit Das, Traders, Guns and Money (2010) Finance must be the servant, and the intelligent servant, of the community and productive industry; not their stupid master. National Executive Committee of the British Labour Party (June 1944), Full Employment and Financial Policy The global finance sector today exercises extraordinary power over society and in particular over governments, industry and labour.


pages: 515 words: 132,295

Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

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3D printing, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, additive manufacturing, Airbnb, algorithmic trading, Alvin Roth, Asian financial crisis, asset allocation, bank run, Basel III, bonus culture, Bretton Woods, British Empire, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, commoditize, computerized trading, corporate governance, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial intermediation, Frederick Winslow Taylor, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, information asymmetry, interest rate derivative, interest rate swap, Internet of things, invisible hand, John Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, knowledge economy, labor-force participation, labour mobility, London Whale, Long Term Capital Management, manufacturing employment, market design, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, Paul Samuelson, pensions crisis, Ponzi scheme, principal–agent problem, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, Satyajit Das, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, sovereign wealth fund, Steve Jobs, technology bubble, The Chicago School, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund, zero-sum game

See also Ozgur Orhangazi, “Financialisation and Capital Accumulation in the Non-financial Corporate Sector: A Theoretical and Empirical Investigation on the US Economy: 1973–2003,” Cambridge Journal of Economics 38, no. 6 (November 2008); Office of Financial Research; and Mason, “Disgorge the Cash.” 9. Krippner, Capitalizing on Crisis, 3–4, citing Julie Froud et al., Financialization and Strategy: Narrative and Numbers (London: Routledge, 2006). 10. “How Money Got Weird,” Planet Money podcast, NPR, September 30, 2011. See also Satyajit Das, Extreme Money: Masters of the Universe and the Cult of Risk (Upper Saddle River, NJ: FT Press, 2011). 11. Catherine Ngai and Jeffrey Dastin, “U.S. Airlines Confront Cheap Oil’s Flip Side: Costly Hedges,” Reuters, December 23, 2014. 12. Author interview with Buffett for this book. 13. Author interview with Sharma for this book. 14. Dietrich Domanski, Jonathan Kearns, Marco Jacopo Lombardi, and Hyun Song Shin, “Oil and Debt,” BIS Quarterly Review, Bank for International Settlements, March 2015. 15.


pages: 447 words: 104,258

Mathematics of the Financial Markets: Financial Instruments and Derivatives Modelling, Valuation and Risk Issues by Alain Ruttiens

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algorithmic trading, asset allocation, asset-backed security, backtesting, banking crisis, Black Swan, Black-Scholes formula, Brownian motion, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, discounted cash flows, discrete time, diversification, fixed income, implied volatility, interest rate derivative, interest rate swap, margin call, market microstructure, martingale, p-value, passive investing, quantitative trading / quantitative finance, random walk, risk/return, Satyajit Das, Sharpe ratio, short selling, statistical model, stochastic process, stochastic volatility, time value of money, transaction costs, value at risk, volatility smile, Wiener process, yield curve, zero-coupon bond

RUTTIENS, Hurst coefficient, chaos theory and financial markets behavior, Proceedings of the Conference organized by The Technical Analyst, “Automated trading 2009”, London, 10/16/2009. 7 For an in-depth study of this field, see for example the PhD thesis in Applied Sciences of S. DABLEMONT, Forecasting of high frequency financial time series, Louvain University (Belgium), 2008 (available on the web). 8 Quoted by Satyajit DAS, in “Tales of leverage”, RISK, July 2009, pp. 74 and 75. 9 However, irrational expectation is not necessarily problematic, see this short but surprising paper by R. ROLL (one of the authors of the APT model), see Chapter 4, Section 4.3.5, “Rational infinitely lived asset prices must be non-stationary”, Journal of Banking & Finance, vol. 26, no. 6, 2002, pp. 1093–1097. 10 See a good introduction to behavioral finance can be found in M, SEWELL, Behavioural Finance, University of Cambridge, working paper, rev. 2010, which provides a detailed bibliography.


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

Tarullo (2008) Banking on Basel: The Future of International Financial Regulation, Peterson Institute for International Economics. 27 Roy Kreitner (2000) ‘Speculations of Contract, or How Contract Law Stopped Worrying and Learned to Love Risk’, Columbia Law Review 100 (4) (May): 1096–138. See also Thomas Lee Hazen (2009) ‘Filling a Regulatory Gap: It is Time to Regulate Over-the-Counter Derivatives’, University of North Carolina Legal Studies Research Paper No. 1338339. 28 Satyajit Das (2006) Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives, Prentice-Hall. 29 Committee on Homeland Security and Governmental Affairs, Permanent Subcommittee on Investigations (2010) ‘Wall Street and the Financial Crisis: The Role of Investment Banks’, at http://hsgac.senate.gov/public/_files/ Financial_Crisis/042710Exhibits.pdf. 30 Joseph Stiglitz, ‘The Insider: What I Learned at the World Economic Crisis’, New Republic, 17 April 2000. 31 David Jones (2000) ‘Emerging Problems with the Basel Capital Accord: Regulatory Capital Arbitrage and Related Issues’, Journal of Banking & Finance 24: 35–58. 32 Roger Lowenstein (2001) When Genius Failed: The Rise and Fall of Long-Term Capital Management, Random House. 33 Allen Berger, Richard Herring and Giorgio Szego (1995) ‘The Role of Capital in Financial Institutions’, Journal of Banking and Finance 19 (3–4): 393–430. 34 Gary Gorton (2010) Slapped by the Invisible Hand: The Panic of 2007, Oxford University Press.


pages: 413 words: 117,782

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences by Steven G. Mandis

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activist fund / activist shareholder / activist investor, algorithmic trading, Berlin Wall, bonus culture, BRICs, business process, collapse of Lehman Brothers, collateralized debt obligation, commoditize, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, diversification, Emanuel Derman, financial innovation, fixed income, friendly fire, Goldman Sachs: Vampire Squid, high net worth, housing crisis, London Whale, Long Term Capital Management, merger arbitrage, Myron Scholes, new economy, passive investing, performance metric, risk tolerance, Ronald Reagan, Saturday Night Live, Satyajit Das, shareholder value, short selling, sovereign wealth fund, The Nature of the Firm, too big to fail, value at risk

“When combined with the toxic ecology of bonus systems that emphasize short-term revenues, banks evolved a transactional business model. Deals and profits dominated at the expense of client interests and longer term relationships, a practice known as ‘scorched earth banking.’” (See S. Das, “Goldman Sachs’ Flawed Model,” The Independent, March 17, 2012, http://www.independent.co.uk/news/business/comment/satyajit-das-goldman-sachs-flawed-model-7575865.html.) 42. A. Garfinkle, “A Conversation with Robert S. Kaplan,” The American Interest, March 15, 2012, http://www.the-american-interest.com/article.cfm?piece=1223. 43. Ibid. 44. S. Gandel, “Goldman Says It Can Profit from Europe’s Bust,” Fortune, May 31, 2012, http://finance.fortune.cnn.com/tag/gary-cohn/. 45. M. Abelson and C. Harper, “Succeeding Blankfein at Goldman May Be Hurdle Too High for Cohn,” Bloomberg, July 24, 2011, http://www.bloomberg.com/news/2011-07-24/succeeding-blankfein-at-goldman-may-prove-hurdle-too-high-for-no-2-cohn.html. 46.


The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, distributed ledger, diversification, double entry bookkeeping, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, labour market flexibility, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

Garrick Hileman’s website <http://www.garrickhileman.com/> xiii Acknowledgments The best way to learn how to write is to read. Many authors and thinkers have heavily influenced the ideas that have been expressed in the book. Although it would be impossible to thank them all, I would like to thank the most influential authors to whom I owe a great intellectual debt. These include Lord Adair Turner, W. Brain Arthur, Doyne Farmer, Andreas Antonopoulos, Satyajit Das, Joyce Appleby, Yanis Varoufakis, Patrick O’Sullivan, Nigel Allington, Mark Esposito, Sitabhra Sinha, Thomas Sowell, Niall Ferguson, Andy Stern, Alan Kirman, Neel Kashkari, Danny Dorling, David Graeber, Amir Sufi, Atif Mian, Vitalik Buterin, Andy Haldane, Gillian Tett, Martin Sandbu, Robert Reich, Kenneth Rogoff, Paul Beaudry, Michael Kumhof, Diane Coyle, Ben Dyson, Dirk Helbing, Guy Michaels, David Autor, Richard Gendal Brown, Tim Swanson, David Andolfatto, Paul Pfleiderer, Zoltan Pozsar, Frank Levy, Richard Murnane, César Hidalgo, and Robin Hanson, among others.


pages: 726 words: 172,988