Savings and loan crisis

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pages: 294 words: 89,406

Lying for Money: How Fraud Makes the World Go Round by Daniel Davies

bank run, banking crisis, Bernie Madoff, bitcoin, Black Swan, Bretton Woods, business cycle, business process, collapse of Lehman Brothers, compound rate of return, cryptocurrency, financial deregulation, fixed income, Frederick Winslow Taylor, Gordon Gekko, high net worth, illegal immigration, index arbitrage, Nick Leeson, offshore financial centre, Peter Thiel, Ponzi scheme, price mechanism, principal–agent problem, railway mania, Ronald Coase, Ronald Reagan, Savings and loan crisis, short selling, social web, South Sea Bubble, tail risk, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, time value of money, web of trust

It is not so big a step from the rogue trader to consider what might happen if an entire bank came under the control of fraudsters and if the rogue was at the very top. The Savings and Loan scandals The Savings and Loan (S&L) crisis of the 1980s set the tone for many of the financial scandals to come. It was the first really major banking crisis of the post-Bretton Woods era and marked the transition from the inflationary 1970s to the hard-money era in the USA and into the Great Moderation. It also gave the first foreshadowings of the fact that financial deregulation tends to lead to crises; the interaction between the economic conditions of the time and the two major deregulation bills was particularly destructive. And related to this, the S&L crisis happened at the start of the Reagan era, as the power of government was being rolled back and that of corporations was waxing fat, leading to a sea change in the nature of the relationship between powerful bankers and the officials meant to supervise them.

Before long, the S&L industry had moved on from its history of small local banks, and was increasingly characterised by quite large organisations, often owned or controlled by property developers, and several of which were connected to the junk bond financier (and later convicted securities fraudster) Michael Milken. It was at this point that the second phase of the S&L crisis can be said to have begun. Nobody better epitomises the S&L scandal than Charles Keating, an amazing fraud, crook and hypocrite. He was the owner of American Continental Corporation (ACC), a real estate company with its headquarters in Phoenix, Arizona. One of ACC’s subsidiary companies was Lincoln Savings & Loan, which was licensed in the considerably more deregulated state of California.

But most of all, for our purposes, it was with respect to the S&L industry that the term ‘control fraud’ really came of age. It is probably fair to note at this point that the economic history of the S&L crisis is contested territory from an intellectual point of view, with both market-oriented and pro-government economists having written studies of the crisis which blamed the other side. Broadly speaking, if you did your economics degree in Chicago and call yourself a libertarian or small-government conservative, you tend to view the S&L crisis as the result of broad macroeconomic factors which destroyed the underlying business model of the industry and couldn’t be stopped.


pages: 432 words: 127,985

The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry by William K. Black

accounting loophole / creative accounting, affirmative action, Andrei Shleifer, business climate, cognitive dissonance, corporate governance, corporate raider, Donald Trump, fear of failure, financial deregulation, friendly fire, George Akerlof, hiring and firing, margin call, market bubble, money market fund, moral hazard, offshore financial centre, Ponzi scheme, race to the bottom, Ronald Reagan, Savings and loan crisis, short selling, The Market for Lemons, transaction costs

(Everything Congress proposes is a “reform,” no matter how pernicious its effect.)6 Fifteen years ago, when the financial world was rocked by the savings and loan scandal, the accounting industry faced a crisis not unlike the one it faces today. Lawsuits were mounting, millions of dollars were paid out in settlements, and the image of accountants was plummeting…. Jack Henry, a retired managing partner in Andersen’s Phoenix office, said that at the time of the S&L crisis there was a major change in the industry, caused by mounting litigation. “We were tired of getting the crap kicked out of us….” The nation’s largest accounting firms, including Chicago-based Andersen decided to fight back.

Tillman. 1997. Big Money: Fraud and Politics in the Savings and Loan Crisis, Berkeley and Los Angeles: Univ. of California Press. Chicago Tribune. 2002. “Accounting Industry Puts Profit Above Integrity, Critics Say.” February 13. http://finance.pro2net.com/x32941.xml. Craig, James L., Jr. 1994. “Serving the Profession’s Assurance Function.” The CPA Journal Online (January). http://www.nysscpa.org/cpajournal/old/14979915.htm. Accessed January 22, 2004. Day, Kathleen. 1993. S&L Hell: The People and the Politics behind the $1 Trillion Savings and Loan Scandal, New York: W. W. Norton. Easterbrook, Frank H., and Daniel R.

He sounded strikingly similar to Senator Proxmire (in the passage quoted in the last chapter) predicting that the FSLIC would create false publicity about an S&L crisis in order to induce Congress to pass an excessively large FSLIC recap bill. Proxmire, a prominent Democrat who had long chaired Senate Banking, was Wall’s chief opponent on myriad issues for many years. The similarity of Proxmire’s and Wall’s views adds to the likelihood that when Wall became chairman he really believed that there was no S&L crisis and that forbearance was the key to preventing a crisis from developing. The industry and the administration had pushed this view since 1981, so it is understandable that Wall shared their beliefs.


pages: 278 words: 82,069

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

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

He was pious, he was a devoted family man—and he was lawless. He believed the main purpose of politics was to make people like him rich. Although Keating eventually wound up, by hook or by crook, a very wealthy fellow, it was a failed wealth. Everything *On November 19, 1990, in the wake of the Savings and Loans scandal, The Nation devoted an entire issue to Robert Sherrill’s article, “The Looting Decade: S&Ls, Big Banks and Other Triumphs of Capitalism.” Unfortunately, space doesn’t allow us to reproduce the whole article here. What follows are two extracts from this epic piece. The essay was based largely on these books: Inside Job: The Looting of he ever did was, in a way, a failure.

Speaking of corruption, what happened to Arthur Andersen, one of the most venerable of the Big Five accounting firms (established in 1913), really shook Wall Street. If the Big Five couldn’t be trusted to give reliable accounting, the stock market had truly become a gambling den. There had been whispers of Arthur Andersen’s unreliability ever since its part in the savings and loan scandal. Actually, these whispers made it more attractive to some clients. Pollin points out that in 1990 George W. Bush had successfully called on Arthur Andersen to OK his questionable books at the Harken Energy Corporation; and in a promotional video in 1996, Dick Cheney, then chairman of Hal-liburton, had come straight to the point, praising Arthur Andersen for giving him “good advice ... over and above the just sort of normal by-the-book auditing arrangement.”

The regulations were initially weakened, then abolished altogether, under the strong guidance of, among others, Federal Reserve chair Alan Greenspan, Republican Senator Phil Gramm and Clinton Treasury Secretary Robert Rubin. For Minsky, the consequences were predictable. Consider the scorecard over the twenty years before the current disaster: a stock market crash in 1987; the savings-and-loan crisis and bailout in 1989–90; the “emerging markets” crisis of 1997–98—which brought down, among others, Long-Term Capital Management, the super–hedge fund led by two Nobel laureates specializing in finance—and the bursting of the dot-com market bubble in 2001. Each of these crises could easily have produced a 1930s-style collapse in the absence of full-scale government bailout operations.


pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities by John Cassidy

"Robert Solow", Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Blythe Masters, Bretton Woods, British Empire, business cycle, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Garrett Hardin, George Akerlof, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Nixon triggered the end of the Bretton Woods system, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Ponzi scheme, price discrimination, price stability, principal–agent problem, profit maximization, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, tail risk, Tax Reform Act of 1986, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

., and Ross Levine, Rethinking Banking Regulation: Till Angels Govern (Cambridge: Cambridge University Press, 2005). 161 “Banks can offer . . .”: Asli Demirguc-Kunt and Edward J. Kane, “Deposit Insurance Around the Globe: Where Does It Work?” Journal of Economic Perspectives 16, no. 2 (Spring 2002): 176. 162 Cost of savings-and-loan crisis: See Timothy Curry and Lynn Shibut, “The Cost of the Savings and Loan Crisis: Truth and Consequences,” FDIC Banking Review, available at www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf. 163 “As Adam Smith recognized . . .”: William Seidman, “Lessons of the Eighties: What Does the Evidence Show?” presentation at NIKKIN, Seventh Special Seminar on International Finance, Tokyo, September 18, 1996, 57. 163 “In effect, the Arrow-Debreu . . .”: Joseph E.

In this manner, both banks and depositors can engage in imprudent banking practices, secure in the knowledge that if the high-risk loans do not pay off, deposit insurance protects their principal.” There is now a wealth of evidence from all around the world that the existence of deposit insurance encourages banks to take bigger risks, and raises the probability of financial crises occurring. In the United States, the savings-and-loan scandal of the late 1980s and early ’90s is Exhibit A. Originally, most S&Ls, or thrifts, were local firms that focused on providing residential mortgages to middle-class families. In the 1970s, many of these thrifts struggled to find depositors, because of competition from bank money market accounts, which yielded higher rates of interest.

In 1989, Congress finally stepped in and set up the Resolution Trust Corporation, giving it the power to take over troubled thrifts, fire their managers, and sell off their assets. In just a few years, more than seven hundred S&Ls went out of business. None of the thrifts’ depositors lost any money, but the total cost to U.S. taxpayers of cleaning up the mess was about $125 billion. In many ways, the S&L scandal was a rehearsal for the subprime crisis. The latter, because it included the major commercial banks as well as specialized mortgage companies, was much larger. But the central causes of the two financial calamities were the same: a misguided faith in the free market, deregulation that was heavily influenced by industry lobbyists, and an unsustainable real estate boom.


pages: 613 words: 181,605

Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees by Patrick Dillon, Carl M. Cannon

accounting loophole / creative accounting, affirmative action, Bear Stearns, Bernie Madoff, buy and hold, collective bargaining, Columbine, computer age, corporate governance, corporate raider, desegregation, energy security, estate planning, Exxon Valdez, fear of failure, fixed income, Gordon Gekko, greed is good, illegal immigration, index fund, John Markoff, mandatory minimum, margin call, Maui Hawaii, McDonald's hot coffee lawsuit, money market fund, new economy, oil shale / tar sands, Ponzi scheme, Ralph Nader, rolodex, Ronald Reagan, Sand Hill Road, Savings and loan crisis, Silicon Valley, Silicon Valley startup, Steve Jobs, the High Line, the market place, white picket fence, Works Progress Administration, zero-sum game

Germain, a Rhode Island Democrat, who served for many years as chairman of the House Banking Committee. * Several authoritative books were written detailing the S&L scandal of the 1980s, the most thorough probably being Inside Job: The Looting of America’s Savings and Loans by Stephen Pizzo, Mary Fricker, and Paul Muolo (New York: HarperCollins, 1991). Given what happened to the U.S. economy in 2008 and 2009, however, the single most distressing line about the S&L crisis may have come from Martin Mayer, author of The Greatest-Ever Bank Robbery: The Collapse of the Savings and Loan Industry (New York: Collier, 1992).

Proposition 211 (the number, incidentally, that law enforcement officers in California used over their police scanners to designate a robbery in progress) would have prohibited the California legislature from restricting attorney-client fee arrangements, allowed CEOs or directors to be found personally liable for fraud committed by their business, and shifted the burden of proof for securities violations back to the defendants. Striking while Charles Keating and the Lincoln Savings and Loan scandal were still fresh in the public conscience, a Lerach-sponsored front group called Citizens for Retirement Protection and Security told California voters: “Congress gutted the law that allowed the victims of Charles Keating’s fraud to recover most of their money … According to the Federal Trade Commission, Americans are losing one billion dollars a year to investment swindlers.”

The list of other journalists whose work informed our own also includes Jeffrey Toobin of The New Yorker, whose profile of Lerach left an indelible impression on friends and foes alike; Stephen Pizzo, Mary Fricker, and Paul Muolo, whose 1989 groundbreaking book, Inside Job, remains the clearest view of the savings and loan crisis, the antecedent to our recent financial meltdown; Fortune writer Bethany McLean, who along with Elkind, authored the captivating book The Smartest Guys in the Room, about the Enron debacle; and to Kurt Eichenwald, for showing us the way with his impeccably reported Conspiracy of Fools. Finally, to legions of reporters from The Wall Street Journal and New York Times and others whose bylines appeared in Forbes, Business Week, the Financial Times, and numerous local newspapers, journals, white papers, and websites.


pages: 602 words: 120,848

Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class by Paul Pierson, Jacob S. Hacker

accounting loophole / creative accounting, active measures, affirmative action, asset allocation, barriers to entry, Bear Stearns, Bonfire of the Vanities, business climate, business cycle, carried interest, Cass Sunstein, clean water, collective bargaining, corporate governance, Credit Default Swap, David Brooks, desegregation, employer provided health coverage, financial deregulation, financial innovation, financial intermediation, fixed income, full employment, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, knowledge economy, laissez-faire capitalism, Martin Wolf, medical bankruptcy, moral hazard, Nate Silver, new economy, night-watchman state, offshore financial centre, oil shock, Powell Memorandum, Ralph Nader, Ronald Reagan, Savings and loan crisis, shareholder value, Silicon Valley, Tax Reform Act of 1986, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, union organizing, very high income, War on Poverty, winner-take-all economy, women in the workforce

., 87, 89, 107–8, 137–38, 242, 255, 283, 303, 306 Roosevelt, Theodore, 79–80, 86, 306 Rosen, Sherwin, 45 Rosenthal, Howard, 158–59 Rostenkowski, Dan, 183 Rubin, Robert, 195, 225, 232, 249, 250, 254 rural interests, 84, 85, 108, 189, 237, 246, 280, 298 Saez, Emmanuel, 13–14, 15, 16, 20, 21, 47–48 Salam, Reihan, 149 salaries, 1, 14, 20, 34–40, 62, 66–67, 140, 153–55, 198 S&P 500, 154–55, 335n Santorum, Rick, 265 Sarah Mellon Scaife Foundation, 123 Sarbanes-Oxley Act (2002), 65–66, 220–21, 279, 282, 292 savings and loans (S&L) scandal, 185, 191 savings rate, 31, 32, 214 Scaife, Richard, 122–23 “Scarlett O’Hara defense,” 127, 220–21, 229, 268 Schattschneider, E. E., 146 Scheiber, Noam, 279 Scher, Peter, 272–73 Schiliro, Phil, 260 Schmitt, Mark, 243 Schudson, Michael, 86 Schumer, Charles, 51, 166, 185, 223–30, 239, 249, 251 Scott, H.

On Breaux’s successful brand of “non-partisan chic” see Chait, The Big Con, 225–28. 35 Kuttner, Life of the Party, 53. 36 For a detailed discussion see Mark Smith, The Right Talk: How Conservatives Transformed the Great Society into the Economic Society (Princeton: Princeton University Press, 2007), chapter 7. 37 Quoted in Paul Barrett, “What Brought Down Wall Street?” MSNBC.com, September 19, 2008, http://www.msnbc.msn.com/id/26793500. 38 Barbara Rudolph, Gisela Bolte, Richard Hornik, and Thomas McCarroll, “The Savings and Loan Crisis: Finally, the Bill Has Come Due,” Time, February 20, 1989, http://www.time.com/time/printout/0,8816,957083,00.html. 39 See Thomas Ferguson and Joel Rogers, Right Turn: The Decline of the Democrats and the Future of American Politics (New York: Hill and Wang, 1986), 130–37. 40 Eisenhower, Dwight D.

The reforms created a now-familiar set of perverse incentives, expanding opportunities to score big by betting with other people’s money. The debacle that followed was an eerie precursor of the financial implosion of 2008, although this time the damage was largely contained within the S&L industry. The S&L crisis, which cost taxpayers over $125 billion in direct outlays, was a thoroughly bipartisan affair. Early efforts to correct the problems (at a time when the costs would have been minimal) were effectively blocked in Congress.38 The whole sordid business was capped by a mostly Democratic (save for John McCain) scandal involving Charles Keating, the head of Lincoln Savings and Loan.


pages: 471 words: 97,152

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller

"Robert Solow", affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, Bear Stearns, business cycle, buy and hold, collateralized debt obligation, conceptual framework, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, experimental subject, financial innovation, full employment, George Akerlof, George Santayana, housing crisis, Hyman Minsky, income per capita, inflation targeting, invisible hand, Isaac Newton, Jane Jacobs, Jean Tirole, job satisfaction, Joseph Schumpeter, Long Term Capital Management, loss aversion, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Paul Samuelson, Plutocrats, plutocrats, Post-Keynesian economics, price stability, profit maximization, purchasing power parity, random walk, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, South Sea Bubble, The Chicago School, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, working-age population, Y2K, Yom Kippur War

A very small number of non-arms-length transactions allowed deals to take place that economists just a few years earlier—envisioning financiers as following the conventional rules— would have thought impossible. This fragility was particularly clear in Texas, where the S&L scandals were especially virulent. There the price of real estate soared. Those who were in the legitimate real estate business knew what was happening and faced a dilemma. Should they get out of the business, or should they continue, knowing that prices were vastly inflated? For legitimate builders and developers it was a tough decision. The S&L crisis was ultimately responsible for a considerable amount of the economic turmoil that disturbed the economy during the recession of 1990–91 and for the slow recovery that followed it, lasting until 1993.

But the opportunities are not always equally big. When they are big, we see consequences for the whole economy. One example of this occurred in the savings and loan (S&L) crisis, which was a factor in the recession of 1990–91. (The loss in confidence in the wake of the first Iraq war and the spike in oil prices that preceded it were more important factors.) In the United States, S&Ls act as banks that lend money primarily for mortgages. The S&L crisis began in the 1980s after the Garn– St. Germain Depository Institutions Act of 1982 deregulated the S&Ls. The act allowed them to lend much more aggressively but left in place the government as guarantor of their deposits—a sure prescription for disaster if anyone is tempted to engage in questionable lending.

A plan for recovery should include the possibility that relatively well-run banks that fall into the lap of the FDIC be incorporated into a new GSE. This corporation could be used directly to support lending activities beyond the conventional mortgages represented by Fannie Mae and Freddie Mac. This would require new legislation, setting up a corporation similar to the Resolution Trust Corporation, which resolved the S&L crisis. But here the mandate would be different: rather than focusing on expeditious resolution of assets, the banks in this new corporation would, with suitable supervision, be directed to make loans with the specific purpose of relieving the credit crunch. In the Swedish financial crisis of the early 1990s, a variety of methods, including state ownership of banks, insured that credit did not come to a standstill.15 Advantages and Disadvantages of Methods 1, 2, and 3 The actual mix of methods 1, 2, and 3 that should be used to achieve the credit target depends on their respective advantages and disadvantages.


pages: 274 words: 93,758

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller

"Robert Solow", Andrei Shleifer, asset-backed security, Bear Stearns, Bernie Madoff, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, compensation consultant, corporate raider, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, desegregation, en.wikipedia.org, endowment effect, equity premium, financial intermediation, financial thriller, fixed income, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, late fees, loss aversion, market bubble, Menlo Park, mental accounting, Milgram experiment, money market fund, moral hazard, new economy, Pareto efficiency, Paul Samuelson, payday loans, Ponzi scheme, profit motive, publication bias, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, the new new thing, The Predators' Ball, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, Vilfredo Pareto, wage slave

Stein, License to Steal, pp. 89–92. 18. The criminal case against Keating was overturned on appeal, after he had served four and a half years of time and confessed to other crimes. Robert D. McFadden, “Charles Keating, 90, Key Figure in ’80s Savings and Loan Crisis, Dies,” New York Times, April 2, 2014, accessed May 27, 2015, http://www.nytimes.com/2014/04/02/business/charles-keating-key-figure-in-the-1980s-savings-and-loan-crisis-dies-at-90.html?_r=0. Spiegel was indicted on many counts, but went free after a seven-week trial. Thomas S. Mulligan, “Spiegel Found Not Guilty of Looting S & L,” Los Angeles Times, December 13, 1994, accessed May 1, 2015, http://articles.latimes.com/1994-12-13/news/mn-8437_1_thomas-spiegel.

., with Patrick Robinson. A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers. New York: Crown Business, 2009. McFadden, Robert D. “Charles Keating, 90, Key Figure in ’80s Savings and Loan Crisis, Dies.” New York Times, April 2, 2014. Accessed May 27, 2015. http://www.nytimes.com/2014/04/02/business/charles-keating-key-figure-in-the-1980s-savings-and-loan-crisis-dies-at-90.html?_r=0. McLean, Bethany, and Peter Elkind. “The Guiltiest Guys in the Room.” Fortune, July 5, 2006. Last accessed May 12, 2015. http://money.cnn.com/2006/05/29/news/enron_guiltyest/. —. The Smartest Guys in the Room: The Amazing Rise and Fall of Enron.

See also Orman, Suze financial crises: phishing as cause of, xiii–xiv; predicting, 165; responses to, 134–35; stories told in, xiii–xiv Financial Crisis of 2008: asset price bubbles and, xiv, 33–34, 134; bank failures in, 29, 164–65; credit default swaps and, 39–40; economists’ failure to predict, 164–65, 170, 230n2; fraud preceding, 79; government bailouts in, 25, 75–76, 134, 204–5n16; myths in, 36–37; reputation mining in, 23–25, 31–33; similarities to savings and loan crisis, 123 financial industry: complex products of, 8, 24–25, 31–33; deregulation of, 120; phishing in, 8; regulation of, 8, 81–82, 132, 156–59. See also banks; investment banks; savings and loan crisis financial markets: informed vs. uninformed traders, 8, 168; Social Security privatization and, 155; stocks, 127, 134, 168; volatility in, 133–34, 168. See also asset prices; derivatives; junk bonds; securities regulation; stocks First Amendment, 160 First Executive Life Insurance, 128, 129 FitzGerald, Garret A., 88–89, 208n11, 209nn25–26 focus, manipulation of, 32, 149–50 Fons-Rosen, Christian, 205n27 food: safety of, 84–86; unhealthy, xv, 86, 94.


pages: 512 words: 131,112

Retrofitting Suburbia, Updated Edition: Urban Design Solutions for Redesigning Suburbs by Ellen Dunham-Jones, June Williamson

banking crisis, big-box store, call centre, carbon footprint, edge city, global village, index fund, iterative process, Jane Jacobs, knowledge worker, McMansion, megastructure, Network effects, new economy, New Urbanism, peak oil, Peter Calthorpe, place-making, postindustrial economy, Ray Oldenburg, Richard Florida, ride hailing / ride sharing, Savings and loan crisis, Seaside, Florida, Silicon Valley, skinny streets, the built environment, The Death and Life of Great American Cities, The Great Good Place, transit-oriented development, upwardly mobile, urban decay, urban renewal, urban sprawl, Victor Gruen, white flight, working poor, young professional, zero-sum game

The residents of Sunny Brook Meadows, an older subdivision of fifty ranch houses in the rapidly transforming Sandy Springs area of Atlanta, self-organized to put their homes up for sale for redevelopment and found a willing buyer.24 From Subdivision to Edge City: Greenway Plaza An early “down and dirty” example of the strategy of acquiring multiple single-family parcels to amass a larger parcel for mixed-use development is Greenway Plaza, five miles west of downtown Houston, Texas, on the Southwest Freeway (U.S. 59). The lead developer was Century Development Corporation, run by Kenneth Schnitzer, a larger-than-life Texas personality (later convicted and acquitted on charges related to the 1980s savings and loan bank scandals). In the 1960s, Schnitzer set his sights on the Lamar Weslayan subdivision, a collection of 300 middle-class bungalows, as an ideal location for a major office development. The subdivision had already been split in two by the construction of the freeway. Because of the lack of zoning regulations in the city, there was no need to worry about the proposed change in use or density.

Highly auto dependent, it was one of the nation’s first large-scale, planned urban developments to emphasize greenbelts and extensive landscaping. By the early 1980s it had a 400-room hotel, an underground shopping mall, and a sports arena home to professional teams; it also housed over 12,000 employees in ten office towers. Its developer, Kenneth Schnitzer, was convicted then exonerated of fraud in the S&L scandal. Century City, a forerunner of edge cities, was planned in the 1960s as a sleek second downtown for Los Angeles. However, overpasses that were supposed to connect the high-rise business district to new residential communities were never completed; the communities have become private, gated enclaves; and the council member for the area says, “Right now, Century City is a rabbit warren. . . .

They are sheathed in monolithic surfaces, opaque for the mall and most often mirror glass for the office buildings. They are typically object-buildings surrounded by parking with a few outparcels. A record 16,000 shopping centers were built between 1980 and 1990.19 Construction did not slow down until the savings and loan crisis in 1989 tightened credit, leading to a 70% decline in shopping center starts.20 In response, many developers took their companies public, becoming real estate investment trusts (REITs). Shopping center ownership, in particular, shifted from being overwhelmingly a family-run and privately based entrepreneurial business, often with local ties to the community, to becoming a standardized commodity traded on Wall Street.21 The landscape from the 1990s reflected Wall Street’s demand for predictability in increasingly uniform, repetitive building types with little, if any, accommodation to the particularities of place or place-making.22 We also see in the strip landscape of the late 1980s and 1990s the proliferation of new retail formats that increased retail specialization and auto dependency.


pages: 726 words: 172,988

The Bankers' New Clothes: What's Wrong With Banking and What to Do About It by Anat Admati, Martin Hellwig

Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bonus culture, break the buck, business cycle, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, diversified portfolio, en.wikipedia.org, Exxon Valdez, financial deregulation, financial innovation, financial intermediation, fixed income, George Akerlof, Growth in a Time of Debt, income inequality, information asymmetry, invisible hand, Jean Tirole, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Larry Wall, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, margin call, Martin Wolf, Money creation, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nick Leeson, Northern Rock, open economy, peer-to-peer lending, regulatory arbitrage, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Satyajit Das, Savings and loan crisis, shareholder value, sovereign wealth fund, technology bubble, The Market for Lemons, the payments system, too big to fail, Upton Sinclair, Yogi Berra

In addition to the FDIC, charged with providing insurance for deposits at commercial banks, the United States created the Federal Savings and Loan Insurance Corporation (FSLIC) to insure deposits at savings and loan (S&L) institutions. As a result of the S&L crisis of the 1980s, however, in 1989 the FSLIC was dismantled and its tasks given to the FDIC. The FDIC is supposed to be self-financed through fees it charges member banks. So was the FSLIC, but in the S&L crisis the funds it could obtain in fees did not suffice to compensate for the failing institutions’ losses. The FDIC can borrow from the U.S. Treasury up to $100 billion (Federal Deposit Insurance Act, Section 14, available at http://www.fdic.gov/regulations/laws/rules/1000-1600.html, accessed September 30, 2012).

According to Kluge, the term rotta should be translated as “in default, insolvent,” a second meaning that both the Italian word and its Latin ancestor, ruptus, broken, took on in the high Middle Ages. Hoad (1986) also refers to the medieval meaning of ruptus as “insolvent.” 3. Gorton (2010) suggests that the “quiet period” in U.S. banking lasted until 2007, but he neglects the S&L crisis of the 1980s and early 1990s, as well as the hidden crisis of U.S. commercial banks in 1990. On the latter, see Boyd and Gertler (1994). The S&L crisis, discussed in Chapter 4, cost taxpayers $129 billion (see Curry and Shibut 2000). 4. See Goodhart (1996). 5. In this vein, Gorton (2010) calls for an extension of the scope of federally guaranteed insurance from traditional deposits to other forms of short-term lending.

The “zombie banks,” those banks that would have been considered insolvent if their accounts had fully reflected their economic situation, were the most reckless in pursuing such strategies.33 They were gambling for resurrection, on the principle that “heads, I become solvent again; tails, the deposit insurer has a problem.” When interest rates rose and the economy turned down again in the late 1980s, many of the speculative investments made by the savings banks in previous years turned sour and the so-called savings and loan crisis finally broke into the open. By the end of the 1990s, when the mess had at last been resolved, 1,043 out of 3,234 savings banks had been closed and the total cost had been about $153 billion, $124 billion to the general taxpayer and $29 billion in industry support for the deposit insurance institutions.34 It would have been much cheaper to resolve the crisis in the early 1980s, but at that time, industry lobbyists had convinced Congress that U.S. savings banks had “only a liquidity problem,” which would be solved by deregulation.35 What Else Can Go Wrong: Risks from Lending The 1980s experience of savings institutions in the United States is an example of the general problem that lending can be very risky.


pages: 471 words: 124,585

The Ascent of Money: A Financial History of the World by Niall Ferguson

Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Bear Stearns, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, German hyperinflation, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, Nelson Mandela, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, tail risk, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, two and twenty, undersea cable, value at risk, Washington Consensus, Yom Kippur War

, Annals of the American Academy of Political and Social Science, 465 (January 1983), p. 37. 36 Maureen O’Hara, ‘Property Rights and the Financial Firm’, Journal of Law and Economics, 24 (October 1981), pp. 317-32. 37 Eichler, ‘Homebuilding’, p. 40. See also Henry N. Pontell and Kitty Calavita, ‘White-Collar Crime in the Savings and Loan Scandal’, Annals of the American Academy of Political and Social Science, 525 (January 1993), pp. 31-45; Marcia Millon Cornett and Hassan Tehranian, ‘An Examination of the Impact of the Garn-St Germain Depository Institutions Act of 1982 on Commercial Banks and Savings and Loans’, Journal of Finance, 45, 1 (March 1990), pp. 95-111. 38 Henry N.

Large numbers of under-capitalized banks were a recipe for financial instability, and panics were a regular feature of American economic life - most spectacularly in the Great Depression, when a major banking crisis was exacerbated rather than mitigated by a monetary authority that had been operational for little more than fifteen years. The introduction of deposit insurance in 1933 did much to reduce the vulnerability of American banks to runs. However, the banking sector remained highly fragmented until 1976, when Maine became the first state to legalize interstate banking. It was not until 1993, after the Savings and Loans crisis (see Chapter 5), that the number of national banks fell below 3,600 for the first time in nearly a century. In 1924 John Maynard Keynes famously dismissed the gold standard as a ‘barbarous relic’. But the liberation of bank-created money from a precious metal anchor happened slowly.

In 1991, after two trials (the first of which ended with a hung jury), Faulkner, Blain and Toler were convicted of civil racketeering and looting $165 million from Empire and other S&Ls through fraudulent land deals. Each was sentenced to twenty years in jail and ordered to pay millions of dollars in restitution. One investigator called Empire ‘one of the most reckless and fraudulent land investment schemes’ he had ever seen.48 Much the same could be said for the Savings and Loans crisis as a whole; Edwin Gray called it ‘the most widespread, reckless and fraudulent era in this nation’s banking history’. In all, nearly five hundred S&Ls collapsed or were forced to close down; roughly the same number were merged out of existence under the auspices of the Resolution Trust Corporation set up by Congress to clear up the mess.


pages: 482 words: 149,351

The Finance Curse: How Global Finance Is Making Us All Poorer by Nicholas Shaxson

activist fund / activist shareholder / activist investor, Airbnb, airline deregulation, anti-communist, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, British Empire, business climate, business cycle, capital controls, carried interest, Cass Sunstein, Celtic Tiger, central bank independence, centre right, Clayton Christensen, cloud computing, corporate governance, corporate raider, creative destruction, Credit Default Swap, cross-subsidies, David Ricardo: comparative advantage, demographic dividend, Deng Xiaoping, desegregation, Donald Trump, Etonian, failed state, falling living standards, family office, financial deregulation, financial innovation, forensic accounting, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global supply chain, high net worth, Ida Tarbell, income inequality, index fund, invisible hand, Jeff Bezos, Kickstarter, land value tax, late capitalism, light touch regulation, London Whale, Long Term Capital Management, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Money creation, Mont Pelerin Society, moral hazard, neoliberal agenda, Network effects, new economy, Northern Rock, offshore financial centre, old-boy network, out of africa, Paul Samuelson, Plutocrats, plutocrats, Ponzi scheme, price mechanism, purchasing power parity, pushing on a string, race to the bottom, regulatory arbitrage, rent-seeking, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, sharing economy, Silicon Valley, Skype, smart grid, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, special economic zone, Steve Ballmer, Steve Jobs, The Chicago School, Thorstein Veblen, too big to fail, Tragedy of the Commons, transfer pricing, two and twenty, wealth creators, white picket fence, women in the workforce, zero-sum game

The Coelho history is drawn from multiple sources, including the US House of Representatives biography of him at history.house.gov, as well as Gregg Easterbrook, ‘The Business of Politics’, Atlantic, October 1986, ‘The Tony Coelho Factor’, Washington Times, 17 January 2006, and several stories in the New York Times about Don Dixon. Coelho resigned in 1989 amid the savings and loans scandal but reappeared ten years later as general chairman of Al Gore’s presidential campaign committee – brought in, as one senior Gore official put it, because they needed ‘an adult’ to run it. 12. Wall Street players also rode this cultural wave, on occasion portraying shareholder democracy as an issue of inclusion and civil rights.

He then sat down next to a director of a high street bank, who said, ‘I listened with great interest to what you had to say but I can assure you if you think Her Majesty’s Government is ever going to prosecute people of my class, you are utterly mistaken. We are a protected species.’8 Compare this attitude in London in the early 1990s to what had happened in the United States after the savings and loan crisis of 1989, the fruit of Reagan-era deregulation, which felled more than 1,000 US ‘thrift’ financial institutions and was the biggest series of bank collapses in the US since 1929. Within six years of the crisis, more than 3,700 high-profile senior executives and owners of collapsed thrifts had gone to jail for fraud: the US Department of Justice secured convictions for over 95 per cent of chief executives or presidents of their institutions who were charged.

Nobody really wanted to insure them because they were only able to offer minute returns, but there was, it turned out, one player who would: the venerable insurance giant American International Group (AIG), specifically AIG Financial Products, based in Mayfair in London. This was led by Joe Cassano, a former employee of Drexel Burnham Lambert, the collapsed US junk bond firm at the centre of the fraudulent savings and loan crisis in the 1980s. AIGFP agreed to earn just 0.02 cents for every dollar it insured, each year, a model that has been compared to picking up pennies in front of a steamroller. (Cassano himself would take home 30 per cent of those pennies for himself, netting $280 million in 2000–8.) This deadly unit had been located in London, Dunbar explains, as part of a complex transatlantic corporate structure.


pages: 318 words: 93,502

The Two-Income Trap: Why Middle-Class Parents Are Going Broke by Elizabeth Warren, Amelia Warren Tyagi

activist fund / activist shareholder / activist investor, business climate, Columbine, declining real wages, equal pay for equal work, feminist movement, financial independence, labor-force participation, late fees, McMansion, mortgage debt, new economy, New Journalism, payday loans, Savings and loan crisis, school choice, school vouchers, telemarketer, urban sprawl, women in the workforce

See also George W. Bush, Orrin Hatch, Henry Hyde Retirement/retirement accounts Risk(fig.)(fig.) after filing for bankruptcy of lenders See also under Families Safety issues and automobiles and car seats See also Crime; Violence Safety net S&L. See Savings and Loan crisis Saving(s) (fig.) as tax exempt Savings and Loan (S&L) crisis Schill, Michael School transportation expenses Schools. See Education. Schor, Juliet Schumer, Charles Sears retail chain She Works, He Works: How Two-Income Families Are Happier, Healthier, and Better Off Social Security Disability Insurance (SSDI) South Dakota usury laws Sports, college SSDI.

Consumer lenders balk at the notion of reregulation, immediately claiming that tighter limits on interest rates would put America at risk for another banking disaster like the Savings and Loan (S&L) crisis of the late 1970s. Hemmed in by high inflation rates and low limits on interest rates, the S&Ls (which issued most home mortgages) found themselves hemorrhaging money.72 But the real problem was inflation, not usury rates per se, which had worked reasonably well for centuries. At the time, usury limits in most states were fixed at a specific number, and they hadn’t been written with double-digit inflation in mind. But that would be an easy problem to solve. To avoid a repeat of the S&L crisis, all that is needed is to tie the limit on interest rates to the inflation rate or the prime rate (which changes with inflation) so that the two never get too far out of sync.


pages: 350 words: 103,270

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again by Nicholas Dunbar

asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Black Swan, Black-Scholes formula, bonus culture, break the buck, buy and hold, capital asset pricing model, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, diversification, Edmond Halley, facts on the ground, financial innovation, fixed income, George Akerlof, implied volatility, index fund, interest rate derivative, interest rate swap, Isaac Newton, John Meriwether, Kenneth Rogoff, Kickstarter, Long Term Capital Management, margin call, market bubble, money market fund, Myron Scholes, Nick Leeson, Northern Rock, offshore financial centre, Paul Samuelson, price mechanism, regulatory arbitrage, rent-seeking, Richard Thaler, risk free rate, risk tolerance, risk/return, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, statistical model, The Chicago School, Thomas Bayes, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, yield curve, zero-sum game

The more loans a bank has made for each dollar of shareholder capital, the easier it is for an economic downturn to eat up the bank’s solvency, and the more lethal the impact a crash is going to have on the confidence of depositors. The combination of Volcker’s inflation-fighting interest rate hikes in the early ’80s and poor commercial real estate lending decisions had produced the equivalent of a multicar pileup: over a thousand bank failures from 1981 to 1989, and a savings and loan crisis that would require hundreds of billions of taxpayer dollars to fix.1 It was obvious to the Fed chairman that the banks had been driving too fast. But what should the speed limit be? Bank regulators typically expressed such a limit (a leverage figure) as a minimum rather than a maximum—the lowest permissible equity capital buffer, expressed as a percentage of a bank’s assets.

The oldest was the Office of the Comptroller of the Currency (OCC), created as an arm of the Treasury Department in the wild monetary years of the 1850s, followed by the archipelago of Federal Reserve Banks set up after a crisis in 1907. The stock market abuses and bank failures of the Great Depression spawned, respectively, the Securities and Exchange Commission (SEC) and the FDIC. The youngest was the Office of Thrift Supervision (OTS), founded in 1989 to shepherd “thrifts” or mortgage banks after the trauma of the savings and loan crisis. At the top of the pecking order in the United States was (and is) the Federal Reserve. The Fed was not created to inspect banks; it was a central bank, and its employees proudly referred to themselves as bankers. From the chairman on down, it was staffed largely by economists rather than bureaucrats.

The Home ATM Machine It would require another book to recount the long and tortuous history of the shadowy mortgage securitization ecosystem that LB Kiel stumbled into via its North Street CDO deal. Had it not been for two decisive factors, American mortgage lending might have stayed largely on bank balance sheets, as it did in Europe. One factor was the 1980s savings and loan crisis, which discredited traditional bank lending in the United States and forced troubled banks to sell their mortgages to Wall Street. Even more important was the role of the U.S. government in guaranteeing mortgages that got securitized. Since the 1960s, three government-sponsored enterprises—Fannie Mae, Freddie Mac, and Ginnie Mae—had bought residential mortgages from banks.


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

American ideology, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Madoff, Bonfire of the Vanities, bonus culture, break the buck, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, Charles Lindbergh, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Edward Glaeser, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, George Akerlof, Gordon Gekko, greed is good, Home mortgage interest deduction, Hyman Minsky, income per capita, information asymmetry, interest rate derivative, interest rate swap, Kenneth Rogoff, laissez-faire capitalism, late fees, light touch regulation, Long Term Capital Management, market bubble, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage tax deduction, Myron Scholes, Paul Samuelson, Ponzi scheme, price stability, profit maximization, race to the bottom, regulatory arbitrage, rent-seeking, Robert Bork, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, Satyajit Das, Savings and loan crisis, sovereign wealth fund, Tax Reform Act of 1986, The Myth of the Rational Market, too big to fail, transaction costs, value at risk, yield curve

(It also faced opposition from some investment banks, which did not want commercial banks invading their turf.) The Financial Institutions Deregulation Act of 1983, which would have allowed bank holding companies to expand into securities and insurance, died in Congress.62 Comprehensive deregulation was also derailed by the savings and loan crisis, which worsened steadily through the 1980s. As it turned out, the Garn–St. Germain Act, by allowing S&Ls to expand into new businesses, prompted many of them to gamble on high-risk investments. S&Ls lacked experience in these businesses, as did their regulators, and over 2,000 banks failed between 1985 and 1992, with a peak of 534 in 1989.

However, the amount of money that changes hands is much smaller; if, at the end of a given year, the floating rate is 7.25 percent, then the dealer only pays the company 0.25 percent (the difference between the floating and fixed rates), or $250,000. 4 “GREED IS GOOD” The Takeover Derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so.… The vast increase in the size of the over-the-counter derivatives markets is the result of the market finding them a very useful vehicle. —Alan Greenspan, chair of the Federal Reserve, July 16, 20031 The 1980s came to a close with the peak of the savings and loan crisis. The failure of over 2,000 banks between 1985 and 1992 was by far the largest financial sector mass die-off since the Great Depression.2 The government bailout of the S&L industry cost more than $100 billion, and hundreds of people were convicted of fraud.3 In 1990, Michael Milken, the junk bond king, pleaded guilty to six felonies relating to securities transactions.

.” … The obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted. Ultimately, the possibility of further crises—even greater crises—will increase. —Paul Volcker, September 24, 20091 If they’re too big to fail, they’re too big. —Alan Greenspan, October 15, 20092 Between 1985 and 1992, over 2,000 banks failed in the savings and loan crisis, a consequence of deregulation, mismanagement, and fraud. Those S&Ls had been largely overseen by the Federal Home Loan Bank Board, which had failed to shut down struggling thrifts early in the 1980s, instead hoping that they could grow into solvency by expanding into more profitable (and riskier) businesses.3 In response, Congress passed the Financial Institutions Reform, Recovery, and Enhancement Act of 1989.


pages: 409 words: 125,611

The Great Divide: Unequal Societies and What We Can Do About Them by Joseph E. Stiglitz

"Robert Solow", accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Asian financial crisis, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, clean water, collapse of Lehman Brothers, collective bargaining, computer age, corporate governance, credit crunch, Credit Default Swap, deindustrialization, Detroit bankruptcy, discovery of DNA, Doha Development Round, everywhere but in the productivity statistics, Fall of the Berlin Wall, financial deregulation, financial innovation, full employment, George Akerlof, ghettoisation, Gini coefficient, glass ceiling, global supply chain, Home mortgage interest deduction, housing crisis, income inequality, income per capita, information asymmetry, job automation, Kenneth Rogoff, Kickstarter, labor-force participation, light touch regulation, Long Term Capital Management, manufacturing employment, market fundamentalism, mass incarceration, moral hazard, mortgage debt, mortgage tax deduction, new economy, obamacare, offshore financial centre, oil shale / tar sands, Paul Samuelson, Plutocrats, plutocrats, purchasing power parity, quantitative easing, race to the bottom, rent-seeking, rising living standards, Ronald Reagan, Savings and loan crisis, school vouchers, secular stagnation, Silicon Valley, Simon Kuznets, The Chicago School, the payments system, Tim Cook: Apple, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Turing machine, unpaid internship, upwardly mobile, urban renewal, urban sprawl, very high income, War on Poverty, Washington Consensus, We are the 99%, white flight, winner-take-all economy, working poor, working-age population

When you look at the sheer volume of wealth controlled by the top 1 percent in this country, it’s tempting to see our growing inequality as a quintessentially American achievement—we started way behind the pack, but now we’re doing inequality on a world-class level. And it looks as if we’ll be building on this achievement for years to come, because what made it possible is self-reinforcing. Wealth begets power, which begets more wealth. During the savings-and-loan scandal of the 1980s—a scandal whose dimensions, by today’s standards, seem almost quaint—the banker Charles Keating was asked by a congressional committee whether the $1.5 million he had spread among a few key elected officials could actually buy influence. “I certainly hope so,” he replied. The Supreme Court, in its recent Citizens United case, has enshrined the right of corporations to buy government, by removing limitations on campaign spending.

Officials know that if they wait too long, zombie or near-zombie banks—with little or no net worth, but treated as if they were viable institutions—are likely to “gamble on resurrection.” If they take big bets and win, they walk away with the proceeds; if they fail, the government picks up the tab. This is not just theory; it is a lesson we learned, at great expense, during the savings-and-loan crisis of the 1980s. When the ATM machine says, “insufficient funds,” the government doesn’t want this to mean that the bank, rather than your account, is out of money, so it intervenes before the till is empty. In a financial restructuring, shareholders typically get wiped out, and bondholders become the new shareholders.

They are prone to asset and credit bubbles, which inevitably collapse—often when cross-border capital flows abruptly reverse direction—imposing massive social costs. America’s infatuation with deregulation was the cause of the crisis. The issue is not just the pacing and sequencing of liberalization, as some suggest; the end result also matters. Liberalization of deposit rates led to America’s savings-and-loan crisis in the 1980s. Liberalization of lending rates encouraged predatory behavior that exploited poor consumers. Bank deregulation led not to more growth, but simply to more risk. China, one hopes, will not take the route that America followed, with such disastrous consequences. The challenge for its leaders is to devise effective regulatory regimes that are appropriate for its stage of development.


The America That Reagan Built by J. David Woodard

affirmative action, anti-communist, Ayatollah Khomeini, Berlin Wall, Bonfire of the Vanities, business cycle, colonial rule, Columbine, corporate raider, cuban missile crisis, Deng Xiaoping, friendly fire, glass ceiling, global village, Gordon Gekko, gun show loophole, income inequality, invisible hand, Jeff Bezos, laissez-faire capitalism, late capitalism, Live Aid, Marc Andreessen, Mikhail Gorbachev, mutually assured destruction, Neil Kinnock, Nelson Mandela, new economy, postindustrial economy, Ralph Nader, Robert Bork, Ronald Reagan, Ronald Reagan: Tear down this wall, Rubik’s Cube, Savings and loan crisis, Silicon Valley, South China Sea, stem cell, Ted Kaczynski, The Predators' Ball, trickle-down economics, women in the workforce, Y2K, young professional

In the fall of 1989, the Federal Deposit Insurance Corporation (FDIC) took over more than a billion dollars’ worth of assets from Silverado Savings and Loan. The company was in freefall, and even though Neil Bush had resigned from the board of the S&L in 1988, the scandal lapped at the door of the Bush family residence in Washington, D.C. The president promised to stand by his family and not comment on the situation. ‘‘His [Neil’s] whole problem,’’ Barbara Bush wrote in her diary, ‘‘is that he is our son.’’44 The S&L scandal became 118 THE AMERICA THAT REAGAN BUILT a political issue, and the Bush bailout scheme was personalized by the press when Neil Bush was called before a congressional committee.

See New Right Republican Revolution, 183 Republicans, 142, 185–86, 188, 195, 209, 212, 224, 237, 240– 41; liberal, 32; party dominance, 100, 183, 224 reserves, 128 Reston, James ‘‘Scotty,’’ 34 rock music, 72–73, 166 ‘‘Rose Garden’’ strategy, 10, 26, 186 Rumsfeld, Donald, 227 Rwanda, 159–60, 190 same-sex marriage, 236–37 San Francisco Bay earthquake, 1989, 119–20 Sandinistas, 90, 93, 119 281 S&L scandal, 117, 120 Saudi Arabia, 96, 126–27, 131, 133, 214, 226 Schwarzkopf, Norman, U.S. General, 132, 134–35, 137–38 SDI (Strategic Defense Initiative), 57, 97–99 Serbs, 189–91 Shultz, George P., Secretary of State, 59–60, 62 Silicon Valley, 161–62 Simpson, Nicole Brown, 172–73 Simpson, Orenthal James ‘‘O.

Government spending for the world’s largest democracy was at a standstill. The Democrats wanted Bush to raise taxes, and the White House wanted the Congress to cut spending. In the ensuing clash, the president’s disavowal of new taxes placed negotiations in a deadlock. The other abiding issue was the S&L crisis, which was growing into an economic catastrophe that had no equal in U.S. history. Approximately 1,000 S&Ls failed between 1980 and 1991, most of them at the end of this period. As the bills came due, the cost of bailing out the thrifts was estimated to be some $500 billion, and the federal budget deficit would soar as the government adopted a strategy of not allowing the largest banks to go under.


pages: 452 words: 110,488

The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead by David Callahan

1960s counterculture, affirmative action, business cycle, corporate governance, corporate raider, creative destruction, David Brooks, deindustrialization, East Village, eat what you kill, fixed income, forensic accounting, full employment, game design, greed is good, high batting average, housing crisis, illegal immigration, income inequality, job satisfaction, mandatory minimum, market fundamentalism, McMansion, microcredit, moral hazard, new economy, New Urbanism, offshore financial centre, oil shock, old-boy network, Plutocrats, plutocrats, postindustrial economy, profit maximization, profit motive, RAND corporation, Ray Oldenburg, Robert Bork, rolodex, Ronald Reagan, Savings and loan crisis, shareholder value, Shoshana Zuboff, Silicon Valley, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, War on Poverty, winner-take-all economy, World Values Survey, young professional, zero-sum game

While overshadowed by the insider trading cases and big scandals involving defense contractors, the 1980s saw the largest wave of accounting abuses in history. By the early 1990s, accountants had paid out some $1.6 billion in damages in response to over 4,000 liability suits filed in the wake of their role in various scams, most notably the savings and loan scandals. Arthur Andersen paid tens of millions of dollars to settle a suit arising from its role in the failure of the notorious Lincoln Savings and Loan Association. KPMG, Deloitte & Touche, and Ernst & Young were also implicated in'S&L collapses. "Accountants didn't cause the'S&L crisis," said Senator Ron Wyden, "But they could have saved taxpayers a lot of money if they did their jobs properly and set off enough warning alarms for regulators."14 As in the 1970s, the accounting scandals of the 1980s were followed by public recrimination and tough talk from Washington officials—and very little action to prevent future abuses.

For example, in the 1980s, dozens of lawyers were caught up in the savings and loan debacle and received hundreds of millions of dollars in penalties from the federal government, but not a single lawyer was disciplined by a state bar association for his or her role. More recently, it's become widely known that many lawyers played a key role in various of the big corporate scandals—yet there is little evidence that state bars will do any better at disciplining these rogues than it did after the savings and loan scandal.17 Given the low odds of being hassled by a state bar, it is a wonder that the Arkansas state bar undertook disciplinary proceedings against a lawyer whose main sin was that he lied about his personal life under oath. Then, again, Bill Clinton was no typical bad apple in the legal profession; he was unlucky enough to have many well-financed enemies.

Thus, for example, my exploration of integrity in the accounting profession not only draws on many contemporary sources but also on government studies of accounting undertaken in the wake of the corporate scandals of the 1960s and early 1970s, as well as the numerous articles written on the accounting profession in the early 1990s, when the large accounting firms were under fire for their role in the savings and loan scandals. Similarly, my analysis of ethics in the legal profession draws on a host of books, articles, and studies dating back to the 1970s that describe the major changes to the profession over the past thirty years. Some of the best sources for the book were found in specialized magazines, newsletters, and journals, or on industry-specific Web sites.


pages: 398 words: 105,917

Bean Counters: The Triumph of the Accountants and How They Broke Capitalism by Richard Brooks

accounting loophole / creative accounting, asset-backed security, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, blockchain, BRICs, British Empire, business process, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Strachan, Deng Xiaoping, Donald Trump, double entry bookkeeping, Double Irish / Dutch Sandwich, energy security, Etonian, eurozone crisis, financial deregulation, forensic accounting, Frederick Winslow Taylor, G4S, intangible asset, Internet of things, James Watt: steam engine, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, light touch regulation, Long Term Capital Management, low cost airline, new economy, Northern Rock, offshore financial centre, oil shale / tar sands, On the Economy of Machinery and Manufactures, Ponzi scheme, post-oil, principal–agent problem, profit motive, race to the bottom, railway mania, regulatory arbitrage, risk/return, Ronald Reagan, Savings and loan crisis, savings glut, short selling, Silicon Valley, South Sea Bubble, statistical model, supply-chain management, The Chicago School, too big to fail, transaction costs, transfer pricing, Upton Sinclair, WikiLeaks

REFORM CLUB Dramatically higher levels of debt and financial complexity in the age of financial liberalization meant that the bean counters’ shortcomings now posed threats not just to those unfortunate enough to invest in or work for charlatans like Keating, Maxwell and Clowes. They presented more serious economic dangers as well. Along with complicity in the savings-and-loans scandal, deficient auditing also played a big part in the downfall of British bank Johnson Matthey in 1984 – necessitating a Bank of England rescue – and allowed the shadiest financiers of them all, Bank of Credit and Commerce International, to loot and launder with abandon throughout the decade.

The absence of effective accounting created a vicious circle in which companies came under pressure to fiddle results in order to keep up with both their competitors’ exaggerated numbers and their own from previous periods. The upshot was that between 1997 and 2000, Levitt wrote in his memoirs, ‘700 [publicly listed] companies would belatedly find flaws in past financial statements and restate their earnings’ (compared to a historic record of around 25 a year).24 Far from learning from the savings-and-loans scandals of a decade earlier, the accountancy firms appeared to have made audit failure all part of the service. They were no longer really accountancy firms, though, either by inclination or income. All of the Big Five were now earning more from advisory services than they were from auditing.25 (They weren’t always doing so honestly, either.

Able to present the gas bank as a financial trader rather than an old-fashioned fuel distributor, Skilling persuaded the Securities and Exchange Commission to allow Enron to account for its contracts in the way banks did for their trading books. This ‘mark-to-market’ accounting had become favoured by regulators as a supposed corrective to the savings-and-loans scandal, supposedly to impose the discipline of market values on balance sheets. But it was another tool of deception. As soon as a contract was struck – for example to supply gas for anything up to twenty years – the value of the contract was recorded as income. So if Enron judged that a deal would generate $500m income and cost $400m to fulfil, the contract would instantly generate a profit of $100m.


pages: 1,202 words: 424,886

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

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

., Eurodollars foreign central banks, Fed foreign currency translation risk, BAs foreign-dominated commercial paper foreign exchange, commercial paper foreign-exchange market Fed intervention foreign-exchange risk, banks/banking foreign government bonds, Treasury futures foreign official holdings, Eurodollars foreign series bonds former forward market, federal funds market forward contracts, vs. futures forward forwards forward market, repos forward price, Treasury futures forward rate agreements (FRAs) advantages Eurodollars example features interest-rate expectations interest-rate swaps jargon market money market swaps precise hedge tiering forward transactions GIC FRAs (see forward rate agreements) fraud, dealers Freddie Mac (see Federal Home Loan Mortgage Corporation) free lunch, interest-rate swaps FSA (see Financial Services Act) FSLIC (see Federal Savings and Loan Insurance Corporation) full accrual pricing, Fed functions, money market funding a bank’s assets, domestic treasury funding choices, banks/banking funds flows by sector U.S. capital market funds, money (see money funds) funds rate, fed (see fed funds rate) funds rate targeting, fed funds transfer, Fedwire Funds Transfer Service future dates, immunizing a portfolio futures (see also Treasury futures) arbitrage basics bills futures CFTC clearing function CME commissions contract size counterparty risk day traders delivery electronic trading Eurodollars exchanges expiration dates fed funds futures financial futures vs. forward contracts hedging leverage liquidity margin deposits market makers market participants performance bonds pit trading portfolio diversification portfolios price quotes regulation risk scalpers SPAN speculation tick sizes transparency utility to investors futures markets arbitrage dealers Eurodollars technical analysis futures trading volume, Treasury futures futurity, bonds games, Treasury notes gamma, options gap, financing gap management domestic treasury interest-rate futures swaps GARVEEs (see Grant Anticipation Revenue Vehicles) GCF repos (see general collateral finance repos) general collateral finance (GCF) repos General Motors Acceptance Corporation (GMAC), commercial paper general obligation (GO) bonds general obligation (GO) securities GIC (see guaranteed income contract) Ginnie Mae (see Government National Mortgage Association) Glass-Steagall Act banks/banking global banks, Eurodollars global market, Eurodollars global master repurchase agreement (GMRA), repos global swap books GlobalCash-Europe96 survey, Eurodollars globalization banks/banking communications dealers debt markets investing payments systems trading systems GMAC (see General Motors Acceptance Corporation) GMRA (see global master repurchase agreement) GNMA (see Government National Mortgage Association) go-around, Fed GO (see general obligation securities) GO (general obligation) bonds Government National Mortgage Association (GNMA) pass-through securities REMICs Government Securities Act (1986) Government Securities Division, brokers’ market government-sponsored enterprises (GSEs) growth implicit guarantee Gramm-Leach-Bliley Act banks/banking merchant banks mergers and acquisitions Grant Anticipation Revenue Vehicles (GARVEEs) Greenspan, Alan gross debt, vs. net debt GSEs (see government-sponsored enterprises) guaranteed income contract (GIC), forward transactions haircuts, repos Hamilton, Alexander hawk/dove scale, Fed heading out, federal funds market hedges with basis risk hedging calendar spreads cash-and-carry trade cross hedging curve traders dealers Eurodollars futures hedge ratio hedges with basis risk interest-rate swaps long hedge with no basis risk risk second hedge with no basis risk spreading swap books Treasury Treasury bills Treasury futures zero-coupon approach hedging positions, MTNs HIC (see hold-in-custody repos) history banks/banking BAs ECP Eurodollars Fed federal funds market loans monetarism money market banks Treasury securities hold-in-custody repos (HIC) holding companies Bank Holding Company Act banks/banking IBFs (see International Banking Facilities) IDB (see interdealer brokers) ILCs (see industrial loan corporations) IMM (see International Monetary Market) immunizing a portfolio, future dates implicit guarantee, GSEs indexes, dealers indices Lehman aggregate index Lehman Brothers Global Family of Indices industrial loan corporations (ILCs), banks/banking industrial paper, commercial paper inflation data, trading notes inflation, Fed inflation-indexed securities, Treasury securities information, market sentiment (see market sentiment) information systems, market makers informational calls, discount window inside market, dealers institutional funds, money funds institutions, portfolios insurance, options integration banks/banking Eurodollars interbank placements, Eurodollars interdealer brokers (IDB), Treasury securities Interest Equalization Tax, Eurodollars interest-rate expectations, FRAs interest-rate futures, gap management interest-rate swaps 5-year, fixed-rate asset bank/nonbank dealers banks/banking bells and whistles bogy books brokers convergence trading counterparty risk coupon swaps currency swaps dealer books dealers defining dollar interest-rate-swap market end users Eurodollars exotic FRAs free lunch hedging ISDA jargon market makers master documentation netting offsetting a deposit parallel loans plain vanilla portfolios positive-sum game profit, swap books quanto risk Street-speak trading spreads interest rates auction procedures bonds dealers, predictions Fed FOMC Japan municipal securities (munis) nominal portfolios predictions, dealers real repo rate Treasury securities yield curve ZIRP intermediation banks/banking control Fed matched/mismatched book reasons total financial assets International Banking Act International Banking Facilities (IBFs), Eurodollars International Monetary Market (IMM), IMM swap International Swap Dealers Association (ISDA), interest-rate swaps internationalization, market for Treasuries Internet, electronic trading investing, globalization investors BAs CDs commercial paper corporations, munis ECP Eurobond market Eurodollar CDs loan participations money funds municipal securities (munis) ISDA (see International Swap Dealers Association) Japan deflation ZIRP jargon FRAs interest-rate swaps judgmental approach, Fed junk bonds buyers LBO loans latent investor demand, MTNs LBO loans bear-hug LBOs fears junk bonds legislation (see also regulation) Bank Holding Company Act Bank of England Act Banking Acts Check law Depository Institutions Deregulation and Monetary Control Act Employee Retirement Income Security Act (ERISA) Federal Reserve Act FSA Glass-Steagall Act Government Securities Act (1986) Gramm-Leach-Bliley Act International Banking Act Monetary Control Act (MCA) Riegle-Neal Banking and Branch Efficiency Act Sarbanes-Oxley Act Tax Reform Act Lehman aggregate index Lehman Brothers Global Family of Indices lender of last resort, Eurodollars lenders, Eurodollars lending business banks/banking Eurodollars letter repos portfolios leverage banks/banking futures repos liabilities/assets, corporate finance liability swaps LIBID (see London Interbank Bid Rate) LIBOR (London Interbank Offered Rate) Eurodollars interest-rate swaps lifting a leg, swap books LIMEAN, Eurodollars limits, Eurodollars LIONS (investment opportunity notes) liquidity commercial paper Eurodollars futures loan participations reverse market Treasury futures liquidity effect, federal funds market liquidity enhancements, commercial paper liquidity portfolios liquidity risk, BAs loan participations FASB investors LBO loans liquidity mechanics motivations sales volume short-term, high quality loans loans (see also distribution) asset-backed paper back-to-back banks/banking bullet commercial paper, backstop lines discount window distribution domestic treasury Eurodollars floating vs. fixed rate history ILCs junk bonds LBO loans loan participations parallel loans securitization short-term, high quality syndicated loans Treasury LOC (letter of credit) paper locked market, Eurodollars London Interbank Bid Rate (LIBID), Eurodollars London preeminence, Eurodollars long hedge with no basis risk long-term rates, yield curve M&A (see mergers and acquisitions) M1 Game, Fed MCA (see Monetary Control Act) Macaulay’s duration major players, Eurodollars margin deposits, futures market intelligence, Treasury futures market liquidity, commercial paper market makers analytics systems Bloomberg Professional system clearing banks communications dealers dealers as futures information systems interest-rate swaps MTNs trading systems market participants, futures market sentiment duration money funds Treasury futures marketable Treasury securities marking to market, portfolios master documentation, interest-rate swaps master notes, commercial paper master repo agreements, defining master repurchase agreement (MRA), defining matched/mismatched book covering shorts Eurodollars facilitation device Fed statistics financial intermediaries financing the dealer’s position functions generating borrowed funds growth mismatching the book, banks profit repos reverses trading collateral matched-sale purchases (MSPs) Fed repos maturities BAs CDs MTNs maturity choice dealers domestic treasury portfolios maturity distribution, BAs maturity of securities purchased, portfolios MBS (see mortgage-backed securities) medium-term money banks/banking Eurodollars medium-term notes (MTNs) 30/360 vs. actual/360 hurdle bank deposit notes bank notes banks/banking beginnings bells and whistles commercial paper vs. corporate bonds dealers Euro MTNs floating-rate MTNs growth, market hedging positions latent borrower demand latent investor demand market makers maturities Merrill money market swaps new-issue market new issues privately placed paper product rating secondary market shelf registration yields merchant banks Eurodollars Gramm-Leach-Bliley Act syndicated loans mergers and acquisitions (M&A) corporate finance Gramm-Leach-Bliley Act Merrill CMA money funds MTNs middleware trading platforms, electronic trading mismatch strategies banks/banking Eurodollars mismatching the book (see also matched/mismatched book) banks/banking MMDAs (see money market deposit accounts) monetarism downside Fed history pitfalls monetarist experiment, Fed Monetary Control Act (MCA) Fed monetary policy Fed implementing transmission effects Monetary Policy Report to Congress, Fed money center banks money creation money, defining money funds accounting procedures assets bank trust departments banks/banking central-asset accounts CMA consumers’uses demand notes flavors growth hot money institutional funds investing in investors management fee managing market sentiment Merrill money supply municipal securities (munis) penny-rounded fund portfolios raison d’être rising rates safety of principal STIFs strategies STRIPS tax-exempt taxable-fund portfolios VRDO withdrawing funds yields money market characteristics features functions overview scope money market banks (see also banks) history money market deposit accounts (MMDAs), Fed money market funds (see money funds) money market swaps arbitrage basis swaps classic deposit notes floating-to-floating swaps FRAs IMM swap MTNs speculative vehicle swapping spreads money supply control defining Fed fed funds rate federal funds market money funds mortgage-backed, pass-through securities mortgage-backed securities (MBS) MRA (see master repurchase agreement) MSPs (see matched-sale purchases) MTNs (see medium-term notes) multicurrency commercial paper municipal bond insurance, municipal securities (munis) municipal commercial paper municipal notes [see municipal securities (munis)] municipal securities (munis) BANs book entry brokers characteristics competitively bid deals corporations investors credit enhancements credit risk credit spreads dealers disclosure equivalent taxable yield GARVEEs GOs interest rates investors issuance market technicals money funds municipal bond insurance negotiated deals new-issue market price volatility RANs ratings real-time reporting revenue securities risk RTRS secondary market TANs tax reform Tax Reform Act taxable yield taxation TRANs types VRDO WI trading yearly issuance yield yield, taxable naked trading, dealers negative-sum game, portfolios negative value basis, Treasury futures negotiable order of withdrawal (NOW) accounts, Fed net debt, vs. gross debt net financial investment, by sector net interest margin, banks/banking net repo financing netting, interest-rate swaps new-issue market CDs MTNs municipal securities (munis) new issues, MTNs NIFs (see note issuance facilities) NOB (notes over bonds) trade, Treasury futures nominal interest rates, Fed nonborrowed-reserves procedure, Fed nonmarketable Treasury securities nonmember banks, discount window note issuance facilities (NIFs), ECP notes [see also medium-term notes; municipal securities (munis)] bank notes deposit notes trading notes Treasury notes Treasury securities NOW accounts (see negotiable order of withdrawal accounts) off–balance sheet items banks/banking Eurodollars off-the-run issues, Treasury notes oil dollars OPEC, Eurodollars open interest, Treasury futures open market operations (see also Federal Open Market Committee) Fed open repos open reverses, reverse market opening, brokers’ market operation twist, Fed opportunity cost portfolios risk options Black-Scholes model call options combining delta gamma insurance portfolios price of underlying asset prices put-call parity put options replication rho risk-free-rate speculation strike price theta time to maturity trading uses value valuing vega volatility zero-sum game options trading volume, Treasury futures out trades brokers’ market risk over-the-counter derivatives markets, global turnover over-the-counter foreign exchange derivatives markets, swaps market overnight money, federal funds market overnight rates, Eurodollars overnight repo rate overview, money market own-name dealer paper, commercial paper pace/professionalism brokers Eurodollars packs, Eurodollars par bonds parallel loans, interest-rate swaps pass-through securities Fannie Maes Freddie Mac GNMA mortgage-backed private passes, Fed payments systems (see also communications) globalization penny-rounded fund, money funds pension funds debt absorption ERISA Treasury performance bonds, futures performance tracking, portfolios petrodollars, Eurodollars Phillips curve, Fed pit trading, futures plain vanilla swaps defining policy anticipation hypothesis, yield curve policy, monetary (see monetary policy) policy statements Fed federal funds market political pressures, Fed portfolio diversification, futures portfolio managers, dealers portfolios accounting hang-up arbitrage asymmetric positions, investor/issuer banks/banking big shooters break-even reverse rate compounding computer programs contrarian view credit risk dedicated domestic treasury extension swaps Fed futures institutions interest-rate swaps interest rates letter repos liquidity managing marking to market maturity choice maturity of securities purchased money funds negative-sum game opportunity cost options parameters performance tracking relative value repos restrictive guidelines reverses to maturity riding the yield curve risk short-term shorting securities small software stability of return strategies Street’s view term repos time horizon tracking performance trends unified World Bank yield curve yield spreads position limits, dealers position profits, dealers positioning, dealers positive-sum game, interest-rate swaps positive value basis, Treasury futures predictive power, yield curve preexport, BAs premium bonds prepayment BAs commercial paper present value, bonds price auctions, Treasury price fluctuations, bonds price quotes bonds futures price risk bonds dealers price sensitivity, duration price value of an 01, duration price volatility bonds municipal securities (munis) prices, options primary dealers Fed Treasury notes Treasury securities prime demise, corporate finance principal amount, Treasury futures principal investments, dealers principals, dealers private pass-throughs profit banks/banking matched/mismatched book position profits swap books Treasury notes profit sources, dealers proprietary products, dealers protocols, bill market put-call parity, options put options quanto interest-rate swaps quotes and maturities, Eurodollars quotes to retail, bill market quoting the market, brokers’ market raison d’être, Fed RANs (see Revenue Anticipation Notes) rate lid on bonds, Treasury rate risk, corporate finance rating tiering, commercial paper ratings commercial paper municipal securities (munis) REA series bonds (see Rural Electrification Administration series bonds) real estate mortgage investment conduits (REMICs), GNMA real interest rates real market bill market brokers’ market real-time reporting, municipal securities (munis) Real-Time Transaction Reporting System (RTRS), municipal securities (munis) real yields factors affecting trading notes rebooking, federal funds market recession probabilities, yield curve REFCorp (see Resolution Funding Corporation) refunding provisions, bonds regularization of debt, Treasury regulated securities, vs. exempt securities regulation (see also deregulation; legislation) Bank of England banks/banking Eurodollars foreign banks in London futures Regulation Q, Eurodollars regulatory purposes, Treasury regulatory reforms, repos relative value dealers portfolios REMICs (see real estate mortgage investment conduits) replication, options repos (see also reverses) brokering collateralized loan continuing contract credit risk dealer leverage dealer safekeeping dealers defining definitions domestic treasury Fed open market operations Fed statistics Fed use forward market full accrual pricing GCF repos GMRA Government Securities Act (1986) haircuts HIC letter repos margin market market decisions market growth master repo agreements matched/mismatched book MRA MSPs net repo financing open market operations open repos overnight repo rate portfolios regulatory reforms repo market repo rate repo rate, overnight reverse in reverse market right of substitution SEC term repos tri-party repos yield curve repurchase agreements (see repos) reputation risk, BAs reserve adjustments, federal funds market reserve requirements contemporaneous reserve accounting Fed reserves available to support private deposits (RPDs), Fed reserves-oriented operating procedure, Fed Resolution Funding Corporation (REFCorp) S&L crisis restrictive guidelines, portfolios Revenue Anticipation Notes (RANs) revenue bonds revenue securities, municipal securities (munis) reverse in dealers repos reverses (see also repos) borrowers brokering brokers dealers defining discount window Fed statistics Fed use Government Securities Act (1986) liquidity matched/mismatched book open reverses reverse market reverse rate risk SEC special collateral repo market specific issues market term reverses reverses to maturity portfolios reversing in securities, vs. borrowing securities revolving underwriting facilities (RUFs), ECP rho, options riding the yield curve, portfolios Riegle-Neal Banking and Branch Efficiency Act right of substitution, repos risk accounting hang-up arbitrage banks/banking BAs bonds brokers brokers’ market commercial paper communications counterparty risk country risk credit risk, BAs credit risk, municipal securities (munis) credit risk, portfolios credit risk, repos dealers Eurodollars foreign-exchange risk futures hedging interest-rate swaps municipal securities (munis) opportunity cost out trades portfolios price risk rate risk, corporate finance reverse market sovereign risk SPAN tails risk analysis, bonds risk-free rate, options risk premium, yield curve role, Fed roll-down, bonds round robin, fails RP agreements (see repos) RPDs (see reserves available to support private deposits) RTRS (see Real-Time Transaction Reporting System) RUFs (see revolving underwriting facilities) Rural Electrification Administration (REA) series bonds Russia, Eurodollars S&L crisis (see savings and loan crisis) sale-repurchase agreement, defining sales force, dealers Sallie Mae (see Student Loan Marketing Association) Sarbanes-Oxley Act, banks/banking Saturday Night Special savings and loan (S&L) crisis, federal agencies savings bonds debt absorption savings deposits, domestic treasury scalpers, futures scope, money market screens, brokers’ seasonal credit, discount window seasoning, Treasury notes SEC (see Securities and Exchange Commission) second hedge with no basis risk secondary market commercial paper dealers MTNs municipal securities (munis) Treasury securities securities governments vs. corporates maturity choice portfolios security choice taxable bond portfolios Securities and Exchange Commission (SEC) commercial paper repos/reverses Treasury securities Securities Industry Association (SIA), banks/banking Securities Investment Board (SIB) securitization banks/banking deregulation loans security choice, domestic treasury sentiment, market (see market sentiment) Separate Trading of Registered Interest and Principal Securities (STRIPS) arbitrage market STRIPS outstanding trading Treasury securities servicing customers, dealers settlement date, discount window settlement, Treasury securities settlement Wednesday, federal funds market short coupons, Treasury notes Short-Term European Paper (STEP), European commercial paper short-term, high-quality loans short-term investment funds (STIFs), money funds short-term investment pools (STIPs), money funds short-term portfolios short-term rates, Eurodollars shorting, dealers shorting securities, portfolios SIA (see Securities Industry Association) SIB (see Securities Investment Board) SLUGS (see State and Local Government Series) small portfolios Society for Worldwide Interbank Financial Telecommunications (SWIFT), Eurodollars soft arbitrage software, portfolios SOMA (see system open market account) sovereign borrowers, commercial paper sovereign risk SPAN (see standard portfolio analysis of risk) special collateral repo market, reverses specific issues market, reverses speculation dealers futures options Treasury speculative-grade bonds speculative vehicle, money market swaps spread products, Fed spreading, hedging spreads, bonds stability of return, portfolios standard portfolio analysis of risk (SPAN), futures State and Local Government Series (SLUGS) debt absorption Treasury securities STEP (see Short-Term European Paper) STIFs (see short-term investment funds) STIPs (see short-term investment pools) strategies money funds portfolios Street-speak, interest-rate swaps Street’s view, portfolios strike price, options STRIPS (see Separate Trading of Registered Interest and Principal Securities) strips, Treasury Student Loan Marketing Association (Sallie Mae) subscription issues, Treasury supply, money (see money supply) swap books assignment brokering global hedging lifting a leg profit swaps (see also interest-rate swaps; money market swaps) arbitrage cross-currency swaps dollars into yen Eurodollars gap management mechanics swapping yen into dollars swaps curve Eurodollars swaps market CDSs over-the-counter foreign exchange derivatives markets sizing up swaptions SWIFT (see Society for Worldwide Interbank Financial Telecommunications) syndicated loans ECP Eurodollars fees mechanics merchant banks system open market account (SOMA), Fed T-accounts, Eurodollars T-bills TAAPS (see Treasury Automated Auction Processing System) TABs (see tax anticipation bills) tail management, dealers tails dealers risk TANs (see Tax Anticipation Notes) targets, Fed Tax and Revenue Anticipation Notes (TRANs) tax anticipation bills (TABs), Treasury Tax Anticipation Notes (TANs) tax-exempt commercial paper tax-exempt money funds Tax Reform Act, municipal securities (munis) tax reform, municipal securities (munis) taxable bond portfolios, domestic treasury taxable-fund portfolios, money funds taxation, municipal securities (munis) team, trading technical analysis dealers futures markets technical arbitrage TED spread (see Treasury versus Eurodollar spread) Tennessee Valley Authority (TVA) term fed funds, federal funds market term repos arbitrage portfolios term reverses, reverse market term structure of interest rates, duration terminology, Eurodollars theta, options thrift CDs thrifts, discount window tiering across borders BAs CDs Eurodollars FRAs TIGRS (Treasury income growth receipts) time-deposit market, Eurodollars time deposits time drafts time horizon, portfolios time to maturity, options TIPS (see Treasury Inflation-Protected Securities) tolerance ranges, Fed top U.S. banks tracking performance, portfolios traders, dealers trading (see also electronic trading) banks/banking chain dealers team trading hours, Eurodollars trading notes announcements complexity data inflation data real yields trading options trading spreads, interest-rate swaps trading systems communications globalization market makers trading the sheet, brokers’ market TRANs (see Tax and Revenue Anticipation Notes) transaction risk, BAs transitory arbitrage transmission effects Fed monetary policy transparency futures Treasury Treasury bill auctions bill strips cash management bills debt absorption debt management, historical debt management, today debt regularization economic uses exchange offerings financing use hedging loans pension funds price auctions rate lid on bonds regularization of debt regulatory purposes speculation strips subscription issues TABs transparency yield auctions Treasury Automated Auction Processing System (TAAPS), Treasury securities Treasury balances, Fed Treasury bills hedging Treasury futures accrued interest basis basis trading bond basis calendar spreads carry carry-adjusted basis cheapest to deliver contract convergence conversion factor COT report deliverable grades delivery factor delivery options delivery period delivery provisions factor bias foreign government bonds forward price futures trading volume hedging invoice price invoicing principal liquidity market intelligence market sentiment NOB trade open interest options trading volume principal amount switch option timely deliveries TUT spread value basis yield-enhancement trade Treasury income growth receipts (TIGRS) Treasury Inflation-Protected Securities (TIPS) Treasury notes brokers current issues dealers games notes vs. notes off-the-run issues primary dealers profit seasoning short coupons trading notes trading with retail WI trading Treasury securities active market attraction to investors auction procedures benchmark status bidding systems bill auctions bills bond market bonds book-entry securities brokers debt absorption Dutch auctions ECN electronic trading expansion FICC flower bonds history IDB inflation-indexed securities interest rates marketable nonmarketable notes ownership primary dealers SEC secondary market settlement SLUGS STRIPS summary TAAPS TIPS trading volume types vs.

In particular, during the post–World War II period, as loan demand surged and banks strove for continued earnings growth, bank capital ratios declined substantially. The trend lasted until the early 1990s following the savings and loan crisis before improving. Since then, however, bank capital has increased to levels that regulators consider healthy. Figure 6.18 shows the relatively stable condition of bank capital that existed between 1990 and 2005. As the chart shows, capital levels increased sharply in the early 1990s, reflecting both the end of the savings and loan crisis and the effects of Basel I, which imposed higher capital standards on the banking industry. Since then, capital levels have moved largely sideways.

Variable-rate CDs represented about 10% of outstanding large CDs during the 1980s. That number had shrunk to only about 2% of outstanding large CDs by the early 1990s, when interest-rate levels had begun to decline and investors were no longer seeking the inflation protection they once did.2 In addition, the weak banking system evident in the savings and loan crisis at that time probably turned some investors away from bank products. Discount CDs Negotiable discount CDs are issued at a discount to their final maturity value, just like T-bills. They are issued mostly by large money center banks directly to their customers with terms of as long as five years, but usually between one and six months.


pages: 337 words: 89,075

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio by Victor A. Canto

accounting loophole / creative accounting, airline deregulation, Andrei Shleifer, asset allocation, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, corporate governance, discounted cash flows, diversification, diversified portfolio, fixed income, frictionless, high net worth, index fund, inflation targeting, invisible hand, John Meriwether, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low cost airline, market bubble, merger arbitrage, money market fund, new economy, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, price mechanism, purchasing power parity, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, Savings and loan crisis, selection bias, shareholder value, Sharpe ratio, short selling, statistical arbitrage, stocks for the long run, survivorship bias, Tax Reform Act of 1986, the market place, transaction costs, Y2K, yield curve, zero-sum game

See empirical method Reagan, Ronald, 55, 73-74, 76-77, 83, 90, 95 real GDP growth rate, 95-100 real interest rates, equity/fixed-income cycles and, 53-54 real rates-of-return, 190-192 regional companies, 190 regional factor, 191 regional stock indices, location effect and, 198-202 regulatory fixed costs, 184-185 residual risk, 3 Resolution Trust Corporation, 76 retirement planning, asset allocation and, 3-4 return-delivery vehicles, tax-rate changes and, 69-70 capital gains, 76-79 debt financing, 73-76 incentive structure effects, 70-73, 80-84 reward-to-risk ratio (hedge funds), 228-230 risk, systematic risk, 113 risk measurement, 2-3, 19-21. See also Sharpe ratio market allocations, 113 reward-to-risk ratio (hedge funds), 228-230 S S&L (Savings and Loan) crisis, 76 S&P (Standards and Poor), 77 S&P 500 index cap-weighted index, 176, 242-245 constraints of, 165 equal-weighted index, 176, 242-245 S&P/BARRA indices, 21 SAA. See strategic asset allocation sample period length of, 285n reasons for choosing, 284n sample-selection bias, 27, 30, 40 Samuelson, Paul, 211 Savings and Loan (S&L) crisis, 76 self-reporting bias, 228 Sharpe ratio, 2-3, 21 for benchmark portfolio, 114 for equal- and cap-weighted portfolios, 179 location portfolios, 61-63 location-based asset allocation, 35 size-based asset allocation, 32, 123 style-based asset allocation, 28, 121 T-bond/equity portfolios, 38, 119 Sharpe, William, 57 Siegel, Jeremy (Stocks for the Long Run), 25 single asset buy-and-hold, 12-13 Sinquefield, Rex A., 164-165, 169 size cycles, 54-55 active versus passive management during, 170-172, 175, 271-272 combining active and passive management, 180-182 equal-weighted versus cap-weighted indexes, 175-180 hedge funds and, 235-239 market breadth and, 168-170, 237-238 in value-timing strategy, 243-250 size-based asset allocation cyclical asset allocation and, 31-32, 123 optimal mixes, 23-24 small-cap stocks active management tested against passive management, 166-168 annual returns, 19 elasticity, 184, 187-189 location effect and, 193-198, 202-204, 213, 273-274 optimal mix with large-cap stocks, 23-24, 31-32, 123 performance of, 16, 41 regulatory fixed costs, 184-185 risk measurement, 20 size cycles, 54-55 active versus passive management during, 170-172, 175, 271-272 Index 313 equal-weighted versus cap-weighted indexes, 175-180 and market breadth, 168-170, 237-238 in value-timing strategy, 243-250 Smith, Adam, 169 stagflation, 99 Standards and Poor (S&P), 77 stock indices, constructing, xx-xxi, 272-273 Stocks for the Long Run (Siegel), 25 strategic asset allocation (SAA), xx, 13 active versus passive management, 252-255 as benchmark, 104 historical allocations, 104-108, 113-115 lifecycle allocations, 115-116 market allocations, 108-115, 266-269 cyclical asset allocation (CAA) versus, 59-65, 141-142 optimal mixes, 21-26 style cycles, 55-57 style differences, value versus growth stocks, 272-273 style-based asset allocation, 18 cyclical asset allocation and, 26-30, 121 optimal mixes, 22-23 supply shifts, 217-224 supply-and-demand analysis.

Milken went to jail, and his firm (Drexel Burnham Lambert) went under. Yet, the tax code in the scandal’s wake left the debtadvantage unchanged. So, the debt slowdown during this period was not because the demand subsided. Rather, it was because the financing dried out with the advent of the Savings and Loan (S&L) crisis and Congress’s creation of the Resolution Trust Corporation, which was charged with cleaning up the S&L mess. During the Resolution Trust years, the net debt flow became negative. In stylized fashion, the S&L insurance and regulations created a one-sided bet that was a recipe for disaster. The depositors did not worry too much as long as their deposits were insured.


pages: 202 words: 66,742

The Payoff by Jeff Connaughton

algorithmic trading, bank run, banking crisis, Bear Stearns, Bernie Madoff, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, desegregation, Flash crash, locking in a profit, London Interbank Offered Rate, London Whale, Long Term Capital Management, naked short selling, Neil Kinnock, Plutocrats, plutocrats, Ponzi scheme, risk tolerance, Robert Bork, Savings and loan crisis, short selling, Silicon Valley, too big to fail, two-sided market, young professional

She assured the committee that the department understood, as the attorney general had said, that it “must reinvigorate” its capacity to investigate financial fraud. Leahy elicited an important comparison from Deputy Director Pistole. After the S&L crisis, the FBI had had 1,000 agents and analysts working on twenty-seven strike forces to target criminal activity. At the time of this hearing, Pistole said, the FBI had only 240 agents targeting financial fraud. And the fraud potentially involved in the current financial crisis, Pistole said, “dwarfs” that of the S&L crisis. Pistole also reminded the committee that the FBI had warned Congress several years ago about the increase in mortgage fraud. Pistole quoted the testimony in 2004 of former FBI Assistant Director Chris Swecker before the House Financial Services Sub-Committee: If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market.

Leahy motioned for Ted to sit next to him, so I walked over and grabbed the nameplate and brought it over before taking my seat along the wall, just behind my new boss. Chairman Leahy, as a courtesy, let Senator Grassley speak first. Leahy, a former prosecutor himself, went next. He recalled the Savings and Loan crisis of the 1980s and early 1990s and how the Judiciary Committee had helped to “rebuild the Department of Justice’s ability to enforce fraud laws” after that national fiasco. As for the current financial crisis, Leahy believed that lax supervision in the mortgage industry had created an atmosphere of “Hey, come on in, fraud is welcome,” and that “Wall Street financiers” had contributed to the disaster.

Pistole quoted the testimony in 2004 of former FBI Assistant Director Chris Swecker before the House Financial Services Sub-Committee: If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market. What’s transpired since then, Pistole said, has been far worse than Swecker had predicted. What had happened in fraud law enforcement since the S&L crisis and since Swecker’s prediction in 2004? Not only did the FBI have far fewer agents working on financial fraud, but, in the run-up to the disaster, the law enforcement and regulatory system had failed to heed clear FBI warnings that mortgage fraud could become epidemic. When it was his turn to question, Kaufman stated the obvious: “Clearly there are not enough agents.”


pages: 251 words: 76,128

Borrow: The American Way of Debt by Louis Hyman

asset-backed security, barriers to entry, big-box store, business cycle, cashless society, collateralized debt obligation, credit crunch, deindustrialization, deskilling, diversified portfolio, financial innovation, Ford paid five dollars a day, Home mortgage interest deduction, housing crisis, income inequality, market bubble, McMansion, mortgage debt, mortgage tax deduction, Network effects, new economy, Paul Samuelson, Plutocrats, plutocrats, price stability, Ronald Reagan, Savings and loan crisis, statistical model, Tax Reform Act of 1986, technology bubble, transaction costs, women in the workforce

S&Ls could get the capital they needed from small-time savers—but only through the bond markets. To compete with other investments, S&Ls had to either sell off their mortgages or, in the case of the many hucksters, engage in such absurdly risky lending that they became more Las Vegas than Wall Street, which eventually led to the S&L crisis. The narrative of the S&L crisis that most Americans who lived through it remember is one of outrageous fraud by bank managers. It crushed many small depositors’ savings. Though I was a child in Baltimore in the 1980s, I can still clearly remember seeing family friends lined up in the parking lot outside the Old Court Savings and Loan—one of the most notorious examples of bank managers run amok.

If S&Ls bought mortgages, they were just like any other anonymous bondholder—nothing special. The real S&L crisis was not a few deregulated hucksters but the complete shift of Americans’ savings from banks to markets. Mortgage and finance companies could just as easily originate mortgages—and many did. In 1984, the same Salomon Brothers that had packaged mortgages for S&Ls and commercial banks sold $100 million in mortgage-backed securities from American Southwest Finance Company. The same secondary mortgage market that saved S&Ls also killed them—at least as they were traditionally run. The S&L crisis showed, ultimately, that S&Ls might no longer be needed.

Like many other banks, it lent low during the prosperity—and felt the sting as interest rates rose. By 1981, on average, it had to pay 11.4 percent to its depositors while only getting 10 percent from its mortgages—losing 1.4 percent! It hadn’t lost money since 1893, yet now it was bleeding dry. The resolution of this defect would bring about the savings and loan crisis of the 1980s and solidify securitization as the true foundation of American borrowing. According to the president of Freddie Mac, Kenneth Thygerson, the S&Ls’ share of new mortgages fell from 60 percent in 1976 to 42 percent in 1982.60 Without access to cheap capital to lend, S&Ls were collapsing, and Freddie Mac was the only way to save them.


pages: 526 words: 160,601

A Generation of Sociopaths: How the Baby Boomers Betrayed America by Bruce Cannon Gibney

1960s counterculture, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Bear Stearns, Bernie Madoff, Bernie Sanders, bond market vigilante , Bretton Woods, business cycle, buy and hold, carbon footprint, Charles Lindbergh, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate personhood, Corrections Corporation of America, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, dark matter, Deng Xiaoping, Donald Trump, Downton Abbey, Edward Snowden, Elon Musk, ending welfare as we know it, equal pay for equal work, failed state, financial deregulation, Francis Fukuyama: the end of history, future of work, gender pay gap, gig economy, Haight Ashbury, Home mortgage interest deduction, Hyperloop, illegal immigration, impulse control, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jane Jacobs, Kitchen Debate, labor-force participation, Long Term Capital Management, Lyft, Mark Zuckerberg, market bubble, mass immigration, mass incarceration, McMansion, medical bankruptcy, Menlo Park, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, neoliberal agenda, Network effects, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shock, operation paperclip, Plutocrats, plutocrats, Ponzi scheme, price stability, prosperity theology / prosperity gospel / gospel of success, quantitative easing, Ralph Waldo Emerson, RAND corporation, rent control, ride hailing / ride sharing, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, school choice, secular stagnation, self-driving car, shareholder value, short selling, side project, Silicon Valley, smart grid, Snapchat, source of truth, stem cell, Steve Jobs, Stewart Brand, survivorship bias, TaskRabbit, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, War on Poverty, white picket fence, Whole Earth Catalog, women in the workforce, Y2K, Yom Kippur War, zero-sum game

The private sector, as its proponents trumpet (and in a different context, I’m a fan of the private sector), is an engine for innovation, though under the Boomers inventiveness slid quickly into fraud, helped in substantial part by a sustained deregulatory push. Again, warnings abounded. The first wave of financial deregulation in the late 1970s helped precipitate the savings and loan crisis in the succeeding years. The S&L crisis was not primarily the fault of the Boomers, though some Boomers were involved, like Neil Bush, the red dwarf in the ever-dimming Bush galaxy.* The S&Ls, which had just a few years earlier begged for relief from government oppression, were forced to go back to DC and plead for bailouts.

Briefly a presidential candidate, Fiorina glossed over the price shareholders paid for her bad decisions, perhaps remembering only the handsome payout she received on being fired. That was not Fiorina’s only scandal at HP; there were also the iffy sales of equipment to an embargoed Iran during her tenure, though perhaps that counts as a “foreign policy credential.”12 Irregular Regulation The S&L crisis had been created, in part, by the loosening of regulatory strictures. Even as the hangover from the S&L crisis lingered until the mid-1990s, the Boomer neoliberal machine and its selective memory were busily forgetting the follies of the past while remembering the lessons that mattered. By the 1990s, Congress was firmly in the hands of the Boomers and could be counted on for two things: (1) watering down regulations, and (2) providing bailouts should anything go wrong.

It would be convenient, perhaps even comforting, to dismiss financial impropriety under the Boomers as just the product of a few bad actors in a perpetually disreputable industry. The evidence does not fully admit such consolations. For decades after World War II, personal probity and a new regulatory framework produced a calmer and more honest system. With the exception of the Savings and Loan crisis (in which some Boomers participated), bubbles and scandals were comparatively few and small. As the Boomers took greater control of both the public and private sectors, financial scandals grew to a scale never before seen and we now live in an era of permanent financial emergency. It was not just the work of isolated bankers or sloppy regulators.


pages: 549 words: 147,112

The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History by Kirsten Grind

asset-backed security, bank run, banking crisis, Bear Stearns, big-box store, call centre, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, fixed income, housing crisis, Maui Hawaii, money market fund, mortgage debt, naked short selling, NetJets, Savings and loan crisis, shareholder value, short selling, Shoshana Zuboff, Skype, too big to fail, Y2K

While the FDIC suffered from feelings of inadequacy in comparison with other agencies, the OTS’s ranking was even more diminutive. The agency was relatively new, formed as a result of the Savings and Loan Crisis in 1989. Before the crisis, a three-person Federal Home Loan Bank Board oversaw savings and loan banks and the country’s home loan bank system. “That was a very powerful agency when it was set up that way,” said the former regulator. New financial reform, passed as a result of the Savings and Loan Crisis, created the OTS. It was the smallest of the four regulatory agencies, overseeing about 850 banks, and was always considered the weaker of the banking regulators.

Over the preceding weeks, Ada and Luis, himself a former banker, had followed the news about WaMu. Much of the time it was hard to piece together what was going on. It seemed like a lot of bad news—the stock price kept falling, and now the company was up for sale?—but the Osorios continued to have faith. WaMu had survived both the Savings and Loan Crisis and the Great Depression, after all. Less than six months earlier, the bank had landed $7.2 billion in private equity from TPG, a group of seasoned investors. WaMu would pull through. Ada stood in front of the TV, pictures of her family hanging on the walls. On CNBC, anchor David Faber, speaking with urgency, updated an earlier story: “JPMorgan is going to be buying more than just the deposit base of Washington Mutual.

This time banks were failing by the hundreds because of an energy downturn in oil states like Texas and Oklahoma, a commercial real estate bust in California and the Northeast, and an agricultural recession rippling through the midwestern states. In each region, banks had made loans that soured because of their region’s respective downturn. Bank failures would surge to more than 1,000 during the Savings and Loan Crisis, the highest number since Pepper’s sister saw her college funds evaporate. One of the banks that failed early on was Continental Illinois National Bank and Trust Co., the largest financial institution in Chicago and one of the ten largest nationwide. “The Continental” had grown in the 1970s after its management team set an ambitious goal: to become one of the largest commercial real estate lenders in the United States.


pages: 350 words: 109,220

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

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

Ben Bernanke soon would discover what happens when the music stops, but he had good reason to believe that his team had the experience, smarts, and tools to manage the situation. Chapter 6 THE FOUR MUSKETEERS: BERNANKE’S BRAIN TRUST By the summer of 2007, the Fed was stocked with veterans of market crises: the stock market crash of 1987, the savings and loan scandal of the late 1980s and early 1990s, the commercial banking and real estate woes of the early 1990s, the Asian financial crisis of the late 1990s, the bursting of the tech-stock bubble in 2000, and the September 11 terrorist attacks. The conventional wisdom was that crises were unavoidable despite all the best efforts at prevention.

COMPARES IT TO TWEED DAYS Cites Architects’ and Engineers’ Fees of $1,106,000 — Suggests Gov. Strong’s Resignation” New York Times, December 17, 1921, 25. http://query.nytimes.com/gst/abstract.html?res=9C02E2DA113EEE3ABC4F52DFB467838A639EDE 10 “Everyone out there knew” Interview, Henry Paulson. 13 Between 1986 and 1995: Timothy Curry and Lynn Shibut, “The Cost of the Savings and Loan Crisis: Truth and Consequences,” FDIC Banking Review, December 2000. http://www.fdic.gov/bank/analytical/banking/2000dec/ brv13n2_2.pdf and http://www.fdic.gov/bank/analytical/ banking/2000dec/brv13n2_2.pdf 15 “U.S. Helps Lehman” David Cho, Heather Landy, and Neil Irwin, “U.S. Helps Lehman Go Up for Sale; Regulators Are Seeking a Weekend Deal Not Involving Public Money,” Washington Post, September 12, 2008, A1. 15 “For market discipline” Henry Paulson, “Remarks on the U.S., the World Economy and Markets before the Chatham House,” London, July 2, 2008. http://treas.gov/press/releases/hp1064.htm 18 “If we’re going to do” Susanne Craig, Jeffrey McCracken, Aaron Lucchetti, and Kate Kelly, “The Weekend That Wall Street Died — Ties That Long United Strongest Firms Unraveled as Lehman Sank Toward Failure,” Wall Street Journal, December 29, 2008, A1. 18 Thain tried: Bank of America Corp, Form DEFM14A, November 3, 2008. 19 “We are not going” Interviews, Treasury staff. 20 Barclays later bought: http://www.barcap.com/ static/BarCap/Press%20office/Attached%20Document/ Lehman_Press_Release_170908.pdf _acquisition.pdf 22 “I never once considered” Transcript at http://georgewbush-whitehouse.archives.gov/ news/releases/2008/09/20080915-8.html 23 Paulson said months later: Interview, Henry Paulson. 23 “In the case of Lehman Brothers” House Financial Services Committee, hearing, September 24, 2008. 23 “Everything fell apart” Alan Blinder, “Six Errors on the Path to the Financial Crisis,” New York Times, January 25, 2009. http://www.nytimes.com/2009/01/25/business/ economy/25view.html?


pages: 222 words: 50,318

The Option of Urbanism: Investing in a New American Dream by Christopher B. Leinberger

addicted to oil, American Society of Civil Engineers: Report Card, asset allocation, big-box store, centre right, commoditize, credit crunch, David Brooks, desegregation, Donald Trump, drive until you qualify, edge city, full employment, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, knowledge economy, McMansion, mortgage tax deduction, new economy, New Urbanism, peak oil, Ponzi scheme, postindustrial economy, RAND corporation, Report Card for America’s Infrastructure, reserve currency, Richard Florida, Savings and loan crisis, Seaside, Florida, the built environment, transit-oriented development, urban planning, urban renewal, urban sprawl, walkable city, white flight

The result was the collapse of 1,043 S&Ls (one-third of the total), many commercial banks, and a financial hit taken by many real estate institutional investors, including many insurance companies. The entire U.S. banking system was put in jeopardy, so much so that the federal government was forced to take drastic action. As a retrospective Federal Deposit Insurance Corporation (FDIC)–issued study stated, the S&L crisis was “the greatest collapse of US financial institutions since the 1930s.”2 The S&L financial crisis was the defining moment of the past half century for the U.S. real estate industry. This crisis affected the financing of this huge segment of the economy, the budget stability of the federal government, and the overall economic performance of the nation.

This was in spite of a Presidential Executive Order by Carter, which was later reissued by Clinton, that encouraged agencies to locate downtown. CHAPTER 3 1. The Hoyt Group, “Real Estate Capital Flows Research Program,” http:// www.hoyt.org/capital_flows/index.html. 2. Timothy Curry and Lynn Shibut, “The Cost of the Savings and Loan Crisis,” FDIC Banking Review, 2002 http://www.fdic.gov/bank/analytical/ banking/2000dec/brv13n2_2.pdf. 3. Ibid. 4. See the U.S. Department of Transportation, Federal Highway Administration, “TEA-21—Transportation Equity Act for the 21st Century,” http://www.fhwa.dot.gov/tea21/suminves.htm#fl. 5.

HT384.U5L45 2008 307.760973—dc22 2007026186 Printed on recycled, acid-free paper Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 Search terms: urban, suburban, sprawl, auto-dependent, real estate product development types, transportation, Futurama, affordable housing, inclusionary zoning, impact fees, New Urbanism, transit-oriented development, American Dream, S&L crisis, walkable urbanism, drivable sub-urbanism, global warming, carbon load, obesity, asthma, favored quarter, metropolitan, regionalism, urbanization, population growth, REIT For Helen, Lisa, and Tom Also for Bob, Gadi, Joe, Pat, and Robert C ONTENTS Preface | ix INTRODUCTION 1 FUTU RAMA | AND THE 1 2 0 TH- C E N T U RY AMERICAN DREAM | 12 2 TH E R I S E 3 T H E S TA N D A R D R E A L E S TAT E OF D R I VA B L E S U B - U R B I A | P R O D U C T TY P E S : W H Y E V E R Y P L A C E LO O K S L I K E EV E RY PL AC E EL S E 4 CONSEQUENCES OF D R I VA B L E SUB - URBAN GROW TH 5 63 TH E M A R K E T R E D I S C OV E R S WA L K A B L E U R B A N I S M 6 | | 86 D E F I N I N G WA L K A B L E U R B A N I S M : WH Y M O R E IS BETTER | 113 vii | 45 31 viii | CONTENTS 7 UNINTENDED CONSEQUENCES WA L K A B L E U R B A N I S M 8 ACH I EVI NG LEVELING THE THE | OF 13 8 NEX T AMERICAN DREAM : P L AY I N G F I E L D AND I M P L E M E N T I N G WA L K A B L E U R B A N I S M N OT ES INDEX | | 177 2 01 | 15 0 P REFACE When I was a young child my mother took me to Center City, Philadelphia from our inner-suburban home to visit my father in his office and to go shopping.


When Free Markets Fail: Saving the Market When It Can't Save Itself (Wiley Corporate F&A) by Scott McCleskey

Asian financial crisis, asset-backed security, bank run, barriers to entry, Bear Stearns, Bernie Madoff, break the buck, call centre, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, financial innovation, fixed income, information asymmetry, invisible hand, Isaac Newton, iterative process, Long Term Capital Management, margin call, money market fund, moral hazard, mortgage debt, place-making, Ponzi scheme, prediction markets, risk tolerance, Savings and loan crisis, shareholder value, statistical model, The Wealth of Nations by Adam Smith, time value of money, too big to fail, web of trust

The prudent thing for a company treasurer to do in such a situation is to start pulling the company’s money out of money market funds at least until the situation becomes clear. Indeed, by the end of the week more than $200 billion had been withdrawn from money market C01 06/16/2010 11:13:51 Page 9 The Case for Government Intervention & 9 funds—some $40 billion more than the estimated cost of the entire savings and loan crisis.4 If enough companies pull out of a fund, it has to sell its holdings in order to pay cash to the customers pulling their funds out, and this could create a downward spiral on the assets of that fund (causing it to break the buck). This can also cause a run on the assets being sold by the failing fund into the market, and this in turn could cause the panic to spread to other funds holding the assets being dumped into the market at ever lower prices.

It used to be said that no actor was more than six degrees of separation from Kevin Bacon, but in the markets today it is likely that no firm is more than two or three degrees of separation away from any other firm. As a result, failure does not move linearly like a set of dominoes, but in all directions like a flu epidemic in a crowded city. This is a fundamental reason why the last financial crisis was different from the Savings and Loan crisis of the 1980s and 1990s. That crisis shut down nearly 750 savings and loan institutions, but the sector was not as intimately entangled with the rest of the financial system as were the investment banks of the recent crisis. This opacity resulting from the complexity of the system means that uncertainty, fear, and rumor are part of the market.

Within a year, the Securities and Exchange Commission had been established to oversee securities and derivatives. The New Deal also established new supervisory agencies for credit unions (the National Credit Union Administration), and to insure savings and loan deposits (the Federal Savings and Loan Insurance Corporation, which went bust in the 1980s as a result of the Savings and Loan crisis). In the 1970s, additional agencies were added, such as the Commodities Futures Trading Commission, the Municipal Securities Rulemaking Board, and the Office of Thrift Supervision. The insurance industry, having been comparatively blameless in the Great Crash and the even-greater Depression, managed to escape federal regulation and instead was regulated by the state insurance commissions.


pages: 354 words: 118,970

Transaction Man: The Rise of the Deal and the Decline of the American Dream by Nicholas Lemann

Affordable Care Act / Obamacare, Airbnb, airline deregulation, Albert Einstein, augmented reality, basic income, Bear Stearns, Bernie Sanders, Black-Scholes formula, buy and hold, capital controls, computerized trading, corporate governance, cryptocurrency, Daniel Kahneman / Amos Tversky, dematerialisation, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, fixed income, future of work, George Akerlof, gig economy, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Ida Tarbell, index fund, information asymmetry, invisible hand, Irwin Jacobs, Joi Ito, Joseph Schumpeter, Kenneth Arrow, Kickstarter, life extension, Long Term Capital Management, Mark Zuckerberg, mass immigration, means of production, Metcalfe’s law, money market fund, Mont Pelerin Society, moral hazard, Myron Scholes, new economy, Norman Mailer, obamacare, Paul Samuelson, Performance of Mutual Funds in the Period, Peter Thiel, price mechanism, principal–agent problem, profit maximization, quantitative trading / quantitative finance, Ralph Nader, Richard Thaler, road to serfdom, Robert Bork, Robert Metcalfe, rolodex, Ronald Coase, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, TaskRabbit, The Nature of the Firm, the payments system, the strength of weak ties, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, transaction costs, universal basic income, War on Poverty, white flight, working poor

This gave the Clinton administration an opportunity to go into moral battle against Gramm: their variety of defending liberal principles would be to protect the Community Reinvestment Act rather than traditional bank regulation. The administration let it be known that Gramm-style provisions were absolutely unacceptable. Leach had earned the dislike of the Clinton White House by holding lengthy hearings on the Whitewater affair, which he regarded as a way to reexamine the savings and loan scandal via Bill and Hillary Clinton’s investment in a busted financial institution. He was also skeptical about the rapidly growing derivatives markets. During the first year of the Clinton administration he had the Banking Committee’s staff produce a nine-hundred-page report on the dangers derivatives posed to the stability of the financial system—which the administration ignored—and proposed legislation to create a new board to supervise derivatives, which went nowhere.

During the 2016 presidential campaign, both major party nominees, Hillary Clinton and Donald Trump, made stops at the plant, promising to keep the remaining jobs in Chicago; after that the company kept producing cookies there at a modest level. Talman Savings, the rock on which rested Chicago Lawn’s status as a stable residential working-class neighborhood for first-time homeowners, was a casualty of the savings and loan crisis. It went through a forced merger with two other savings and loan companies. Then one of the big downtown Chicago banks bought the resulting combination, and finally one of the largest banks in the country, Bank of America, bought the Chicago bank. Beginning in the mid-1990s, mortgage loans for residents of Chicago Lawn came not from savings and loans or even from banks, but from dozens of unregulated storefront mortgage brokers who appeared in the neighborhood.


pages: 391 words: 102,301

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

Asian financial crisis, bank run, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Bretton Woods, BRICs, capital controls, centre right, clean water, collapse of Lehman Brothers, colonial rule, currency manipulation / currency intervention, deindustrialization, Deng Xiaoping, Doha Development Round, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, global reserve currency, greed is good, Hernando de Soto, illegal immigration, income inequality, invisible hand, Jeff Bezos, laissez-faire capitalism, Live Aid, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, mutually assured destruction, Naomi Klein, Nelson Mandela, offshore financial centre, open borders, open economy, Peace of Westphalia, peak oil, pension reform, Plutocrats, plutocrats, popular capitalism, price stability, RAND corporation, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Savings and loan crisis, shareholder value, Sinatra Doctrine, sovereign wealth fund, special economic zone, Steve Jobs, Stewart Brand, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Myth of the Rational Market, Thomas Malthus, trickle-down economics, Washington Consensus, Winter of Discontent, zero-sum game

Sean Wilentz, The Age of Reagan: A History, 1974–2008 (New York: HarperCollins, 2008), 144. For details on the Tax Reform Act, see 205. 7. Christopher DeMuth, “Reviving Economic Conservatism,” lecture at the Legatum Institute, London, May 14, 2009. 8. D’Souza, Reagan, 89. 9. Some see the roots of the savings and loan scandal of a decade later in the early deregulation of the Reagan years. Niall Ferguson calls it a “hugely expensive lesson in the perils of ill-considered deregulation.” Niall Ferguson, The Ascent of Money: A Financial History of the World (London: Allen Lane, 2008), 253. Wilentz makes the same case in Age of Reagan, 177. 10.

China as interest of, 25 Thatcher compared with, 25, 31, 36, 38, 39–43, 45 recession, 16, 32, 34, 40, 77, 149 see also Great Recession regulation, financial, 111–12, 113, 200–201, 220 Reid, Michael, 73, 78, 299n Republicans, 103, 108, 126, 157, 161, 242–43 resource shortages, 204–7, 262, 263, 272 “responsibility to protect” (R2P), 131, 230, 231 Rice, Susan, 197–98, 289 Rise and Fall of the Great Powers, The (Kennedy), 88 Road to Serfdom, The (Hayek), 118 Rogers, Mike, 266 Rohatyn, Felix, 111 Romania, 67, 68 Roosevelt, Franklin, 38, 282 Rubin, Robert, 112, 117–18 Rudd, Kevin, 218 Rumsfeld, Donald, 104, 125, 209 rupee, Indian, 83 Russia, 35, 59, 60, 96, 117, 165, 199, 240, 243, 255, 273, 274, 275, 290 antiglobalization in, 160 authoritarianism of, 174, 175, 176, 234–38, 240–41, 248, 249 in BRICs, 76–77, 196 democracy in, 130, 146, 168, 237–38, 283 financial crisis in (1998), 107–8, 159, 237 global government and, 217, 218, 223 global problems and, 205, 206, 280 NATO and, 235, 236, 312n–13n as nuclear power, 224, 287, 288 UN and, 225–26, 245 win-win world and, 129–30 Rwanda, 131, 132, 208, 231 Saakashvili, Mikheil (Misha), 233–35 Sachs, Jeffrey, 209, 213, 217 Sakharov, Andrei, 58 Salinas de Gortari, Carlos, 74, 116 Sarkozy, Nicolas, 2, 8, 191, 194, 219, 269–70 Saudi Arabia, 204, 217, 221, 241, 272 savings and loan scandal, 296n Schlesinger, James, 204 Schroeder, Gerhard, 115 Schuman Declaration (1950), 219 Scowcroft, Brent, 180–81, 305n Seattle, Wash., antiglobalization in, 155–56 Senate, U.S., 90, 222 Siberia, 240, 274 Sinatra Doctrine, 64–65 Singapore, 60, 137–40, 143, 213 Singh, Manmohan, 15, 54, 79–83, 102–3, 116, 225, 243 Single European Act (1986), 49–51 Smith, Adam, 2, 17, 82, 113, 192 Smoot-Hawley tariffs, 267 socialism, 15–16, 30, 64, 81 British, 35, 36, 38, 49 in France, 46–49 Solana, Javier, 151 Solidarity, 66, 67 Somalia, 132, 209, 210, 256–57, 273 South Africa, 69–70, 176, 193, 244–45, 246, 262 South Korea, 6, 18, 60, 82, 142, 143, 159, 186, 187, 195, 273 sovereign wealth funds (SWFs), 193, 247 Soviet bloc, 6, 102 collapse of, 17, 18, 35–36, 58–59, 63–71, 76, 128 Soviet Union, 7, 34, 41, 87, 88, 167, 183, 233, 279, 285 Brezhnev Doctrine and, 64, 67 China compared with, 59–61 collapse of, 4, 11, 15, 19, 21, 43, 54, 69–70, 84, 85, 88, 90, 93, 100, 102, 105, 164, 261, 282 Fukuyama’s study of, 99–100 Gorbachev’s reforms in, 15, 16, 25, 27, 42, 53–61, 68, 100, 297n Nehru’s visit to, 81 Soviet bloc collapse and, 58–59, 61, 65–66 U.S. competition with, 131, 282, 284, 291 Spain, Spanish, 8, 72, 147, 165, 188, 235, 270 global government and, 219, 221, 226, 228 Spence, Jonathan, 23–24 Sri Lanka, 223, 231, 274 Stalin, Joseph, 27, 236, 237 Starbucks, 155, 261 State Department, U.S., 99, 100, 117, 188 State of Emergency (Buchanan), 260 Steinberg, James, 5, 129 Stiglitz, Joseph, 157, 159, 160, 314n stock market, 83, 218 in Japan, 18–19, 88–89 U.S., 2–3, 4, 40, 96–97, 107, 110, 165 Strauss-Kahn, Dominique, 152, 219 Sudan, 195, 205, 223, 226, 227, 231, 246, 247, 248, 275, 289 Sullivan, Andrew, 280 Summers, Larry, 7, 117–18, 156, 184 Suskind, Ron, 168 Sweden, 150, 156 Switzerland, 96, 101, 269 Taiwan, 60, 82, 136–37, 143, 186, 237, 249 Talbott, Strobe, 126, 217, 304n Taliban, 167, 239, 252 tariffs, 74, 75, 77, 83, 265, 266, 267 taxes, 49, 94, 109, 115, 216, 236, 267 cuts in, 17, 32, 35, 38, 39, 74, 75, 83, 116 Tax Reform Act (1986), 38 Tbilisi, 233, 234 Tea Party movement, 268 technology, 27, 56, 87, 111, 118–28, 131, 174, 203, 271 climate change and, 203, 204, 286–87 global warming and, 125–26 gloomy predictions and, 125, 204, 206 India and, 6, 81, 84–85, 141 peace and, 5–6, 126 U.S., 93, 95, 118–26, 165, 167, 184, 187, 261 see also information technology television, 119, 124, 135, 234–37, 285 Tennyson, Alfred, Lord, 225 Tequila crisis (1994), 77 terror, war on, 96, 165, 198, 199, 211, 212, 244, 245 terrorism, 36, 161–62, 166, 174, 198, 199, 210, 220, 257, 258, 259, 280 nuclear proliferation and, 211–12 in Pakistan, 211, 212, 251, 252, 256, 313n see also 9/11 Tett, Gillian, 123 Texas A&M, 179–81 Thailand, 6, 60, 142, 143, 159–60 Thatcher, Margaret, 16–17, 29–36, 39–52, 54, 69, 74, 89, 114, 136, 191, 279 Falklands War and, 34, 43, 76 France and, 45–46, 48, 49 Hayek and, 118 as “iron lady,” 34, 42, 45 M.


pages: 1,239 words: 163,625

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated by Gautam Baid

activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, Andrei Shleifer, asset allocation, Atul Gawande, availability heuristic, backtesting, barriers to entry, beat the dealer, Benoit Mandelbrot, Bernie Madoff, bitcoin, Black Swan, business process, buy and hold, Cal Newport, Cass Sunstein, Checklist Manifesto, Clayton Christensen, cognitive dissonance, collapse of Lehman Brothers, commoditize, corporate governance, correlation does not imply causation, creative destruction, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, discounted cash flows, disintermediation, disruptive innovation, Dissolution of the Soviet Union, diversification, diversified portfolio, dividend-yielding stocks, Edward Thorp, Elon Musk, Everything should be made as simple as possible, financial independence, financial innovation, fixed income, follow your passion, framing effect, George Santayana, Hans Rosling, hedonic treadmill, hindsight bias, Hyman Minsky, index fund, intangible asset, invention of the wheel, invisible hand, Isaac Newton, Jeff Bezos, Joseph Schumpeter, Kickstarter, knowledge economy, Lao Tzu, Long Term Capital Management, loss aversion, Louis Pasteur, Mahatma Gandhi, mandelbrot fractal, margin call, Mark Zuckerberg, mental accounting, Milgram experiment, moral hazard, Nate Silver, Network effects, Nicholas Carr, offshore financial centre, oil shock, passive income, passive investing, pattern recognition, Peter Thiel, Ponzi scheme, price anchoring, quantitative trading / quantitative finance, Ralph Waldo Emerson, Ray Kurzweil, reserve currency, Richard Feynman, Richard Thaler, risk free rate, risk-adjusted returns, Robert Shiller, Robert Shiller, salary depends on his not understanding it, Savings and loan crisis, shareholder value, six sigma, software as a service, software is eating the world, South Sea Bubble, special economic zone, Stanford marshmallow experiment, Steve Jobs, Steven Levy, Steven Pinker, stocks for the long run, sunk-cost fallacy, tail risk, the market place, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, time value of money, transaction costs, tulip mania, Upton Sinclair, Walter Mischel, wealth creators, Yogi Berra, zero-sum game

., 40 Shleifer, Andrei, 348 short-term thinking, Keynes on, 108 sidecar investing, 313–315 Siegel, Jeremy, 171; on fear, 274 signal and noise, 295–296 Simon, Herbert, 14–15, 26, 328 simplicity, 68, 152; Buffett on, 72; Einstein on, 73; focus and, 74; Munger on, 72–73; Prabai on, 70; steps for, 73–76; as way of life, 76–77 Sinclair, Upton, 78 Sinegal, Jim, 124 Singleton, Henry, 287 Singularity Is Near, The (Kurzweil), 318 six sigma, 261 Skinner, B. F., 146 SKS Microfinance, 342 S&L crisis. See savings and loan crisis “Slow Dance” (Weatherford), 375–376 Smith, Adam, 10, 13, 93, 278 Smith, Edgar Lawrence, 215 Smith, Terry, 175 Snowball, The, 5–6 social media, 14, 105 Socrates, 38 software as a service (SaaS), 311 Solin, Dan, 271 “Solitude and Leadership” (Deresiewicz), 30 Son, Masayoshi, 314 Soros, George, 190, 247, 285, 319 South Sea Bubble, 282, 339 S&P 500, 167, 255, 270, 279–280; constituents of, 336; largest companies in, 231 specialists, Munger on, 27 special situations, Graham on, 199–200 Spier, Guy, 46, 48, 87, 137, 370 spinoffs: Greenblatt on, 202–203; Klarman on, 201; long-term potential of, 205; Lynch on, 204; performance of, 202, 204; returns from, 200; in United States, 204; Wall Street on, 204–205 Srivastava, Anup, 312–313 stalwarts, Lynch on, 231–232 Stanley, Thomas, 79 status quo bias, 135 staying power, 266 stereotyping, 240; Kahneman on, 238–239 stock market: luck in, 331; as pari-mutuel system, 297 stocks: anchoring and, 337–338; blue-chip, 230–231; bonds and, 121–122; Buffett on, 121; certainty and, 212; commodity, 191–192; comparison of returns, 220; Graphite India, 188; HEG, 188, 195; high-quality, 234; Loeb on, 216; Lynch on, 236; maturity of, 121; par value of, 121; penny, 313; performance of, 299; time frame and, 185; total real returns on, 274 strangers, kindness of, 264–265 stress-influence tendency, 342–343 Subex, 334–335 subtractive epistemology, Taleb on, 21 success: Buffett on, 209, 327; core test of, 209 sum of parts valuation, 311 Sunstein, Cass, 345 Sun Tzu, 142 super-cat insurance, 313 Superforecasting (Tetlock & Gardner), 292 supply deficits, 194 Surat Diamond Bourse, 198 surfing, Munger on, 315 Surowiecki, James, 241 Swensen, David, 247 switching costs: in business models, 211; ROIC and, 223 syntopical reading, 17 Tagore, Rabindranath, 76 Taleb, Nassim Nicholas, 15, 145, 253, 259, 261, 266, 319; on life, 321; on Lindy effect, 16; on subtractive epistemology, 21 Talent is Overrated (Colvin), 42 tangible equity, pretax return on, 132 target prices, 122 taxes, 130; profit before, 132 tax-free municipal bonds, 88–89 tech bubble, 282 Techno-Funda, 185–186 technology: Munger on, 289; proprietary, 211 Templeton, John, 236; on bull markets, 233; on investment, 299 Teresa (Mother), 66, 370 Tetlock, Philip, 294–295; on Bayesian methods, 292–293 Thailand, 326 Thaler, Richard, 345 Theory of Moral Sentiments, The (Smith, A.), 93 Thiel, Peter, 319 thinking: calculation and, 309–313; Darwin on, 296; fine-tuning, 305–306; first principles, 19–21; flexibility of, 300; Franklin on, 297; golden rule of, 296; Griffin on, 29–30; happiness and, 352; about market conditions, 232–240; mental models and, 29–30; Munger on, 158–159; opportunity costs and, 305–306; positive, 351–356; second-level, 306; time management and, 11–13 Thinking, Fast and Slow (Kahneman), 292 Thorndike, William, 227 Thorp, Ed, 249, 259 three-bucket framework, 28 thumb-sucking, Munger on, 300 Tide, 222 time: Buffett on, 216; nonrenewability of, 11–12; stocks and, 185; wealth and, 78–79 timelessness, of wisdom, 16 time management, 6; learning and, 11–13; reading and, 11–13; thinking and, 11–13 Toffler, Alvin, 284 Tolle, Eckhart, 351 Tolstoy, Leo, 12 Torrent Pharmaceuticals, 197–198 total debt, 131 total real returns, 274 trade-offs, 40–41 Treasury bonds, 255 Treasury rate, 58 Truman, Harry, 281 trust: building, 49; earning, 49–50; Munger on, 49; Welch on, 49 truths, absolute, 55–56 turnarounds, Buffett on, 294 Tversky, Amos, 141, 344 twaddle tendency, 335 Twain, Mark, 16, 39, 187, 264, 346 Twitter, market conditions and, 236 Tzu, Lao, 285 Uber, 225, 286 uncertainty: certainty and, 54–55; Feynman on, 55; risk and, 240, 314 underspending, 79 understanding, 31 Undervalued Corporation, 217 unforced errors, 219 United States (US): equity markets in, 280; GDP of, 278; spinoffs in, 204 United Technologies, 39–40 Upanishads, 33 US.

League of Savings Institutions, in a letter in which he likened the trade association to metastasizing cancer cells and called its lobbying practices “flawed, indeed disgraceful.”10 It was a step that only a person who was willing to be detested by an entire industry could take. The move paid off when the S&L crisis erupted and Wesco’s reputation was left completely unscathed. It was Munger’s action of high integrity during the 1980s’ S&L crisis that set Berkshire on its path to being held up as the moral exemplar of corporate America. What Buffett, Munger, and a lot of other people who have been successful in life (true success, not measured by money) have in common is that they strive for a happy and fulfilling life.

Harold, 241 Multi Commodity Exchange of India, 309 multidisciplinary thinking, 25 Munger, Charles, 69, 78, 96, 102, 269, 307, 325; attention span of, 30; Buffett and, 4–6, 167, 289; on business models, 214–215; on change of mind, 297–300; on competence, 59; on compounding, 28–29; on delayed gratification, 97–98, 110; on diversification, 244; on emerging markets, 301–302; on experience, 193; financial independence of, 81–82; on Fisher, 245; Gates on, 29; on Graham, 176; on human misjudgment, 133–138; on incentives, 145–147; on information, 287; on intelligence, 257, 295, 325; on inversion, 57–58; as investor, 107, 155, 245; on karma, 67; on knowledge, 335; on learning, 1, 6; on mental models, 11, 25–26; on military service, 94; on mistakes, 333, 352; on pari-mutuel systems, 248; on preparation, 193; on pricing power, 307; psychological checklist of, 133–138; on reading, 10, 359; on ROIC, 210; on simplicity, 72–73; in S&L crisis, 92–93; on specialists and generalists, 27; on surfing, 315; on technology, 289; on thinking, 158–159; on thumb-sucking, 300; on trust, 49; on vicarious learning, 349; on victimhood, 354; on volatility, 106–107; wealth of, 81–82; on wisdom, 19, 51, 128 Musk, Elon, on knowledge, 21 Nadella, Satya, 14 Napier, Russell, 183 National Company Law Tribunal, 201 Nebraska Furniture Mart, 99, 225 negative feedback loops, 264 negative working capital, 210 Neill, Humphrey, on bull markets, 250 Nepal, 119 net fixed assets, turnover ratio, 132 net present value, 290 net profit margin, 131 network effects: of Airbnb, 224; ROIC and, 223–224 news, 14 Newton, Isaac, 22 Newton’s first law, 315 niche, 224 Nifty Fifty, 171, 172, 237, 279 Nirma, 197–198 Niveshak, Safal, 188 North American Insurance, 60 North Star, 38 Novy-Marx, Robert, 179 numeric probabilities, 293 Occam’s razor, 70–71 octopus model, 224 Odean, Terrance, 348 Ogilvy, David, 13–14 Old School Value, 205 omission, 136; mistakes of, 302–304 One Small Step Can Change Your Life (Maurer), 111 ONE Thing, The (Keller & Papasan), 74 One Up on Wall Street (Lynch), 204 open-mindedness, 52–53 operating efficiency analysis, 132 operating goals, 125 Ophuls, William, 146 Oppong, Thomas, 34 opportunity cost: applicability of, 304–305; Buffett on, 302; mental model, 303 opportunity costs, 23; P&L and, 303; thinking and, 305–306 optimism, 272; market conditions and, 238 Oracle, 223 Origin of Species, The (Darwin), 296 Outliers (Gladwell), 41 outperformance, 36 Outsiders, The (Thorndike), 227 outside view, Kahneman on, 294–295 overdiversification, 244 overinfluence: of authority, 333–335; biases from, 136 overvaluation, 298 owner earnings, Buffett on, 162 Pabrai, Mohnish, 200, 370 Page Industries, 309 Papasan, Jay, 74 Parikh, Parag, 189 pari-mutuel systems: Munger on, 248; stock market as, 297 Parker, Adam, 315 Parrish, Shane, 12, 93, 96; on mental models, 25 par value, of stocks, 121–122 Pascal, Blaise, 299 passion, Buffett on, 36 Pasteur, Louis, 320 Patel, Prahaladbhai Shivrambhai, 197 pattern recognition, Buffett on, 307 Pebbles of Perception (Endersen), 50, 146 Peltzman effect, 146 penny stocks, 313 P/E ratio.


pages: 701 words: 199,010

The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal by Ludwig B. Chincarini

affirmative action, asset-backed security, automated trading system, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black-Scholes formula, business cycle, buttonwood tree, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, discounted cash flows, diversification, diversified portfolio, family office, financial innovation, financial intermediation, fixed income, Flash crash, full employment, Gini coefficient, high net worth, hindsight bias, housing crisis, implied volatility, income inequality, interest rate derivative, interest rate swap, John Meriwether, Kickstarter, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low skilled workers, margin call, market design, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, Mitch Kapor, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Northern Rock, Occupy movement, oil shock, price stability, quantitative easing, quantitative hedge fund, quantitative trading / quantitative finance, Ralph Waldo Emerson, regulatory arbitrage, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sam Peltzman, Savings and loan crisis, Sharpe ratio, short selling, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, survivorship bias, systematic trading, tail risk, The Great Moderation, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

Since the financial crisis began in 2008 until June 2011, a total of 380 banks have failed with an estimated cost to the FDIC of $83.07 billion.20 As a matter of comparison, 642 banks failed in the Savings & Loan crisis over a similar period from 1988 to 1991 costing a total of $67.53 billion (or $110.147 billion in today’s dollars),21 and 9,755 banks failed in the Great Depression from 1929 to 1933 costing a total of $1.33 billion (or $22.77 billion in today’s dollars). Figure K.11 Bank Failures and Losses during Two Debacles Source: FDIC. Of course, both the effects of the Great Depression and the Savings & Loan crisis lingered on past the dates described above. Eventually, the Resolution Trust Corporation22 estimated that the total cost to it for the Savings and Loan crisis was a total of $87.9 billion from 747 failed Savings & Loan banks.

It was a little higher in 2002, and very high at the end of the 1980s during the savings and loan crisis. During the financial crisis, the quarterly average was 35%, then 39% in 2009, and dropped down to around 13% in 2011. Its highest value was in the 2nd quarter of 2009 at 40.2% and it was also as high as 19% in the 4th quarter of 2010.24 Net charge-offs are how much the banks are charging for lost value of investments or bad loans. This number has also been well above its historical average in recent years. In 2010, it was as high as 2.56% of operating revenue. In the period that includes the savings and loan crisis, this number only got as high as 0.82%.

Mullins had already enjoyed an impressive public career. Secretary of the Treasury Nicholas Brady asked him to run the Brady Commission, which investigated the causes of the 1987 U.S. stock market crash. (They found that derivatives and dynamic hedging of portfolio insurance may have been to blame.)9 Mullins helped resolve the savings and loan crisis with the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and the formation of the Resolution Trust Corporation (RTC). In 1990, President Bush nominated Mullins to a four-year term as vice chairman on the Federal Reserve Board of Governors. He left for LTCM in 1994. His presence brought greater credibility to LTCM’s capital raising campaign and also opened many doors, including those of some central banks.


pages: 492 words: 118,882

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 cycle, 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, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, 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, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, Money creation, 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 and loan crisis, 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

From a more ideological outlook, it could also be argued that markets should be allowed to make mistakes as part of the innovative process . This is a seemingly logical rationale, especially when taking into consideration the way the innovation mantra is being chanted across every sector and industry today. Indeed, this has even happened in the past. In the 1980s during the savings and loans crisis (S&L crisis), 1,043 out of the 3,234 savings and loan associations ( FDIC, 2000) failed and affected millions of everyday investors. In 2000, the bursting of the technology bubble did affect investors and technology in general. Yet none of these failures posed systemic risks and came at the cost of a financial meltdown.

Although Nikolai Kondratiev was the first to study the economic effects of technology on prices, wages, interest rates, industrial production and consumption in 1925, Joseph Schumpeter was responsible for their entry into academia. 7In this paper, the model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. 8See “A Failed Philosopher Tries Again.” 9(i) LatAm sovereign debt crisis - 1982, (ii) Savings and loans crisis - 1980s, (iii) Stock market crash - 1987, (iv) Junk bond crash - 1989, (v) Tequila crisis - 1994, (vi) Asia crisis - 1997 to 1998, (vii) Dotcom bubble - 1999 to 2000, (viii) Global financial crisis - 2007 to 2008. 10LHC: The Large Hadron Collider is the world’s largest and most powerful particle accelerator located at the CERN, the European Organization for Nuclear Research (Conseil Européen pour la Recherche Nucléaire).


pages: 279 words: 76,796

The Unbanking of America: How the New Middle Class Survives by Lisa Servon

Affordable Care Act / Obamacare, Airbnb, basic income, Build a better mousetrap, business cycle, Cass Sunstein, choice architecture, creative destruction, Credit Default Swap, employer provided health coverage, financial exclusion, financial independence, financial innovation, gender pay gap, George Akerlof, gig economy, income inequality, independent contractor, informal economy, Jane Jacobs, Joseph Schumpeter, late fees, Lyft, M-Pesa, medical bankruptcy, microcredit, Occupy movement, payday loans, peer-to-peer lending, precariat, Ralph Nader, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, sharing economy, too big to fail, transaction costs, unbanked and underbanked, underbanked, universal basic income, Unsafe at Any Speed, We are the 99%, white flight, working poor, Zipcar

I learned that as banks grew and became more removed from the day-to-day needs of their customers, their business models also changed. Over time, they made more and more of their money from fees instead of interest. The larger banks also became more complex. Historically, banks made their money by borrowing and lending, which generated interest income. But events like the savings and loan crisis in the late 1980s and early 1990s, when so many banks failed, illustrated how disastrous that model could be. In order to make banks less vulnerable to volatile interest rates, bank examiners encouraged them to find other ways to make a profit. That’s when banks discovered fees—the fees that anger and frustrate nearly everyone I’ve spoken with.

See Electronic Benefits Transfer cards ECOA. See Equal Credit Opportunity Act economic security. See financial security economy. See also financial crisis (2008) bank success and, 36 financial sector and, 34–36 free market and, 34–35, 170 human capital and, 167–68 productivity vs. wages, 51–52 savings and loan crisis (1980s and 1990s), 28 shared, 139–41 underground, 127–28 education, xiv, 48–50, 54–56, 60, 107–9, 167–68, 177–78 Edwards, John, 40 Ehrenreich, Barbara, 156 Electronic Benefits Transfer (EBT) cards, 3, 11–12, 18 emergency funds, 48, 59, 80–81, 88, 132, 213–15n88 emerging adults.

See also policy recommendations; specific laws of banks, 25–27, 32, 37–42, 67–68, 146–48, 170, 210n70 CFPB and, 39–40, 147, 198–99n40, 215–16n91 of check-cashing stores, 13 of credit cards, 72, 74–75, 157 of debt collection, 92–93, 99 deregulation period (1970s), 67–68 innovation and, 175–76 of payday lenders, 77, 85, 89–91, 147, 215–16n91 Responsible Banking Act (2012), 43 retail industry, 40–41, 209n68 retirement, 55, 57, 106, 169 Ripple, 145–46, 152–54, 175 RiteCheck employment at, 8–12 fees, 15, 18, 20–21 history of, 12–14 loan sharks and, 134–35 overview of, 4–6 research approach to, 180–83 rollover payday loans, 80–83, 95 Roosevelt, Franklin, 51 rotating savings and credit associations (ROSCAs), 124–34, 138–42, 161 S Santucci, Larry, 212n75 savings, xiv–xv, 82, 106–7, 114–15, 126, 137. See also informal savings and loans savings and loan crisis (1980s and 1990s), 28 scams, 100 scarcity mindset, 54 Schumpeter, Joseph, 143 Seidman, Ellen, 28, 30, 37, 40–41 self-employment. See entrepreneurs Shafir, Eldar, 54 sharing economy, 139–41 Shiller, Robert, 34, 45, 172 short-term loans, 83, 87. See also payday lending small banks, 27–28, 37, 172 small business owners.


pages: 515 words: 142,354

The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

bank run, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

The lower interest rates that such banks can obtain acts as a hidden subsidy. Quantitative easing itself represented in part a hidden recapitalization of the banks, much as the policies pursued in the Clinton administration had done after the savings and loan (S&L) crisis. Long-term bonds went up in value, and banks that held these were in effect given a major transfer of wealth. In the case of the United States in the S&L crisis, banks had been encouraged to hold these bonds through regulatory accounting that treated these bonds as zero risk, though it was obvious that there was considerable variability in their price, and the returns they received reflected this volatility.

., 51–57 politics, economics and, 308–18 pollution, 260 populism, xx Portugal, 14, 16, 64, 177, 178, 331, 343, 346 austerity opposed by, 59, 207–8, 315, 332, 392 GDP of, 92 IMF bailout of, 178–79 loans in, 127 poverty in, 261 sovereign spread of, 200 Portuguese bonds, 179 POSCO, 55 pound, 287, 335, 346 poverty, 72 in Greece, 226, 261 in Portugal, 261 in Spain, 261 predatory lending, 274, 310 present discount value, 343 Price of Inequality, The (Stiglitz), 154 prices, 19, 24 adjustment of, 48, 338, 361 price stability, 161 primary deficit, 188, 389 primary surpluses, 187–88 private austerity, 126–27, 241–42 private sector involvement, 113 privatization, 55, 194–96, 369 production costs, 39, 43, 50 production function, 343 productivity, 71, 332, 348 in manufacturing, 223–24 after recessions, 76–77 programs, 17–18 Germany’s design of, 53, 60, 61, 187–88, 205, 336, 338 imposed on Greece, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 of Troika, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 202, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 346, 366, 379, 392 progressive automatic stabilizers, 244 progressive taxes, 248 property rights, 24 property taxes, 192–93, 227 public entities, 195 public goods, 40, 337–38 quantitative easing (QE), 151, 164, 165–66, 170–72, 264, 359, 361, 386 railroads, 55 Reagan, Ronald, 168, 209 real estate bubble, 25, 108, 109, 111, 114–15, 126, 148, 172, 250, 301, 302 cause of, 198 real estate investment, 199 real exchange rate, 105–6, 215–16 recessions, recovery from, 94–95 recovery, 76 reform, 75 theories of, 27–28 regulations, 24, 149, 152, 162, 250, 354, 355–356, 378 and Bush administration, 250–51 common, 241 corporate opposition to, xvi difficulties in, 132–33 of finance, xix forbearance on, 130–31 importance of, 152–53 macro-prudential, 249 in race to bottom, 131–34 Reinhardt, Carmen, 210 renewable energy, 193, 229–30 Republican Party, US, 319 research and development (R&D), 77, 138, 217, 251, 317–18 Ricardo, David, 40, 41 risk, 104, 153, 285 excessive, 250 risk markets, 27 Rogoff, Kenneth, 210 Romania, 46, 331, 338 Royal Bank of Scotland, 355 rules, 57, 241–42, 262, 296 Russia, 36, 264, 296 containment of, 318 economic rents in, 280 gas from, 37, 81, 93, 378 safety nets, 99, 141, 223 Samaras, Antonis, 61, 309, 377 savings, 120 global, 257 savings and loan crisis, 360 Schäuble, Wolfgang, 57, 220, 314, 317 Schengen area, 44 schools, 41, 196 Schröeder, Gerhard, 254 self-regulation, 131, 159 service sector, 224 shadow banking system, 133 shareholder capitalism, 21 Shiller, Rob, 132, 359 shipping taxes, 227, 228 short-termism, 77, 258–59 Silicon Valley, 224 silver, 275, 277 single currencies: conflicts and, 38 as entailing fixed exchange rates, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 external imbalances and, 97–98 and financial crises, 110–18 integration and, 45–46, 50 interest rates and, 8, 86, 87–88, 92, 93, 94 Mundell’s work on, 87 requirements for, 5, 52–53, 88–89, 92–94, 97–98 and similarities among countries, 15 trade integration vs., 393 in US, 35, 36, 88, 89–92 see also euro single-market principle, 125–26, 231 skilled workers, 134–35 skills, 77 Slovakia, 331 Slovenia, 331 small and medium-sized enterprises (SMEs), 127, 138, 171, 229 small and medium-size lending facility, 246–47, 300, 301, 382 Small Business Administration, 246 small businesses, 153 Smith, Adam, xviii, 24, 39–40, 41 social cohesion, 22 Social Democratic Party, Portugal, 392 social program, 196 Social Security, 90, 91 social solidarity, xix societal capital, 77–78 solar energy, 193, 229 solidarity fund, 373 solidarity fund for stabilization, 244, 254, 264, 301 Soros, George, 390 South Dakota, 90, 346 South Korea, 55 bailout of, 113 sovereign risk, 14, 353 sovereign spreads, 200 sovereign wealth funds, 258 Soviet Union, 10 Spain, 14, 16, 114, 177, 178, 278, 331, 335, 343 austerity opposed by, 59, 207–8, 315 bank bailout of, 179, 199–200, 206 banks in, 23, 186, 199, 200, 242, 270, 354 debt of, 196 debt-to-GDP ratio of, 231 deficits of, 109 economic growth in, 215, 231, 247 gold supply in, 277 independence movement in, xi inequality in, 72, 212, 225–26 inherited debt in, 134 labor reforms proposed for, 155 loans in, 127 low debt in, 87 poverty in, 261 real estate bubble in, 25, 108, 109, 114–15, 126, 198, 301, 302 regional independence demanded in, 307 renewable energy in, 229 sovereign spread of, 200 spread in, 332 structural reform in, 70 surplus in, 17, 88 threat of breakup of, 270 trade deficits in, 81, 119 unemployment in, 63, 161, 231, 235, 332, 338 Spanish bonds, 114, 199, 200 spending, cutting, 196–98 spread, 332 stability, 147, 172, 261, 301, 364 automatic, 244 bubble and, 264 central banks and, 8 as collective action problem, 246 solidarity fund for, 54, 244, 264 Stability and Growth Pact, 245 standard models, 211–13 state development banks, 138 steel companies, 55 stock market, 151 stock market bubble, 200–201 stock market crash (1929), 18, 95 stock options, 259, 359 structural deficit, 245 Structural Funds, 243 structural impediments, 215 structural realignment, 252–56 structural reforms, 9, 18, 19–20, 26–27, 214–36, 239–71, 307 from austerity to growth, 263–65 banking union, 241–44 and climate change, 229–30 common framework for stability, 244–52 counterproductive, 222–23 debt restructuring and, 265–67 of finance, 228–29 full employment and growth, 256–57 in Greece, 20, 70, 188, 191, 214–36 growth and, 232–35 shared prosperity and, 260–61 and structural realignment, 252–56 of trade deficits, 216–17 trauma of, 224 as trivial, 214–15, 217–20, 233 subsidiarity, 8, 41–42, 263 subsidies: agricultural, 45, 197 energy, 197 sudden stops, 111 Suharto, 314 suicide, 82, 344 Supplemental Nutrition Assistance Program (SNAP), 91 supply-side effects: in Greece, 191, 215–16 of investments, 367 surpluses, fiscal, 17, 96, 312, 379 primary, 187–88 surpluses, trade, see trade surpluses “Swabian housewife,” 186, 245 Sweden, 12, 46, 307, 313, 331, 335, 339 euro referendum of, 58 refugees into, 320 Switzerland, 44, 307 Syria, 321, 342 Syriza party, 309, 311, 312–13, 315, 377 Taiwan, 55 tariffs, 40 tax avoiders, 74, 142–43, 227–28, 261 taxes, 142, 290, 315 in Canada, 191 on capital, 356 on carbon, 230, 260, 265, 368 consumption, 193–94 corporate, 189–90, 227, 251 cross-border, 319, 384 and distortions, 191 in EU, 8, 261 and fiat currency, 284 and free mobility of goods and capital, 260–61 in Greece, 16, 142, 192, 193–94, 227, 367–68 ideal system for, 191 IMF’s warning about high, 190 income, 45 increase in, 190–94 inequality and, 191 inheritance, 368 land, 191 on luxury cars, 265 progressive, 248 property, 192–93, 227 Reagan cuts to, 168, 210 shipping, 227, 228 as stimulative, 368 on trade surpluses, 254 value-added, 190, 192 tax evasion, in Greece, 190–91 tax laws, 75 tax revenue, 190–96 Taylor, John, 169 Taylor rule, 169 tech bubble, 250 technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 and new financial system, 274–76, 283–84 telecoms, 55 Telmex, 369 terrorism, 319 Thailand, 113 theory of the second best, 27–28, 48 “there is no alternative” (TINA), 306, 311–12 Tocqueville, Alexis de, xiii too-big-to-fail banks, 360 tourism, 192, 286 trade: and contractionary expansion, 209 US push for, 323 trade agreements, xiv–xvi, 357 trade balance, 81, 93, 100, 109 as allegedly self-correcting, 98–99, 101–3 and wage flexibility, 104–5 trade barriers, 40 trade deficits, 89, 139 aggregate demand weakened by, 111 chit solution to, 287–88, 290, 299–300, 387, 388–89 control of, 109–10, 122 with currency pegs, 110 and fixed exchange rates, 107–8, 118 and government spending, 107–8, 108 of Greece, 81, 194, 215–16, 222, 285–86 structural reform of, 216–17 traded goods, 102, 103, 216 trade integration, 393 trade surpluses, 88, 118–21, 139–40, 350–52 discouragement of, 282–84, 299–300 of Germany, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 tax on, 254, 351, 381–82 Transatlantic Trade and Investment Partnership, xv, 323 transfer price system, 376 Trans-Pacific Partnership, xv, 323 Treasury bills, US, 204 Trichet, Jean-Claude, 100–101, 155, 156, 164–65, 251 trickle-down economics, 362 Troika, 19, 20, 26, 55, 56, 58, 60, 69, 99, 101–3, 117, 119, 135, 140–42, 178, 179, 184, 195, 274, 294, 317, 362, 370–71, 373, 376, 377, 386 banks weakened by, 229 conditions of, 201 discretion of, 262 failure to learn, 312 Greek incomes lowered by, 80 Greek loan set up by, 202 inequality created by, 225–26 poor forecasting of, 307 predictions by, 249 primary surpluses and, 187–88 privatization avoided by, 194 programs of, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 197–98, 202, 204, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 348, 366, 379, 392 social contract torn up by, 78 structural reforms imposed by, 214–16, 217, 218–23, 225–38 tax demand of, 192 and tax evasion, 367 see also European Central Bank (ECB); European Commission; International Monetary Fund (IMF) trust, xix, 280 Tsipras, Alexis, 61–62, 221, 273, 314 Turkey, 321 UBS, 355 Ukraine, 36 unemployment, 3, 64, 68, 71–72, 110, 111, 122, 323, 336, 342 as allegedly self-correcting, 98–101 in Argentina, 267 austerity and, 209 central banks and, 8, 94, 97, 106, 147 ECB and, 163 in eurozone, 71, 135, 163, 177–78, 181, 331 and financing investments, 186 in Finland, 296 and future income, 77 in Greece, xi, 71, 236, 267, 331, 338, 342 increased by capital, 264 interest rates and, 43–44 and internal devaluation, 98–101, 104–6 migration and, 69, 90, 135, 140 natural rate of, 172–73 present-day, in Europe, 210 and rise of Hitler, 338, 358 and single currency, 88 in Spain, 63, 161, 231, 235, 332, 338 and structural reforms, 19 and trade deficits, 108 in US, 3 youth, 3, 64, 71 unemployment insurance, 91, 186, 246, 247–48 UNICEF, 72–73 unions, 101, 254, 335 United Kingdom, 14, 44, 46, 131, 307, 331, 332, 340 colonies of, 36 debt of, 202 inflation target set in, 157 in Iraq War, 37 light regulations in, 131 proposed exit from EU by, 4, 270 United Nations, 337, 350, 384–85 creation of, 38 and lower rates of war, 196 United States: banking system in, 91 budget of, 8, 45 and Canada’s 1990 expansion, 209 Canada’s free trade with, 45–46, 47 central bank governance in, 161 debt-to-GDP of, 202, 210–11 financial crisis originating in, 65, 68, 79–80, 128, 296, 302 financial system in, 228 founding of, 319 GDP of, xiii Germany’s borrowing from, 187 growing working-age population of, 70 growth in, 68 housing bubble in, 108 immigration into, 320 migration in, 90, 136, 346 monetary policy in financial crisis of, 151 in NAFTA, xiv 1980–1981 recessions in, 76 predatory lending in, 310 productivity in, 71 recovery of, xiii, 12 rising inequality in, xvii, 333 shareholder capitalism of, 21 Small Business Administration in, 246 structural reforms needed in, 20 surpluses in, 96, 187 trade agenda of, 323 unemployment in, 3, 178 united currency in, 35, 36, 88, 89–92 United States bonds, 350 unskilled workers, 134–35 value-added tax, 190, 192 values, 57–58 Varoufakis, Yanis, 61, 221, 309 velocity of circulation, 167 Venezuela, 371 Versaille, Treaty of, 187 victim blaming, 9, 15–17, 177–78, 309–11 volatility: and capital market integration, 28 in exchange rates, 48–49 Volcker, Paul, 157, 168 wage adjustments, 100–101, 103, 104–5, 155, 216–17, 220–22, 338, 361 wages, 19, 348 expansionary policies on, 284–85 Germany’s constraining of, 41, 42–43 lowered in Germany, 105, 333 wage stagnation, in Germany, 13 war, change in attitude to, 38, 196 Washington Consensus, xvi Washington Mutual, 91 wealth, divergence in, 139–40 Weil, Jonathan, 360 welfare, 196 West Germany, 6 Whitney, Meredith, 360 wind energy, 193, 229 Wolf, Martin, 385 worker protection, 56 workers’ bargaining rights, 19, 221, 255 World Bank, xv, xvii, 10, 61, 337, 357, 371 World Trade Organization, xiv youth: future of, xx–xxi unemployment of, 3, 64, 71 Zapatero, José Luis Rodríguez, xiv, 155, 362 zero lower bound, 106 ALSO BY JOSEPH E.


Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, impact investing, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Performance of Mutual Funds in the Period, Ponzi scheme, Post-Keynesian economics, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Savings and loan crisis, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, tail risk, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, two and twenty, underbanked, Vanguard fund, working poor, yield curve

FDIC, Examination of the Banking Crises, 230; Congressional Budget Office (CBO), The Economic Effects of the Savings and Loan Crisis (Washington, DC: Congressional Budget Office, 1992), 7. FDIC, Examination of the Banking Crises, 221–222. 356 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 4. New Clients and New Investments CBO, Effects of the Crisis, 7–8. FDIC, Examination of the Banking Crises, 231. Ibid., 225–227. Ibid., 232. Timothy Curry and Lynn Shibut, “The Cost of the Savings and Loan Crisis: Truth and Consequences,” FDIC Banking Review 13, no. 2 (2000): 30–33. Board of Governors of the Federal Reserve System, “Money Stock Measures—H.6,” July 3, 2014, http://www.federalreserve.gov/RELEASES /h6/20140703; R.

During the years leading up to the Great Recession of 2007–2009, there were widespread attitudes in various administrations and Congresses that led to relaxation of some of the more restrictive prohibitions that were the legacy of the Great Depression and subsequent financial crises such as the savings and loan crisis of the late 1980s, various international crises of the 1990s, and the collapse of Long-Term Capital Management in 1998. One notable example was the repeal of Glass-Steagall in the late 1990s. The Glass-Steagall Act passed by Congress in the 1930s prevented commercial banks from owning investment banks in a post-Depression attempt to prevent deposit-taking institutions from engaging in high-risk financial transactions.33 Throughout the period, competitive regulatory agencies were allowed to develop, gaps in regulatory coverage occurred and were not corrected, clarity in regulatory responsibilities was not established, and lapses in regulatory enforcement occurred.

“Wrestling with Reform: Financial Scandals and the Legislation They Inspired.” Securities and Exchange Commission Historical Society. May 1, 2013. http://www.sechistorical.org/museum /galleries/wwr/index.php. Collins, Michael. Monday and Banking in the UK: A History. New York: Routledge, 1988. Congressional Budget Office. The Economic Effects of the Savings and Loan Crisis. Washington, DC: Congressional Budget Office, 1992. ——. “Report on the Troubled Asset Relief Program—October 2012.” October 11, 2012. http://www.cbo.gov/sites/default/files/TARP10 -2012_0.pdf. Cooke, Colin Arthur. Corporation, Trust and Company: An Essay in Legal History. Cambridge, MA: Harvard University Press, 1951.


pages: 93 words: 24,584

Walk Away by Douglas E. French

Bear Stearns, business cycle, Elliott wave, forensic accounting, full employment, Home mortgage interest deduction, loss aversion, McMansion, mental accounting, mortgage debt, mortgage tax deduction, negative equity, New Journalism, Own Your Own Home, Richard Thaler, risk free rate, Robert Shiller, Robert Shiller, Savings and loan crisis, Tax Reform Act of 1986, the market place, transaction costs, unbiased observer, wealth creators

Whether it would really make a difference for home values or not, President Reagan wasn’t going to mess with the mortgage interest deduction, telling the National Association of Realtors in 1984, “I want you to know that we will preserve the part of the American dream which the home-mortgage-interest deduction symbolizes.” Two years later, Congress ended the deductibility of interest on credit-card and other consumer loans in the tax-reform act of 1986, but left the mortgage deduction in place. After the Savings & Loan crisis, the 1989 Congress passed the Financial Institutions Reform, Recovery and Enforcement Act (FIREA) which did away with the FHLBB with Freddie Mac’s board becoming shareholder controlled. Three years later, in 1992, Congress created the Office of Federal Housing Enterprise Oversight (OFHEO) to regulate Fannie and Freddie’s safety and soundness, a job OFHEO either didn’t do or wasn’t allowed to do due to interference from the GSE’s friends on Capitol Hill.

., 36 Phoenix, 3, 51 PIMCO, 52, 53 Pines, Michael, 16 Pinto, Edward, 33 Powell, Michael, 51 Power and Market, 57 Prechter, Robert, 60 Predictably Irrational, 72 Prelec, Dražen, 70 private property, iii, 24–25, 27–28, 47 Pruitt, A. D., 9 R Ranieri, Lewis, 49 Ratigan, Dylan, 16 Reagan, Ronald, 31 Reynolds, Anna and Charlie, 48 Rise of the Community Builders, The, 20 Rothbard, Murray, 46–48, 54–55, 57, 60 S Sanders, Anthony, 37 San Francisco, 8, 9 Sapienza, Paola, 45 Savings & Loan crisis, 32 Schakett, Jack, 50 Sennholz, Hans, 61 Sharga, Rick, 50 Shefrin, Hersh, 71 Shermer, Michael, 71 Sherraden, Michael, 32 Shiller, Robert J., 2 Simon Property Group, 9 Slater, Robert, 39 Smith, Alfred E., 21 Smith, Yves, 14 Snow, Marian, 40, 41 strategic default default moralists, 58 defined, 1 divided opinion, 5 Emotional Drivers, 69 Moral and Social Constraints, 45 Morgan Stanley, 8 what is the downside, v Stop Sitting on Your Assets, 40 Stuart, Guy, 31, 34, 54 Sugrue, Thomas J., 19, 23 T Tannehill, Linda and Morris, 56 Task, Aaron, 11 Taubman, Robert, 9 Thaler, Richard, 71 Thompson, Diane E., 51 Tilson, Whitney, 49, 63 U Underwriting Manual, 24–26 under water, 3, 4, 10 University of Chicago, 1, 45 Untapped Riches, 39 V VA loan program, 29–30 Vornado Realty Trust, 9 W Wall Street Journal, iv, 9–11, 33, 49 Weiss, Marc, 19, 20 Whalen, Chris, 16, 56 White, Brent T., 1, 2, 7, 46, 75 Wikipedia, 31 Wright, Gwendolyn, 21, 27 Z Zell, Sam, 8 Zingales, Luigi, 1, 45 About the Author Douglas E.


pages: 300 words: 78,475

Third World America: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream by Arianna Huffington

American Society of Civil Engineers: Report Card, Bear Stearns, Bernie Madoff, Bernie Sanders, call centre, carried interest, citizen journalism, clean water, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, extreme commuting, Exxon Valdez, full employment, greed is good, housing crisis, immigration reform, invisible hand, knowledge economy, laissez-faire capitalism, late fees, market bubble, market fundamentalism, Martin Wolf, medical bankruptcy, microcredit, new economy, New Journalism, offshore financial centre, Ponzi scheme, post-work, Report Card for America’s Infrastructure, Richard Florida, Ronald Reagan, Rosa Parks, Savings and loan crisis, single-payer health, smart grid, The Wealth of Nations by Adam Smith, too big to fail, transcontinental railway, trickle-down economics, winner-take-all economy, working poor, Works Progress Administration

The investment paid off in spades with the rollback of the financial regulations that had kept the worst excesses of corporate greed in check since the Great Depression, leaving in their place a shaky edifice of self-policing and cowed regulators powerless to rein in the galloping bulls of Wall Street. The results for corporate America: record profits, record pay packages, and record bonuses. The results for the rest of us: the savings and loan crisis, the corporate scandals of the Enron era, and the economic collapse we are still struggling to dig our way out of. That collapse, by the way, has only caused the banking lobbyists to redouble their efforts in an all-hands-on-deck effort to thwart financial reform. Over the course of the debate about reforming Wall Street, the finance industry—which has been bailed out with trillions of taxpayer dollars and cheap loans from the Fed—has spent an estimated $1.4 million a day to convince our lawmakers to kill real reform.11 For instance, when the Senate was crafting its financial reform bill, it included absolutely no reform of Fannie Mae and Freddie Mac.12 This despite the fact that in just the first quarter of 2010 Freddie—one-half of what the New York Times’s Gretchen Morgenson calls “the elephant in the bailout”—reported a loss of $6.7 billion.13 As of May 2010, according to Morgenson, “serious delinquencies in Freddie’s single-family conventional loan portfolio—those more than 90 days late—came in at 4.13 percent, up from 2.41 percent for the period a year earlier.”14 And the number of foreclosed units Freddie controlled stood at nearly 54,000, up from 29,145 at the end of March 2009.


pages: 247 words: 68,918

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

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

In any case, pure capitalism has never existed in the real world, and only the most ideologically committed of economic anarchists believe that it should. Markets can’t meet every human need, fear and greed ensure that markets will never work perfectly, and no market participant enjoys perfect information. Market failure didn’t begin with the global recession of 2009, the bank failures of 2008, the credit crunch of 2007, the savings-and-loan crisis of the 1980s,3 or even the stock market crash of 1929. Those investing heavily in the South Sea Company in 1720, the victims of irrational exuberance over the firm’s monopoly on trade in the South Seas, might have saved themselves some heartache had they learned the lessons of the Dutch tulip mania of 1637.4 Each successive market meltdown creates a temporary surge of momentum behind government efforts to ensure that it never happens again.

Drucker, “Trading Places,” National Interest, Spring 2005. 14 Antoine van Agtmael, The Emerging Markets Century: How a New Breed of World-Class Companies Is Overtaking the World (New York: Free Press, 2007). 15 From Bill Clinton’s 1996 State of the Union Address, http://clinton4.nara.gov/WH/New/other/sotu.html. 16 Forbes magazine’s Global 2000 list of companies for 2008. CHAPTER TWO : A Brief History of Capitalism 1 Adam Smith, The Wealth of Nations (1776; New York: Modern Library, 1994), book 4, ch. 2, pp. 484-85. 2 Adam Smith, The Theory of Moral Sentiments (1759; Cambridge, UK: Cambridge University Press, 2002), Introduction. 3 During the savings-and-loan crisis of the 1980s (and early 1990s) more than a thousand savings-and-loan associates failed at a cost of at least $125 billion to the U.S. federal government. 4 The South Sea Company, founded in 1711, enjoyed a monopoly over British trade with Spanish South America and the Pacific region. Its share price rose 800 percent in little more than six months in 1720 when holders of government bonds were offered swap shares in the company at discounted rates.

Rousseff, Dilma Royal Dutch Shell Rozanov, Andrew Rudd, Kevin Russia banks of budget deficit of economic crisis in economic reform in Georgia’s war with IPR violations by liberalization of mercantilism in and national security of democracies oligarchs in resource exporting and resource nationalism by sovereign wealth funds in state-owned enterprises in trade by Ukraine and see also Gazprom; Soviet Union Russia Petroleum Sadat, Anwar Sakhalin 2 project Samsung Sanabil Al Saudia Sarkozy, Nicolas Saud, Abdullah bin Abdul Aziz al- Saudi Arabia Saudi Arabia Investment Authority Saudi Arabian Monetary Agency (SAMA) Saudi Aramco Saudi Basic Industries Corporation (SABIC) savings-and-loan crisis Scandinavia Schengen agreement Schumpeter, Joseph Sechin, Igor September 11, 2001, terrorist attacks of Serra, José shadow banking system Shanghai Automotive Industry Corporation Shaw, George Bernard Shell Sichuan, China Singapore Singapore Government Investment Corporation (GIC) Singh, Manmohan Sinopec (China Petroleum and Chemical Corporation) slavery Smith, Adam Smoot-Hawley Tariff Act (1930) Sonatrach Sony Sourcefire South Africa South African Trade Unions South Korea South Sea Company Sovereign Wealth Fund Institute sovereign wealth funds (SWFs) Soviet Union collapse of creation of see also Russia Spain Stalin, Joseph State Administration of Foreign Exchange (SAFE) state capitalism and fast-emerging markets free-market vs.


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

Albert Einstein, bank run, banking crisis, Bear Stearns, Black Swan, Bretton Woods, British Empire, business cycle, buy and hold, California gold rush, Carmen Reinhart, central bank independence, commoditize, conceptual framework, corporate governance, corporate raider, creative destruction, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, means of production, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, oil shock, Paul Samuelson, payday loans, Plutocrats, plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, Savings and loan crisis, special drawing rights, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

The combination of direct government support for affordable housing, active advocacy, and credit availability by government-sponsored enterprises such as Fannie Mae and Freddie Mac and intense lobbying and marketing efforts by the real estate, home building, banking, and mortgage lending industries, created the circumstances for the subprime bust of 2007–2010. That bust had its roots in the savings and loan crisis of the late 1980s and the end of the first modern real estate recession in the United States. During a 2008 interview at the height of the financial crisis, Robert Feinberg, a veteran Washington consultant and observer of Capitol Hill, put the growth of the real estate lobby in historical context: When I first started working on the Hill in the early 1970s, there was a conservative Democrat on the Education and Labor Committee named Edith Green who coined the term “Education and Labor Industrial Complex” to describe what she was up against regarding education policy.

While Chase officials vociferously denied that any bailout had occurred, the pattern of discount window loans during the period and off-the-record statements by officials at the Fed and several private banks suggest very strongly that Corrigan’s personal intervention prevented a major banking crisis at the end of 1990 and the peak of the S&L crisis. Rational observers would agree that the collapse of a major banking institution is not a desirable outcome, but the larger, more fundamental issue is whether any private bank, large or small, should be subject to the discipline of the marketplace. The same issues of moral hazard and “too big to fail” that have been the subject of fierce debate and reform legislation in the Congress during 2009 and 2010 have their roots in crises two decades earlier.

People in Washington say that nobody saw this crisis coming, but there were clear signs of trouble for anyone looking.40 The respected housing finance expert Josh Rosner told the story of the real estate bust in September 2007: The reasons for the boom in housing in the past decade come from the structural changes in the housing industry over a decade before. Most of these changes were a result of the 1980s recession. We came out of the economic slump and a lot of the industry players had lost their shirts in the S&L crisis. We saw Fannie Mae insolvent on a mark-to-market basis in 1986 and that was largely because of the portfolio of foreclosed real estate. We saw housing in 1993 and 1994 with home ownership rates stagnant, in fact exactly where they were at the beginning of the 1980s. Home ownership rates have consistently ranged in this country between 62 and 64 percent during the post-WWII period, and yet affordability had actually locked people out.41 Rosner argues that the “problem” of home affordability saw the creation of the largest public–private partnership to date, started as the National Partners in Home Ownership in 1994.


pages: 206 words: 9,776

Rebel Cities: From the Right to the City to the Urban Revolution by David Harvey

Bretton Woods, business cycle, collateralized debt obligation, commoditize, creative destruction, David Graeber, deindustrialization, financial innovation, Garrett Hardin, Guggenheim Bilbao, Hernando de Soto, housing crisis, illegal immigration, indoor plumbing, invisible hand, Jane Jacobs, late capitalism, Long Term Capital Management, market bubble, market fundamentalism, means of production, moral hazard, mortgage debt, mortgage tax deduction, New Urbanism, Ponzi scheme, precariat, profit maximization, race to the bottom, Robert Shiller, Robert Shiller, Savings and loan crisis, special economic zone, the built environment, the High Line, The Wealth of Nations by Adam Smith, Tragedy of the Commons, transcontinental railway, urban planning, We are the 99%, William Langewiesche, Works Progress Administration

But since they cite innumerable "prudentially chosen" h istorical exam­ ples to bolster their neolibcral nostrums, how come they m issed that the crisis of 1 973 originated in a global property m arket crash that brought down several banks? D id they not no tice that the comm ercial property­ led Savings and Loan crisis of the late 1 9 80s in the United States saw several hundred financial institutions go belly- up at the cost of some US$200 billion to US t axpayers (a situation that so exercised William Isaacs, then chairman of the Federal D eposit Insurance Corporation, that in 1 98 7 he threatened the American B anke rs Association with nation­ alization unless they mended their ways ) ?

But there were no serious problems in the property m arkets in France, G ermany, the Netherlands, or Poland, or at that time throughout Asia. A regional crisis centered in the United States went glob al, to be sure, in ways that did not happen in the cases of, say, Japan or Sweden in the early 1 990s. But the S&L crisis centered on 1 987 (the year of a serious stock crash that is typically and erroneously viewed as a totally separate incident) had global ramifications. Th e same was true of the much­ neglected global property market crash of early 1 9 73 . Conventional w isdom has it that only the oil price hike in the fall of 1 9 73 mattered.


pages: 280 words: 79,029

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better by Andrew Palmer

Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, break the buck, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, impact investing, implied volatility, income inequality, index fund, information asymmetry, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, margin call, Mark Zuckerberg, McMansion, money market fund, mortgage debt, mortgage tax deduction, Myron Scholes, negative equity, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative finance, railway mania, randomized controlled trial, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Savings and loan crisis, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, tail risk, Thales of Miletus, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

Globalization increased the complexity of multinational companies’ operations, and the Asian debt crisis in the late 1990s drove home the risks of operating in emerging markets. Credit-default swaps promised a way for banks to reduce the impact of defaults, in the aftermath of a wave of bank failures experienced during America’s savings-and-loan crisis in the 1980s, because the sellers of a swap promised a payout if the borrower in question was unable to pay. Needs are not always so noble, of course. By making their lending seem less risky, credit-default swaps also meant that regulators were happy to allow banks to fund themselves with less equity capital.

., 32 Keys, Benjamin, 48 Kharroubi, Enisse, 79 Kickstarter, 172 King, Stephen, 99 Klein, David, 182 Krugman, Paul, xv Lahoud, Sal, 166 Lang, Luke, 153, 161–162 Laplanche, Renaud, 179, 184, 188, 190, 193–194, 196–197 Latency, 53 Law of large numbers, 17 Layering, 57 Left-digit bias, 46 Lehman Brothers, x, 44, 65 Lending direct, 84 marketplace, 184 payday, 200 relationship-based, 11, 151, 206–208 secured, xiv, 76 unsecured, 206 See also Loans; Peer-to-peer lending Lending Club, 172, 179–180, 182–184, 187, 189, 194–195, 197 Leonardo of Pisa (Fibonacci), 19 Lerner, Josh, 59 Lethal pandemic, risk-modeling for demographic profile, 230 exceedance-probability curve, 231–232, 232 figure 3 historical data, 228–229 infectiousness and virulence, 229–230 location of outbreak, 230–231 Leverage, 51, 70–71, 80, 186, 188 Leverage ratio, 76–77 Lewis, Michael, 57 Liber Abaci or Book of Calculation (Fibonacci), 19 LIBOR (London Interbank Offered Rate), 41 Liebman, Jeffrey, 98 Life expectancy government reaction to, 128–129 projections of, 124–127, 126 figure 2 ratio of young to older people, 127–128 Life-insurance policies, 142 Life-settlements industry, 142–143 Life table, 20 Limited liability, 212 Liquidity, 12–14, 39, 185–186 List, John, 109 The Little Book of Behavioral Investing (Montier), 156 Lo, Andrew, 113–115, 117–123 Loans low-documentation, 48–49 secured, 76 small business, 181, 216 student, 164, 166–167, 169–171, 182 syndicated, 41 Victory Loans, 28 See also Lending; Peer-to-Peer lending Logistic regression, 201 London, early fire insurance in, 16–17 London, Great Fire of, 16 London Interbank Offered Rate (LIBOR), 41 Long-Term Capital Management, 123 Longevity, betting on, 143–144 Loss aversion, 136 Lotteries, 212, 213 Low-documentation loans, 48–49 Lumni, 165, 168, 175 Lustgarten, Anders, 111 Lynn, Jeff, 160–161 Mack, John, 180 Mahwah, New Jersey, 52, 53 Marginal borrowers assessment of, 216–217 behavioral finance and, 208–214 industrialization of credit, 206 microfinance and, 203 savings schemes, 209–214 small businesses, 215–219 unsecured lending to, 206 Wonga, 203, 205, 208 Marginal borrowers (continued) ZestFinance, 199, 202, 205–206 Maritime piracy, solutions to, 151–152 Maritime trade, role of in history of finance, 3, 7–8, 14, 17, 23 Market makers, 15–16, 55 MarketInvoice, 195, 207, 217–218 Marketplace lending, 184 Markowitz, Harry, 118 Massachusetts, use of inflation-protected bonds in, 26 Massachusetts, use of social-impact bonds in, 98 Matching engine, 52 Maturity transformation, 12–13, 187–188, 193 McKinsey & Company, ix, 42 Mercator Advisory Group, 203 Merrill, Charles, 28 Merrill, Douglas, 199, 201 Merrill Lynch, 28 Merton, Robert, 31, 113–114, 123–124, 129–132, 142, 145 Mian, Atif, 204 Michigan, University of, financial survey by, 134–135 Microfinance, 203 Micropayment model, 217 Microwave technology, 53 The Million Adventure, 213–214 Minsky, Hyman, 42 Minsky moment, 42 Mississippi scheme, 36 Mitchell, Justin, 166–167 Momentum Ignition, 57 Monaco, modeling risk of earthquake in, 227 Money, history of, 4–5 Money illusion, 73–74 Money laundering, 192 Money-market funds, 43, 44 Monkeys, Yale University study of loss aversion with, 136 Montier, James, 156–157 Moody, John, 24 Moody’s, 24, 235 Moore’s law, 114 Morgan Stanley, 188 Mortgage-backed securities, 49, 233 Mortgage credit by ZIP code, study of, 204 Mortgage debt, role of in 2007–2008 crisis, 69–70 Mortgage products, unsound, 36–37 Mortgage securitization, 47 Multisystemic therapy, 96 Munnell, Alicia, 129 Naked credit-default swaps, 143 Nature Biotechnology, on drug-development megafunds, 118 “Neglected Risks, Financial Innovation and Financial Fragility” (Gennaioli, Shleifer, and Vishny), 42 Network effects, 181 New York, skyscraper craze in, 74–75 New York City, prisoner-rehabilitation program in, 108 New York Stock Exchange (NYSE), 31, 52, 53, 61, 64 New York Times, Merrill Lynch ad in, 28 Noncorrelated assets, 122 Nonprofits, growth of in United States, 105–106 Northern Rock, x NYMEX, 60 NYSE Euronext, 52 NYSE (New York Stock Exchange), 31, 52, 53, 61, 64 OECD (Organization for Economic Co-operation and Development), 128, 147 Oldfield, Sean, 67–68, 80–84 OnDeck, 216–218 One Service, 94–95, 105, 112 Operating expense ratio, 188–189 Options, 15, 124 Order-to-trade ratios, 63 Oregon, interest in income-share agreements, 172, 176 Organization for Economic Co-operation and Development (OECD), 128, 147 Overtrading, 24 Packard, Norman, 60 Pandit, Vikram, 184 Park, Sun Young, 233 Partnership mortgage, 81 Pasion, 11 Pave, 166–168, 173, 175, 182 Payday lending Consumer Financial Protection Bureau, survey on, 200 information on applicants, acquisition of, 202 underwriting of, 201 PayPal, 219 Peak child, 127 Peak risk, 228 Peer-to-peer lending advantages of, 187–189 auction system, 195 big investors in, 183 borrowers, assessment of, 197 in Britain, 181 commercial mortgages, 181 CommonBond, 182, 184, 197 consumer credit, 181 diversification, 196 explained, 180 Funding Circle, 181–182, 189, 197 investors in, 195 Lending Club, 179–180, 182–184, 187, 189, 194–195, 197 network effects, 181 ordinary savers and, 184 Prosper, 181, 187, 195 RateSetter, 181, 187, 196 Relendex, 181 risk management, 195–197 securitization, 183–184, 196 Peer-to-peer lending (continued) small business loans, 181 SoFi, 184 student loans, 182 Zopa, 181, 187, 188, 195 Pensions, cost of, 125–126 Perry, Rick, 142–143 Peterborough, England, social-impact bond pilot in, 90–92, 94–95, 104–105, 112 Petri, Tom, 172 Pharmaceuticals, decline of investment in, 114–115 Piracy Reporting Centre, International Maritime Bureau, 151 Polese, Kim, 210 Poor, Henry Varnum, 24 “Portfolio Selection” (Markowitz), 118 Prediction Company, 60–61 Preferred shares, 25 Prepaid cards, 203 Present value of cash flows, 19 Prime borrowers, 197 Prince, Chuck, 50–51, 62 Principal-agent problem, 8 Prisoner rehabilitation programs, 90–91, 94–95, 98, 108, 112 Private-equity firms, 69, 85, 91, 105, 107 Projection bias, 72–73 Property banking crises and, xiv, 69 banking mistakes involving, 75–80 behavioral biases and, 72–75 dangerous characteristics of, 70–72 fresh thinking, need for, xvii, 80 investors’ systematic errors in, 74–75 perception of as safe investment, 76, 80 Prosper, 181, 187, 195 Provisioning funds, 187 Put options, 9, 82 Quants, 19, 63, 113 QuickBooks, 218 Quote stuffing, 57 Raffray, André-François, 144 Railways, affect of on finance, 23–25 Randomized control trials (RCTs), 101 Raphoen, Christoffel, 15–16 Raphoen, Jan, 15–16 RateSetter, 181, 187, 196 RCTs (randomized control trials), 101 Ready for Zero, 210–211 Rectangularization, 125, 126 figure 2 Regulation NMS, 61 Reinhart, Carmen, 35 Reinsurance, 224 Relendex, 181 Rentes viagères, 20 Repurchase “repo” transactions, 15, 185 Research-backed obligations, 119 Reserve Primary Fund, 44 Retirement, funding for anchoring effect, 137–138 annuities, 139 auto-enrollment in pension schemes, 135 auto-escalation, 135–136 conventional funding, 127–128 decumulation, 138–139 government reaction to increased longevity, 128–129 home equity, 139–140 life expectancy, projections of, 124–127, 126 figure 2 life insurance policies, cash-surrender value of, 142 personal retirement savings, 128–129, 132–133 replacement rate, 125 reverse mortgage, 140–142 savings cues, experiment with, 137 SmartNest, 129–131 Reverse mortgages, 140–142 Risk-adjusted returns, 118 Risk appetite, 116 Risk assessment, 24, 45, 77–78, 208 Risk aversion, 116, 215 Risk-based capital, 77 Risk-based pricing model, 176 Risk management, 55, 117–118, 123, 195–197 Risk Management Solutions, 222 Risk sharing, 8, 82 Risk-transfer instrument, 226 Risk weights, 77–78 Rogoff, Kenneth, 35 “The Role of Government in Education” (Friedman), 165 Roman Empire business corporation in, 7 financial crisis in, 36 forerunners of banks in, 11 maritime insurance in, 8 Rotating Savings and Credit Associations (ROSCAs), 209–210 Roulette wheel, use of in experiment on anchoring, 138 Royal Bank of Scotland, 186 Rubio, Marco, 172 Russia, mortgage market in, 67 S-curve, in diffusion of innovations, 45 Salmon, Felix, 155 Samurai bonds, 27 Satsuma Rebellion (1877), 27 Sauter, George, 58 Save to Win, 214 Savings-and-loan crisis in US (1990s), 30 Savings cues, experiment with, 137 Scared Straight social program, 101 Scholes, Myron, 31, 123–124 Science, Technology, and Industry Scoreboard of OECD, 147 Securities and Exchange Commission (SEC), 54, 56, 57, 58, 64 Securities markets, 14 Securitization, xi, 20, 37–38, 117–122, 183–184, 196, 236 Seedrs, 160–161 Sellaband, 159 Shared equity, 80–84 Shared-equity mortgage, 84 Shepard, Chris, xii–xiii Shiller, Robert, xv–xvi, 242 Shleifer, Andrei, 42, 44 Short termism, 58 SIBs.

Mungo’s, 96 Standard & Poor’s (S&P), 24, 49, 157, 184, 234 Standardization, 39–41, 45, 47 Stevens, David, 151–152 Stevens, Teresa, 151–153 Stock exchanges, 14–16 Stocker, Anil, 207, 217 Stop-loss orders, 56 Straw, Jack, 94 Structured Bioequity, xii–xiii Structured finance, 237–238 Structured investment vehicle, 37 Stub quotes, 56 Student loans, 164, 166–167, 169–171 Stumpf, John, 192 Subprime mortgage tranches, loss amounts on, 233 Subprime mortgages, x, 79, 197–198, 233 Sufi, Amir, 204 Summers, Larry, 180 Suppa, Enrico, 9 Sutherland, Martinez, 89–90, 95, 105, 112 Svenska Handelsbanken, 206–207 Swaps, credit-default, 29–30 Swaps, interest-rate, 29 Swaziland, social-impact bonds (SIBs) in Sweden, banking crisis in, 75 Syndicated loans, 41 Tail risks, 221, 237 Tanzania, financial liberalization and, 34 Testosterone and cortisol, effect of on risk appetite and aversion, 116 Thailand, insurance claims for flooding, 225 Thaler, Richard, 137 Thales of Miletus, 10 Thayer, Ignacio, 210–211 Thiel, Peter, 163 This Time is Different (Reinhart and Rogoff), 35 Titmuss, Richard, 110 TransferWise, 190–192 Trente demoiselles de Genève, 22 True Link Financial, 144 Tufano, Peter, 59, 213–214 Tulipmania, 33, 36 Tversky, Amos, 137 UBS, 60 Uganda, social-impact bonds (SIBs) in, 103 Unbanked households, 200 United States aggregate value of property, 69 consumer debt, 183, 204 corporate debt, 120 cost of diagnosed diabetes, 102 cost of entitlements, 100 credit card debt, 183 general solicitation by private firms, 153–154 government interest in alternatives to student debt, 168 government spending, 99 home-ownership rates, 28, 85, 170 household debt, 205 leverage ratio, 2007, 77 life expectancy, 125 median house price, 70 monetary charitable gifts, 109 money raised through IPOs, 120 mortgage debt, 69 nonprofits in, 105–106 prepaid cards, 203 property bubbles, 74–75 real estate cycles, 237 savings-and-loan crisis (1990s), 30 social-impact bonds (SIBs), 98 student debt, 169 Unsecured lending, 206 Upstart, 166–168, 173, 175, 182 Used-car market, use of heuristics in, 46 Vega, Joseph de la, 24 Venture capital (VC), 150–151 Veterans, SIB program for, 102 Veterans Support Organization, 102 Viatical settlements, 142 Victory Loans, 28 Vishny, Robert, 42, 44 Volcker, Paul, xv, 30 Wachovia, xiv Wadhwa, Vivek, xv Warren, Elizabeth, xiv Washington Mutual, xiv Westlake, Darren, 153–154, 158, 161–162 “What Everybody Ought to Know About This Stock and Bond Business” Merrill Lynch ad, 28 When the Money Runs Out (King), 99 Wonga, 203, 205, 208 Woo, Gordon, 221–222, 227–229, 231, 233, 238 World Bank, 169 Wren, Christopher, 16 Wyman, Oliver, 204 Yale University, income-contingent financing program of, 165 Yale University, study of loss aversion, 136 Yunus, Muhammad, 203 Zaccaria, Benedetto, 9 ZestFinance, 199, 201, 205–206 Zombanakis, Minos, 41 Zopa, 181, 187, 188, 195 Zuckerberg, Mark, 174


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

accounting loophole / creative accounting, active measures, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, foreign exchange controls, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, Kickstarter, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, Savings and loan crisis, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, Tax Reform Act of 1986, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond, zero-sum game

Geithner’s “Financial Stability Plan,” introduced in March 2009, followed what had gone before. The Treasury would purchase more bank stock, while emphasizing that the long-term objective was to keep the banks in private hands. The new asset-management funds the Treasury would set up to unblock financial markets (along the lines of the Resolution Trust Corporation during the Savings and Loan crisis) were accurately described by the Financial Times’s Martin Wolf: “Under the scheme, the government provides virtually all the finance and bears almost all the risk, but it uses the private sector to price the assets. In return, private investors obtain rewards—perhaps generous rewards—based on their performance via equity participation, alongside the Treasury.

These agencies’ examination, supervision and enforcement powers were always weaker than those of federal banking regulators like the Fed and OCC, since they were supposed to be regulating an industry with limited financial scope and relatively few failures that “performed a type of public service.” Now that they found themselves so “understaffed, [and] poorly trained for the new environment,” they came to be called “the doormats of financial regulation.” See FDIC, History of the 1980s: Lessons for the Future, vol. 1, Chapter 4: “The Savings and Loan Crisis and Its Relationship to Banking,” Washington, DC: FDIC, Division of Research and Statistics, 1992, esp. pp. 171–5. 55 Alan Greenspan, “Remarks Before a Conference on Mortgage Markets and Economic Activity Sponsored by America’s Community Bankers,” Washington, DC, 1999, pp. 1–2. Available at federalreserve.gov. 56 Berger et al., Transformation, pp. 66–7. 57 See White, The Comptroller and the Transformation of American Banking, pp. 54, 61; and Meltzer, History of the Federal Reserve, p. 1,200; as well as Dean F.

But the creation of “freer markets” necessarily involved “the reformulation of old rules and the creation of new ones.”52 The systemic risk inherent in the more competitive, integrated, and volatile financial markets of the 1980s quickly proved that reliance on “market discipline” produced its own severe contradictions, and actually required more, not less, state intervention. Perhaps the most dramatic instance of the contradictions of market discipline was seen in the fate of the savings and loan industry after the Volcker shock; the S&L crisis had only been temporarily postponed by the 1980 DIDMCA legislation. And despite the “spirit of deregulation” that imbued the subsequent 1982 Garn–St. Germain Act, which was designed to aid the S&L industry by loosening the rules on what thrifts could invest in, it simultaneously allowed the FDIC to provide direct assistance to a failed bank if “severe financial conditions exist which threaten the stability of a significant number of insured banks possessing significant financial resources.”53 While it would have been much cheaper to have closed out the industry in 1980 (the delay only “increased the eventual costs of the crisis,” as the FDIC later put it), the impact that this would have had on the housing market would have made it politically impossible to sustain the Volcker shock.


pages: 316 words: 87,486

Listen, Liberal: Or, What Ever Happened to the Party of the People? by Thomas Frank

Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, American ideology, barriers to entry, Berlin Wall, Bernie Sanders, blue-collar work, Burning Man, centre right, circulation of elites, Clayton Christensen, collective bargaining, Credit Default Swap, David Brooks, deindustrialization, disruptive innovation, Donald Trump, Edward Snowden, Fall of the Berlin Wall, financial innovation, Frank Gehry, full employment, George Gilder, gig economy, Gini coefficient, income inequality, independent contractor, Jaron Lanier, Jeff Bezos, knowledge economy, knowledge worker, Lean Startup, mandatory minimum, Marc Andreessen, Mark Zuckerberg, market bubble, mass immigration, mass incarceration, McMansion, microcredit, mobile money, moral panic, mortgage debt, Nelson Mandela, new economy, obamacare, payday loans, Peter Thiel, Plutocrats, plutocrats, Ponzi scheme, post-industrial society, postindustrial economy, pre–internet, profit maximization, profit motive, race to the bottom, Republic of Letters, Richard Florida, ride hailing / ride sharing, Ronald Reagan, Savings and loan crisis, sharing economy, Silicon Valley, Steve Jobs, Steven Levy, TaskRabbit, Thorstein Veblen, too big to fail, Travis Kalanick, Uber for X, union organizing, urban decay, WeWork, women in the workforce, Works Progress Administration, young professional

See also specific elections and individuals Bill Clinton and blue-collar voters and Congress and containing crash of 2008 and creative class and culture wars and deindustrialization and elections and Hillary Clinton and inequality and mass incarceration and meritocracy and NAFTA and Obama and professionals and rich and Social Security and Wall Street and Reuters revolving door Rhode Island Rise of the Creative Class, The (Florida) Roaring Nineties, The (Stiglitz) Rockefeller, Jay Rolling Stone Romney, Mitt Roosevelt, Eleanor Roosevelt, Franklin Roosevelt, Theodore Rothschild, Lynn Forester de Rubin, Robert Russert, Tim Ryan, Paul Salinas, Carlos San Francisco savings and loans crisis Schmidt, Eric Schmidt, Jeff Schulte, David Seattle Secret Service Securities and Exchange Commission Sentencing Commission Shafer, Byron sharing or gig economy Sheehy, Gail Silicon Valley. See also technocracy Sister Souljah 60 Minutes (TV show) Snoop Dogg Snowden, Edward social class Democrats and political parties and social question and two-class system Social Innovation Compact Social Security privatization of Social Security Commissions Solomon, Larry South by Southwest (SXSW) Sperling, Gene Sperling, John Stanford University Stanislaw, Joseph startups State Department State New Economy Index STEM skills Stenholm, Charles Stiglitz, Joseph stimulus of 2009 stimulus spending, Bill Clinton and stock market.

Norton, 2004), his account of the Clinton years. Here is my understanding of the peculiar chain of events that Stiglitz describes: By signaling his intention to balance the budget (and then actually balancing it), Clinton encouraged long-term interest rates to drop. Meanwhile, in the aftermath of the S&L crisis, American banks were holding lots of long-term government bonds. The drop in interest rates handed the banks a windfall but made long-term bonds a less attractive investment going forward. This prompted the banks, as Stiglitz puts it, to go “back to their real business, which is lending.” And this, in turn, got the economy going again.


pages: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

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

Controversially, after Continental Illinois filed for bankruptcy regulators decided to fully recompense deposits above the federal insurance cap (including the 179 banks that had deposits worth more than half of their equity capital) and also bondholders, rather than let them absorb the losses. The bailout of these uninsured lenders caused outrage and popularized the phrase “too big to fail”. The outrage was compounded by the even larger and costlier Savings and Loans crisis.6 Savings and Loans were a specialized sector that lent for home mortgages using savings deposits. Their deposits were popular with investors because under Regulation Q they could offer slightly higher deposit rates than regulated banks. Savings and Loans failures rose rapidly during the 1970s and early 1980s, however, because their business model was particularly susceptible to rising inflation.

The result was a prolonged crisis across the industry. Between 1986 and 1995 almost one-third of the Savings and Loans had to be closed, at the cost of some $160 billion (2 percent of 1995 GDP) including $120 billion in taxpayer money. The political furor over the cost to taxpayers of the failure of Continental Illinois and the Savings and Loans crisis led to a major tightening of US rules on capital buffers for regulated banks that went over and above existing Basel Committee rules.7 To reduce the potential for costly regulatory forbearance of the type seen in the case of Continental Illinois, a “prompt corrective action” framework was introduced by the Federal Deposit Insurance Corporation Improvement Act of 1991 that required automatic interventions if a bank’s capital fell below certain ratios.8 To be well capitalized and avoid intervention, a regulated bank needed to have core capital that was at least 6 percent of risk-weighted assets (2 percent above the minimum defined by the Basel Committee in 1988) and total capital that was at least a 10 percent of risk-weighted assets (again 2 percent above the Basel minimum).

Fagan and Gaspar (2008): Gabriel Fagan and Vitor Gaspar, “Macroeconomic Adjustment to a Monetary Union”, European Central Bank Working Paper No. 946, October 2008. Faruqee and Srinivasan (2012): Hamid Faruqee and Krishna Srinivasan, “The G-20 Mutual Assessment Process—A Perspective from IMF Staff”, Oxford Review of Economic Policy, Vol. 28, No. 3, pp. 493–511. Federal Deposit Insurance Corporation (1997a): “The Savings and Loan Crisis and Its Relationship to Banking”, Chapter 4 in A History of the Eighties – Lessons for the Future, Vol. 1: An Examination of the Banking Crises of the 1980s and Early 1990s, December 1997. Federal Deposit Insurance Corporation (1997b): “The LDC Debt Crisis”, Chapter 5 in A History of the Eighties – Lessons for the Future, Vol. 1: An Examination of the Banking Crises of the 1980s and Early 1990s, December 1997.


pages: 369 words: 94,588

The Enigma of Capital: And the Crises of Capitalism by David Harvey

accounting loophole / creative accounting, anti-communist, Asian financial crisis, bank run, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, equal pay for equal work, European colonialism, failed state, financial innovation, Frank Gehry, full employment, global reserve currency, Google Earth, Guggenheim Bilbao, Gunnar Myrdal, Herbert Marcuse, illegal immigration, indoor plumbing, interest rate swap, invention of the steam engine, Jane Jacobs, joint-stock company, Joseph Schumpeter, Just-in-time delivery, land reform, liquidity trap, Long Term Capital Management, market bubble, means of production, megacity, microcredit, Money creation, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Northern Rock, oil shale / tar sands, peak oil, Pearl River Delta, place-making, Ponzi scheme, precariat, reserve currency, Ronald Reagan, Savings and loan crisis, sharing economy, Shenzhen special economic zone , Silicon Valley, special drawing rights, special economic zone, statistical arbitrage, structural adjustment programs, the built environment, the market place, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, too big to fail, trickle-down economics, urban renewal, urban sprawl, white flight, women in the workforce

The Swedish banking system had to be nationalised in 1992 in the midst of a Nordic crisis that also affected Norway and Finland, caused by excesses in the property markets. One of the triggers for the collapse in east and south-east Asia in 1997–8 was excessive urban development, fuelled by an inflow of foreign speculative capital, in Thailand, Hong Kong, Indonesia, South Korea and the Philippines. And the long-drawn-out commercial-property-led savings and loan crisis of 1984–92 in the United States saw more than 1,400 savings and loans companies and 1,860 banks go belly up at the cost of some $200 billion to US taxpayers (a situation that so exercised William Isaacs, then chairman of the Federal Deposit Insurance Corporation, that in 1987 he threatened the American Bankers Association with nationalisation unless they mended their ways).

Index Numbers in italics indicate Figures; those in bold indicate a Table. 11 September 2001 attacks 38, 41–2 subject to perpetual renewal and transformation 128 A Abu Dhabi 222 Académie Française 91 accumulation by dispossession 48–9, 244 acid deposition 75, 187 activity spheres 121–4, 128, 130 deindustrialised working-class area 151 and ‘green revolution’ 185–6 institutional and administrative arrangements 123 ‘mental conceptions of the world’ 123 patterns of relations between 196 production and labour processes 123 relations to nature 123 the reproduction of daily life and of the species 123 slums 152 social relations 123 subject to perpetual renewal and transformation 128 suburbs 150 technologies and organisational forms 123 uneven development between and among them 128–9 Adelphia 100 advertising industry 106 affective bonds 194 Afghanistan: US interventionism 210 Africa civil wars 148 land bought up in 220 neocolonialism 208 population growth 146 agribusiness 50 agriculture collectivisation of 250 diminishing returns in 72 ‘green revolution’ 185–6 ‘high farming’ 82 itinerant labourers 147 subsidies 79 AIG 5 alcoholism 151 Allen, Paul 98 Allende, Salvador 203 Amazonia 161, 188 American Bankers Association 8 American Revolution 61 anarchists 253, 254 anti-capitalist revolutionary movement 228 anti-racism 258 anti-Semitism 62 après moi le déluge 64, 71 Argentina Debt Crisis (2000–2002) 6, 243, 246, 261 Arizona, foreclosure wave in 1 Arrighi, Giovanni: The Long Twentieth Century 35, 204 asbestos 74 Asia Asian Currency Crisis (1997–98) 141, 261 collapse of export markets 141 growth 218 population growth 146 asset stripping 49, 50, 245 asset traders 40 asset values 1, 6, 21, 23, 26, 29, 46, 223, 261 Association of South East Asian Nations (ASEAN) 200 Athabaska tar sands, Canada 83 austerity programmes 246, 251 automobile industry 14, 15, 23, 56, 67, 68, 77, 121, 160–61 Detroit 5, 15, 16, 91, 108, 195, 216 autonomista movement 233, 234, 254 B Baader-Meinhof Gang 254 Bakunin, Michael 225 Balzac, Honoré 156 Bangalore, software development in 195 Bangkok 243 Bank of England 53, 54 massive liquidity injections in stock markets 261 Bank of International Settlements, Basel 51, 55, 200 Bank of New England 261 Bankers Trust 25 banking bail-outs 5, 218 bank shares become almost worthless 5 bankers’ pay and bonuses 12, 56, 218 ‘boutique investment banks’ 12 de-leveraging 30 debt-deposit ratio 30 deposit banks 20 French banks nationalised 198 international networks of finance houses 163 investment banks 2, 19, 20, 28, 219 irresponsible behaviour 10–11 lending 51 liquidity injections by central banks vii, 261 mysterious workings of central banks 54 ‘national bail-out’ 30–31 property market-led Nordic and Japanese bank crises 261 regional European banks 4 regular banks stash away cash 12, 220 rising tide of ‘moral hazard’ in international bank lending practices 19 ‘shadow banking’ system 8, 21, 24 sympathy with ‘Bonnie and Clyde’ bank robbers 56 Baran, Paul and Sweezey, Paul: Monopoly Capital 52, 113 Barings Bank 37, 100, 190 Baucus, Max 220 Bavaria, automotive engineering in 195 Beijing declaration (1995) 258 Berlin: cross-border leasing 14 Bernanke, Ben 236 ‘Big Bang’ (1986) 20, 37 Big Bang unification of global stock, options and currency trading markets 262 billionaire class 29, 110, 223 biodiversity 74, 251 biomass 78 biomedical engineering 98 biopiracy 245, 251 Birmingham 27 Bismarck, Prince Otto von 168 Black, Fischer 100 Blackstone 50 Blair, Tony 255 Blair government 197 blockbusting neighbourhoods 248 Bloomberg, Mayor Michael 20, 98, 174 Bolivarian movement 226, 256 bonuses, Wall Street 2, 12 Borlaug, Norman 186 bourgeoisie 48, 89, 95, 167, 176 ‘boutique investment banks’ 12 Brazil automobile industry 16 capital flight crisis (1999) 261 containerisation 16 an export-dominated economy 6 follows Japanese model 92 landless movement 257 lending to 19 the right to the city movement 257 workers’ party 256 Bretton Woods Agreement (1944) 31, 32, 51, 55, 171 British Academy 235 British empire 14 Brown, Gordon 27, 45 Budd, Alan 15 Buenos Aires 243 Buffett, Warren 173 building booms 173–4 Bush, George W. 5, 42, 45 business associations 195 C California, foreclosure wave in 1, 2 Canada, tightly regulated banks in 141 ‘cap and trade’ markets in pollution rights 221 capital bank 30 centralisation of 95, 110, 113 circulation of 90, 93, 108, 114, 116, 122, 124, 128, 158, 159, 182, 183, 191 cultural 21 devalued 46 embedded in the land 191 expansion of 58, 67, 68 exploitations of 102 export 19, 158 fixed 191, 213 industrial 40–41, 56 insufficient initial money capital 47 investment 93, 203 and labour 56, 88, 169–70 liquid money 20 mobility 59, 63, 64, 161–2, 191, 213 and nature 88 as a process 40 reproduction of 58 scarcity 50 surplus 16, 28, 29, 50–51, 84, 88, 100, 158, 166, 167, 172, 173, 174, 206, 215, 216, 217 capital accumulation 107, 108, 123, 182, 183, 191, 211 and the activity spheres 128 barriers to 12, 16, 47, 65–6, 69–70, 159 compound rate 28, 74, 75, 97, 126, 135, 215 continuity of endless 74 at the core of human evolutionary dynamics 121 dynamics of 188, 197 geographic landscape of 185 geographical dynamics of 67, 143 and governance 201 lagging 130 laws of 113, 154, 160 main centres of 192 market-based 180 Mumbai redevelopment 178 ‘nature’ affected by 122 and population growth 144–7 and social struggles 105 start of 159 capital circulation barriers to 45 continuity of 68 industrial/production capital 40–41 inherently risky 52 interruption in the process 41–2, 50 spatial movement 42 speculative 52, 53 capital controls 198 capital flow continuity 41, 47, 67, 117 defined vi global 20 importance of understanding vi, vii-viii interrupted, slowed down or suspended vi systematic misallocation of 70 taxation of vi wealth creation vi capital gains 112 capital strike 60 capital surplus absorption 31–2, 94, 97, 98, 101, 163 capital-labour relation 77 capitalism and communism 224–5 corporate 1691 ‘creative-destructive’ tendencies in 46 crisis of vi, 40, 42, 117, 130 end of 72 evolution of 117, 118, 120 expansion at a compound rate 45 first contradiction of 77 geographical development of 143 geographical mobility 161 global 36, 110 historical geography of 76, 117, 118, 121, 174, 180, 200, 202, 204 industrial 58, 109, 242 internal contradictions 115 irrationality of 11, 215, 246 market-led 203 positive and negative aspects 120 and poverty 72 relies on the beneficence of nature 71 removal of 260 rise of 135, 192, 194, 204, 228, 248–9, 258 ‘second contradiction of’ 77, 78 social relations in 101 and socialism 224 speculative 160 survival of 46, 57, 66, 86, 107, 112, 113, 116, 130, 144, 229, 246 uneven geographical development of 211, 213 volatile 145 Capitalism, Nature, Socialism journal 77 capitalist creed 103 capitalist development considered over time 121–4 ‘eras’ of 97 capitalist exploitation 104 capitalist logic 205 capitalist reinvestment 110–11 capitalists, types of 40 Carnegie, Andrew 98 Carnegie foundation 44 Carnegie Mellon University, Pittsburgh, Pennsylvania 195 Carson, Rachel: Silent Spring 187 Case Shiller Composite Indices SA 3 Catholic Church 194, 254 cell phones 131, 150, 152 Central American Free Trade Association (CAFTA) 200 centralisation 10, 11, 165, 201 Certificates of Deposit 262 chambers of commerce 195, 203 Channel Tunnel 50 Chiapas, Mexico 207, 226 Chicago Board Options Exchange 262 Chicago Currency Futures Market 262 ‘Chicago School’ 246 Chile, lending to 19 China ‘barefoot doctors’ 137 bilateral trade with Latin America 173 capital accumulation issue 70 cheap retail goods 64 collapse of communism 16 collapse of export markets 141 Cultural Revolution 137 Deng’s announcement 159 falling exports 6 follows Japanese model 92 ‘Great Leap Forward’ 137, 138 growth 35, 59, 137, 144–5, 213, 218, 222 health care 137 huge foreign exchange reserves 141, 206 infant mortality 59 infrastructural investment 222 labour income and household consumption (1980–2005) 14 market closed after communists took power (1949) 108 market forcibly opened 108 and oil market 83 one child per family policy 137, 146 one-party rule 199 opening-up of 58 plundering of wealth from 109, 113 proletarianisation 60 protests in 38 and rare earth metals 188 recession (1997) 172 ‘silk road’ 163 trading networks 163 unemployment 6 unrest in 66 urbanisation 172–3 and US consumerism 109 Chinese Central Bank 4, 173 Chinese Communist Party 180, 200, 256 chlorofluoral carbons (CFCs) 74, 76, 187 chronometer 91, 156 Church, the 249 CIA (Central Intelligence Agency) 169 circular and cumulative causation 196 Citibank 19 City Bank 261 city centres, Disneyfication of 131 City of London 20, 35, 45, 162, 219 class consciousness 232, 242, 244 class inequalities 240–41 class organisation 62 class politics 62 class power 10, 11, 12, 61, 130, 180 class relations, radical reconstitution of 98 class struggle 56, 63, 65, 96, 102, 127, 134, 193, 242, 258 Clausewitz, Carl von 213 Cleveland, foreclosure crisis in 2 Cleveland, foreclosures on housing in 1 Clinton, Bill 11, 12, 17, 44, 45 co-evolution 132, 136, 138, 168, 185, 186, 195, 197, 228, 232 in three cases 149–53 coal reserves 79, 188 coercive laws of competition see under competition Cold War 31, 34, 92 Collateralised Bond Obligations (CBOs) 262 Collateralised Debt Obligations (CDOs) 36, 142, 261, 262 Collateralised Mortgage Obligations (CMOs) 262 colonialism 212 communications, innovations in 42, 93 communism 228, 233, 242, 249 collapse of 16, 58, 63 compared with socialism 224 as a loaded term 259–60 orthodox communists 253 revolutionary 136 traditional institutionalised 259 companies joint stock 49 limited 49 comparative advantage 92 competition 15, 26, 43, 70 between financial centres 20 coercive laws of 43, 71, 90, 95, 158, 159, 161 and expansion of production 113 and falling prices 29, 116 fostering 52 global economic 92, 131 and innovation 90, 91 inter-capitalist 31 inter-state 209, 256 internalised 210 interterritorial 202 spatial 164 and the workforce 61 competitive advantage 109 computerised trading 262 computers 41, 99, 158–9 consortia 50, 220 consumerism 95, 109, 168, 175, 240 consumerist excess 176 credit-fuelled 118 niche 131 suburban 171 containerisation 16 Continental Illinois Bank 261 cooperatives 234, 242 corporate fraud 245 corruption 43, 69 cotton industry 67, 144, 162 credit cards fees vii, 245 rise of the industry 17 credit crunch 140 Credit Default swaps 262 Crédit Immobilièr 54 Crédit Mobilier 54 Crédit Mobilier and Immobilier 168 credit swaps 21 credit system and austerity programmes 246 crisis within 52 and the current crisis 118 and effective demand problem 112 an inadequate configuration of 52 predatory practices 245 role of 115 social and economic power in 115 crises crises of disproportionality 70 crisis of underconsumption 107, 111 east Asia (1997–8) 6, 8, 35, 49, 246 financial crisis of 1997–8 198, 206 financial crisis of 2008 34, 108, 114, 115 general 45–6 inevitable 71 language of crisis 27 legitimation 217 necessary 71 property market 8 role of 246–7 savings and loan crisis (US, 1984–92) 8 short sharp 8, 10 south-east Asia (1997–8) 6, 8, 35, 49, 246 cross-border leasing 142–3 cultural choice 238 ‘cultural industries’ 21 cultural preferences 73–4 Cultural Revolution 137 currency currency swaps 262 futures market 24, 32 global 32–3, 34 options markets on 262 customs barriers 42, 43 cyberspace 190 D Darwin, Charles 120 DDT 74, 187 de-leveraging 30 debt-financing 17, 131, 141, 169 decentralisation 165, 201 decolonisation 31, 208, 212 deficit financing 35, 111 deforestation 74, 143 deindustrialisation 33, 43, 88, 131, 150, 157, 243 Deleuze, Gilles 128 demand consumer 107, 109 effective 107, 110–14, 116, 118, 221, 222 lack of 47 worker 108 Democratic Party (US) 11 Deng Xiaoping 159 deregulation 11, 16, 54, 131 derivatives 8 currency 21 heavy losses in (US) 261 derivatives markets creation of 29, 85 unregulated 99, 100, 219 Descartes, René 156 desertification 74 Detroit auto industry 5, 15, 16, 91, 108, 195, 216 foreclosures on housing in 1 Deutsches Bank 20 devaluation 32, 47, 116 of bank capital 30 of prior investments 93 developing countries: transformation of daily lives 94–5 Developing Countries Debt Crisis 19, 261 development path building alliances 230 common objectives 230–31 development not the same as growth 229–30 impacts and feedbacks from other spaces in the global economy 230 Diamond, Jared: Guns, Germs and Steel 132–3, 154 diasporas 147, 155, 163 Dickens, Charles: Bleak House 90 disease 75, 85 dispossession anti-communist insurgent movements against 250–51 of arbitrary feudal institutions 249 of the capital class 260 China 179–80 first category 242–4 India 178–9, 180 movements against 247–52 second category 242, 244–5 Seoul 179 types of 247 under socialism and communism 250 Domar, Evsey 71 Dongguan, China 36 dot-com bubble 29, 261 Dow 35,000 prediction 21 drug trade 45, 49 Dubai: over-investment 10 Dubai World 174, 222 Durban conference on anti-racism (2009) 258 E ‘earth days’ 72, 171 east Asia crash of 1997–8 6, 8, 35, 49, 246 labour reserves 64 movement of production to 43 proletarianisation 62 state-centric economies 226 wage rates 62 eastern European countries 37 eBay 190 economic crisis (1848) 167 economists, and the current financial crisis 235–6 ecosystems 74, 75, 76 Ecuador, and remittances 38 education 59, 63, 127, 128, 221, 224, 257 electronics industry 68 Elizabeth II, Queen vi-vii, 235, 236, 238–9 employment casual part-time low-paid female 150 chronic job insecurity 93 culture of the workplace 104 deskilling 93 reskilling 93 services 149 Engels, Friedrich 89, 98, 115, 157, 237 The Housing Question 176–7, 178 Enron 8, 24, 52, 53, 100, 261 entertainment industries 41 environment: modified by human action 84–5 environmental movement 78 environmental sciences 186–7 equipment 58, 66–7 equity futures 262 equity index swaps 262 equity values 262 ethanol plants 80 ethnic cleansings 247 ethnicity issues 104 Eurodollars 262 Europe negative population growth in western Europe 146 reconstruction of economy after Second World War 202 rsouevolutions of 1848 243 European Union 200, 226 eastern European countries 37 elections (June 2009) 143 unemployment 140 evolution punctuated equilibrium theory of natural evolution 130 social 133 theory of 120, 129 exchange rates 24, 32, 198 exports, falling 141 external economies 162 F Factory Act (1848) 127 factory inspectors 127 ‘failed states’ 69 Fannie Mae (US government-chartered mortgage institution) 4, 17, 173, 223 fascism 169, 203, 233 Federal Deposit Insurance Corporation (FDIC) 8 rescue of Continental Illinois Bank 261 Federal Reserve System (the Fed) 2, 17, 54, 116, 219, 236, 248 and asset values 6 cuts interest rates 5, 261 massive liquidity injections in stock markets 261 rescue of Continental Illinois Bank 261 feminists, and colonisation of urban neighbourhoods 248 fertilisers 186 feudalism 135, 138, 228 finance capitalists 40 financial institutions awash with credit 17 bankruptcies 261 control of supply and demand for housing 17 nationalisations 261 financial services 99 Financial Times 12 financialisation 30, 35, 98, 245 Finland: Nordic cris (1992) 8 Flint strike, Michigan (1936–7) 243 Florida, foreclosure wave in 1, 2 Forbes magazine 29, 223 Ford, Henry 64, 98, 160, 161, 188, 189 Ford foundation 44, 186 Fordism 136 Fordlandia 188, 189 foreclosed businesses 245 foreclosed properties 220 fossil fuels 78 Foucault, Michel 134 Fourierists 168 France acceptance of state interventions 200 financial crisis (1868) 168 French banks nationalised 198 immigration 14 Paris Commune 168 pro-natal policies 59 strikes in 38 train network 28 Franco-Prussian War (1870) 168 fraud 43, 49 Freddie Mac (US government-chartered mortgage institution) 4, 17, 173, 223 free trade 10, 33, 90, 131 agreements 42 French Communist Party 52 French Revolution 61 Friedman, Thomas L.: The World is Flat 132 futures, energy 24 futures markets 21 Certificates of Deposit 262 currency 24 Eurodollars 262 Treasury instruments 262 G G7/G8/G20 51, 200 Galileo Galilei 89 Gates, Bill 98, 173, 221 Gates foundation 44 gays, and colonisation of urban neighbourhoods 247, 248 GDP growth (1950–2030) 27 Gehry, Frank 203 Geithner, Tim 11 gender issues 104, 151 General Motors 5 General Motors Acceptance Corporation 23 genetic engineering 84, 98 genetic modification 186 genetically modified organisms (GMOs) 186 gentrification 131, 256, 257 geographical determinism 210 geopolitics 209, 210, 213, 256 Germany acceptance of state interventions 199–200 cross-border leasing 142–3 an export-dominated economy 6 falling exports 141 invasion of US auto market 15 Nazi expansionism 209 neoliberal orthodoxies 141 Turkish immigrants 14 Weimar inflation 141 Glass-Steagall act (1933) 20 Global Crossing 100 global warming 73, 77, 121, 122, 187 globalisation 157 Glyn, Andrew et al: ‘British Capitalism, Workers and the Profits Squeeze’ 65 Goethe, Johann Wolfgang von 156 gold reserves 108, 112, 116 Goldman Sachs 5, 11, 20, 163, 173, 219 Google Earth 156 Gould, Stephen Jay 98, 130 governance 151, 197, 198, 199, 201, 208, 220 governmentality 134 GPS systems 156 Gramsci, Antonio 257 Grandin, Greg: Fordlandia 188, 189 grassroots organisations (GROS) 254 Great Depression (1920s) 46, 170 ‘Great Leap Forward’ 137, 138, 250 ‘Great Society’ anti-poverty programmes 32 Greater London Council 197 Greece sovereign debt 222 student unrest in 38 ‘green communes’ 130 Green Party (Germany) 256 ‘green revolution’ 185–6 Greenspan, Alan 44 Greider, William: Secrets of the Temple 54 growth balanced 71 compound 27, 28, 48, 50, 54, 70, 75, 78, 86 economic 70–71, 83, 138 negative 6 stop in 45 Guggenheim Museu, Bilbao 203 Gulf States collapse of oil-revenue based building boom 38 oil production 6 surplus petrodollars 19, 28 Gulf wars 210 gun trade 44 H habitat loss 74, 251 Haiti, and remittances 38 Hanseatic League 163 Harrison, John 91 Harrod, Roy 70–71 Harvey, David: A Brief History of Neoliberalism 130 Harvey, William vii Haushofer, Karl 209 Haussmann, Baron 49, 167–8, 169, 171, 176 Hawken, Paul: Blessed Unrest 133 Hayek, Friedrich 233 health care 28–9, 59, 63, 220, 221, 224 reneging on obligations 49 Health Care Bill 220 hedge funds 8, 21, 49, 261 managers 44 hedging 24, 36 Hegel, Georg Wilhelm Friedrich 133 hegemony 35–6, 212, 213, 216 Heidegger, Martin 234 Helú, Carlos Slim 29 heterogeneity 214 Hitler, Adolf 141 HIV/AIDS pandemic 1 Holloway, John: Change the World without Taking Power 133 homogeneity 214 Hong Kong excessive urban development 8 rise of (1970s) 35 sweatshops 16 horizontal networking 254 household debt 17 housing 146–7, 149, 150, 221, 224 asset value crisis 1, 174 foreclosure crises 1–2, 166 mortgage finance 170 values 1–2 HSBC 20, 163 Hubbert, M.

.: Limits to Growth 72 meat-based diets 73, 74 Medicare 28–9, 224 Mellon, Andrew 11, 98 mercantilism 206 merchant capitalists 40 mergers 49, 50 forced 261 Merrill Lynch 12 Merton, Robert 100 methane gas 73 Mexico debt crisis (1982) 10, 19 northern Miexico’s proximity to the US market 36 peso rescue 261 privatisation of telecommunications 29 and remittances 38 standard of living 10 Mexico City 243 microcredit schemes 145–6 microeconomics 237 microenterprises 145–6 microfinance schemes 145–6 Middle East, and oil issue 77, 170, 210 militarisation 170 ‘military-industrial complex’ 91 minorities: colonisation of urban neighbourhoods 247, 248 Mitterrand, François 198 modelling of markets 262 modernism 171 monarchy 249 monetarism 237 monetisation 244 money centralised money power 49–50, 52 a form of social power 43, 44 limitlessness of 43, 47 loss of confidence in the symbols/quality of money 114 universality of 106 monoculture 186 Monopolies Commission 52 monopolisation 43, 68, 95, 113, 116, 221 Monsanto 186 Montreal Protocol (1989) 76, 187 Morgan Stanley 19 Morishima, Michio 70 Morris, William 160 mortgages annual rate of change in US mortgage debt 7 mortgage finance for housing 170 mortgage-backed bonds futures 262 mortgage-backed securities 4, 262 secondary mortgage market 173, 174 securitisation of local 42 securitisation of mortgage debt 85 subprime 49, 174 Moses, Robert 169, 171, 177 MST (Brazil) 257 multiculturalism 131, 176, 231, 238, 258 Mumbai, India anti-Muslim riots (early 1990s) 247 redevelopment 178–9 municipal budgets 5 Museum of Modern Art, New York 21 Myrdal, Gunnar 196 N Nandigram, West Bengal 180 Napoleon III, Emperor 167, 168 national debt 48 National Economic Council (US) 11, 236 national-origin quotas 14 nationalisation 2, 4, 8, 224 nationalism 55–6, 143, 194, 204 NATO 203 natural gas 188 ‘natural limits’ 47 natural resources 30, 71 natural scarcity 72, 73, 78, 80, 83, 84, 121 nature and capital 88 ‘first nature’ 184 relation to 121, 122 ‘the revenge of nature’ 185 ‘second nature’ 184, 185, 187 as a social product 188 neocolonialism 208, 212 neoliberal counter-revolution 113 neoliberalism 10, 11, 19, 66, 131, 132, 141, 172, 175, 197, 208, 218, 224, 225, 233, 237, 243, 255 Nepal: communist rule in 226 Nevada, foreclosure wave in 1 New Deal 71 ‘new economy’ (1990s) 97 New Labour 45, 255 ‘new urbanism’ movement 175 New York City 11 September 2001 attacks 41 fiscal crisis (1975) 10, 172, 261 investment banks 19, 28 New York metropolitan region 169, 196 Nicaragua 189 Niger delta 251 non-governmental organisations (NGOs) 35, 253–4 non-interventionism 10 North Africa, French import of labour from 14 North America, settlement in 145 North American Free Trade Association (NAFTA) 200 Northern Ireland emergency 247 Northern Rock 2 Norway: Nordic cris (1992) 8 nuclear power 188 O Obama, Barack 11, 27, 34, 210 Obama administration 78, 121 O’Connor, Jim 77, 78 offshoring 131 Ogoni people 251 oil cheap 76–7 differential rent on oil wells 83 futures 83, 84 a non-renewable resource 82 ‘peak oil’ 38, 73, 78, 79, 80 prices 77–8, 80, 82–3, 261 and raw materials prices 6 rents 83 United States and 76–7, 79, 121, 170, 210, 261 OPEC (Organisation of Oil-Producing Countries) 83, 84 options markets currency 262 equity values 262 unregulated 99, 100 Orange County, California bankruptcy 100, 261 Organisation for Economic Cooperation and Development (OECD) 51 organisational change 98, 101 organisational forms 47, 101, 121, 127, 134, 238 Ottoman Empire 194 ‘over the counter’ trading 24, 25 overaccumulation crises 45 ozone hole 74 ozone layer 187 P Pakistan: US involvement 210 Palley, Thomas 236 Paris ‘the city of light’ 168 epicentre of 1968 confrontations 177, 243 Haussmann’s rebuilding of 49, 167–8, 169, 171, 176 municipal budget crashes (1868) 54 Paris Commune (1871) 168, 171, 176, 225, 243, 244 Partnoy, Frank: Ubfectious Greed 25 patents 221 patent laws 95 patriarchy 104 pensions pension funds 4, 5, 245 reneging on obligations 49 Péreire brothers 49, 54, 98, 174 pesticides 185, 186, 187 petty bourgeois 56 pharmaceutical sector 129, 245 philanthropy 44 Philippines: excessive urban development 8 Phillips, Kevin 206 Pinochet, General Augusto 15, 64 plant 58 Poland, lending to 19 political parties, radical 255–6 politics capitalist 76 class 62 co-revolutionary 241 commodified 219 depoliticised 219 energy 77 identity 131 labour organizing 255 left 255 transformative 207 pollution air 77 oceanic 74 rights 21 ‘Ponts et Chaussées’ organisation 92 Ponzi schemes 21, 114, 245, 246 pop music 245–6 Pope, Alexander 156 population growth 59, 72, 74, 121, 167 and capital accumulation 144–7 populism 55–6 portfolio insurance 262 poverty and capitalism 72 criminalisation and incarceration of the poor 15 feminisation of 15, 258 ‘Great Society’ anti-poverty programmes 32 Prague 243 prices commodity 37, 73 energy 78 food grain 79–80 land 8, 9, 182–3 oil 8, 28, 37–8, 77–8, 80, 82–3, 261 property 4, 182–3 raw material 37 reserve price 81–2 rising 73 share 7 primitive accumulation 58, 63–4, 108, 249 private consortia 50 private equity groups 50 private property and radical egalitarianism 233, 234 see also property markets; property rights; property values privatisation 10, 28, 29, 49, 251, 256, 257 pro-natal policies 59 production expansion of 112, 113 inadequate means of 47 investment in 114 liberating the concept 87 low-profit 29 offshore 16 production of urbanisation 87 reorganisation and relocation of 33 revolutionising of 89 surplus 45 technologies 101 productivity agreements 14, 60, 96 agricultural 119 cotton industry 67 gains 88, 89 Japan and West Germany 33 rising 96, 186 products development 95 innovation 95 new lines 94, 95 niches 94 profit squeeze 65, 66, 116 profitability constrains 30 falling 94, 131 of the financial sector 51 and wages 60 profits easy 15 excess 81, 90 falling 29, 72, 94, 116, 117 privatising 10 rates 70, 94, 101 realisation of 108 proletarianisation 60, 62 property markets crash in US and UK (1973–75) 8, 171–2, 261 overextension in 85 property market-led Nordic and Japanese bank crises 261 property-led crises (2007–10) 10, 261 real estate bubble 261 recession in UK (after 1987) 261 property rights 69, 81–2, 90, 122, 179, 198, 233, 244, 245 Property Share Price Index (UK) 7 property values 171, 181, 197, 248 prostitution 15 protectionism 31, 33, 43, 211 punctuated equilibrium theory of natural evolution 130 Putin, Vladimir 29, 80 Q Q’ing dynasty 194 quotas 16 R R&D (research and development) 92, 95–6 race issues 104 racism 61, 258 radical egalitarianism 230–34 railroads 42, 49, 191 Railwan, rise of (1970s) 35 rare earth metals 188 raw materials 6, 16, 37, 58, 77, 101, 113, 140, 144, 234 RBS 20 Reagan, Ronald 15, 64, 131, 141 Reagan-Thatcher counter revolution (early 1980s) 71 Reagan administration 1, 19 Reagan recession (1980–82) 60, 261 Real Estate Investment Trusts (US) 7 recession 1970s 171–2 language of 27 Reagan (1980–82) 60, 261 Red Brigade 254 reforestation 184 refrigeration 74 reinvestment 43, 45, 66–7, 110–12, 116 religious fundamentalism 203 religious issues 104 remittances 38, 140, 147 rentiers 40 rents differential rent 81, 82, 83 on intellectual property rights 221 land 182 monetisation of 48, 109 monopoly 51, 81–2, 83 oil 83 on patents 221 rising 181 reproduction schemas 70 Republican Party (US) 11, 141 reserve price 81 resource values 234 Ricardo, David 72, 94 risks, socialising 10 robbery 44 Robinson, Joan 238 robotisation 14, 136 Rockefeller, John D. 98 Rockefeller brothers 131 Rockefeller foundation 44, 186 Roman Empire 194 Roosevelt, Franklin D. 71 Rothschild family 98, 163 Royal Society 91, 156 royalties 40 Rubin, Robert 98 ‘rule of experts’ 99, 100–101 Russia bankruptcy (1998) 246, 261 capital flight crisis 261 defaults on its debt (1998) 6 oil and natural gas flow to Ukraine 68 oil production 6 oligarchs 29 see also Soviet Union S Saddam Hussein 210 Saint-Simon, Claude Henri de Rouvroy, Comte de 49 Saint-Simonians 87, 168 Salomon Brothers 24 Samuelson, Robert 235, 239 Sandino, Augusto 189 Sanford, Charles 98 satellites 156 savings 140 Scholes, Myron 100 Schumer, Charles 11 Schumpeter, Joseph 46 Seattle battle of (1999) 38, 227 general strike (1918) 243 software development in 195 Second World War 32, 168–70, 214 sectarianism 252 securitisation 17, 36, 42 Sejong, South Korea 124–6 service industries 41 sexism 61 sexual preferences issues 104, 131, 176 Shanghai Commune (1967) 243 shark hunting 73, 76 Shell Oil 79, 251 Shenzhen, China 36 shop floor organisers (shop stewards) 103 Silicon Valley 162, 195, 216 Singapore follows Japanese model 92 industrialisation 68 rise of (1970s) 35 slavery 144 domestic 15 slums 16, 151–2, 176, 178–9 small operators, dispossession of 50 Smith, Adam 90, 164 The Wealth of Nations 35 social democracy 255 ‘social democratic’ consensus (1960s) 64 social inequality 224 social relations 101, 102, 104, 105, 119, 121, 122, 123, 126, 127, 135–9, 152, 240 loss of 246 social security 224 social services 256 social struggles 193 social welfarism 255 socialism 136, 223, 228, 242, 249 compared with communism 224 solidarity economy 151, 254 Soros, George 44, 98, 221 Soros foundation 44 South Korea Asian Currency Crisis 261 excessive urban development 8 falling exports 6 follows Japanese model 92 rise of (1970s) 35 south-east Asia: crash of 1997–8 6, 8, 49, 246 Soviet Union in alliance with US against fascism 169 break-up of 208, 217, 227 collapse of communism 16 collectivisation of agriculture 250 ‘space race’ (1960s and 1970s) 156 see also Russia space domination of 156–8, 207 fixed spaces 190 ‘space race’ (1960s and 1970s) 156 Spain property-led crisis (2007–10) 5–6, 261 unemployment 6 spatial monopoly 164–5 special drawing rights 32, 34 special economic zones 36 special investment vehicles 36, 262 special purpose entities 262 speculation 52–3 speculative binges 52 speed-up 41, 42 stagflation 113 stagnation 116 Stalin, Joseph 136, 250 Standard Oil 98 state formation 196, 197, 202 state-corporate nexus 204 ‘space race’ (1960s and 1970s) 156 state-finance nexus 204, 205, 237, 256 blind belief in its corrective powers 55 ‘central nervous system’ for capital accumulation 54 characteristics of a feudal institution 55 and the current crisis 118 defined 48 failure of 56–7 forms of 55 fusion of state and financial powers 115 innovation in 85 international version of 51 overwhelmed by centralised credit power 52 pressure on 54 radical reconstruction of 131 role of 51 and state-corporate research nexus 97 suburbanisation 171 tilts to favour particular interests 56 statistical arbitrage strategies 262 steam engine, invention of 78, 89 Stiglitz, Joseph 45 stimulus packages 261 stock markets crash (1929) 211, 217 crashes (2001–02) 261 massive liquidity injections (1987) 236, 261 Stockton, California 2 ’structural adjustment’ programmes vii, 19, 261 subcontracting 131 subprime loans 1 subprime mortgage crisis 2 substance abuse 151 suburbanisation 73, 74, 76–7, 106–7, 169, 170, 171, 181 Summers, Larry 11, 44–5, 236 supermarket chains 50 supply-side theory 237 surveillance 92, 204 swaps credit 21 Credit Default 24, 262 currency 262 equity index 262 interest rate 24, 262 Sweden banking system crash (1992) 8, 45 Nordic crisis 8 Yugoslav immigrants 14 Sweezey, Paul 52, 113 ‘switching crises’ 93 systematic ‘moral hazard’ 10 systemic risks vii T Taipei: computer chips and household technologies in 195 Taiwan falling exports 6 follows Japanese model 92 takeovers 49 Taliban 226 tariffs 16 taxation 244 favouring the rich 45 inheritance 44 progressive 44 and the state 48, 145 strong tax base 149 tax rebates 107 tax revenues 40 weak tax base 150 ‘Teamsters for Turtles’ logo 55 technological dynamism 134 technologies change/innovation/new 33, 34, 63, 67, 70, 96–7, 98, 101, 103, 121, 127, 134, 188, 193, 221, 249 electronic 131–2 ‘green’ 188, 221 inappropriate 47 labour fights new technologies 60 labour-saving 14–15, 60, 116 ‘rule of experts’ 99, 100–101 technological comparative edge 95 transport 62 tectonic movements 75 territorial associations 193–4, 195, 196 territorial logic 204–5 Thailand Asian Currency Crisis 261 excessive urban development 8 Thatcher, Margaret, Baroness 15, 38, 64, 131, 197, 255 Thatcherites 224 ‘Third Italy’, Bologna 162, 195 time-space compression 158 time-space configurations 190 Toys ‘R’ Us 17 trade barriers to 16 collapses in foreign trade (2007–10) 261 fall in global international trade 6 increase in volume of trading 262 trade wars 211 trade unions 63 productivity agreements 60 and US auto industry 56 trafficking human 44 illegal 43 training 59 transport costs 164 innovations 42, 93 systems 16, 67 technology 62 Treasury Bill futures 262 Treasury bond futures 262 Treasury instruments 262 TRIPS agreement 245 Tronti, Mario 102 Trotskyists 253, 255 Tucuman uprising (1969) 243 Turin: communal ‘houses of the people’ 243 Turin Workers Councils 243 U UBS 20 Ukraine, Russian oil and natural gas flow to 68 ultraviolet radiation 187 UN Declaration of Human Rights 234 UN development report (1996) 110 Un-American Activities Committee hearings 169 underconsumptionist traditions 116 unemployment 131, 150 benefits 60 creation of 15 in the European Union 140 job losses 93 lay-offs 60 mass 6, 66, 261 rising 15, 37, 113 and technological change 14, 60, 93 in US 5, 6, 60, 168, 215, 261 unionisation 103, 107 United Fruit Company 189 United Kingdom economy in serious difficulty 5 forced to nationalise Northern Rock 2 property market crash 261 real average earnings 13 train network 28 United Nations 31, 208 United States agricultural subsidies 79 in alliance with Soviet Union against fascism 169 anti-trust legislation 52 auto industry 56 blockbusting neighbourhoods 248 booming but debt-filled consumer markets 141 and capital surplus absorption 31–2 competition in labour markets 61 constraints to excessive concentration of money power 44–5 consumerism 109 conumer debt service ratio 18 cross-border leasing with Germany 142–3 debt 158, 206 debt bubble 18 fiscal crises of federal, state and local governments 261 health care 28–9 heavy losses in derivatives 261 home ownership 3 housing foreclosure crises 1–2, 4, 38, 166 industries dependent on trade seriously hit 141 interventionism in Iraq and Afghanistan 210 investment bankers rescued 261 investment failures in real estate 261 lack of belief in theory of evolution 129 land speculation scheme 187–8 oil issue 76–7, 79, 80, 121, 170, 210, 261 population growth 146 proletarianisation 60 property-led crisis (2007–10) 261 pursuit of science and technology 129 radical anti-authoritarianism 199 Reagan Recession 261 rescue of financial institutions 261 research universities 95 the reversing origins of US corporate profits (1950–2004) 22 the right to the city movement 257 ‘right to work’ states 65 savings and loan crisis (1984–92) 8 secondary mortgage market 173 ‘space race’ (1960s and 1970s) 156 suburbs 106–7, 149–50, 170 train network 28 unemployment 5, 6, 60, 168, 215, 261 unrestricted capitalist development 113 value of US stocks and homes, as a percentage of GDP 22 and Vietnam War 171 wages 13, 62 welfare provision 141 ‘urban crisis’ (1960s) 170 urban ‘heat islands’ 77 urban imagineering 193 urban social movements 180 urbanisation 74, 85, 87, 119, 131, 137, 166, 167, 172–3, 174, 240, 243 US Congress 5, 169, 187–8 US Declaration of Independence 199 US National Intelligence Council 34–5 US Senate 79 US Supreme Court 179 US Treasury and Goldman Sachs 11 rescue of Continental Illinois Bank 261 V Vanderbilt family 98 Vatican 44 Veblen, Thorstein 181–2 Venezuela 256 oil production 6 Vietnam War 32, 171 Volcker, Paul 2, 236 Volcker interest rate shock 261 W wage goods 70, 107, 112, 162 wages and living standards 89 a living wage 63 national minimum wage 63 rates 13, 14, 59–64, 66, 109 real 107 repression 12, 16, 21, 107, 110, 118, 131, 172 stagnation 15 wage bargaining 63 Wal-Mart 17, 29, 64, 89 Wall Street, New York 35, 162, 200, 219, 220 banking institutions 11 bonuses 2 ‘Party of Wall Street’ 11, 20, 200 ‘War on Terror’ 34, 92 warfare 202, 204 Wasserstein, Bruce 98 waste disposal 143 Watt, James 89 wealth accumulation by capitalist class interests 12 centralisation of 10 declining 131 flow of 35 wealth transfer 109–10 weather systems 153–4 Weather Underground 254 Weill, Sandy 98 Welch, Jack 98 Westphalia, Treaty of (1648) 91 Whitehead, Alfred North 75 Wilson, Harold 56 wind turbines 188 women domestic slavery 15 mobilisation of 59, 60 prostitution 15 rights 176, 251, 258 wages 62 workers’ collectives 234 working hours 59 World Bank 36, 51, 69, 192, 200, 251 ‘Fifty Years is Enough’ campaign 55 predicts negative growth in the global economy 6 World Bank Development Report (2009) 26 World Trade Organisation (WTO) 200, 227 agreements 69 street protests against (Seattle, 1999) 55 TRIPS agreement 245 and US agricultural subsidies 79 WorldCom 8, 100, 261 worldwide web 42 Wriston, Walter 19 X X-rays 99 Y Yugoslavia dissolution of 208 ethnic cleansings 247 Z Zapatista revolutionary movement 207, 226, 252 Zola, Émile 53 The Belly of Paris 168 The Ladies’ Paradise 168


pages: 279 words: 87,875

Underwater: How Our American Dream of Homeownership Became a Nightmare by Ryan Dezember

activist fund / activist shareholder / activist investor, Airbnb, Bear Stearns, business cycle, call centre, Cesare Marchetti: Marchetti’s constant, cloud computing, collateralized debt obligation, coronavirus, corporate raider, COVID-19, Credit Default Swap, credit default swaps / collateralized debt obligations, Donald Trump, Home mortgage interest deduction, housing crisis, interest rate swap, margin call, McMansion, mortgage debt, mortgage tax deduction, negative equity, rent control, rolodex, Savings and loan crisis, sharing economy, sovereign wealth fund, transaction costs

Condo prices had pushed comfortably into the six-figure range and builders had moved on from stucco-and-wood structures to concrete, which they poured into broad surfside towers. The prospect of vanishing tax breaks and high interest rates were faint memories. Borrowing costs had been lowered in response to the savings-and-loan crisis and the 1987 stock market crash. Shallow was enlisted to sell condos in a huge high-rise resort that developers were planning out on the Fort Morgan peninsula, a finger of land that juts out thirty miles across the mouth of Mobile Bay. The Beach Club was the first development of its kind on Alabama’s beaches, combining luxury condominiums, restaurants, and a spa.

But because of government policies intended to spur homeownership among Americans and Wall Street’s hunger for home loans that could be bundled into securities and sold to investors, banks happily facilitate speculative real estate bets. The fountain of easy money alarmed some around town. Occasionally someone would invoke the empty buildings and bankruptcies during the savings-and-loan crisis. The condo game relied on there being someone—a retired chemical engineer from Louisiana, say, or a Birmingham banker—who wanted the keys to the condos once they were built and had the wherewithal to pay for them at their inflated postflip prices. Yet the instant riches to be made flipping condos were seductive.

Geoff Jacobs, who launched an early rental operation in Phoenix, partnered with Progress Residential, a multibillion-dollar endeavor started by Donald Mullen, a former Goldman Sachs mortgage chief who had overseen the firm’s lucrative “big short” of mortgage-backed securities. Hotelier Barry Sternlicht, who became a real estate tycoon buying repossessed apartment buildings from the government after the savings and loan crisis, and Donald Trump confidant Tom Barrack, who followed a similar path to moguldom, each built up national home-rental operations. Blackstone’s Invitation Homes was buying as much as $150 million worth of houses a week. These bulk buyers competed for properties mainly with one another. Typical home buyers were sidelined.


pages: 519 words: 148,131

An Empire of Wealth: Rise of American Economy Power 1607-2000 by John Steele Gordon

accounting loophole / creative accounting, bank run, banking crisis, Bretton Woods, British Empire, business cycle, buttonwood tree, California gold rush, clean water, collective bargaining, Corn Laws, corporate governance, cuban missile crisis, disintermediation, double entry bookkeeping, failed state, financial independence, Frederick Winslow Taylor, full employment, global village, Ida Tarbell, imperial preference, informal economy, interchangeable parts, invisible hand, Isaac Newton, Jacquard loom, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, lone genius, Louis Pasteur, margin call, Marshall McLuhan, means of production, Menlo Park, Mikhail Gorbachev, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, New Urbanism, postindustrial economy, price mechanism, Ralph Waldo Emerson, RAND corporation, rent control, rent-seeking, reserve currency, rolodex, Ronald Reagan, Savings and loan crisis, spinning jenny, The Wealth of Nations by Adam Smith, trade route, transaction costs, transcontinental railway, undersea cable, Yom Kippur War

The Birth of Empire: DeWitt Clinton and the American Experience, 1769–1828. New York: Oxford University Press, 1998. Croffut, William A. An American Procession 1855–1914: A Personal Chronicle of Famous Men. Freeport, N.Y.: Books for Libraries Press, 1968. Reprint of the 1931 ed. Davis, L. J. “Chronicle of a Debacle Foretold, How Deregulation Begat the S&L Scandal.” Harper’s Magazine, September 1990. Drucker, Peter. Adventures of a Bystander. New York: HarperCollins, 1991. Dulles, Foster Rhea. Labor in America: A History. Arlington Heights, Ill.: Harlan Davidson, 1984. Ferguson, Eugene S. Oliver Evans, Inventive Genius of the American Industrial Revolution.

., 72, 73, 77, 79, 86, 95, 97, 127, 129–30, 156, 160, 217, 274, 292, 325–26, 327, 340, 342, 363, 394, 416, 417 assumption debate in, 74–75 chartered banks and, 196–97 civil rights legislation in, 374 Crédit Mobilier scandal and, 219 dollar unit adopted by, 70 gold standard and, 266–68 Great Depression legislation of, 325–27, 332–36 Great Society legislation of, 382–83 ICC created by, 238 impoundment power and, 389–90 income tax and, 194 pork barrel spending and, 388–89 pre–World War II legislation of, 349, 351, 352, 353, 360 railroad regulation and, 237–38 S&L scandal and, 399–400 Smoot-Hawley Act passed by, 320–22 and War of 1812, 117–19 see also House of Representatives, U.S; Senate, U.S. Congress of Industrial Organizations (CIO), 345 Connecticut, 142 conspicuous consumption, 260–61 Constitution, U.S., 65–66, 73, 78, 102 and doctrine of implied powers, 78–79 income tax and, 274, 276 interstate commerce and, 143–44 Sixteenth Amendment of, 276 Twenty-fourth Amendment of, 374 Constitutional Convention, 65, 72, 87, 274 Continental Congress, 60, 61, 63, 68, 76–77 continentals (bills of credit), 60 Cooke, Jay, 193–94, 227, 292 Coolidge, Calvin, 311 Cooper, James Fenimore, 6 Cooper, Peter, 150–51, 261, 266 Copley, Lionel, 34 corporations, 9–10, 205, 232, 257 accounting practices and, 9, 230–32 as business trusts, 258–59 income tax on, 276–77 partnership form and, 229 railroads and, 228–30 corruption, 207–8, 215–16 Crédit Mobilier and, 216–20 Tweed ring and, 220–21 see also Erie Railway Corsair agreement, 234 Cortelyou, George B., 278–79 cotton trade, 83–92, 185 Great Britain and, 88–90 mechanization of, 84–85, 88–89, 91–92 slavery and, 86–87 South’s economy and, 89–90, 97 Council of Economic Advisors, 378, 380 Counterblaste to Tobacco, A (James I), 15 Crack in the Picture Window, The (Keats), 366 Cramer, Stuart, 373 credit, 308–9, 366–67 Credit Ansalt, 322 Crédit Mobilier, 218–20, 222 Cuban missile crisis, 403 currency, see coins and currency Dana, Charles A., 219 Danat Bank, 323 Deere, John, 174 Defense Department, U.S., 410 deflation, 266 deforestation, 171–72 Delaware, 259 Delaware, Lackawana, and Western Railroad, 230 Democratic Party, 122, 220, 270–71, 276, 342, 390–91, 395 Demonstration Cities and Metropolitan Development Act, 382–83 department stores, 161–62 depression, economic, 227–28, 346, 379 of 1819, 126 of 1837–1843, 179 of 1873, 227 of 1907, 275, 278–80, 368 of 1914, 286–87 of 1920–1921, 296, 311–12 see also Great Depression Derby, Elias, 94 Description of Virginia (Smith), 13 Dey, Peter, 218 Dickens, Charles, 131, 152, 162 dollar, Spanish, 44, 47, 69, 70, 71 dollar, U.S., 68–70, 267, 323, 334, 384, 401 Bretton Woods Agreement and, 362, 384 domestic service, 164–65 Douglas, William O., 341, 342 Dow-Jones Industrial Average, 270–71, 289, 312, 313, 316, 328, 336, 368, 370, 381, 383–84, 397, 417 Drake, Edwin, 170–71, 254 Drew, Daniel, 209–10, 212–13, 215, 225 Drudge Report, The, 413 Duer, William, 80 Durant, Thomas C., 218 Dutch East India Company, 10 Dutch West India Company, 37–38 Eckert, Presper, 407 Economic Consequences of the Peace, The (Keynes), 379 Economist, The, 89 economy, U.S., postwar boom in, 363–81 air-conditioning in, 373–74 credit in, 366–67 G.I.


pages: 249 words: 79,740

The Next Decade: Where We've Been . . . And Where We're Going by George Friedman

airport security, Ayatollah Khomeini, Bear Stearns, Berlin Wall, British Empire, business cycle, continuation of politics by other means, creative destruction, Deng Xiaoping, facts on the ground, Fall of the Berlin Wall, full employment, hydraulic fracturing, illegal immigration, Monroe Doctrine, Ronald Reagan, Savings and loan crisis, South China Sea

Third World countries, forced to choose between defaulting and raising taxes (which would further impoverish their citizens and trigger uprisings), opted to default, which threatened to swamp the global financial system. This prompted a U.S.-led multinational bailout of Third World debt. Under George Bush, Sr., Secretary of the Treasury Nicholas Brady created a system of guarantees, issuing what were called “Brady bonds” to create stability. And then came the savings-and-loan crisis. Savings-and-loan institutions, which had been created to take consumer deposits and generate home loans—think Jimmy Stewart in It’s a Wonderful Life—were given the right to invest in other assets, which led them into the commercial real estate market. This appeared to be only a small step beyond their traditional residential market, and the expansion carried the same “conventional wisdom” guarantee that prices would never fall.

Mortgages in default were foreclosed, and the underlying property was taken over by a newly created institution called the Resolution Trust Corporation. Rather than try to sell all this real estate at once, thereby destroying the market for the next decade, the RTC, backed by federal guarantees that potentially could have risen to about $650 billion, took control of the real estate of failed savings-and-loans. The crisis of 2008 was based on the same desire for low risk, and on the same assumption that a certain class of assets was indeed low-risk because its price couldn’t fall. It was met with a similar federal government intervention to bail out the system, and, just as before, everyone thought it was the end of capitalism.


pages: 454 words: 134,482

Money Free and Unfree by George A. Selgin

"Robert Solow", asset-backed security, bank run, banking crisis, barriers to entry, Bear Stearns, break the buck, Bretton Woods, business cycle, capital controls, central bank independence, centralized clearinghouse, Charles Lindbergh, credit crunch, Credit Default Swap, crony capitalism, disintermediation, fear of failure, fiat currency, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, foreign exchange controls, Fractional reserve banking, German hyperinflation, Hyman Minsky, incomplete markets, inflation targeting, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, large denomination, liquidity trap, Long Term Capital Management, market microstructure, Money creation, money market fund, moral hazard, Network effects, Northern Rock, oil shock, Paul Samuelson, Plutocrats, plutocrats, price stability, profit maximization, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, Robert Gordon, Savings and loan crisis, savings glut, seigniorage, special drawing rights, The Great Moderation, the payments system, too big to fail, transaction costs, unorthodox policies, Y2K

And though panics did disappear for a while after 1933, credit for that belongs, not to the Fed, but to the Reconstruction Finance Corporation and, after it, the Federal Deposit Insurance Corporation (FDIC) and the Federal Savings and Loan Insurance Corporation. That deposit insurance was itself no panacea was made clear both by the savings and loan crisis of the 1980s, to which the Federal Savings and Loan Insurance Corporation succumbed, and by the more recent subprime crisis. The Fed, therefore, continues to bear some responsibility for avoiding or containing panics. According to various official Fed sources, the responsible way for it to do so is by heeding the advice Walter Bagehot (1873) gives in Lombard Street.

A lender of last resort is then needed to bail out the funds directly or to bail out and subsidize mergers of insolvent banks. Not to do so could lead to panic, as many depositors have no reason to trust their banks apart from the guarantees that insurance provides. The 1985 Ohio and Maryland savings and loan (S&L) crisis bears this out quite clearly. The Lender of Last Resort Itself. By the same token, though, the Fed is also one of its own worst enemies (I am tempted to say one of its own best excuses), because it also encourages banks to take on excessive risks, leading to trouble. That lenders of last resort can also be a source of moral hazard is, of course, recognized even by their most ardent supporters (e.g., Kindleberger 1984: 280).


pages: 25 words: 7,179

Why Government Is the Problem by Milton Friedman

affirmative action, Bretton Woods, floating exchange rates, invisible hand, rent control, Savings and loan crisis, urban renewal

Those seven times as many people per hospital bed are clearly not people who are attending to patients; they are mostly people who are filling in forms to satisfy government requirements. Financial System You are all fully aware of the weakness of our financial system. Is there any doubt that that weakness owes much to Washington? The savings and loans crisis was produced by government, first by the accelerating inflation of the 1970s, which destroyed the net worth of many savings and loan institutions, then by poor regulation in the 1980s, by the increase in the amount covered by deposit insurance to $100,000, and, more recently, by the heavy-handed handling of the crisis.


End the Fed by Ron Paul

affirmative action, Bear Stearns, Bernie Madoff, Bernie Sanders, Bretton Woods, business cycle, crony capitalism, currency manipulation / currency intervention, fiat currency, Fractional reserve banking, hiring and firing, housing crisis, illegal immigration, invisible hand, Khyber Pass, Long Term Capital Management, market bubble, means of production, Money creation, moral hazard, Ponzi scheme, price mechanism, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, Savings and loan crisis, too big to fail, tulip mania, Y2K

He was more personable and smarter than the others, including the more recent board chairmen Alan Greenspan and Ben Bernanke. In my second tour of congressional duty starting in 1997, I had the opportunity to quiz them. In 1980, a major piece of banking legislation, the Monetary Control Act, was passed; many considered it a prelude to the savings and loan crisis in that decade. I expressed my concern to Chairman Volcker at a hearing that reserve requirements could be lowered to zero and the Federal Reserve could buy any asset, including foreign debt. Volcker invited me to a private breakfast to dissuade me from my interpretation. Lew Rockwell, my chief of staff, went with me to the breakfast.

Dollar imbalances in the world economy kept being papered over. In 1989, the crash of the Japanese market showed that the international imbalances permitted some of our dollar inflation to be exported to Japan rather than do damage at home. More recently, our excessive purchases have come from China, exporting inflated dollars yet again. The savings and loan crisis of the 1980s was another effort of the marketplace to rectify the mistakes inherent in the system. Debt, to some degree, was liquidated, but as there were no significant changes in policy the country and the Federal Reserve went back to their old ways, with even more inflation than before.


pages: 257 words: 64,763

The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street by Robert Scheer

banking crisis, Bear Stearns, Bernie Madoff, Bernie Sanders, business cycle, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, facts on the ground, financial deregulation, fixed income, housing crisis, invisible hand, Long Term Capital Management, mega-rich, mortgage debt, new economy, old-boy network, Ponzi scheme, profit motive, Ralph Nader, Ronald Reagan, Savings and loan crisis, too big to fail, trickle-down economics

Still, Paulson wrote that the president did seem genuinely perplexed when his new Treasury secretary gave his depressing presentation on the state of the economy at a Camp David retreat in August 2006, five weeks after Paulson had been appointed to his government post. Outlining his view that in “recent history, there is a disturbance in the capital markets every four to eight years,” Paulson told Bush, referring to the savings and loan scandal, the blowup of the bond market, the Asia crisis, and the Russia debt default: “I was convinced we were due for another disruption. I detailed the big increase in the size of unregulated pools of capital such as hedge funds and private-equity funds, as well as the exponential growth of unregulated over-the-counter (OTC) derivatives like credit default swaps.


pages: 224 words: 64,156

You Are Not a Gadget by Jaron Lanier

1960s counterculture, accounting loophole / creative accounting, additive manufacturing, Albert Einstein, Bear Stearns, call centre, cloud computing, commoditize, crowdsourcing, death of newspapers, different worldview, digital Maoism, Douglas Hofstadter, Extropian, follow your passion, hive mind, Internet Archive, Jaron Lanier, jimmy wales, John Conway, John von Neumann, Kevin Kelly, Long Term Capital Management, Network effects, new economy, packet switching, PageRank, pattern recognition, Ponzi scheme, Ray Kurzweil, Richard Stallman, Savings and loan crisis, Silicon Valley, Silicon Valley startup, slashdot, social graph, stem cell, Steve Jobs, Stewart Brand, Ted Nelson, telemarketer, telepresence, The Wisdom of Crowds, trickle-down economics, Turing test, Vernor Vinge, Whole Earth Catalog

The admittedly flimsy reasons are that a) we’ve done it before, so they’re used to us, and b) the alternatives are potentially less appealing to many global players, so there might be widespread grudging acceptance of at least some kinds of long-term American centrality as a least-bad option. Computationally Enhanced Corruption Corruption has always been possible without computers, but computers have made it easier for criminals to pretend even to themselves that they are not aware of their own schemes. The savings and loan scandals of the 1980s were possible without extensive computer network services. All that was required was a misuse of a government safety net. More recent examples of cataclysmic financial mismanagement, starting with Enron and Long-Term Capital Management, could have been possible only with the use of big computer networks.


pages: 363 words: 98,024

Keeping at It: The Quest for Sound Money and Good Government by Paul Volcker, Christine Harper

anti-communist, Ayatollah Khomeini, banking crisis, Bear Stearns, Bretton Woods, business cycle, central bank independence, corporate governance, Credit Default Swap, Donald Trump, fiat currency, financial innovation, fixed income, floating exchange rates, forensic accounting, full employment, global reserve currency, income per capita, inflation targeting, liquidationism / Banker’s doctrine / the Treasury view, margin call, money market fund, Nixon shock, oil-for-food scandal, Paul Samuelson, price stability, quantitative easing, reserve currency, Right to Buy, risk-adjusted returns, Ronald Reagan, Rosa Parks, Savings and loan crisis, secular stagnation, Sharpe ratio, Silicon Valley, special drawing rights, too big to fail, traveling salesman, urban planning

Woolley, American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=40941. got caught up in an attempt to browbeat Gray: Dan Fesperman, “Former Regulator Blames S&L Crisis on Congress,” Baltimore Sun, November 27, 1990, http://articles.baltimoresun.com/1990-11-27/news/1990331046_1_loan-crisis-ethics-committee-gray. The ultimate cost to the federal government: “U.S. taxpayer losses amounted to $123.8 billion, or 81 percent of the total costs.” Timothy Curry and Lynn Shibut, “The Cost of the Savings and Loan Crisis: Truth and Consequences,” FDIC Banking Review, December 2000, https://www.fdic.gov/bank/analytical/banking/br2000v13n2.pdf.


pages: 402 words: 110,972

Nerds on Wall Street: Math, Machines and Wired Markets by David J. Leinweber

AI winter, algorithmic trading, asset allocation, banking crisis, barriers to entry, Bear Stearns, Big bang: deregulation of the City of London, business cycle, butter production in bangladesh, butterfly effect, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, citizen journalism, collateralized debt obligation, corporate governance, Craig Reynolds: boids flock, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Danny Hillis, demand response, disintermediation, distributed generation, diversification, diversified portfolio, Emanuel Derman, en.wikipedia.org, experimental economics, financial innovation, fixed income, Gordon Gekko, implied volatility, index arbitrage, index fund, information retrieval, intangible asset, Internet Archive, John Nash: game theory, Kenneth Arrow, load shedding, Long Term Capital Management, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, market fragmentation, market microstructure, Mars Rover, Metcalfe’s law, moral hazard, mutually assured destruction, Myron Scholes, natural language processing, negative equity, Network effects, optical character recognition, paper trading, passive investing, pez dispenser, phenotype, prediction markets, quantitative hedge fund, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Metcalfe, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, semantic web, Sharpe ratio, short selling, Silicon Valley, Small Order Execution System, smart grid, smart meter, social web, South Sea Bubble, statistical arbitrage, statistical model, Steve Jobs, Steven Levy, Tacoma Narrows Bridge, the scientific method, The Wisdom of Crowds, time value of money, too big to fail, transaction costs, Turing machine, two and twenty, Upton Sinclair, value at risk, Vernor Vinge, yield curve, Yogi Berra, your tax dollars at work

Other Large Government Projects $ Price (Adjusted for Inflation - Nov. 2008) Marshall Plan Louisiana Purchase Moonshot S&L Crisis Korean War The New Deal Iraq War Vietnam NASA (All time budget.) TOTAL $115,000,000,000 $217,000,000,000 $237,000,000,000 $256,000,000,000 $454,000,000,000 $500,000,000,000 $597,000,000,000 $698,000,000,000 $851,000,000,000 $3,925,000,000,000 2008 BAILOUT 2008 BAILOUT (Nov. 2008) $4,616,000,000,000 Figure 13.5 Visualizing the bailout. Source: Courtesy of VoltageCreative.com. Copyright 2008. Marshall Plan Louisiana Purchase Moonshot S&L Crisis Korean War The New Deal Iraq War Vietnam NASA (All time budget.) Structural Ideas for the Economic Rescue 325 show that there is no deficit there.

The single best way that we can help the average American (including renters) is to provide capital to real-world investments with the highest return for their given level of risk (since they arguably add the most value to the economy), which is exactly what these new banks will do. A quick housing price correction will be less painful than one drawn out by government intervention. The Resolution Trust Corporation after the savings and loan (S&L) crisis was successful. Isn’t the TARP a similar idea? The original TARP proposal has been marketed as a plan similar to the seemingly successful Resolution Trust Corporation (RTC) that handled the assets of the failed savings and loans in the early 1990s. There is, however, one glaring difference: The RTC took over assets after the S&Ls failed, whereas the TARP proposes to take over assets before the banks fail in an attempt to “inject confidence” and prop them up.

One estimate,9 including the 324 Nerds on Wall Str eet hidden tax breaks for banks and the Citigroup rescue, totals $4.62 trillion through November 2008, and compares this figure to total inflationadjusted dollar equivalents for virtually every major federal project in the history of the country, which add up to less than $4 trillion: Cost Inflation-Adjusted Cost Marshall Plan $12.7 billion $115.3 billion Louisiana Purchase $15 million $217 billion Race to the moon $36.4 billion $237 billion S&L crisis $153 billion $256 billion Korean War $54 billion $454 billion New Deal $32 billion (est.) $500 billion Invasion of Iraq $551 billion $597 billion Vietnam War $111 billion $698 billion NASA $416.7 billion $851.2 billion Total $3.92 trillion This is an amazing number, roughly 40 percent of the national debt and 30 percent of gross domestic product (GDP).


pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, Tragedy of the Commons, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

Even before the crisis, there was an awareness of widespread predatory lending practices. It was in the interests of most Americans to curb those as well as the abusive credit card practices. But that didn’t happen. The federal government has done little to prosecute banks that violated the law—as we will see in chapter 7, much less than it did in the much less serious Savings and Loan crisis two decades ago. The New York Times has described how the Securities and Exchange Commission, which is supposed to protect investors from fraud, “has repeatedly allowed the biggest firms to avoid punishments specifically meant to apply to fraud cases.”2 Why hasn’t the middle had the political influence that standard theory predicts it should have, and why does our current system seem to operate on “one dollar” one vote instead of one person one vote?

If corporations had been people31 in a state that enforced a “three strikes” rule (three instances of shoplifting, and one faces a mandatory life sentence), these repeat offenders would have been sentenced to multiple life sentences, without parole. In fact, no bank officer has gone to jail for these offenses. Indeed, as this book goes to press, neither Attorney General Eric Holder nor any of the other U.S. district attorneys have brought suits for foreclosure fraud. By contrast, following the savings and loan crisis, by 1990, the Department of Justice had been sent 7,000 criminal referrals, resulting in 1,100 charges by 1992, and 839 convictions (of which around 650 led to a prison sentence).32 Today the banks are simply negotiating what their fines should be—and in some cases the fines may be less than the profits that they have garnered from their illicit activity.33 What the banks did was not just a matter of failing to comply with a few technicalities.

As the Supreme Court seems to have claimed in the Citizens United case. 32. Phil Angelides, who headed the Financial Crisis Inquiry Commission into the causes of the crisis, noted that “today the rate of federal prosecutions for financial fraud is less than half of what it was” during the savings and loan crisis. He also noted that his budget for investigating the crisis, including the misdeeds of the banks, was $9.8 million—roughly one-seventh of the budget of Oliver Stone’s Wall Street: Money Never Sleeps. See “Will Wall Street Ever Face Justice,” New York Times, March 2, 2012, available at http://www.nytimes.com/2012/03/02/opinion/will-wall-street-ever-face-justice.html (accessed March 6, 2012).


pages: 782 words: 187,875

Big Debt Crises by Ray Dalio

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

The largest ones, like UBS and Deutsche Bank, owned stakes in securitizations as a corollary to their role in producing the securitizations themselves. Many smaller banks had simply wanted a piece of the action. After all, many slices of subprime securitizations had been rated AAA, meaning that rating agencies had stamped them as having extremely low risk. During previous periods of stress, such as the savings and loan crisis of the 1980s and the dot-com bubble of the early 2000s, corporate bonds rated AAA had a default rate of 0 percent, according to Standard & Poor’s, one of the big three rating agencies.17 Plus, the subprime securitizations rated AAA offered a premium (though in hindsight, one that was far too small, given the level of risk) relative to corporate bonds of the same rating.

Regulation Q, which put caps on interest rates for deposits, was implemented during the Great Depression to give smaller banks a leg up. By the 1950s, it started to create substantial distortions, driving deposits into shadow banking systems.5 Savings & Loan Associates (S&L, a small type of bank) were deregulated in the early 1980s, in part to help those institutions cope with tight monetary policy, contributed to the S&L crisis that began in the mid-1980s.6 How will you ensure policy coordination between legislators, the executive branch, and the central bank? How will you empower regulators to make changes? The most successful US cases represented broad coordination between different government agencies. The Second World War effort was a good example—Congress revised several laws to give the Federal Reserve the authority it needed, Roosevelt used executive orders to supplement the Fed’s efforts, etc.7 In the most successful cases (Volcker’s time at the Fed, for instance), policy makers were given the ability to shift policy nimbly as circumstances changed.

The statement said that banks “should curtail all loans either to individuals or business for speculation in real estate, commodities or securities.”55 Supervisors again released several statements detailing a deterioration in lending standards in the 1990s and 2000s.56 Specifically, in 1995 the Fed warned that examiners should watch for excessive easing in credit underwriting standards. The Fed was also concerned about the risks of a cyclical downturn in regional real estate markets. This was due to previous experiences with the S&L crisis in the 1980s. In 1999, supervisors issued a statement that detailed the risks of subprime lending. They also suggested raising the capital standards for those institutions engaged in the practice. This came after several banks failed the year before, due to subprime lending losses. Two years later, the agencies quantified the new capital standards.


pages: 464 words: 116,945

Seventeen Contradictions and the End of Capitalism by David Harvey

accounting loophole / creative accounting, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, drone strike, end world poverty, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, global reserve currency, Guggenheim Bilbao, Gunnar Myrdal, Herbert Marcuse, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, Money creation, new economy, New Urbanism, Occupy movement, peak oil, phenotype, Plutocrats, plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, special economic zone, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

There have been, then, a variety of ways in which the tension between use values and exchange values in housing production has been managed. But there have also been phases when the system has broken down to produce a crisis of the sort that occurred in the housing markets of the United States, Ireland and Spain in 2007–9. This crisis was not unprecedented. The Savings and Loan Crisis in the USA from 1986 on, the collapse of the Scandinavian property market in 1992 and the end of the Japanese economic boom of the 1980s in the land market crash of 1990 are other examples.1 In the private market system that now dominates in much of the capitalist world, there are additional issues that need to be addressed.

283 Maddison, Angus 227 Maghreb 174 Malcolm X 291 Maldives 260 Malthus, Thomas 229–30, 232–3, 244, 246, 251 Manchester 149, 159 Manhattan Institute 143 Mansion House, London 201 manufacturing 104, 239 Mao Zedong 291 maquilas 129, 174 Marcuse, Herbert 204, 289 market cornering 53 market economy 198, 205, 276 marketisation 243 Marshall Plan 153 Martin, Randy 194 Marx, Karl 106, 118, 122, 142, 207, 211 and alienation 125, 126, 213 in the British Museum library 4 on capital 220 conception of wealth 214 on the credit system 239 and deskilling 119 on equal rights 64 and falling profits 107 and fetishism 4 on freedom 207, 208, 213 and greed 33 ‘industrial reserve army’ 79–80 and isolation of workers 125 labour theory of value 109 and monetary system reforms 36 monopoly power and competition 135 reality and appearance 4, 5 as a revolutionary humanist 221 and social reproduction 182 and socialist utopian literature 184 and technological innovation 103 and theorists of the political left 54 and the ‘totally developed individual’ 126–7 and world crises xiii; Capital 57, 79–80, 81, 82, 119, 129, 132, 269, 286, 291–2 The Economic and Philosophic Manuscripts of 1844 269, 286 Grundrisse 97, 212–13 Theories of Surplus Value 1 Marxism contradiction between productive forces and social relations 269 ‘death of Marxism’ xii; ecologically sensitive 263 and humanism 284, 286, 287 ‘profit squeeze’ theory of crisis formation 65 traditional Marxist conception of socialism/ communism 91 Marxists 65, 109 MasterCard Priceless 275 Mau Mau movement 291 Melbourne 141 merchants 67 and industrial capital 179 price-gouging customers 54 and producers 74–5 Mercosur 159 Mexican migrants 115, 175, 195–6 Mexico 123, 129, 174 Mexico City riots (1968) x microcredit 194, 198 microfinance 186, 194, 198, 211 Microsoft 131 Middle East 124, 230 Milanovic, Branko 170 military, the capacities and powers 4 dominance 110 and technology 93, 95 ‘military-industrial complex’ 157 mind-brain duality 70 mining 94, 113, 123, 148, 239, 257 MIT (Massachusetts Institute of Technology) 292 Mitchell, David: Cloud Atlas 264 Mitchell, Timothy 122 Modern Times (film) 103 Mondragon 180 monetarism xi monetary wealth and incomes, inequalities in (1920s) x 1071 monetisation 44, 55, 60, 61, 62, 115, 192–3, 198, 235, 243, 250, 253, 261, 262 money abandonment of metallic basis of global moneys 30, 37, 109 circulation of 15, 25, 30–31, 35 coinage 15, 27, 29, 30 commodification of 57 commodity moneys 27–31 creation of 30, 51, 173, 233, 238–9, 240 credit moneys 28, 30, 31, 152 cyber moneys 36, 109–10 electronic moneys 27, 29, 35, 36, 100 and exchange value 28, 35, 38 fiat 8, 27, 30, 40, 109, 233 gap between money and the value it represents 27 global monetary system 46–7 love of money as a possession 34 measures value 25, 28 a moneyless economy 36 oxidisation of 35 paper 15, 27, 29, 30, 31, 37, 40, 45 power of 25, 36, 59, 60, 62, 65–66, 131–6, 245, 266 quasi-money 35 relation between money and value 27, 35 represented as numbers 29–30 and social labour 25, 27, 31, 42, 55, 88, 243 and the state 45–6, 51, 173 storage of value 25, 26, 35 the US dollar 46–7 use value 28 money capital 28, 32, 59, 74, 142, 147, 158, 177, 178 money laundering 54, 109 ‘money of account’ 27–8, 30 monopolisation 53, 145 monopoly, monopolies 77 and competition 131–45, 218, 295 corporate 123 monetary system 45, 46, 48, 51 monopoly power 45, 46, 51, 93, 117, 120, 132, 133–4, 136, 137, 139, 141, 142–3 monopoly pricing 72, 132 natural 118, 132 of state over legitimate use of force and violence 42, 44, 45, 51, 88, 155, 173 see also prices, monopoly monopsony 131 Monsanto 123 Montreal Protocol 254, 259 ‘moral restraints’ 229, 233 mortgages 19, 21, 28, 32, 54, 67, 82, 239 multiculturalism 166 Mumbai 155, 159 Murdoch, Rupert xi Myrdal, Gunnar 150 N NAFTA 159 name branding 31, 139 nano-trading 243 Nation of Islam 291 national debt 45, 226, 227 National Health Service 115 National Labor Relations Board 120 National Security Administration 136 nationalisation 50 nationalism 7, 8, 44, 289 natural resources 58, 59, 123, 240, 241, 244, 246, 251 nature 56 alienation from 263 capital’s conception of 252 capital’s relation to 246–63 commodification of 59 domination of 247, 272 Heidegger on 59, 250 Polanyi on 58 power over 198 process-thing duality 73 and technology 92, 97, 99, 102 Nazis 151 neoclassical economists 109 neocolonialism 143, 201 neoliberal era 128 neoliberal ethic 277 neoliberalisation x, 48 neoliberalism xiii, 68, 72, 128, 134, 136, 176, 191, 234, 281 capitalism 266 consensus 23 counter-revolution 82, 129, 159, 165 political programme 199 politics 57 privatisation 235 remedies xi Nevada, housing in 77 ‘new economy’ (1990s) 144 New York City 141, 150 creativity 245 domestic labour in 196 income inequality 164 rental markets 22 social reproduction 195 Newton, Isaac 70 NGOs (non-governmental organisations) 189, 210, 284, 286, 287 Nike 31 Nkrumah, Kwame 291 ‘non-coincidence of interests’ 25 Nordic countries 165 North America deindustrialisation in 234 food grain exports 148 indigenous population and property rights 39 women in labour force 230 ‘not in my back yard’ politics 20 nuclear weapons 101 Nyere, Julius 291 O Obama, Barack 167 occupational safety and health 72 Occupy movement 280, 292 Ohlin Foundation 143 oil cartel 252 companies 77, 131 ‘Seven Sisters’ 131 embargo (1973) 124 ‘peak oil’ 251–2, 260 resources 123, 240, 257 oligarchy, oligarchs 34, 143, 165, 221, 223, 242, 245, 264, 286, 292 oligopoly 131, 136, 138 Olympic Games 237–8 oppositional movements 14, 162, 266–7 oppression 193, 266, 288, 297 Orwell, George 213 Nineteen Eighty-Four 202 overaccumulation 154 overheating 228 Owen, Robert 18, 184 Oxfam xi, 169–70 P Paine, Tom: Rights of Man 285 Paris 160 riots (1968) x patents 139, 245, 251 paternalism 165, 209 patriarchy 7 Paulson, Hank 47 pauperisation 104 Peabody, George 18 peasantry ix, 7, 107, 117, 174, 190, 193 revolts 202 pensions 134, 165, 230 rights 58, 67–8, 84, 134 people of colour: disposable populations 111 Pereire, Emile 239 pesticides 255, 258 pharmaceuticals 95, 121, 123, 136, 139 Philanthropic Colonialism 211 philanthropy 18, 128, 189, 190, 210–11, 245, 285 Philippines 115, 196 Picasso, Pablo 140–41, 187, 240 Pinochet, Augusto x Pittsburgh 150, 159, 258 planned obsolescence 74 plutocracy xi, xii, 91, 170, 173, 177, 180 Poland 152 Polanyi, Karl 56, 58, 60, 205–7, 210, 261 The Great Transformation 56–7 police 134 brutality 266 capacities and powers 43 powers xiii, 43, 52 repression 264, 280 surveillance and violence 264 violence 266, 280 police-state 203, 220 political economy xiv, 54, 58, 89, 97, 179–80, 182, 201, 206–9 liberal 204, 206, 209 political parties, incapable of mounting opposition to the power of capital xii political representation 183 pollutants 8, 246, 255 pollution 43, 57, 59, 60, 150, 250, 254, 255, 258 Pontecorvo, Gillo 288 Ponzi schemes 21, 53, 54, 243 population ageing 223, 230 disposable 108, 111, 231, 264 growth 107–8, 229, 230–31, 242, 246 Malthus’s principle 229–30 Portugal 161 post-structuralism xiii potlatch system 33 pounds sterling 46 poverty 229 anti-poverty organisations 286–7 and bourgeois reformism 167 and capital 176 chronic 286 eradication of 211 escape from 170 feminisation of 114 grants 107 and industrialisation 123 and population expansion 229 and unemployment 170, 176 US political movement denies assistance to the poor 292–3 and wealth 146, 168, 177, 218, 219, 243 world xi, 170 power accumulation of 33, 35 of capital xii, 36 class 55, 61, 88, 89, 97, 99, 110, 134, 135, 221, 279 computer 105 and currencies 46 economic 142, 143, 144 global 34, 170 the house as a sign of 15–16 of labour see under labour; of merchants 75 military 143 and money 25, 33, 36, 49, 59, 60, 62, 63, 65–6, 245, 266 monopoly see monopoly power; oligarchic 292 political 62, 143, 144, 162, 171, 219, 292 purchasing 105, 107 social 33, 35, 55, 62, 64, 294 state 42–5, 47–52, 72, 142, 155–9, 164, 209, 295 predation, predators 53, 54, 61, 67, 77, 84, 101, 109, 111, 133, 162, 198, 212, 254–5 price fixing 53, 118, 132 price gouging 132 Price, Richard 226, 227, 229 prices discount 133 equilibrium in 118 extortionate 84 food 244, 251 housing 21, 32, 77 land 77, 78, 150 low 132 market 31, 32 and marketplace anarchy 118 monopoly 31, 72, 139, 141 oil 251, 252 property 77, 78, 141, 150 supermarket 6 and value 31, 55–6 private equity firms 101, 162 private equity funds 22, 162 private property and the commons 41, 50, 57 and eradication of usufructuary rights 41 and individual appropriation 38 and monopoly power 134–5, 137 social bond between human rights and private property 39–40 and the state 47, 50, 58, 59, 146, 210 private property rights 38–42, 44, 58, 204, 252 and collective management 50 conferring the right to trade away that which is owned 39 decentralised 44 exclusionary permanent ownership rights 39 and externality effects 44 held in perpetuity 40 intellectual property rights 41 microenterprises endowed with 211 modification or abolition of the regime 14 and nature 250 over commodities and money 38 and state power 40–41, 42–3 underpinning home ownership 49 usufructuary rights 39 privatisation 23, 24, 48, 59, 60, 61, 84, 185, 235, 250, 253, 261, 262, 266 product lines 92, 107, 219, 236 production bourgeois 1 falling value of 107 immaterial 242 increase in volume and variety of 121 organised 2 and realisation 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 regional crises 151 workers’ dispossession of own means of 172 productivity 71, 91, 92, 93, 117, 118, 121, 125, 126, 132, 172, 173, 184, 185, 188, 220, 239 products, compared with commodities 25–6 profitability 92, 94, 98, 102, 103, 104, 106, 112, 116, 118, 125, 147, 184, 191–2, 240, 252, 253, 256, 257 profit(s) banking 54 as capital’s aim 92, 96, 232 and capital’s struggle against labour 64, 65 and competition 93 entrepreneurs 24, 104 falling 81, 107, 244 from commodity sales 71 and money capital 28 monopoly 93 rate of 79, 92 reinvestment in expansion 72 root of 63 spending of 15 and wage rates 172 proletarianisation 191 partial 175, 190, 191 ‘property bubble’ 21 property market boom (1920s) 239 growth of 50 property market crashes 1928 x, 21 1973 21 2008 21–2, 54, 241 property rights 39, 41, 93, 135 see also intellectual property rights; private property property values 78, 85, 234 ‘prosumers’ 237 Proudhon, Pierre-Joseph 183 Prozac 248 public goods 38 public utilities 23, 60, 118, 132 Q quantitative easing 30, 233 R R&D ix race 68, 116, 165, 166, 291 racial minorities 168 racialisation 7, 8, 62, 68 racism 8 Rand, Ayn 200 raw materials 16, 17, 148, 149, 154 Reagan, Ronald x, 72 Speech at Westminster 201 Reagan revolution 165–166 realisation, and production 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 reality contradiction between reality and appearance 4–6 social 27 Reclus, Elisée 140 regional development 151 regional volatility 154 Reich, Robert 123, 188 religion 7 religious affiliation 68 religious hatreds and discriminations 8 religious minorities 168 remittances 175 rent seeking 132–3, 142 rentiers 76, 77, 78, 89, 150, 179, 180, 241, 244, 251, 260, 261, 276 rents xii, 16–19, 22, 32, 54, 67, 77, 78, 84, 123, 179, 241 monopoly 93, 135, 141, 187, 251 repression 271, 280 autocratic 130 militarised 264 police-state 203 violent 269, 280, 297 wage 158, 274 Republican Party (US) 145, 280 Republicans (US) 167, 206 res nullius doctrine 40 research and development 94, 96, 187 ‘resource curse’ 123 resource scarcity 77 revolution, Fanon’s view of 288 revolutionary movements 202, 276 Ricardo, David 122, 244, 251 right, the ideological and political assault on the left xii; response to universal alienation 281 ‘rights of man’ 40, 59, 213 Rio de Janeiro 84 risk 17, 141, 162, 219, 240 robbery 53, 57, 60, 63, 72 robotisation 103, 119, 188, 295 Rodney, Walter 291 romantic movement 261 Roosevelt, Theodore 131, 135 Four Freedoms 201 Rousseau, Jean-Jacques 213, 214 Ruhr, Germany 150 rural landscapes 160–61 Russia 154 a BRIC country 170, 228 collapse of (1989) 165 financial crisis (1998) 154, 232 indebtedness 152 local famine 124 oligarchs take natural resource wealth 165 S ‘S’ curve 225, 230–31 Saint-Simon, Claude de Rouvroy, comte de 183 sales 28, 31, 187, 236 San Francisco 150 Santiago, Chile: street battles (2006–) 185 Sao Paulo, Brazil 129, 195 savings the house as a form of saving 19, 22, 58 loss of 20, 58 private 36 protecting the value of 20 Savings and Loan Crisis (USA from 1986) 18 savings accounts 5, 6 Scandinavia 18, 85, 165 scarcity 37, 77, 200, 208, 240, 246, 260, 273 Schumpeter, Joseph 98, 276 science, and technology 95 Seattle 196 Second Empire Paris 197 Second World War x, 161, 234 Securities and Exchange Commission 120, 195 security xiii, 16, 121, 122, 165, 205, 206 economic 36, 153 food 253, 294, 296 job 273 national 157 Sen, Amartya 208–11, 281 Development as Freedom 208–9 senior citizens 168 Seoul 84 serfdom 62, 209 sexual hatreds and discriminations 8 Shanghai 153, 160 share-cropping 62 Sheffield 148, 149, 159, 258 Shenzhen, China 77 Silicon Valley 16, 143, 144, 150 silver 27–31, 33, 37, 57, 233, 238 Simon, Julian 246 Singapore 48, 123, 150, 184, 187, 203 slavery 62, 202, 206, 209, 213, 268 slums ix, 16, 175 Smith, Adam 98, 125–6, 157, 185, 201, 204 ‘invisible hand’ 141–2 The Wealth of Nations 118, 132 Smith, Neil 248 social distinction 68, 166 social inequality 34, 110, 111, 130, 171, 177, 180, 220, 223, 266 social justice 200, 266, 268, 276 social labour 53, 73, 295 alienated 64, 66, 88 and common wealth 53 creation of use values through 36 expansion of total output 232 household and communal work 296 immateriality of 37, 233 and money 25, 27, 31, 42, 55, 88, 243 productivity 239 and profit 104 and value 26, 27, 29, 104, 106, 107, 109 weakening regulatory role of 109, 110 social media 99, 136, 236–7, 278–9 social movements 162–3 social reproduction 80, 127, 182–98, 218, 219, 220, 276 social security 36, 165 social services 68 social struggles 156, 159, 165, 168 social value 26, 27, 32, 33, 55, 172, 179, 241, 244, 268, 270 socialism 215 democratic xii; ‘gas and water’ 183 socialism/communism 91, 269 socialist revolution 67 socialist totalitarianism 205 society capitalist 15, 34, 81, 243, 259 civil 92, 122, 156, 185, 189, 252 civilised 161, 167 complex 26 demolition of 56 and freedom 205–6, 210, 212 hope for a better society 218 industrial 205 information 238 market 204 post-colonial 203 pre-capitalist 55 primitive 57 radical transformation of 290 status position in 186 theocratic 62 women in 113 work-based 273 world 204 soil erosion 257 South Africa 84–5, 152, 169 apartheid 169, 202, 203 South Asia labour 108 population growth 230 software programmers and developers 115, 116 South Korea 123, 148, 150, 153 South-East Asia 107–8 crisis (1997–8) 154, 232, 241 sovereign debt crises 37 Soviet Bloc, ex-, labour in 107 Soviet Union 196, 202 see also Russia Spain xi, 51, 161 housing market crash (2007–9) 82–3 spatio-temporal fixes 151–2, 153, 154, 162 spectacle 237–8, 242, 278 speculative bubbles and busts 178 stagnation xii, 136, 161–2, 169 Stalin, Joseph 70 standard of life 23, 175 starvation 56, 124, 246, 249, 260, 265 state, the aim of 156–7 brutality 266, 280 and capital accumulation 48 and civil society 156 curbing the powers of capital as private property 47 evolution of the capitalist state 42 and externality effects 44 guardian of private property and of individual rights 42 and home ownership 49–50 interstate system 156, 157 interventionism 193, 205 legitimate use of violence 42, 44, 45, 51, 88, 155, 173 loss of state sovereignty xii; and money 1, 45–6, 51, 173 ‘nightwatchman’ role 42, 50 powers of 42–5, 47–52, 57–8, 65, 72, 142, 155–9, 209, 295 and private property 47, 50, 58, 59, 146, 210 provision of collective and public goods 42–3 a security and surveillance state xiii; social democratic states 85 war aims 44 state benefits 165 state regulatory agencies 101 state-finance nexus 44–5, 46–7, 142–3, 156, 233 state-private property nexus 88–9 steam engine, invention of the 3 steel industry 120, 121, 148, 188 steel production 73–4 Stiglitz, Joseph 132–4 stock market crash (1929) x Stockholm, protests in (2013) 171, 243 strikes 65, 103, 124 sub-prime mortgage crisis 50 suburbanisation 253 supply and demand 31, 33, 56, 106 supply chain 124 supply-side remedies xi supply-side theories 82, 176 surplus value 28, 40, 63, 73, 79–83, 172, 239 surveillance xiii, 94, 121, 122, 201, 220, 264, 280, 292 Sweden 166, 167 protests in (2013) 129, 293 Sweezy, Paul 136 swindlers, swindling 45, 53, 57, 239 ‘symbolic analysts’ 188 Syntagma Square, Athens 266, 280 T Tahrir Square, Cairo 266 Taipei, Taiwan 153 Taiwan 123, 150, 153 Taksim Square, Istanbul 266, 280 Tanzania 291 tariffs 137 taxation 40, 43, 47, 67, 84, 93–4, 106, 133, 150, 155, 157, 167, 168, 172, 190 Taylor, Frederick 119, 126 Taylorism 103 Tea Party faction 205, 280, 281, 292 technological evolution 95–6, 97, 101–2, 109 technological imperatives 98–101 technological innovation 94–5 technology changes involving different branches of state apparatus 93–4 communicative technologies 278–9 and competition 92–3 constraints inhibiting deployment 101 culture of 227, 271 definition 92, 248 and devaluation of commodities 234 environmental 248 generic technologies 94 hardware 92, 101 humanising 271 information 100, 147, 158, 177 military 93, 95 monetary 109 and nature 92, 97, 99, 102 organisational forms 92, 99, 101 and productivity 71 relation to nature 92 research and development 94 and science 95 software 92, 99, 101 a specialist field of business 94 and unemployment 80, 103 work and labour control 102–11 telephone companies 54, 67, 84, 278 Tennessee 148 Teresa, Mother 284 Thatcher, Margaret (later Baroness) x, 72, 214, 259 Thatcherism 165 theft 53, 60, 61, 63 Thelluson, Peter 226, 227 think tanks 143 ‘Third Italy’ 143 Third World debt crisis 240 Toffler, Alvin 237 tolls 137 Tönnies, Ferdinand 122, 125 tourism ix, 16, 140, 141, 187, 236 medical 139 toxic waste disposal 249–50, 257 trade networks 24 trade unions xii, 116, 148, 168, 176, 184, 274, 280 trade wars 154 transportation 23, 99, 132, 147–8, 150, 296 Treasury Departments 46, 156 TRIPS agreement 242 tropical rainforest 253 ‘trust-busting’ 131 trusts 135 Turin, Italy 150 Turkey 107, 123, 174, 232, 280, 293 Tuscany, Italy 150 Tutu, Archbishop Desmond 284 Twitter 236 U unemployment 37, 104, 258, 273 benefits 176 deliberately created 65, 174 high xii, 10, 176 insurance 175 and labour reserves 175, 231 and labour-saving technologies 173 long-term 108, 129 permanent 111 echnologically induced 80, 103, 173, 274 uneven geographical developments 178, 296 advanced and underserved regional economies 149–50 and anti-capitalist movements 162 asset bubbles 243 and capital’s reinvention of itself 147, 161 macroeconomic processes of 159 masking the true nature of capital 159–60 and technological forms 219 volatility in 244 United Fruit 136 United Kingdom income inequality in 169; see also Britain United Nations (UN) 285 United States aim of Tea Party faction 280 banking 158 Bill of Rights 284 Britain lends to (nineteenth century) 153 capital in (1990s) 154 Constitution 284 consumption level 194 global reserve currency 45–6 growth 232 hostility towards state interventions 167 House of Representatives 206 human rights abuses 202 imperial power 46 indebtedness of students in 194 Indian reservations 249 interstate highway system 239 jobless recoveries after recession 172–3 liberty and freedom rhetoric 200–201, 202 Midwest ‘rust belt’ 151 military expenditures 46 property market crashes x, 21–2, 50, 54, 58, 82–3 racial issues 166 Savings and Loan Crisis (from 1986) 18 social mobility 196 social reproduction 196–7 solidly capitalist 166 steel industry 120 ‘symbolic analysts’ 188 ‘trust-busting’ 131 unemployment 108 wealth distribution 167 welfare system 176 universal suffrage 183 urbanisation 151, 189, 228, 232, 239, 247, 254, 255, 261 Ure, Andrew 119 US Congress 47 US dollar 15, 30, 45–6 US Executive Branch 47 US Federal Reserve xi, 6, 30, 37, 46, 47, 49, 132, 143, 233 monetary policy 170–71 US Housing Act (1949) 18 US Treasury 47, 142, 240 use values collectively managed pool of 36 commodification of 243 commodities 15, 26, 35 common wealth 53 creation through social labour 36 and entrepreneurs 23–4 and exchange values 15, 35, 42, 44, 50, 60, 65, 88 and housing 14–19, 21–2, 23, 67 and human labour 26 infinitely varied 15 of infrastructural provision 78 loss of 58 marketisation of 243 monetisation of 243 of money 28 privatised and commodified 23 provision of 111 and revolt of the mass of the people 60 social demand for 81 usufructuary rights 39, 41, 59 usury 49, 53, 186, 194 utopianism 18, 35, 42, 51, 66, 119, 132, 183, 184, 204, 206–10, 269, 281, 282 V value(s) commodity 24, 25 failure to produce 40 housing 19, 20, 22 net 19 production and realisation of 82 production of 239 property 21 relation between money and value 27, 35 savings 20 storing 25, 26, 35 see also asset values; exchange values; social value; use values value added 79, 83 Veblen, Thorstein: Theory of the Leisure Class 274 Venezuela 123, 201 Vietnam, labour in 108 Vietnam War 290 violence 53, 57, 72, 204–5, 286 against children 193 against social movements 266 against women 193 colonial 289–90, 291 and contemporary capitalism 8 culture of 271 of dispossession 58, 59 in a dystopian world 264 and humanism 286, 289, 291 of the liberation struggle 290 militarised 292 as the only option 290–91 political 280 in pursuit of liberty and freedom 201 racialised 291 state’s legitimate use of 42, 44, 45, 51, 88, 155, 173 of technology 271 and wage labour 207 virtual ecological transfer 256 Volcker, Paul 37 W wages 103 basic social wage 103 falling 80, 82 for housework 115, 192–3 low xii, 114, 116, 186, 188 lower bound to wage levels 175 non-payment of 72 and profits 172 reduction in 81, 103, 104, 135, 168, 172, 176, 178 rising 178 and unskilled labour 114 wage demands 150, 274 wage levels pushed up by labour 65 wage rates 103, 116, 172, 173 wage repression 158–9 weekly 71 see also income Wall Street criticised by a congressional committee 239–40 illegalities practised by 72, 77 and Lebed 195 new information-processing technologies 100 Wall Street Crash (1929) x, 47 Wall-E (film) 271 Walmart xii, 75, 84, 103, 131 war on terror 280 wars 8, 60, 229 currency 154 defined 44 monetisation of state war-making activities 44–5 privatisation of war making 235 resource 154, 260 and state aims 44 state financing of 32, 44, 48 and technology 93 trade 154 world 154 water privatisation 235 wave theory 70 wave-particle duality 70 wealth accumulation of 33, 34, 35, 157, 205 creation of 132–3, 142, 214 disparities of 164–81 distribution of 34, 167 extraction from non-productive activities 32 global 34 the house as a sign of 15–16 levelling up of per capita wealth 171 and poverty 146, 168, 177, 218, 219, 243 redistribution of 9, 234, 235 social 35, 53, 66, 157, 164, 210, 251, 265, 266, 268 taking it from others 132–3 see also common wealth weather futures 60 Weber, Max 122, 125 Weimar Republic 30 welfare state 165, 190, 191, 208 Wells Fargo 61 West Germany 153, 154, 161 Whitehead, Alfred North 97 Wilson, Woodrow 201 Wolf, Martin 304n2 Wollstonecraft, Mary: A Vindication of the Rights of Woman 285 women career versus family obligations 1–2 disposable populations 111 exploitation of 193 housework versus wage labour 114–15 oppression against 193 social struggle 168 trading of 62 violence against 193 in the workforce 108, 114, 115, 127, 174, 230 women’s rights 202, 218 workers’ rights 202 working classes and capital 80 consumer power 81 crushing organisation 81 education 183, 184 gentrified working-class neighbourhoods ix; housing 160 living conditions 292 wage repression and consumption 158–9 working hours 72, 104–5, 182, 272–5, 279 World Bank 16, 24, 100, 186, 245 World Trade Organization 138, 242 WPA programmes (1930s) 151 Wright, Frank Lloyd: Falling Water 16 Wriston, Walter 240 Y YouTube 236 Yugoslavia, former 174 Z Zola, Émile 7

283 Maddison, Angus 227 Maghreb 174 Malcolm X 291 Maldives 260 Malthus, Thomas 229–30, 232–3, 244, 246, 251 Manchester 149, 159 Manhattan Institute 143 Mansion House, London 201 manufacturing 104, 239 Mao Zedong 291 maquilas 129, 174 Marcuse, Herbert 204, 289 market cornering 53 market economy 198, 205, 276 marketisation 243 Marshall Plan 153 Martin, Randy 194 Marx, Karl 106, 118, 122, 142, 207, 211 and alienation 125, 126, 213 in the British Museum library 4 on capital 220 conception of wealth 214 on the credit system 239 and deskilling 119 on equal rights 64 and falling profits 107 and fetishism 4 on freedom 207, 208, 213 and greed 33 ‘industrial reserve army’ 79–80 and isolation of workers 125 labour theory of value 109 and monetary system reforms 36 monopoly power and competition 135 reality and appearance 4, 5 as a revolutionary humanist 221 and social reproduction 182 and socialist utopian literature 184 and technological innovation 103 and theorists of the political left 54 and the ‘totally developed individual’ 126–7 and world crises xiii; Capital 57, 79–80, 81, 82, 119, 129, 132, 269, 286, 291–2 The Economic and Philosophic Manuscripts of 1844 269, 286 Grundrisse 97, 212–13 Theories of Surplus Value 1 Marxism contradiction between productive forces and social relations 269 ‘death of Marxism’ xii; ecologically sensitive 263 and humanism 284, 286, 287 ‘profit squeeze’ theory of crisis formation 65 traditional Marxist conception of socialism/ communism 91 Marxists 65, 109 MasterCard Priceless 275 Mau Mau movement 291 Melbourne 141 merchants 67 and industrial capital 179 price-gouging customers 54 and producers 74–5 Mercosur 159 Mexican migrants 115, 175, 195–6 Mexico 123, 129, 174 Mexico City riots (1968) x microcredit 194, 198 microfinance 186, 194, 198, 211 Microsoft 131 Middle East 124, 230 Milanovic, Branko 170 military, the capacities and powers 4 dominance 110 and technology 93, 95 ‘military-industrial complex’ 157 mind-brain duality 70 mining 94, 113, 123, 148, 239, 257 MIT (Massachusetts Institute of Technology) 292 Mitchell, David: Cloud Atlas 264 Mitchell, Timothy 122 Modern Times (film) 103 Mondragon 180 monetarism xi monetary wealth and incomes, inequalities in (1920s) x 1071 monetisation 44, 55, 60, 61, 62, 115, 192–3, 198, 235, 243, 250, 253, 261, 262 money abandonment of metallic basis of global moneys 30, 37, 109 circulation of 15, 25, 30–31, 35 coinage 15, 27, 29, 30 commodification of 57 commodity moneys 27–31 creation of 30, 51, 173, 233, 238–9, 240 credit moneys 28, 30, 31, 152 cyber moneys 36, 109–10 electronic moneys 27, 29, 35, 36, 100 and exchange value 28, 35, 38 fiat 8, 27, 30, 40, 109, 233 gap between money and the value it represents 27 global monetary system 46–7 love of money as a possession 34 measures value 25, 28 a moneyless economy 36 oxidisation of 35 paper 15, 27, 29, 30, 31, 37, 40, 45 power of 25, 36, 59, 60, 62, 65–66, 131–6, 245, 266 quasi-money 35 relation between money and value 27, 35 represented as numbers 29–30 and social labour 25, 27, 31, 42, 55, 88, 243 and the state 45–6, 51, 173 storage of value 25, 26, 35 the US dollar 46–7 use value 28 money capital 28, 32, 59, 74, 142, 147, 158, 177, 178 money laundering 54, 109 ‘money of account’ 27–8, 30 monopolisation 53, 145 monopoly, monopolies 77 and competition 131–45, 218, 295 corporate 123 monetary system 45, 46, 48, 51 monopoly power 45, 46, 51, 93, 117, 120, 132, 133–4, 136, 137, 139, 141, 142–3 monopoly pricing 72, 132 natural 118, 132 of state over legitimate use of force and violence 42, 44, 45, 51, 88, 155, 173 see also prices, monopoly monopsony 131 Monsanto 123 Montreal Protocol 254, 259 ‘moral restraints’ 229, 233 mortgages 19, 21, 28, 32, 54, 67, 82, 239 multiculturalism 166 Mumbai 155, 159 Murdoch, Rupert xi Myrdal, Gunnar 150 N NAFTA 159 name branding 31, 139 nano-trading 243 Nation of Islam 291 national debt 45, 226, 227 National Health Service 115 National Labor Relations Board 120 National Security Administration 136 nationalisation 50 nationalism 7, 8, 44, 289 natural resources 58, 59, 123, 240, 241, 244, 246, 251 nature 56 alienation from 263 capital’s conception of 252 capital’s relation to 246–63 commodification of 59 domination of 247, 272 Heidegger on 59, 250 Polanyi on 58 power over 198 process-thing duality 73 and technology 92, 97, 99, 102 Nazis 151 neoclassical economists 109 neocolonialism 143, 201 neoliberal era 128 neoliberal ethic 277 neoliberalisation x, 48 neoliberalism xiii, 68, 72, 128, 134, 136, 176, 191, 234, 281 capitalism 266 consensus 23 counter-revolution 82, 129, 159, 165 political programme 199 politics 57 privatisation 235 remedies xi Nevada, housing in 77 ‘new economy’ (1990s) 144 New York City 141, 150 creativity 245 domestic labour in 196 income inequality 164 rental markets 22 social reproduction 195 Newton, Isaac 70 NGOs (non-governmental organisations) 189, 210, 284, 286, 287 Nike 31 Nkrumah, Kwame 291 ‘non-coincidence of interests’ 25 Nordic countries 165 North America deindustrialisation in 234 food grain exports 148 indigenous population and property rights 39 women in labour force 230 ‘not in my back yard’ politics 20 nuclear weapons 101 Nyere, Julius 291 O Obama, Barack 167 occupational safety and health 72 Occupy movement 280, 292 Ohlin Foundation 143 oil cartel 252 companies 77, 131 ‘Seven Sisters’ 131 embargo (1973) 124 ‘peak oil’ 251–2, 260 resources 123, 240, 257 oligarchy, oligarchs 34, 143, 165, 221, 223, 242, 245, 264, 286, 292 oligopoly 131, 136, 138 Olympic Games 237–8 oppositional movements 14, 162, 266–7 oppression 193, 266, 288, 297 Orwell, George 213 Nineteen Eighty-Four 202 overaccumulation 154 overheating 228 Owen, Robert 18, 184 Oxfam xi, 169–70 P Paine, Tom: Rights of Man 285 Paris 160 riots (1968) x patents 139, 245, 251 paternalism 165, 209 patriarchy 7 Paulson, Hank 47 pauperisation 104 Peabody, George 18 peasantry ix, 7, 107, 117, 174, 190, 193 revolts 202 pensions 134, 165, 230 rights 58, 67–8, 84, 134 people of colour: disposable populations 111 Pereire, Emile 239 pesticides 255, 258 pharmaceuticals 95, 121, 123, 136, 139 Philanthropic Colonialism 211 philanthropy 18, 128, 189, 190, 210–11, 245, 285 Philippines 115, 196 Picasso, Pablo 140–41, 187, 240 Pinochet, Augusto x Pittsburgh 150, 159, 258 planned obsolescence 74 plutocracy xi, xii, 91, 170, 173, 177, 180 Poland 152 Polanyi, Karl 56, 58, 60, 205–7, 210, 261 The Great Transformation 56–7 police 134 brutality 266 capacities and powers 43 powers xiii, 43, 52 repression 264, 280 surveillance and violence 264 violence 266, 280 police-state 203, 220 political economy xiv, 54, 58, 89, 97, 179–80, 182, 201, 206–9 liberal 204, 206, 209 political parties, incapable of mounting opposition to the power of capital xii political representation 183 pollutants 8, 246, 255 pollution 43, 57, 59, 60, 150, 250, 254, 255, 258 Pontecorvo, Gillo 288 Ponzi schemes 21, 53, 54, 243 population ageing 223, 230 disposable 108, 111, 231, 264 growth 107–8, 229, 230–31, 242, 246 Malthus’s principle 229–30 Portugal 161 post-structuralism xiii potlatch system 33 pounds sterling 46 poverty 229 anti-poverty organisations 286–7 and bourgeois reformism 167 and capital 176 chronic 286 eradication of 211 escape from 170 feminisation of 114 grants 107 and industrialisation 123 and population expansion 229 and unemployment 170, 176 US political movement denies assistance to the poor 292–3 and wealth 146, 168, 177, 218, 219, 243 world xi, 170 power accumulation of 33, 35 of capital xii, 36 class 55, 61, 88, 89, 97, 99, 110, 134, 135, 221, 279 computer 105 and currencies 46 economic 142, 143, 144 global 34, 170 the house as a sign of 15–16 of labour see under labour; of merchants 75 military 143 and money 25, 33, 36, 49, 59, 60, 62, 63, 65–6, 245, 266 monopoly see monopoly power; oligarchic 292 political 62, 143, 144, 162, 171, 219, 292 purchasing 105, 107 social 33, 35, 55, 62, 64, 294 state 42–5, 47–52, 72, 142, 155–9, 164, 209, 295 predation, predators 53, 54, 61, 67, 77, 84, 101, 109, 111, 133, 162, 198, 212, 254–5 price fixing 53, 118, 132 price gouging 132 Price, Richard 226, 227, 229 prices discount 133 equilibrium in 118 extortionate 84 food 244, 251 housing 21, 32, 77 land 77, 78, 150 low 132 market 31, 32 and marketplace anarchy 118 monopoly 31, 72, 139, 141 oil 251, 252 property 77, 78, 141, 150 supermarket 6 and value 31, 55–6 private equity firms 101, 162 private equity funds 22, 162 private property and the commons 41, 50, 57 and eradication of usufructuary rights 41 and individual appropriation 38 and monopoly power 134–5, 137 social bond between human rights and private property 39–40 and the state 47, 50, 58, 59, 146, 210 private property rights 38–42, 44, 58, 204, 252 and collective management 50 conferring the right to trade away that which is owned 39 decentralised 44 exclusionary permanent ownership rights 39 and externality effects 44 held in perpetuity 40 intellectual property rights 41 microenterprises endowed with 211 modification or abolition of the regime 14 and nature 250 over commodities and money 38 and state power 40–41, 42–3 underpinning home ownership 49 usufructuary rights 39 privatisation 23, 24, 48, 59, 60, 61, 84, 185, 235, 250, 253, 261, 262, 266 product lines 92, 107, 219, 236 production bourgeois 1 falling value of 107 immaterial 242 increase in volume and variety of 121 organised 2 and realisation 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 regional crises 151 workers’ dispossession of own means of 172 productivity 71, 91, 92, 93, 117, 118, 121, 125, 126, 132, 172, 173, 184, 185, 188, 220, 239 products, compared with commodities 25–6 profitability 92, 94, 98, 102, 103, 104, 106, 112, 116, 118, 125, 147, 184, 191–2, 240, 252, 253, 256, 257 profit(s) banking 54 as capital’s aim 92, 96, 232 and capital’s struggle against labour 64, 65 and competition 93 entrepreneurs 24, 104 falling 81, 107, 244 from commodity sales 71 and money capital 28 monopoly 93 rate of 79, 92 reinvestment in expansion 72 root of 63 spending of 15 and wage rates 172 proletarianisation 191 partial 175, 190, 191 ‘property bubble’ 21 property market boom (1920s) 239 growth of 50 property market crashes 1928 x, 21 1973 21 2008 21–2, 54, 241 property rights 39, 41, 93, 135 see also intellectual property rights; private property property values 78, 85, 234 ‘prosumers’ 237 Proudhon, Pierre-Joseph 183 Prozac 248 public goods 38 public utilities 23, 60, 118, 132 Q quantitative easing 30, 233 R R&D ix race 68, 116, 165, 166, 291 racial minorities 168 racialisation 7, 8, 62, 68 racism 8 Rand, Ayn 200 raw materials 16, 17, 148, 149, 154 Reagan, Ronald x, 72 Speech at Westminster 201 Reagan revolution 165–166 realisation, and production 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 reality contradiction between reality and appearance 4–6 social 27 Reclus, Elisée 140 regional development 151 regional volatility 154 Reich, Robert 123, 188 religion 7 religious affiliation 68 religious hatreds and discriminations 8 religious minorities 168 remittances 175 rent seeking 132–3, 142 rentiers 76, 77, 78, 89, 150, 179, 180, 241, 244, 251, 260, 261, 276 rents xii, 16–19, 22, 32, 54, 67, 77, 78, 84, 123, 179, 241 monopoly 93, 135, 141, 187, 251 repression 271, 280 autocratic 130 militarised 264 police-state 203 violent 269, 280, 297 wage 158, 274 Republican Party (US) 145, 280 Republicans (US) 167, 206 res nullius doctrine 40 research and development 94, 96, 187 ‘resource curse’ 123 resource scarcity 77 revolution, Fanon’s view of 288 revolutionary movements 202, 276 Ricardo, David 122, 244, 251 right, the ideological and political assault on the left xii; response to universal alienation 281 ‘rights of man’ 40, 59, 213 Rio de Janeiro 84 risk 17, 141, 162, 219, 240 robbery 53, 57, 60, 63, 72 robotisation 103, 119, 188, 295 Rodney, Walter 291 romantic movement 261 Roosevelt, Theodore 131, 135 Four Freedoms 201 Rousseau, Jean-Jacques 213, 214 Ruhr, Germany 150 rural landscapes 160–61 Russia 154 a BRIC country 170, 228 collapse of (1989) 165 financial crisis (1998) 154, 232 indebtedness 152 local famine 124 oligarchs take natural resource wealth 165 S ‘S’ curve 225, 230–31 Saint-Simon, Claude de Rouvroy, comte de 183 sales 28, 31, 187, 236 San Francisco 150 Santiago, Chile: street battles (2006–) 185 Sao Paulo, Brazil 129, 195 savings the house as a form of saving 19, 22, 58 loss of 20, 58 private 36 protecting the value of 20 Savings and Loan Crisis (USA from 1986) 18 savings accounts 5, 6 Scandinavia 18, 85, 165 scarcity 37, 77, 200, 208, 240, 246, 260, 273 Schumpeter, Joseph 98, 276 science, and technology 95 Seattle 196 Second Empire Paris 197 Second World War x, 161, 234 Securities and Exchange Commission 120, 195 security xiii, 16, 121, 122, 165, 205, 206 economic 36, 153 food 253, 294, 296 job 273 national 157 Sen, Amartya 208–11, 281 Development as Freedom 208–9 senior citizens 168 Seoul 84 serfdom 62, 209 sexual hatreds and discriminations 8 Shanghai 153, 160 share-cropping 62 Sheffield 148, 149, 159, 258 Shenzhen, China 77 Silicon Valley 16, 143, 144, 150 silver 27–31, 33, 37, 57, 233, 238 Simon, Julian 246 Singapore 48, 123, 150, 184, 187, 203 slavery 62, 202, 206, 209, 213, 268 slums ix, 16, 175 Smith, Adam 98, 125–6, 157, 185, 201, 204 ‘invisible hand’ 141–2 The Wealth of Nations 118, 132 Smith, Neil 248 social distinction 68, 166 social inequality 34, 110, 111, 130, 171, 177, 180, 220, 223, 266 social justice 200, 266, 268, 276 social labour 53, 73, 295 alienated 64, 66, 88 and common wealth 53 creation of use values through 36 expansion of total output 232 household and communal work 296 immateriality of 37, 233 and money 25, 27, 31, 42, 55, 88, 243 productivity 239 and profit 104 and value 26, 27, 29, 104, 106, 107, 109 weakening regulatory role of 109, 110 social media 99, 136, 236–7, 278–9 social movements 162–3 social reproduction 80, 127, 182–98, 218, 219, 220, 276 social security 36, 165 social services 68 social struggles 156, 159, 165, 168 social value 26, 27, 32, 33, 55, 172, 179, 241, 244, 268, 270 socialism 215 democratic xii; ‘gas and water’ 183 socialism/communism 91, 269 socialist revolution 67 socialist totalitarianism 205 society capitalist 15, 34, 81, 243, 259 civil 92, 122, 156, 185, 189, 252 civilised 161, 167 complex 26 demolition of 56 and freedom 205–6, 210, 212 hope for a better society 218 industrial 205 information 238 market 204 post-colonial 203 pre-capitalist 55 primitive 57 radical transformation of 290 status position in 186 theocratic 62 women in 113 work-based 273 world 204 soil erosion 257 South Africa 84–5, 152, 169 apartheid 169, 202, 203 South Asia labour 108 population growth 230 software programmers and developers 115, 116 South Korea 123, 148, 150, 153 South-East Asia 107–8 crisis (1997–8) 154, 232, 241 sovereign debt crises 37 Soviet Bloc, ex-, labour in 107 Soviet Union 196, 202 see also Russia Spain xi, 51, 161 housing market crash (2007–9) 82–3 spatio-temporal fixes 151–2, 153, 154, 162 spectacle 237–8, 242, 278 speculative bubbles and busts 178 stagnation xii, 136, 161–2, 169 Stalin, Joseph 70 standard of life 23, 175 starvation 56, 124, 246, 249, 260, 265 state, the aim of 156–7 brutality 266, 280 and capital accumulation 48 and civil society 156 curbing the powers of capital as private property 47 evolution of the capitalist state 42 and externality effects 44 guardian of private property and of individual rights 42 and home ownership 49–50 interstate system 156, 157 interventionism 193, 205 legitimate use of violence 42, 44, 45, 51, 88, 155, 173 loss of state sovereignty xii; and money 1, 45–6, 51, 173 ‘nightwatchman’ role 42, 50 powers of 42–5, 47–52, 57–8, 65, 72, 142, 155–9, 209, 295 and private property 47, 50, 58, 59, 146, 210 provision of collective and public goods 42–3 a security and surveillance state xiii; social democratic states 85 war aims 44 state benefits 165 state regulatory agencies 101 state-finance nexus 44–5, 46–7, 142–3, 156, 233 state-private property nexus 88–9 steam engine, invention of the 3 steel industry 120, 121, 148, 188 steel production 73–4 Stiglitz, Joseph 132–4 stock market crash (1929) x Stockholm, protests in (2013) 171, 243 strikes 65, 103, 124 sub-prime mortgage crisis 50 suburbanisation 253 supply and demand 31, 33, 56, 106 supply chain 124 supply-side remedies xi supply-side theories 82, 176 surplus value 28, 40, 63, 73, 79–83, 172, 239 surveillance xiii, 94, 121, 122, 201, 220, 264, 280, 292 Sweden 166, 167 protests in (2013) 129, 293 Sweezy, Paul 136 swindlers, swindling 45, 53, 57, 239 ‘symbolic analysts’ 188 Syntagma Square, Athens 266, 280 T Tahrir Square, Cairo 266 Taipei, Taiwan 153 Taiwan 123, 150, 153 Taksim Square, Istanbul 266, 280 Tanzania 291 tariffs 137 taxation 40, 43, 47, 67, 84, 93–4, 106, 133, 150, 155, 157, 167, 168, 172, 190 Taylor, Frederick 119, 126 Taylorism 103 Tea Party faction 205, 280, 281, 292 technological evolution 95–6, 97, 101–2, 109 technological imperatives 98–101 technological innovation 94–5 technology changes involving different branches of state apparatus 93–4 communicative technologies 278–9 and competition 92–3 constraints inhibiting deployment 101 culture of 227, 271 definition 92, 248 and devaluation of commodities 234 environmental 248 generic technologies 94 hardware 92, 101 humanising 271 information 100, 147, 158, 177 military 93, 95 monetary 109 and nature 92, 97, 99, 102 organisational forms 92, 99, 101 and productivity 71 relation to nature 92 research and development 94 and science 95 software 92, 99, 101 a specialist field of business 94 and unemployment 80, 103 work and labour control 102–11 telephone companies 54, 67, 84, 278 Tennessee 148 Teresa, Mother 284 Thatcher, Margaret (later Baroness) x, 72, 214, 259 Thatcherism 165 theft 53, 60, 61, 63 Thelluson, Peter 226, 227 think tanks 143 ‘Third Italy’ 143 Third World debt crisis 240 Toffler, Alvin 237 tolls 137 Tönnies, Ferdinand 122, 125 tourism ix, 16, 140, 141, 187, 236 medical 139 toxic waste disposal 249–50, 257 trade networks 24 trade unions xii, 116, 148, 168, 176, 184, 274, 280 trade wars 154 transportation 23, 99, 132, 147–8, 150, 296 Treasury Departments 46, 156 TRIPS agreement 242 tropical rainforest 253 ‘trust-busting’ 131 trusts 135 Turin, Italy 150 Turkey 107, 123, 174, 232, 280, 293 Tuscany, Italy 150 Tutu, Archbishop Desmond 284 Twitter 236 U unemployment 37, 104, 258, 273 benefits 176 deliberately created 65, 174 high xii, 10, 176 insurance 175 and labour reserves 175, 231 and labour-saving technologies 173 long-term 108, 129 permanent 111 echnologically induced 80, 103, 173, 274 uneven geographical developments 178, 296 advanced and underserved regional economies 149–50 and anti-capitalist movements 162 asset bubbles 243 and capital’s reinvention of itself 147, 161 macroeconomic processes of 159 masking the true nature of capital 159–60 and technological forms 219 volatility in 244 United Fruit 136 United Kingdom income inequality in 169; see also Britain United Nations (UN) 285 United States aim of Tea Party faction 280 banking 158 Bill of Rights 284 Britain lends to (nineteenth century) 153 capital in (1990s) 154 Constitution 284 consumption level 194 global reserve currency 45–6 growth 232 hostility towards state interventions 167 House of Representatives 206 human rights abuses 202 imperial power 46 indebtedness of students in 194 Indian reservations 249 interstate highway system 239 jobless recoveries after recession 172–3 liberty and freedom rhetoric 200–201, 202 Midwest ‘rust belt’ 151 military expenditures 46 property market crashes x, 21–2, 50, 54, 58, 82–3 racial issues 166 Savings and Loan Crisis (from 1986) 18 social mobility 196 social reproduction 196–7 solidly capitalist 166 steel industry 120 ‘symbolic analysts’ 188 ‘trust-busting’ 131 unemployment 108 wealth distribution 167 welfare system 176 universal suffrage 183 urbanisation 151, 189, 228, 232, 239, 247, 254, 255, 261 Ure, Andrew 119 US Congress 47 US dollar 15, 30, 45–6 US Executive Branch 47 US Federal Reserve xi, 6, 30, 37, 46, 47, 49, 132, 143, 233 monetary policy 170–71 US Housing Act (1949) 18 US Treasury 47, 142, 240 use values collectively managed pool of 36 commodification of 243 commodities 15, 26, 35 common wealth 53 creation through social labour 36 and entrepreneurs 23–4 and exchange values 15, 35, 42, 44, 50, 60, 65, 88 and housing 14–19, 21–2, 23, 67 and human labour 26 infinitely varied 15 of infrastructural provision 78 loss of 58 marketisation of 243 monetisation of 243 of money 28 privatised and commodified 23 provision of 111 and revolt of the mass of the people 60 social demand for 81 usufructuary rights 39, 41, 59 usury 49, 53, 186, 194 utopianism 18, 35, 42, 51, 66, 119, 132, 183, 184, 204, 206–10, 269, 281, 282 V value(s) commodity 24, 25 failure to produce 40 housing 19, 20, 22 net 19 production and realisation of 82 production of 239 property 21 relation between money and value 27, 35 savings 20 storing 25, 26, 35 see also asset values; exchange values; social value; use values value added 79, 83 Veblen, Thorstein: Theory of the Leisure Class 274 Venezuela 123, 201 Vietnam, labour in 108 Vietnam War 290 violence 53, 57, 72, 204–5, 286 against children 193 against social movements 266 against women 193 colonial 289–90, 291 and contemporary capitalism 8 culture of 271 of dispossession 58, 59 in a dystopian world 264 and humanism 286, 289, 291 of the liberation struggle 290 militarised 292 as the only option 290–91 political 280 in pursuit of liberty and freedom 201 racialised 291 state’s legitimate use of 42, 44, 45, 51, 88, 155, 173 of technology 271 and wage labour 207 virtual ecological transfer 256 Volcker, Paul 37 W wages 103 basic social wage 103 falling 80, 82 for housework 115, 192–3 low xii, 114, 116, 186, 188 lower bound to wage levels 175 non-payment of 72 and profits 172 reduction in 81, 103, 104, 135, 168, 172, 176, 178 rising 178 and unskilled labour 114 wage demands 150, 274 wage levels pushed up by labour 65 wage rates 103, 116, 172, 173 wage repression 158–9 weekly 71 see also income Wall Street criticised by a congressional committee 239–40 illegalities practised by 72, 77 and Lebed 195 new information-processing technologies 100 Wall Street Crash (1929) x, 47 Wall-E (film) 271 Walmart xii, 75, 84, 103, 131 war on terror 280 wars 8, 60, 229 currency 154 defined 44 monetisation of state war-making activities 44–5 privatisation of war making 235 resource 154, 260 and state aims 44 state financing of 32, 44, 48 and technology 93 trade 154 world 154 water privatisation 235 wave theory 70 wave-particle duality 70 wealth accumulation of 33, 34, 35, 157, 205 creation of 132–3, 142, 214 disparities of 164–81 distribution of 34, 167 extraction from non-productive activities 32 global 34 the house as a sign of 15–16 levelling up of per capita wealth 171 and poverty 146, 168, 177, 218, 219, 243 redistribution of 9, 234, 235 social 35, 53, 66, 157, 164, 210, 251, 265, 266, 268 taking it from others 132–3 see also common wealth weather futures 60 Weber, Max 122, 125 Weimar Republic 30 welfare state 165, 190, 191, 208 Wells Fargo 61 West Germany 153, 154, 161 Whitehead, Alfred North 97 Wilson, Woodrow 201 Wolf, Martin 304n2 Wollstonecraft, Mary: A Vindication of the Rights of Woman 285 women career versus family obligations 1–2 disposable populations 111 exploitation of 193 housework versus wage labour 114–15 oppression against 193 social struggle 168 trading of 62 violence against 193 in the workforce 108, 114, 115, 127, 174, 230 women’s rights 202, 218 workers’ rights 202 working classes and capital 80 consumer power 81 crushing organisation 81 education 183, 184 gentrified working-class neighbourhoods ix; housing 160 living conditions 292 wage repression and consumption 158–9 working hours 72, 104–5, 182, 272–5, 279 World Bank 16, 24, 100, 186, 245 World Trade Organization 138, 242 WPA programmes (1930s) 151 Wright, Frank Lloyd: Falling Water 16 Wriston, Walter 240 Y YouTube 236 Yugoslavia, former 174 Z Zola, Émile 7


pages: 236 words: 77,735

Rigged Money: Beating Wall Street at Its Own Game by Lee Munson

affirmative action, asset allocation, backtesting, barriers to entry, Bear Stearns, Bernie Madoff, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, call centre, Credit Default Swap, diversification, diversified portfolio, estate planning, fiat currency, financial innovation, fixed income, Flash crash, follow your passion, German hyperinflation, High speed trading, housing crisis, index fund, joint-stock company, money market fund, moral hazard, Myron Scholes, passive investing, Ponzi scheme, price discovery process, random walk, risk tolerance, risk-adjusted returns, risk/return, Savings and loan crisis, stocks for the long run, stocks for the long term, too big to fail, trade route, Vanguard fund, walking around money

It began with the Depository Institutions Deregulation and Monetary Control Act that allowed banks to merge, among other things. Two years later the Garn-St. Germain Depository Institutions Act deregulated savings and loans and gave birth to bank-sponsored adjustable rate mortgages. Remember that all of this was supposed to help people in an environment with double-digit inflation. Fast forward through the savings and loan crisis, a hot stock market, and years of profitable (for Wall Street) mergers of small banks across America and you had the perfect environment for yet more deregulation. Since the early 1980s banks have been on a non-stop whine-a-thon about unfair limitations and the need to diversify into riskier securities.

In May 2000, Greenspan said, “So long as we recognize the risks and insist on good risk-management systems . . . economic growth is, I suggest, enhanced by the kinds of financial innovation that technology and deregulation are now producing.”1 Plus, with the government backing banks, it didn’t matter if things blew up like they did in the 1920s or late 1980s with the savings and loan crisis. Banks were important and would have to be bailed out. “History teaches us that a sound banking system, willing and able to take deposits and extend credit, is a prerequisite for the long-term health of the national economy. Securities markets alone will never be able to substitute for the extensive and detailed knowledge that bankers—especially community bankers—bring to the intermediation process.”2 Part of the financial crisis was attributed to the local banker sending loans to Wall Street with no further responsibility.


pages: 322 words: 77,341

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

asset-backed security, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black-Scholes formula, Blythe Masters, 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, hedonic treadmill, hindsight bias, housing crisis, Hyman Minsky, intangible asset, interest rate swap, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jane Jacobs, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Kickstarter, 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, Savings and loan crisis, shareholder value, South Sea Bubble, statistical model, Tax Reform Act of 1986, The Great Moderation, the payments system, too big to fail, tulip mania, value at risk

As for the bailouts, there are various ways of calculating their cost so far, with Neil Barofsky, the special inspector general in charge of administering the program, putting the cost as of March 31, 2009, at $2.98 trillion.2 By adding to that the imminent bailout of the gigantic financial corporation Citigroup, the market commentator Barry Ritholtz came up with a total cost of the bailout as $4.6165 trillion.3 (He also makes the point that some estimates of the cost are even higher, quoting a Bloomberg figure of $7.76 trillion.) He then put the figure into historical perspective. That number is bigger than the Marshall Plan, the Louisiana Purchase, the Apollo moon landings, the 1980s savings and loan crisis, the Korean War, the New Deal, the invasion of Iraq, the Vietnam War, and the total cost of NASA’s space flights, all added together—repeat, added together (and yes, the old figures are adjusted upward for inflation). Not that we in the United Kingdom are any better off. The 30 percent decline in the value of the pound is unlikely to go away as quickly as it arrived.

., 181, 184–92, 195, 199–200, 223–24, 227 Reykjavík, 10, 12, 170 risk, risks, 49–58, 66–76, 133–36, 141–67, 211–12, 219 AIG and, 75–76 assessment of, 46, 55–56, 74, 133, 135–36, 141–43, 145–67, 187–88, 191, 202, 205, 212, 216, 226 banks and, 19, 34–37, 41, 133, 135–36, 143, 150–54, 156–57, 160, 165–66, 174, 187–88, 191–95, 202, 204–7, 216, 224, 226, 228, 230 bonds and, 61–63, 103, 118, 144, 154, 208 derivatives and, 46–47, 49–52, 54–55, 57–58, 66–75, 78–80, 114–15, 117–22, 151, 153, 158–60, 163, 166–67, 184–85, 205, 212 desirability of, 144, 146, 150, 206–7 diversification and, 146–48 Greenspan and, 142–43, 164–66, 174, 184 hedging of, 49–50, 52, 58, 115, 205 historical data and, 163, 166 housing and, 88, 94–97, 112–13, 125, 129, 145, 158–60, 163–65 investing and, 5, 68, 70, 88, 103, 144, 146–53, 158, 165, 184, 190 leverage and, 35–36 LTCM and, 55–56 overconcentration of, 72–73 regulation and, 143, 153, 164, 187–88, 191, 195, 202, 204–5, 212, 224, 226 securitization and, 69–70, 163, 165 of stairs, 134–35 VAR and, 151–57, 162–63 risk-adjusted return on capital (RAROC), 150–51 Ritholtz, Barry, 219–20 Robinson, Phillip, 128–31 Rogers, Jim, 221 Royal Bank of Scotland (RBS), 34–36, 120, 227 bailout of, 32, 40, 204 Russia, 3, 15–16, 18, 53 bond default of, 55–56, 162, 164–65 Salomon Brothers, 63 Sanford, Charles, 150 Santander, 40 savings, 28, 86, 107, 177, 179, 187 savings and loan crisis, 73, 185, 220 Scholes, Myron, 45, 47–48, 54–55, 147 Securities and Exchange Commission (SEC), 195 credit ratings and, 209–10 regulation and, 153, 186, 189–92 securitization, 20, 22, 200 derivatives and, 69–70, 74, 113–14, 117–19, 122, 212 risk and, 69–70, 125, 163, 165, 212, 224 selling, sales, 34, 42, 104, 174, 203 of bonds, 59, 61–63, 144 derivatives and, 46–50, 52, 56, 65, 67–68, 73–74, 120 of equity, 58–59 of houses, 28–29, 71, 89–90 risk and, 151–52, 165, 224 Shiller, Robert, 106, 145n, 194 Simon, David, 83–84 Singapore exchange, 54 Skilling, Jeffrey, 106 small numbers, law of, 137 Sociét Générale, 51, 77 solvency, insolvency, 28–29 of banks, 36–38, 40–43, 64, 74–75, 120 Spain, 15, 40, 177, 214 contracting economy of, 222–23 housing in, 92, 110 special purpose vehicles (SPVs), 70, 120 stairs, deaths caused by, 134–35 Standard & Poor’s (S&P), 62, 114, 151, 209 statistics, 160–62 Stefánsdóttir, Rakel, 9–10, 12 stock market, stocks, 22, 54–55, 61, 76, 80, 101–11, 115, 226 bubbles and implosions in, 3, 42, 103–9, 142, 175–76 derivatives and, 50–52, 54 investing in, 59, 73, 101–7, 111, 146–52, 158, 175, 192 new-economy, 103 1929 crash of, 152, 199, 213 October 1987 crash of, 142, 151–52, 161–62, 164–65 prices of, 102, 105–6, 109–10, 147–51, 158, 174 structured investment vehicles (SIVs), 120 Summa de Arithmetica (Pacioli), 26 Summers, Lawrence, 43, 74, 188 Taleb, Nassim, 53, 155–56 Tax Reform Act of 1986 (TRA), 100 technology, 42, 104, 149, 155, 166 terrorism, 2, 12, 18, 107 Tett, Gillian, 121, 193 Thatcher, Margaret, 199, 217, 222 free-market capitalism and, 14, 21, 24 on housing, 87, 91, 98 regulation and, 21, 195–96 torture, end of ban on, 18 tranching, 117–18, 122 Treasury, British, 181–82 Treasury, U.S., 43, 54, 64, 74, 76–78 AIG bailout and, 76, 78 regulation and, 188–90 Treasury bills (T-bills), 29–30, 62, 103, 118, 144, 208 China’s investment in, 109, 176–77 Trichet, Jean-Claude, 92 Trillion Dollar Meltdown, The (Morris), 42 Troubled Assets Relief Program (TARP), 37, 189 Turner, Adair, 181 Tversky, Amos, 136–38, 141 UBS, 36, 120 uncertainty, 96 fair value theory and, 147–48 risk and, 55–56, 153, 163 United Kingdom, 9, 11–12, 18, 28–29, 61, 122–24, 134, 139, 194–202, 216–18 banking in, 5, 11, 32–36, 38–40, 51–54, 76–77, 89, 94, 120, 146, 180, 194–96, 199, 202, 204–6, 211–12, 217, 227–28 bill of, 220–22, 224 and City of London, 21–22, 32, 195–97, 200, 217–18 credit ratings and, 123–24, 209 derivatives and, 72, 200–201 financial vs. industrial interests in, 196–99 free-market capitalism in, 14–15, 21, 230 GDP of, 32, 214, 220 Goodwin’s pension and, 76–77 housing in, 38, 87–98, 110, 122, 177–78 interest rates in, 102, 177–80 personal debt in, 221–22 prosperity of, 214, 216 regulation in, 21–22, 105n, 180–82, 194–96, 199–201, 218 United Nations, 4 United States, 17–22, 34, 62–71, 120–31, 134n, 165, 199–201 AIG bailout and, 76–78 banks of, 36–37, 39–40, 43, 63–71, 73, 75, 77–78, 84, 116, 120–21, 127, 150, 152, 163, 183, 185, 190, 195, 204, 211–12, 219–20, 225, 227–28 bill of, 219–20 China’s investment in, 109, 176–77 credit and, 109, 123–24, 195, 208–9, 211 free-market capitalism in, 14–15, 230 housing in, 37, 82–86, 95, 97–101, 109–10, 114–15, 122, 125–31, 157–58, 163 interest rates in, 102, 107–8, 173–77 regulation in, 181, 184–92, 195, 199–200, 223–24, 227 urban desolation in, 81–86 value, values, 42, 74–75, 78–80, 103–4, 179, 181, 217–18, 220, 227 bonds and, 61, 103 derivatives and, 38, 48–49, 185, 201 housing and, 28–29, 71, 90, 92–95, 111, 176 investing and, 60–61, 104, 198 LTCM and, 55–56 notional, 38, 48–49, 80 value at risk (VAR), 151–57, 162–63 Vietnam War, 18, 220 Viniar, David, 163 volatility, 20, 158 risk and, 47–48, 148–50, 161 Volcker, Paul, 20 Waldrow, Mary, 127 Wall Street, 22, 53, 64, 129, 188 Washington Post, The, 18 wealth, 4, 10, 19–21, 64, 204, 206 financial industry’s ascent and, 20–21 in free-market capitalism, 15, 19, 230 housing and, 87, 90, 121 Keynes’s predictions on, 214–15 in West, 218–19 Weatherstone, Dennis, 152 Wells Fargo, 84, 127 Wessex Water, 105n West, 14–18, 43, 213, 231 conflict between Communist bloc and, 16–18 free-market capitalism in, 14–15, 17, 21, 23 wealth in, 218–19 wheat, 49n, 52 When Genius Failed (Lowenstein), 161 Williams, John Burr, 147 Wilson, Lashawn, 130–31 Wire, The, 83–84 World Bank, 58, 65, 69 * GDP, which will be mentioned quite a few times in this story, sounds complicated but isn’t: it’s nothing more than the value of all the goods and services produced in an economy.


pages: 333 words: 76,990

The Long Good Buy: Analysing Cycles in Markets by Peter Oppenheimer

"Robert Solow", asset allocation, banking crisis, banks create money, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, Fall of the Berlin Wall, financial innovation, fixed income, Flash crash, foreign exchange controls, forward guidance, Francis Fukuyama: the end of history, George Akerlof, household responsibility system, housing crisis, index fund, invention of the printing press, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kickstarter, liberal capitalism, light touch regulation, liquidity trap, Live Aid, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, Nixon triggered the end of the Bretton Woods system, oil shock, open economy, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Shenzhen special economic zone , Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, tail risk, Tax Reform Act of 1986, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve

The most powerful supercomputer (the Cray-2) in 1985 had a similar processing ability to an iPhone 4.2 The scale of the digital revolution and the quantity of available data since then would have been unimaginable at the time, and this seems to be accelerating. Microsoft's president Brad Smith recently signalled that ‘this decade will end with almost 25 times as much digital data as when it began’.3 Over the same period, there have been three major recessions (in most economies) and several financial crises, including the US Savings & Loan crisis of 1986, the Black Monday stock market crash of 1987, the Japanese asset bubble and collapse between 1986 and 1992, the Mexican crisis of 1984, the Emerging Market crises of the 1990s (Asia in 1997, Russia in 1998 and Argentina in 1998–2002), the ERM currency crisis of 1992, the technology collapse in 2000 and, of course, the most recent global financial crisis, starting with the subprime mortgage and US housing declines of 2007, and the European sovereign debt crisis of 2010/2011.

For simplicity, it can be argued that there have been three long ‘super cycles’, or secular bull markets, since the Second World War. Each of these has been punctuated by occasional sharp drawdowns and ‘mini’ bear markets (often quite sharp). For example, the secular bull market of 1982–2000 was interrupted by the Savings and Loan crisis in the early 1980s, the crash of 1987, the bond crisis in 1994 (when 30-year US treasury yields rose about 200bp in just 9 months) and the Asia crisis of 1998. But one can still consider these periods ‘super cycles’ because the powerful returns were driven by some very specific structural factors, which remained uninterrupted over long periods of time, even during the corrections.


pages: 284 words: 85,643

What's the Matter with White People by Joan Walsh

affirmative action, Affordable Care Act / Obamacare, banking crisis, clean water, collective bargaining, David Brooks, desegregation, Donald Trump, Edward Glaeser, full employment, global village, Golden Gate Park, hiring and firing, impulse control, income inequality, invisible hand, knowledge worker, labor-force participation, mass immigration, new economy, obamacare, Occupy movement, Plutocrats, plutocrats, Ralph Nader, Ronald Reagan, Savings and loan crisis, upwardly mobile, urban decay, War on Poverty, We are the 99%, white flight, women in the workforce, zero-sum game

He could only get away with slashing Great Society programs that benefited the poor. Reagan began a destructive spiral of concentrating wealth in the hands of fewer people and deregulating business that culminated in the economic crash we’re still digging out of today. He even heralded it, by signing the banking deregulation act that waved the “Go” flag on the savings and loan scandal and foreshadowed the repeal of Depression-era Glass-Steagall banking regulations a decade later. Family savings rates began to decline in the Reagan years, while borrowing rates climbed. This is the period when it began to seem as though Big Capital, instead of paying workers higher wages, figured out how to make more money by lending them that cash to stay in the middle class.


pages: 515 words: 132,295

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

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, Bear Stearns, bonus culture, Bretton Woods, British Empire, business cycle, buy and hold, 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, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, 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, Savings and loan crisis, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, Social Responsibility of Business Is to Increase Its Profits, 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, Tragedy of the Commons, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund, zero-sum game

(He is just one of many experts who worry about the market-distorting effects of the Fed’s unprecedented program of asset buying and low interest rates, which reached an apex in the wake of the 2008 crisis.) “Easy money monetary policy is the best reward in the world for Wall Street. After all, it’s mainly the rich who benefit from a rising stock market.”58 Although markets boomed under Greenspan, they also went bust more than ever before. The crash of 1987, the S&L crisis of 1989, the Mexican peso collapse of 1994, the Asian financial crisis of 1997, the larger emerging-market crisis of 1998, and the dot-com boom and bust all happened on his watch. Each time the economy faltered as a result, Greenspan would lower rates to boost lending. (He used this tactic so reliably, in fact, that Wall Street bankers began calling it the “Greenspan put”—a caustic term that encapsulated their belief that the Fed would bail them out no matter what.)

“If we had been able to put some people in prison, many fewer would have wanted to join in the bad behavior the next time around,” says economist Joseph Stiglitz.38 Yet far fewer people went to jail during the 2008 financial crisis and its aftermath than did after such recent events as the 1980s savings and loan (S&L) crisis, when more than 1,000 bankers were jailed for making bad loans. Sadly, one reason for that contrast is that some of the things that happened in the latest meltdown, despicable though they might be, were actually legal. But that’s not true in all cases. People like Stiglitz and many others believe that existing laws (under bits of legislation like the 2002 Sarbanes-Oxley Act, which was enacted after the Enron debacle to hold corporate leaders more accountable for their actions) could have been better leveraged to prosecute finance executives responsible for the crisis.

The length of Dodd-Frank reflects the efforts of lobbyists outlined in chapter 10. It also creates ample new loopholes for clever lawyers to jump through. Critics who argue that reinstating Glass-Steagall wouldn’t be a silver bullet to avoiding financial crises are correct. Bad things can certainly happen in stand-alone commercial banks (remember the S&L crisis?). There would be costs as well as benefits to redrawing the red line between lending and trading, and legislation would also need to be retooled for the modern era. That’s a process that should happen based on forensic study not only of the crisis of 2008 but also of the many that preceded it, with consideration of where future risks might lie.


pages: 76 words: 20,238

The Great Stagnation by Tyler Cowen

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

At the same time, we didn’t see headlines like NOT SO MANY STRIKING NEW INNOVATIONS THIS YEAR. No, and so our expectations remained out of synch. We felt invulnerable. In the early 1980s, we had a lot of apparently bad events that actually didn’t work out so tragically, at least not for most Americans. Let me list a few:• The savings and loan crisis of the early 1980s • The failure of Continental Illinois (then a major U.S. bank) in 1984 • The stock market crash of 1987—Black Monday, a 22.5 percent drop in one day • The bursting of the real estate bubble in the late 1980s • The Mexican financial crisis of 1994 • The Asian financial crisis of 1997-1998 • The Long-Term Capital Management (a hedge fund) crisis of 1998 • The bursting of the dot.com bubble in 2001 In each case, it seemed initially that something really terrible was happening to the economy.


pages: 1,066 words: 273,703

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

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

Simplifying a more complicated story analyzed in W. H. Starbuck and P. N. Pant, “Trying to Help S&Ls: How Organizations with Good Intentions Jointly Enacted Disaster,” in Organizational Decision Making, ed. Z. Shapira (Cambridge: Cambridge University Press, 1996), 35–60. 12. T. Curry and L. Shibut, “The Costs of the Savings and Loan Crisis: Truth and Consequences,” FDIC Banking Review, https://www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf. 13. Schwartz, Subprime Nation, 96–101. 14. R. K. Green and A. B. Schnare, “The Rise and Fall of Fannie Mae and Freddie Mac: Lessons Learned and Options for Reform,” No. 8521, USC Lusk Center for Real Estate, 2009. 15.

See private sector involvement (PSI) bailouts, 12, 166–201 of AIG, 178–79 of European banks, 184–95 of Fannie Mae/Freddie Mac, 172–75 of French banks, 193, 194 G7/G20 meeting of finance ministers at US Treasury, 189, 192–93 of German banks, 188–89, 193, 194–95 of Irish banks, 185–86, 193 mechanisms for, 167 private bad bank plan and, 170 under section 13(3) emergency powers, 171, 178 state-brokered takeover deals, 170–71 of UK banks, 189–91 warfare model for economic policy in, 169–70 Bair, Sheila, 87, 196, 295, 302, 303, 305, 307, 313, 314, 405 balance of financial terror scenario, 35, 40, 41, 75 Banca Intesa, 234 Bankers Trust, 83 Bankia/BFA, 431–32 Banking Reform Act of 2013 (United Kingdom), 541 Bank of America, 48–49, 54, 59–60, 69, 170, 292, 316 exits TARP program, 300 liquidity provided to, 208, 209, 217 Merrill Lynch purchased by, 175–76, 199–200 stress test of, 299 Bank of China, 249 Bank of England, 146 banking supervision reincorporated into, 541 emergency stimulus package following Brexit, 555 Federal Reserve liquidity swap lines and, 211, 212, 213 financial integration of Eastern Europe and, 126 liquidity provided by, 203 QE1 bond purchases of, 285–86 renmimbi internationalization and, 542–43 Bank of Ireland, 185–86 Bank of Japan, 212, 483 Bank of Korea, 260 Bank of Scotland, 208 Bank of Thailand, 258 bankruptcies of American cities and counties, 450–51 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 69 banks bonuses paid by, 292–93, 306 capital requirements, 84–88 central banks (See central banks) default insurance premiums on bank debt, 292 European (See European banks) funding mechanisms for holding mortgage holdings, 60–62 investment (See investment banks) MBS held on balance sheets of, 59–60 nationalization/breakups considered for US banks, 293–98 recapitalization of, 315–17 regulatory repeal efforts, under Trump, 587–91 savings and loan crisis, 44–45 stress tests, of European banks, 315, 357–58 stress tests, of US banks, 298–301, 309–10 See also specific banks Bannon, Steve, 468, 573–74, 592 Barclays, 191, 541 leverage of, 88 liquidity provided to, 208, 210, 218 Barroso, José Manuel, 410, 433, 435, 490 Basel I accord, 85, 311 Basel II accord, 85–87, 311 Basel III accord, 311–14 capital requirements, 313–14 global systemically important financial institutions (G-SIFI), regulation of, 311–13 leverage, measurement of, 314 Bayerische Landesbank, 124 Bear Stearns, 53, 55, 59–60 bailout of, 171 bilateral repo market losses of, 147–48 fund bailouts by, 144 Beck, Glenn, 346–47, 368 Belarus, 232, 506 Belgium, 105, 167, 193 Benedict XVI, Pope, 397 Berlusconi, Silvio, 94, 187, 264, 269, 326, 342, 386, 399, 410, 411 Bernanke, Ben, 10, 13, 38–40, 144, 162, 163–64, 196, 442, 444, 460 cautions against austerity efforts, 352, 366–67 Dodd-Frank Act and, 304, 305 on dollar funding needs of European banks, 206 Lehman collapse and, 176, 177 liquidity swap lines and, 212, 215 QE2 and, 367 reappointment of, 304 taper and, 475, 476 TARP proposal and, 180–81 big short, 70–71 Big Short, The (Lewis), 74 bilateral repo market, 61–62, 147–49 Blair, Tony, 3, 81 Blanchard, Olivier, 529 Blankfein, Lloyd, 559 Bloomberg, 217 Bloomberg, Michael, 88 Blue Dog Coalition, 278 BNP Paribas, 110, 144, 194, 210, 326 Boediono, 258–59 Boehner, John, 174–75, 182, 390–91, 467, 568 Bofinger, Peter, 288 bond vigilantes, 29–30, 284–85, 291, 348, 350, 481, 525, 585 bonuses, Wall Street, 292–93, 306 Bosnia and Herzegovina, 232 Bowles, Erskine, 583 Bradford & Bingley, 184 Brazil, 32, 475, 477, 601 Breitbart, 459 Bretton Woods agreement of 1944, 11 Bretton Woods system, 80 dollar pegged to gold in, 11 euro and, 92 mortgage loan stability and, 45 Brexit, 544–61 Bank of England stimulus package, 555 big business and, 549, 556 Cameron’s attempt to renegotiate EU treaties, 545–48 City of London and, 549, 550, 556 EU and British negotiating positions, 558–61 IMF warns against leaving EU, 550 immigration issue and, 552, 553 May’s agenda for and negotiating positions, 557–60 Obama’s effort to persuade UK to remain in EU, 551 post-2008 crisis break in UK relations with EU, 544–45 Remain campaign message and, 549 sterling plunge following, 554–55 trade and investment at stake for Britain, 548–49 trade union support of Remain, 549–50 US investment bank support of Remain, 550–51 vote for, 553–54 Brookings Institution, 25 Brown, Gordon, 81, 460 bank bailouts and, 184, 187, 189, 190, 193 London G20 summit and, 265–66, 268, 271, 272–73 refuses to allow Barclays takeover of Lehman, 176 Buchanan, Pat, 572 Bucharest, 232 budget, US crisis of 2011, 390–93 sequester cuts, 464, 465–66 of 2013, 464–66 of 2014, 466–67 of 2017, 581–82 budget deficits automatic stabilizers and, 283–86 Bush administration and, 27–29, 30, 36, 282–83 Clinton administration and, 27, 29 concerns raised over, 29, 35 Democrats and, 36–37 in eurozone countries, 100–2 scale of, and vulnerability to bond market pressure, 29–30 Buffett, Warren, 40, 458 Buiter, Willem, 182, 389 Bulgaria, 121, 126, 227, 229 Bündchen, Gisele, 40 Bundesbank, 92 Bunning, Jim, 181 Bush, George H.

See United Kingdom “great moderation”, 10, 11, 44 Greece, 15 austerity in, 330–31, 340, 376–77, 384–85, 409 cross-border financial flows in, 106–7 debt crisis in, 14, 322, 323–45, 357–59, 376–78, 381–89, 408–10, 422–29 debt restructuring and, 384–85, 388–89, 423–28 deficits in, 101, 324, 338 demonstrations in, 340, 375, 409 elections of 2012, 428 Eurogroup-Syriza debt restructuring confrontation, 517–35 extend-and-pretend in, 325, 328, 331, 336, 358–59, 376, 382–83, 401, 425, 529, 532 Fitch downgrade of debt of, 339 Papandreou replaced as prime minister, 409–10 real estate boom in, 107 rescue fund for, 342–44 social crisis in, 515–16 #Thisisacoup, 533 troika’s rescue plan for, 336–37, 339–40 unemployment in, 358–59, 374, 408, 428, 515 vote against troika proposal, 530 Greenspan, Alan, 29, 32, 37, 293, 574, 575 Gref, Herman, 503 Gross, Bill, 40, 349, 379, 481 “Growth in a Time of Debt” (Reinhart & Rogoff), 347 Habermas, Jürgen, 116, 122, 534 Hamilton Project, 25–27, 29, 36, 42, 182, 281, 451, 456, 458 Hammond, Philip, 560, 592 Hartz IV, 95 HBOS, 154, 171, 189–90 Hellwig, Martin, 313 Hensarling, Jeb, 182, 588 Hessel, Stéphane, 374 Hitachi, 158 Hollande, François, 429, 434, 518, 532 Honohan, Patrick, 363 housing market, 7 as collateral for banking, 43 bubble in American, 42–43 bubble in European, 105–6 collapse in, 143–44, 156–57 consumption, impact of rising prices on, 43 savings and loan crisis, 44–45 as single largest form of wealth, 42–43 speculation in, 65–66 See also mortgages/mortgage system HSBC, 75, 143–44, 145, 191, 541, 542 Hu Jintao, 244 Hungary, 121, 123, 126, 127, 227, 229, 230–32, 491–92 Hurricane Harvey, 582 Hypo Real Estate, 84, 154, 185, 188, 198, 286, 358, 378 Hyundai Motors, 256–57, 260 Iceland, 167, 232 Iglesias, Pablo, 376 IKB, 144 IMF.


pages: 318 words: 85,824

A Brief History of Neoliberalism by David Harvey

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

But this paradoxically means that the neoliberal state cannot tolerate any massive financial defaults even when it is the financial institutions that have made the bad decisions. The state has to step in and replace ‘bad’ money with its own supposedly ‘good’ money—which explains the pressure on central bankers to maintain confidence in the soundness of state money. State power has often been used to bail out companies or avert financial failures, such as the US savings and loans crisis of 1987–8, which cost US taxpayers an estimated $150 billion, or the collapse of the hedge fund Long Term Capital Management in 1997–8, which cost $3.5 billion. Internationally, the core neoliberal states gave the IMF and the World Bank full authority in 1982 to negotiate debt relief, which meant in effect to protect the world’s main financial institutions from the threat of default.

If the debt problems of the federal government and of financial institutions are to be resolved without threatening the wealth of elite classes, then ‘confiscatory deflation’ (deeply inconsistent with neoliberalism) of the sort Argentina experienced (hints of which could be found in the US savings and loan crisis of the late 1980s when many depositors could not get access to their moneys) will be the only option. The substantial public programmes that still exist (Social Security and Medicare), pension rights, and asset values (property and savings in particular) will likely be the first victims, and under such conditions popular consent will almost certainly begin to fray at the seams.


pages: 274 words: 81,008

The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything by Jason Kelly

activist fund / activist shareholder / activist investor, barriers to entry, Bear Stearns, Berlin Wall, call centre, carried interest, collective bargaining, corporate governance, corporate raider, Credit Default Swap, diversification, eat what you kill, Fall of the Berlin Wall, family office, fixed income, Goldman Sachs: Vampire Squid, Gordon Gekko, housing crisis, income inequality, late capitalism, margin call, Menlo Park, Occupy movement, place-making, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Rubik’s Cube, San Francisco homelessness, Sand Hill Road, Savings and loan crisis, shareholder value, side project, Silicon Valley, sovereign wealth fund, two and twenty

Another Bass investor, John Grayken, went on to create Lone Star Funds, a Texas-based investment firm focused mostly on distressed real estate. Others included hedge fund manager Marc Lasry, the founder of Avenue Capital. A main area of focus during the Bass years was sifting through the detritus of the savings and loan crisis during the late 1980s, when more than 740 thrifts failed. Bass’s boys deftly parlayed cash, debt, and government assistance into huge gains. For Bonderman and Coulter, the Bass milieu was what they constantly sought to create at what became TPG. “Our formative years were with family money, where we could walk down the hall and make the case for an investment,” Bonderman told me during a chat in TPG’s partners’ conference room, where the couch and coffee table serve as his office when he stops by TPG San Francisco.

as fund raiser on IPO as keynote speaker at Columbia conference on leaving Carlyle Mathias and mien and role in Carlyle Group on One Carlisle program personal disclosure and as philanthropist purchase of Fresh Fields and SEIU and on speeches of staff recruitment on Super Return Middle East Safeway Salon (online magazine) Samson Investment Co. Samsonite Savings and loan crisis Schloss, Lawrence Schoar, Antoinette Schorr, Chip Schreiber, John Schwarzman, Steve. See also Blackstone Group; Blackstone Group acquisitions at The Alfred E. Smith Foundation Dinner appointing Blitzer background and wealth Blackstone shares and deal with China declaration of end of credit crisis earning before Blackstone IPO on hedge fund business on IPO James as successor of M & A advice division op-ed headline in Financial Times participation in public calls philanthropy of process of Oregon and Salon magazine about SEIU.


pages: 284 words: 92,387

The Democracy Project: A History, a Crisis, a Movement by David Graeber

Bretton Woods, British Empire, corporate personhood, David Graeber, deindustrialization, dumpster diving, East Village, feminist movement, financial innovation, George Gilder, John Markoff, Kim Stanley Robinson, Lao Tzu, late fees, Money creation, Occupy movement, payday loans, planetary scale, Plutocrats, plutocrats, Ralph Nader, reserve currency, Ronald Reagan, Savings and loan crisis, seigniorage, too big to fail, trickle-down economics, unpaid internship, We are the 99%, working poor

What particularly struck me in Stiglitz’s argument was the connection between wealth and power: the 1 percent were the ones creating the rules for how the political system works, and had turned it into one based on legalized bribery: Wealth begets power, which begets more wealth. During the savings-and-loan scandal of the 1980s—a scandal whose dimensions, by today’s standards, seem almost quaint—the banker Charles Keating was asked by a congressional committee whether the 1.5 million he had spread among a few key elected officials could actually buy influence. “I certainly hope so,” he replied.… The personal and the political are today in perfect alignment.


pages: 455 words: 138,716

The Divide: American Injustice in the Age of the Wealth Gap by Matt Taibbi

banking crisis, Bear Stearns, Bernie Madoff, butterfly effect, buy and hold, collapse of Lehman Brothers, collateralized debt obligation, Corrections Corporation of America, Credit Default Swap, credit default swaps / collateralized debt obligations, Edward Snowden, ending welfare as we know it, fixed income, forensic accounting, Gordon Gekko, greed is good, illegal immigration, information retrieval, London Interbank Offered Rate, London Whale, naked short selling, offshore financial centre, Ponzi scheme, profit motive, regulatory arbitrage, Savings and loan crisis, short selling, telemarketer, too big to fail, two and twenty, War on Poverty

Federal prosecutors would sometimes achieve the same end by filing a complaint as soon as they had evidence, instead of rushing into an agreement with the target firm, essentially telling a story to the public that had a kind of jurisprudential value all its own—it put the truth out. In another approach, if the state wanted to fully clean house, it could work corporate crime cases just like narcotics or racketeering cases, starting by charging small players and working their way up the chain. This had been the government’s approach in the savings and loan crisis, when the state started with the littlest of fish and worked its way up to criminally charging whales like Charles Keating of Lincoln Savings and David Paul of CenTrust Savings Bank. “That’s how they did it back then,” says a New York City police investigator who has worked on major bank cases.

Staffs were cut at all the major regulatory agencies, and banking watchdogs like the Office of the Comptroller of the Currency and the Office of Thrift Supervision simply stopped pursuing criminal investigations; groups that had referred thousands of cases a year to the Justice Department for prosecution during the S&L crisis completely stopped that activity by the turn of the millennium. In 2009 the OCC referred zero cases for prosecution. On the other hand, welfare fraud was prosecuted like never before, and welfare fraud investigators multiplied like rats in every state of the country, forming unions and lobbying agencies.


pages: 307 words: 96,543

Tightrope: Americans Reaching for Hope by Nicholas D. Kristof, Sheryl Wudunn

Affordable Care Act / Obamacare, basic income, Bernie Sanders, carried interest, correlation does not imply causation, creative destruction, David Brooks, Donald Trump, dumpster diving, Edward Glaeser, Elon Musk, epigenetics, full employment, Home mortgage interest deduction, housing crisis, impulse control, income inequality, Jeff Bezos, job automation, jobless men, knowledge economy, labor-force participation, low skilled workers, mandatory minimum, Martin Wolf, mass incarceration, Mikhail Gorbachev, offshore financial centre, randomized controlled trial, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, Shai Danziger, single-payer health, Steven Pinker, The Spirit Level, universal basic income, upwardly mobile, Vanguard fund, War on Poverty, working poor

America rarely prosecutes white-collar criminals. Even after the 2008 financial crisis, despite widespread illegal conduct that destroyed lives around the country, just one banker went to jail; in contrast, back in the 1980s, almost nine hundred bankers were jailed in the aftermath of the savings and loan scandal. Without much discussion, we have created a two-tier justice system. If you shoplift at the grocery store, you can be carted off to jail. But if you steal tens of millions of dollars from the tax authorities or fraudulently peddle dangerous drugs from a corporate suite, you’ll be hailed for your business savvy


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, bond market vigilante , borderless world, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, capital controls, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, disinformation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, Plutocrats, plutocrats, Post-Keynesian economics, price mechanism, price stability, prisoner's dilemma, profit maximization, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, Savings and loan crisis, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

"The Privatization of Equity," Harvard Business Review 89 (September-October), pp. 62-63. Lipietz, Alain (1985). The Enchanted World: Inflation, Credit and the World Crisis (London: Verso). Lipin, Steven (1994). "Risk Management Has Become Crucial In a Year When Strategies Proved Wrong," Wall Street Journal, September 29, p. CI. Litan, Robert I. (1992). "Savings and Loan Crisis," in Newman et al. (1992). Livingston, James (1986). Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890-1913 (Ithaca: Cornell University Press). Lo, Andrew, and A. Craig MacKinlay (1988). "Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies 1, pp. 41-66

Huge quantities of public money — some $200 billion, though definitive accountings are hard to come by — were spent with little discussion or analysis, and the affair is now largely forgotten. The chance to use the industry's partial liquidation as an opportunity to develop new public and cooperative financial institutions was blown. Within a couple of years of the crisis' passing, no one paid it any mind any longer. It's as if it never happened. government, especially the Fed The S&L crisis exhibits several roles of government in finance: to look the other way during a riot on the upside, and then pay for the rescue when it's done. But of course that's not the only role of government on Wall Street. Governments are heavy players in the financial markets — not merely as debtors, though certainly the public bond markets are quite important.


pages: 566 words: 155,428

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead by Alan S. Blinder

"Robert Solow", Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, break the buck, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Detroit bankruptcy, diversification, double entry bookkeeping, eurozone crisis, facts on the ground, financial innovation, fixed income, friendly fire, full employment, hiring and firing, housing crisis, Hyman Minsky, illegal immigration, inflation targeting, interest rate swap, Isaac Newton, Kenneth Rogoff, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market bubble, market clearing, market fundamentalism, McMansion, money market fund, moral hazard, naked short selling, new economy, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, price mechanism, quantitative easing, Ralph Waldo Emerson, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, South Sea Bubble, statistical model, the payments system, time value of money, too big to fail, working-age population, yield curve, Yogi Berra

See Hedge repurchase agreements (repos), 53 Risk free, Treasury securities as, 41, 241, 395–96 Risk premium, bonds, 42 Rogers, Will, 86 Rogoff, Kenneth, 245, 413 Romer, Christina “Christy,” 215, 217, 225, 230–31 Romney, Mitt, 352, 399–401, 406 Rosengren, Eric, 383 Rosner, Joshua, 117, 187 Rubin, Robert, derivatives regulation failure, 63 Runs on banks, cause of, 53 on money market funds (2008), 142–49 Ryan, Paul, 398 Sacerdote, Bruce, 233 Sachs, Lee, 259 Santelli, Rick, 338–40 Savings & loan crisis, 162 Schauble, Wolfgang, 252 Scheiber, Noam, 138, 204, 220 Schumer, Chuck, 326 Schwartz, Alan, 102–3 Schwartz, Anna, 110 Securities and Exchange Commission (SEC), 121, 275 Securitization, 72–79. See also Mortgage-backed securities (MBS) collateralized debt obligation (CDO), 74–79 Dodd-Frank provisions, 307, 311 early forms, 73–74 process of, 72–74 regulatory needs for, 286–88, 294 tranches, 74–79 Senior tranche, 74–75 Shadow banking system, 59–64 institutions related to, 59–60 markets related to, 60 size of, 60 Shareholders, protecting in future, 434–35 Shelby, Richard, 305 Shiller, Robert, 17, 31–32.

In that case, the law permitted the FDIC to deviate from least-cost resolution and to “take other action or provide assistance under this section as necessary to avoid or mitigate” systemic risk. While that last phrase creates a broad remit, the criteria were meant to be stern. Remember the context back in 1991: Congress had been badly burned by the S&L crisis—Keating Five and all that—and was in no mood to give the FDIC wide discretion to toss money around without a compelling reason. Seventeen years later, Sheila Bair felt the same way. Until October 14, she had steadfastly refused to invoke the systemic risk exception—bending it only grudgingly for Wachovia.


pages: 354 words: 105,322

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis by James Rickards

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Bear Stearns, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Swan, blockchain, Bonfire of the Vanities, Bretton Woods, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Money creation, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, Paul Samuelson, Peace of Westphalia, Pierre-Simon Laplace, Plutocrats, plutocrats, prediction markets, price anchoring, price stability, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk free rate, risk-adjusted returns, Ronald Reagan, Savings and loan crisis, Silicon Valley, sovereign wealth fund, special drawing rights, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, Westphalian system

Bankers promptly separated themselves into commercial banks that took deposits and made loans, and investment banks that underwrote and sold securities. Separation worked well for sixty-six years and saved the United States from major banking crises. Individual banks such as Continental Illinois in 1984 might fail, and there were still conflicts and loan losses such as the 1980s savings and loan crisis. Still, after Glass-Steagall there was no general banking crisis of the kind seen from 1929 to 1933. Glass-Steagall worked for exactly the reason complexity theory suggests. By breaking the banking system into two parts, Glass-Steagall made each part stronger by shrinking systemic scale, diminishing dense connections, and truncating channels through which failure of one institution jeopardizes all.

Policy blunders began immediately with the use of the newly approved TARP funds. Paulson and Bernanke sold this to the Congress as a fund to buy bad assets from banks and then sell them gradually to recoup costs for taxpayers’ benefit. This tactic made sense; a version of this was used effectively to clean up the 1980s savings and loan crisis. Another benefit was that bad assets were removed from the banks. With clean balance sheets banks could resume lending to small-and-medium-size enterprises that are the most dynamic and create the most jobs. Instead of implementing his promises to Congress, Paulson gave the money to the banks and allowed them to keep the bad assets in the hope that they recouped their losses.


pages: 358 words: 106,729

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

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

The problem with using the might of the government is rarely one of intent; rather, it is that the gap between intent and outcome is often large, typically because the organizations and people the government uses to achieve its aims do not share them. This lesson from recent history, including the savings and loans crisis, should have been clear to the politicians: the consequences of the government’s pressing an agile financial sector to act in certain ways are often unintended and extremely costly. Yet the political demand for action, any action, to satisfy the multitudes who believe the government has all the answers, is often impossible for even the sensible politician to deny.

(NBER Working Paper 7793, National Bureau of Economic Research, Cambridge, MA, 2000) that changes in inequality in either direction tend to be associated with reduced growth. 27 See R. Green and S. Wachter, “The American Mortgage Market in Historical and International Context,” Journal of Economic Perspectives 19, no. 4 (2005): 93–114. 28 See, for example, James R. Barth, S. Trimbath, and Glenn Yago, The Savings and Loan Crisis: Lessons from a Regulatory Failure (Los Angeles: Milken Institute, 2004). 29 Bethany McLean, “Fannie Mae’s Last Stand,” Vanity Fair, February 2009. 30 Steven Holmes, “Fannie Mae Eases Credit to Aid Mortgage Lending,” New York Times, September 30, 1999. 31 Wayne Barrett, “Andrew Cuomo and Fannie and Freddie: How the Youngest Housing and Urban Development Secretary in History Gave Birth to the Mortgage Crisis,” Village Voice, August 5, 2008. 32 National Home Ownership Strategy (Washington, DC: Department of Housing and Urban Development, 1995), chapter 4.


pages: 411 words: 108,119

The Irrational Economist: Making Decisions in a Dangerous World by Erwann Michel-Kerjan, Paul Slovic

"Robert Solow", Andrei Shleifer, availability heuristic, bank run, Black Swan, business cycle, Cass Sunstein, clean water, cognitive dissonance, collateralized debt obligation, complexity theory, conceptual framework, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, Daniel Kahneman / Amos Tversky, endowment effect, experimental economics, financial innovation, Fractional reserve banking, George Akerlof, hindsight bias, incomplete markets, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, iterative process, Kenneth Arrow, Loma Prieta earthquake, London Interbank Offered Rate, market bubble, market clearing, money market fund, moral hazard, mortgage debt, Pareto efficiency, Paul Samuelson, placebo effect, price discrimination, price stability, RAND corporation, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, source of truth, statistical model, stochastic process, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, ultimatum game, University of East Anglia, urban planning, Vilfredo Pareto

The subprime mortgage crisis has elicited strong calls for government aid, and it is fair to say that the government response so far has been disorganized, ineffective, and remarkably opaque in terms of its goals and strategies. This is all the more disturbing given the dollar costs of the subprime crisis, which far exceed those of past natural disasters or the terrorist attacks of 9/11. Due to regulatory “forbearance,” the response to the savings-and-loan crisis of the 1980s was also inefficient. One implication is that a greater role could be assigned to well-designed government insurance programs as “automatic stabilizers” to counter future financial crises. Lesson 3: Government Catastrophe Insurance Responds to Private Market Failures Over the last forty years, private insurance firms have withdrawn from providing primary coverage over the entire range of natural disaster and terrorism risks in the United States.3 The federal government started providing primary coverage against floods in 1968, following a decade of extremely heavy flooding.

In a way, his involvement with the creation of game theory meant that a perfect foresight equilibrium could be shown, by the use of fixed-point theorems, to be a consistent concept, and so represents a step away from his earlier work. I now think his original position had important merits. 4 For a general survey, see Laffont and Martimort (2002). 5 Arguments of this type had already been raised in connection with the savings and loan crisis of the 1980s (see Kane [1989], though he was also concerned with government guarantees and regulation). Chapter 22 Heal: Environmental Politics 1 This chapter is an extract from Whole Earth Economics, forthcoming. 2 He also won the Nobel Peace Prize in 1906, but for his role in mediating in the Russo-Japanese War rather than for his environmental work. 3 Quoted from the section titled “Lyndon B.


pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, call centre, capital asset pricing model, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, creative destruction, credit crunch, David Graeber, en.wikipedia.org, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, Hyman Minsky, inflation targeting, invention of writing, invisible hand, Irish bank strikes, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, mobile money, moral hazard, mortgage debt, new economy, Northern Rock, Occupy movement, Plutocrats, plutocrats, private military company, Republic of Letters, Richard Feynman, Robert Shiller, Robert Shiller, Savings and loan crisis, Scientific racism, scientific worldview, seigniorage, Silicon Valley, smart transportation, South Sea Bubble, supply-chain management, The Wealth of Nations by Adam Smith, too big to fail

But the global financial crisis that began in 2007 is just the last of a long list within recent memory—from international sovereign debt crises like the Argentinian default of 2002 and the Russian default of 1998, to domestic financial crises such as the collapse of the boom in U.S. technology stocks in March 2000, the U.S. Savings and Loans crisis of the early 1990s, or the October 1987 stock-market crash in the U.K. But the unusual persistence of the current crisis has provoked a deeper interest amongst economists in the longer-term incidence of debt crises. Readers rushed to consult the great financial historian, Charles Kindleberger.1 To learn of his discovery that “financial crises have tended to appear at roughly ten-year intervals for the last 400 years or so” was either disturbing or comforting, depending on one’s perspective.2 Within a couple of years, however, the economists Carmen Reinhart and Kenneth Rogoff had published an even more comprehensive investigation into the history of financial crises.

., where securities-based finance had always held a stronger position than in Europe. In the early 1980s, around half of debt capital to U.S. companies was still provided by banks.23 From the middle of that decade, however, the share of finance arranged instead on the credit markets began to rise. The Savings and Loan crisis of the late 1980s and early 1990s gave this shift a major boost. With a large part of the commercial banking sector in repair mode, the credit markets took up the slack. By the end of 1993, they accounted for more than 60 per cent of U.S. corporate debt finance. A decade later, their share reached 70 per cent.


pages: 400 words: 108,843

Kill Switch: The Rise of the Modern Senate and the Crippling of American Democracy by Adam Jentleson

active measures, activist lawyer, affirmative action, Affordable Care Act / Obamacare, anti-communist, collective bargaining, Covid-19, COVID-19, desegregation, Donald Trump, global pandemic, greed is good, income inequality, invisible hand, obamacare, Plutocrats, plutocrats, Robert Bork, Ronald Reagan, Savings and loan crisis, Ted Kaczynski, trade route

In 1989, a businessman named Charles Keating bankrupted twenty-three thousand seniors and cost taxpayers $3 billion when his company, Lincoln Savings and Loan, imploded after Keating engaged in fraud, spending its capital on risky investments that went south. Thousands of investors lost their life savings. The event was a major contributor to the savings and loan crisis, one of the costliest financial crises in history. Before his company went under, Keating had spread political donations widely among the senators representing states where he had business interests, five of whom pressured federal regulators to back off investigations into Keating.42 One of them, Senator Alan Cranston, was reprimanded and accused of “improper and repugnant” behavior.

Board of Education, 95 and Rule 22, 79–80 and rules reform battles, 79–84, 165 and shifting demographics of Democratic Party, 72 on unlimited debate, 69 and white supremacy, 89 Russell Senate Office Building, 160, 234 Ryan, Paul, 233–34 “safe” states, 121 Salmon, Matt, 139 Sandoval, Brian, 156, 157 Sandy Hook Elementary school, see Newtown, Connecticut, school shooting Sargent, Greg, 112 Saturday Evening Post, 78 Saturday Night Massacre (1973), 184 savings and loan crisis, 192–93 Scaife family, 187 Scalia, Antonin, 10, 183, 184, 186, 226, 227 Schlafly, Phyllis, 147 school shooting (Newtown, Connecticut), 17–21 Schumer, Charles, 115, 178, 180, 204 Scorsese, Martin, 157, 158 Scott, George C., 205 Scott, Tim, 129 Second Treatise on Government (Locke), 22 “segregation academies,” 95 Seminole War, 34 Senate erosion of oversight role in Trump era, 235 Framers’ structuring of, 30 as heart of minority rule, 9 how to save, 239–54 informal leadership in early years, 159–60 and small-state bias theory, 127–28 Senate committees, see specific committees Senate Democratic caucus, 179 Senate Democrats, see Democratic senators Senate floor, see floor of Senate Senate majority leader, 164–65 Senate office building, 160 Senate Republicans, see Republican senators seniority system, 161, 215 sergeant at arms, 61 Severino, Carrie, 229 sexual assault, 231 Shakir, Faiz, 182 shell amendments, 176 Sherman, Roger, 23 Shields, Mark, 149 Sides, John, 132 simple majority vote, 97, 199 slavery and Bank of the United States, 51 Calhoun and, 34–35, 50–51, 54, 58 filibuster to maintain, 5 and westward expansion, 54–56 slave states advocacy for supermajority thresholds, 27 and Bank of the United States, 50–51 and gag rule, 54 overrepresentation in Senate, 58 small-state bias, 127–28 Smith, Steven, 60, 277 Smith, Willis, 140 Snowe, Olympia, 214, 216–17 “Social Security at Roots of Shift” (Klein), 174 Social Security privatization, 173–74 So Damn Much Money (Kaiser), 170 Sommers, Mike, 135 South advocacy for supermajority thresholds at Constitutional Convention, 27 John Calhoun and, 32 and cloture votes, 71 cotton trade and slavery, 35 and Electoral College elimination battle, 241–42 and Johnson’s presidential aspirations, 87 and slavery, 34–35, 54 Tariff of Abominations, 33 and Tea Party membership, 137 South Carolina, 33–35, 37, 49–50 Southern Block, 107 southern Democrats, 95, 146 Southern Manifesto (“Declaration of Constitutional Principles”), 95 Southern Poverty Law Center, 143 “southern strategy,” 240 Southwest Texas State Teachers College, 87 Specter, Arlen, 205, 216 split-ticket voting, 121–22 Srinivasan, Sri, 182 staff, Senate, 160 standing committees, 162 Starr, Kenneth, 203, 232 state government, redistricting and, 154 statehood, representation and, 252–53 “state of the Senate” speech (2014), 222–23 State of the Union address (2005), 173 states, polarization in, 121 states’ rights, 32, 38, 73 Stennis, John, 107 Stevenson, Adlai, 86, 96 Stewart, Jimmy, 4 Stewart, William, 60 Stimson, James, 131 Stone Mountain, Georgia, 76 Sunbelt states, 128 superfluous debate, 47 supermajority absence of mention in Constitution, 30 in Articles of Confederation, 23 and George W.


pages: 662 words: 180,546

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"Robert Solow", Alvin Roth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, bond market vigilante , Bretton Woods, Brownian motion, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, disinformation, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, full employment, George Akerlof, Goldman Sachs: Vampire Squid, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Ponzi scheme, Post-Keynesian economics, precariat, prediction markets, price mechanism, profit motive, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Savings and loan crisis, savings glut, school choice, sealed-bid auction, Silicon Valley, South Sea Bubble, Steven Levy, tail risk, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

But more to the point, their supposedly left-liberal approach ends up backhandedly reproducing the conventional neoliberal story, as was pointed out by Gregory Mankiw in his published commentary: Although the two authors from Berkeley did not intend this paper to be a defense of Ronald Reagan and his view of government, one can easily interpret it in this way. The paper shows that the savings and loan crisis was not the result of unregulated markets, but of overregulated ones . . . The policy that led to the savings and loan crisis is, according to these authors, deposit insurance.46 Paul Romer, the other author of this paper, revealed his own neoliberal leanings when questioned concerning the crisis in 2011. “Every decade or so, any system of financial regulation will lead to systemic financial crisis.”47 Note well that for Romer it was not private financial sector “corruption” that produced instability, but rather government snafus in regulation, the standard public-choice account.

In the MIT tradition, it was a purely deterministic little toy model of a single firm over three periods, where assets are not bought or sold after the first period, and a little maximization exercise which argues that if the owners of the firm could pay themselves more than the firm is worth and then declare bankruptcy in period three, then they will do so. Accounting manipulation and regulatory forbearance (which were not described in any level of detail) are asserted to make this outcome more likely. Deposit insurance permits owners to offload costs of autodestruction onto the government. This was then asserted to “explain” the savings-and-loan crisis of the 1980s. This displays all the hallmarks of the behavioral program touted by Akerlof and Shiller. First, a reputedly irrational behavior (looting and destruction of banks by their owners) is rendered “rational” through the minor amendment of a simple orthodox maximization exercise by tinkering with the utility function of bank owners.


pages: 733 words: 179,391

Adaptive Markets: Financial Evolution at the Speed of Thought by Andrew W. Lo

"Robert Solow", Albert Einstein, Alfred Russel Wallace, algorithmic trading, Andrei Shleifer, Arthur Eddington, Asian financial crisis, asset allocation, asset-backed security, backtesting, bank run, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, bitcoin, Bonfire of the Vanities, bonus culture, break the buck, Brownian motion, business cycle, business process, butterfly effect, buy and hold, capital asset pricing model, Captain Sullenberger Hudson, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, Diane Coyle, diversification, diversified portfolio, double helix, easy for humans, difficult for computers, Ernest Rutherford, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, Fractional reserve banking, framing effect, Gordon Gekko, greed is good, Hans Rosling, Henri Poincaré, high net worth, housing crisis, incomplete markets, index fund, interest rate derivative, invention of the telegraph, Isaac Newton, James Watt: steam engine, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, Louis Pasteur, mandelbrot fractal, margin call, Mark Zuckerberg, market fundamentalism, martingale, merger arbitrage, meta-analysis, Milgram experiment, money market fund, moral hazard, Myron Scholes, Nick Leeson, old-boy network, out of africa, p-value, paper trading, passive investing, Paul Lévy, Paul Samuelson, Ponzi scheme, predatory finance, prediction markets, price discovery process, profit maximization, profit motive, quantitative hedge fund, quantitative trading / quantitative finance, RAND corporation, random walk, randomized controlled trial, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Robert Shiller, Robert Shiller, Sam Peltzman, Savings and loan crisis, Shai Danziger, short selling, sovereign wealth fund, Stanford marshmallow experiment, Stanford prison experiment, statistical arbitrage, Steven Pinker, stochastic process, stocks for the long run, survivorship bias, Thales and the olive presses, The Great Moderation, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Triangle Shirtwaist Factory, ultimatum game, Upton Sinclair, US Airways Flight 1549, Walter Mischel, Watson beat the top human players on Jeopardy!, WikiLeaks, Yogi Berra, zero-sum game

In many ways, Homo sapiens has transformed itself over the last few millennia into Homo economicus, a rational economic being, and the modern financial market may well be the contemporary version of walking upright or the opposable thumb. So what are members of Homo economicus to make of the savings and loan crisis of the 1980s and 1990s, the Internet Bubble, the financial crisis of 2008, and all the dumb financial decisions that we make every day? CHAPTER 2 If You’re So Smart, Why Aren’t You Rich? REJECTING THE RANDOM WALK During the fall of 1986, when I was in my second year as an assistant professor of finance at the University of Pennsylvania’s Wharton School, I received an invitation to give a talk.

According to Perrow, complexity and tight coupling explain not only why oil spills, airplane crashes, nuclear meltdowns, and chemical plant explosions occur, but also why we should expect them to occur regularly. It’s easy to see that the financial system is complex and tightly coupled—the savings and loan crisis of the 1980s and 1990s, LTCM, and Lehman’s bankruptcy and the Reserve Fund are prime examples. However, in a 2010 article with the unequivocal title “The Financial Meltdown Was Not an Accident,” Perrow flatly rejected this unwelcome application of his theory to the financial crisis.34 The reason he gave was human behavior: “Although these structural characteristics were evident, I argue that the case does not fit the theory because the cause was not the system, but behavior by key agents who were aware of the great risks they were exposing their firms, clients, and society to.… Complexity and coupling only made deception easier and the consequences more extensive.”

., 20–21, 25, 34, 42, 140, 177, 178, 206–213 Sanofi S.A., 419 S&P 500 index, 251, 252, 264, 265, 270, 273, 274, 360 S&P 1500 index, 287, 324 Sanfey, Alan, 337 Santa Fe Institute (SFI), 218 Sarao, Navinder Singh, 360 satisficing, 180, 182, 183, 185, 213, 393 Savage, Leonard Jimmie, 19–20 savings and loan crisis, 44, 321 Schlesinger, Herbert, 223 Scholes, Myron, 27, 97, 241, 356–357, 384 Schüll, Natasha Dow, 91 Schultz, Henry, 31 Schumpeter, Joseph, 219 scientific method, 313, 314 second-order false belief, 111 secure multiparty computation, 385–387 Securities and Exchange Commission (SEC), 228, 306–311, 327, 350–352, 354, 355, 359, 360, 377 Securities Trading of Stock (STOC) exercise, 41–43 securitization, 297, 321, 407–409 seizures, 113 self-fulfilling prophecies, 124 self-sacrifice, 168–169, 170, 196, 336 septal area, of brain, 87, 88 serotonin, 160 sexual attraction, 105, 170 Shakers, 165–166 Shamir, Adi, 238 Shapard, John, 166–167 Shapiro, Carl, 333 Shapiro, Jeremy, 414 Sharpe, William F., 27, 250–252, 253, 263 Shaw, David E., 224, 225, 236–240, 244, 248, 277 Shiller, Robert, 314–315 Shilling, A.


pages: 440 words: 108,137

The Meritocracy Myth by Stephen J. McNamee

affirmative action, Affordable Care Act / Obamacare, American ideology, Bernie Madoff, British Empire, business cycle, collective bargaining, computer age, conceptual framework, corporate governance, deindustrialization, delayed gratification, demographic transition, desegregation, deskilling, equal pay for equal work, estate planning, failed state, fixed income, gender pay gap, Gini coefficient, glass ceiling, helicopter parent, income inequality, informal economy, invisible hand, job automation, joint-stock company, labor-force participation, longitudinal study, low-wage service sector, marginal employment, Mark Zuckerberg, mortgage debt, mortgage tax deduction, new economy, New Urbanism, obamacare, occupational segregation, old-boy network, pink-collar, Plutocrats, plutocrats, Ponzi scheme, post-industrial society, prediction markets, profit motive, race to the bottom, random walk, Savings and loan crisis, school choice, Scientific racism, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Spirit Level, the strength of weak ties, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, upwardly mobile, We are the 99%, white flight, young professional

The Ponzi scheme stock fraud perpetrated by Bernard Madoff (an ironic surname for a white-collar criminal) totaling $65 billion is one particularly noteworthy example. Other examples include the notorious and illegal stock manipulations of Ivan Boesky (deal stocks), Michael Milken (junk bonds), and Charles Keating (the savings-and-loan scandal); corporate wrongdoing, including ethics scandals at Enron, WorldCom, Arthur Andersen, Adelphia, Global Crossing, Tyco, and many others; and suspected misconduct in the vast mutual funds and mortgage industries that led to the near collapse of credit markets and the debilitating Great Recession that followed.


pages: 160 words: 6,876

Shaky Ground: The Strange Saga of the U.S. Mortgage Giants by Bethany McLean

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Bear Stearns, collateralized debt obligation, crony capitalism, housing crisis, mortgage debt, negative equity, obamacare, race to the bottom, Savings and loan crisis

By the end of the 1970s they were in a state of existential crisis, essentially because they couldn’t manage their interest-rate risk in an era of high inflation. In an attempt to fix things, Congress deregulated the thrift industry; the deregulated thrift industry would last less than a decade before it blew up into the savings-and-loan crisis. Actually, Fannie was in terrible shape too. By the 1980s, it was losing a million dollars a day and “rushing toward a collapse that could have been one of the most disastrous in modern history,” as the Washington Post later put it. This was also because of interest-rate risk. As interest rates skyrocketed, the mortgages Fannie had bought were paying less than its debt cost.


pages: 124 words: 39,011

Beyond Outrage: Expanded Edition: What Has Gone Wrong With Our Economy and Our Democracy, and How to Fix It by Robert B. Reich

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, banking crisis, business cycle, carried interest, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, full employment, Home mortgage interest deduction, job automation, Mahatma Gandhi, minimum wage unemployment, money market fund, Nelson Mandela, new economy, Occupy movement, offshore financial centre, Plutocrats, plutocrats, Ponzi scheme, race to the bottom, Ronald Reagan, Savings and loan crisis, single-payer health, special drawing rights, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, trickle-down economics, women in the workforce, working poor, zero-sum game

In April 2012, the Dallas branch of the Federal Reserve Bank came to the same conclusion, recommending that the biggest banks be broken up and their size be capped. This is particularly notable in that the Dallas Fed is one of the most conservative of all Fed branches. But it knows from experience. Texas was ground zero in the savings and loan crisis that ripped through America in the 1980s, imposing huge losses on the state. The Wall Street banks were too big to fail before the bailout and are even bigger now. Twenty years ago, the ten largest banks on the Street held 10 percent of America’s total bank assets. Now the six largest hold over 70 percent.


pages: 397 words: 112,034

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

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

As a case in point, mortgage and other lending standards have become tighter and more rigorous. Financial firms have also made great strides in reducing excessive leverage. It is virtually certain that the next financial crisis will look very little like the 2008–2009 debacle. And serious systematic problems are not likely to occur for some time (following the example of the savings and loan crisis of the late 1980s and early 1990s, after which the financial system stayed in good order for a decade). With or without Dodd-Frank, there are not likely to be any further bailouts (additional FDIC takeovers of smaller banks are another matter, but for the most part they do not fall under the new legislation).

As such, it was anticipated that SOX would have prevented the excesses of WorldCom, Enron, Adelphia, and Tyco that came to public awareness in 2001 and 2002. Causes of the Global Financial Crisis Prior to Enactment of SOX Before examining why SOX failed, it is important to understand certain financial improprieties that occurred prior to the enactment of SOX. These include: • Developing Country Debt Crisis (1983) • US Savings and Loan Crisis (1980s) • Resolution Trust Company, which created REITS (Real Estate Investment Trusts) (late 1980s) • The 1988 Basel Capital Accord (1988) • The beginning of derivatives (early 1990s) • Proliferation of derivatives and Special Purpose Entities (SPEs) (1990s) • Asian Financial Crisis (1997–1998) • Collapse of Long-Term Capital Management (LTCM) (1998) • The repeal of Glass-Steagall (1999) and the adoption of Gramm-Leach-Bliley Financial Modernization Act (GLBA) (1998) • The failure of dot-coms (2000) Causes of the Global Financial Crisis after SOX and Prior to September 18, 2008 It is also important to understand the events and economic climate after the July 31, 2002, passage of SOX and prior to September 18, 2008.


The Geography of Nowhere: The Rise and Decline of America's Man-Made Landscape by James Howard Kunstler

A Pattern Language, blue-collar work, California gold rush, car-free, City Beautiful movement, corporate governance, Donald Trump, financial independence, fixed income, Ford paid five dollars a day, Frank Gehry, germ theory of disease, indoor plumbing, jitney, land tenure, mass immigration, means of production, megastructure, Menlo Park, new economy, oil shock, Peter Calthorpe, place-making, Plutocrats, plutocrats, postindustrial economy, Potemkin village, Ronald Reagan, Savings and loan crisis, urban planning, urban renewal, urban sprawl, Whole Earth Review, working poor, Works Progress Administration, yellow journalism

. , 133-46, 156, 178, 181, 183, 186 Broadway in, 139-43 historical background of, 133-35 Ramada Renaissance Hotel in, 142-43 setback law of, 135-37 shopping malls and, 143-46 South Broadway in, 135-39 trees in, 141-42 Saratoga Trunk ( Ferber), 141 Saudi Arabia, 110 Savannah, Ga., 24, 259 design of, 30-31 Savings and Loan scandal, 146, 247 Say's Law of Markets, 101 Schenectady, N.Y., 243 Schuyler, Philip, 175 Schuylerville, N. Y., 175-207 Champlain Canal and, 176-79 convenience stores and, 181-82 downtown of, 177 as factory town, 177-78 family life in, 182-83 Grand Union store in, 184-85 history of, 175-76 railroad and, 178, 180-81 suburban economy and, 186-87 trolley system of, 178-80 Schuylerville Standard, 180 Scott, Walter, 64, 157 Scott-Brown, Denise, 81 Scranton, Pa. , 130-31 Scully, Vincent, 150-51, 156 Seagram Building (New York, N.


pages: 273 words: 87,159

The Vanishing Middle Class: Prejudice and Power in a Dual Economy by Peter Temin

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Affordable Care Act / Obamacare, American Legislative Exchange Council, American Society of Civil Engineers: Report Card, anti-communist, Bernie Sanders, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carried interest, clean water, corporate raider, Corrections Corporation of America, crack epidemic, deindustrialization, desegregation, Donald Trump, Edward Glaeser, Ferguson, Missouri, financial innovation, financial intermediation, floating exchange rates, full employment, income inequality, independent contractor, intangible asset, invisible hand, longitudinal study, low skilled workers, low-wage service sector, mandatory minimum, manufacturing employment, Mark Zuckerberg, mass immigration, mass incarceration, means of production, mortgage debt, Network effects, New Urbanism, Nixon shock, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shock, Plutocrats, plutocrats, Powell Memorandum, price stability, race to the bottom, road to serfdom, Ronald Reagan, Savings and loan crisis, secular stagnation, Silicon Valley, Simon Kuznets, the scientific method, War on Poverty, Washington Consensus, white flight, working poor

Banking problems led the government to deregulate Savings and Loan Associations (S&Ls), leading to excessive borrowing and failures of one third of the S&Ls in the 1980s. In retrospect, the S&L crisis anticipated the financial crisis of 2008. Deregulation led to excessive speculative activity that eventually went bad. It took a decade for the federal government to raise taxes to pay off the $100 billion debt it incurred in paying for guaranteed deposits. It was not seen as a cost of deregulation at the time, even though raising taxes may have cost the first President Bush his job. The S&L crisis instead was seen as a bump in the road to economic deregulation that would come to be called “neoliberalism.”

Board of Education and, 116, 119, 171n16 concepts of government and, 89 elitism and, 52, 66, 74, 161 equal protection clause and, 58, 67, 102 FTE (finance, technology, and electronics) sector and, 15, 20–21 gender, 49 (see also Women) Investment Theory of Politics and Jim Crow policies and, 27, 49, 51–53, 58, 65–66, 104, 107, 154 juries and, 56, 59 low-wage sector and, 38, 153 mass incarceration and, 105 mortgages and, 117 poll taxes and, 58, 65 public education and, 117 racial, 15, 20–21, 38, 51–54, 56, 58, 66, 89, 105, 117, 153, 171n29 redlining and, 34, 53 segregation and, 53 (see also Segregation) statistical, 171n29 War on Drugs and, 27, 37–38, 53, 55, 104, 106 white rage and, 51, 101, 104 Disengagement, 35, 117 Diversity, 49, 51, 128, 156 Dix, Dorothea, 107 Dodd-Frank Financial Reform Act Dodd-Frank Wall Street Reform and Consumer Protection Act, 93 Dow Jones Industrial Index, 23 Draft, 16 Dropouts, 42, 45, 108, 158 Drug laws, 104, 171n24 Dual economy African Americans and, 9–13 college and, 3, 8, 11–12 farmers and, 6–11 financial crisis of 2008 and, 4, 9, 12 FTE and, 9–13, 168n10 (see also FTE [Finance, Technology, and Electronics] sector) human capital and, 11–12 immigrants and, 10 income distribution and, 3–5 inequality and, 10 integration and, 13 labor and, 6–7 Latinos and, 9–10, 13, 54–55 Lewis model and, xiii, xvii, 5–12, 62, 82, 89, 124, 158 low-wage sector and, 4, 8, 9–13 (see also Low-wage sector) social capital and, 12 taxes and, 10, 12 transition and, 41–46 wages and, 3–13 Dukakis, Michael, 109 Dylan, Bob, xii Elephant, 150 Earned Income Tax Credit, 79 Edwards, John, 3 Elitism, 52, 66, 74, 161 Emergency managers, 35–36 Environmental Protection Agency (EPA), 84, 93, 130 Environmental racism, xv Equal protection clause, 58, 67, 102 Equity, 30, 111 Eurodollars, 16, 23 Evans, Walker, 52 Exchange rates, 15–16, 23, 32, 169n3 Expected wage, 8 Facebook, 122 Fannie Mae, 138 Farmers African Americans and, 50–51 agricultural issues and, xi, 6, 31, 63 cotton and, xi, 59, 115 dual economy and, 6–11 as economic maximizers, 168n13 indentured servants and, 50 Investment Theory of Politics and, 62, 66 migrant workers and, 11 poor, 6 race and, 50, 52 subsistence, 5–6, 8, 10, 62 Federal funding, 35, 37, 93, 129 Federalism, 21–22, 35, 44, 65, 83, 103, 110 Federal Reserve System, 15–16, 93 Ferguson, Missouri, 102–103 Fernandez, Nelson, 103–104 Fifteenth Amendment, 15, 56, 58 Filibusters, 19 Financial crisis of 2008 concepts of government and, 91, 95 cross-country comparison and, 150–151 debt and, 138–141, 143, 154, 158 dual economy and, 4, 10, 12 FTE (finance, technology, and electronics) sector and, 17 housing boom and, 164 Investment Theory of Politics and, 174n15 labor and, 158 low-wage sector and, 38 private equity firms and, 111 public education and, 118–119, 128 S&L crisis and, 17 transition and, 45 very rich and, 80 Financial Times magazine, 61, 135 FIRE (finance, insurance, and real estate) sector, 80 Flint, Michigan, water crisis, xv, 35–36, 129–130 Food stamps, 79 Forbes 400 list, 77, 82–83, 85, 92 Ford, Gerald, 168n2 Foster, Timothy, 59 401(k) plans, 33–34 Fourteenth Amendment, 51, 58 Freddy Mac, 138 Freeland, Chrystia, 3, 79 FTE (finance, technology, and electronics) sector African Americans and, 15, 20, 22 birth of, 27 capital and, 11–13, 23–24, 42–45, 153, 164 CEO earnings and, 24 cities and, 130, 135–136, 179n18 college and, 10, 24–25, 41–46 concepts of government and, 87, 92, 94, 96 conservatives and, 16–22 cross-country comparison and, 147, 149 debt and, 137–144 democracy and, 21 demographics of, 10 deregulation and, 16–23, 32, 44, 85 discrimination and, 15, 20–21 dual economy and, 9–13, 168n10 expansion of, 30 financial crisis of 2008 and, 17 globalization and, 29 Great Gatsby Curve, The, and, 46 Great Migration and, 20 hourglass job profile and, 28–29 human capital and, 23, 44 ignoring needs of poor by, 80, 135, 142, 153–155 immigrants and, 20 income distribution and, 22 industry and, 16, 18, 20, 23, 25 infrastructure and, 36, 154 Investment Theory of Politics and, 67–70, 74–75 labor and, 13, 19–21, 24, 153 Lewis model and, 20, 36, 101, 105, 153 liberals and, 17, 19, 21–22, 105 low-wage sector and, 11–13, 25, 27–29, 32–37, 153–155, 170n6 mass incarceration and, 101–106, 109, 112–114 middle class and, 96, 144, 147, 153, 155 military and, 102–104, 109–110, 112, 127, 143 North and, 20 political choice by, 153 public education and, 115, 117, 119, 122, 127–128 race and, 9–10, 49, 55 S&L crisis and, 17 slavery and, 17, 22 Social Security and, 33, 45, 52, 69–70, 79, 90, 93, 141, 174n15 South and, 15, 17, 20, 22 taxes and, 15, 17–18, 22–24, 155 transition and, 11, 41–46, 154 unemployment and, 16, 21 unions and, 18–22, 28–29, 32–34, 64, 80–81, 116, 120 very rich and, 77–81 wages and, 16, 20–23, 25 World War I era and, 20–21 World War II era and, 15, 21 Garland, Merrick, 96 Gates, Bill, 121 Geithner, Timothy, 139 General Motors (GM), 33–34 Gerrymandering, 96 GI Bill, 34, 43, 52, 65 Globalization competition and, 8, 28–29, 33, 55, 148, 151, 155, 161 FTE (finance, technology, and electronics) sector and, 29 low-wage sector and, 28–29, 33 Goldin, Claudia, xiii Great Depression, 21, 52–53, 80, 93 Great Gatsby Curve, The, 46 Great Migration African Americans and, xi–xii, xiv, 20, 27–29, 34–35, 52–55, 104, 116–117, 125 company boundaries and, 29–30 FTE (finance, technology, and electronics) sector and, 20 Latinos and, 55 length of, 20, 27–28 Lewis model and, 20 low-wage sector and, 27–29, 34–35 mass incarceration and, 104 Michigan and, 35 mortgages and, 34 public education and, 116–117, 125 urbanization and, 20 Growth miracles, 6 Halliburton, 143 Hamilton, Derrick, 173n17 Handlin, Mary, 50 Handlin, Oscar, 50 Hayek, Friedrich, 21–22, 81 Head Start, 126–127, 156 Health care Aetna and, 142 Affordable Care Act and, xv, 18, 57, 91–92, 95, 141–142 concepts of government and, 92 low-wage sector and, 154 mass incarceration and, 108–109, 113 Medicare/Medicaid and, xv, 91, 93, 142 Piketty on, 156 universal, 79 women and, 56–57 Heckman, James, 124 Hedge fund managers, xv, 23–24, 82, 167n1, 179n5 Helms, Jesse, 80 Heritage Foundation, 17–18, 22 Heroin, 104 High school, 25, 119–121, 126 Hispanics.

Board of Education and, 116, 119, 171n16 concepts of government and, 89 elitism and, 52, 66, 74, 161 equal protection clause and, 58, 67, 102 FTE (finance, technology, and electronics) sector and, 15, 20–21 gender, 49 (see also Women) Investment Theory of Politics and Jim Crow policies and, 27, 49, 51–53, 58, 65–66, 104, 107, 154 juries and, 56, 59 low-wage sector and, 38, 153 mass incarceration and, 105 mortgages and, 117 poll taxes and, 58, 65 public education and, 117 racial, 15, 20–21, 38, 51–54, 56, 58, 66, 89, 105, 117, 153, 171n29 redlining and, 34, 53 segregation and, 53 (see also Segregation) statistical, 171n29 War on Drugs and, 27, 37–38, 53, 55, 104, 106 white rage and, 51, 101, 104 Disengagement, 35, 117 Diversity, 49, 51, 128, 156 Dix, Dorothea, 107 Dodd-Frank Financial Reform Act Dodd-Frank Wall Street Reform and Consumer Protection Act, 93 Dow Jones Industrial Index, 23 Draft, 16 Dropouts, 42, 45, 108, 158 Drug laws, 104, 171n24 Dual economy African Americans and, 9–13 college and, 3, 8, 11–12 farmers and, 6–11 financial crisis of 2008 and, 4, 9, 12 FTE and, 9–13, 168n10 (see also FTE [Finance, Technology, and Electronics] sector) human capital and, 11–12 immigrants and, 10 income distribution and, 3–5 inequality and, 10 integration and, 13 labor and, 6–7 Latinos and, 9–10, 13, 54–55 Lewis model and, xiii, xvii, 5–12, 62, 82, 89, 124, 158 low-wage sector and, 4, 8, 9–13 (see also Low-wage sector) social capital and, 12 taxes and, 10, 12 transition and, 41–46 wages and, 3–13 Dukakis, Michael, 109 Dylan, Bob, xii Elephant, 150 Earned Income Tax Credit, 79 Edwards, John, 3 Elitism, 52, 66, 74, 161 Emergency managers, 35–36 Environmental Protection Agency (EPA), 84, 93, 130 Environmental racism, xv Equal protection clause, 58, 67, 102 Equity, 30, 111 Eurodollars, 16, 23 Evans, Walker, 52 Exchange rates, 15–16, 23, 32, 169n3 Expected wage, 8 Facebook, 122 Fannie Mae, 138 Farmers African Americans and, 50–51 agricultural issues and, xi, 6, 31, 63 cotton and, xi, 59, 115 dual economy and, 6–11 as economic maximizers, 168n13 indentured servants and, 50 Investment Theory of Politics and, 62, 66 migrant workers and, 11 poor, 6 race and, 50, 52 subsistence, 5–6, 8, 10, 62 Federal funding, 35, 37, 93, 129 Federalism, 21–22, 35, 44, 65, 83, 103, 110 Federal Reserve System, 15–16, 93 Ferguson, Missouri, 102–103 Fernandez, Nelson, 103–104 Fifteenth Amendment, 15, 56, 58 Filibusters, 19 Financial crisis of 2008 concepts of government and, 91, 95 cross-country comparison and, 150–151 debt and, 138–141, 143, 154, 158 dual economy and, 4, 10, 12 FTE (finance, technology, and electronics) sector and, 17 housing boom and, 164 Investment Theory of Politics and, 174n15 labor and, 158 low-wage sector and, 38 private equity firms and, 111 public education and, 118–119, 128 S&L crisis and, 17 transition and, 45 very rich and, 80 Financial Times magazine, 61, 135 FIRE (finance, insurance, and real estate) sector, 80 Flint, Michigan, water crisis, xv, 35–36, 129–130 Food stamps, 79 Forbes 400 list, 77, 82–83, 85, 92 Ford, Gerald, 168n2 Foster, Timothy, 59 401(k) plans, 33–34 Fourteenth Amendment, 51, 58 Freddy Mac, 138 Freeland, Chrystia, 3, 79 FTE (finance, technology, and electronics) sector African Americans and, 15, 20, 22 birth of, 27 capital and, 11–13, 23–24, 42–45, 153, 164 CEO earnings and, 24 cities and, 130, 135–136, 179n18 college and, 10, 24–25, 41–46 concepts of government and, 87, 92, 94, 96 conservatives and, 16–22 cross-country comparison and, 147, 149 debt and, 137–144 democracy and, 21 demographics of, 10 deregulation and, 16–23, 32, 44, 85 discrimination and, 15, 20–21 dual economy and, 9–13, 168n10 expansion of, 30 financial crisis of 2008 and, 17 globalization and, 29 Great Gatsby Curve, The, and, 46 Great Migration and, 20 hourglass job profile and, 28–29 human capital and, 23, 44 ignoring needs of poor by, 80, 135, 142, 153–155 immigrants and, 20 income distribution and, 22 industry and, 16, 18, 20, 23, 25 infrastructure and, 36, 154 Investment Theory of Politics and, 67–70, 74–75 labor and, 13, 19–21, 24, 153 Lewis model and, 20, 36, 101, 105, 153 liberals and, 17, 19, 21–22, 105 low-wage sector and, 11–13, 25, 27–29, 32–37, 153–155, 170n6 mass incarceration and, 101–106, 109, 112–114 middle class and, 96, 144, 147, 153, 155 military and, 102–104, 109–110, 112, 127, 143 North and, 20 political choice by, 153 public education and, 115, 117, 119, 122, 127–128 race and, 9–10, 49, 55 S&L crisis and, 17 slavery and, 17, 22 Social Security and, 33, 45, 52, 69–70, 79, 90, 93, 141, 174n15 South and, 15, 17, 20, 22 taxes and, 15, 17–18, 22–24, 155 transition and, 11, 41–46, 154 unemployment and, 16, 21 unions and, 18–22, 28–29, 32–34, 64, 80–81, 116, 120 very rich and, 77–81 wages and, 16, 20–23, 25 World War I era and, 20–21 World War II era and, 15, 21 Garland, Merrick, 96 Gates, Bill, 121 Geithner, Timothy, 139 General Motors (GM), 33–34 Gerrymandering, 96 GI Bill, 34, 43, 52, 65 Globalization competition and, 8, 28–29, 33, 55, 148, 151, 155, 161 FTE (finance, technology, and electronics) sector and, 29 low-wage sector and, 28–29, 33 Goldin, Claudia, xiii Great Depression, 21, 52–53, 80, 93 Great Gatsby Curve, The, 46 Great Migration African Americans and, xi–xii, xiv, 20, 27–29, 34–35, 52–55, 104, 116–117, 125 company boundaries and, 29–30 FTE (finance, technology, and electronics) sector and, 20 Latinos and, 55 length of, 20, 27–28 Lewis model and, 20 low-wage sector and, 27–29, 34–35 mass incarceration and, 104 Michigan and, 35 mortgages and, 34 public education and, 116–117, 125 urbanization and, 20 Growth miracles, 6 Halliburton, 143 Hamilton, Derrick, 173n17 Handlin, Mary, 50 Handlin, Oscar, 50 Hayek, Friedrich, 21–22, 81 Head Start, 126–127, 156 Health care Aetna and, 142 Affordable Care Act and, xv, 18, 57, 91–92, 95, 141–142 concepts of government and, 92 low-wage sector and, 154 mass incarceration and, 108–109, 113 Medicare/Medicaid and, xv, 91, 93, 142 Piketty on, 156 universal, 79 women and, 56–57 Heckman, James, 124 Hedge fund managers, xv, 23–24, 82, 167n1, 179n5 Helms, Jesse, 80 Heritage Foundation, 17–18, 22 Heroin, 104 High school, 25, 119–121, 126 Hispanics.


pages: 490 words: 117,629

Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen

asset allocation, asset-backed security, buy and hold, capital controls, cognitive dissonance, corporate governance, diversification, diversified portfolio, fixed income, index fund, law of one price, Long Term Capital Management, market bubble, market clearing, market fundamentalism, money market fund, passive investing, Paul Samuelson, pez dispenser, price mechanism, profit maximization, profit motive, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Savings and loan crisis, shareholder value, Silicon Valley, Steve Ballmer, stocks for the long run, survivorship bias, technology bubble, the market place, transaction costs, Vanguard fund, yield curve, zero-sum game

In cases where supply of real estate space fails to match demand, prices respond to the disequilibrium, not to the expected relationship with replacement cost or with inflation. In the late 1980s, investor enthusiasm for owning commercial real estate and federal tax incentives for developing properties combined to create a vast oversupply of commercial office buildings. The excesses in the real estate market contributed to the savings and loan crisis, as many thrifts suffered from the burden of underperforming or nonperforming real estate loans. High-quality, albeit poorly leased, properties traded at steep discounts to replacement cost. Prices responded to the disconnect between supply and demand, failing to track inflation. Unless markets reflect reasonable equilibrium, investors face difficulties in assessing the response of real estate prices to inflation.

Treasury bonds and Revenue sharing Risk, risks asset-backed securities and basic investment principles and chasing performance and core asset classes and domestic equities and emerging markets equities and ETFs and and failure of for-profit mutual funds foreign bonds and mutual-fund portfolio management evaluation and mutual-fund portfolio turnover and non-core asset classes and and not-for-profit mutual funds portfolio construction and rebalancing and security selection and stale-price trading and U.S. Treasury bonds and venture capital and RJR Nabisco Ross, Stephen Russell Indexes Russia Rydex Global Advisors Salomon Brothers Samuelson, Paul savings and loan crisis Scudder Investments Securities and Exchange Commission (SEC) and failure of for-profit mutual funds and hidden causes of poor mutual-fund performance mutual-fund fees and mutual-fund portfolio turnover and tax-exempt bonds and Securities Exchange Act Securities Industry Association (SIA) Security Brokerage Security selection core asset classes and domestic equities and ETFs and hedge funds and mutual-fund fees and mutual-fund portfolio turnover and Shiller, Robert Siedle, Edward Siegel, Jeremy Small business ownership Social Security Soft-dollar kickbacks ETFs and and failure of for-profit mutual funds as hidden cause of poor mutual-fund performance mutual-fund portfolio turnover and Southeastern Asset Management assets under management limited by co-investment at fees of investment strategy of long-term focus of portfolio concentration of principal orientation of shareholder communication of stable client base of Spitzer, Eliot Stale-price trading and failure of for-profit mutual funds as hidden cause of poor mutual-fund performance insider trading and late trading and market timing and SEC and Standard & Poor’s (S&P) Corporation Depositary Receipts (SPDRs) and 1500 Index MidCap 400 Index of REIT Index of SmallCap 600 Index of Standard & Poor’s (S&P) 500 Index chasing performance and ETFs and and failure of for-profit mutual funds leveraged buyouts and mutual-fund fees and mutual-fund portfolio management evaluation and mutual-fund portfolio turnover and rebalancing and Vanguard and venture capital and Stanford University State Street Investment Corporation ETFs and Stock market crashes Stock options Stocks, see equity, equities, equity bias Stocks for the Long Run (Siegel) Strong, Richard Strong Financial Corporation “Survival” (Brown, Goetzmann, and Ross) Survivorship bias hedge funds and Taxes asset allocation and basic investment principles and on capital gains chasing performance and deferral dividends and ETFs and on incomes interest and mutual-fund fees and mutual-fund performance deficit and mutual-fund portfolio management evaluation and mutual-fund portfolio turnover and portfolio construction and potential liabilities and real estate and rebalancing and retirement plans and tax-exempt bonds and Teachers Insurance and Annuity Association (TIAA), Real Estate Account of Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) not-for-profit operations of rebalancing and Technology, technology bubble: ETFs and mutual funds and see also Internet, Internet bubble Tenneco Thrift Savings Plan Time horizons mutual-fund portfolio turnover and portfolio construction and stale-price trading and Tobin, James Total Stock Market VIPERs Treasury Inflation-Protected Securities (TIPS), U.S.


pages: 154 words: 47,880

The System: Who Rigged It, How We Fix It by Robert B. Reich

Adam Neumann (WeWork), affirmative action, Affordable Care Act / Obamacare, Bernie Madoff, Bernie Sanders, business cycle, clean water, collective bargaining, corporate governance, corporate raider, corporate social responsibility, Credit Default Swap, crony capitalism, cryptocurrency, Donald Trump, ending welfare as we know it, financial deregulation, Gordon Gekko, immigration reform, income inequality, independent contractor, Jeff Bezos, job automation, London Whale, Long Term Capital Management, market fundamentalism, mass incarceration, mortgage debt, Occupy movement, Ponzi scheme, race to the bottom, Robert Bork, Ronald Reagan, Savings and loan crisis, shareholder value, too big to fail, trickle-down economics, union organizing, WeWork, women in the workforce, working poor, zero-sum game

” * * * — As of 2019, about 355 bankers, mortgage lenders, real-estate agents, and borrowers had been convicted of crimes related to the financial crisis, but they were all small fry. No major executives of the largest financial firms went to jail. The total number of convictions was only about a third the number of convictions after the much smaller savings-and-loan crisis of the 1980s. Since the financial crisis, a number of elder statesmen have pushed to have Glass-Steagall reinstated in some form. In 2009, John S. Reed, who served with Weill as co-CEO of Citigroup from 1998 to 2000, apologized for creating a lumbering giant that needed multibillion-dollar bailouts from the government.


pages: 513 words: 141,153

The Spider Network: The Wild Story of a Math Genius, a Gang of Backstabbing Bankers, and One of the Greatest Scams in Financial History by David Enrich

Bear Stearns, Bernie Sanders, call centre, centralized clearinghouse, computerized trading, Credit Default Swap, Downton Abbey, eat what you kill, Flash crash, Goldman Sachs: Vampire Squid, information asymmetry, interest rate derivative, interest rate swap, London Interbank Offered Rate, London Whale, Long Term Capital Management, Nick Leeson, Northern Rock, Occupy movement, performance metric, profit maximization, Savings and loan crisis, tulip mania, zero-sum game

Obama’s attorney general, Eric Holder, later echoed that sentiment, prompting congressional critics to print Monopoly-style cards bearing the image of a winged Rich Uncle Pennybags escaping from a cage, along with the message: “Your bank has been deemed ‘too big to jail’ by the U.S. Department of Justice.” By 2010, newspaper opinion pages were beginning to brim with unfavorable comparisons to the reckoning that took place after the Depression, when a Senate panel named and shamed the industry’s leaders. Even after the much smaller savings-and-loan crisis of the 1980s, more than eight hundred bank officials had ended up behind bars. The harsh comparisons weren’t entirely fair—just because Wall Street fat cats were despised didn’t mean they had committed any crimes. In fact, the nation’s banking laws had been sufficiently watered down during decades of deregulatory zeal that much of what the bankers had done was perfectly legal.

See also specific brokers compliance, 117–18 culture of, 44–45, 46, 117–18 firings, 378–79 Libor investigation, 333–34 Libor manipulation, 109, 163–64, 165–66 SFO investigation, 361 switch trades, 169–77 year-end bonuses, 122, 314–15 Rubin, Robert, 247 Salmon, Chris, xii, 15, 22, 204, 447 Salmon, Felix, 197 Salomon Brothers, 21, 33, 75 San Francisco International Airport, 254 Sanders, Bernie, 249 Sandy Lane, 319–20 Sarao, Navinder, 286n Saudi Arabia, 332 savings and loan crisis, 268 Schumacher, Michael, 187 Scott, Andy, 55, 57, 61, 63 Securities and Exchange Commission (SEC), 200, 270–72 Seger, Holger, x, 83, 102, 232–33, 445 Seinfeld (TV show), 153, 280 September 11 attacks, 120–21, 202 Serious Fraud Office (SFO), xiii, 331–33 Hayes cleansing interview, 375–77 Hayes as cooperating witness, 371–72, 374–77, 380, 382–85 Hayes criminal fraud charges, 4–5, 6, 367, 370, 371–72, 374–75, 387–92, 397, 407 Hayes not guilty plea, 395–97, 401–2 Libor investigation, 332–33, 359, 360–62 arrests, 364–67 seizure of Hayes assets, 391, 392, 396–97, 452, 455 trial of Hayes.


pages: 462 words: 129,022

People, Power, and Profits: Progressive Capitalism for an Age of Discontent by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, barriers to entry, basic income, battle of ideas, Berlin Wall, Bernie Madoff, Bernie Sanders, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, central bank independence, clean water, collective bargaining, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, crony capitalism, deglobalization, deindustrialization, disinformation, disintermediation, diversified portfolio, Donald Trump, Edward Snowden, Elon Musk, Erik Brynjolfsson, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, Firefox, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, gig economy, global supply chain, greed is good, income inequality, information asymmetry, invisible hand, Isaac Newton, Jean Tirole, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John von Neumann, Joseph Schumpeter, labor-force participation, late fees, low skilled workers, Mark Zuckerberg, market fundamentalism, mass incarceration, meta-analysis, minimum wage unemployment, moral hazard, new economy, New Urbanism, obamacare, patent troll, Paul Samuelson, pension reform, Peter Thiel, postindustrial economy, price discrimination, principal–agent problem, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, Richard Thaler, Robert Bork, Robert Gordon, Robert Mercer, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, secular stagnation, self-driving car, shareholder value, Shoshana Zuboff, Silicon Valley, Simon Kuznets, South China Sea, sovereign wealth fund, speech recognition, Steve Bannon, Steve Jobs, surveillance capitalism, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, two-sided market, universal basic income, Unsafe at Any Speed, Upton Sinclair, uranium enrichment, War on Poverty, working-age population, Yochai Benkler

At the peak of the recession, fifteen million Americans were unemployed (Bureau of Labor Statistics data). 25.See Jesse Eisinger, The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives (New York: Simon and Schuster, 2017); Rana Faroorhar, Makers and Takers: The Rise of Finance and the Fall of American Business (New York: Crown Business, 2016); and Danny Schechter, The Crime of Our Time: Why Wall Street Is Not Too Big to Jail (San Francisco: Red Wheel Weiser, 2010). More than a thousand bankers were jailed in the much smaller savings and loan crisis twenty years earlier. Yet in this crisis few were charged, and still fewer convicted. William D. Cohan, “How Wall Street’s Bankers Stayed Out of Jail,” Atlantic, Sept. 2015. Schechter suggests that after the savings and loan crisis, bankers invested massively in lobbying to ensure that the laws were such that they wouldn’t go to jail for their misdeeds. 26.Mostly Republicans, but there were also many on the more conservative side of the Democratic Party who were cheerleaders for both.


pages: 421 words: 128,094

King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone by David Carey

activist fund / activist shareholder / activist investor, asset allocation, banking crisis, Bear Stearns, Bonfire of the Vanities, business cycle, carried interest, collateralized debt obligation, corporate governance, corporate raider, credit crunch, diversification, diversified portfolio, fixed income, Gordon Gekko, independent contractor, margin call, Menlo Park, mortgage debt, new economy, Northern Rock, risk tolerance, Rod Stewart played at Stephen Schwarzman birthday party, Sand Hill Road, Savings and loan crisis, sealed-bid auction, Silicon Valley, sovereign wealth fund, The Predators' Ball, éminence grise

Unlike those investments, however, Blackstone in EOP would use the overinflated valuations to its advantage, selling most of the company so it could snare a small portion of EOP’s assets for a bargain-basement price. Blackstone was a pioneer in a type of investing that became known as real estate private equity: raising funds to buy properties and improve them or ride the market cycle up, and selling them a few years later. In the recession and savings-and-loan crisis of the early nineties, when Schwarzman recruited John Schreiber to set up the business, the firm had bought distressed properties. But over time it had adopted an approach more like the buyout group’s. In 1998, for instance, the real estate funds bought Britain’s Savoy Group hotel chain, which included the namesake hotel plus three of London’s other most swanky inns, Berkeley’s, Claridge’s, and the Connaught.

Chapter 9: Fresh Faces 1 In 1990, just $1.4 billion: Securities Data Corporation, cited by Michael Siconolfi, “Year-End Review of Bond Markets: Merrill Retains Underwriting Crown in Shaky Market,” WSJ, Jan. 2, 1991. 2 Federal regulators seized: Timothy Curry and Lynn Shibut, “The Cost of the Savings and Loan Crisis: Truth and Consequences,” FDIC Banking Review, Dec. 2000, 2. 3 Schwarzman embellishes: Stephen Schwarzman interview. 4 Carlyle notched: Confidential report to Carlyle’s limited partners, June 2000. 5 From its quick flip: Thomas Hicks interview, Nov. 1992. 6 When the economy revived: Davan Maharaj, John-Thor Dahlberg, staff writers, “Tycoon Has Law Hot on His Heels: California Accuses Francois Pinault and Others of Illegally Acquiring an Insurer’s Assets,” Los Angeles Times, July 6, 2000.


pages: 493 words: 139,845

Women Leaders at Work: Untold Tales of Women Achieving Their Ambitions by Elizabeth Ghaffari

Albert Einstein, AltaVista, Bear Stearns, business cycle, business process, cloud computing, Columbine, compensation consultant, corporate governance, corporate social responsibility, dark matter, family office, Fellow of the Royal Society, financial independence, follow your passion, glass ceiling, Grace Hopper, high net worth, knowledge worker, Long Term Capital Management, longitudinal study, performance metric, pink-collar, profit maximization, profit motive, recommendation engine, Ronald Reagan, Savings and loan crisis, shareholder value, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, thinkpad, trickle-down economics, urban planning, women in the workforce, young professional

Gouw joined Pasadena, California-based East West Bank in 1989 as vice president and controller, rising quickly in the company to become executive vice president and chief financial officer by 1994. She was instrumental in the $238 million management-led buyout of East West in June 1998. She was in charge of East West Bank’s acquisition of Pacific Coast Federal Savings Bank of San Francisco from the Resolution Trust Corporation in 1991 during the savings and loan crisis, as well as eight other bank acquisitions that took place from 1999 to 2010, including the FDIC-assisted acquisition of United Commercial Bank (UCB) in 2009. Gouw served as the chief risk officer for East West Bank and vice chairman of both the bank and the holding company in 2008. She has served as president and chief operating officer of both entities since November 30, 2009.

[He then asked,] “Can you help with this United Commercial Bank acquisition?” I had done eight bank acquisitions for the bank after we went public in early 1999. Earlier, in 1991, East West Bank had acquired Pacific Coast Federal Savings Bank in San Francisco from the Resolution Trust Corporation during the savings and loan crisis. But, the UCB transaction in November 2009 was much more complex—involving almost $10 billion in assets and negotiations with the Federal Deposit Insurance Corporation. It was a transformational event for us—an opportunity to acquire a major competitor. We had to merge all those bank branches in and trim the duplication.


Debtor Nation: The History of America in Red Ink (Politics and Society in Modern America) by Louis Hyman

asset-backed security, bank run, barriers to entry, Bretton Woods, business cycle, card file, central bank independence, computer age, corporate governance, credit crunch, declining real wages, deindustrialization, diversified portfolio, financial independence, financial innovation, fixed income, Gini coefficient, Home mortgage interest deduction, housing crisis, income inequality, invisible hand, late fees, London Interbank Offered Rate, market fundamentalism, means of production, mortgage debt, mortgage tax deduction, p-value, pattern recognition, profit maximization, profit motive, risk/return, Ronald Reagan, Savings and loan crisis, Silicon Valley, statistical model, Tax Reform Act of 1986, technology bubble, the built environment, transaction costs, union organizing, white flight, women in the workforce, working poor, zero-sum game

At one such fundraiser, on November 13, 1991, President Bush was speaking to an audience of New York Republicans and made an off-hand comment, unapproved by his speech writers, that he would “like to see the credit card rates down,” believing that lowered rates would help the economy recover.170 This economic reasoning was, at best, obscure, but the vague sense that these high interest rates were to blame possessed a broad appeal, as the recession heightened the criticism of credit cards as unnecessary and expensive indulgences. The junior senator from New York, Alfonse D’Amato, heard the remark, and facing a tough re-election race in New York, seized on it as a political opportunity. The next day, as the houses of Congress negotiated the final stages of a bill to resolve the savings and loan (S&L) crisis, D’Amato, along with then Democrat Joseph Lieberman from Connecticut, proposed an amendment to the S&L bill to cap credit card interest rates nationally at 14 percent.171 In the Senate, the amendment passed quickly, 74 to 19. Lowering credit card rates seemed to fit the political calculus of both Democrats and Republicans.172 While the measure passed quickly, as the reality of what was about to happen sank in, pundits, lobbyists, and policymakers just as quickly denounced the move.

Citibank, for instance, would have found itself 0.75 percent below its capital requirement. Such a cap would have destabilized capital markets as well as issuers. For pureplay issuers who used securitization more heavily, the cap would have spelled their demise. Recognizing the danger of destabilizing the banking system, already weakened from the S&L crisis, House Speaker Thomas Foley, through procedural adeptness, managed to split the measure from the larger banking bill, which allowed it to die in the House. That allowed the session to end without a vote, which was, by then, seen as the sensible thing to do. While lower interest rates might have pleased many SECURING DEBT 261 cardholders, reducing the number of Americans with credit cards by twothirds would certainly have offset the political gain from reducing interest rates.


Hopes and Prospects by Noam Chomsky

"Robert Solow", Albert Einstein, banking crisis, Bear Stearns, Berlin Wall, Bretton Woods, British Empire, capital controls, colonial rule, corporate personhood, Credit Default Swap, cuban missile crisis, David Ricardo: comparative advantage, deskilling, en.wikipedia.org, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Firefox, Howard Zinn, Hyman Minsky, invisible hand, liberation theology, market fundamentalism, Martin Wolf, Mikhail Gorbachev, Monroe Doctrine, moral hazard, Nelson Mandela, new economy, nuremberg principles, one-state solution, open borders, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ralph Waldo Emerson, RAND corporation, Ronald Reagan, Savings and loan crisis, Seymour Hersh, structural adjustment programs, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, trade liberalization, uranium enrichment, Washington Consensus

Just to mention a few highlights, he was by far the most protectionist president in postwar American history, virtually doubling protectionist barriers in order to try to save the U.S. economy from takeover by more efficient Japanese producers; he carried out the first “too big to fail” bailout (Continental Illinois) while setting the stage for the huge Savings & Loan financial crisis; his “star wars” fantasies were sold to the business world as a huge taxpayer-funded bonanza to high-tech industry; his “out-of-control spending binge is burying our children and grandchildren under a mountain of unsustainable debt,” to quote House Republican leader John Boehner—referring, however, to the evil Obama, and omitting to mention, as did the press reporting him, that the projected interest burdens for Reagan and Obama are virtually identical as a proportion of GDP.

See “American exceptionalism” Fall, Bernard, 122 Fayyad, Salam, 253–54 Federal Reserve Board, 113 Feldman, Noah, 52 Felix, David, 71, 83, 107, 219 Ferguson, Thomas, 32, 108, 208 financial crises, 93, 107, 108, 207, 228 deregulation and, 219 financial liberalization and, 105, 108 recent and current, 63, 73, 109, 110, 212–13, 217, 221–22, 226 Savings & Loan crisis, 211 See also housing bubble financial institutions, 92, 107–11, 113, 209, 228 Charles Schumer and, 221 China as model for, 114 Glass-Steagall Act and, 219 globalization and, 35, 73 Haiti and, 10 recent bailouts of, 105, 219–21 Timothy Geithner and, 221 financial instruments, 220, 221 financial liberalization, 72, 93, 97–98, 105, 107, 108, 111, 114 financial sector, 93, 107, 110–11 financial liberalization and the power of, 212 Iran and, 174 Joe Biden and, 216 Obama and, 212, 228–29 Patriot Act and, 174 financialization of the economy, 34, 79, 93, 94, 97, 231 Fites, Donald, 218 Florida, 23, 24, 49, 51 Fourteen Points (Woodrow Wilson), 48 Framework Agreement of 1994, 138 France, 80 Franklin, Bruce, 56 Franks, Tommy, 57 Fraser, Doug, 218 free speech, corporate personhood and, 32–34 “free trade,” 6, 37, 78, 93 criticism of the term, 90 drug trade and, 78–79 “free circulation of labor” and, 29 vs. protectionism, 6, 76–78, 80, 81, 89, 211 Reagan and, 12 slavery and, 78, 79 See also neoliberalism “free trade agreements,” 31, 90–91, 93, 103–4 monopoly pricing rights in, 86 national security exemptions in, 86 See also North American Free Trade Agreement freedom of association, 208 Freeman, Chas, 171 French colonies, 7.


Working the Street: What You Need to Know About Life on Wall Street by Erik Banks

accounting loophole / creative accounting, borderless world, business cycle, corporate governance, estate planning, fixed income, greed is good, old-boy network, risk/return, rolodex, Savings and loan crisis, telemarketer

And I feel especially lucky that my tenure spanned important, exciting, and wrenching times—actually, some of the most intense in the history of the business world. From the time I arrived as a completely green but very eager banker-in-training in 1986 until the day I left in 2002, Wall Street went through absolutely tremendous peaks and troughs: the Latin debt crisis, the U.S. savings and loan crisis, the rise and fall (and subsequent resurrection) of junk bonds and corporate takeovers, the decade-long global stock market bull run, the bursting of Japan’s enormous economic bubble, the pulverization of several high-flying Asian and Latin econo- xii | W o r k i n g t h e St r e e t mies, the collapse of some big hedge funds, the unreal Internet and technology boom and bust, the corporate accounting scandals and government privatizations, the implosion of communism, the wars, the peace, and everything in between.


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

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

After the FDIC seized IndyMac Bank, a California thrift formerly affiliated with Countrywide and similarly rash in its approach to real estate, panicked depositors lined up outside and demanded their money back. The FDIC guaranteed deposits up to $100,000, so most of them had nothing to worry about. But the images of panic from the largest U.S. bank failure since the savings and loan crisis of the 1980s made national news. The next week, fearful depositors withdrew more than $1 billion a day from Washington Mutual, a thrift even larger than IndyMac with similar mortgage exposures. Panic is a communicable disease. IndyMac’s failure was a sign that the fire was burning hotter again, but it didn’t seem to threaten the core of the system.


pages: 468 words: 145,998

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System by Henry M. Paulson

asset-backed security, bank run, banking crisis, Bear Stearns, break the buck, Bretton Woods, buy and hold, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Doha Development Round, fear of failure, financial innovation, fixed income, housing crisis, income inequality, London Interbank Offered Rate, Long Term Capital Management, margin call, money market fund, moral hazard, Northern Rock, price discovery process, price mechanism, regulatory arbitrage, Ronald Reagan, Saturday Night Live, Savings and loan crisis, short selling, sovereign wealth fund, technology bubble, too big to fail, trade liberalization, young professional

I explained that we needed to be prepared to deal with everything from terror attacks and natural disasters to oil price shocks, the collapse of a major bank, or a sharp drop in the value of the dollar. “If you look at recent history, there is a disturbance in the capital markets every four to eight years,” I said, ticking off the savings and loan crisis in the late ’80s and early ’90s, the bond market blowup of 1994, and the crisis that began in Asia in 1997 and continued with Russia’s default on its debt in 1998. I was convinced we were due for another disruption. I detailed the big increase in the size of unregulated pools of capital such as hedge funds and private-equity funds, as well as the exponential growth of unregulated over-the-counter (OTC) derivatives like credit default swaps (CDS).

This paper was backed by the assets the SIVs held; although the SIVs were frequently set up as stand-alone entities and kept off banks’ balance sheets, some maintained contingent lines of credit with banks to reassure buyers of their so-called asset-backed commercial paper, or ABCP. Financing illiquid assets like real estate with short-term borrowings has long been a recipe for disaster, as the savings and loan crisis of the 1980s and early 1990s demonstrated. But by 2007, several dozen SIVs owned some $400 billion in assets, bought with funds that could disappear virtually overnight. And disappear these funds did—as investors refused to roll loans over even when they appeared fully collateralized. The banks like Citi that stood behind the SIVs now faced a huge potential drain on their capital at just the moment they had to contend with a liquidity crunch.


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

Andrei Shleifer, asset-backed security, bank run, banking crisis, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, business cycle, 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, disinformation, 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, long term incentive plan, Louis Pasteur, low cost airline, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, Money creation, 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, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, tail risk, 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

Some economists, such as Jagwad Bhagwati, had impeccable free trade credentials but still had doubts about financial deregulation. For them, free trade should have been first in the sequence of priorities; deregulating finance, on account of its attendant risk, last. But this was rapidly becoming heresy, despite the two recent British property crashes, the American savings and loans crisis, and a Latin American debt crisis. Nevertheless, while it may have made sense for any individual bank to promote the freedom to manage its balance sheet according to market signals and opportunities for profitable lending, there was clearly a problem of collective action. What was good for one was not necessarily good for all.

Edward, 266 Stephenson, George, 126, 127 Stiglitz, Joe, 51, 168–9, 367–8, 371 Strategy Unit, 337 structured investment vehicles, 151, 165, 169, 171, 188, 207, 209 Stutzer, Alois, 86 sub-prime mortgages, 64, 161, 203 Sugar, Alan, 64–5, 67 Summers, Larry, 92, 183 the Sun, 318, 327 Sunday Express, 321 Sunday Times, 318 supermarkets, relentless spread of, 389 Sure Start scheme, 10, 278, 307 Sutton Trust, 273, 293 swaps, 164; credit default swaps, 151, 152, 166–8, 170, 171, 175, 176, 191, 203, 207 Switzerland, 7, 86, 138, 180 takeovers and mergers, 8, 21, 33, 92, 245, 250, 258, 259, 388 Taliban, 102 Tax Justice network, 296 taxation: American right’s attitude to, 235, 297; capital transfer taxes, 73–4; collapse of tax base, 224, 368; concessions for private equity, 245, 247, 249, 374; Conservative reforms (1979-97), 275–6; corporation tax, 245; as deterrent to innovation, 104, 105; due desert and, 40, 220, 234, 235, 266; foreign nationals and, 32; housing wealth levy proposal, 373–4; inheritance tax, 73–4, 75, 78, 302–4, 393; low rates of, 5, 19, 387; luck and, 73–4, 75, 78, 303; one-off tax on bank bonuses, 26, 179, 249; progressive/redistributive, 78, 79, 80, 303, 387; proposed reforms, 209–10, 372, 373–4; relief on childcare vouchers, 277; tax avoidance, 25, 29, 42, 145, 151, 193, 245, 295–7; tax credits, 142, 277, 278, 336; tax evasion, 42, 145, 295–7; tax havens, 32, 295; tax relief on debt interest, 209–10, 374 teachers, 306, 307, 308 Technology Foresight, 21 Technology Strategy Board, 21 telecommunications, 133–4, 143 Terra Firma (private-equity firm), 28, 178, 247–8 terrorism, 36 Tesco, 246, 295 Tett, Gillian, 195 Thailand, 168 Thaler, Richard, 94–5 Thatcher, Margaret, 32, 81, 135, 144, 275, 290, 334, 388; centralisation of power, 14, 313; Rupert Murdoch and, 318 Thompson (wire service), 331 ‘3i’, 250, 252 Tilly, Charles, 24, 27, 272 The Times, 288, 295, 318, 319, 327, 330, 349 Times Higher Education, 21 Toulmin, Tim, 325, 332 Tourre, Fabrice, 103, 167–8 Toyota, 91, 269 trade unions, 88, 91, 142, 161, 179, 275, 364, 387; decline of, 272, 291–2, 341, 365–6; print and journalism, 320, 332; undue influence of, 31–2, 33, 364 Train to Gain, 306 Transport for London, 336 Treasury, 92, 178, 208, 214, 215, 218, 335, 336, 337, 369 Treasury and Civil Service Committee, 340 Troubled Asset Relief Program (TARP), 175, 176 Truth and Reconciliation Commissions, 24 Turkish oligarchs, 30 Turnbull, Lord, 334 Turner, Lord Adair, 24, 179 Tyler, Tom, 87 UBS, 170, 178 UK Trade and Industry (UKTI), 230–1 Ulpian (Roman jurist), 45 Unipart, 93 United Nations, 68, 332–3, 384 United States: American colonists, 54, 121, 126; annual consumption levels, 375; anti-statism and, 234, 311; banking system, 138, 150–2, 156, 158–9, 160, 162–3, 167–9, 173–6, 181, 191–2, 195–6, 244; big finance’s penetration of the state, 176–8, 183; United States – continued economic conflict with China, 376–7, 378–80, 381, 382, 383; economic history of, 108, 131–4, 300; executive pay in, 67, 101, 172–4; financial crisis/collapse and, 152, 158–9, 181, 192, 358–9, 375; free market policies/theory in, 140, 145, 160, 163, 165, 184, 234–5; Great Depression, 159, 162, 205, 362; ‘growth triangle’ in South Carolina, 254; impact of small firms, 253, 255, 256; international order and, 226, 378–9, 385–6; LTCM crisis, 169–70, 183, 193, 200–1; money market funds in, 156, 158, 161; neo-conservatism and, 17–18, 144, 297; as non-saver, 36; relationship finance in, 244; savings and loans crisis, 161–2, 163–4; short termism of markets, 241; TARP, 175, 176; ‘tea-party’ conservatism, 234, 327, 386; universal male suffrage, 128; universities, 101, 262–3, 264, 308; volatility of economy, 297; welfare and, 80, 281, 283, 297 universities, 21, 252, 261–5, 295, 308, 355, 370, 372; private schools and, 293–4, 306; uncapping of fees proposal, 264–5, 371 Vadera, Shriti, 178 Value Added Tax (VAT), 366–7, 370, 372 Vanderbilt, Cornelius, 133 Venetian empire, 121 venture capitalists, 241, 244–9, 250 Vishny, Robert, 62, 63 Vodafone, 255 Volcker, Paul, 206 voting system: alternative vote system (AV), 345–6; as delivering right-of-centre bias, 343; first-past-the-post system, 97–8, 217, 312, 313, 341, 343, 347; need for reform of, 97–8, 344–6, 347, 391; proportional representation, 97, 98, 344–6, 347, 391 Wales, devolving of power to, 15 Wall Street Journal, 349 Wallis, John Joseph, 113, 116, 129–30 Walpole, Robert, 125, 166 ‘war on terror’, 17, 144 Wars of the Roses, 124 Washington consensus, 163 Washington Post, 183 Watson, David Pitt, 242 Watson, Thomas, 29 Watt, James, 110, 126 ‘weapons of the weak’, 114–15 Weatherstone, Dennis (CEO of JP Morgan), 191–2 Webster, David, 292 Wedgwood, Josiah, 126–7 Weingast, Barry, 113, 116, 129–30 Welch, Jack, 216 welfare/social provision, 34, 80–2, 83–4, 281, 283–5, 297, 335; see also social security benefits; asset based, 298, 301–3, 304; coalition policy on, 343; undermining of popular support for, 80, 281–2, 283, 297, 302–3; universal services, 34, 79, 277, 281 welfare-to-work programmes, 278 Wenger, Arsène, 352 Westminster, Duke of, 64, 65 White, William, 182, 185 Willetts, David, The Pinch, 372 Williams, Rowan (Archbishop of Canterbury), 4, 26 Wilson, Harold, 312 Wilson, Woodrow, 132–3 Wilson Committee into City (1980), 179 Wilthagen, Tom, 299–301 Winstanley College, Wigan, 294 Winston, Robert, 107 wire agencies, 322, 331 Woessmann, Ludger, 305–6 Work Foundation, 94, 233 World Bank, 164, 182, 226, 383, 384 xenophobia, 16, 36 X-Factor, 282, 314 York University, Neuroimaging Centre (YNiC), 263 Young, Michael, 283–4 Young, Toby, 282 Yu Yongding, 381 Zilibotti, Fabrizio, 115–16 Zinoviev letter, 315


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