Northern Rock

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pages: 475 words: 155,554

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

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

Adam Applegarth told MPs later that Northern Rock’s wide funding base meant he thought such a reserve would not be necessary. Northern Rock spread the cushion against unexpected losses thinner and thinner. At the end, the ratio of its assets to its equity base was 58:1, the highest in Europe. But the Rock was compliant with all laws and financial regulations at the time. The UK regulator, the Financial Services Authority, signed off Northern Rock as one of only four lower-risk banks that only needed a full risk assessment every three years. Northern Rock was deemed so safe that it was singled out for special treatment amongst the thirty-eight major UK banks: Northern Rock did not have to be subject to the FSA’s ‘Risk Management Programme’. As a result, the FSA stopped even bothering with Northern Rock. The top five banks were inspected just under once a week between 2005 and 2007 under the ‘close and continuous’ regulatory framework.

They’d come here for Northern Rock. Seven years on, it was all to end in ignominy and bank runs. Northern Rock had the dubious honour of being discussed for some time at the September 2007 meeting of the mighty US Federal Reserve. This prompted Fed board member Richard Fisher to suggest that Newcastle might be better known as Sandcastle. Alistair Darling, the former UK chancellor who himself had a Northern Rock mortgage, recalls the smug hand-rubbing amongst European finance ministers as they witnessed what they thought was the downfall of Anglo-Saxon capitalism. Plenty has been written about the collapse, the runs and the nationalisation of Northern Rock. But even a sandcastle needs to be built by somebody. This is how you grow and then harvest a 125 per cent mortgage. For Northern Rock, an ex-building society with a low credit rating, the key question was how they could borrow significant amounts of money in order to lend it on.

For Northern Rock, an ex-building society with a low credit rating, the key question was how they could borrow significant amounts of money in order to lend it on. At its peak, Northern Rock had no more than seventy-five branches, over a quarter of them in the northeast. So it was never going to get enough retail deposits in, even if noughties Britons had wanted to save. So how to fund the desired growth? ‘You can’t do it in the capital markets,’ I was told by one member of the Northern Rock securitisation team, whom I shall call Jon Taylor (he wishes to remain anonymous). ‘You’re Northern Rock, you don’t have a great rating. Until secure technology. Whatever you say, it gave Northern Rock a level playing field.’ Adam Applegarth, Northern Rock’s cricket-playing chief executive, was a marketeer rather than banker. He looked after his staff very well, and he came up with the ‘virtuous circle strategy’ that sought to gobble up market share with cheap innovative mortgage products (see here).


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

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

[ FOURTEEN ] BEAR BLOWS UP On January 11, 2008, JPMorgan Chase burst into the news again. Andy Kuipers, chief executive of Northern Rock, announced that the bank was buying £2.2 billion of Northern Rock’s mortgage loans. “This is a relatively small transaction, representing around two percent of Northern Rock’s gross assets, but it is a positive development in the company’s ongoing strategic review,” Kuipers said, noting that the sale “will allow us to reduce the debt with the Bank of England.” The significance of Northern Rock’s announcement, though, went well beyond Northern Rock’s fate. It signaled that JPMorgan Chase was flexing its muscles even as other major banks were furiously trying to shore themselves up. The price at which Bill Winters’s team in London had arranged to buy the Northern Rock mortgages was extremely favorable, and Winters regarded the deal as one of the sweetest the bank had done for some time.

By 2007, less than a quarter of Northern Rock’s funding came from retail deposits, with the rest raised by securitization. Because the bank was securitizing its mortgages with off-balance-sheet vehicles, it did not need to hold a large volume of capital reserves against those loans, and it could extend about three times more mortgages, per unit of capital, than in its presecuritization days. By 2007, Northern Rock had trebled its share of the UK mortgage market, accounting for 18.9 percent of all mortgages, and was still hungry for more. At the start of that year, its website cheerfully told consumers that “if your wallet has taken a beating over the festive season, a new loan from Northern Rock could be the perfect way to sort things out.” When the money markets seized up in August 2007, though, Northern Rock discovered that its main funding source had frozen.

It held the savings of millions of British consumers and was deemed eminently safe. Or it had been until Peston’s report. Within minutes of the BBC bulletin, consumers began logging on to Northern Rock’s website and withdrawing their cash. The website then crashed, fueling panic. The next morning, Northern Rock savers flocked to the bank’s branch offices, and pictures of terrified savers in a long line in front of the bank beamed onto computers, television screens, BlackBerries, and mobile phones around the world. By midmorning, a full-scale bank run was under way. Never before had so many terrified consumers and investors seen a bank run in action, in real time. Technology was helping to spread the panic. What brought Northern Rock down was another variant of the woes that had beset IKB and Cairn. At the turn of the century, the bank had embraced securitization with a vengeance, raising funds by selling masses of mortgage-backed bonds to investors all over the world.


pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

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Chancellor of the Exchequer announced that he had authorised the Bank of England to provide a “liquidity support facility”—effectively, a larger than normal overdraft—to Northern Rock, a medium-sized British bank that specialised in residential mortgages.9 Northern Rock had run into trouble because it funded a large part of its book of mortgage lending—by its nature, a collection of very long-term promises to pay—by selling short-dated bills and bonds to investors; that is, short-term promises to pay. When problems emerged in international financial markets in the course of 2007, this short-term funding disappeared. And when Northern Rock’s depositors saw the way the wind was blowing, they also began to pull out their money. A run on the bank in the so-called “wholesale” funding markets—the markets for its bills and bonds—had become a run on the bank in its “retail” funding market—its deposits from individuals and companies.

In the absence of external assistance, it was clear that the market believed Northern Rock to be not just illiquid, but insolvent. Luckily for Northern Rock—or at least for its bondholders, depositors, and other customers—external assistance was at hand for the second time. Once again, the U.K. sovereign stepped in, but this time into the shoes not of the bank’s lenders, but of its shareholders. New equity capital was required in order to make good the gap between the value of the bank’s assets and its liabilities—and to provide an adequate buffer against potential further declines. The liquidity support operation had consisted of the sovereign merely agreeing to give one fixed promise to pay—a claim on the Bank of England—in return for another fixed promise of supposedly equal value—a claim on Northern Rock. What was now required, however, was something quite different.

The sovereign would give its fixed promises to pay in return for equity: a residual claim on the uncertain difference between the value of Northern Rock’s assets and its liabilities. The liquidity support, at least in principle, had involved no risk of profit or loss—just a transfer of liquidity risk from private investors to the sovereign. This new operation would involve, by contrast, a transfer of credit risk. If losses ceased to mount on Northern Rock’s mortgages, the sovereign might not lose money. But if they did not, the sovereign, as equity owner, would be on the hook. This was not a job for the Bank of England—the monetary authority. If the sovereign is deliberately going to put taxpayers’ money at risk, better to ensure that it is its democratically elected government that is doing so. The purchase of Northern Rock’s equity was therefore made by the U.K. Treasury—the fiscal authority.


pages: 315 words: 99,065

The Virgin Way: Everything I Know About Leadership by Richard Branson

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barriers to entry, call centre, carbon footprint, Celtic Tiger, clean water, collective bargaining, Costa Concordia, Donald Trump, Elon Musk, friendly fire, glass ceiling, illegal immigration, index card, inflight wifi, Lao Tzu, low cost carrier, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, Northern Rock, profit motive, Ralph Waldo Emerson, Ronald Reagan, shareholder value, Silicon Valley, stem cell, Steve Jobs, Tesla Model S, trade route

The days of the mega-parties at the Manor may be a thing of the past but generally we have reverted to the original smaller more intimate roots and settings in which everyone gets a chance to glimpse an ‘other side’ to the people they work with – including myself, whenever I can work an invitation. ROCKING THE ROCK In January 2012, Virgin Money finally acquired Northern Rock, the British high-street bank that had been nationalised four years earlier, and we had a lot to celebrate. After their brief spell of working for the government, Northern Rock’s 2,000 or so employees were clearly excited about joining the Virgin family. They didn’t have to wait long to get a taste of their new corporate culture when Jayne-Anne Gadhia, CEO of Virgin Money, and I hosted a huge street party inside Northern Rock’s headquarters in Newcastle upon Tyne, at which everyone got an opportunity to behave in very ‘unbankerlike’ ways! It was kind of an initiation by friendly fire for all the former Northern Rock people who I don’t think had ever seen their previous bosses loosen their ties, let alone their purse-strings for a bank-sponsored megabash.

In retrospect I was also glad she just happened to be watching TV at home one Sunday evening and saw a discussion about the struggles facing Northern Rock, an iconic bank in the north of England that had run afoul of the 2007 financial crisis. Apparently some TV banking expert on the show said something to the effect that, ‘What this bank needs is someone like Richard Branson to sort it out and run it.’ She sent me an email right away saying, ‘Maybe it’s not a bad idea so let’s talk about it.’ We did – and following a call to Alistair Darling, the Chancellor of the Exchequer, the next day, we were on our way for what would be a highly frustrating but finally successful four-year pursuit: in January of 2012 Northern Rock officially became a part of Virgin Money when we acquired it from the UK government. It was agreed that all of the Northern Rock branches would be rebranded as Virgin Money as quickly as possible and just like that we found ourselves with a high-street banking presence for the first time.

Horatio 294–5 Nest 365, 368–70 Netflix 56–8, 216–18, 358 New York Times 146, 172, 304 Newcastle United FC 258 NeXT 262 Nike 311, 371 Nikon 125 9/11 210, 305 Nokia 311–12 Nolan, Anthony 321 Nominet Trust 363 Northern Rock 185, 186–8, 257–8 note-taking 5, 30–1, 33–7 NTL:Telewest 161 Obama, Barack 79–80 OceanElders 237 Oelwang, Jean 285 Old Man and the Sea, The (Hemingway) 104 Oldfield, Mike 134 O’Leary, Michael 21 Olympic Games, Winter, Sochi 311 Oneworld 312 oratory 31–3, 83–94 common human fear 84 and Q&A format 88–9 and teleprompters 84–5 and well-timed pauses 87 words best avoided during 90–4 words recommended for use during 94–5 Page, Larry 82–3, 130–1, 137, 191, 198, 288, 362–3 and April Fool stunts 268–9 palindromes 111 Pan Am 156, 300 Pascal, Blaise 82 passion: as essence of brand 242 innateness of 242–3 RB’s 242 recognised in others 247 Path 370 PayPal 247 Penni (RB’s assistant) 66 Pepsico 285 ‘Per Ardua ad Astra’ 103 Pioneers TV 280 Pixar 324 Plato 334 Player, Gary 134 Polman, Paul 357 Powell, Colin 79 Pret a Manger, and ex-prisoners 24 Private Sector Employment Indicator 283 procrastination: orchestrated 330, 334 serial 328–9 Project Oxygen 214 public speaking, see oratory Qantas 72, 73, 138, 236 Qwikster 57–8 Raleigh, Walter 293 Reach for the Sky 102–3 Reagan, Ronald 299, 325 Rebel Billionaire, The 192, 195 Reed, Claire 274–5 Reed, Frank 207–8 Reel Gardening 274–5 Remington Products 64 résumé, see CV RetailSales 148 Richard III 197 Ridgway, Steve 76–7 Robinson, Mary 38, 118 Rolling Stones 97 Rose, Greg 339 Rossi, Chris 206 Royal Bank of Scotland 186, 188 Rutherford, Mike 323 Ryanair 21 Safaricom 354 Sainsbury’s, and ex-prisoners 24 Sandberg, Sheryl 285 Sarah Blakely Foundation 195 see also Blakely, Sara SB.TV 281 Schmidt, Eric 268, 288 Scott, Robert Falcon 293 Scully, John 368 Securities and Exchange Commission 331 Seneca 141 Shakespeare, William 197 Sheeran, Ed 281 ShIFT project 355 Singapore Airlines 77, 138–9, 312 Skyteam 312 Skytrain 298, 299, 306 see also Laker Airways social enterprises 360–4 Social Tech, Social Change 363 Souter, Brian 337–8 Southwest Airlines 228–31, 233–4, 239 Soweto 286 SpaceX 247 Spanx 192–5 Spy Who Came in From the Cold, The (le Carré) 30 Spy Who Shagged Me, The 75 Star Alliance 312 Starbucks 169–70 Start-Up Loans Company 283 Steel, Joe 160–1 Stereophonics 97–8 Stevens Aviation 231 Stop and Search UK 362 Student: beginnings of 30, 279, 347 as David vs Goliath 156 Howard interview RB about 90–1 le Carré interviewed for 5, 30 Lennon interviewed for 5 RB as ‘cub reporter’ on 5 Student Loans Company 282 subprime mortgages 331 Sun Microsystems 268 T-Mobile 31 Tait, David 86, 129, 200, 250–1 and RB’s passport 256 Talisman Management 237–8 Tata Group 357 Tata, Ratan 357 team dynamics 322 see also collaboration teleprompters 84–5 Tennyson, Alfred, Lord 295 Tesla Model S 246–7 Tewson, Jane 23 Thatcher, Margaret 80, 299 Tiffany 148 Toll Group 24 TOMS 357, 359 Towers Watson 215–16 Trafalgar, Battle of 294 Trump, Donald 21, 197 Truth and Reconciliation Commission 38 Tubular Bells 134–5, 166 Tutu, Desmond 37–8 TWA 156, 300 Twain, Mark 40, 86–7, 88, 155, 180 Twitter 82, 106, 131 UN Foundation 359 Unilever 359 unions 243–4 Vega, Cecilia 285 Virgin Active 62, 108–10, 206, 207–8 quote on leadership and listening from 46 in Soweto 286 Virgin America 74, 77, 151–3, 209–10, 257, 286 cabin innovations at 371 Virgin Atlantic 70, 71–2, 74–5, 76–7, 129, 130, 144, 171–3, 200–1, 245, 333 BA’s ad battle with 172–3 and British Airways 301 cabin innovations at 371 Clubhouse Lounges of 63, 181, 183 and collaboration 312–13 complimentary limos offered by 158 and Continental Airlines 150–1 and Coutts Bank 118 as David vs Goliath 156–9 and delegation 200 and gut feeling 329 and headsets 145–6 and Heathrow emergency landing 98 inaugural flight of 255–7 and King’s ‘pirate’ gibe 301 Laker’s advice to 300 left out of flotation 165 new HQ for 121 new routes made available to 140 ‘nothing “typical” about’ 146 perceived as ‘rock-and-roll airline’ 74 RB cold-calls customers of 66–7 and RB’s ballooning 304 RB’s hands-on approach to 128 and RB’s logo stunt against BA 301–2 shiatsu massages offered by 171 single-aeroplane route flown by 156 Upper Class offered by 158, 182–3 and Virgin Mobile, parallels with 159–60 Virgin Australia (formerly Virgin Blue) 72–4, 75–6, 138–40, 236, 243, 245–6, 257 and gut feeling 329 Virgin Blue, see Virgin Australia Virgin Bride 329 Virgin Cola 58–9, 304–7, 329 Virgin Cruises 333 Virgin Digital 127 Virgin Express 243–4 Virgin Galactic 40, 103, 247, 270, 333, 371–2 Virgin Group: airlines owned by 22, 62, 257; see also individual airlines corporate culture adopted by, beginnings of 235 definition-of-leadership research among 43–7, 191 disparate range offered by 236, 243 and ex-prisoners 24 floatation of 165–6 floatation reversal by 167 head offices of 49 major lawsuits concerning 31 new corporate HQ of 258–9 note-taking among personnel of 34; see also note-taking parties thrown by, see Virgin parties and get-togethers passion as brand essence of 242 RB’s and employees’ top leadership attributions of 44–5 see also individual Virgin brands Virgin Holidays 69 Virgin Hotels 62–4, 69 Virgin Limited Edition 62, 191, 209 quote on leadership and listening from 47 Virgin Management: definition-of-leadership research by 43–7, 191 and ex-prisoners 24 Virgin Media 161–2 ads of 171 day-off-for-giving idea of 320–1 quote on leadership and listening from 46 Virgin Media Pioneers (VMP) 280–2 Virgin Mega 111–13 Virgin Megastores 126, 127–8, 181–2, 262 New York City 182 Paris 181 Virgin Mobile 159–61, 171, 285 music festival of 173–4 Virgin Mobile Australia, quote on leadership and listening from 45 Virgin Mobile FreeFest 174 Virgin Money 164, 181, 185–90, 285 ‘Everybody Better Off’ (EBO) philosophy of 188, 190 and Goldman Sachs 330–1 Lounge concept of 188–90 as Newcastle United kit sponsor 258 Northern Rock acquired by 185, 187, 257–8 and Virgin StartUp 283 Young Enterprise’s collaboration with 277–8 Virgin One 186 Virgin parties and get-togethers 253–5 at Manor, Oxfordshire 254–5 and new corporate HQ 258–9 and Northern Rock acquisition 257–8 Virgin Atlantic inaugural flight 255–7 weekend-long 255 Virgin Produced 365 Virgin Pulse 127, 359 Virgin Records 97, 245, 333 as David vs Goliath 156 first album release of 134–5 first shop of 181 and people-first culture 228 ‘Slipped Disc’ name suggestion for 170 staff member’s thefts from 22–3 ‘Virgin Shaglantic’ 75 Virgin StartUp 283 Virgin Trains 144, 247–50, 317 and Department for Transport 41 and ex-prisoners 24 and FirstGroup 335–40 and north-east derailment 343–4 quote on leadership and listening from 46 and West Coast franchise 41, 335–40 Virgin Unite 274, 280, 285, 291, 355 Virgin Way: evolution of 5 parties an essential part of 259; see also Virgin parties and get-togethers project named after 43 and testing own products 65 ‘Virgle’ 269 Vodafone 354 VOSS 355 V2 Records 97–8 Wal-Mart 349–53 Warwickshire Police 106 water saving 352–3, 354 Wayne, John 29–30 Wayne, Ronald 137 Wells, Adam 371 West Coast rail franchise 41, 335–40 Whitehorn, Will 343–4 Whiteside, George 40 wildlife crime 362–3 Winfrey, Oprah 194 women: on battlefield 295 as entrepreneurs 284–5 Working Chance 24 working from home, see home working Wozniak, Steve 137 Yahoo!


pages: 368 words: 32,950

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

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

There was speculation whether the government had put pressure on the Bank to act, so compromising the Bank’s independence, or whether the Bank of England itself had realised it was wrong. Mervyn King’s continued long-term role as Governor of the Bank of England came under brief trial by media. Shortly afterwards, King told a Treasury Select Committee that he had been stopped from acting quickly to prevent the Northern Rock panic because of four pieces of legislation that ensure transparency. He said he would have preferred to deal with Northern Rock by acting covertly as a lender of last resort, but was advised that the Market Abuse Directive (see Chapter 22) meant this action had to be made public. He told the Committee that he had hoped Northern Rock could be taken over, but this had not been possible because it would have taken too long. Acquisitions under the UK’s Takeover Code take 60 days to complete. _______________________________________ THE BANK OF ENGLAND 17  King noted two pieces of current legislation that could contribute to public panic in the event of a banking liquidity problem.

In 1984, the Bank helped Johnson Matthey Bankers Limited, a London market maker in gold bullion, which had got into financial difficulties from its  16 HOW THE CITY REALLY WORKS __________________________________ commercial lending exposures. If the operation had been allowed to fail, other bullion dealers would have joined the creditors, which would have diminished confidence in the London gold market. In September 2007, the Bank of England agreed to provide Northern Rock, a mortgage lending bank, with ‘as much funding as may be necessary’. The mortgage lender obtained three-quarters of its funds from wholesale markets, where lending had become much more difficult as a knock-on effect from US sub-prime mortgage failures (see Chapter 12). Some commentators queried whether the crisis at Northern Rock, only the fifth largest mortgage lender in the UK, had justified intervention by the Bank of England, which on the Bank’s own criteria should have been in the case of systemic threat. Others argued that the move was necessary for broader financial stability.

Others argued that the move was necessary for broader financial stability. Some thought that the Bank of England might have made things easier for banks generally if, like the European Central Bank (ECB) or the US Federal Reserve, it had injected liquidity earlier into the system. The Bank of England’s publicised support was met with a public panic, and hordes of customers withdrew savings from Northern Rock. A few days later the Chancellor offered an unprecedented and legally binding guarantee of all funds deposited with Northern Rock, something that it would not be able to extend to the entire banking system without having to print money on a scale that could lead to horrendous inflation. Later in the same month, the Bank of England said it would pump a further £10 billion into the money markets at a three-month maturity, with penal interest rates, against a wider range of collateral, including mortgage collateral, than in its weekly open market operations.


pages: 543 words: 147,357

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

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

After Abbey National demutualised in 1989, the floodgates had opened. By 2000, Cheltenham and Gloucester, the Alliance and Leicester, the Halifax, Northern Rock, the Woolwich and Bradford and Bingley had all demutualised as well. Some, like the Halifax and Cheltenham and Gloucester, had been taken over (by Bank of Scotland and Lloyds-TSB, respectively) and were lending as components of larger banking groups; others, like the Bradford and Bingley and Northern Rock, were still independent. But all advanced mortgages in an environment in which there was no check to growth, knowing that they could be financed after the event in the interbank and securitisation markets. Northern Rock was far from the only bank willing to lend more than 100 per cent of a house’s value and six times the borrower’s income. The whole financial sector drowned the property market in credit, so by summer 2007 it had cumulatively issued £257 billion of residential mortgage-backed securities in the new markets for securitised assets to top up normal sources of funding.

Caught in this pincer, even the most conservative banks started to consider higher leverage or investing in riskier assets as the only means to survive.20 Unregulated nineteenth-century banking witnessed Northern Rock-type bank runs aplenty. Famously, Overend, Gurney and Co. went belly up in 1866, prompting the great economic and political commentator Walter Bagehot to describe its senior executives as ‘sapient nincompoops’. ‘These losses’, he wrote, ‘were made in a manner so reckless and so foolish that one would think a child who had lent money in the City of London would have lent it better.’21 The bank had borrowed short, made terrible long-term lending decisions and suffered the consequences. Similar accusations could be made today against the directors of RBS, HBOS and Northern Rock. Such nineteenth-century disasters led the Bank of England to develop its lender-of-last-resort function, stepping in to provide stricken banks with cash to stem the run, not least because stronger, well-run banks can be sucked into the general loss of confidence.

An IMF paper reports that young people growing up in recessions are much more fatalistic than others, believing that effort and work are far less important in generating results than having the luck to live in good times.7 Bank crashes can even damage health directly. A study at Cambridge University found that they increase the risk of death from stress and worry.8 The customers who tried to withdraw cash from Northern Rock, Britain’s first bank run for more than a century, experienced a similar level of stress to victims of an earthquake. The capitalism that Britain developed and which crashed so spectacularly has a lot to answer for. To date, though, it has hardly even been asked any questions, let alone provided any answers. A wounded society The unbalanced structure of economic growth over the last decade has fed straight through to a disastrous social geography, bypassing the least advantaged and rewarding the wealthy.

When the Money Runs Out: The End of Western Affluence by Stephen D. King

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Yet, today, bankers no longer trust each other. While Northern Rock grabbed all the headlines in 2007 thanks to the vast queues of worried depositors who gathered outside, understandably fearing the loss of their savings, its public failure was only the final chapter in a whole volume of – sometimes self-­imposed – mishaps. The loss of trust in Northern Rock reflected four factors: (1) a loss of faith in the pieces of paper – the IOUs – which banks released into the capital markets – so-­called wholesale funding – to support lending to high risk households; (2) a sense that Northern Rock’s own business model – unusually dependent on wholesale funding – was no longer sustainable; (3) a sudden panic on behalf of equity investors who recognized that, in the absence of wholesale funding, Northern Rock was no longer a viable concern; and (4) in the absence of sufficient deposit guarantees – and after a leak to the BBC9 – a recognition on behalf of Northern Rock’s depositors that their money was no longer safe.

Banks assume a decent rate of economic growth and continued gains in house prices both to increase their loan books (and, hence, their profitability) and also to limit the number of non-­performing loans.17 Think, for example, of the behaviour of UK banks before the onset of the financial crisis. Back then, loan-­to-­value ratios on UK mortgages averaged around 75 per cent. Some of the more outlandish banks – most obviously, Northern Rock – were offering loan-­to-­value ratios of 125 per cent, based on the foolish expectation that property prices would forever rise. In 2012, five years after the collapse of Northern Rock, average loan-­to-­value ratios were 51 4099.indd 51 29/03/13 2:23 PM When the Money Runs Out down to around 55 per cent and the mortgage market was barely growing. Consumer credit had stagnated while commercial real estate loans were shrinking fast. Delusional behaviour creates its own problems.

Constructing houses, however, tends not to be as productive as building the internet, developing mobile telephony or reorganizing working methods as a result of technological innovations. The white heat of the 1990s technological revolution was replaced by the stone cold of a housing boom. Underlying economic growth began to slow down even before the financial crisis materialized. The third period of disappointment – disaster is, frankly, a more accurate description – was the financial crisis itself. Northern Rock, Royal Bank of Scotland and HBOS were the three highest profile bank failures in the UK. In Europe, Fortis and Dexia grabbed the headlines. And, in the US, Bear Stearns, Washington Mutual, IndyMac, Lehman and AIG dominated the newswires. The underlying situation, however, was even worse. Between 2007 and 2012, 30 4099.indd 30 29/03/13 2:23 PM Taking Progress for Granted approaching 500 US banks had failed (including the aptly named Cape Fear Bank in Wilmington, North Carolina).

Global Financial Crisis by Noah Berlatsky

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accounting loophole / creative accounting, asset-backed security, banking crisis, Bretton Woods, capital controls, Celtic Tiger, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, Doha Development Round, energy security, eurozone crisis, financial innovation, Food sovereignty, George Akerlof, Gordon Gekko, housing crisis, illegal immigration, income inequality, market bubble, market fundamentalism, moral hazard, new economy, Northern Rock, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, South China Sea, structural adjustment programs, too big to fail, trade liberalization, transfer pricing, working poor

., no more freebies in the form of underpriced equity, preferred shares, loan guarantees or insurance on assets), it will just confirm how bad things really are. 221 The Global Financial Crisis Britain Nationalizes Northern Rock Bank, February 2008 The chancellor [of the exchequer, or finance minister of Britain] Alistair Darling, moved to end six months of turmoil over the fate of Northern Rock yesterday when he admitted his efforts to find a buyer for the stricken bank had failed and he was forced into the first nationalisation of a British company since the 1970s. . . . Darling . . . defended his handling of the crisis. . . . The government only stepped in to prevent a domino effect in the industry, he said. Phillip Inman, Larry Elliott, and David Hencke, “Darling Under Fire as Northern Rock Is Nationalised,” Guardian Online, February 18, 2008. www.guardian.co.uk. Principles for Nationalization Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume.

The Asset Protection Scheme introduced in January also provides insurance cover for “toxic assets”, which means the 45 The Global Financial Crisis government has taken on an open-ended risk without a corresponding “upside” for the taxpayer. This route was chosen in preference to fresh government equity capital precisely because it makes a quick return to private-sector ownership easier. There is now a danger of premature reprivatisation, which would leave the taxpayer with a vast toxic dump of losses and a poor price for the share sale. There are already rumours that Northern Rock is being lined up for a rapid sale. If banks are to return to “normal” commercial operation under private ownership, the issue arises of how they should be regulated. The Cruickshank report on banking, commissioned by Gordon Brown a decade ago, posed the central question: why should banks be allowed to pursue the maximisation of shareholder value—and management bonuses— when they are underwritten by the taxpayer?

The nonperforming asset problem of U.S. and European financial institutions appears to have been gradually shifting to a traditional problem of loans on the banking book. The difficulty of evaluating the loan asset value, when the adverse feedback loop between the financial system and the real economy is at play, seems to be an unflagging issue at any time. Third, the framework to deal with troubled financial institutions was not well-equipped. It can hardly be said that the 211 The Global Financial Crisis process of the disposal of the Northern Rock and Lehman Brothers, was carried out within the sufficiently robust institutional framework. Even if such framework was in place, public capital injection into financial institutions is unpopular among the public in any country. In addition, there is a stigma on the part of financial institution to apply for injection of public capital. Furthermore, it is also a daunting task to identify the amount of losses incurred by financial institutions, which is the precondition for public capital injection.


pages: 322 words: 77,341

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

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

In one form or another, balance sheet abysses of this sort are responsible for all the collapses we’ve seen. Perhaps we can experience a twinge of national pride at the thought that this planetwide problem began with Northern Rock, which in September 2007 experienced the single most dreaded event which can overtake any financial institution, not seen in Britain for more than a century: a bank run. So many people turned up in person to withdraw money that the bank ended up paying out 5 percent of its total assets, a cool £1 billion in cash. Perhaps we can also experience a twinge of nostalgia at the fact that at the time of its nationalization a few months later, the £25 billion Northern Rock bailout was the biggest sum any government anywhere in the world had ever given to a private company. Such, such were the days … the really serious wave of bailouts and collapses began with Bear Stearns in March 2008 and then went to the next level with the “conservatorship” of Fannie Mae and Freddie Mac on September 7, the largest nationalization in the history of the world.

The result … well, out of what seemed to most people a clear blue sky, the clearest blue sky ever, there was a colossal wreck. That left an awful lot of people wondering one simple thing: what happened? I’ve been following the economic crisis for more than two years now. I began working on the subject as part of the background to a novel, and soon realized that I had stumbled across the most interesting story I’ve ever found. While I was beginning to work on it, the British bank Northern Rock blew up, and it became clear that, as I wrote at the time, “If our laws are not extended to control the new kinds of super-powerful, super-complex, and potentially super-risky investment vehicles, they will one day cause a financial disaster of global-systemic proportions.” I also wrote, apropos the obvious bubble in property prices, that “you would be forgiven for thinking that some sort of crash is imminent.”

They also preferred not to lend you more than two and a half times your annual income; if two of you were buying a property together, you could stretch to three times your joint income. Back in those days it was very hard, verging on impossible, for people who do what I do now—write for a living—to get a mortgage, because we couldn’t produce the relevant pay slips and employment history.* All those rules have long since gone from the U.K. property market. A banker involved in picking over the corpse of Northern Rock told me, “Most of the loans were sound, but one or two of their books had blown up, and one of the worst of them was the hundred and twenty percent mortgages.” I asked why anyone would want to borrow 120 percent of the value of the thing they were buying, and he just shrugged. That product makes sense only if you are absolutely certain of the value of the property you’re buying: and there is no reason to be absolutely certain of that.


pages: 246 words: 74,341

Financial Fiasco: How America's Infatuation With Homeownership and Easy Money Created the Economic Crisis by Johan Norberg

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accounting loophole / creative accounting, bank run, banking crisis, Bernie Madoff, Black Swan, capital controls, central bank independence, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Brooks, diversification, financial deregulation, financial innovation, helicopter parent, Home mortgage interest deduction, housing crisis, Howard Zinn, Hyman Minsky, Isaac Newton, Joseph Schumpeter, Long Term Capital Management, market bubble, Martin Wolf, Mexican peso crisis / tequila crisis, millennium bug, moral hazard, mortgage tax deduction, Naomi Klein, new economy, Northern Rock, Own Your Own Home, price stability, Ronald Reagan, savings glut, short selling, Silicon Valley, South Sea Bubble, The Wealth of Nations by Adam Smith, too big to fail

In scenes that the country had not witnessed for over 140 years, long lines of worried depositors wanting to withdraw their money were forming outside the branch offices of Northern Rock. This Newcastle bank had derived two-thirds of its financing from money-market loans, capable of being canceled at any time, and used the money for decadelong securitized mortgages whose value exceeded that of the actual homes.16 As Martin Wolf has concluded, government guarantees for the banking system meant that savers saw only the high rates of interest paid by Northern Rock, not the risks it was taking. But this daredevil business concept did not survive a nervous market that would no longer touch mortgage-backed securities with a 10-foot pole. The Bank of England, the UK central bank, expressed its willingness to support Northern Rock on September 14, but that did not make savers any calmer-on the contrary, this was when the bank run started in earnest.

It took three more days until the lines dissolved, after the government had declared that taxpayers would indirectly guarantee deposits. That was the first step toward nationalization. Only days before the run, a trader at Lehman Brothers had underlined in an e-mail that now was the perfect time to buy: "Load up on Northern Rock for your children, your mum, your goldfish."17 And that was not a lone optimist. Despite a whole series of alarms going off and a number of meetings with the bank, the UK Financial Services Authority had not noticed any major problems. On the contrary, the FSA approved Northern Rock's dividends and models briefly before the end. It was "asleep at the wheel," as an inquiry report put it." The government-sponsored mortgage giants in the United States also remained optimists to the very end. In January 2007, Fannie Mae's chief economist gave a soothing message at a press conference: "I think the worst in housing is over.

See privatizing gains and socializing losses Morgan Stanley, 85, 86, 122 Morgenson, Gretchen, 63 Morgenthau, Henry, 108 mortgage-backed securities, 27-28, 46-49 ABX.HE, 67 banking industry and, 49-55 capital and reserve requirements, 49-53 credit ratings and credit-rating agencies and, 46-49, 58-68, 134-35 mark-to-market accounting and, 91-94 repackaging mortgages, 45-46, 134-35 riding the bubble, 55-58 Subprime XYZ package, 65-68 See also collateralized-debt obligations (CDOs) Mortgage Bankers Association, lobbying, 34 mortgage interest deduction, 5-6, 24 Mozilo, Angelo, 30, 71-72 Mudd, Daniel, 40, 77 mutual funds, 145 New Deal, 105-9 New York Mellon Corp., 122 Newmark, Evan, 124 Nixon, Richard, 143, 154 Nocera, Joe, 122, 124 nonrecourse mortgages, 9 Northern Rock, 76-77 Obama, Barack, 116 stimulus package, 153-54 Oddson, David, 94 Odell, Mats, 148 Ohanian, Lee, 106 O'Neal, Stanley, 55-56, 75-76 O'Neill, Paul, 19 Organization for Economic Cooperation and Development countries, 51 Orszag, Jonathan, 34 Orszag, Peter, 34 O'Toole, Randal, 8 overconcentration of banks, Great Depression and, 104 oversubscribed securitized mortgages, 27-28 ownership society, 24, 36-40 Paulson, Henry "Hank," 51, 78, 81, 83, 88, 99, 100 bailout plans, 118-28.


pages: 223 words: 10,010

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

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

At the heart of its burst for growth was a new mortgage concept—the ‘Together Loan’—which offered young borrowers 125 per cent of the purchase price and up to a maximum of six times income. Despite raising eyebrows across the industry and being attacked by some rivals as ‘too racy’, other banks soon started offering more generous deals just to stay in the race. By 2006, mortgages of five times salary or more were commonplace.264 For a while, Northern Rock’s aggressive business model appeared to pay off handsomely. By 2007, it had risen to provide a fifth of all mortgages, outstripping bigger rivals like Halifax and Nationwide, while its share price hit an all-time high. But Northern Rock’s strategy was in many ways a microcosm of what had been happening to the finance and market-led British economy. By the middle of the 2000s, Britain was riding the wave of an economic boom and house prices were heading skyward. But with the national wage base continuing its long term slide, this boom was only possible because of a growing dependence on debt, not just to finance the rising cost of buying a home, but to pay for an increasing share of ordinary spending as well.

The sweeping away of these controls brought great changes in the way mortgages were provided. Gradually, most building societies chose to sell up and convert into banks, abandoning mutuality in favour of profits (at least in part because of the Citystyle rewards available to bank executives) and making them accountable not to members but to shareholders. One by one, the biggest of the high street names—Abbey National, Halifax, Cheltenham and Gloucester, Northern Rock—converted. Although mutual building societies—from Nationwide to the Yorkshire—still exist, the majority of mortgages are now provided by banks. Deregulation and demutualisation proved another personal gravy-train for those at the top of the finance industry bringing higher fees, commissions and bonuses. For customers, deregulation meant mortgages were easier to obtain with a much greater range of products offered to a much wider group of people.

After the freeing up of mortgage restrictions, the lending institutions became increasingly innovative—some would say reckless. In the 1960s and 1970s, the typical mortgage was limited to two and a half times earnings, and rarely more than 80 or 90 per cent of the property value. Some kind of deposit was mandatory. After big bang, these restrictions were mostly axed and mortgage deals became more and more generous. The bank leading the charge on innovation was Northern Rock, the Newcastlebased building society that had started life as a friendly society in the nineteenth century. More than a century later, it was among the last of those building societies succumbing to privatisation, converting, despite a good deal of opposition from members, into a bank in 1997. The company’s newly appointed chief executive, the 38-year old Adam Applegarth, a highly- motivated and confident local man who had climbed his way up through the company, was determined to move the newly created bank, a small fish with only 76 branches, into the big league.


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

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bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Washington Consensus

But disaster could still have been avoided had it not been for the third and greatest blunder: the U.S. government’s refusal to intervene directly in the financial system when the credit crunch began. Such direct intervention was what saved Britain after the Northern Rock collapse, the most serious run on a major bank anywhere in the advanced capitalist world since the Great Depression. The British government provided a temporary but open-ended guarantee to all British financial institutions, albeit reluctantly and under pressure from the Bank of England. This temporary guarantee instantly stopped the bank run, stabilized the financial system, and gave regulators the breathing space they needed to work out a longer-term solution. Had the U.S. Treasury been prepared to think seriously about the role of government in the modern financial system, they would have seen Northern Rock as a dress rehearsal and model for dealing with the Lehman crisis a year later. By taking somewhat earlier action, the U.S. government could probably have avoided even the moderate costs and financial damage of a Northern Rock-style response.

The next chapter argues that cyclical, rather than structural, forces were behind the 2007 bust in mortgage finance, which was then exaggerated by the astonishing incompetence of political mismanagement into the greatest financial crisis of all time. CHAPTER NINE Boom and Bust Forever We will never return to the old boom and bust. —Prime Minister Gordon Brown, March 2007, six months before the run on Northern Rock, Britain’s largest mortgage bank FINANCIAL BOOMS AND BUSTS have baffled and fascinated economic thinkers since capitalism’s earliest days. It is therefore no surprise that the greatest financial crisis in living memory, which occurred in the months after the bankruptcy of Lehman, elicited many different explanations. These ranged from excessive savings in China to policy mistakes by the Federal Reserve Board, from corrupt political lobbying to the immutable facts of human psychology, crystallized by the unforgettable two-word phrases from Alan Greenspan that punctuated the boom and bust: first “irrational exuberance,” then “infectious greed,” and finally “shocked disbelief.”

By taking somewhat earlier action, the U.S. government could probably have avoided even the moderate costs and financial damage of a Northern Rock-style response. Paulson could almost certainly have saved the situation much earlier and less expensively by implementing a government-led Plan B to end the credit crunch in early 2008. Some type of government-led anticrisis plan was widely expected in January 2008, when it became obvious that the banks’ mark-to-market losses would just keep mounting and when, to make matters worse, the U.S. municipal bond market suddenly seized up.23 The outlines of such a government-led Plan B were widely discussed in the markets at the time and could have included many of the measures ultimately adopted, but at far lower cost. For example, the Treasury, and if necessary the president himself, could have stated explicitly that the U.S. government would never renege on its implicit guarantees for Fannie Mae and Freddie Mac, the Government Sponsored Enterprises, or GSEs.


pages: 741 words: 179,454

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

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

Originally a self-help movement for artisans based in Newcastle, Northern Rock for much of its 150 years in existence took deposits from savers and lent to people to buy homes. Originally owned by its members, in 1997 the company demutualized and offered its shares on the London Stock Exchange. Between 1997 and 2007, under CEO Adam Applegarth, Northern Rock’s loan portfolio increased from £16 billion to £101 billion, a rate of more than 20 percent per annum. Northern Rock’s share of the UK’s residential mortgage market more than tripled from 6 percent to 20 percent in ten years. One mortgage product allowed homebuyers to borrow 125 percent of the value of the home, or up to six times their income. As growth outstripped the ability to finance loans from deposits from its customers, Northern Rock relied on securitization, arguing that issuing MBSs provided access to large pools of money from investors, cheaper borrowing costs and shifted the risk away from Northern Rock.

As growth outstripped the ability to finance loans from deposits from its customers, Northern Rock relied on securitization, arguing that issuing MBSs provided access to large pools of money from investors, cheaper borrowing costs and shifted the risk away from Northern Rock. Northern Rock issued £17 billion of MBSs in 2006 alone. In early 2007, bankers reaping large fees from Northern Rock securitizations voted them the best financial borrower in capital markets. In late 2007, Northern Rock’s dependence on securitization would destroy it when the market failed. CitiGroup, Merrill Lynch, and UBS committed seppuku, ritualized suicide. New regulations, low interest rates, and stable markets led banks to borrow more to invest in securitized bonds. At Merrill Lynch the strategy was known as a “million for a billion”—a million dollars in bonus money for every billion the bank invested in mortgage securities. Under changed banking regulations (known as Basel 2), credit ratings and the bank’s own models were used to calculate risk and set the amount of capital required.

Reinsurance companies and monoline insurers that had hedged mortgage exposures now experienced spontaneous symmetry breaking, failing in sympathy with the defaulting mortgages leaving the banks that they had insured exposed. As the markets seized up, banks were left with low-quality loans that they were unable to repackage and sell off, as planned. Despite minimal exposure to subprime mortgages, Northern Rock was unable to raise money as the securitization market seized up. In mid-September 2007, queues of panicked customers outside Northern Rock branches waited to withdraw deposits. In the Internet banking age, the signs of an old-fashioned bank run sealed Northern Rock’s fate. Adam Applegarth confessed to a UK parliamentary hearing that he understood: “the logic of somebody who has their life savings invested in an institution and who sees pictures of people queuing outside the door and they go join that queue.”22 Unable to issue commercial paper as holdings of toxic assets fell in value, conduits triggered parent bank credit lines, returning the assets to the mother ship.


pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

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

This is the risk that the markets you rely on for your funding simply dry up, cease to operate, deny you funds at any reasonable price. The overconfident, overaggressive British bank Northern Rock failed in 2007 because it could no longer obtain funds. Historically, retail banks have always been careful to fund themselves largely by attracting customer deposits, because such deposits have historically proved a reliable and stable form of financing. Northern Rock threw that tried-and-tested model out of the window, relying in very large part on short-term money market financing. That funding structure was insane in at least two respects. First, it generated a huge maturity mismatch between Northern Rock’s long-term assets (primarily loans made to customers) and its very short-term funding. Secondly, it placed vastly excessive reliance on the continued willingness of commercial lenders to lend to it.

Search for ‘Advanced bond concepts: yield and bond price.’ 6 Emma Charlton and Keith Jenkins, ‘German bunds slide most in 8 weeks; Greek two-year notes rise,’ Bloomberg, Sept. 17, 2011. 7 Though rumor has it that banks are trying to recreate these now. 8 Search Bank of International Settlements (www.bis.org) for ‘Amounts outstanding of over-the-counter (OTC) derivatives.’ 9 Fawn Johnson, ‘SEC queries firms on repos,’ Wall Street Journal, March 30, 2010. 10 Tett, Fool’s Gold, p. 241. 11 Eric Dash and Sewell Chan, ‘Panel criticizes oversight of Citi by 2 executives,’ New York Times, April 8, 2010. 12 See JP Morgan Chase’s financial statements, most easily accessed via investor.shareholder.com/JPMorganchase/earnings.cfm. 13 James Kirkup, ‘The path to Northern Rock’s nationalisation,’ Daily Telegraph, Jan. 14, 2008. 14 Kirsty Walker, ‘Northern Rock chief’s offer to resign,’ Daily Mail, Oct. 16, 2007. 15 ‘Northern Rock bosses: A board profile,’ Daily Mail, Sept. 18, 2007. 16 Ashley Seager and Angela Balakrishnan, ‘Rock liabilities added to the national debt,’ Guardian, Feb. 8, 2008. 17 For a scarily huge number, see table on p. 192 of JP Morgan’s annual report for 2010, accessible at investor.shareholder.com/jpmorganchase/annual.cfm.

Secondly, it placed vastly excessive reliance on the continued willingness of commercial lenders to lend to it. It was simply asking for trouble‌—‌and in 2007 that’s what it got. It took £26 billion of government loans to keep Northern Rock afloat, until the bank was effectively nationalized in 2008.13 That story was only the first in a chain of failures. The German bank IKB set up some off-balance-sheet investment vehicles that were funded exclusively in the commercial paper market (the main form of short-term borrowing). When those markets closed up, IKB was left with nowhere to turn. Dumb financing, maturity mismatches, disastrous outcomes. Citigroup itself was felled by the same thing. When that manager spoke bitterly about how almost no one in the bank even knew about the thing that had eventually laid it low, the problem was only indirectly the collapse in the mortgage market.


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

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accounting loophole / creative accounting, Albert Einstein, asset-backed security, banking crisis, banks create money, Bretton Woods, British Empire, call centre, capital controls, carbon footprint, collective bargaining, corporate social responsibility, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, high net worth, income inequality, investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, labour market flexibility, laissez-faire capitalism, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, means of production, moral hazard, mortgage debt, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Plutocrats, plutocrats, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, Winter of Discontent, working poor, Yom Kippur War

Pension funds and insurance houses that had protected themselves by buying CDSs found that the banks that sold them couldn’t afford to honour them in the event of default. In September 2008, global private pensions dropped in value by 20% in one week.128 Northern Rock on the rocks In the UK, the first bank to fail and be bailed out – to the tune of £27 billion – was Northern Rock, which had led the way in over-lending on mortgages and securitisation. Commenting on the former chairman Matt Ridley’s views, George Monbiot writes: As chairman of Northern Rock, he was responsible, according to the Treasury select committee, for the ‘high-risk, reckless business strategy’ which caused the first run on a British bank since 1878 . . . Before he became chairman, a position he appears to have inherited from his father, Matt Ridley was one of this country’s fiercest exponents of laissez-faire capitalism.

These are not merely responses to market shifts but ways of influencing those shifts, for example by inflating bubbles: they are weapons, not tools, as Ewald Engelen and co-researchers argue.137 On ‘Black Wednesday’, 16 September 1992, multi-billionaire George Soros made £1 billion by short-selling sterling – in anticipation of its being ejected from the European Exchange Rate Mechanism. In effect, he saw that the pound was overvalued, took on the Bank of England when it made frenzied efforts to defend the currency, and won.138 When the previously much-lauded Northern Rock bank got into trouble in 2008, hedge funds short-sold its shares and then bought them up when they’d hit rock bottom.139 When, in 2013, the UK’s Royal Mail was privatised by issuing shares at far below the market price, it was an aggressive hedge fund that became the largest shareholder. Hedge fund managers’ remuneration system is distinctive: most get 2% of assets, regardless of whether they make a profit or loss, and 20% of profits.

Having done his best to bankrupt the blood-sucking state, he returned to his family seat at Blagdon Hall, set in 15 square miles of farmland, where the Ridleys live – non-parasitically of course – on rents from their tenants, hand-outs from the Common Agricultural Policy and fees from the estate’s opencast coal mines. No one has been uncouth enough to mention the idea that he might be surcharged for part of the £400m loss Northern Rock has inflicted on the parasitic taxpayer. It’s not the 1% who have to carry the costs of their cock-ups.129 Estimates of the size of the UK bank bailout range between £289 billion and £550 billion – or nearly £10,000 for every British resident – exceeding the £203 billion of tax that the sector paid in the five years up to 2006–07.130 These costs are around 1% of gross domestic product in the UK.


pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

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Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, London Whale, Long Term Capital Management, loose coupling, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, moral hazard, mortgage debt, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, Richard Feynman, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War

(The foul-mouthed Jimmy Cayne, of Bear Stearns, who refused to participate, would receive his comeuppance a decade later when the Federal Reserve took pleasure in forcing a fire-sale of his failing business to J.P. Morgan.) But the concerns about banks that paralysed the USA in 1933, or which brought the global financial system close to collapse in 2008, were not like that. The run on Northern Rock was very different from the run on the Derbyshire Building Society. Northern Rock had a fundamental business problem. The company relied on being able to refinance packages of mortgages of indifferent quality in a market for mortgage-backed securities that was drying up. The problem was in the reality of the business, not in the imagination of depositors, and was the result of uncertainty about the underlying solvency of the company and the quality of its assets.

When the supply chain lacks liquidity, consumers need to maintain stocks for themselves – they keep a spare pint of milk in the fridge. The financial analogue of the spare pint is the necessity for businesses and households to maintain monetary balances. In extreme cases of illiquidity, households end up hoarding cash under the bed. These supply chain inefficiencies may be costly, in both the milk supply chain and the money market. In September 2007 a picture of depositors queuing up to withdraw money from Northern Rock, a small British mortgage lender, made the front page of every national newspaper. This was a ‘bank run’, when everyone was attempting to withdraw their deposits before the cash was exhausted. But financial services are not unique in their vulnerability to runs. If people suspect there is not enough milk, they will queue to obtain whatever milk is available, and the fears of shortage will prove – temporarily – justified.

A run on a solvent, liquid, well-capitalised and well-managed bank, in which unfounded panic among depositors creates an unnecessary crisis, is a theoretical possibility: but in practice it is as rare as a milk panic. When the Derby-based engineering firm Rolls-Royce collapsed in 1971, there was a run on the Derbyshire Building Society, and the queues outside its offices were similar to those that gathered at branches of Northern Rock in 2007. Depositors feared that the collapse of one venerable local institution might be followed by the collapse of another. But these unfounded fears quickly subsided. If they had not, the affairs of the solvent Derbyshire Building Society could easily and quickly have been transferred to another institution. Even in times of financial distress there are widely dispersed supplies of cash and short-term credit available – in the hands of the public, and with large financial and non-financial corporations.


pages: 471 words: 109,267

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

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

Labour’s third election took place in the shadow of Iraq and as the great boom was cresting. Public spending gushed, private debt spiralled, house prices skyrocketed; the UK economy was becoming lopsided. With ‘fewer children and pensioners living in hardship’, we wrote in Better or Worse? (2005), ‘Blair’s era was a better time to be British than for many decades’. But that era came to a precipitate end as the crowds milled outside Northern Rock in the autumn of 2007. How little, it now seems, was entrenched. How little political effort was put into changing public attitudes to recognize that generous public services required generous levels of tax. Labour never began the national discussion about what it was costing to improve public services. They failed to adjust taxation at a time of boom, to make tax fairer, to match the proceeds from income with those from wealth, to calibrate (with fairness in mind) direct and indirect charges.

It’s the same with schools and the police – if only people would take a hard look at how good they are, instead of relying on the odd negative story exaggerated in the media.’ As for Labour’s NHS reorganizations. ‘Going in a circle? No, I’d say three or four times round in a circle.’ If she stays on during the Con-Lib era, she will have more circuits to do. CHAPTER 3 The economy under Labour ‘I just want my money out,’ Thea Hardy from Crystal Palace told reporters as she joined a shuffling, angry queue outside a Northern Rock branch, showing how formerly phlegmatic Britain could panic with the best of them. The day the good times ended was 14 September 2007. The subsequent recession caused UK national output to fall 5 per cent, a larger cumulative loss of output than in any other post-war recession. Labour went from impresario of capitalist prosperity to doughty Keynesian mobilizing the state to fill capitalism’s deficiencies.

The merger tide swallowed Higgs’s company and it went bust along with the rest of RBS.) Government reforms were self-defeating. The remuneration committees it had insisted on became a means of further inflating top pay. A new shape for boards did not lead to better behaviour. Labour tried to strengthen the arm of dissident shareholders, giving them extra rights to push and probe. However, the Northern Rock board reached the end of the worst year in its history, nationalization pending, by paying its chief executive a salary of £760,000 pro rata till he departed, plus a bonus of £660,000. So much for shareholder power. Evidence piled up that mergers and acquisitions did not secure prosperity, either for workers affected, or in aggregate. Ger many and Japan did not allow takeovers in the British style yet they kept exporting and manufacturing.


pages: 523 words: 111,615

The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle

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accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, disintermediation, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, Hyman Minsky, If something cannot go on forever, it will stop, illegal immigration, income inequality, income per capita, invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey

. ∞ Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 CONTENTS Overview PART ONE: CHALLENGES ONE Happiness TWO Nature THREE Posterity FOUR Fairness FIVE Trust PART TWO: OBSTACLES SIX Measurement SEVEN Values EIGHT Institutions PART THREE: MANIFESTO NINE The Manifesto of Enough Acknowledgments Notes References Illustration Credits Index The Economics of Enough OVERVIEW In mid-september 2007 my sister phoned me to ask whether she should withdraw her savings from the bank and put the money somewhere else—and if so, where would be safe. She was with Northern Rock, and there was an old-fashioned run on the bank. It was unable to meet customers’ demand for withdrawals and had to ask the Bank of England to lend it the cash. The television news showed lines of anxious depositors hoping to take out all their funds. It was the first full-fledged bank run in living memory in the United Kingdom. I told her that the government would bail out all the depositors, as it would be political suicide to do anything else. My sister ignored my advice (although it ultimately turned out to be right) and joined the line outside her local branch. As for Northern Rock, it had to be taken over by the British government. A year later, in September 2008, the investment bank Lehman Brothers collapsed.

At the peak of its might in 1999, it had a market valuation of $150 billion and reported annual revenues of $39 billion. By 2002 it was almost worthless and the assets it held were sold to other companies. These are the biggest corporate and financial collapses of recent times but there have been others. They have included long-established and respected names and have occurred in Europe and elsewhere—Parmalat in Italy, Northern Rock and Royal Bank of Scotland in the United Kingdom, Satyam in India. Enron was a relatively new creation but many other companies that vanished in recent times were formed in the nineteenth century or even earlier. These recent examples were destroyed by the dynamite of innovative financial transactions, which were powerfully destructive, especially when used with criminal intent to defraud. In other recent bankruptcies, deliberate fraud may have been absent but the destructive effect of complex derivatives was similar.

Courtesy of Shutterstock. 259 INDEX Addams, Jane, 131 AEG Live, 197 Affluent Society, The (Galbraith), 190, 230–31 aging population: baby boom generation and, 4, 106, 109; demographic implosion and, 95–100; measurement and, 206; policy recommendations for, 267, 280, 287, 296; posterity and, 89–90, 94–95, 105–6, 109, 112–13; retirement age and, 94, 97–99, 106–7, 112 Alesina, Alberto, 128, 135–36, 171 All Consuming: How Shopping Got Us into This Mess and How We Can Find Our Way Out (Lawson), 26 altruism, 48, 118–22 André, Carl, 27 anomie, 48, 51 anxiety, 1, 25, 47–48, 136–38, 149, 174 Aristotle, 50 Arrow, Kenneth, 81–82, 220, 236–37, 310n25 Arthur Anderson, 145 asymmetric information, 17; institutions and, 248, 254, 262–63; measurement and, 186; values and, 214, 219–20, 229 Australia, 12, 271; Bureau of Statistics and, 274; diversity and, 172; fairness and, 126, 130, 143; measurement and, 188, 202, 206–7; time surveys and, 206–8; trust and, 140 Austria, 239 Axelrod, Robert, 118–19 baby boom generation, 4, 106, 109 bailouts: banks and, 1, 88, 91, 99–100, 145, 267; stimulus packages and, 91, 100–3, 111 Bank of England, 1–2, 174 bankruptcy, 289; Lehman Brothers and, 1, 85, 87–88, 145, 211, 275–76; Northern Rock and, 1, 146; posterity and, 87; trust and, 145–46 banks, 2; bailouts and, 1, 88, 91, 99–100, 145, 267; Baker on, 244; bonus culture of, 87–88, 115, 139, 143–44, 193, 221, 223, 277–78, 295; capital reduction and, 256; competition and, 277; Economy of Enough and, 22, 28; fairness and, 115, 133, 139, 143–44; flaunting of wealth by, 277; Gilded Age of, 144; greed and, 277–78; higher capital requirements for, 277; immorality of, 90, 277–78; interconnected network of, 277–78; interest rates and, 281, 283; lobbyists of, 87–88, 276; measurement and, 193, 200; needed policy recommendations for, 277–78; politicians and, 87–88, 286; posterity issues and, 85–91, 94, 99–102; recovery and, 3, 103; reform and, 277–79, 283, 296; regulation of, 7; runs on, 1; state–owned, 252; structural fragility of, 6; trust and, 88–89, 145–50, 158, 161–64, 174, 176, 257; values and, 211, 213, 217, 223, 226–28, 233 “Battle for Seattle” riot, 211 Baumol, William, 189–94, 206–7 BBC, 226, 247, 288 behavioral economics, 282; fairness and, 116–17, 121; rational choice theory and, 214–15.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

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banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business climate, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, declining real wages, deindustrialization, eurozone crisis, financial innovation, first-past-the-post, full employment, Hyman Minsky, industrial robot, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, Mexican peso crisis / tequila crisis, mortgage debt, new economy, Northern Rock, paper trading, planetary scale, post-oil, price stability, quantitative easing, reserve currency, rising living standards, Ronald Reagan, special economic zone, Steve Jobs, structural adjustment programs, systematic trading, too big to fail, trickle-down economics, urban renewal, War on Poverty, Yom Kippur War

., New Frontier social programmes, 83, 84 Keynes, John Maynard: Bretton Woods conference, 59, 60, 62, 109; General Theory, 37; ICU proposal, 60, 66, 90, 109, 254, 255; influence on New Dealers, 81; on investment decisions, 48; on liquidity, 160–1; trade imbalances, 62–6 Keynsianism, 157 Kim Il Sung, 77 Kissinger, Henry, 94, 98, 106 Kohl, Helmut, 201 Korea, 91, 191, 192 Korean War, 77, 86 labour: as a commodity, 28; costs, 104–5, 104, 105, 106, 137; hired, 31, 45, 46, 53, 64; scarcity of, 34–5; value of, 50–2 labour markets, 12, 202 Labour Party (British), 69 labourers, 32 land: as a commodity, 28; enclosure, 64 Landesbanken, 203 Latin America: effect of China on, 215, 218; European banks’ exposure to, 203; financial crisis, 190 see also specific countries lead, prices, 96 Lebensraum, 67 Left-Right divide, 167 Lehman Brothers, 150, 152–3 leverage, 121–2 leveraging, 37 Liberal Democratic Party (Japan), 187 liberation movements, 79, 107 LIBOR (London Interbank Offered Rate), 148 liquidity traps, 157, 190 Lloyds TSB, 153, 156 loans: and CDOs, 7–8, 129–31; defaults on, 37 London School of Economics, 4, 66 Long-Term Capital Management (LTCM) hedge fund collapse, 13 LTCM (Long-Term Capital Management) hedge fund collapse, 2, 13 Luxembourg, support for Dexia, 154 Maastricht Treaty, 199–200, 202 MacArthur, Douglas, 70–1, 76, 77 machines, and humans, 50–2 Malaysia, 91, 191 Mao, Chairman, 76, 86, 91 Maresca, John, 106–7 Marjolin, Robert, 73 Marshall, George, 72 Marshall Plan, 71–4 Marx, Karl: and capitalism, 17–18, 19, 34; Das Kapital, 49; on history, 178 Marxism, 181, 182 Matrix, The (film), 50–2 MBIA, 149, 150 McCarthy, Senator Joseph, 73 mercantilism, in Germany, 251 merchant class, 27–8 Merkel, Angela, 158, 206 Merrill Lynch, 149, 153, 157 Merton, Robert, 13 Mexico: effect of China on, 214; peso crisis, 190 Middle East, oil, 69 MIE (military-industrial establishment), 82–3 migration, Crash of 2008, 3 military-industrial complex mechanism, 65, 81, 182 Ministry for International Trade and Industry (Japan), 78 Ministry of Finance (Japan), 187 Minotaur legend, 24–5, 25 Minsky, Hyman, 37 money markets, 45–6, 53, 153 moneylenders, 31, 32 mortgage backed securities (MBS) 232, 233, 234 NAFTA (North American Free Trade Agreement), 214 National Bureau of Economic Research (US), 157 National Economic Council (US), 3 national income see GDP National Security Council (US), 94 National Security Study Memorandum 200 (US), 106 nationalization: Anglo Irish Bank, 158; Bradford and Bingley, 154; Fortis, 153; Geithner–Summers Plan, 179; General Motors, 160; Icelandic banks, 154, 155; Northern Rock, 151 NATO (North Atlantic Treaty Organization), 76, 253 negative engineering, 110 negative equity 234 neoliberalism, 139, 142; and greed, 10 New Century Financial, 147 New Deal: beginnings, 45; Bretton Woods conference, 57–9; China, 76; Global Plan, 67–71, 68; Japan, 77; President Kennedy, 84; support for the Deutschmark, 74; transfer union, 65 New Dealers: corporate power, 81; criticism of European colonizers, 79 ‘new economy’, 5–6 New York stock exchange, 40, 158 Nietzsche, Friedrich, 19 Nixon, Richard, 94, 95–6 Nobel Prize for Economics, 13 North American Free Trade Agreement (NAFTA), 214 North Atlantic Treaty Organization (NATO), 76 North Korea see Korea Northern Rock, 148, 151 Obama administration, 164, 178 Obama, Barack, 158, 159, 169, 180, 230, 231 OECD (Organisation for Economic Co-operation and Development), 73 OEEC (Organisation for European Economic Co-operation), 73, 74 oil: global consumption, 160; imports, 102–3; prices, 96, 97–9 OPEC (Organization of the Petroleum Exporting Countries), 96, 97 paradox of success, 249 parallax challenge, 20–1 Paulson, Henry, 152, 154, 170 Paulson Plan, 154, 173 Penn Bank, 40 Pentagon, the, 73 Plaza Accord (1985), 188, 192, 213 Pompidou, Georges, 94, 95–6 pound sterling, devaluing, 93 poverty: capitalism as a supposed cure for, 41–2; in China, 162; reduction in the US, 84; reports on global, 125 predatory governance, 181 prey–predator dynamic, 33–5 prices, flexible, 40–1 private money, 147, 177; Geithner–Summers Plan, 178; toxic, 132–3, 136, 179 privatization, of surpluses, 29 probability, estimating, 13–14 production: cars, 70, 103, 116, 157–8; coal, 73, 75; costs, 96, 104; cuts in, 41; in Japan, 185–6; processes, 30, 31, 64; steel, 70, 75 production–distribution cycle, 54 property see real estate prophecy paradox, 46, 47, 53 psychology, mass, 14 public debt crisis, 205 quantitative easing, 164, 231–6 railway bubbles, 40 Rational Expectations Hypothesis (REH), 15–16 RBS (Royal Bank of Scotland), 6, 151, 156; takeover of ABN-Amro, 119–20 Reagan, Ronald, 10, 99, 133–5, 182–3 Real Business Cycle Theory (RBCT), 15, 16–17 real estate, bubbles, 8–9, 188, 190, 192–3 reason, deferring to expectation, 47 recession predictions, 152 recessions, US, 40, 157 recycling mechanisms, 200 regulation, of banking system, 10, 122 relabelling, 14 religion, organized, 27 renminbi (RMB), 213, 214, 217, 218, 253 rentiers, 165, 187, 188 representative agents, 140 Reserve Bank of Australia, 148 reserve currency status, 101–2 risk: capitalists and, 31; riskless, 5, 6–9, 14 Roach, Stephen, 145 Robbins, Lionel, 66 Roosevelt, Franklin D., 165; attitude towards Britain, 69; and bank regulation, 10; New Deal, 45, 58–9 Roosevelt, Theodore (‘Teddy’), 180 Royal Bank of Scotland (RBS), 6, 151, 156; takeover of ABN-Amro, 119–20 Rudd, Kevin, 212 Russia, financial crisis, 190 Saudi Arabia, oil prices, 98 Scandinavia, Gold Standard, 44 Scholes, Myron, 13 Schopenhauer, Arthur, 19 Schuman, Robert, 75 Schumpter, Joseph, 34 Second World War, 45, 55–6; aftermath, 87–8; effect on the US, 57–8 seeds, commodification of, 163 shares, in privatized companies, 137, 138 silver, prices, 96 simulated markets, 170 simulated prices, 170 Singapore, 91 single currencies, ICU, 60–1 slave trade, 28 SMEs (small and medium-sized enterprises), 186 social welfare, 12 solidarity (asabiyyah), 33–4 South East Asia, 91; financial crisis, 190, 191–5, 213; industrialization, 86, 87 South Korea see Korea sovereign debt crisis, 205 Soviet Union: Africa, 79; disintegration, 201; Marshall Plan, 72–3; Marxism, 181, 182; relations with the US, 71 SPV (Special Purpose Vehicle), 174 see also EFSF stagflation, 97 stagnation, 37 Stalin, Joseph, 72–3 steel production, in Germany, 70 Strauss-Kahn, Dominique, 60, 254, 255 Summers, Larry, 230 strikes, 40 sub-prime mortgages, 2, 5, 6, 130–1, 147, 149, 151, 166 success, paradox of, 33–5, 53 Suez Canal trauma, 69 Suharto, President of Indonesia, 97 Summers, Larry, 3, 132, 170, 173, 180 see also Geithner–Summers Plan supply and demand, 11 surpluses: under capitalism, 31–2; currency unions, 61; under feudalism, 30; generation in the EU, 196; manufacturing, 30; origin of, 26–7; privatization of, 29; recycling mechanisms, 64–5, 109–10 Sweden, Crash of 2008, 155 Sweezy, Paul, 73 Switzerland: Crash of 2008, 155; UBS, 148–9, 151 systemic failure, Crash of 2008, 17–19 Taiwan, 191, 192 Tea Party (US), 162, 230, 231, 281 technology, and globalization, 28 Thailand, 91 Thatcher, Margaret, 117–18, 136–7 Third World: Crash of 2008, 162; debt crisis, 108, 219; interest rate rises, 108; mineral wealth, 106; production of goods for Walmart, 125 tiger economies, 87 see also South East Asia Tillman Act (1907), 180 time, and economic models, 139–40 Time Warner, 117 tin, prices, 96 toxic theory, 13–17, 115, 133–9, 139–42 trade: balance of, 61, 62, 64–5; deficits (US), 111, 243; global, 27, 90; surpluses, 158 trades unions, 124, 137, 202 transfer unions, New Deal, 65 Treasury Bills (US), 7 Treaty of Rome, 237 Treaty of Versailles, 237 Treaty of Westphalia, 237 trickle-down, 115, 135 trickle-up, 135 Truman Doctrine, 71, 71–2, 77 Truman, Harry, 73 tsunami, effects of, 194 UBS, 148–9, 151 Ukraine, and the Crash of 2008, 156 UN Security Council, 253 unemployment: Britain, 160; Global Plan, 96–7; rate of, 14; US, 152, 158, 164 United States see US Unocal, 106 US economy, twin deficits, 22–3, 25 US government, and South East Asia, 192 US Mortgage Bankers Association, 161 US Supreme Court, 180 US Treasury, 153–4, 156, 157, 159; aftermath of the Crash of 2008, 160; Geithner–Summers Plan, 171–2, 173; bonds, 227 US Treasury Bills, 109 US (United States): aftermath of the Crash of 2008, 161–2; assets owned by foreign state institutions, 216; attitude towards oil price rises, 97–8; China, 213–14; corporate bond purchases, 228; as a creditor nation, 57; domestic policies during the Global Plan, 82–5; economy at present, 184; economy praised, 113–14; effects of the Crash of 2008, 2, 183; foreign-owned assets, 225; Greek Civil War, 71; labour costs, 105; Plaza Accord, 188; profit rates, 106; proposed invasion of Afghanistan, 106–7; role in the ECSC, 75; South East Asia, 192 value, costing, 50–1 VAT, reduced, 156 Venezuela, oil prices, 97 Vietnamese War, 86, 91–2 vital spaces, 192, 195, 196 Volcker, Paul: 2009 address to Wall Street, 122; demand for dollars, 102; and gold convertibility, 94; interest rate rises, 99; replaced by Greenspan, 10; warning of the Crash of 2008, 144–5; on the world economy, 22, 100–1, 139 Volcker Rule, 180–1 Wachowski, Larry and Andy, 50 wage share, 34–5 wages: British workers, 137; Japanese workers, 185; productivity, 104; prophecy paradox, 48; US workers, 124, 161 Wal-Mart: The High Cost of Low Price (documentary, Greenwald), 125–6 Wall Street: Anglo-Celtic model, 12; Crash of 2008, 11–12, 152; current importance, 251; Geithner–Summers Plan, 178; global profits, 23; misplaced confidence in, 41; private money, 136; profiting from sub-prime mortgages, 131; takeovers and mergers, 115–17, 115, 118–19; toxic theory, 15 Wallace, Harry, 72–3 Walmart, 115, 123–7, 126; current importance, 251 War of the Currents, 39 Washington Mutual, 153 weapons of mass destruction, 27 West Germany: labour costs, 105; Plaza Accord, 188 Westinghouse, George, 39 White, Harry Dexter, 59, 70, 109 Wikileaks, 212 wool, as a global commodity, 28 working class: in Britain, 136; development of, 28 working conditions, at Walmart, 124–5 World Bank, 253; origins, 59; recession prediction, 149; and South East Asia, 192 World Trade Organization, 78, 215 written word, 27 yen, value against dollar, 96, 188, 193–4 Yom Kippur War, 96 zombie banks, 190–1

September – The obvious unwillingness of the banks to lend to one another is revealed when the rate at which they do this lending (the LIBOR, short for the London Interbank Offered Rate) exceeds the Bank of England’s rate by more than 1 per cent (for the first time since the South East Asian crisis of 1998). At that point, we witness the first run on a bank since 1929. The bank in question is Northern Rock. While it holds no CDOs or sub-prime mortgage accounts, the bank relies heavily on short-term loans from other banks. When this source of credit dries up, it can no longer meet its liquidity needs. When customers suspect this, they try to withdraw their money, at which point the bank collapses, before being brought back to ‘life’ by the Bank of England at a cost in excess of £15 billion. Rocked by this development, Bernanke drops US interest rates by another small amount, to 4.75 per cent, while the Bank of England pumps £10 billion worth of liquidity into the City of London.

It was served up when Lehman Brothers failed in September 2008 – its mountainous CDOs were mostly insured by AIG (which had issued CDSs against Lehman’s CDOs). February – The Fed lets it be known that it is worried about the insurance sector, while the G7 (the representatives of the seven leading developed countries) forecast the cost of the sub-prime crisis to be in the region of $400 billion. Meanwhile the British government is forced to nationalize Northern Rock. Wall Street’s fifth-largest bank, Bear Stearns (which in 2007 was valued at $20 billion) is wiped out, absorbed by JPMorgan Chase, which pays the paltry sum of $240 million for it, with the taxpayer throwing in a subsidy in the order of $30 billion. April – It is reported that more than 20 per cent of mortgage ‘products’ in Britain are being withdrawn from the market, along with the option of taking out a 100 per cent mortgage.


pages: 471 words: 124,585

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

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Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, Corn Laws, corporate governance, 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, interest rate swap, Isaac Newton, iterative process, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour mobility, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Naomi Klein, Nick Leeson, Northern Rock, 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, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, structural adjustment programs, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, value at risk, Washington Consensus, Yom Kippur War

Soon a horde of account holders are doing the same, forcing the bank to suspend payments. Mr Banks is duly sacked, prompting the tragic lament that he has been ‘brought to wrack and ruin in his prime’. These words might legitimately have been echoed by Adam Applegarth, the former chief executive of the English bank Northern Rock, who suffered a similar fate in September 2007 as customers queued outside his bank’s branches to withdraw their cash. This followed the announcement that Northern Rock had requested a ‘liquidity support facility’ from the Bank of England. The financial crisis that struck the Western world in the summer of 2007 provided a timely reminder of one of the perennial truths of financial history. Sooner or later every bubble bursts. Sooner or later the bearish sellers outnumber the bullish buyers.

The liquidity crisis that some commentators had been warning about for at least a year struck in August 2007, when American Home Mortgage filed for bankruptcy, BNP Paribas suspended three mortgage investment funds and Countrywide Financial drew down its entire $11 billion credit line. What scarcely anyone had anticipated was that defaults on subprime mortgages by low-income households in cities like Detroit and Memphis could unleash so much financial havoc:aw one bank (Northern Rock) nationalized; another (Bear Stearns) sold off cheaply to a competitor in a deal underwritten by the Fed; numerous hedge funds wound up; ‘write-downs’ by banks amounting to at least $318 billion; total anticipated losses in excess of one trillion dollars. The subprime butterfly had flapped its wings and triggered a global hurricane. Among the many ironies of the crisis is that it could ultimately deal a fatal blow to the government-sponsored mother of the property-owning democracy: Fannie Mae.63 One consequence of government policy has been to increase the proportion of mortgages held by Fannie Mae and her younger siblings Freddie and Ginnie, while at the same time reducing the importance of the original government guarantees that were once a key component of the system.

The cooperative banking sector has seen the most change in recent years, with high levels of consolidation (especially following the Savings and Loans crisis of the 1980s), and most institutions moving to shareholder ownership. But the only species that is now close to extinction in the developed world is the state-owned bank, as privatization has swept the world (though the nationalization of Northern Rock suggests the species could make a come-back). In other respects, the story is one of speciation, the proliferation of new types of financial institution, which is just what we would expect in a truly evolutionary system. Many new ‘mono-line’ financial services firms have emerged, especially in consumer finance (for example, Capital One). A number of new ‘boutiques’ now exist to cater to the private banking market.


pages: 497 words: 150,205

European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right by Philippe Legrain

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3D printing, Airbnb, Asian financial crisis, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, cleantech, collaborative consumption, collapse of Lehman Brothers, collective bargaining, corporate governance, credit crunch, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, debt deflation, Diane Coyle, Downton Abbey, Edward Glaeser, Elon Musk, en.wikipedia.org, energy transition, eurozone crisis, fear of failure, financial deregulation, first-past-the-post, forward guidance, full employment, Gini coefficient, global supply chain, Growth in a Time of Debt, hiring and firing, hydraulic fracturing, Hyman Minsky, Hyperloop, immigration reform, income inequality, interest rate derivative, Irish property bubble, James Dyson, Jane Jacobs, job satisfaction, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidity trap, margin call, Martin Wolf, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, North Sea oil, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, open economy, price stability, private sector deleveraging, pushing on a string, quantitative easing, Richard Florida, rising living standards, risk-adjusted returns, Robert Gordon, savings glut, school vouchers, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart grid, smart meter, software patent, sovereign wealth fund, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, working-age population, Zipcar

On the contrary, as late as 2006, ECB President Trichet welcomed the fact that investors were willing to lend to the Greek government on almost as good terms as to Germany’s as evidence of the euro’s success.53 This convergence of bond yields, in turn, was validated by the ECB’s collateral lending rules, which treated all eurozone government bonds as if they were “risk-free”. As for the Bank of England, when Northern Rock suffered the ignominy of a run in September 2007, the first on a British bank since the nineteenth century, it was asleep at the wheel. While central bankers provided the rocket fuel, financial regulators allowed bankers to drive faster with souped-up engines, while skimping on safety measures. In both Britain and the eurozone, financial regulation was often inadequate and sometimes perverse.

Back home, banks’ reckless lending, mostly against the perceived security of booming house prices, saw British households pile on record amounts of debt, rising from 108 per cent of their disposable income in 2000 to a whopping 170 per cent in early 2008.391 When the US housing bubble burst, bank lending froze and then UK house prices slumped too, one bank after another toppled. The first was Northern Rock, an overextended local bank that pumped out cheap, risky mortgages financed by short-term debt, which suffered a run in September 2007 and was eventually nationalised in February 2008. Days after the collapse of Lehman Brothers in September 2008, HBOS, a retail bank similarly laid low by wild mortgage lending financed with fickle debt, was rescued through a government-brokered takeover by Lloyds TSB, a more conservative lender seduced by the prospect of dominating high-street banking.

Crucially, banks have charged smaller firms more, while refusing to lend to many of them.430 While bigger businesses that can borrow from capital markets have replaced bank loans with cheaper corporate debt, smaller ones that do not have that option have been hit hard, especially since nearly half of credit to smaller firms is in the form of (extremely expensive) credit-card lending and overdrafts.431 They have responded by trying to build up cash buffers and inventories, stifling investment and undermining productivity. Since small and medium-sized enterprises represent 99.9 per cent of businesses in Britain, account for 60 per cent of private sector jobs and 50 per cent of businesses’ turnover, this has been a big brake on growth.432 A wise government would have forced banks to tackle their balance-sheet problems. Or it would have bypassed them by directing the banks that it nationalised (Northern Rock) or controlled (RBS) to lend more to creditworthy businesses. Instead, government efforts to boost bank lending have tried to tackle the symptoms of the problem rather than the cause, with predictably disappointing results. First came Project Merlin, a corporatist deal with Britain’s four biggest banks in February 2011 that failed to boost lending. This was followed in March 2012 by the National Loan Guarantee Scheme, which sought to lower banks’ funding costs but achieved little.


pages: 566 words: 155,428

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

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Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, banks create money, 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, 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, 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

But old habits die hard, and while the Fed was way ahead of the ECB, it was not quite there yet. At its September 18 meeting, the FOMC qualified its view that “the tightening of credit conditions has the potential to . . . restrain economic growth” by adding that “some inflation risks remain.” It was a finely balanced assessment of risks—far too balanced, given the emerging realities. Just five days earlier, the Bank of England had intervened massively to save Northern Rock, a huge savings institution, from the first bank run in Britain since 1866.* Things were coming unglued in England. Our problems here were strikingly similar. Could we be far behind? While the Fed’s speed made the ECB look like the proverbial tortoise watching the hare, this particular hare wasn’t actually running that fast. After its 50-basis-point rate cut on September 18, 2007, the Fed waited another six weeks—until its next regularly scheduled meeting—to move again.

b Kovacevich was actually chairman, not CEO. c Mudd was replaced by Herbert Allison, who then moved to the Treasury Department. d Syron was replaced by David Moffett, who served only until March 2009. WE’RE NOT IN KANSAS ANYMORE The post-Lehman panic spread rapidly beyond U.S. borders. The United Kingdom, of course, was deeply enmeshed in the financial crisis well before Lehman failed. It had stopped the run on Northern Rock, improvised a deposit insurance system on short notice, and either rescued or nationalized most of its big banks. Banks in Ireland lent recklessly during the property boom and were carrying huge unrealized losses prior to the Lehman bankruptcy. This “open secret” was laid bare in a very rough way when Lehman collapsed. The same was true of Iceland, on an even grander scale relative to its tiny economy.

See Foreclosures refinancing, precollapse, 38 Mozilo, Angelo, 164, 305 Naked CDS, 66, 280, 302 National Commission on Fiscal Responsibility and Reform, 397 National Economic Council (NEC), 214, 216 Negative amortization loans, 71 Negative net worth, 103–4 New Century Financial Corporation, 69 New Deal reforms for housing crisis, 324–25 regulatory agencies created, 265–66, 288 New jobs tax credit (NJTC), 229–30 News, and efficient markets hypothesis, 64–65, 103 Newton, Isaac, 47 NINJA loans, 70 Nominal interest rates, 376–78 Nonbank lenders shadow banking system, 59–64 unregulated and subprimes, 59 Nonrecourse loans for commercial paper, 147–48 for troubled asset purchases, 206–7 Northern Rock, 95, 168 Notional values, derivatives, 62 Obama, Barack, 212–20 Affordable Care Act (2010), 406 on AIG bailout, 138 backlash against, 347–48 bipartisan goals of, 220, 227 Dodd-Frank Act of 2010, 303–19 economic conditions upon election, 212, 218, 346–47 economic Dream Team, 214–17 election of 2008, 203–4 federal budget deficit efforts, 396–400 and fiscal cliff, 360 foreclosure mitigation efforts, 332–38 payroll tax cuts, 360 policy agenda, scope of, 218–20, 361 regulatory reform agenda of, 291–98 shortcomings regarding crisis, 217, 218, 220, 256–57, 325, 357–58, 361, 439, 440 stimulus package, 223–36 on Volcker Rule, 312 Occupy Wall Street, 7, 363 O’Donnell, Christine, 362 Office of Federal Housing Enterprise Oversight (OFHEO), 117–18 Office of the Comptroller of the Currency (OCC), 275, 302 regulatory failure of, 57–58 Office of Thrift Supervision (OTS), 131–32, 275, 302 O’Neal, E.


pages: 369 words: 94,588

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

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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, 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, 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, moral hazard, mortgage debt, new economy, New Urbanism, Northern Rock, oil shale / tar sands, peak oil, place-making, Ponzi scheme, precariat, reserve currency, Ronald Reagan, sharing economy, Silicon Valley, special drawing rights, special economic zone, statistical arbitrage, structural adjustment programs, the built environment, the market place, 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

As the venerable ex-chair of the Federal Reserve, Paul Volcker (who five years earlier, along with several other knowledgeable commentators, had predicted financial calamity if the US government did not force the banking system to reform its ways) noted, never before had things gone downhill ‘quite so fast and quite so uniformly around the world’. The rest of the world, hitherto relatively immune (with the exception of the United Kingdom, where analogous problems in the housing market had earlier surfaced such that the government had been forced to nationalise a major lender, Northern Rock, early on), was dragged precipitously into the mire generated primarily by the US financial collapse. At the epicentre of the problem was the mountain of ‘toxic’ mortgage-backed securities held by banks or marketed to unsuspecting investors all around the world. Everyone had acted as if property prices could rise for ever. By autumn 2008, near-fatal tremors had already spread outwards from banking to the major holders of mortgage debt.

.: 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

.: 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: 329 words: 95,309

Digital Bank: Strategies for Launching or Becoming a Digital Bank by Chris Skinner

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algorithmic trading, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, augmented reality, bank run, Basel III, bitcoin, business intelligence, business process, business process outsourcing, call centre, cashless society, clean water, cloud computing, corporate social responsibility, credit crunch, crowdsourcing, cryptocurrency, demand response, disintermediation, don't be evil, en.wikipedia.org, fault tolerance, fiat currency, financial innovation, Google Glasses, high net worth, informal economy, Infrastructure as a Service, Internet of things, Jeff Bezos, Kevin Kelly, Kickstarter, M-Pesa, margin call, mass affluent, mobile money, Mohammed Bouazizi, new economy, Northern Rock, Occupy movement, platform as a service, Ponzi scheme, prediction markets, pre–internet, quantitative easing, ransomware, reserve currency, RFID, Satoshi Nakamoto, Silicon Valley, smart cities, software as a service, Steve Jobs, strong AI, Stuxnet, trade route, unbanked and underbanked, underbanked, upwardly mobile, We are the 99%, web application, Y2K

Unfortunately, this is being called into question, thanks to the new regulations around best execution and transparency, which implies broker-dealers don’t always act in their client’s best interests (really?!). This trust has also been tested by Enron, Worldcom, Parmalat and such like, and is being tested again in the credit crunch. In fact, the recent admission by the Bank of England that they didn’t understand the financial markets anymore, in light of the Northern Rock collapse, is shocking. When the regulators and co-ordinators of the financial markets lose their understanding, something has to change. Buyology therefore means knowing the why, how, what and when ingredients of buying, and ensuring you position your business to always be there at the right time, with the right words ... there’s a song with that phrase and the next line is “and you’ll be mine”.

That’s why they want branches. In particular, customers want branches because dealing with money is frightening. It’s not an easy thing. It’s scary. People need help with managing their money and for them, the branch is the place to go. Not everyone will do this online and remote these days, as they want to have someone to talk to about money, and that’s what the branch gives them. It is the reason why Virgin acquired Northern Rock’s branches and why Marks & Spencer is opening branches with HSBC and why Tesco is opening branches. Without branches you cannot grow a banking business, and you wouldn’t pay millions for bricks and mortar branches if the bricks and mortar branches did not matter. This is all well and good, but those who are anti-branch say that they were designed in the 18th century for a market of three hundred years ago and are not fit for purpose today, as the world has become digitised and the next generation customer just does not think this way.

The management of Second Life decided that they also had to close access to gambling in virtual worlds in July 2007 to comply with this policy, which led to a major run on the virtual banks. Until this date, a lot of the commercial transactions taking place in Second Life, where people converted real US dollars to Linden dollars, were for gambling purposes apparently. Therefore, the closure of gambling denizens in the virtual world meant that folks immediately started to take money out of the virtual banks, a bit like Northern Rock but worse. So imagine you are Andre Sanchez in Sao Paulo, the one-man band behind the virtual Ginko Bank. You have over a million real US dollars on account, translated into around 275 million Linden Dollars that you are managing for the Second Life community. Suddenly, your customers demand their money be converted back to real dollars, and you drown in their demands so you just close down the virtual bank, leaving punters with losses of around $750,000 in real life.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

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accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, Bretton Woods, British Empire, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, joint-stock company, Kenneth Rogoff, labour market flexibility, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, Plutocrats, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce

There was a stark illustration of this problem in 2007 when the BBC News at Ten programme reported that Northern Rock, a bank based in the north-east of England, was in talks about emergency funding from the Bank of England. The next day depositors were queuing to withdraw their money. In turn, the sight of those queues made other depositors fearful, encouraging them to withdraw their money. Meanwhile, those who banked online were attempting, and failing because of a system overload, to do the same thing. Eventually, it took an announcement by the government that it would guarantee all deposits (initially up to £35,000 and then up to £50,000) to bring the run to a halt. The Northern Rock panic was not as bad as it might have been. Few depositors wanted their money back in the form of notes and coins.

leverage leveraged buyout Lewis, Michael Liberal Democrat party (UK) Liberal Party (UK) life expectancy life-cycle theory Little Dorrit lire Live 8 concert Lloyd George, David Lombard Odier Lombard Street Research London School of Economics Long Term Capital Management longevity Louis XIV, King of France Louis XV, King of France Louvre accord Lucas, Robert Lucullus, Roman general Luxembourg Macaulay, Thomas McCarthy, Cormac Macdonald, James MacDonald, Ramsay McKinsey McNamara, Robert Madoff, Bernie Malthusian trap Mandelson, Peter Marais, Matthieu Marco Polo Mares, Arnaud Marks & Spencer Marshall, George Marshall Aid Marshalsea Prison Mauro, Paolo May, Sir George means/media of exchange Medicaid Medicare Mellon, Andrew mercantilism Merchant of Venice, The Meriwether, John Merkel, Angela Merton, Robert Mexico Mill, John Stuart Milne-Bailey, Walter Minsky, Hyman Mises, Ludwig von Mississippi Project Mitterrand, Francois Mobutu, Joseph Mongols monetarism monetary policy monetary targets money markets money supply Moody’s Moore’s Law moral hazard Morgan Stanley Morgenthau, Henry Morrison, Herbert mortgages mortgage-backed bonds Multilateral Debt Relief Initiative Napier, Russell Napoleon, emperor of France Napoleonic Wars Nasser, president of Egypt National Association of Home Builders National Association of Realtors National Association of Security Dealers Netherlands New Century New Hampshire New Jersey Newton, Sir Isaac New York Times New Zealand Nixon, Richard Norman, Montagu North Carolina Northern Ireland Northern Rock North Korea North Rhine Westphalia, Germany Norway Obama, Barack odious debt Odysseus OECD d’Orléans, duc Ottoman Empire output gap Overstone, Lord overvalued currency owner-equivalent rent Papandreou, George paper money paradox of thrift Paris club Passfield, Lord (Sidney Webb) Paulson, Hank pawnbroking pension age pension funds pensions Pepin the Short Perot, Ross Perry, Rick Persians Peter Pan Philip II, King of Spain Philip IV, King of France PIGS countries PIMCO Plaza accord Poland Ponzi, Charles Ponzi scheme population growth populism portfolio insurance Portugal pound Prasad, Eswar precious metals Price-earnings ratio primary surplus Prince, Chuck principal-agent problem printing money private equity property market protectionism Protestant work ethic public choice theory public-sector workers purchasing power parity pyramid schemes Quaintance, Lee quantitative easing (QE) Quincy, Josiah railway mania Rajan, Raghuram Rand, Ayn Reagan, Ronald real bills theory real interest rates Record, Neil Reformation, the Reichsbank Reichsmark Reid, Jim Reinhart, Carmen renminbi Rentenmark rentiers reparations Republican Party reserve currency retail price index retirement revaluation Revolutionary War Ridley, Matt Roberts, Russell Rogoff, Kenneth Romanovs Roosevelt, Franklin D.


pages: 207 words: 86,639

The New Economics: A Bigger Picture by David Boyle, Andrew Simms

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Asian financial crisis, back-to-the-land, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, capital controls, carbon footprint, clean water, collateralized debt obligation, colonial rule, Community Supported Agriculture, congestion charging, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, deskilling, en.wikipedia.org, energy transition, financial deregulation, financial innovation, full employment, garden city movement, happiness index / gross national happiness, if you build it, they will come, income inequality, informal economy, Jane Jacobs, land reform, loss aversion, microcredit, Mikhail Gorbachev, mortgage debt, neoliberal agenda, new economy, North Sea oil, Northern Rock, offshore financial centre, oil shock, peak oil, pensions crisis, profit motive, purchasing power parity, quantitative easing, Ronald Reagan, seigniorage, Simon Kuznets, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trickle-down economics, Washington Consensus, working-age population

They could all rely on safe loans being in the package, but it also meant they could also rely on unsafe sub-prime loans being in there as well, and, as the default rate began to rise, that rendered them of doubtful and uncertain value. By July 2007, Standard & Poor was threatening to cut its ratings on $12 billion of sub-prime debt. A month later, the European Central Bank was pumping €95 billion into the money markets, as the flow of interbank lending, which banks need to deal with day-to-day withdrawals while their deposits are out on loan, all but dried up. A month after that, reports that Northern Rock was looking for emergency financial support from the Bank of England led to the first run on a British bank for over a century, with the alien sight of savers queuing for hours in the rain outside branches. Since then, as we know, the crisis accelerated until most of the investment banks on Wall Street had disappeared, and – spurred by the bankruptcy of Lehman Brothers – most of the banks in Europe and North America were forced to accept state bail outs and partial state control, or went cap in hand to the sovereign wealth funds in the Middle East, to avoid bankruptcy.

A truly resilient financial system has a multitude of financial actors, making diverse investments and taking different kinds of risks so that if one is hit by crisis, the others aren’t dragged down with it. It is no accident that the safest UK bank according to its safe financial reserves (so-called Tier 1 capital) is the Nationwide – a mutually owned building society. The government is set to own great swathes of our APPENDICES 163 financial system: Northern Rock, RBS, Lloyds TSB, HBOS. It should take the chance to demerge these behemoths that grew so complicated that they couldn’t keep track of our money or their own money. A rich, diverse ecology of different economic systems is needed, not a banking monoculture of giant actors which, when they topple, threaten us all. 2 Segregate financial markets – by separating activities such as trading and retail banking A central plank of the process of financial de-regulation has been the removal of restrictions on what activities different institutions can undertake.

(John Kenneth) 41, 51 gambling 14–15, 152 Gandhi, Mohandas (Mahatma) 18, 19, 21, 110, 112 Gates, Bill 141 Gates, Jeff 141–2 GDP (gross domestic product) 10, 32, 36–40, 42, 43, 54, 79 alternatives to 40–2, 43 bad measure of success 10, 37, 55, 78 INDEX global 141 UK 4 see also growth genetically modified crops see GM crops Germany 33, 50, 58 Gladwell, Malcolm 68 Global Barter Clubs 57, 58 global commons 113, 148 global currencies 56, 61, 120, 147–8 global greenback 61 global warming 3, 3–4, 115, 155 see also climate change globalization 8, 28, 143, 153 see also interdependence GM (genetically modified) crops 91, 117, 119, 140–1 Goetz, Stephan 124 gold standard 8, 143 Good Life, The (BBC sitcom) 69 goods, local 19, 109, 110 Goodwin, Fred 142 government borrowing 37–8, 49–50, 58, 62, 141 governments 2, 28, 116, 129, 158 creating money 58–9, 62, 90 propping up banking system 6, 7 Graham, Benjamin 120 Grameen Bank 26, 143–4, 153 Great Barrington (Massachusetts) 57, 151–2, 153 Great Depression 3, 36, 57 green bonds 157 green collar jobs 106, 157 Green Consumer Guide, The (Elkington and Hailes, 1988) 26, 69, 72 green economics 23, 100, 117 green energy 26, 97, 102–3, 114, 156, 157 Green New Deal 156–8 green taxation 153 greenhouse gas emissions 3–4, 115, 148 gross domestic product see GDP Gross National Happiness 43 growth 2, 11, 12–13, 23, 36–7, 38–40, 42, 43 185 bad measure of success 10, 158 maximizing 25 and poverty 4, 39–40, 81–2 and progress 39, 78 wealth defined in terms of 32 and well-being 4–5 see also GDP guilds 80, 80–1 happiness 12, 18, 29, 41, 43, 45–6 Happy Planet Index 32–3, 34, 43 Hard Times (Dickens, 1854) 36 HBOS 7 health 46, 72, 78, 96, 115, 129 health costs 117 healthcare 13, 33, 44 hedge funds 5, 7, 97, 120 Helsinki (Finland) 102 HIV/AIDS 70, 111, 135, 148 Honduras 139, 141 house prices 36, 46, 79, 83, 91, 126–7, 151 London 53, 54, 91 see also mortgages Howard, Ebenezer 105, 158 HSBC 5 human interaction 67–8, 74 human needs 20, 24, 67, 86 human rights 110–11, 116, 147 ill-health 35, 38, 46 ‘illth’ 29, 35 IMF (International Monetary Fund) 27, 82, 91, 135–6, 139, 143, 147, 147–8 incomes 24, 37, 43, 44, 78, 79, 81 and happiness 45–6 inequalities 37, 81, 82, 142 of poorest 4, 81, 82, 112, 142 Index of Sustainable Economic Welfare see ISEW India 82, 91, 110, 119, 136, 139–40, 153 indigenous knowledge 82, 117 inequality 4, 81–2, 96, 112–13, 116 inflation 8, 22, 58, 90 information technology 58, 59, 115 186 THE NEW ECONOMICS intellectual property 82, 91, 110, 113, 116, 117 interdependence 111–20, 135–8 Keynes on 19, 109, 110, 115, 143 see also globalization interest 8, 11, 11–12, 58, 77, 157 interest rates 144, 144–5 interest-free money 43, 73, 84, 90 intergenerational equity 25, 117 international bankruptcy 147 International Monetary Fund see IMF investment 14, 45, 53, 60, 104, 118, 137–8 ethical 26, 69–70, 74, 154 involvement 71, 75, 128–30 Iraq 49, 60, 136 ISEW (Index of Sustainable Economic Welfare) 40–1, 43, 78 Islamic banking 58, 90, 146 islands, small 31–2, 33–4 Italy 33, 119–20, 138 Ithaca hours currency 57, 58 It’s a Wonderful Life (film, Capra, 1946) 38 Jacobs, Jane 56, 110, 126 Jaffe, Bernie 126 Japan 26, 50, 91, 113, 119, 128 Jefferson, Thomas 18, 20 Jersey 52, 53 Jones, Allan 103 Jubilee Debt campaign 137 junk bonds 1, 142–3 just-in-time 123–4, 155 Keynes, John Maynard 2, 13–14, 15, 17, 21, 37, 55 on interdependence 19, 109, 110, 115, 143 international currency 61, 120 on local production 19, 109, 110 on ‘practical men’ as ‘slaves of some defunct economist’ 10, 35, 67, 87, 159 Keynesian economics 8, 18, 22, 27, 28 Kinney, Jill 130 Knowsley (Merseyside) 104 Kropotkin, Peter 18 Krugman, Paul 52 land 19, 82, 96 land tax 43 landfill 97, 98, 100, 107 Layard, Richard 41 Lehigh Hospital (Pennsylvania) 129 Letchworth Garden City (Hertfordshire) 105 lets (local exchange and trading systems) 57 liberalism 18, 19, 27 Lietaer, Bernard 56, 61, 120 life 19, 29, 55, 69, 86, 91 need for meaning 42, 75 life expectancy 31, 32–3, 82 life poverty 82–3 life satisfaction 31, 33, 41, 42 Lima (Peru) 130–1 Linton, Michael 57, 58 Living Economy, The (Ekins, 1986) 24–5 LM3 (Local Money 3) 60, 104–5 loans see debt Local Alchemy programme 152–3 local circulation of money 103–5, 107, 124, 151–2 local currencies 26, 56, 57, 58, 59, 60, 151–2, 153 local economies 26, 81, 85, 86, 105–7, 118, 124, 133 local exchange and trading systems (lets) 57 local food 2, 118, 119–20, 151 local governments 6, 44, 60 local life 4, 81, 158 Local Money 3 see LM3 local production 109, 116, 118 local savings schemes 61 local shops 75, 82–3, 104, 124, 124–5, 126, 151 supermarkets and 80, 105, 125 local wealth 14, 53–4 localization 155–6, 159 London 52, 53, 61, 97, 102, 103 house prices 53, 54, 91 traffic speed 65–6 INDEX London Underground 147 Lutzenberger, Jose 26 Macmillan Cancer Care 88–9 McRobie, George 22, 24 mainstream 4–5, 26, 154, 159–60 see also economics Malawi 135–6, 137 Malaysia 51 Manchester United 155 manipulated debt 139–41 markets 10, 12, 51, 70, 158 financial 1–2, 52, 53, 55, 138, 154–5 free 22, 85, 112–13 new economics and 67, 72–5, 85 Marsh Farm estate (Luton) 104–5, 152–3 Maslow, Abraham 67 materialism 12, 46–7 Max-Neef, Manfred 24 Maxwell, Robert 143 MDGs (Millennium Development Goals) 39, 136 Mead, Margaret 129 meaning, need for 42, 75 measurement problem 36–40 measuring 12, 42, 55, 85 success 2, 8, 10, 43, 44, 55, 154, 156, 158 value 10, 15, 29, 53, 59, 115 wealth 32, 37–40, 53–4 well-being 4, 18, 32–3, 34, 43 mechanics, Cuban 95–6, 97 medieval economics 78–80, 80–1 mega-rich 120, 141, 142 mental health 4, 35, 36, 46, 68, 83 Merck 99 micro-credit 26, 143–4, 145, 146, 151, 153 Milkin, Michael 142 Millennium Development Goals see MDGs minimum wage 92 misery, of UK young people 35–6 Mishan, E.J. 40 Mogridge, Martin 65–6, 74 Mondragon (Spain), cooperatives 153 money 8, 11, 13, 18, 27, 29, 36, 95 187 as a bad measure 10, 15, 18, 53, 59, 90, 143, 154 creating 7, 56–7, 58–9, 84, 90, 120, 138, 147 designed for money markets 53 economics and 25, 127 externalities 35 and life 55, 86, 154, 159 local circulation 103–5, 107, 124, 151–2 means to an end 15 new economics view 15, 59–60, 89 new ways of organizing 56–60 re-using 103–5 replacing with well-being 42 slowing down 51–2, 60 too little 57 types of 14–15, 57, 59, 120 and value 10, 15, 53, 59 and wealth 15, 19, 32, 38, 78 and well-being 18, 21, 81 see also GDP; growth; price; trickle down money flows 26, 50–2, 60, 103–5, 107, 124, 136–8 money markets 1–2, 52, 53, 55, 138, 154–5 money poverty 81–2 money system 7–8, 50–6, 60 monopolies 8, 20, 83, 84–6, 89–90, 125–6, 133, 146 Monsanto 85, 140 moral philosophy 12, 19, 72–3 morality 8, 18, 28, 74, 115 economics and 12, 19, 22 Morris, William 18, 78, 151 mortgages 1, 4, 5–6, 6, 7, 46, 91 working to pay 46, 68, 73, 77–8, 79, 81, 83, 84, 89, 126–7, 140 see also house prices motivations 4–5, 11, 67–9, 70, 71, 72, 73, 75 multinationals 14, 61, 84–5, 90, 137–8, 139, 143 multiple currencies 58, 59–60, 60, 90 multiplier effect 103–5 Murdoch, Rupert 52 188 THE NEW ECONOMICS Myers, Norman 117 Nanumaea (Tuvalu) 34 national accounting 37–8, 38–9 national debt 49–50, 83, 84, 139, 141 national grid 102, 106 National Health Service see NHS natural capital 3, 99 natural resources 22, 40, 43, 84, 97–8 needs 20, 24, 25, 67, 75, 86 basic 25, 89, 91–2, 115 nef (the new economics foundation) 24, 26, 45, 71, 104, 131–2, 145 Local Alchemy programme 152–3 see also Happy Planet Index; LM3 ‘neo-liberal’ policies 8, 27–8 Nether Wallop (Hampshire) 80, 81 The Netherlands 58, 106, 138 New Century 5 New Deal for Communities 152 New Deal (US) 157 new economics 2–3, 9–10, 18–19, 28–9, 59, 153–4, 159–60 Cuba as object lesson 96–7 history of 9–10, 18–19, 21–7 and the mainstream 26 as new definition of wealth 15 principles 35, 157–8 new economics foundation see nef New York City 52, 128 News Corporation 52 NHS (National Health Service) 87, 114, 131 Northern Rock 6 Nottingham 35 Nu-Spaarpas experiment 106 Obama, Barack 154, 157 obsolescence, built-in 98, 100, 101 odious debt 146 offshore assets 136–7 offshore financial centres 52–3, 61 oil 3, 96, 115, 117, 155 Oil Legacy Fund 157 orchards 111, 112, 115, 124 organic food 26 Ostrom, Elinor 127 out-of-town retailing 75, 80, 123, 132 overconsumption 32, 40, 44, 113 Owen, Robert 57 ownership 11, 46, 60, 91, 118, 156 paid work 87–9, 92 palm oil 112 Partners in Health 130–1 peak oil 3, 96, 117, 155 Pearce, David 25–6, 98, 115 Peasants’ Revolt (1381) 18 pensions 7, 44, 61, 73, 155 people, as assets 15, 57–8, 128–9, 130, 131 permit trading 45, 117–18, 148 personal carbon allowances 45, 117–18 personal debt 7, 36, 83–4, 91, 140, 141 Petrini, Carlo 119–20 Pettifor, Ann 135, 137 philanthropy 130, 133 policy makers 28, 35, 73, 87, 90 assumptions of 67, 68, 73, 128 Keynes on 10, 35, 67, 87, 159 political agenda 42–7 politicians 11, 54, 159 politics, new 159 pollution 10, 35, 37, 40, 98, 112, 114 by GM genes 91, 117, 119 poor 29, 145–6 Porritt, Jonathon 23 post-autistic economics 9–10, 71–2 poverty 4, 23, 35, 79–80, 81–2, 127 economic system and 13–14, 18, 29, 81–2, 154 interdependence leading to 111–15 reduction 39–40, 51–2, 61, 116, 124–5 poverty gap 4, 52–3, 78, 82 power 10, 12, 25, 28, 53, 141–2 corporate 20, 28, 85 monopoly power 83, 89–90, 125–6, 146 power relationships 29, 114 price 10, 67, 72, 73, 115, 153 Price, Andrew 132 INDEX prices 80, 156, 158 Pritchard, Alison 23 product life cycle 97–8, 101 professionals 130, 132, 133, 159 profits 12, 13, 99 progress 36, 37–8, 39, 43, 44, 77–8, 81–2, 84 Proudhon, Pierre-Joseph 120 psychology, economics and 67–8, 71, 72–3 public goods 148 public sector commissioning 131–2, 133 public services 45, 74, 127–32, 158 public transport 66, 74 ‘purchasing power parity’ 81 Putnam, Robert 126–7, 127–8 189 retirement 46, 73 see also pensions rewarded work 88 rewards 7, 8, 11, 25, 92, 141, 142 roads 66, 115 Robertson, James 17, 22, 23, 55, 145 Rockefeller, John D. 28 Roman Catholic church 19, 21, 117 Roosevelt, Eleanor 96 Roosevelt, Franklin Delano 157 Rotterdam (The Netherlands) 106 rubbish 97–105 Rupasingha, Anil 124 Rushey Green surgery (London) 131 Ruskin, John 17–18, 18, 29, 35, 78, 81 Russia 110 qoin system 58 rainforests 4, 10, 111, 112 ‘rational man’ assumption 10, 71 RBS 142 re-use 97, 99, 100–5 Reagan, Ronald 22, 27 real money, generating 120 ‘real’ wealth 2, 32, 36–40 reciprocity 44, 128, 128–30, 133 see also co-production recycling 97, 98, 100–1, 105–6, 106–7 redistribution 19, 27, 52, 96 regeneration 27, 104, 105, 107, 116, 124, 128 regional currencies 58, 59, 60 regulation 129, 156 competition 85, 113, 125, 126, 133 financial sector 53, 85, 157 relationships 4, 69, 83, 128–30 remittances 137 Rendell, Matt 33 renewable energy 26, 97, 102, 102–3, 114, 156, 157 repair 97, 98, 101, 105, 107 resources 32, 43, 97–8, 99, 100–1, 114, 158 local 25, 115 natural 22, 40, 43, 84, 97–8 St Louis (Missouri) 131 Samoa 34 Sane (South African New Economics) 58 saving seeds 91, 117, 119, 141 savings 7, 46, 73, 90, 157 schools 131 Schor, Juliet 83 Schumacher, E.F.


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

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Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bonus culture, 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, George Akerlof, Growth in a Time of Debt, income inequality, invisible hand, Jean Tirole, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, margin call, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, Nick Leeson, Northern Rock, open economy, peer-to-peer lending, regulatory arbitrage, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, shareholder value, sovereign wealth fund, technology bubble, The Market for Lemons, the payments system, too big to fail, Upton Sinclair, Yogi Berra

One example is the behavior of the London interbank offered rate (LIBOR), an index for the rates that London banks charge each other in unsecured borrowing and lending. Before August 2007, the difference between LIBOR and an interest rate for lending that was considered riskless was around 10 basis points (0.01 percent). On September 14, 2007, the day that the Bank of England announced emergency funding for Northern Rock, one of the largest mortgage lenders in the United Kingdom, the difference reached 85 basis points. The difference reached an all-time high (until then) of 108 basis points on December 6, 2007; another high of 83 basis points on March 17, 2008, after the collapse of Bear Stearns, and finally a record 365 basis points on October 10, 2008, after the turmoil caused by the Lehman bankruptcy. See Sengupta and Tam (2008), Acharya et al. (2010, 335–340), and FCIC (2011, 252).

Laux and Leuz (2009) and Barth and Landsman (2010) suggest that in 2008 the problem was due not so much to the use of fair-value accounting as to the reactions of banks, investors, and regulators to the results of applying these rules. Haldane (2011c) calls for a different accounting regime for banks. We further discuss the issues around the book and market value of banks in Chapter 6 and 7. 27. The problems of Germany’s Industriekreditbank and Sächsische Landesbank and the U.K.’s Northern Rock appeared as early as August 2007 (see Hellwig 2009). Over the twelve months that followed, the downward spiral in asset markets destroyed the solvency of many other highly indebted banks. 28. Briefly in this chapter, and more fully in Chapter 10, we discuss how money market funds developed and how they came to play such a key role in the interconnectedness of the system (see Fink 2008 and Goodfriend 2011). 29.

Securities and Exchange Commission (SEC) and that summarizes the performance of a public company, JPMorgan Chase had a total of loan-related commitments that amounted to $975 billion (note 29 of the report), of which only $1 billion appears on the balance sheet. In addition, it had guarantees and other commitments with a contractual amount of $316 billion, of which the amount carried onto the balance sheet was only $4 billion. 8. On Enron, see Healy and Palepu (2003) and McLean and Elkind (2004). 9. This was the case with Germany’s Industriekreditbank and Sächsische Landesbank and the United Kingdom’s Northern Rock (see Hellwig 2009). Thiemann (2012) discusses why supervisors let banks get away with these commitments. 10. See Brady et al. (2012). 11. The numbers are based on the 10-K form for 2011 (see note 7 above) that JPMorgan Chase filed with the SEC, particularly note 3 in the report (p. 189). Under the U.S. GAAP, the net derivative assets on the balance sheet are $92.5 billion. If JPMorgan Chase instead reports under IFRS, according to the International Swaps and Derivatives Association (ISDA) (2012), derivative receivables should be reported on a gross basis, with an asset balance of $1.884 trillion and a corresponding liability balance of $1.792 trillion.


pages: 225 words: 11,355

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis by Kevin Mellyn

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asset-backed security, bank run, banking crisis, Bernie Madoff, bonus culture, Bretton Woods, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, disintermediation, diversification, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, global reserve currency, Home mortgage interest deduction, Isaac Newton, joint-stock company, liquidity trap, London Interbank Offered Rate, margin call, market clearing, moral hazard, mortgage tax deduction, Northern Rock, offshore financial centre, paradox of thrift, pattern recognition, pension reform, pets.com, Plutocrats, plutocrats, Ponzi scheme, profit maximization, pushing on a string, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Ronald Reagan, shareholder value, Silicon Valley, South Sea Bubble, statistical model, The Great Moderation, the payments system, too big to fail, value at risk, very high income, War on Poverty, Y2K, yield curve

In other words, the clearing house provided the first system of financial regulation. Voluntary self-regulation is not very popular these days. However, the simple fact is that no private clearing house has ever collapsed during a financial crisis. The history of formal regulation is less stellar. The United States has experienced two devastating structural financial crises and several lesser ones since the Federal Reserve was set up. The Northern Rock bank run in England (the first since 1866) happened after the U.K. abolished the old clearing house ‘‘club’’ and took up formal regulation. LONDON BECOMES MONEY MARKET TO THE WORLD The result of all these accidents of history was that England became the first national economy based on credit. Nothing really new in finance has been invented since. The building blocks have been simple to use once they actually existed.

., 103, 105, 121, 164 Mortgages, 7, 18, 25, 35, 41, 55–58, 61–64, 66, 71–73, 110, 113, 121, 130–134, 142, 165, 176, 185, 187 NASDAQ, 165 National Accounts (US), 6, 113 National Bank Act of 1864 (US), 38 negotiable instrument, 10, 33, 35, 38–39, 130, 145 New Deal, 56, 114, 117, 126, 128, 130, 141–143, 154, 158–159, 162–163, 166, 176, 181–182, 184, 187, 189 Newton, Sir Isaac, 137 Nikkei, stock index, 168, 171 Nixon, Richard M., 154–155 Northern Rock, 86 NOW (Negotiable Order of Withdrawal) account, 130 off-shore banking centers, 150 open market operations, 107–108, 145 OPM or ‘‘Other People’s Money,’’ 15–19, 22, 26–27, 39, 46, 61, 71, 87–88, 92–93, 104, 129, 144–145, 150, 165, 167 Index ‘‘options,’’ 54–55, 75, 77 overdraft, 37–38, 61, 78, 89–90 Pac-Man banking, 157, 159 panics, xix–xx, 2, 5, 19, 45, 48, 98, 102, 109–10, 121, 136, 140–141, 150, 164, 183; of 1873, 5, 103; of 1907, 103; of 2008, 52; use of, 139 ‘‘paper money,’’ xiv–xvi, 14, 29, 33, 35, 83, 97.


pages: 193 words: 11,060

Ethics in Investment Banking by John N. Reynolds, Edmund Newell

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accounting loophole / creative accounting, banking crisis, capital controls, collapse of Lehman Brothers, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, financial independence, index fund, invisible hand, margin call, moral hazard, Nick Leeson, Northern Rock, quantitative easing, shareholder value, short selling, South Sea Bubble, stem cell, the market place, The Wealth of Nations by Adam Smith, too big to fail

Employment rights are as relevant to investment banking as elsewhere, and so too are intellectual property rights, as will be seen in Chapter 5. Consequentialist ethics Another area of concern heightened by the financial crisis relates to consequentialist ethics. On 14 September 2007, the UK government Developing an Ethical Approach to Investment Banking 43 decided to bail out the failing retail bank Northern Rock, which came under state ownership. The UK Government decided that the negative consequences of allowing this bank to collapse were too great for society to bear, and so it decided to take over the bank to protect the investments of individuals and institutions. Exactly one year later, the US government took the opposite decision with regard to the investment bank Lehman, although it had previously come to the aid of the failing Federal National Mortgage Association and Federal Home Loan Mortgage Corporation (Fannie Mae and Freddie Mac).

., 107 deontological ethics, 34–6 stockholders, 41–2 trust, 40–1 derivative, 27, 30 dharma, 63–4 Dharma Indexes, 57 discounted cash flow (DCF), 27 discount rate, 27 discriminatory behaviour, 129–31 distribution, 15, 35, 66 Dodd–Frank Wall Street Reform and Consumer Protection Act, 25 dotcom crisis, 94 dotcom stocks, 17 Dow Jones, 55–6 downgrade credit, 17, 76 defined, 76 multi-notch, 17, 76 duties, see rights vs. duties duty-based ethics, 66–8 duty of care, 105 Dynegy, 8 Earnings Before Interest Tax Depreciation and Amortisation (EBITDA), 27 economic free-ride, 5, 21 economic reality, 137 effective tax rate (ETR), 140 emissions trading, 14 employees, compensation for, 135 Encyclical, 52 engagement letters, 122–3, 159 Enron, 8, 12, 17, 20, 76 enterprise value (EV), 27 entertainment adult, 56 corporate, 128–9, 159 sexist, 159 equity deferred, 5 private, 2–3, 12, 110 equity research, 88–9, 113–15 insider dealing and, 83–4 ethical behaviour, 38–9 Ethical Investment Advisory Group (EIAG), 53, 58 ethical investment banking, 145–7 ethical standards, 47 Index ethics consequentialist, 36–7, 42 deontological, 34–6 duty-based, 66–8 exceptions and, effects of, 89–90 financial crisis and, 4–8 in investment banking, 1 in moral philosophy, 1 performance and, 8–10 rights-based, 66–8 virtue, 37–8, 43–4 see also business ethics; Code of Ethics Ethics Helpline, 48 Ethics of Executive Remuneration: a Guide for Christian Investors, The, 135 European Commission, 89 European Exchange Rate Mechanism (ERM), 17 exceptions, 89 external regulations, 19, 31 fair dealing, 45 Fannie Mae, 43 Federal Home Loan Mortgage Corporation, 43 Federal National Mortgage Association, 43 fees, 115–18 advisory, 107, 116 restructuring of, 121–2 2 and 20, 13 fiduciary duties, 27–8 financial advisers, 109 Financial Conduct Authority (FCA), 26 financial crisis, business ethics during CDOs during, 90 CDSs during, 90 ethics during, 4–8, 12–34 investment banking and, necessity of, 14–15 market capitalism, 12–14 necessity of, 14–15 non-failure of, 21 positive impact of, 18 problems with, 15–17 reality of, 16 speculation in, 91 173 Financial Crisis Inquiry Commission, 76 Financial Policy Committee (FPC), 25 financial restructuring, 119–20 Financial Services Modernization Act, 19 Financial Stability Oversight Council, 25 firm price, 67 Four Noble Truths, 57 Freddie Mac, 43 free-ride defined, 26 economic, 5, 21 in investment banking, 24 FTSE, 55 Fuhs, William, 8 General Board of Pension and Health Benefits, 54, 59 German FlowTex, 12 Gift Aid, 141 Glass–Steagall Act, 19 Global Settlement, 113 golden parachute arrangements, 133 Golden Rule, 35, 150 Goldman Sachs, 7, 16, 45, 63 Business Principles, 45–6 charges against, 78 Code of Business Conduct and Ethics, 45, 68 Code of Ethics for, 47–8 Goldsmith, Lord, 27 government, 59 business ethics within, 60 guarantees of, 24 intervention by, 22–3 government bonds, 23 greed, 4–5 Green, Stephen, 8–9 gross revenues, 59 Hedge fund behaviour of, 12 failure of, 21 funds for, raising, 2 investment fund, as type of, 3 rules for, 133 174 Index Hennessy, Peter, 42 Her Majesty’s Revenue and Customs (HMRC), 140–1 high returns, 28, 110 Hinduism, 56–7 Hobbes, Thomas, 36 hold-out value, 120–1 honesty, see trust hospitality, 128–9 hot IPOs, 94 hot-stock IPOs, 94 HSBC, 9, 28, 152 Ijara, 55 implicit government guarantee, 22–3 Independent Commission on Banking, 25 inequitable rewards, 6 informal authorisation, 81, 98 Initial Public Offering (IPO), 7 of dotcom stocks, 17 hot, allocation of, 94 hot-stock, 94 insider dealings, 83–4, 155 equity research and, 83–4 ethics of, 66, 70 laws on, 84 legal prohibition on, 82 legal restrictions on, 10 legal status of, 82 legislation on, 74 restrictions on, 83 rules of, 82, 90 securities, 70 insider trading, 12 insolvency, 24–5 institutional greed, 4 integrated bank, 28 integrated investment banking, 2, 30, 67, 106, 108 interest payments, 59–60 interest rate, 60 internal ethical issues, 126–43 abuse of resources, 127–8 corporate entertainment, 128–9 discriminatory behaviour, 129–31 hospitality, 128–9 management behaviour, 131–2 remuneration, 132–9 tax, 139–41 internal review process, managing, 134 investment banking, 94 casino capitalism in, 3 Code of Ethics in, 47–9 commercial and, convergence of, 20–1 defined, 2 ethics in, 1 free-ride in, 24 integrated, 2, 30, 67, 108, 112 in market position, role of, 65–6 moral reasoning and, 38 necessity of, 14–15 non-failure of, 19–20 positive impact of, 18 recommendations in, 94–7 sector exclusions for, 58–9 investment banking adviser, 121 investment banking behaviours, 3 investment banking ethics committee, 151–3 investment bubbles, 95 investment fund, 3 investment grade bonds, 118 investment grade securities, 76 investment recommendations, 94 investments personal account, 128, 156 principal, 15, 28 proprietary, 29 IRS, 140 Islam, 54–5 Islamic banking, 6, 54–5 Jewish Scriptures, 34 Joint Advisory Committee on the Ethics of Investment (JACEI), 54 JP Morgan, 16 Judaism, 56 junior bankers, 139 junior debt, 118 junk bond, 118 “just war” approach, 38 Index Kant, Immanuel, 35, 69 karma, 57 Kerviel, Jérôme, 44, 80 Krishna, 57 Law Society, 19 Lazard International, 9 leading adviser, 41 Leeson, Nick, 12, 44, 81 legislative change, 25–6 Lehman Brothers, 5–6, 15, 21, 23, 31, 43, 76 lenders, 26, 131 lending, 59–60 leverage levels of, 25 over, 75, 80, 119 Levin, Carl, 17, 63–4, 68 light-touch regulations, 4 liquidity market, 95 orderly, 25 withdrawal of, 24 loan-to-own, 80 Locke, John, 34 London Inter-Bank Offered Rate (LIBOR), 23 London School of Economics, 43 London Stock Exchange, 65, 71, 84 long-term values, 147 Lords Grand Committee, 27 LTCM, 23 lying, 101 MacIntyre, Alasdair, 38 management behaviour, 131–2 margin-calls, 121 market abuse, 14, 70, 75, 86–8, 155 market announcements, 88 market behaviours, 74 market capitalism, 12–14 market communications, 88 market liquidity, 95 market maker defined, 65–7 investment bank as, 66 primary activities of, 65 175 market manipulation, 75 market position, role of, 104 market rate, 117 markets advisory, 73 capital, 73, 117–18, 158 communication within, 88 duties to support, 71–2 primary, 103 qualifying, 70, 82 secondary, 103 market trading, 41 Maxwell, Robert, 12 Meir, Asher, 56 mergers and acquisitions (M&As), 41, 79 Merkel, Angela, 93 Merrill Lynch, 8, 16 Methodism, 53 Methodist Central Finance Board, 59 Methodist Church, 54 Midrash, 56 Milken, Michael, 12 Mill, John Stuart, 36 Mirror Newspaper Group, 12 misleading behaviours, 86, 105 mis-selling of goods and services, 77–9, 155 modern capitalism, 54 moral-free zones, 31 moral hazard, 22, 70 moral philosophy, 1 moral reasoning, 38 moral relativism, 38–9, 49, 68 Morgan Stanley, 47 multi-notch downgrade, 17, 79 natural law, 34, 37 natural virtues, 37 necessity of investment banking, 14–15 New York Stock Exchange (NYSE), 65, 71 New York Times, 8 Noble Eightfold Path, 57 Nomura Group Code of Ethics, 47 normal market trading, 71 Northern Rock, 43 176 Index offer price, 64 off-market trading, 71–3, 90, 155 Olis, Jamie, 8 on-market trading, 70–1 oppressive regimes, 61 option value, 121 Orderly Liquidation Authority, 25 orderly liquidity, 25 out-of-pocket expenses, 127–8 over-leverage, 75, 80, 119, 158 overvalued securities, 155 patronage culture, 131, 142 Paulson, Henry M., 86 Paulson & Co., 78 “people-based” activity, 67 P:E ratio, 27 performance, 8–10 personal abuse, 159 personal account investments, 128, 156 personal account trading, 128 personal conflicts of interest, 45 pitching, 102, 159 Plato, 37 practical issues, 110–15 competitors, relationships with, 113 equity research, 113–15 pitching, 111 sell-side advisers, 111–13 pre-IPO financing, 110 prescriptive regulations, 31, 145 price tension, 79, 113 primary market, 103 prime-brokerage, 2 principal investment, 15, 28 private equity, 2–3, 12, 110 private trading, 94 Project Merlin, 133, 141 promises, 100–1 proprietary investment, 29 proprietary trading, 15, 25, 66, 150, 155 Prudential Regulation Authority (PRA), 26 public ownership, bonus pools in, 136–9 “pump and dump” strategy, 86 qualifying instruments, 70, 87 qualifying markets, 70, 82 quality-adjusted life year (QALY), 36 Quantitative Easing (QE), 23 Queen Elizabeth II, 42 Qu’ran, 54 rated debt, 77 rates attrition, 132 discount, 27 interest, 60 market, 117 tax, 140 rating agencies, 76 Rawls, John, 35, 136 recognised exchanges, 71 Regal Petroleum, 84 regulations banking, 16 compliance with, 28 external, 19, 31 light-touch, 4 prescriptive, 31, 145 regulatory changes and, 18–20 securities, 114 self, and impact on legislation, 19 regulatory compliance, 18 religion, business ethics in, 51–62 Buddhism, 56 Christianity, 52–4 Governments, 59 Hinduism, 56–7 interest payments, 59–60 Islam, 54–5 Judaism, 56 lending, 59–60 thresholds, 60 usury, 59–60 remuneration, 132–9 bonus pools in public ownership and, 136–9 claiming credit, 134 ethical issues with, 142–3 internal review process, managing, 134 1 Timothy 6:10, 135–6 Index research, 156 resources, abuse of, 127–8 restricted creditors, 120 restructuring of fees, 121–2 financial, 119–20 syndication and, 118–22 retail banks, 16 returns, 28, 156 Revised Code of Ethics, 47 right livelihood, 57 rights-based ethics, 66–8 rights vs. duties advisory vs. trading/capital markets, 73 conflict between, reconciling, 68–70 duty-based ethics, 66–8 off-market trading, ethical standards to, 71–2 on-market trading, ethical standards in, 70–1 opposing views of, 63–74 reconciling conflict between, 68–70 rights-based ethics, 66–8 Roman Catholic Church, 52 Royal Dutch Shell, 85 Sarbanes–Oxley Act, 20 Schwarzman, Stephen, 20 scope of ethical issues, 7–8 secondary market, 103 sector exclusions for investment banking, 58–9 securities investment grade, 76 issuing, 103–5 overvalued, 155 Securities and Exchange Commission (SEC), 7, 16 Goldman Sachs, charges against, 78 rating agencies, review by, 77 short-selling, review of, 96–7 securities insider dealing, 70 securities mis-selling, 77–9 securities regulations, 114 self-regulation, 19 sell recommendation, 115 177 sell-side advisers, 107, 111–13 Senate Permanent Subcommittee on Investigations, 46 senior debt, 118 sexist entertainment, 159 shareholders, 27–9 shares, deferred, 133 Shariah finance, 55 short-selling, 94–7, 154–5 Smith, Adam, 14, 35–6 social cohesion, 53 socially responsible investment (SRI), 56 Société Générale, 44, 80 solidarity, 53 Soros, George, 17 South Sea Bubble, 90 sovereign debt, 17 speculation, 91–4, 155 in financial crisis, 93 traditional views of, 91–3 speculative casino capitalism, 16, 91 spread, 21 stabilisation, 89 stock allocation, 94–7 stockholders, 41–2 stocks, dotcom, 17 Strange, Susan, 43 strategic issues with business ethics, 30–1 syndication, 119 and restructuring, 118–22 systemic risk, 24–5 Takeover Panel, 109 Talmud, 56 taxes, 139–41 tax optimisation, 158 tax rates, 140 tax structuring, 140 Terra Firma Capital Partners, 79, 112 Theory of Moral Sentiments, The (Smith), 14 3iG FCI Practitioners’ Report, 51 thresholds, 60 1 Timothy 6:10, 135–6 178 Index too big to fail concept, 21–7 ethical duties, and implicit Government guarantee, 22–3 ethical implications of, 26–7 in government, 22–3 insolvency, systemic risk and, 24–5 legislative change, 25–6 Lehman, failure of, 23 systemic risk, 24–5 toxic financial products, 5 trading abusive, 93 emissions, 14 insider, 12 market, 41 normal market, 71 off-market, 71–83, 90, 155 on-market, 70–1 personal account, 128 private, 94 proprietary, 15, 25, 66, 150, 155 unauthorised, 7 “trash and cash” strategy, 86 Travellers, 19 Treasury Select Committee, 26 Trinity Church, 53 Trouble with Markets, The (Bootle), 4 trust, 40, 53 trusted adviser, 108–9, 125 truth, 101–5 bait and switch, 102–3 misleading vs. lying, 101 securities, issuing, 103–5 2 and 20 fee, 13 UBS Investment Bank, 9 unauthorised trading, 7, 80–1, 155 unethical behaviour, 68 UK Alternative Investment Market, 89 UK Business Growth Fund, 133 UK Code of Practice, 141 UK Independent Banking Commission, 4, 22 United Methodist Church, 54, 59 United Methodist Investment Strategy Statement, 59 US Federal Reserve, 24, 25 US Financial Crisis Inquiry Commission, 4 US Open, 126 US Senate Permanent Subcommittee on Investigations, 64, 73 US Treasury Department, 132 universal banks, 2, 21, 28, 67 untoward movement, 85 usury, 59–60 utilitarian, 84 utilitarian ethics, 49, 84, 139 values, 9, 46, 119–21, 148 Vedanta, 57 victimless crime, 82 virtue ethics, 37–8, 43–4 virtues, 9, 34 virtuous behaviours, 37 Vishnu, 57 Volcker, Paul, 25 Volcker Rule, 2, 25 voting shareholders, 29 Wall Street, 12, 19, 53 Wall Street Journal, 20 Wealth of Nations, The (Smith), 14 Wesley, John, 53 Wharf, Canary, 18 Williams, Rowan, 53 Wimbledon, 127 WorldCom, 12, 17, 20, 76 write-off, 80 zakat, 55 zero-sum games, 118–22


pages: 280 words: 79,029

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

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Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, 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, 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, implied volatility, income inequality, index fund, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, loss aversion, margin call, Mark Zuckerberg, McMansion, mortgage debt, mortgage tax deduction, 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 Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

The downturn in America’s subprime-mortgage market had made it impossible for investors to value their holdings of securities backed by these types of loans. The interbank markets, where banks loan money to each other, had suddenly seized up, as institutions realized that they could not be sure of the standing of their counterparties. Something unexpected was happening to the moneymaking machine. My very first week in the job coincided with a deposit run at Northern Rock, a British lender that came unstuck when it could no longer fund itself in the markets. Some of my earliest interviews on the beat were with people dusting off the manual on how to deal with bank runs. Organizing guide ropes inside bank branches was one tactic: better that than have people spill out onto the street, signaling to others that they should join the line. One HSBC veteran happily recounted stories of the financial crisis that gripped Asia in the late 1990s, when tellers were instructed to bring piles of cash into view to reassure people that banks were overflowing with money.

., 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.


pages: 304 words: 80,965

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It by Stephen Davis, Jon Lukomnik, David Pitt-Watson

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Admiral Zheng, banking crisis, Basel III, Bernie Madoff, Black Swan, centralized clearinghouse, clean water, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crowdsourcing, David Brooks, Dissolution of the Soviet Union, diversification, diversified portfolio, en.wikipedia.org, financial innovation, financial intermediation, Flash crash, income inequality, index fund, invisible hand, London Whale, Long Term Capital Management, moral hazard, Northern Rock, passive investing, performance metric, Ponzi scheme, principal–agent problem, rent-seeking, Ronald Coase, shareholder value, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, Steve Jobs, the market place, The Wealth of Nations by Adam Smith, transaction costs, Upton Sinclair, value at risk, WikiLeaks

Carola Frydman and Dirk Jenter, “CEO Compensation,” Rock Center for Corporate Governance at Stanford University Working Paper no. 77 (March 19, 2010): “The literature provides ample evidence that CEO compensation and portfolio incentives are correlated with a wide variety of corporate behaviors, from investment and financial policies to risk taking and manipulation”; Lucian Bebchuk and Yaniv Grinstein, “Firm Expansion and CEO Pay,” National Bureau of Economic Research Working Paper no. 11886 (November 2005). 30. Bebchuk and Grinstein, “Firm Expansion and CEO Pay.” 31. In the United Kingdom, for example, it was RBS, which had embarked on rapid acquisition, and HBOS and Northern Rock, which had been aggressive in the market place, who found themselves in greatest trouble. 32. “Governing Banks” (Global Governance Forum/International Finance Corporation, 2010). 33. Upton Sinclair, “I, Candidate for Governor: And How I Got Licked” (University of California Press, 1994). (Originally printed 1936.) 34. Ronald J. Gilson and Jeffrey N. Gordon, “The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights,” March 11, 2013, Columbia Law Review, 2013, ECGI—Law Working Paper no. 197, Columbia Law and Economics Working Paper no. 438, Rock Center for Corporate Governance at Stanford University Working Paper no. 130, http://papers.ssrn.com/sol3/papers.cfm?

See National Employment Savings Trust (NEST) Nestor, Stilpon, 43 Netherlands, 90, 111, 113 collective pension system in, 60, 197, 199, 209, 264n6 fund governance regulation in, 108–9 pension beneficiaries and investment returns, 265n20 New York Stock Exchange: average holding period of traded stock, 63 financial services as percent of, 16 high-frequency trading and, 88 New York Times (newspaper), 77, 88 Nippon, 18 Normal curve, 161–63, 260n18, 261n38 real world phenomena and, 172–73 Northern Rock, 245n31 Nusseibeh, Saker, 140 One-way market for financial assets, 240n31 Ontario Teachers’ Pension Plan, 59, 111 Opportunities, fiduciary duty and, 140 Organisation for Economic Co-operation and Development, 109 Outcomes, measuring success using, 132 Oversight: regulation and, 150–51 trust in government and, 141 Owner, use of term, 235n25 Ownership: agency capitalism and, 74–80 capitalism and, 62, 83–93, 243n2 changing conception of, 62–63 corporate governance and, 22 derivatives and, 80–83, 93 economic attention deficit hyperactivity disorder and loss of, 63–68 election of directors and, 78–79 exercised by financial agents, 230 for long-term investors, 87 individual investor’s use of technology and, 90–92 institutional investors and, 3–4, 249n3 portfolio management function and, 246n36 promoting culture of, in investment, 222–24 tax policy and, 92 Oxford University, 122 Passive investing, 45 Pax World, 77 Pay for performance, institutional investors and, 112–13 Payments system, banks and, 16–17, 20, 22, 211–12 Pension funds: collective, 197, 199, 209, 263n1, 264n3, 264n6, 266n28 commonsense, 194–96, 199–202 fees, 97–98, 195–96, 233n5 governance of, 100–101, 104–6, 107–9 investment strategy, 195, 196 People’s Pension, 202–11 portability of, 196 purpose of, 194 regulation of, 107–9, 251n22 shift from defined benefit to defined contribution plans, 99–100, 104–5 time frame and, 207 Webster and Wallace’s, 14, 199–202, 209.

Unhappy Union by The Economist, La Guardia, Anton, Peet, John

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bank run, banking crisis, Berlin Wall, Bretton Woods, capital controls, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, debt deflation, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, Flash crash, illegal immigration, labour market flexibility, labour mobility, market fundamentalism, moral hazard, Northern Rock, oil shock, open economy, pension reform, price stability, quantitative easing, special drawing rights, supply-chain management, The Great Moderation, too big to fail, transaction costs, éminence grise

The trigger was the announcement that BNP Paribas, a French bank, was suspending withdrawals from two funds heavily exposed to subprime credit. It said a shortage of liquidity made the assets impossible to value. Any doubts that Europe would feel the force of the financial crisis were quickly dispelled. A few days earlier IKB, a German bank that had played recklessly with asset-backed investments, had been bailed out; a month later there was a run on Northern Rock, a British lender that would eventually be nationalised. Trichet’s quick and firm response prompted the Financial Times to pick him in December 2007 as its “Person of the Year”. It was the bankruptcy of Lehman Brothers on September 15th 2008 that really caused global panic. The decision by Ireland a fortnight later to extend an unlimited guarantee to all banking debt provoked both anger at a rash move that was sucking deposits from the rest of Europe and a scramble by other countries to issue their own guarantees.

., The Passage to Europe, Yale University Press, 2013 Appendix 4 How The Economist saw it at the time May 1st–7th 2010 July 10th–16th 2010 November 20th–26th 2010 December 4th–10th 2010 January 15th–21st 2011 March 12th-18th 2011 June 11th-17th 2011 June 25th-July 1st 2011 October 29th-November 4th 2011 November 5th-11th 2011 November 12th-18th 2011 November 26th-December 2nd 2011 February 18th–24th 2012 March 31st–April 6th 2012 May 19th–25th 2012 May 26th-June 1st 2012 July 28th-August 3rd 2012 August 11th-17th 2012 November 17th-23rd 2012 March 23rd-29th 2013 May 25th–31st 2013 September 14th–20th 2013 October 26th-November 1st 2013 January 4th-10th 2014 Index 1974–75 global recession 10 A accession treaties 112 accountability 125–129, 162 Alliance of Liberals and Democrats for Europe (ALDE) 130–131 Alogoskoufis, George 42 Amsterdam treaty 111–112, 193 Anastasiades, Nicos 2, 86–88 Anglo Irish Bank 53 Ansip, Anders 104 Arab spring 145–146 Argentina 5, 50 Armenia 149 Ashton, Catherine 28, 43, 144 Asmussen, Jörg 51, 82 Austria 111, 127 influence 108 interest rates 93 Azerbaijan 149 Aznar, José Maria 17 B Bagehot, Walter 9 bail-in rules 83, 90–91, 165 see also Cyprus bail-outs national approval requirement 127 no-bail-out rule 45, 162, 163–165 Balkans war 143 Bank of Cyprus 86–87 Bank of England 47, 157 bank recapitalisation 58–59, 74–77, 84 Bankia 72 banking sector characteristics 35 banking supervision see financial supervision banking union 23, 74–75, 77, 83–85, 90–92, 106, 165, 195 see also deposit guarantees; financial supervision Barnier, Michel 41, 138 Barroso, José Manuel early days of crisis 41 European Commission 97, 98, 141, 172 Greece 3, 78 Italy 63 Batista, Paulo Nogueira 46 Belarus 149 Belgium 17, 100, 127 Berlusconi, Silvio euro currency view 151 Italy’s failure to reform 59, 60, 62–63 People of Freedom party (PdL) 107 resignation 64 Black Wednesday 16–17 Blair, Tony 28, 112 BNP Paribas 40 Bolkestein directive 137 bond yields 37, 38, 61, 70, 89 bond spreads 37, 42, 70, 80, 88 Bootle, Roger 1 Bowles, Sharon 98, 129 Brandt, Willy 10 Bretton Woods 9–10 Brown, Gordon 24, 41, 48, 102, 112, 144 Bruegel think-tank 35, 74, 163, 166 budget deficits Maastricht ceiling 15 timescales for meeting targets 88–89 see also stability and growth pact budgets annual, European 21, 27, 118 central 13, 168–170 federal 164, 168 fiscal capacity 84 Bulgaria 108, 113, 124, 126, 147 Bundesbank 16, 23, 157 C Cameron, David 14, 17, 64–65, 117–119, 132, 140 Cannes G20 summit (2011) 62–64 Capital Economics 1 Cassis de Dijon judgment 21 Catalonia 178 CEBS (Committee of European Banking Supervisors) 35 central banks, national 22–23 Centre for European Policy Studies 34 Centre for European Reform 34 CFSP (Common Foreign and Security Policy) 142, 144 China 33, 139, 167 Chirac, Jacques 18, 23, 100, 127 Christofias, Demetris 86 Churchill, Winston 7, 115, 161 Clark, Christopher 178 climate change 135–136 Clinton, Hillary 144 Cockfield, Arthur 13 Committee of European Banking Supervisors (CEBS) 35 Committee of Permanent Representatives (COREPER) 20 Committee of Regions 21 common fisheries policy 100, 138 Common Foreign and Security Policy (CFSP) 142, 144 community method 19, 21–22 Competitiveness Pact see Euro Plus Pact complacency pre-crisis 36–37 Constâncio, Vítor 34 constitution proposals 26–27 convergence criteria 14–16, 41, 112, 193 COREPER (Committee of Permanent Representatives) 20 COSAC (Conference of Community and European Affairs Committees of Parliaments of the European Union) 133 Council of Ministers 20, 121, 130 Council of the European Union see Council of Ministers Court of Auditors 21 Court of First Instance 21 Crafts, Nicholas 9 credit ratings (countries) 69, 77–78, 108 Crimea 150 Croatia 113, 143, 147 current-account (im)balances 25, 31, 88–89, 167–168 customs union, German 9 Cyprus accession 147 bail-out 2, 85–88 entry to euro 112 finances pre-crisis 30 Cyprus Popular Bank (Laiki) 86–88 Czech Republic 113, 118 D Dayton agreement 143 de Gaulle, Charles 9, 22, 96 de Larosière, Jacques 41, 74 Deauville meeting between Sarkozy and Merkel 51–52, 102 debt mutualisation 74, 103, 166–167 defence and security 8, 143, 145 deflation 92 Delors, Jacques 11, 37, 97 Delpla, Jacques 167 democratic accountability 125–129, 162 democratic deficit 121, 129–132, 162–163, 171–172 Denmark European participation 112 justice and home affairs (JHA) 111, 139 ministerial accountability 133 opt-outs 139 referendums 16, 27, 132 shadowing of euro 113 single currency opt-out 110, 115 UK sympathies 119 deposit guarantees 5, 40–41, 74, 77, 91 Deutschmark 10, 12, 16 devaluation, internal 31, 65–66 Dexia 72 Dijsselbloem, Jeroen 24, 87 double majority voting 20, 114 Draghi, Mario 156 appointment as ECB president 23, 68 crisis-management team 2 demand for fiscal compact 64 Long Term Refinancing Operations (LTRO) 68–70 outright monetary transactions (OMT) 78–81 pressure on Berlusconi 59 “whatever it takes” London speech 79 Duisenberg, Wim 23 E e-commerce 137 east–west divide 108 ECB (European Central Bank) bond-buying 47–49, 59–60 crisis-management planning 2, 4 delays 156 European System of Central Banks 22 liquidity provision 40–42, 68–70 outright monetary transactions (OMT) 79–81, 164, 175–176 role and function 22–24, 39–40, 170–171 supervision 6, 99, 175, 195 troika membership 160–161 EcoFin meetings 20, 114 Economic and Financial Committee 20 economic and monetary union (EMU) 11, 112 Economic and Social Committee 21 economic imbalances 30–34 The Economist on ECB responsibilities 15 fictitious memorandum to Angela Merkel 1 ECSC (European Coal and Steel Community) 7–8 EEAS (European External Action Service) 142, 144 EEC (European Economic Community) 8 EFSF (European Financial Stability Facility) 26, 48, 55, 60–61, 81, 194 see also ESM (European Stability Mechanism) EFSM (European Financial Stabilisation Mechanism) 48 Eiffel group 120, 129, 164 elections, European 121, 129–130 Elysée treaty 100 emissions-trading scheme (ETS) 135–136 EMS (European Monetary System) creation of 11 exchange-rate mechanism 16 membership 15 EMU (economic and monetary union) 11, 112 EMU@10 36 energy policies 136 enhanced co-operation 111 enlargement 33, 146–147 environment summits 135 Erdogan, Recep Tayyip 148 ESM (European Stability Mechanism) 194 establishment 26, 55, 80–81 operations 58, 75, 76, 91 Estonia 65, 108 ETS (emissions-trading scheme) 135–136 EU 2020 strategy 137 euro break-up contingency plans 2–3 convergence criteria 14–16, 41, 112, 193 crash danger 47–48 introduction of 4, 18 notes and coins 18 special circumstances 3–4 euro crisis effect on world influence 143–146 errors 155–161 focus of attention 135–141 Euro Plus Pact 55, 195 euro zone 4 economic dangers 175–178 increasing significance of institutions 113–114, 120 performance compared with US 154–155 political dangers 175–178 political integration 125 trust 173 Eurobonds 54, 59, 74, 166–167 Eurogroup of finance ministers 24, 114 European Banking Authority 114, 195 European Central Bank (ECB) bond-buying 47–49, 59–60 crisis-management planning 2, 4 delays 156 European System of Central Banks 22 liquidity provision 40–42, 68–70 outright monetary transactions (OMT) 79–81, 164, 175–176 role and function 22–24, 39–40, 170–171 supervision 6, 99, 175, 195 troika membership 160–161 European Coal and Steel Community (ECSC) 7–8 European Commission commissioners 19, 172 errors 160 future direction 171–172 influence and power 96–97, 99, 119, 125 intrusiveness 127, 140–141 organisation 19 presidency 131, 144 proposals for economic governance 50 European Community 12 European Council 20, 98–99 European Court of Human Rights 21 European Court of Justice 21 European Defence Community 8 European Economic Community (EEC) 8 European External Action Service (EEAS) 142, 144 European Financial Stabilisation Mechanism (EFSM) 48 European Financial Stability Facility (EFSF) 26, 48, 55, 60–61, 81, 194 see also European Stability Mechanism (ESM) European Financial Stability Mechanism 26 see also European Stability Mechanism (ESM) European Investment Bank 21 European Monetary Institute 22 European Monetary System (EMS) creation of 11 exchange-rate mechanism 16 membership 15 European Parliament 20–21, 97–98, 99, 100, 119, 121, 129–132, 171 European People’s Party 117, 127, 130–131 European Political Co-operation 142 European semester 25, 195 European Stability Mechanism (ESM) 194 establishment 26, 55, 80–81 operations 58, 75, 76, 91 European Systemic Risk Board 41 European Union driving forces for monetary union 12–13 expansion 26 historical background 7–12 treaty making 26–28 world influence 140, 142–150 European Union Act (2011) 117, 132 Eurosceptics 13, 123 Finns Party 124 Jobbik 125 League of Catholic Families 125 National Front 124 Party of Freedom (PdL) 124 UK Independence Party (UKIP) 118, 125, 140 excessive deficit procedure 24, 88–89, 194, 195 exchange-rate systems 3, 9–11 exchange rates 164 F Farage, Nigel 98, 118 Federal Deposit Insurance Corporation (FDIC) 77 Federal Reserve (US) 23, 47, 48, 157 federalism 19, 110, 116, 161–165, 168–170, 177–178 financial integration 35–36 financial supervision 195 ECB 6, 99, 175, 195 Jacques de Larosière proposals 41 national 23, 35 single supervisor 76–77, 83–84, 90 Finland accession 26, 111 Finns Party 124 influence 108 ministerial accountability 133 fiscal capacity 84 fiscal compact treaty 25–26, 64–65, 118, 194–195 fiscal policy, focus on 30–31 Five Star Movement 124, 126 fixed exchange-rate systems 3, 9–10 Foot, Michael 116 forecasts, growth 92 foreign policy 142–143 Fouchet plan 22 France credit rating 69, 103 current-account balance 168 EMS exchange-rate mechanism 16 excessive deficit procedure 89 GDP growth 32 and Greece 44 influence 100–104, 142–143 Maastricht deal 12, 16 public debt 159 public opinion of EU 123, 124 single currency views 16–17 unemployment 159 veto of UK entry 115 vote to block European Defence Community 8 freedoms of movement 8, 13 G Gaulle, Charles de 9, 22, 96 Gazprom 136 GDP growth 32 Georgia 149 Germany 2013 elections 90, 106, 125 bond yields 37, 89 Bundesbank 16, 23, 157 constitutional (Karlsruhe) court 45, 95, 128, 158 credit rating 69, 77–78 crisis management errors 155–156 current-account surplus 89, 105, 167–168 demands post Greek bail-out 50–51 economic strengths and weaknesses 14 GDP growth 32 and Greece 44 influence 100–106 Maastricht deal 12, 15–16 national control and accountability 128, 133 parliamentary seats 100 political parties 93, 125 public debt 159 public opinion of EU 123 unemployment 159 unification 16 Zollverein 9 Giscard d’Estaing, Valéry 11, 18, 26, 100 Glienicker group 163, 170 gold standard 9–10 Golden Dawn 124 government spending (worldwide) 4 governments, insolvency of 50 great moderation 31 Greece 2012 election 73, 126 bail-out deal 45–47, 56–58, 65–67, 70, 158 bond yields 37, 61–62 current-account balance 168 debt crisis 42–45 euro membership 18, 112, 115 finances post bail-out 93–94 finances pre-crisis 30, 71 GDP growth 32 potential euro exit 1–5, 81–83 public debt 159, 166 public opinion of EU and euro 113, 123, 124 referendum on bail-out 2, 61–62 unemployment 159 Gros, Daniel 34 H Hague, William 151 Haider, Jörg 127 Hamilton, Alexander 162, 167 Heath, Edward 10, 116 Heisbourg, François 104 Hollande, François 73–74, 89, 103–104, 127 proposed reforms 177 Hungary 41, 113, 126, 147 Hypo Real Estate 41 I Iceland 53, 147 ideological differences 114–115 IKB Deutsche Industriebank 40 immigration 139–140, 146, 147 impossible trinity 13 inter-governmentalism 96, 128, 174 interest rates 93, 164 internal devaluation 31, 65–66 International Monetary Fund (IMF) banking union 74 crisis-management planning 2, 4–5 Cyprus 86–87 errors 160–161 euro zone support 48 Greece 44–46, 56–57, 66, 83, 93–95, 160 Latvia 65 rainy-day funds 169–170 special drawing rights (SDR) 63 Iraq 143 Ireland 89, 110 bail-out 53–54, 56, 57, 89 bank crises 40, 71 bond yields 37, 47, 53, 61, 89 current-account balance 168 finances pre-crisis 30 GDP growth 32 influence 107 opt-outs 111, 139 public debt 159, 166 public opinion of EU 123 referendums 27, 28, 132 unemployment 159 Italy 2013 elections 107, 124, 126 bond yields 37, 61, 89 convergence criteria 17 current-account balance 168 danger of collapse 59 EMS exchange-rate mechanism 16 excessive deficit procedure 89 GDP growth 32 influence 100, 104, 107 interest rates 93 public debt 159, 166 public opinion of EU 123 single currency views 17 unemployment 159 J Jenkins, Roy 11 Jobbik 125 Juncker, Jean-Claude 98, 104, 177 candidate for Commission Presidency 131 EU 2005 budget crisis 28 Eurobonds 54 Eurogroup president 24 justice and home affairs (JHA) 139 K Karamanlis, Kostas 42 Karlsruhe constitutional court 45, 95, 128, 158 Kauder, Volker 105 Kerry, John 144 Kohl, Helmut 12, 18, 100 L labour markets 14, 33–34 Lagarde, Christine 51, 58, 62, 92 Laiki 86–88 Lamers, Karl 111 Lamont, Norman 17 Larosière, Jacques de 41, 74 Latin Monetary Union 9 Latvia 41, 65, 67, 88, 108 Lawson, Nigel 16 League of Catholic Families 125 legislative path 21–22 Lehman Brothers, ECB reaction to collapse 4 Letta, Enrico 107–108 Libya 143, 145 Lipsky, John 57 Lisbon treaty 28, 45, 194 foreign policy 142 institutions 20, 131 justice and home affairs (JHA) 139 subsidiarity 133 voting 20, 114 Lithuania 88, 113, 153 Long Term Refinancing Operations (LTRO) 68–70, 72 Luxembourg 77–78, 100, 108, 169 Luxembourg compromise 97 M Maastricht treaty 11–12, 15, 22, 142, 193 opt-outs and referendums 16, 110–111 MacDougall report (1977) 13, 169 Major, John 12, 111, 116 Malta 100, 112 Maroni, Roberto 34 Mayer, Thomas 1 McCreevy, Charlie 41 MEPs 20–21, 130 Merkel, Angela 2013 re-election 90 banking union 74–77 Cannes G20 summit (2011) 63–64 crisis response 40–41, 44 European constitution 28 fictitious memorandum to 1 future direction 178 power and influence 89, 102–106, 153 Sarkozy collaboration 60, 61–62, 102–103 support for Cyprus 86 support for Greece 5, 45, 49–52, 81–82 support for UK 118–119 union method 22, 128 voter support 125 Messina conference 8, 115 migration 139–140, 146, 147 Miliband, David 144 Mitterrand, François 11, 12, 18, 100 Mody, Ashoka 163 Moldova 149 Monnet, Jean 8, 152 Montebourg, Arnaud 104 Montenegro 147 Monti, Mario 64 influence 70, 75–76, 107 A New Strategy for the Single Market (2010) 137–138 Morocco 146 Morrison, Herbert 8 Morsi, Muhammad 145 Moscovici, Pierre 75 multi-annual financial framework 21, 27, 118 Mundell, Robert 12–13 mutualisation of debt 74, 103, 166–167 N national budgets 89, 125 National Front 124 NATO defence spending targets 145 European security 8 membership 110 Netherlands credit rating 77–78 excessive deficit procedure 89 influence 100, 108 ministerial accountability 133 UK sympathies 119 Nice treaty 194 no-bail-out rule 45, 162, 163–165 north–south divide 33–34, 108 Northern Rock 40 notes and coins 18 Nouy, Danièle 90 Nuland, Victoria 149 O Obama, Barack 63 official sector involvement (OSI) 83 OMT (outright monetary transactions) 79–81, 164, 175–176 Germany’s constitutional court judgment 95, 128 optimal currency-area theory 12–13, 14–15 Orban, Viktor 126 Osborne, George 117, 119 OSI (official sector involvement) 83 outright monetary transactions (OMT) 79–81, 164, 175–176 Germany’s constitutional court judgment 95, 128 P Pact for the Euro see Euro Plus Pact Papaconstantinou, George 43 Papademos, Lucas 64 Papandreou, George 56, 60 election 43 Greek referendum 61–62 resignation 2, 64 Party of Freedom 124 Poland 109, 113 Policy Exchange 1 political parties 124–125, 139–140 political union 10, 12, 133–134 Pompidou, Georges 10 Poos, Jacques 143 Portugal 110 bail-out 54, 57, 89–90 bond yields 37, 47, 53, 61, 89 public opinion of EU and euro 113 power, balance of 99–101 price stability goal of ECB 23 private-sector involvement (PSI) in debt restructuring 51–52 Prodi, Romano 17, 25, 97 Progressive Alliance of Socialists and Democrats (S&D) 130–131 public debt 15, 158–159 see also sovereign debt public opinion of EU and euro 121–124 Putin, Vladimir 149–150 Q qualified-majority voting 13, 20, 99, 121 negative qualified-majority voting 25, 195 quantitative easing (QE) 47, 15 R Rajoy, Mariano 70, 75–76, 127 recapitalisation, bank 58–59, 74–77, 84 redenomination 3–4, 153–154, 175 Reding, Viviane 139 referendums 27, 28, 121–122, 132 REFIT initiative 172 Regling, Klaus 26 Renzi, Matteo 107–108 rescue fund see European Stability Mechanism (ESM) resolution mechanism 90–91, 165, 195 single resolution mechanism (SRM) 195 single supervisory mechanism (SSM) 195 Romania 41, 108, 113, 124, 126, 147 Rome treaty 8, 97, 110, 193 Rösler, Philipp 78 Rueff, Jacques 9 Rumsfeld, Donald 143 Russia, influence on Ukraine 149–150 Rutte, Mark 77 S Samaras, Antonis 2, 78, 82, 93–94 Santer, Jacques 97 Sarkozy, Nicolas crisis response 40–41, 44 economic governance 49–50 European constitution 28 LTROs and the Sarkozy trade 69 Merkel collaboration 51–52, 60, 61–62, 102–103 Schäuble, Wolfgang 62, 75, 84, 90–91, 106, 111, 154 Schengen Agreement 110, 111–112 Schmidt, Helmut 11, 100 Schröder, Gerhard 18, 101, 127 Schulz, Martin 131 Schuman Day 8 Schuman, Robert 7–8 Scotland 112, 178 SDR (special drawing rights) 63 Securities Market Programme (SMP) 48, 79 services directive 34 Shafik, Nemat 65 Sikorski, Radek 109 Simitis, Costas 18 Simms, Brendan 179 single currency benefits 152 club within a club 112 driving forces 12–14 importance of 113 vision for 9 see also euro Single European Act 13, 193 single market 4, 137–138, 174–175 Sinn, Hans-Werner 101 six-pack 25, 50, 195 Slovakia 112 adoption of euro 41 influence 108 Slovenia 88–89, 112 influence 108 SMP (Securities Market Programme) 48, 79 snake in the tunnel 10 Solana, Javier 142 sovereign debt 165–166 see also public debt Spain 110 bail-out 70–73, 89 bank recapitalisation 84 bond yields 37, 89 CDS premiums 72 current-account balance 168 danger of collapse 59 excessive deficit procedure 89 finances pre-crisis 30 GDP growth 32 influence 107 public debt 159 public opinion of EU 123, 124 single currency views 17 unemployment 159 special drawing rights (SDR) 63 stability and growth pact 18, 24, 29, 50–51, 127, 194 Stark, Jürgen 59, 106 Steinbrück, Peer 43 Strauss-Kahn, Dominique 24, 44, 57 stress tests, bank 72, 175 subsidiarity 133, 141 Sweden 109, 111, 112 euro opt-out 18, 115 UK sympathies 119 Syria 145 Syriza 124 T Target II 157 Thatcher, Margaret 27, 110, 116 third energy package 136 Tilford, Simon 34 Tindemans, Leo 111 trade policy 138 Transatlantic Trade and Investment Partnership (TTIP) 138–139 treaty making and change 26–27, 173–174 Treaty of Amsterdam 111–112, 193 Treaty of Lisbon 28, 45, 194 foreign policy 142 institutions 20, 131 justice and home affairs (JHA) 139 subsidiarity 133 voting 20, 114 Treaty of Nice 194 Treaty of Rome 8, 97, 110, 193 Treaty on European Union (Maastricht treaty) 11–12, 15, 22, 142, 193 opt-outs and referendums 16, 110–111 Treaty on Stability, Co-ordination and Governance (TSCG) see fiscal compact treaty Tremonti, Giulio 54, 60 Trichet, Jean-Claude 151, 156 bond-buying 47–48, 52–53 crisis-management planning 2 early warnings 39–40 ECB president 23 IMF 44 Italy 59 True Finns 124 Turkey 132, 147, 148 Tusk, Donald 109, 114 two-pack 25, 89, 195 U UK Independence Party (UKIP) 118, 125, 140 Ukraine 149–150, 179–180 unemployment 158–159, 170 union method 19, 22 United Kingdom current-account balance 168 economic strengths and weaknesses 14 EMS exchange-rate mechanism 16 euro crisis reaction 117–118 euro membership 112 European budget contribution 27–28 European involvement 8, 10, 12, 115–119 future status 174–175 influence 100–101, 106, 109, 142–143 initial application to join EEC 9 opt-outs 110–111, 139 public opinion of EU 123 single currency views 17 United Left party 124 United States abandonment of gold standard 10 federalism model 177 foreign policy 143 performance compared with euro zone 154–155 Urpilainen, Jutta 77 V Van Gend en Loos v Nederlandse Administratie der Belastingen (1963) 21 Van Rompuy, Herman 98 crisis-management planning 3 Cyprus 87 European Council presidency 20, 28 Italy 63 roadmap for integration 74–75, 84, 173 support for Greece 43–45 Venizelos, Evangelos 57, 62 Verhofstadt, Guy 131 Véron, Nicolas 35 Vilnius summit 149 von Weizsäcker, Jakob 166 W Waigel, Theo 17–18 Wall Street flash crash 47 Weber, Axel 49, 56, 106 Weidmann, Jens 40, 80, 82 Weizsäcker, Jakob von 166 Werner report (1971) 10 Wilson, Harold 116 Wolfson Prize 1 World Bank 33 World Trade Organisation 138–139 Y Yanukovych, Viktor 149 Z Zapatero, José Luis Rodríguez 59, 62 Zollverein 9 PublicAffairs is a publishing house founded in 1997.


pages: 421 words: 128,094

King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone by David Carey; John E. Morris; John Morris

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

There was the collapse of the two Bear Stearns hedge funds the week of Blackstone’s IPO in June. The same month Germany’s IKB Deutsche Industriebank, which had invested heavily in American subprime securities, had to be bailed out. In Britain, which had seen its own subprime boom, there was a run on the giant British savings bank Northern Rock in September 2007 when it could not sell new debt to fund itself. As newspapers filled with photos of depositors lined up around the block at Northern Rock branches waiting to retrieve their money, the British government finally stepped in. Until the spring of 2007, there had been a collective sense of denial about the mortgage problems and a persistent hope that they would not spread to other types of debt. But it was hard not to see the parallels to buyout lending—the escalating prices for companies, the extreme leverage, the loose lending terms, and the narrow margins for error.

Treasury Department and the Federal Reserve Bank scrambled to cobble together bailouts of financial institutions such as Lehman Brothers, Merrill Lynch, and American International Group in the autumn of 2008, they dialed up Blackstone and others, seeking both money and ideas. Private equity firms were also at the table when the British treasury and the Bank of England tried to rescue Britain’s giant, failing savings bank Northern Rock. (Ultimately the shortfalls at those institutions were too great for even the biggest private funds to remedy.) The U.S. government again turned to private equity in 2009 to help fix the American auto industry. As its “auto czar,” the Obama administration picked Steven Rattner, the founder of the private equity firm Quadrangle Group, and to help oversee the turnaround of General Motors Corporation, it named David Bonderman, the founder of Texas Pacific Group, and Daniel Akerson, a top executive of Carlyle Group, to the carmaker’s board of directors.


pages: 545 words: 137,789

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

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Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Bretton Woods, British Empire, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, global supply chain, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, laissez-faire capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Network effects, Nick Leeson, Northern Rock, paradox of thrift, 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, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, unorthodox policies, value at risk, Vanguard fund

In August and September, the amount of outstanding ABCP fell by about $370 billion. Many more-visible financial institutions also struggled to find financing. In late August, Countrywide Financial secured a $2 billion capital injection from Bank of America. Northern Rock, Britain’s fifth-biggest mortgage lender, wasn’t so lucky. The bank, which was based in Newcastle, a city in the northeast of England, didn’t have any direct connection to the U.S. subprime market, but its practice of raising large amounts of money from other financial institutions had prompted questions about its viability. In the middle of September, many of Northern Rock’s depositors started queuing up to withdraw their savings. The British government, fearing the depositors’ panic would spread, agreed to rescue the bank. Because of their quarterly reporting season, it wasn’t until October and November that the big American banks started to report some of the subprime losses that had been festering on their books since the summer.

Newton, Isaac New York Cotton Exchange New Yorker, The New York Mets baseball team New York State Common Retirement Fund New York Stock Exchange New York Times, The Book Review New York University (NYU) Stern School of Business New York Yankees baseball team Nightingale, Florence “NINJA” mortgage loans Nixon, Richard Nobel Prize noise traders Nordhaus, William Northern Rock Norway Nothaft, Frank Obama, Barack Objectivist Newsletter, The October Revolution oligopoly “On an Economic Equation System and a Generalization of the Brouwer Fixed Point Theorem” (von Neuman) O’Neal, Stan On Liberty (Mill) Only Yesterday (Allen) “On the Economic Theory of Socialism” (Lange) “On the Impossibility of Informationally Efficient Markets” (Grossman and Stiglitz) Organisation for Economic Cooperation and Development Organization of Petroleum Exporting Countries (OPEC) O’Rourke, Kevin O’Toole, Bob Ove Arup Ownit Mortgage Solutions Oxford University Pacific Investment Management Company Padilla, Mathew paradox of thrift Pareto, Vilfredo Pareto efficiency Parker Brothers Pasternak, Boris Paulson, Henry “Hank” Pearl Harbor, Japanese attack on Pender, Kathleen Penn Square Bank Pennsylvania, University of, Wharton School of Business Pentagon Papers, The Pericles Phelps, Edmund Philadelphia 76ers basketball team Philippines Phillips, A.


pages: 524 words: 143,993

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

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

Worse, contrary to what proponents of the new market-based financial system had long and, alas, all too persuasively argued, risk had been distributed not to those best able to bear it, but to those least able to understand it.7 Examples turned out to include IKB, an ill-managed German Landesbank, and no fewer than eight Norwegian municipalities.8 These plucked chickens duly panicked when it became clear what, in their folly, they had been persuaded to buy. On 13 September 2007, Northern Rock, a specialized UK mortgage-lender, which had been offering home loans of up to 125 per cent of the value of property and 60 per cent of whose total lending was financed by short-term borrowing, suffered the first large depositor ‘run’ on a British bank since the nineteenth century.9 Ultimately, the Labour government nationalized Northern Rock – paradoxically, very much contrary to the company’s wishes. Reliance on short-term loans from financial markets, rather than deposits, for funding of long-term illiquid assets had, it soon turned out, become widespread. This was also a dangerous source of vulnerability, since explicit and implicit insurance had made deposits relatively less likely to run than market-based finance.

Before 2000, unlike in the US, securitised credit had played a small role in the UK mortgage market but by 2007, 18% of UK mortgage credit was funded through securitization … But the UK also saw the rapid growth of on-balance sheet mortgage lending, with UK banks expanding their loan books more rapidly than deposit bases, placing increasing reliance on wholesale funding. At the aggregate level, this implied a significant increase in overseas bank financing of the UK current-account deficit. A crucial feature of the UK system in the run-up to the crisis, was therefore the rapid growth of a number of specific banks – Northern Rock, Bradford & Bingley, Alliance and Leicester and HBOS – which were increasingly reliant on the permanent availability of a large-scale interbank funding and/or on their continuous ability to securitise and sell down rapidly accumulating credit assets, particularly in the mortgage market.25 Second, banking went global. This was true for many institutions and countries, but it was dramatically true of the UK.


pages: 358 words: 106,729

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

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accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Bernie Madoff, Bretton Woods, business climate, 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, 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, market bubble, Martin Wolf, medical malpractice, microcredit, moral hazard, new economy, Northern Rock, offshore financial centre, open economy, price stability, profit motive, Real Time Gross Settlement, Richard Florida, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, school vouchers, short selling, sovereign wealth fund, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Vanguard fund, women in the workforce, World Values Survey

One possibility is to retain deposit insurance for small and medium-sized banks in return for their paying a fair insurance premium, but to reduce it progressively for larger banks until it is eliminated. Clearly, if banks are seen as too big to fail, eliminating deposit insurance is moot, as the bank will be bailed out anyway. The United Kingdom deposit insurance system, which was partial, did not prevent Northern Rock from getting into trouble or the government from coming to the rescue. The point of eliminating deposit insurance, however, is to make depositors think before they make a bank too big. Unlike depositors in the United Kingdom (where all bank deposits were partially insured, and therefore depositing in a large bank was significantly safer), depositors in large banks under my proposal would have the choice between being fully insured in a small bank and largely uninsured in a large bank.

., See also JP Morgan Morrice, Brad mortgage-backed securities: credit risk of Fannie Mae and Freddie Mac issues federal purchases of held by banks investors in ratings of risks of, subprime mortgages in tail risks of tranches of mortgage brokers mortgage insurance mortgages: defaults on deregulation of thrift industry FHA foreclosures of historical evolution of interest rates on predatory lending traditional lending process for, See also subprime mortgage market motivations multilateral financial institutions: influence of lending by reforms of See also International Monetary Fund; World Bank mutual fund management companies national home ownership strategy, See also home ownership nationalism Nehru, Jawaharlal New Century Financial New Deal New York City No Child Left Behind Act of noncognitive skills Northern Rock Obama, Barack Obama administration Office of Thrift Supervision O’Neal, Stanley opportunities organizational capital ownership society, See also home ownership Park Chung Hee Paulson, Henry J. Paulson, John PBOC. See People’s Bank of China Pension Benefit Guarantee Corporation pensions People’s Bank of China (PBOC) Peugeot Phillips curve physicians: malpractice suits and salaries of See also health care Pinto, Edward A Plan of the English Commerce (Defoe) Plaza Accord (1945) political fault lines politics: economics and of immigration pressures for easy credit, pressures for fiscal stimulus Poole, Keith populist credit expansion Populist movement poverty: cycle of in developing countries family instability and opportunities for escape from Prasad, Eswar predatory lending prices: food functions of, See also asset prices; housing market; inflation Prince, Charles professional credentials proprietary trading protectionism racism rating agencies Rato, Rodrigo de recession of: Federal Reserve responses to fiscal stimulus response to jobless recovery from recessions: of of cleansing role of jobless recoveries from Keynesian policies and overreactions to political pressure for economic stimulus during redundancy, in financial systems reforms: in access to credit in Brazil in China in deposit insurance educational fault lines addressed by of Federal Reserve financial in global economic governance goals of guiding principles of of health insurance in housing finance of incentives in India of monetary policy of multilateral financial institutions, need for reducing government intervention reducing search for tail risk regulatory tort of unemployment benefits regulation: antitrust cycle-proof enforcement of failures of history of laissez-faire ideology and in New Deal reforms of See also deregulation regulation, banking: capital requirements central bank responsibilities for cognitive capture and Community Reinvestment Act effectiveness of enforcement of history of of new products reforms of resolution of bank failures risk monitoring and transparency of relationship capitalism.


pages: 350 words: 109,220

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

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

TAKING OUT INSURANCE By the time the FOMC convened in Washington on September 18, a couple of weeks after Jackson Hole, the government had reported that employers had cut their payrolls for the first time in seven years. Britain had witnessed its first bank run in a century, humiliating Mervyn King at the Bank of England. King had chided the Fed and ECB for rushing to pump money into credit markets. Doing so “encourages herd behavior and increases the intensity of future crises,” he charged. Then in response to a run on a bank misleadingly named Northern Rock — which employed a Countrywide-like strategy of borrowing in short-term markets to finance mortgages that it planned to sell to securities markets — King had been forced to do in the markets what other central banks had. In Washington, the ghost of Greenspan loomed as he released his memoir with an appearance on 60 Minutes, an excerpt in Newsweek, and headlines nearly everywhere days before the FOMC meeting.

Despite the misgivings of some regional bank presidents, the Fed delivered a rate cut twice that size. The stock market cheered the news loudly. The Dow Jones Industrial Average had its best day since 2003, rising 2.5 percent. In Fedspeak, the aggressive half-point move amounted to “taking out insurance,” preemptively cutting interest rates to reduce the risk of a nightmare scenario becoming reality. Especially in the wake of the run on Northern Rock, the Fed needed — as Geithner often put it — to get the ratio of drama to impact right. Too much drama, and the Fed conveyed unsettling panic. Too little action, and the Fed looked wimpy. The September rate cut was one instance in the Great Panic where the Fed appeared to hit the ratio exactly right. The first rate cut of Bernanke’s tenure was a clear success. Yet despite the deft touch, surprising numbers of ordinary Americans were angry, and getting more so.


pages: 385 words: 111,807

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

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

She knows that her bank actually does not have the cash to pay all her fellow depositors, should a sufficient number of them want to withdraw their deposits in cash at the same time. Even though the belief may be totally unfounded – as was the case with the Fidelity Fiduciary Bank – it will become a ‘self-fulfilling prophecy’ if enough account holders think and act in this way. This situation is known as a bank run. We have seen examples of it in the wake of the 2008 global financial crisis. Customers queued up in front of Northern Rock bank branches in the UK, while online depositors in the UK and the Netherlands clogged up the website of Icesave, the internet arm of the collapsing Icelandic bank Landsbanki. Banking is a confidence trick (of a sort), but a socially useful one (if managed well) So, is banking a confidence trick? It is – sort of. Strictly speaking, a confidence trick involves making the victim believe in something that is false.

In this situation, the bank in trouble owns assets (loans that it has made, bonds and other financial assets it has bought, etc.) whose values are greater than its liabilities (deposits, bonds it has issued, loans from another bank, etc.) but it cannot immediately sell those assets and meet all liabilities that are due. If the bank has a solvency crisis, which means that the total value of its liabilities exceeds that of its assets, no amount of central bank lending will fix the problem. Either the bank will go bankrupt or require a government bail-out, which happens when the government injects new capital into the troubled bank (as happened with Northern Rock and Icesave). Government bail-out of banks has become highly visible after the 2008 crisis, but it is a practice that has been going on throughout the history of capitalism. Shoring up confidence further: deposit insurance and prudential regulation A country can also shore up confidence in its banks through deposit insurance, as well as through central banking. Under this insurance scheme, the government commits itself to compensate all depositors up to a certain amount (for example, €100,000 in the Eurozone countries at the moment), if their banks are unable to pay their money back.


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Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed by Andrew Jackson (economist), Ben Dyson (economist)

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bank run, banking crisis, banks create money, Basel III, Bretton Woods, call centre, capital controls, cashless society, central bank independence, credit crunch, David Graeber, debt deflation, double entry bookkeeping, eurozone crisis, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, informal economy, land reform, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Northern Rock, price stability, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, risk-adjusted returns, seigniorage, shareholder value, short selling, South Sea Bubble, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, unorthodox policies

In practice, wholesale funders are typically able to withdraw their own funds from a bank before members of the public, and therefore tend to enjoy 'seniority' in terms of repayment as a result of their better access to information and the slower speed of normal depositors (due to deposit insurance). As Huang and Ratnovski (2010) explain in an IMF working paper: “This was the main reason why in almost all recent bank failures (e.g., Continental Illinois, Northern Rock, IndyMac) short-term wholesale financiers were able to exit ahead of retail depositors without incurring significant losses. Interestingly, the well-publicized retail run on Northern Rock took place only after the bank had nearly exhausted its liquid assets to pay off the exit of short-term wholesale funds.” Box 2.E - Repos (Sale and Repurchase Agreements) The standard method by which the Bank of England creates reserves is through what is known as a sale and repurchase agreement (a 'repo').


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Capitalism: Money, Morals and Markets by John Plender

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Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, bonus culture, Bretton Woods, business climate, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, corporate governance, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, Fractional reserve banking, full employment, Gordon Gekko, greed is good, Hyman Minsky, income inequality, inflation targeting, invention of the wheel, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, labour market flexibility, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, means of production, Menlo Park, moral hazard, moveable type in China, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Plutocrats, plutocrats, price stability, principal–agent problem, profit motive, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, We are the 99%, Wolfgang Streeck

The bank kept going for a few days, paying them off as best it could, but in the end the crowd of creditors increased and the bank collapsed and failed, to the detriment of numberless people and great damage to this market, which was without a bank for four years, so that business shrank to an unbelievable extent. The Republic felt the effects of this, and took very extensive measures, but to no avail.36 Today, bank runs usually take a different form. Big depositors such as companies, pension funds and other financial institutions simply decide not to renew lending lines or certificates of deposit, so an ailing bank finds that its sources of funds dry up. Notwithstanding that, the British bank Northern Rock actually experienced in 2007 an old-style run in which worried retail depositors queued up outside branches to withdraw their money. Either way, the reality is that all money lenders that operate on the basis of fractional reserve banking are inherently technically bankrupt. Hence the quip generally attributed to Henry Ford: ‘It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before morning.’

E. 1 morbidity syndrome 1 More, Thomas 1, 2 Morgan, John Pierpont 1 Mozart 1, 2 Mussolini 1 Mutual Assured Production (Richard Katz) 1 Mynors, Humphrey 1 Napoleonic Wars 1 Nash, Ogden 1, 2 Native Americans 1 Nazi Germany 1 Netherlands 1 New Deal 1, 2 New Testament 1 Newton, Isaac 1, 2, 3 Nicholas Nickleby (Dickens) 1, 2, 3 Nigeria 1 Norquist, Grover 1 North, Roger 1 North and South (Mrs Gaskell) 1 North Korea 1 Northern Rock (UK) 1 Novalis 1 Nuffield, Lord 1 Obama, Barack 1, 2 Occupy movement 1, 2 oil states 1 da l’Osta, Andrea 1, 2 outsourcing 1, 2 paper currency 1 Parker, Dorothy 1 Pascal, Blaise 1, 2 Past and Present (Thomas Carlyle) 1 Paulson, John 1 Peasants’ Revolt (England) 1 pension funds 1 Pepys, Samuel 1 Peruzzi family 1 perverse incentives 1, 2 Petronius 1 Picasso 1, 2 Piketty, Thomas 1 Pitt, William the Elder 1 Pitt, William the Younger 1 Plato 1, 2, 3 Political Discourses (Hume) 1 Politics (Aristotle) 1, 2, 3, 4, 5 poll taxes 1 Pope, Alexander 1, 2, 3, 4, 5 Portugal 1 positional goods 1 Poussin, Nicolas 1 Prell, Michael 1 Priestley, Joseph 1 printing 1 Proposition 1 (California) 2 Protestant Ethic and the Spirit of Capitalism (Weber) 1 Prussia 1, 2, 3 public sector debt 1 R.

Future Files: A Brief History of the Next 50 Years by Richard Watson

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Albert Einstein, bank run, banking crisis, battle of ideas, Black Swan, call centre, carbon footprint, cashless society, citizen journalism, computer age, computer vision, congestion charging, corporate governance, corporate social responsibility, deglobalization, digital Maoism, disintermediation, epigenetics, failed state, financial innovation, Firefox, food miles, future of work, global supply chain, global village, hive mind, industrial robot, invention of the telegraph, Jaron Lanier, Jeff Bezos, knowledge economy, linked data, low skilled workers, M-Pesa, Northern Rock, peak oil, pensions crisis, precision agriculture, prediction markets, Ralph Nader, Ray Kurzweil, rent control, RFID, Richard Florida, self-driving car, speech recognition, telepresence, the scientific method, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Turing test, Victor Gruen, white flight, women in the workforce, Zipcar

There were people queuing down high streets all over the country trying to get their cash out, until the government agreed to use taxpayers’ money to guarantee their savings. It effectively said that it would bail out anyone who invested 140 FUTURE FILES in a major UK financial institution that had forgotten that there should be some balance between borrowing and lending. The problem, of course, was that Northern Rock was too clever by half. Instead of using branch deposits to fund growth it used the global money market, which in turn relies on securitization to transfer risk. As a result the bank, which was essentially a local UK lender, became embroiled in the US subprime mortgage fiasco. Could such a situation happen again? Probably, although chances are it will be wearing different clothes next time. Talking of debt, in the UK household debt will hit 150% of annual income by 2010, which means that it will increase from something in the order of £1 trillion to £1.6 trillion, give or take a few pounds.

A 311 Index ‘O’ Garage 170 3D printers 56 accelerated education 57 accidents 159, 161–6, 173, 246 ACNielsen 126 adaptive cruise control 165 Adeg Aktiv 50+ 208 advertising 115–16, 117, 119 Africa 70, 89, 129, 174, 221, 245, 270, 275, 290, 301 ageing 1, 10, 54, 69, 93, 139, 147–8, 164, 188, 202, 208, 221, 228–9, 237, 239, 251, 261, 292, 295, 297–8 airborne networks 56 airlines 272 allergies 196–7, 234, 236 Alliance Against Urban 4x4s 171 alternative energy 173 alternative futures viii alternative medicine 244–5 alternative technology 151 amateur production 111–12 Amazon 32, 113–14, 121 American Apparel 207 American Express 127–8 androids 55 Angola 77 anti-ageing drugs 231, 237 anti-ageing foods 188 anti-ageing surgery 2, 237 antibiotics 251 anxiety 10, 16, 30, 32, 36, 37, 128, 149, 179, 184, 197, 199, 225, 228, 243, 251, 252, 256, 263, 283–4, 295–6, 300, 301, 305 Apple 61, 115, 121, 130, 137–8, 157 Appleyard, Bryan 79 Argentina 210 Armamark Corporation 193 artificial intelliegence 22, 40, 44, 82 131, 275, 285–6, 297, 300 Asda 136, 137 Asia 11, 70, 78, 89, 129, 150, 174, 221, 280, 290, 292 Asimov, Isaac 44 Asos.com 216 asthma 235 auditory display software 29 Australia 20–21, 72–3, 76, 92, 121, 145, 196, 242, 246, 250, 270, 282 Austria 208 authenticity 32, 37, 179, 194, 203–11 authoritarianism 94 automated publishing machine (APM) 114 automation 292 automotive industry 154–77 B&Q 279 baby boomers 41, 208 bacterial factories 56 Bahney, Anna 145 Bahrain 2 baking 27, 179, 195, 199 Bangladesh 2 bank accounts, body double 132 banknotes 29, 128 banks 22, 123, 135–8, 150, 151 virtual 134 Barnes and Noble 114 bartering 151 BBC 25, 119 Become 207 Belgium 238 313 314 benriya 28 Berlusconi, Silvio 92 Best Buy 223 biofuel 64 biomechatronics 56 biometric identification 28, 35, 52, 68, 88, 132 bionic body parts 55 Biosphere Expeditions 259 biotechnology 40, 300 blended families 20 blogs 103, 107, 109, 120 Blurb 113 BMW 289 board games 225 body double bank accounts 132 body parts bionic 55 replacement 2, 188, 228 Bolivia 73 Bollywood 111 books 29, 105, 111–25 boomerang kids 145 brain transplants 231 brain-enhancing foods 188 Brazil 2, 84, 89, 173, 247, 254, 270, 290 Burger King 184 business 13, 275–92 Bust-Up 189 busyness 27, 195, 277 Calvin, Bill 45 Canada 63, 78, 240 cancer 251 car sharing 160, 169, 176 carbon credits 173 carbon footprints 255 carbon taxes 76, 172 cars classic 168–9 driverless 154–5 flying 156, 165 hydrogen-powered 12, 31, 157, 173 pay-as-you-go 167–8 self-driving 165 cascading failure 28 cash 126–7, 205 cellphone payments 129, 213 cellphones 3, 25, 35, 51, 53, 120, 121, FUTURE FILES 129, 156, 161, 251 chicken, Christian 192 childcare robots 57 childhood 27, 33–4, 82–3 children’s database 86 CHIME nations (China, India, Middle East) 2, 10, 81 China 2, 10, 11, 69–72, 75–81, 88, 92–3, 125, 137, 139–40, 142, 151, 163, 174–5, 176, 200, 222, 228, 247, 260, 270–71, 275, 279, 295, 302 choice 186–7 Christian chicken 192 Christianity, muscular 16, 73 Chrysler 176 cinema 110–11, 120 Citibank 29, 128 citizen journalism 103–4, 108 City Car Club 168 Clarke, Arthur C. 58–9 Clarke’s 187 classic cars 168–9 climate change 4, 11, 37, 43, 59, 64, 68, 74, 77–9, 93, 150, 155, 254, 257, 264, 298–9 climate-controlled buildings 254, 264 cloning 38 human 23, 249 CNN 119 coal 176 Coca-Cola 78, 222–3 co-creation 111–12, 119 coins 29, 128, 129 collective intelligence 45–6 Collins, Jim 288 comfort eating 200 Comme des Garçons 216 community 36 compassion 120 competition in financial services 124–5 low-cost 292 computers disposable 56 intelligent 23, 43 organic 56 wearable 56, 302 computing 3, 33, 43, 48, 82 connectivity 3, 10, 11, 15, 91, 120, Index 233, 261, 275–6, 281, 292, 297, 299 conscientious objection taxation 86 contactless payments 123, 150 continuous partial attention 53 control 36, 151, 225 convenience 123, 178–9, 184, 189, 212, 223, 224 Coren, Stanley 246 corporate social responsibility 276, 282, 298 cosmetic neurology 250 Costa Rica 247 Craig’s List 102 creativity 11, 286; see also innovation credit cards 141–3, 150 crime 86–9 forecasting 86–7 gene 57, 86 Croatia 200 Crowdstorm 207 Cuba 75 cultural holidays 259, 273 culture 11, 17–37 currency, global 127, 151 customization 56, 169, 221–2, 260 cyberterrorism 65, 88–9 Cyc 45 cynicism 37 DayJet 262 death 237–9 debt 123–4, 140–44, 150 defense 63, 86 deflation 139 democracy 94 democratization of media 104, 108, 113 demographics 1, 10, 21, 69, 82, 93, 202, 276, 279–81, 292, 297–8 Denmark 245 department stores 214 deregulation 11, 3 Destiny Health 149 detox 200 Detroit Project 171 diagnosis 232 remote 228 digital downloads 121 evaporation 25 315 immortality 24–5 instant gratification syndrome 202 Maoism 47 money 12, 29, 123, 126–7, 129, 132, 138, 150, 191 nomads 20, 283 plasters 241 privacy 25, 97, 108 readers 121 digitalization 37, 292 Dinner by Design 185 dirt holidays 236 discount retailers 224 Discovery Health 149 diseases 2, 228 disintegrators 57 Disney 118–19 disposable computers 56 divorce 33, 85 DNA 56–7, 182 database 86 testing, compulsory 86 do-it-yourself dinner shops 185–6 dolls 24 doorbells 32 downshifters 20 Dream Dinners 185 dream fulfillment 148 dressmaking 225 drink 178–200 driverless cars 154–5 drugs anti-ageing 231, 237 performance-improving 284–5 Dubai 264, 267, 273 dynamic pricing 260 E Ink 115 e-action 65 Earthwatch 259 Eastern Europe 290 eBay 207 e-books 29, 37, 60, 114, 115, 302 eco-luxe resorts 272 economic collapse 2, 4, 36, 72, 221, 295 economic protectionism 10, 15, 72, 298 economy travel 272 316 Ecuador 73 education 15, 18, 82–5, 297 accelerated 57 lifelong learning 290 Egypt 2 electricity shortages 301 electronic camouflage 56 electronic surveillance 35 Elephant 244 email 18–19, 25, 53–4, 108 embedded intelligence 53, 154 EMF radiation 251 emotional capacity of robots 40, 60 enclosed resorts 273 energy 72, 75, 93 alternative 173 nuclear 74 solar 74 wind 74 enhancement surgery 249 entertainment 34, 121 environment 4, 10, 11, 14, 64, 75–6, 83, 93, 155, 171, 173, 183, 199, 219–20, 252, 256–7, 271, 292, 301 epigenetics 57 escapism 16, 32–3, 121 Estonia 85, 89 e-tagging 129–30 e-therapy 242 ethical bankruptcy 35 ethical investing 281 ethical tourism 259 ethics 22, 24, 41, 53, 78, 86, 132, 152, 194, 203, 213, 232, 238, 249–50, 258, 276, 281–2, 298–9 eugenics 252 Europe 11, 70, 72, 81, 91, 141, 150, 174–5, 182, 190, 192, 209 European Union 15, 139 euthanasia 238, 251 Everquest 33 e-voting 65 experience 224 extended financial families 144 extinction timeline 9 Facebook 37, 97, 107 face-recognition doors 57 fakes 32 family 36, 37 FUTURE FILES family loans 145 fantasy-related industries 32 farmaceuticals 179, 182 fast food 178, 183–4 fat taxes 190 fear 10, 34, 36, 38, 68, 150, 151, 305 female-only spaces 210–11, 257 feminization 84 financial crisis 38, 150–51, 223, 226, 301 financial services 123–53, 252 trends 123–5 fish farming 181 fixed-price eating 200 flashpacking 273 flat-tax system 85–6 Florida, Richard 36, 286, 292 flying cars 165 food 69–70, 72, 78–9, 162, 178–201 food anti-ageing 188 brain-enhancing 188 fast 178, 183–4 functional 179 growing your own 179, 192, 195 history 190–92 passports 200 slow 178, 193 tourism 273 trends 178–80 FoodExpert ID 182 food-miles 178, 193, 220 Ford 169, 176, 213, 279–80 forecasting 49 crime 86–7 war 49 Forrester Research 132 fractional ownership 168, 175, 176, 225 France 103, 147, 170, 189, 198, 267 Friedman, Thomas 278–9, 292 FriendFinder 32 Friends Reunited 22 frugality 224 functional food 179 Furedi, Frank 68 gaming 32–3, 70, 97, 111–12, 117, 130, 166, 262 Gap 217 Index gardening 27, 148 gas 176 GE Money 138, 145 gendered medicine 244–5 gene silencing 231 gene, crime 86 General Motors 157, 165 Generation X 41, 281 Generation Y 37, 41, 97, 106, 138, 141–2, 144, 202, 208, 276, 281, 292 generational power shifts 292 Genes Reunited 35 genetic enhancement 40, 48 history 35 modification 31, 182 testing 221 genetics 3, 10, 45, 251–2 genomic medicine 231 Germany 73, 147, 160, 170, 204–5, 216–17, 261, 267, 279, 291 Gimzewski, James 232 glamping 273 global currency 127 global warming 4, 47, 77, 93, 193, 234 globalization 3, 10, 15–16, 36–7, 63–7, 72–3, 75, 81–2, 88, 100, 125, 139, 143, 146, 170, 183, 189, 193–5, 221, 224, 226, 233–4, 247–8, 263, 275, 278–80, 292, 296, 299 GM 176 Google 22, 61, 121, 137, 293 gout 235 government 14, 18, 36, 63–95, 151 GPS 3, 15, 26, 50, 88, 138, 148, 209, 237, 262, 283 Grameen Bank 135 gravity tubes 57 green taxes 76 Greenpeace 172 GRIN technologies (genetics, robotics, internet, nanotechnology) 3, 10, 11 growing your own food 178, 192, 195 Gucci 221 Gulf States 125, 260, 268 H&M 217 habitual shopping 212 Handy, Charles 278 317 Happily 210 happiness 63–4, 71–2, 146, 260 health 15, 82, 178–9, 199 health monitoring 232, 236, 241 healthcare 2, 136, 144, 147–8, 154, 178–9, 183–4, 189–91, 228–53, 298; see also medicine trends 214–1534–7 Heinberg, Richard 74 Helm, Dieter 77 Heritage Foods 195 hikikomori 18 hive mind 45 holidays 31, 119; see also tourism holidays at home 255 cultural 259 dirt 236 Hollywood 33, 111–12 holographic displays 56 Home Equity Share 145 home baking 225 home-based microgeneration 64 home brewing 225 honesty 152 Hong Kong 267 hospitals 228, 241–3, 266 at home 228, 238, 240–42 hotels 19, 267 sleep 266 human cloning 23, 249 Hungary 247 hybrid humans 22 hydrogen power 64 hydrogen-powered cars 12, 31, 157, 173 Hyperactive Technologies 184 Hyundai 170 IBM 293 identities, multiple 35, 52 identity 64, 71 identity theft 88, 132 identity verification, two-way 132 immigration 151–2, 302 India 2, 10, 11, 70–72, 76, 78–9, 81, 92, 111, 125, 135, 139, 163, 174–5, 176, 247, 249–50, 254, 260, 270, 275, 279, 302 indirect taxation 86 318 individualism 36 Indonesia 2, 174 industrial robots 42 infinite content 96–7 inflation 151 information overlead 97, 120, 159, 285; see also too much information innovation 64, 81–2, 100, 175, 222, 238, 269, 277, 286–8, 291, 297, 299 innovation timeline 8 instant gratification 213 insurance 123, 138, 147–50, 154, 167, 191, 236, 250 pay-as-you-go 167 weather 264 intelligence 11 embedded 53, 154 implants 229 intelligent computers 23, 43 intelligent night vision 162–3 interaction, physical 22, 25, 97, 110, 118, 133–4, 215, 228, 243, 276, 304 interactive media 97, 105 intergenerational mortgages 140, 144–5 intermediaries 123, 135 internet 3, 10, 11, 17–18, 25, 68, 103, 108, 115–17, 124, 156, 240–41, 261, 270, 283, 289, 305 failure 301 impact on politics 93–4 sensory 56 interruption science 53 iPills 240 Iran 2, 69 Ishiguro, Hiroshi 55 Islamic fanaticism 16 Italy 92, 170, 198–9 iTunes 115, 130; see also Apple Japan 1, 18, 26, 28–9, 54–5, 63, 80–81, 114, 121, 128–9, 132, 140, 144–5, 147, 174, 186, 189, 192, 196, 198, 200, 209–10, 223, 240, 260, 264, 271, 279, 291 jetpacks 60 job security 292 journalism 96, 118 journalism, citizen 103–4, 107 joy-makers 57 FUTURE FILES Kaboodle 207 Kapor, Mitchell 45 Kenya 128 keys 28–9 Kindle 60, 121 Kramer, Peter 284 Kuhn, Thomas 281 Kurzweil, Ray 45 Kuwait 2 labor migration 290–91 labor shortages 3, 80–81, 289–90 Lanier, Jaron 47 laser shopping 212 leisure sickness 238 Let’s Dish 185 Lexus 157 libraries 121 Libya 73 life-caching 24, 107–8 lighting 158, 160 Like.com 216 limb farms 249 limited editions 216–17 live events 98, 110, 304 localization 10, 15–16, 116, 128, 170, 178, 189, 193, 195, 215, 220, 222–3, 224, 226, 255, 270, 297 location tagging 88 location-based marketing 116 longevity 188–9, 202 Longman, Philip 71 low cost 202, 219–22 luxury 202, 221, 225, 256, 260, 262, 265–6, 272 machinamas 112 machine-to-machine communication 56 marketing 115–16 location-based 116 now 116 prediction 116 Marks & Spencer 210 Maslow, Abraham 305–6 masstigue 223 materialism 37 Mayo Clinic 243 McDonald’s 130, 168, 180, 184 McKinsey 287 Index meaning, search for 16, 259, 282, 290, 305–6 MECU 132 media 96–122 democratization of 104, 108, 115 trends 96–8 medical outsourcing 247–8 medical tourism 2, 229, 247 medicine 188, 228–53; see also healthcare alternative 243–4 gendered 244–5 genomic 231 memory 229, 232, 239–40 memory loss 47 memory pills 231, 240 memory recovery 2, 228–9, 239 memory removal 29–30, 29, 240 Menicon 240 mental health 199 Meow Mix 216 Merriman, Jon 126 metabolomics 56 meta-materials 56 Metro 204–5 Mexico 2 micromedia 101 micro-payments 130, 150 Microsoft 137, 147, 293 Middle East 10, 11, 70, 81, 89, 119, 125, 129, 139, 174–5, 268, 301 migration 3, 11, 69–70, 78, 82, 234, 275, 290–91 boomerang 20 labor 290–91 Migros 215 military recruitment 69 military vehicles 158–9 mind-control toys 38 mindwipes 57 Mitsubishi 198, 279 mobile payments 123, 150 Modafinil 232 molecular biology 231 monetization 118 money 123–52 digital 12, 29, 123, 126–7, 129, 132, 138, 150, 191 monitoring, remote 154, 168, 228, 242 monolines 135, 137 319 mood sensitivity 41, 49, 154, 158, 164, 187–8 Morgan Stanley 127 mortality bonds 148 Mozilla Corp. 289 M-PESA 129 MTV 103 multigenerational families 20 multiple identities 35, 52 Murdoch, Rupert 109 muscular Christianity 16, 73 music industry 121 My-Food-Phone 242 MySpace 22, 25, 37, 46, 97, 107, 113 N11 nations (Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey, Vietnam) 2 nanoelectronics 56 nanomedicine 32 nanotechnology 3, 10, 23, 40, 44–5, 50, 157, 183, 232, 243, 286, 298 napcaps 56 narrowcasting 109 NASA 25, 53 nationalism 16, 70, 72–3, 139, 183, 298, 302 natural disasters 301 natural resources 2, 4, 11, 64, 298–9 Nearbynow 223 Nestlé 195 Netherlands 238 NetIntelligence 283 networkcar.com 154 networks 28, 166, 288 airborne 56 neural nets 49 neuronic whips 57 neuroscience 33, 48 Neville, Richard 58–9 New Economics Foundation 171 New Zealand 265, 269 newspapers 29, 102–9, 117, 119, 120 Nigeria 2, 73 Nike 23 nimbyism 63 no-frills 224 Nokia 61, 105 Norelift 189 320 Northern Rock 139–40 Norwich Union 167 nostalgia 16, 31–2, 51, 169–70, 179, 183, 199, 203, 225, 303 now marketing 116 nuclear annihilation 10, 91 nuclear energy 74 nutraceuticals 179, 182 Obama, Barack 92–3 obesity 75, 190–92, 199, 250–51 oceanic thermal converters 57 oil 69, 72–3, 93, 151, 174, 176, 272, 273, 301 Oman 2, 270 online relationships 38 organic computers 56 organic food 200, 226 osteoporosis 235 outsourcing 224, 292 Pakistan 2 pandemics 4, 10, 16, 59, 72, 128, 232, 234, 272, 295–7, 301 paper 37 parasite singles 145 passwords 52 pictorial 52 pathogens 233 patient simulators 247 patina 31 patriotism 63, 67, 299 pay-as-you-go cars 167–8 pay-as-you-go insurance 167 payments cellphone 129, 213 contactless 123, 150 micro- 130, 150 mobile 123, 150 pre- 123, 150 PayPal 124, 137 Pearson, Ian 44 performance-improving drugs 284–5 personal restraint 36 personal robots 42 personalization 19, 26, 56, 96–8, 100, 102–3, 106, 108–9, 120, 138, 149, 183, 205–6, 223, 244–5, 262, 267, 269 Peru 73 FUTURE FILES Peters, Tom 280 Pharmaca 244 pharmaceuticals 2, 33, 228, 237 Philippines 2, 212, 290 Philips 114 Philips, Michael 232–3 photographs 108 physical interaction 22, 25, 97, 110, 118, 133–4, 215, 228, 243, 276, 304 physicalization 96–7, 101–2, 106, 110, 120 pictorial passwords 52 piggy banks 151 Pink, Daniel 285 plagiarism 83 polarization 15–16, 285 politics 37, 63–95, 151–2 regional 63 trends 63–5 pop-up retail 216, 224 pornography 31 portability 178, 183–4 power shift eastwards 2, 10–11, 81, 252 Prada 205–6, 216 precision agriculture 181–2 precision healthcare 234–7 prediction marketing 116 predictions 37, 301–2 premiumization 223 pre-payments 123, 150 privacy 3, 15, 41, 50, 88, 154, 165–7, 205, 236, 249, 285, 295 digital 25, 97, 108 Procter & Gamble 105, 280 product sourcing 224 Prosper 124, 135 protectionism 67, 139, 156, 220, 226, 301 economic 10, 15, 72, 299 provenance 178, 193, 226 proximity indicators 32 PruHealth 149 psychological neoteny 52 public ownership 92 public transport 171 purposeful shopping 212 Qatar 2 quality 96–7, 98, 101, 109 Index quantum mechanics 56 quantum wires 56 quiet materials 56 radiation, EMF 251 radio 117 randominoes 57 ranking 34, 83, 109, 116, 134, 207 Ranking Ranqueen 186 reality mining 51 Really Cool Foods 185 rebalancing 37 recession 139–40, 202, 222 recognition 36, 304 refrigerators 197–8 refuge 121 regeneration 233 regional food 200 regional politics 63 regionality 178, 192–3 regulation 124, 137, 143 REI 207 Reid, Morris 90 relationships, online 38 religion 16, 58 remote diagnosis 228 remote monitoring 154, 168, 228, 242 renting 225 reputation 34–5 resistance to technology 51 resorts, enclosed 273 resource shortages 11, 15, 146, 155, 178, 194, 254, 300 resources, natural 2, 4, 11, 64, 73–4, 143, 298–9 respect 36, 304 restaurants 186–8 retail 20–21, 202–27, 298 pop-up 216, 224 stealth 215 theater 214 trends 202–3 Revkin, Andy 77 RFID 3, 24, 50, 121, 126, 149, 182, 185, 192, 196, 205 rickets 232 risk 15, 124, 134, 138, 141, 149–50, 162, 167, 172, 191, 265, 299–300, 303 Ritalin 232 321 road pricing 166 Robertson, Peter 49 robogoats 55 robot department store 209 Robot Rules 44 robotic assistants 54, 206 concierges 268 financial advisers 131–2 lobsters 55 pest control 57 soldiers 41, 55, 60 surgery 35, 41, 249 robotics 3, 10, 41, 44–5, 60, 238, 275, 285–6, 292, 297 robots 41, 54–5, 131, 237, 249 childcare 57 emotional capacity of 40, 60 industrial 42 personal 42 security 209 therapeutic 41, 54 Russia 2, 69, 72, 75, 80, 89, 92–3, 125, 174, 232, 254, 270, 295, 302 safety 32, 36, 151, 158–9, 172–3, 182, 192, 196 Sainsbury’s 215 Salt 187 sanctuary tourism 273 satellite tracking 166–7 Saudi Arabia 2, 69 Schwartz, Barry 186 science 13, 16, 40–62, 300 interruption 53 trends 40–42 scramble suits 57 scrapbooking 25, 108, 225 Sears Roebuck 137 seasonality 178, 193–4 second-hand goods 224 Second Life 133, 207–8 securitization 124, 140 security 16, 31, 151 security robots 209 self-driving cars 165 self-medication 242 self-publishing 103, 113–14 self-reliance 35, 75 self-repairing roads 57 322 self-replicating machines 23, 44 Selfridges 214 sensor motes 15, 50, 196 sensory internet 56 Sharia-based investment 125 Shop24 209 shopping 202–27 habitual 212 laser 212 malls 211–5 purposeful 212 slow 213 social 207 Shopping 2.0 224 short-wave scalpels 57 silicon photonics 56 simplicity 169–70, 179, 186, 202, 218, 224, 226, 272 Singapore 241 single-person households 19–20, 202–3, 208–9, 221, 244, 298, 304 skills shortage 293, 302 sky shields 57 sleep 159–60, 188, 228, 231, 246–7, 265 sleep debt 96, 266 sleep hotels 266 sleep surrogates 57 slow food 178, 193 slow shopping 213 slow travel 273 smart devices 26–7, 28, 32, 35, 44, 50, 56, 57, 164, 206, 207 smart dust 3, 15, 50, 196 smartisans 20 Smartmart 209 snakebots 55 social networks 97, 107, 110, 120, 133, 217, 261 social shopping 207 society 13, 15–16, 17–37 trends 15–16 Sodexho 193 solar energy 74 Sony 114, 121 South Africa 84, 149, 242 South America 82, 270 South Korea 2, 103, 128–9 space ladders 56 space mirrors 47 space tourism 271, 273 FUTURE FILES space tugs 57 speed 164, 202, 209, 245, 296–7 spirituality 16, 22, 282, 298, 306 spot knowledge 47 spray-on surgical gloves 57 St James’s Ethics Centre 282 stagflation 139 starch-based plastics 64 stealth retail 215 stealth taxation 86 Sterling, Bruce 55 storytelling 203 Strayer, David 161 street signs 162–3 stress 32, 96, 235, 243, 245–6, 258–9, 265, 257–9, 275, 277, 283–5 stress-control clothing 57 stupidity 151, 302 Stylehive 207 Sudan 73 suicide tourism 236 Super Suppers 185 supermarkets 135–6, 184–6, 188, 191–2, 194, 202–3, 212, 215, 218–19, 224, 229 surgery 2, 31 anti-ageing 2, 237 enhancement 249 Surowiecki, James 45 surveillance 35, 41 sustainability 4, 37, 74, 181, 193–5, 203, 281, 288, 298–9 Sweden 84 swine flu 38, 251, 272 Switzerland 168, 210, 215 synthetic biology 56 Taco Bell 184 Tactical Numerical Deterministic Model 49 tagging, location 86, 88 Taiwan 81 talent, war for 275, 279, 293; see also labor shortages Target 216 Tasmania 267 Tata Motors 174, 176 taxation 85–6, 92, 93 carbon 76, 172 conscientious objection 86 Index fat 190 flat 85–6 green 76 indirect 86 stealth 86 Tchibo 217 technology 3, 14–16, 18, 22, 26, 28, 32, 37, 40–62, 74–5, 82–3, 96, 119, 132, 147–8, 154, 157, 160, 162, 165–7, 178, 182, 195–8, 208, 221, 229, 237, 242–3, 249, 256, 261, 265–6, 268, 275–6, 280, 283–4, 292, 296–7, 300 refuseniks 30, 51, 97 trends 40–42 telemedicine 228, 238, 242 telepathy 29 teleportation 56 television 21, 96, 108, 117, 119 terrorism 67, 91, 108, 150, 262–3, 267, 272, 295–6, 301 Tesco 105, 135–6, 185, 206, 215, 219, 223 Thailand 247, 290 therapeutic robots 41, 54 thermal imaging 232 things that won’t change 10, 303–6 third spaces 224 ThisNext 207 thrift 224 Tik Tok Easy Shop 209 time scarcity 30, 96, 102, 178, 184–6, 218, 255 time shifting 96, 110, 116 time stamps 50 timeline, extinction 9 timeline, innovation 8 timelines 7 tired all the time 246 tobacco industry 251 tolerance 120 too much choice (TMC) 29, 202, 218–19 too much information (TMI) 29, 51, 53, 202, 229; see also information overload tourism 254–74 cultural 273 ethical 259 food 273 323 local 273 medical 2, 229, 247 sanctuary 273 space 271, 273 suicide 238 tribal 262 Tourism Concern 259 tourist quotas 254, 271 Toyota 48–9, 157 toys, mind-control 38 traceability 195 trading down 224 transparency 3, 15, 143, 152, 276, 282, 299 transport 15, 154–77, 298 public 155, 161 trends 154–6 transumerism 223 travel 2, 3, 11, 148, 254–74 economy 272 luxury 272 slow 273 trends 254–6 trend maps 6–7 trends 1, 5–7, 10, 13 financial services 123–5 food 178–80 healthcare 228–9 media 96–8 politics 63–5 retail 202–3 science and technology 40–42 society 15–16 transport 154–6 travel 254–6 work 275–7 tribal tourism 262 tribalism 15–16, 63, 127–8, 183, 192, 220, 260 trust 82, 133, 137, 139, 143, 192, 203, 276, 282–3 tunnels 171 Turing test 45 Turing, Alan 44 Turkey 2, 200, 247 Twitter 60, 120 two-way identity verification 132 UAE 2 UFOs 58 324 UK 19–20, 72, 76, 84, 86, 90–91, 100, 102–3, 105, 128–9, 132, 137, 139–42, 147–9, 150, 163, 167–8, 170–71, 175, 185, 195–6, 199, 200, 206, 210, 214–16, 238, 259, 267–8, 278–9, 284, 288 uncertainty 16, 30, 34, 52, 172, 199, 246, 263, 300, 303 unemployment 151 Unilever 195 University of Chicago 245–6 urban rental companies 176 urbanization 11, 18–19, 78, 84, 155, 233 Uruguay 200 US 1, 11, 19–21, 23, 55–6, 63, 67, 69, 72, 75, 77, 80–83, 86, 88–90, 92, 104–5, 106, 121, 129–33, 135, 139–42, 144, 147, 149, 150, 151, 162, 167, 169–71, 174, 185, 190–3, 195, 205–6, 209, 211, 213, 216, 218, 220, 222–3, 237–8, 240–8, 250, 260, 262, 267–8, 275, 279–80, 282–4, 287, 291 user-generated content (UGC) 46, 97, 104, 289 utility 224 values 36, 152 vending machines 209 Venezuela 69, 73 verbal signatures 132 VeriChip 126 video on demand 96 Vietnam 2, 290 Vino 100 113 Virgin Atlantic 261 virtual adultery 33 banks 134 economy 130–31 protests 65 reality 70 sex 32 stores 206–8 vacations 32, 261 worlds 157, 213, 255, 261, 270, 305 Vocation Vacations 259–60 Vodafone 137 voice recognition 41 voice-based internet search 56 voicelifts 2, 237 FUTURE FILES Volkswagen 175 voluntourism 259 Volvo 164 voting 3, 68, 90–91 Walgreens 244 Wal-Mart 105, 136–7, 215, 219–20, 223, 244, 282 war 68–9, 72 war for talent 275, 279; see also labor shortages war forecasting 49 water 69–70, 74, 77–9, 199 wearable computers 55 weather 64 weather insurance 264 Web 2.0 93, 224 Weinberg, Peter 125 wellbeing 2, 183, 188, 199 white flight 20 Wikipedia 46, 60, 104 wild swimming 273 Wilson, Edward O. 74 wind energy 74 wine producers 200 wisdom of idiots 47 Wizard 145 work 275–94 trends 275–94 work/life balance 64, 71, 260, 277, 289, 293 worldphone 19 xenophobia 16, 63 YouTube 46, 103, 107, 112 Zara 216–17 Zipcar 167 Zopa 124, 134


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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

As late as July 2007, Tim Geithner at the New York Federal Reserve and Hank Paulson at the Treasury were still playing their appointed role of trying to calm markets with reassuring speeches about the housing slump being “at or near bottom,” and financial markets outside the US being “now deeper and more liquid than they used to be.”31 But by this time an unraveling of financial positions and credit chains was already producing a liquidity crunch in the US commercial paper and money markets that had become so pivotal in global finance. It was the difficulty of raising funds on these markets that forced France’s largest bank, BNS Paribas, on August 9, 2007, to suspend payments due on three of its investment funds. By September Northern Rock, the UK’s fifth-largest lender, had gone to the Bank of England for emergency support, leading to a classic bank run. Within days the UK government had guaranteed Northern Rock’s deposits, and the Bank of England announced that it would provide loans to keep the bank going and extend the same support to other banks. Although President Bush declared in a major speech on the crisis at the end of August that “the government has got a role to play—but it’s limited,” the Treasury had by the beginning of that month already switched to full crisis-management mode, with Paulson “in hourly contact with the Fed, other officials in the administration, finance ministries and regulators overseas and people on Wall Street.”32 Meanwhile, the Fed was in contact with the European Central Bank, the Bank of Japan, and the Bank of England about the role they would all play as lenders of last resort.

Taggart, 206, 210 Mussa, Michael, 253, 417n82 mutual funds, 149, 169, 177, 201, 265, 270, 284, 289 Nader, Ralph, 308 NAFTA, 17, 216, 227–9, 251, 269–71, 409n92, 412n15, 413n26, 420n21 NASDAQ, 199, 305 National Association of Manufacturers, 34, 60, 208 National Advisory Council (NAC), 79, 91, 93 National Bank of San Diego, 152 National Economic Council (NEC), 250–1 National Industry Recovery Act (NIRA), 58–9, 359n50 National Labor Relations Act, 59 National Labour Relations Board, 60–1, 172 National Recovery Administration (NRA), 58–9, 62 National Security Council, 95, 151, 216, 422n66 NSC–68, 95 NATO, 11, 95, 218, 282 Naughton, David, 431n83 Negri, Antonio, 26, 341n3 neoliberalism, 14–17, 97, 102, 117, 165, 172, 195, 216–8, 228–9, 254, 258–60, 267, 279–80, 286–8, 328–30, 338–9 Netherlands (Holland), 70, 72, 97, 253 New Century Financial, 307, 311 New Deal, 46, 56, 58–61, 69–70, 359n41, 361n63 Banking Acts, 57, 59 business attitude to, 60–1 capital flow uncontrolled by, 78, 92 containment of, 80 erosion of, 120–2, 170, 397–8n54 grand truce with capital, 62, 73, 91 growth in public employment, 62, 361n69 and state power, 61–3, 390n69 New York: center of global finance, 57, 71, 78, 118, 158, 250, 367n48 Federal Reserve Bank of, 43, 51, 57, 86, 123–4, 146, 150, 153, 167, 177–8, 180–1, 210, 238, 240, 250, 260, 263–4, 268, 301, 304, 311, 313–4, 320, 325 Stock Exchange, 138, 180, 200 structural adjustment for, 165 Newstadt, Eric, 178 Nicaragua, 41, 56 Nixon, Richard (administration of), 13, 124, 127, 130, 133, 138–41, 144, 148–52, 155–8, 167–9, 387n45, 388n50 Northern Rock, 312 Novak, William J., 351n33 Obama, Barack (administration of), 256, 301, 320–3, 329, 334 O’Connor, James, 384n2 Occupy Wall Street, 340 Office of Comptroller of the Currency (OCC), 121–2, 142, 152–4, 170, 174, 178, 265, 325, 396n38, 409n94, 415n56 OECD, 107, 116, 124, 126, 208, 212, 219, 243, 251, 257–60, 278, 288, 297, 425n106 Code of Liberalization of Capital Movements, 116, 126, 243 oil, 103–4, 167–8, 189, 214, 219, 358n30, 392n99, 414n45 O’Neil, Paul, 301, 303, 311, 435n8 Open Door policy, 6, 11, 19, 35–7, 40–1, 49, 67, 74, 80, 87, 94, 104, 294, 343–4n16, 345n29, 358n30, 368n58, 370n81 Ozgercin, Kevin, 337n27, 374n39 Panitch, Leo, 341n1, 348n8, 444–5n19 Papademos, Lucas, 444n18 Pardee, Scott, 158 PATCO strike, 172 Paulson, Henry, 301, 311–2, 316, 439n54 Pauly, Louis, 357n28 Penn Central, 139, 169, 399n80 Pentagon/War Department, vii, 27, 147, 258 pension funds/plans, 84–5, 121, 140, 148–9, 165, 172, 176–7, 192, 199, 204, 216, 270, 284, 289–90, 306, 321 Peschek, Joseph, 393n2 Peterson, Peter G., 400n94 Philippines, 36, 38, 41, 105, 213 Pijl, Kees van der, 374n40 Pinochet, Augusto, 216 Piven, Frances Fox, 352n44 Plaza Accord, 183, 209–10, 407n67 Pohl, Karl Otto, 407n67 Poland, 51, 217, 243, 278, 281, 417n81 Polanyi, Karl, 2, 25, 36, 356n17 Pollin, Robert, 347n44 Porter, Tony, 411n1 Portillo, Jose Lopez, 214 Post, Charles, 348n6 Poulantzas, Nicos, 13, 115, 342n9, 345n26, 346n37, 371n6, poverty, 276, 279, 299 Prebisch, Raul, 105 predatory lending, 307 President’s Working Group on Financial Markets, 181, 268, 313, privatization, 175, 197, 200, 203, 214, 216–8, 228, 241–2, 244, 251, 261–2, 288, 328, 434n7 Prodi, Roman, 200 production (manufacturing): 30, 38, 40, 49, 54, 83, 85, 104, 114, 121, 135, 184, 186–9, 191, 196, 220, 275–6, 286–7, 291, 311, 401n99 ‘American system of manufacturing’, 27 in China, 294, 297 in developed countries, 100–1, 275 in developing countries, 211–4, 216 decline of, 402n122 integrated networks of, 10–11, 115–6, 193–202, 275–6, 280, 284, 287–9, 293, 297, 311, 319 and financialization, 290 during Depression, 54, 81 restructured after 1945, 81–2, 84, 100–1 restructuring after crisis of 1970s, 188–191, 281 US share of total, 28–9, 42, 50–2, 81, 102, 288–9 productivism, 62, 84, 90, 98, 101 productivity, 29, 137, 185, 191, 271, 290, 310, 370n3, 375n44, 375n52, 385n13, 385n17 profit, 6, 174, 183–4, 187–8, 204, 400n96, 401n100 and corporations, 187–8, 283–9, 292, 306, 310, 329, 337 crisis of (1970s), 16, 133, 135, 141 and financialization, 290 growth (1950s), 85, 114 recovery (1980s/1990s), 174, 186, 401n99 ‘profit squeeze’, 20, 135, 141384n12, 385n17 Progressive movement, 33–5, 47–8 protectionism, 2, 69, 182, 207, 224–5, 319, 388n50 public spending, 58, 62, 82, 133, 152, 158, 303, 307, 320, 329 railroads, 28, 30, 33, 38, 40, 62, 349n17 deregulation, 169 strikes, 83, 141 Rajan, Rhaguram, 436n19 Reagan, Ronald, 15, 17, 171–2, 176, 178 Reciprocal Trade Agreement, 69, 224 Reconstruction Finance Corporation, 62 Recovery and Reinvestment Act (2009), 320 Red Line Agreement (1928) 103, 358n30 Regan, Don, 208, 393n5, 399n75 regulation, 55, 57, 59, 120–2, 150, 154, 242, 267, 390n69 as deregulation, 170 finance strengthened by, 59, 268 most extensive in US, 267, 396n38, 428n11 increase of (1980s), 178 overwhelmed by finance, 138, 169, 173, 178, 397–8n54 post–2007 crisis, 322–4, 327, 338 ‘takings’ doctrine, 227–31, 413n18 Regulation Q, 57, 118, 121, 128–9, 139–40, 169–70, 205 Reich, Robert, 269 Reigle–Neal Interstate Banking Act (1994), 423n85 Reinhart, Carmen, 419n7 Reinsch, Paul, 37–8 renminbi, 299, 326 Republican party/administrations, 7, 34–5, 46, 49, 55–7, 61–2, 73, 78, 130, 141, 155, 165, 179, 252, 269 research & development, 147, 186, 276, 288, 364n19, 389n62 Resolution Trust Corporation, 173, 320 Reuther, Walter, 84, 136 Roach, Stephen, 423n81 Robertson, Justin, 422n68 Robinson, Ian, 227 Robinson, Joan, 79 Robinson, H.L., 384n5 Robinson, Ronald, 342–3n12 Robinson, William, 345n26, 409n92, 410n103 Rockefeller, David, 48, 57, 262 Rockefeller, Nelson, 143 Rosenberg, Emily, 39 Rogers, William, 158 Riugrok, Winfried, 345n26 Roosa, Robert, 124–7, 143 Root, Elihu, 39, 354n.64 Roosevelt, Franklin Delano (FDR, administration of), 54–63, 69–71, 102, 361n63, 365n30 business attitudes to, 60–1 inaugural address, 56 and state power, 61–3 on unemployment, 5 workers’ support for, 60 Roosevelt, Theodore (administration of), 39–40 Rubin, Robert, 18, 142, 175, 248, 251–2, 254, 257, 260–3, 269, 277, 301, 303, 330, 418n2, 418n4, 424n86, 424n94 Rude, Chris, 170, 238 Ruggie, John, 344n21 Russia, 37, 48, 218, 243–4, 262–3, 336, 417n82 S&Ls (savings and loans, thrifts) 57, 129, 140, 152, 169, 173 See also banks; credit; finance; mortgages Saad Filho, Alfredo, 416n65 Sablowski, Thomas, 405n27 Salomon Brothers, 146, 175–6, 228, 388n55, 394n10 Sarai, David, 355n77 Sarbanes–Oxley Act (2002), 305 Sassen Saskia, 341n1, 341n2, 345n23, 411n3 Saudi Arabia, 103, 156, 219, 280, 392n99 Saxon, James, 122 Schiller, Karl, 146 Schmidt, Helmut, 197, 200 Schneiderman, David, 413n32 Schrempp, Jurgen, 201 Schwartz, Herman, 436n25 Seabrooke, Jeremy, 134, 147, Seattle anti-globalization protest (1999), 271, 301, 425n106 Secondary Mortgage Market Enhancement Act (1984), 173 securities, 148, 205, 266, 270, 285, 306, 309 Securities and Exchange Commission (SEC), 59, 122, 148–9, 199, 268, 290, 324, 385n19 securitization, 120, 139, 207, 252, 266, 270, 306, 309, 311 Servan–Schreiber, Jean–Jacques, 113, 378n4, 379n8 Shaikh, Anwar, 385n13 Shultz, George, 148, 231, 294, 296, 389n65 Simon, William, 144, 146, 153, 155–8, 165, 169, 388n55, 392n99, 393n111, 394n10 Simmons, Beth, 415n.54 Sinclair, Timothy, 416n60 Singer, Daniel, 198 Single European Act, 198, 201 Skidelsky, Robert, 70, 133, 367n55 Sklair, Leslie, 345n26 Skocpol.


pages: 701 words: 199,010

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

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affirmative action, asset-backed security, automated trading system, bank run, banking crisis, Basel III, Bernie Madoff, Black-Scholes formula, 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, labour mobility, 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, moral hazard, mortgage debt, 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 tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, short selling, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, systematic trading, The Great Moderation, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

$1.3 billion Lehman financing to Broadway Real Estate Partners to acquire 237 Park Avenue June 2007 $1.2 billion Lehman financing to Apollo Investment Corp. for a private stake of Innkeepers USA Trust $1.1 billion Lehman financing to Thomas Properties Group to acquire the EOP Austin portfolio $1.7 billion Lehman financing for the acquisition of Northern Rock’s commercial real estate portfolio July 2007 $1.5 billion Lehman financing to ProLogis to acquire the Dermody industrial portfolio $2.9 billion Lehman financing for the acquisition of the Coeur Defense office building August 2007 $1.0 billion Lehman financing for the acquisition of Northern Rock’s commercial real estate portfolio October 2007 $1.5 billion Lehman financing to Blackstone for its acquisition of Hilton Hotels $5.4 billion Lehman financing for the acquisition of the Archstone Smith Trust Lehman would have been better off if it had stopped the money machine immediately after Fuld and Nagioff’s meeting.

By investing an additional 20% in mortgages, the bank would improve its capital adequacy ratio under Basel II as compared to Basel I, absent the investment. This modified incentive to buy mortgages is one of the reasons that U.S. on-balance-sheet mortgages grew from 6% of GDP to 20% of GDP from 2004 to 2008. This occurred in other countries as well. The British government took over the lender Northern Rock on February 22, 2008, due to subprime mortgage troubles. In July 2007, the bank increased its dividend. CEO Adam Applegarth’s reason? “Because we had just completed our Basel II two-and-a-half-year process and…it meant we had surplus capital and therefore that could be repatriated to shareholders through increasing the dividend.”13 Banks exploited Basel II’s reduced capital charges for AAA-securitized assets.


pages: 468 words: 145,998

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

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

After investors stopped buying asset-backed commercial paper in the wake of August’s credit meltdown, it was harder for people to get all kinds of loans—credit cards or loans for cars and college. The banks, forced to put on their balance sheets loans previously financed by asset-backed commercial paper, suddenly became stingy with new credits. Throughout the fall of 2007, the markets remained tight and unpredictable. In mid-September, British mortgage lender Northern Rock sought emergency support from the Bank of England, sparking a run on deposits. Coincidentally, I had scheduled a trip to France and the U.K. just a couple of days later, flying first to Paris on September 16 to meet with President Nicolas Sarkozy and his finance minister, Christine Lagarde. I noted how the French leader took a political approach to the financial markets. In his view, political leaders needed to take decisive action to revive public confidence—and he wanted to scapegoat the rating agencies.

After visiting a number of countries, including the U.K., France, Switzerland, and Germany, they concluded that Treasury’s suspicions were correct: European banking was weaker than officials were letting on. On February 17, just a few days after President Bush signed the stimulus bill, U.K. chancellor of the Exchequer Alistair Darling announced that the British government would nationalize Northern Rock. The credit crisis had pushed the big mortgage lender to the brink of failure. In the U.S., the markets continued to slip, troubled by oil prices, a weakening dollar, and ongoing concerns about credit. Over the week of March 3–7, the Dow lost almost 373 points, ending at 11,894—far below the 14,000 of the preceding October. That Thursday I traveled to California for a round of appearances in the San Francisco Bay Area, including a speech on March 7 at the Stanford Institute for Economic Policy Research.


pages: 462 words: 150,129

The Rational Optimist: How Prosperity Evolves by Matt Ridley

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23andMe, agricultural Revolution, air freight, back-to-the-land, banking crisis, barriers to entry, Bernie Madoff, British Empire, call centre, carbon footprint, charter city, clean water, cloud computing, cognitive dissonance, collateralized debt obligation, colonial exploitation, colonial rule, Corn Laws, credit crunch, David Ricardo: comparative advantage, decarbonisation, dematerialisation, demographic dividend, demographic transition, double entry bookkeeping, Edward Glaeser, en.wikipedia.org, everywhere but in the productivity statistics, falling living standards, feminist movement, financial innovation, Flynn Effect, food miles, Gordon Gekko, greed is good, Hans Rosling, happiness index / gross national happiness, haute cuisine, Hernando de Soto, income inequality, income per capita, Indoor air pollution, informal economy, invention of agriculture, invisible hand, James Hargreaves, James Watt: steam engine, Jane Jacobs, John Nash: game theory, joint-stock limited liability company, Joseph Schumpeter, Kevin Kelly, knowledge worker, Kula ring, Mark Zuckerberg, meta analysis, meta-analysis, mutually assured destruction, Naomi Klein, Northern Rock, nuclear winter, oil shale / tar sands, out of africa, packet switching, patent troll, Pax Mongolica, Peter Thiel, phenotype, Plutocrats, plutocrats, Ponzi scheme, Productivity paradox, profit motive, purchasing power parity, race to the bottom, Ray Kurzweil, rent-seeking, rising living standards, Silicon Valley, spice trade, spinning jenny, stem cell, Steve Jobs, Steven Pinker, Stewart Brand, supervolcano, technological singularity, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, ultimatum game, upwardly mobile, urban sprawl, Vernor Vinge, wage slave, working poor, working-age population, Y2K, Yogi Berra

The world banking system has lurched to the brink of collapse; an enormous bubble of debt has burst; world trade has contracted; unemployment is rising sharply all around the world as output falls. The immediate future looks bleak indeed, and some governments are planning further enormous public debt expansions that could hurt the next generation’s ability to prosper. To my intense regret I played a part in one phase of this disaster as non-executive chairman of Northern Rock, one of many banks that ran short of liquidity during the crisis. This is not a book about that experience (under the terms of my employment there I am not at liberty to write about it). The experience has left me mistrustful of markets in capital and assets, yet passionately in favour of markets in goods and services. Had I only known it, experiments in laboratories by the economist Vernon Smith and his colleagues have long confirmed that markets in goods and services for immediate consumption – haircuts and hamburgers – work so well that it is hard to design them so they fail to deliver efficiency and innovation; while markets in assets are so automatically prone to bubbles and crashes that it is hard to design them so they work at all.

Kung people 44, 135, 136–7 Kuznets curve 106 Kwakiutl people 92 Lagos 322 Lagrange Point 346 lakes, acidification of 305–6 Lamalera people 87 Lancashire 214, 217, 232, 263 Landes, David 223, 406 Lang, Tim 392 language: and exchange 58; genes for 55; Indo-European 129; and isolationism 73; Neanderthals 4, 55; numbers of languages 73; as unique human development 4 Laos 209 lapis lazuli 162, 164 Lascaux caves, France 6 lasers 272 Lassa fever 307 Laurion, Attica 171 Law, John 29, 259 Lawson, Nigel, Baron 331 Lay, Ken 29, 385 Layard, Richard 25 lead 167, 174, 177, 213 Leadbetter, Charles 290 Leahy, Michael 92 leather 70, 122, 167, 176 Lebanon 167 LeBlanc, Steven 137 LEDs (light-emitting diodes) 21–2 lentils 129 Leonardo da Vinci 196, 251 Levy, Stephen 355 Liang Ying (farm worker) 220 liberalism 108, 109–110, 290 Liberia 14, 316 libertarianism 106 Libya 171 lice 68 lichen 75 life expectancy: in Africa 14, 316, 422; in Britain 13, 15, 284; improvements in 12, 14, 15, 17–18, 205, 284, 287, 298, 316; in United States 298; world averages 47 Life (magazine) 304 light, artificial 13, 16, 17, 20–22, 37, 233, 234, 240, 245, 272, 368 light-emitting diodes (LEDs) 21–2 Limits to Growth (report) 303–4, 420 Lindsey, Brink 102, 109 linen 216, 218 lions 43, 87 literacy 106, 201, 290, 353, 396 Liverpool 62, 283 local sourcing (of goods) 35, 41–2, 149, 392; see also food miles Locke, John 96 Lodygin, Alexander 272 Lombardy 178, 196 Lomborg, Björn 280 London 12, 116, 186, 199, 218, 222, 282; as financial centre 259 longitude, measurement of 261 Longshan culture 397 Los Angeles 17, 142 Lothal, Indus valley 162, 164 Louis XI, King of France 184 Louis XIV, King of France 36, 37, 38, 184, 259 Lowell, Francis Cabot 263 Lübeck 180 Lucca 178, 179 Lunar Society 256 Luther, Martin 102 Luxembourg 331 Lyon 184 Macao 183 MacArthur, General Douglas 141 Macaulay, Thomas Babington, 1st Baron 11, 285–7, 359 McCloskey, Deirdre 109, 366–7 Mace, Ruth 73 McEwan, Ian 47 Machiguenga people 87 MacKay, David 342 McKendrick, Neil 224 McKibben, Bill 293 Macmillan, Harold, 1st Earl of Stockton 16 McNamara, Robert 203 mad-cow disease (vCJD) 280, 308 Madagascar 70, 299 Maddison, Angus 180 Maddox, John 207 Madoff, Bernard 28–9 Maghribis 178, 180 magnesium 213 maize 126, 146–7, 153, 155, 156, 163; for biofuel 240, 241 malaria 135, 157, 275, 299, 310, 318, 319, 331, 336, 353, 428, 429 Malawi 40–41, 132, 316, 318 Malawi, Lake 54 Malay Peninsula 66 Malaysia 35, 89, 242, 332 Mali 316, 326 Malinowski, Bronislaw 134 malnutrition 154, 156, 337 Maltese Falcon, The (film) 86 Malthus, Robert 139, 140, 146, 191, 249, 303 Malthusianism 141, 193, 196, 200, 202, 401 mammoths 68, 69, 71, 73, 302 Manchester 214, 218, 283 Mandell, Lewis 254 manganese 150, 213 mangoes 156, 327, 392 Manhattan 83 manure 147, 150, 198, 200, 282 Mao Zedong 16, 187, 262, 296, 311 Marchetti, Cesare 345–6 Marcuse, Herbert 291 Marie-Antoinette, Queen of France 199 markets (in capital and assets) 9, 258–60 markets (in goods and services): and collective betterment 9–10, 36–9, 103–110, 115–16, 281; disdain for 102–3, 104, 291–2, 358; etiquette and ritual of 133–4; and generosity 86–7; global interdependence 42–3; market failure 182, 250; ‘perfect markets’ 249–50; and population control 210–211; and preindustrial economies 133–4; and trust 98–100, 103; and virtue 100–104, 105; see also bartering; exchange; trade Marne, River 234 Martu aborigines 62 Marx, Karl 102, 104, 107–8, 291, 406 Marxism 101, 217–18, 319, 356 Maskelyne, Nevil 221 Maudslay, Henry 221 Mauritius 187, 316 Mauryan empire 172–3, 201, 357 Maxwell, James Clerk 412 measles 14, 135, 310 meat eating 51, 60, 62, 68–9, 126, 147, 156, 241, 376 Mecca 177 Mediterranean Sea: prehistoric settlements 56, 68–9, 159; trade 89, 164, 167–8, 169, 171, 176, 178 meerkats 87 Mehrgarh, Baluchistan 162 Mehta, Suketa 189 Meissen 185 memes 5 Menes, Pharaoh of Egypt 161 mercury 183, 213, 237 Mersey, River 62 Merzbach valley, Germany 138 Mesopotamia 38, 115, 158–61, 163, 177, 193, 251, 357; see also Assyrian empire; Iraq metal prices, reductions in 213 Metaxas, Ioannis 186 methane 140, 329, 345 Mexico: agriculture 14, 123, 126, 142, 387; emigration to United States 117; hurricanes 335; life expectancy 15; nature conservation 324; swine flu 309 Mexico City 190 Meyer, Warren 281 Mezherich, Ukraine 71 mice 55, 125 Michelangelo 115 Microsoft (corporation) 24, 260, 268, 273 migrations: early human 66–70, 82; rural to urban 158, 188–9, 210, 219–20, 226–7, 231, 406; see also emigration Milan 178, 184 Miletus 170–71 milk 22, 55, 97, 135 Mill, John Stuart 34, 103–4, 108, 249, 274, 276, 279 Millennium Development goals 316 Miller, Geoffrey 44, 274 millet 126 Mills, Mark 244 Ming empire 117, 181–4, 260, 311 Minoan civilisation 166 Mississippi Company 29 Mittal, Lakshmi 268 mobile phones 37, 252, 257, 261, 265, 267, 297, 326–7 Mohamed (prophet) 176 Mohawk Indians 138–9 Mohenjo-Daro, Indus valley 161–2 Mojave Desert 69 Mokyr, Joel 197, 252, 257, 411, 412 monarchies 118, 162, 172, 222 monasteries 176, 194, 215, 252 Monbiot, George 291, 311, 426 money: development of 71, 132, 392; ‘trust inscribed’ 85 Mongolia 230 Mongols 161, 181, 182 monkeys 3, 57, 59, 88; capuchins 96–7, 375 monopolies 107, 111, 166, 172, 182 monsoon 174 Montesquieu, Charles, Baron de 103 moon landing 268–9, 275 Moore, Gordon 221, 405 Moore, Michael 291 Morgan, J.P. 100 Mormonism 205 Morocco 53, 209 Morse, Samuel 272 mortgages 25, 29, 30, 323; sub-prime 296 Moses 138 mosquito nets 318 ‘most favoured nation’ principle 186 Moyo, Dambisa 318 Mozambique 132, 316 Mozart, Wolfgang Amadeus 267 Mugabe, Robert 262 Mumbai 189, 190 murder 14, 20, 85, 88, 106, 118, 201 Murrays’ Mills, Manchester 214 music 70, 115, 266–7, 326 Myceneans 166 Nairobi 322 Namibia 209, 324 Napoleon I 184 NASA 269 Nashville 326 Nassarius shells 53, 56, 65 National Food Service 268 National Health Service 111, 261 nationalisation (of industry) 166, 182 nationalism 357 native Americans 62, 92–3, 138–9 Natufians 125 natural selection 5–6, 27, 49–50, 350 nature conservation 324, 339; see also wilderness land, expansion of Neanderthals 3, 4, 53, 55, 64, 65, 68, 71, 79, 373, 378 Nebuchadnezzar 169 needles 43, 70 Nehru, Jawaharlal 187 Nelson, Richard 5 Nepal 15, 209 Netscape (corporation) 259 New Deal 109 New Guinea: agriculture 123, 126, 387; languages 73; malaria 336; prehistoric 66, 123, 126; tribes 87, 92, 138 New York 12, 16, 83, 169, 190 New York Times 23, 295, 305 New Zealand 17, 35, 42, 70 Newcomen, Thomas 244, 256 newspapers 270, 295; licensing copyrights 267 Newsweek (magazine) 329 Newton, Sir Isaac 116, 256 nickel 34, 213 Niger 208–9, 210, 324 Nigeria 15, 31, 99, 117, 210, 236, 316 Nike (corporation) 115, 188 Nile, River 161, 164, 167, 171 nitrogen fertlisers 140, 146, 147, 149–50, 155, 305 nitrous oxide 155 Nobel Peace Prize 143, 280 ‘noble savage’ 43–4, 135–8 Norberg, Johann 187 Nordau, Max 288 Nordhaus, William 331 Norte Chico civilisation 162–3 North, Douglass 324, 397 North Carolina 219–20 North Korea 15, 116–17, 187, 333 North Sea 180, 185 North Sentinel islanders 67 Northern Rock (bank) 9 Northumberland 407 Norton, Seth 211 Norway 97–8, 332, 344 Norwich 225 nostalgia 12–13, 44, 135, 189, 284–5, 292 Novgorod 180 Noyce, Robert 221, 405 nuclear accidents 283, 293–4, 308, 345, 421 nuclear power 37, 236, 238, 239, 245, 246, 343, 344, 345 nuclear war, threat of 280, 290, 299–300, 333 Obama, Barack 203 obesity 8, 156, 296, 337 obsidian 53, 92, 127 occupational safety 106–7 ocean acidification 280, 340–41 ochre 52, 53, 54, 92 octopi 3 Oersted, Hans Christian 272 Oetzi (mummified ‘iceman’) 122–3, 132–3, 137 Ofek, Haim 131 Ohalo II (archaeological site) 124 oil: and ‘curse of resources’ 31, 320; drilling and refining 242, 343; and generation of electricity 239; manufacture of plastics and synthetics 237, 240; pollution 293–4, 385; prices 23, 238; supplies 149, 237–8, 280, 281, 282, 296, 302–3 old age, quality of life in 18 olive oil 167, 169, 171 Olson, Ken 282 Omidyar, Pierre 99 onchoceriasis 310 open-source software 99, 272–3, 356 Orang Asli people 66 orang-utans 60, 239, 339 organic farming 147, 149–52, 393 Orinoco tar shales, Venezuela 238 Orma people 87 ornament, personal 43, 52, 53, 54, 70, 71, 73 O’Rourke, P.J. 157 Orwell, George 253, 290, 354 Ostia 174 otters 297, 299 Otto I, Holy Roman emperor 178 Ottoman empire 161 Oued Djebanna, Algeria 53 oxen 130, 136, 195, 197, 214–15 oxytocin (hormone) 94–5, 97–8 ozone layer 280, 296 Paarlberg, Robert 154 Pacific islanders 134 Pacific Ocean 184 Paddock, William and Paul 301 Padgett, John 103 Page, Larry 114 Pagel, Mark 73 Pakistan 142–3, 204, 300 palm oil 57–8, 239, 240, 242, 339 Pan Am (airline) 24 paper 282, 304 Papin, Denis 256 papyrus 171, 175 Paraguay 61 Pareto, Vilfredo 249 Paris 215, 358; electric lighting 233; restaurants 264 parrots 3 Parsons, Sir Charles 234 Parthian empire 161 Pasadena 17 Pataliputra 173 patents 223, 263, 264–6, 269, 271, 413–14 patriarchy 136 Paul, St 102 PayPal (e-commerce business) 262 peacocks 174 peanuts 126 peat 215–16 Peel, Sir Robert 185 Pemberton, John 263 pencils 38 penicillin 258 Pennington, Hugh 308 pensions 29, 40, 106 Periplus of the Erythrean Sea, The 174 Persia 89, 161, 171, 177 Persian Gulf 66, 164, 340, 429 Peru 97–8, 126, 162–3, 320, 387; silver 31, 132, 183–4 pessimism: and belief in turning points in history 287–9, 301, 311; natural pessimism of human nature 294–5; in nineteenth century 283–8; in twentieth century 281, 282, 288–91, 292–4, 296–308, 328–9; in twenty-first century 8–9, 17, 28, 281–2, 291–2, 308–311, 314–15; ubiquity of 280–85, 291–2, 294–7, 341, 352 pesticides 151–2, 154, 155, 336; DDT 297–8, 299; natural 298–9 Peto, Richard 298 Petty, Sir William 185, 199, 254, 256 pharmaceutical industry 260, 266 philanthropy 92, 105, 106, 295, 318–19, 356 Philip II, King of Spain 30–31 Philip II of Macedon 171 Philippines 61–2, 89, 234 Philistines 166, 170, 396 Phillips, Adam 103, 292 Phoenicians 166–70, 177 photography 114, 283, 386 physiocrats 42 pi, calculation of 173 pig farming 135, 145, 148, 197 Pinnacle Point, South Africa 52, 83 Pisa 115, 178 plagues 135, 176, 195–6, 197; forecasts of 280, 284, 307–310; see also Black Death plastics 237, 240, 270 Plate, River 186 platinum 213 Plato 292 Plautus 44 ploughing 129–30, 136, 145, 150, 195, 197, 198, 215 pneumonia 13, 353 Polanyi, Karl 164–5 polar bears 338–9 polio 261, 275, 310 political fragmentation 170–73, 180–81, 184, 185 pollution: effects on wildlife 17, 297, 299, 339; and industrialisation 218; pessimism about 293–4, 304–6; reduction in 17, 106, 148, 279, 293–4, 297, 299 polygamy 136 Pomeranz, Kenneth 201–2 Ponzi, Charles 29 Ponzi schemes 28–9 population control policies 202–4, 210–211 population growth: and food supply 139, 141, 143–4, 146–7, 192, 206, 208–9; global population totals 3, 12, 14, 191, 206, 332; and industrialisation 201–2; and innovation 252; pessimism about 190, 193, 202–3, 281, 290, 293, 300–302, 314; population explosions 8, 139, 141, 202, 206, 281; and specialisation 192–3, 351; see also birth rates; demographic transition; infant mortality; life expectancy porcelain 181, 183, 184–5, 225, 251 Porritt, Jonathan 314 Portugal 75, 183, 184, 317, 331 Post-it notes 261 Postrel, Virginia 290–91 potatoes 199 Potrykus, Ingo 154 pottery 77, 158, 159, 163, 168, 177, 225, 251 Pound, Ezra 289 poverty: and charitable giving 106; current levels 12, 15, 16–17, 41, 316, 353–4; and industrialisation 217–20; pessimism about 280, 290, 314–15; reduction in 12, 15, 16–17, 290; and self-sufficiency 42, 132, 200, 202, 226–7; solutions to 8, 187–8, 316–17, 322, 326–8, 353–4 Prebisch, Raul 187 preservatives (in food) 145 Presley, Elvis 110 Priestley, Joseph 256 printing: on paper 181, 251, 252, 253, 272; on textiles 225, 232 prisoner’s dilemma game 96 property rights 130, 223, 226, 320, 321, 323–5 protectionism 186–7, 226 Ptolemy III 171 Pusu-Ken (Assyrian merchant) 165–6 putting out system 226, 227, 230 pygmy people 54, 67 Pythagoras 171 Quarterly Review 284 quasars 275 Quesnay, François 42 racial segregation 108 racism 104, 415 radioactivity 293–4, 345 radios 264–5, 271 railways 252; and agriculture 139, 140–41; opposition to 283–4; speed of 283, 286; travel costs 23 rainforests 144, 149, 150, 240, 243, 250–51, 338 Rajan, Raghuram 317 Rajasthan 162, 164 Ramsay, Gordon 392 rape seed 240 Ratnagar, Shereen 162 ravens 69 Rawls, John 96 Read, Leonard 38 recession, economic 10, 28, 113, 311 reciprocity 57–9, 87, 95, 133 Red Sea 66, 82, 127, 170, 174, 177 Rees, Martin 294 Reformation 253 refrigeration 139 regress, technological 78–84, 125, 181–2, 197–200, 351, 380 Reiter, Paul 336, 428 religion 4, 104, 106, 170, 357, 358, 396; and population control 205, 207–8, 211; see also Buddhism; Christianity; Islam Rembrandt 116 Renaissance 196 research and development budgets, corporate 260, 262, 269 Research in Motion (company) 265 respiratory disease 18, 307, 310 restaurants 17, 37, 61, 254, 264 Rhine, River 265–6 rhinoceroses 2, 43, 51, 68, 73 Rhodes, Cecil 322 Ricardo, David 75, 169, 187, 193, 196, 249, 274 rice 32, 126, 143, 146–7, 153, 154, 156, 198 Rifkin, Jeremy 306 Riis, Jacob 16 Rio de Janeiro, UN conference (1992) 290 risk aversion 294–5 Rivers, W.H.R. 81 Rivoli, Pietra 220, 228 ‘robber-barons’ 23–4, 100, 265–6 Rockefeller, John D. 23, 281 Rocky Mountains 238 Rogers, Alex 340 Roman empire 161, 166, 172, 173–5, 184, 214, 215, 259–60, 357 Rome 158, 175 Romer, Paul 269, 276–7, 328, 354 Roosevelt, Franklin D. 109 Roosevelt, Theodore 288 Rosling, Hans 368 Rothschild, Nathan 89 Rousseau, Jean-Jacques 43, 96, 104, 137 Royal Institution 221 rubber 220 rule of law 116–18, 325 Rumford, Benjamin Thompson, Count 221 rural to urban migration 158, 188–9, 210, 219–20, 226–7, 231, 406 Ruskin, John 104 Russia, post-Soviet 14; oil and gas production 31, 37; population decline 205 Russia, prehistoric 71, 73 Russia, Tsarist 216, 229, 324 Rwanda 14, 316 rye 124, 125, 199, 224, 286 Sachs, Jeffrey 208 Saddam Hussein 161 Sahel region 123, 334 Sahlins, Marshall 133, 135 Sahul (landmass) 66, 67 Salisbury, Wiltshire 194 Salk, Jonas 38, 261 salmon 297 Salmon, Cecil 142 saltpetre 140 Sanger, Frederick 412 Sanskrit 129 São Paulo 190, 315 Sargon of Akkad 164 SARS virus 307, 310 satellites 252, 253 satnav (satellite navigation systems) 268 Saudi Arabia 238 Saunders, Peter 102 Schumpeter, Joseph 113–14, 227, 260, 276, 302 science, and innovation 255–8, 412 Scientific American 280 Scotland 103, 199–200, 227, 263, 315 scrub jays 87 scurvy 14, 258 sea level, changes in 128, 314, 333–4 Seabright, Paul 93, 138 seals (for denoting property) 130 search engines 245, 256, 267 Second World War 289 segregation, racial 108 Seine, River 215 self-sufficiency 8, 33–5, 39, 82, 90, 133, 192, 193, 351; and poverty 41–2, 132, 200, 202, 226–7 selfishness 86, 87, 93–4, 96, 102, 103, 104, 106, 292 Sematech (non-profit consortium) 267–8 Sentinelese people 67 serendipity 257, 346 serfs 181–2, 222 serotonin 156, 294 sexism 104, 136 sexual division of labour 61–5, 136, 376 sexual reproduction 2, 6, 7, 45, 56, 271; of ideas 6–7, 270–72 Sforza, house of 184 Shady, Ruth 162 Shakespeare, William 2; The Merchant of Venice 101, 102 Shang dynasty 166 Shapiro, Carl 265 sheep 97, 176, 194, 197 Shell (corporation) 111 shellfish 52, 53, 62, 64, 79, 92, 93, 127, 163, 167 Shennan, Stephen 83, 133 Shermer, Michael 101, 106, 118 ship-building 185, 229; see also boat-building shipping, container 113, 253, 386 Shirky, Clay 356 Shiva, Vandana 156 Siberia 145 Sicily 171, 173, 178 Sidon 167, 170 Siemens, William 234 Sierra Leone 14, 316 Silesia 222 silicon chips 245, 263, 267–8 Silicon Valley 221–2, 224, 257, 258, 259, 268 silk 37, 46, 172, 175, 178, 179, 184, 187, 225 Silk Road 182 silver 31, 132, 164, 165, 167, 168, 169, 171, 177, 183–4, 213 Silver, Lee 122–3 Simon, Julian 83, 280, 303 Singapore 31, 160, 187 Skhul, Israel 53 slash-and-burn farming 87, 130 slave trade 167, 170, 177, 229, 319, 380; abolition 214, 221 slavery 34, 214–15, 216, 407; ancient Greece 171; hunter-gatherer societies 45, 92; Mesopotamia 160; Roman empire 174, 176, 214; United States 216, 228–9, 415; see also anti-slavery sleeping sickness 310, 319 Slovakia 136 smallpox 13, 14, 135, 310; vaccine 221 smelting 131–2, 160, 230 smiling 2, 94 Smith, Adam 8, 80, 96, 101, 104, 199, 249, 272, 350; Das Adam Smith Problem 93–4; Theory of Moral Sentiments 93; The Wealth of Nations vii, 37–8, 39, 56, 57, 93, 123, 236, 283 Smith, Vernon 9, 90, 192 smoke, indoor 13, 338, 342, 353, 429 smoking 297, 298 Smoot-Hawley Tariff Act 186 soap 176, 215 social networking websites 262, 268, 356 socialism 106, 115, 357, 406 software, computer 99, 257, 272–3, 304, 356 solar energy 216, 243, 244 solar power 234–5, 238, 239, 245–6, 343, 344–5, 408 solar wind 346 solid-state electronics 257 Solomon, Robert 94 Solow, Robert 276 Somalia 14, 316, 337, 353 songbirds 55 Sony (corporation) 261 sorghum 126, 156 South Africa: agriculture 154; economy 316, 322; life expectancy 316; pre-historic 52, 53, 54, 83 South Korea 15, 31, 116–17, 187, 212, 322 South Sea Company 29 Southey, Robert 284–5 Soviet Union 16, 107, 109, 289, 299, 318, 324 soybeans 147, 148, 155, 156, 242 space travel 268–9, 275, 282 Spain: agriculture 129; climate 334; Franco regime 186, 289; Peruvian silver 30–31, 183–4; tariffs 222 spears 6, 43, 48, 50, 52, 70, 80, 81, 91 specialisation: by sex 61–5, 136, 376; and division of labour 7, 33, 38, 46, 61–5, 175; and exchange 7, 10, 33, 35, 37–8, 46, 56, 58, 75, 90, 132–3, 350–52, 355, 358–9; and innovation 56, 71–2, 73–4, 76–7, 119, 251; and population growth 192–3, 351; and rule of law 116, 117–18 speech 2, 55; see also language Spencer, Herbert 108 Spengler, Oswald 289 sperm counts 280, 293, 329 spice trade 167, 175, 176, 177, 179, 185 Spinoza, Baruch de 116 Sputnik 282 squashes (vegetables) 126, 163 Sri Lanka 35, 38, 66, 205, 208, 299 Stalin, Joseph 16, 262 stamp seals 130 Stangler, Dane 294 steam engines 126, 214, 221, 228, 231–2, 244, 256, 258, 270, 271, 413–14 steamships 139, 253, 283 Stein, Gil 159 Stein, Herb 281 stem-cell research 358 Stephenson, George 256, 412 Steptoe, Patrick 306 sterilisation, coerced 203–4 Stern (magazine) 304 Stern, Nicholas, Baron 330–31, 332, 425 Stiner, Mary 64, 69 storms 314, 333, 335 Strabo 174 string 70 strokes (cerebral accidents) 18 Strong, Maurice 311 Subramanian, Arvind 317 subsidies: farming 188, 328; renewable energy supplies 344 subsistence farming 87, 138, 175–6, 189, 192, 199–200 substantivism 164–5 suburbia 108, 110, 190 Sudan 316 suffrage, universal 107 sugar 179, 202, 215 sugar beet 243 sugar cane 240, 241, 242 Sun Microsystems (corporation) 259 Sunda (landmass) 66 sunflowers 126 Sungir, Russia 71, 73 superconductivity, high-temperature 257 Superior, Lake 131 supermarkets 36, 112, 148, 268, 292, 297 surfboards 273 Sussex 285 Swan, Sir Joseph 234, 272 Swaziland 14 Sweden 17, 184, 229, 305, 340, 344 Swift, Jonathan 121, 240 Switzerland 264 swords, Japanese 198–9 Sybaris 170–71 symbiosis 75, 351 synergy 6, 101 Syria 124, 130, 164, 174 Szilard, Leo 412 Tahiti 169 Taiwan 31, 187, 219, 322 Talheim, Germany 138 Tanzania 316, 325, 327–8; Hadza people 61, 63, 87 Tapscott, Don 262 Tarde, Gabriel 5 tariffs 185–7, 188, 222–3 taro (vegetable plant) 126 Tartessians 169 Tasman, Abel 80 Tasmania 78–81, 83–4 Tattersall, Ian 73 Taverne, Dick, Baron 103 taxation: carbon taxes 346; and charitable giving 319; and consumption 27; and declining birth rates 211; early development of 160; and housing 25; and innovation 255; and intergenerational transfer 30; Mauryan empire 172; Roman empire 184; United States 25 Taylor, Barbara 103 tea 181, 182, 183, 202, 327, 392 telegraph 252–3, 257, 272, 412 telephones 252, 261; charges 22–3, 253; mobile 37, 252, 257, 261, 265, 267, 297, 326–7 television 38, 234, 252, 268 Telford, Thomas 221 Tennessee Valley Authority 326 termites 75–6 terrorism 8, 28, 296, 358 Tesco (retail corporation) 112 Tesla, Nikola 234 text messaging 292, 356 Thailand 320, 322 Thales of Miletus 171 Thames, River 17 thermodynamics 3, 244, 256 Thiel, Peter 262 Thiele, Bob 349 Thoreau, Henry David 33, 190 3M (corporation) 261, 263 threshing 124, 125, 130, 153, 198; machines 139, 283 thumbs, opposable 4, 51–2 Thwaites, Thomas 34–5 Tiberius, Roman emperor 174, 259 tidal and wave power 246, 343, 344 Tierra del Fuego 45, 62, 81–2, 91–2, 137 tigers 146, 240 timber 167, 216, 229; trade 158, 159, 180, 202 time saving 7, 22–4, 34–5, 123 Timurid empire 161 tin 132, 165, 167, 168, 213, 223, 303 ‘tipping points’ 287–9, 290, 291, 293, 301–2, 311, 329 Tiwi people 81 Tokyo 190, 198 Tol, Richard 331 Tooby, John 57 tool making: early Homo sapiens 53, 70, 71; machine tools 211, 221; Mesopotamian 159, 160; Neanderthals 55, 71, 378; Palaeolithic hominids 2, 4, 7, 48–51; technological regress 80 Torres Strait islanders 63–4, 81 tortoises 64, 68, 69, 376 totalitarianism 104, 109, 181–2, 290 toucans 146 Toulouse 222 Townes, Charles 272 ‘toy trade’ 223 Toynbee, Arnold 102–3 tractors 140, 153, 242 trade: and agriculture 123, 126, 127–33, 159, 163–4; early human development of 70–75, 89–93, 133–4, 159–60, 165; female-centred 88–9; and industrialisation 224–6; and innovation 168, 171; and property rights 324–5; and trust 98–100, 103; and urbanisation 158–61, 163–4, 167; see also bartering; exchange; markets trade unions and guilds 113, 115, 223, 226 trademarks 264 traffic congestion 296 tragedy of the commons 203, 324 Trajan, Roman Emperor 161 transistors 271 transport costs 22, 23, 24, 37, 229, 230, 253, 297, 408 transport speeds 22, 252, 253, 270, 283–4, 286, 287, 296 trebuchets 275 Tressell, Robert 288 Trevithick, Richard 221, 256 Trippe, Juan 24 Trobriand islands 58 trust: between strangers 88–9, 93, 94–8, 104; and trade 98–100, 103, 104; within families 87–8, 89, 91 Tswana people 321, 322 tungsten 213 Turchin, Peter 182 Turkey 69, 130, 137 Turnbull, William (farm worker) 219 Turner, Adair, Baron 411 turning points in history, belief in 287–9, 290, 291, 293, 301–2, 311, 329 Tuscany 178 Tyneside 231 typhoid 14, 157, 310 typhus 14, 299, 310 Tyre 167, 168–9, 170, 328 Ubaid period 158–9, 160 Uganda 154, 187, 316 Ukraine 71, 129 Ulrich, Bernd 304 Ultimatum Game 86–7 unemployment 8, 28, 114, 186, 289, 296 United Nations (UN) 15, 40, 205, 206, 290, 402, 429 United States: affluence 12, 16–17, 113, 117; agriculture 139, 140–41, 142, 219–20; biofuel production 240, 241, 242; birth rates 211, 212; civil rights movement 108, 109; copyright and patent systems 265, 266; credit crunch (2008) 9, 28–9; energy use 239, 245; GDP, per capita 23, 31; Great Depression (1930s) 31, 109, 192; happiness 26–7; immigration 108, 199–200, 202, 259; income equality 18–19; industrialisation 219; life expectancy 298; New Deal 109; oil supplies 237–8; pollution levels 17, 279, 304–5; poverty 16–17, 315, 326; productivity 112–13, 117; property rights 323; rural to urban migration 219; slavery 216, 228–9, 415; tax system 25, 111, 241; trade 186, 201, 228 Upper Palaeolithic Revolution 73, 83, 235 urbanisation: and development of agriculture 128, 158–9, 163–4; global urban population totals 158, 189, 190; and population growth 209–210; and trade 158–61, 163–4, 167, 189–90; see also rural to urban migration Uruguay 186 Uruk, Mesopotamia 159–61, 216 vaccines 17, 287, 310; polio 261, 275; smallpox 221 Vandals 175 Vanderbilt, Cornelius 17, 23, 24 vCJD (mad-cow disease) 280, 308 Veblen, Thorstein 102 Veenhoven, Ruut 28 vegetarianism 83, 126, 147, 376 Venezuela 31, 61, 238 Venice 115, 178–9 venture capitalists 223, 258, 259 Veron, Charlie 339–40 Victoria, Lake 250 Victoria, Queen 322 Vienna exhibition (1873) 233–4 Vietnam 15, 183, 188 Vikings 176 violence: decline in 14, 106, 201; homicide 14, 20, 85, 88, 106, 118, 201; in pre-industrial societies 44–5, 136, 137–9; random 104 Visby, Gotland 180 vitamin A 353 vitamin C 258 vitamin D 129 Vivaldi, Antonio 115 Vladimir, Russia 71 Vogel, Orville 142 Vogelherd, Germany 70 voles 97 Voltaire 96, 103, 104, 256 Wagner, Charles 288 Wal-Mart (retail corporation) 21, 112–14, 263 Wales 132 Wall Street (film) 101 Walton, Sam 112–13, 263 Wambugu, Florence 154 war: in Africa 316; in hunter-gatherer societies 44–5; threat of nuclear war 280, 290, 299–300; twentieth-century world wars 289, 309; unilateral declarations of 104 water: contaminated 338, 353, 429; pricing of 148; supplies 147, 280, 281, 324, 334–5; see also droughts; irrigation water snakes 17 watermills 176, 194, 198, 215, 216–17, 234 Watson, Thomas 282 Watt, James 221, 244, 256, 271, 411, 413–14 wave and tidal power 246, 343, 344 weather forecasting 3, 4, 335 weather-related death rates 335–6 Wedgwood, Josiah 105, 114, 225, 256 Wedgwood, Sarah 105 weed control 145, 152 Weiss, George David 349 Weitzman, Martin 332–3 Welch, Jack 261 welfare benefits 16, 106 Wellington, Arthur Wellesley, 1st Duke of 89 Wells, H.G. 65, 313, 352, 354 West Germany 289–90 West Indies 202, 216, 310 Western Union (company) 261 Westinghouse, George 234 whales 6, 281, 302 whaling 87, 185, 281 wheat 42, 71, 124, 125, 129, 139, 140, 146–7, 149, 153, 156, 158, 161, 167, 300–301; new varieties 141–3 Wheeler, Sir Mortimer 162 wheels, invention of 176, 274 Whitehead, Alfred North 255 Wikipedia (online encyclopedia) 99, 115, 273, 356 Wilberforce, William 105, 214 Wilder, Thornton 359 wilderness land, expansion of 144, 147, 148, 239, 337–8, 347, 359 wildlife conservation 324, 329 William III, King 223 Williams, Anthony 262 Williams, Joseph 254 Williams, Rowan, Archbishop of Canterbury 102 Wilson, Bart 90, 324 Wilson, E.O. 243, 293 Wiltshire 194 wind power 239, 246, 343–4, 346, 408 wolves 87, 137 women’s liberation 108–9 wool 37, 149, 158, 167, 178, 179, 194, 224 working conditions, improvements in 106–7, 114, 115, 188, 219–20, 227, 285 World Bank 117, 203, 317 World Health Organisation 336–7, 421 World Wide Web 273, 356 World3 (computer model) 302–3 Wrangham, Richard 59, 60 Wright brothers 261, 264 Wright, Robert 101, 175 Wrigley, Tony 231 Y2K computer bug 280, 290, 341 Yahgan Indians 62 Yahoo (corporation) 268 Yangtze river 181, 199, 230 Yeats, W.B. 289 yellow fever 310 Yellow river 161, 167 Yemen 207, 209 Yir Yoront aborigines 90–91 Yong-Le, Chinese emperor 183, 184, 185 Yorkshire 285 Young, Allyn 276 young people, pessimism about 292 Young, Thomas 221 Younger Dryas (climatic period) 125 Yucatan 335 Zak, Paul 94–5, 97 Zambia 28, 154, 316, 317, 318, 331 zero, invention of 173, 251 zero-sum thinking 101 Zimbabwe 14, 28, 117, 302, 316 zinc 213, 303 Zuckerberg, Mark 262 Acknowledgements It is one of the central arguments of this book that the special feature of human intelligence is that it is collective, not individual – thanks to the invention of exchange and specialisation.


pages: 460 words: 122,556

The End of Wall Street by Roger Lowenstein

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Asian financial crisis, asset-backed security, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Brownian motion, Carmen Reinhart, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fear of failure, financial deregulation, fixed income, high net worth, Hyman Minsky, interest rate derivative, invisible hand, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, Martin Wolf, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, profit motive, race to the bottom, risk tolerance, Ronald Reagan, savings glut, short selling, sovereign wealth fund, statistical model, the payments system, too big to fail, tulip mania, Y2K

Given that even a single bond issuer may have thousands of lenders, the potential for a chain-reaction panic is clear. Lenders not only fear for the borrower, but for the borrower’s borrowers—and for how a panic would affect them all. (Industrial markets, by contrast, are far less interconnected.) Several issues in the fall of ’07 gave Paulson and Bernanke reason to worry about systemic risk. In September, Northern Rock, one of the biggest mortgage banks in England, failed and was forced to avail itself of a government bailout; meanwhile, its depositors rushed to get their money out, reenacting the seminal drama of the Great Depression. “The bank is not short of assets,” the BBC pronounced rather optimistically, “but they [the assets] are tied up in loans to homeowners.” The same plight that had struck the Bear Stearns hedge funds now had felled a large British bank.

See subprime mortgages sweetheart total tougher rules for Mozilo, Angelo Mudd, Daniel mutual funds Nason, David Nath, Larry nationalization. See socialization New Century Mortgage New Deal new finance, failure of new normal New York City New York Federal Reserve Bank AIG and as arm of Federal Reserve Bear Stearns and building of Citigroup and Lehman Brothers and response to financial crisis role of New York State, AIG and New York Stock Exchange New York Times NINA loans Northern Rock Obama, Barack Obama administration Office of Federal Housing Enterprise Oversight (OFHEO) Office of the Comptroller of the Currency Office of Thrift Supervision O’Neal, Stanley Bank of America and compensation of efforts to sell Merrill Lynch resignation of golden parachute of Goldman Sachs, obsession with golf playing by Kenneth Lewis and lack of oversight by Merrill Lynch board and personality and character of Orange County Oros, John Ownit Mortgage Solutions Pandit, Vikram panic causes of efforts to stem failure to halt global Morgan Stanley and repercussions of Wall Street’s susceptibility to Partnoy, Frank Paterson, David Paulson, Henry (Hank) AIG and Bear Stearns bailout and Ben Bernanke and Lloyd Blankfein and George W.


pages: 543 words: 157,991

All the Devils Are Here by Bethany McLean

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Asian financial crisis, asset-backed security, bank run, Black-Scholes formula, call centre, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Exxon Valdez, fear of failure, financial innovation, fixed income, high net worth, Home mortgage interest deduction, interest rate swap, laissez-faire capitalism, Long Term Capital Management, margin call, market bubble, market fundamentalism, Maui Hawaii, moral hazard, mortgage debt, Northern Rock, Own Your Own Home, Ponzi scheme, quantitative trading / quantitative finance, race to the bottom, risk/return, Ronald Reagan, Rosa Parks, shareholder value, short selling, South Sea Bubble, statistical model, telemarketer, too big to fail, value at risk

In early August, American Home Mortgage Investment Corporation, which was unable to sell its commercial paper, filed for bankruptcy. A few weeks later, Countrywide had to draw down that line of credit, signaling it was in trouble. On August 21, an auction of four-week Treasury bills nearly failed because the demand was so massive it overwhelmed the dealers. In mid-September, the British bank Northern Rock had to be rescued by the Bank of England. The banks were all announcing huge write-downs while frantically trying to raise additional capital—something Paulson was pushing them to do. But the new capital was quickly overwhelmed by yet more losses. The SIVs that some banks had all used to off-load debt and lower their capital requirements were foundering as the money market funds began dumping their commercial paper.

See Derivatives; Mortgage-backed securities (MBS); Subprime mortgage-backed securities (subprime MBS) Mozilo, Angelo biographical information and Countrywide collapse exit package homeownership as mission SEC fraud charges style/personality of subprimes, view of See also Countrywide Financial Mozilo, Mark Mudd, Daniel during collapse Fannie under on Johnson era Multisector CDO National Association of Affordable Housing Lenders National Community Reinvestment Coalition Nationally Recognized Statistical Ratings Organization (NRSROs) National Predatory Lending Task Force Nayden, Denis Netting out Nevins, Lou New Century New Century Financial collapse of fraud, view of Goldman deals growth of Merrill buyout plan Nicolaus, Stifel Norell, Lars Norma Northern Rock Noto, Tom Obama, Barack Arnall supported by regulatory actions Off-balance sheet investments Office of Federal Housing Enterprise Oversight (OFHEO) establishment of under Falcon Fannie, regulatory weakness Fannie accounting fraud investigation and GSEs collapse See also Federal Housing Finance Agency Office of the Comptroller of the Currency (OCC) preemption policy subprime crackdown Office of Thrift Supervision (OTS) Long Beach discrimination case preemption policy subprime guidelines subprimes, neglect of issue O’Neal, Stan biographical information and CDO collapse CDO exposure, ignorance about Kronthal firing leaves Merrill Merrill Lynch under Patrick/Zakaria firing risk encouraged by and sale of Merrill Semerci hired by style/personality of See also Merrill Lynch O’Neill, Sandler Option One Orkin, Michael Overcollateralization Ownit Parekh, Ketan Park, Gene Parker, Ed Partnership offices Patrick, Deval Patrick, Tom Paulson, Henry, Jr.


pages: 401 words: 112,784

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

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

In his 2007 Budget speech, Chancellor Gordon Brown could boast that Britain was enjoying ‘the longest period of economic stability and sustained economic growth in our country's history’, just before he moved unchallenged into No. 10 Downing Street.1 The long expansion in the US economy had been briefly interrupted by 9/11, but felt just as assured. Few outside the financial sector discerned the first whispers of a credit crunch during that notably wet English summer,2 but then September brought something unseen since 1866 – a run on a British bank. It was not yet obvious that the queues of savers that formed outside branches of the smallish, provincial Northern Rock represented a threat to the financial universe as we knew it. But a year later – almost to the day – Lehman Brothers came crashing down in New York, heralding the start of the most catastrophic phase of the crisis. Within weeks, America's biggest insurer, AIG, the Washington Mutual Bank and Britain's own financial giant, RBS, would be respectively bailed out, bust, and bought up by the taxpayer.

(i), (ii) Gallup polls (i), (ii), (iii), (iv) Galton, Francis (i) GDP (gross domestic product) (i), (ii), (iii), (iv) Geithner, Tim (i) gender divide (i) General Social Survey (GSS) (i), (ii), (iii) generational divide (i), (ii), (iii), (iv), (v) Gen X (i), (ii), (iii) Gen Y (i) Germany employment protection (i), (ii) human unhappiness (i), (ii), (iii), (iv) inequality (i) social networks (i), (ii), (iii) social security (i), (ii) unemployment (i) girls, employment of (i) graduates (i), (ii), (iii) The Grapes of Wrath (Steinbeck) (i) Great Depression change in GDP (i), (ii) crime rates (i) death rates (i) Europe (i) and Great Recession (i), (ii), (iii), (iv), (v) growth and national income (i) human unhappiness (i), (ii), (iii) hysteresis (i) lynchings (i) polarised public opinion (i), (ii) public policy (i) social mood (i) social networks (i), (ii), (iii) social security (i), (ii), (iii) Steinbeck on (i) unemployment (i), (ii), (iii), (iv) ‘Great Gatsby Curve’ (i) Great Hanshin earthquake (i) Great Recession change in GDP (i), (ii) economic gap (i) and Great Depression (i), (ii), (iii), (iv), (v) growth and national income (i), (ii) human unhappiness (i), (ii), (iii), (iv), (v), (vi) long shadow of class action (i) future generations (i) overview (i) unemployment (i) young people (i) low-grade jobs (i), (ii) polarised public opinion (i), (ii), (iii) post-recession agenda (i) Cameron conundrum (i) future policy (i) polarisation (i) public policy (i), (ii) social mood (i) social networks (i), (ii), (iii), (iv), (v), (vi) social security (i) start of (i) unemployment (i), (ii), (iii), (iv), (v) uneven impact (i) Greece (i), (ii), (iii) Greenberg Quinlan Rosner (i), (ii) Greenspan, Alan (i) Gregg, Paul (i) growth see economic growth Hacker, Jacob (i) Hansard (i) Hansard Society (i) happiness (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) Happiness (Layard) (i) ‘Happy Days Are Here Again’ song (i) hardship (i), (ii), (iii), (iv), (v), (vi), (vii) Hatton, Timothy (i), (ii) health (i), (ii), (iii), (iv), (v), (vi), (vii) healthcare (i), (ii), (iii), (iv) ‘hedonic treadmill’ (i) helping (informal volunteering) (i), (ii), (iii) Help to Buy (i) heritability of unemployment (i) Heritage Foundation (i), (ii) Hills, Sir John (i) Hispanic community (i), (ii) home ownership (i), (ii) Hoover, Herbert (i), (ii), (iii) household incomes (i), (ii), (iii), (iv), (v) household leverage (i) housing costs (i), (ii), (iii), (iv) home ownership (i), (ii) housing benefit (i) poverty (i) social housing (i) wealth reduction (i) human unhappiness (i) family life (i) overview (i) public policy (i) suicide (i) unemployment (i) well-being data (i) working population (i) hysteresis (i), (ii) identity (i), (ii) immigration (i), (ii), (iii), (iv) incapacity benefit (i), (ii), (iii), (iv), (v) income (i), (ii), (iii), (iv), (v) income distribution (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) income support (i), (ii) inequality (i) causes (i) economic gap (i) income distribution (i), (ii) job insecurity (i) life satisfaction (i) polarised public opinion (i), (ii), (iii), (iv), (v) post-recession agenda (i), (ii), (iii), (iv), (v) poverty (i) public policy (i), (ii) social mobility (i), (ii), (iii) social security (i) unemployment (i) inflation (i), (ii), (iii) informal volunteering (helping) (i), (ii), (iii) insecurity austerity (i) class divide (i) human unhappiness (i), (ii), (iii) job insecurity (i) pay gap (i) polarised public opinion (i) post-recession agenda (i), (ii), (iii) social networks (i), (ii) unemployment (i) Institute for Employment Research (i) Institute for Fiscal Studies (IFS) (i), (ii), (iii), (iv), (v), (vi) intergenerational income (i) investment (i) Ipsos MORI (i), (ii) Ireland (i) isolation (i), (ii) Italy (i), (ii) Japan (i), (ii), (iii), (iv), (v), (vi) Jarrow March (i) job insecurity see insecurity Jobseeker's Allowance (i), (ii), (iii), (iv) jobs growth (i), (ii), (iii), (iv) Kahn, Lisa (i) Kan, Naoto (i) Kantar (i) Keynes, John Maynard (i), (ii), (iii), (iv), (v) King, Mervyn (i) Kobe (i) Komarovsky, Mirra (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x) Krueger, Alan (i), (ii) Krugman, Paul (i) Labour Force Survey (i) labour market (i), (ii) labour productivity (i), (ii), (iii) ladder of opportunity (i) Layard, Richard (i) Lehman Brothers (i), (ii) Leunig, Tim (i) Lewis, Michael (i), (ii) life expectancy (i), (ii), (iii), (iv), (v) life satisfaction (i), (ii), (iii), (iv), (v) Lilley, Peter (i) living standards (i), (ii), (iii), (iv), (v), (vi) Li, Yaojun (i) loans (i), (ii), (iii), (iv), (v) London (i), (ii), (iii), (iv), (v), (vi), (vii) lone parents (i), (ii), (iii), (iv) long-term unemployment (i), (ii), (iii), (iv) low-grade jobs (i), (ii), (iii), (iv), (v), (vi), (vii) Machin, Stephen (i) Macmillan, Harold (i) macroeconomic policy (i) male employment (i), (ii), (iii), (iv), (v) male suicide (i) manufacturing (i), (ii), (iii) ‘marginalised’ workers (i) Marie Antoinette (i) Marienthal hardship (i), (ii), (iii) human unhappiness (i), (ii), (iii), (iv), (v) neighbours informing on each other (i) social networks and groups (i) unemployment (i), (ii), (iii), (iv) marriage rates (i), (ii), (iii) medical bills (i) medical staff (i) mental health (i), (ii), (iii), (iv) Mexico (i) middle class (i), (ii) migration (i) minimum wage (i), (ii), (iii), (iv), (v), (vi) mobility (i), (ii), (iii), (iv) monetary policy (i), (ii) money-saving activities (i) money supply (i) money worries (i), (ii), (iii) mortality rates (i), (ii) motivation (i) National Child Development Survey (NCDS) (i), (ii) National Conference on Citizenship (i) National Government (i) National Housing Federation (i) national income (i), (ii), (iii) National Longitudinal Survey of Youth (i) necessities (i), (ii) NEETs (not in education, employment or training) (i) neighbourliness (i), (ii), (iii) neoliberalism (i) net worth (i) New Deal (i), (ii) New Labour (i), (ii) New Right (i), (ii) New York Times (i) New Zealand (i) Nixon, Richard (i) Northern Rock (i) North–South divide (i), (ii), (iii), (iv) Obama, Barack (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) Occupy (i) OECD see Organisation for Economic Co-operation and Development old age (i), (ii), (iii) O'Loughlan, Joel (i), (ii) optimism (i), (ii), (iii) Organisation for Economic Co-operation and Development (OECD) (i), (ii), (iii), (iv), (v), (vi), (vii) Orwell, George (i), (ii), (iii), (iv) Osborne, George (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) Packer, George (i) Pakistani community (i) parental income (i), (ii), (iii) parenting (i), (ii), (iii), (iv) parent–teacher associations (PTAs) (i), (ii), (iii) participation careers (i), (ii), (iii), (iv) part-time work (i), (ii) path dependency (i) pay squeeze (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix) Peck, Don (i) pensions (i), (ii), (iii), (iv), (v) People's Budget (1909) (i) Personal Responsibility and Work Opportunity Reconciliation Act (i) Pew Center (i), (ii), (iii) Philip, Prince (i) Philpott, Mick (i) The Pinch (Willetts) (i) polarised public opinion (i) desired level of inequality (i) divided communities (i) economic divide (i) genetic discrimination in healthcare (i) post-recession agenda (i) social security (i), (ii) solidarity (i), (ii), (iii), (iv) unemployment (i) policy see public policy postal deliveries (i) poverty absolute poverty (i), (ii), (iii), (iv), (v), (vi) debt (i) health (i) housing costs (i), (ii) income distribution (i) losing face (i), (ii) low-grade jobs (i), (ii) post-recession agenda (i), (ii), (iii), (iv) public policy (i), (ii) relative poverty (i), (ii) social security (i), (ii) UK (i), (ii), (iii) unemployment (i), (ii) uneven impact of recessions (i) US (i), (ii), (iii), (iv) working population (i), (ii) poverty pay (i), (ii), (iii), (iv) pregnancy (i), (ii) Prescott, John (i) Priestley, J.B.


pages: 494 words: 132,975

Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott

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airport security, banking crisis, Bretton Woods, British Empire, collective bargaining, complexity theory, cuban missile crisis, Francis Fukuyama: the end of history, full employment, Gordon Gekko, greed is good, if you build it, they will come, Isaac Newton, Joseph Schumpeter, liquidationism / Banker’s doctrine / the Treasury view, means of production, Mont Pelerin Society, mortgage debt, New Journalism, Northern Rock, price mechanism, pushing on a string, road to serfdom, Ronald Reagan, Simon Kuznets, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, trickle-down economics, War on Poverty, Yom Kippur War

Fearful at the dubious value of bundled debt containing high-risk “subprime” mortgages on homes that had sharply lost their value, banks began seizing up, incapable or unwilling to lend even to other banks. The nervousness among bankers frightened bank customers and prompted the first run on a bank in Britain since the mid-nineteenth century. Northern Rock, a savings and loan turned bank that borrowed extensively on the open market, could not obtain enough credit to satisfy savers’ withdrawals. Crowds besieged the bank’s branches, demanding their savings be returned. To prevent the panic from spreading to other financial institutions, the British government nationalized Northern Rock. It was a warning to banks around the world, most of which held tainted bundles of debt. Widespread panic ensued in financial institutions, and among savers and investors, on both sides of the Atlantic. The mayhem suggested that the decades-long experiment in allowing barely restrained markets to generate growth and prosperity had failed.

The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being in Charge Isn’t What It Used to Be by Moises Naim

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additive manufacturing, barriers to entry, Berlin Wall, bilateral investment treaty, business process, business process outsourcing, call centre, citizen journalism, Clayton Christensen, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, conceptual framework, corporate governance, crony capitalism, deskilling, disintermediation, don't be evil, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, illegal immigration, immigration reform, income inequality, income per capita, intermodal, invisible hand, job-hopping, Joseph Schumpeter, Julian Assange, Kickstarter, Martin Wolf, megacity, Naomi Klein, Nate Silver, new economy, Northern Rock, Occupy movement, open borders, open economy, Peace of Westphalia, Plutocrats, plutocrats, price mechanism, price stability, private military company, profit maximization, Ronald Coase, Ronald Reagan, Silicon Valley, Skype, Steve Jobs, The Nature of the Firm, Thomas Malthus, too big to fail, trade route, transaction costs, Washington Consensus, WikiLeaks, World Values Survey

Plc (which was Abbey National Plc until Spain’s Banco Santander bought it in 2004)—dominated the sector. 2 But in the last few years, public concerns fueled by the financial crisis and scandals like the rigging of interest rates by Barclays and the complicity in illicit money transfers (HSBC, and Standard Chartered) have created a backlash, which in turn sparked a wave of new regulations that limits the autonomy these banks traditionally enjoyed. Moreover, new players such as British entrepreneur Richard Branson, whose Virgin Money bought up the ailing Northern Rock Plc and aims to become a consumer powerhouse, are indicative of new competitive pressures the traditional megaplayers in banking are facing. As one analyst told Bloomberg Markets in 2012, “There is more structural change going on in the U.K. market than at any time in recent history.”3 But the big challengers to the dominant big banks are the hedge funds and other new financial players that have access to resources as deep as those of the large banks yet can move faster and with far more flexibility.

., 164 Netherlands, 89, 90, 92, 142, 145, 151, 189 New Pact Power of God Church, 194 New Delhi, 6, 82 New Orleans, 28, 207 News Corporation, 7, 174, 212 Newspaper industry, 162, 212, 214 New York University, 91, 164 New Yorker, 4 New York Stock Exchange (NYSE), 188, 191 New York Times, 2, 29, 59, 149, 162 New Zealand, 32, 86, 96 Nicaragua, 155 Nicola, Stefan, 178 Niche marketing/business, 179, 198 Nieman Journalism Lab, 215 Nietzsche, Friedrich, 15–16 Nigeria, 9, 97, 103, 147, 148, 195, 196 Niknejad, Kelly Golnoush, 100 Nobel Prize, 36, 43, 80, 100 Nokia, 179 Nongovernmental organizations (NGOs), 4, 5, 104–105, 134, 145, 158, 240, 241 government organized, 153–154 Nordland, Rod, 117 Norilsk, 175 Norris, Pippa, 67, 68 North Africa, 57, 249, 251, 254 North Korea, 24, 122, 154 Northern League, 89 Northern Rock Plc, 161 Norton, Quinn, 181 Norway, 96 250 Novogratz, Jacqueline, 211 Nuclear issues, 13, 23, 24, 109, 131, 132, 133, 138, 144, 150, 158, 176, 226 Nunavut, 97 Nutrition, 10, 56 Nye, Joe, 125, 137 Obama, Barack, 48, 59, 132, 147, 214, 241–242 Obiko Pearson, Natalie 178 Obligation, 11, 26 Occupy Wall Street movement, 12, 242 Odom, William (General), 53 O’Donnell, Christine, 79 Office Depot, 175 Ohnsman, Alan, 166 Oil, 44, 50, 68, 145, 146, 147, 166, 175, 186, 216, 236.


pages: 166 words: 49,639

Start It Up: Why Running Your Own Business Is Easier Than You Think by Luke Johnson

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Albert Einstein, barriers to entry, Bernie Madoff, collapse of Lehman Brothers, corporate governance, corporate social responsibility, credit crunch, Grace Hopper, happiness index / gross national happiness, high net worth, James Dyson, Jarndyce and Jarndyce, Jarndyce and Jarndyce, mittelstand, Network effects, North Sea oil, Northern Rock, patent troll, Plutocrats, plutocrats, Ponzi scheme, profit motive, Ralph Waldo Emerson, Silicon Valley, software patent, stealth mode startup, Steve Jobs, Steve Wozniak, The Wealth of Nations by Adam Smith, traveling salesman, tulip mania

I like the reported maxim of Jong-Yong Jun, the former CEO of super-successful South Korean conglomerate Samsung Electronics: ‘a culture of perpetual crisis’. One of the diseases that grips institutions is the ‘safety in numbers’ philosophy – in other words, neurotic risk avoidance at all costs. This is the belief that as long as you follow the crowd – even if they’re quite wrong – you can’t be criticized for your work. Company boards and committees can make astounding errors thanks to peer pressure and the desire to conform – look at Northern Rock or Bear Stearns. Yet as General MacArthur said, ‘There is no security on this earth. Only opportunity.’ I have studied the careers of a number of great entrepreneurs, and all of them followed Franklin D. Roosevelt’s belief in ‘bold, persistent experimentation’. And good old Thomas Edison again, while on his way to doing things like founding General Electric, said, ‘I have not failed. I have just found 10,000 ways that won’t work.’

The Handbook of Personal Wealth Management by Reuvid, Jonathan.

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

The structured-product industry was truly stress tested during the sub-prime debacle, as were the nerves of equity investors. Many retail products, due to higher charges or poor-quality debt underpinning, suffered badly and many investors and their advisers were horrified to discover that their capital protection was secured on Lehman Brothers. Institutional products fared better (apart from a few secured on Icelandic bank debt), and despite the problems investors in structured products secured on Northern Rock and Bradford & Bingley had their debt investment underwritten by HM Government unlike investors in the permanent, preference and ordinary shares. The presence of these investments in portfolios, which often looked as awful as any normal equity investment, provided some reassurance to clients during bear markets as they could at least see a return of capital on a given date provided Megabank doesn’t default on its debt.


pages: 239 words: 68,598

The Vanishing Face of Gaia: A Final Warning by James E. Lovelock

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Ada Lovelace, butterfly effect, carbon footprint, Clapham omnibus, cognitive dissonance, continuous integration, David Attenborough, decarbonisation, discovery of DNA, Edward Lorenz: Chaos theory, Henri Poincaré, mandelbrot fractal, megacity, Northern Rock, oil shale / tar sands, phenotype, planetary scale, short selling, Stewart Brand, University of East Anglia

Climate change is not at all like the smooth civil engineering of a major highway that climbs uninterruptedly up a mountain pass but more like the mountain itself, a concatenation of slopes, valleys, flat meadows, rock steps and precipices. Perhaps some time in the past the asset manager who cared for your pension fund showed you a growth curve for your investments that rose smoothly without a break from now until 2050; but now you would be full of doubt about so smooth and continuous a progress and would know that growth can be interrupted by Northern Rocks and Lehman Brothers strewn along the way and even fall into the chasm of a global recession. Yet we are asked to believe that temperature will rise smoothly for another forty years, unless of course we put the carbon dioxide in the atmosphere somewhere else. You may think that climate and economic forecasts have little in common, but they do: both systems are complex and non‐linear and can change suddenly and unexpectedly.


pages: 247 words: 74,612

For the Love of Money: A Memoir by Sam Polk

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carried interest, Credit Default Swap, hiring and firing, Northern Rock, nuclear winter, Rosa Parks

What I loved most of all was how close I got to sit to two billionaires and Sean, the kind of men I’d been reading about my whole life. But after I returned from Fire Island, things started to look different to me. If the market crash in 2007 had been a thunderstorm, the 2008 crash was like an earthquake and then a tsunami. In the first quarter of 2008, Countrywide (the largest US mortgage company), Northern Rock (the largest UK finance company), and Bear Stearns (a major US investment bank) all failed. It’s difficult to explain how surreal it was when Bear ­Stearns went down. Bear Stearns was one of the most prestigious, well-respected institutions on Wall Street; it dissolved over a single week. At the same time, a headline announced that Eliot Spitzer, New York’s moralizing governor, was part of a prostitution ring.


pages: 351 words: 102,379

Too big to fail: the inside story of how Wall Street and Washington fought to save the financial system from crisis--and themselves by Andrew Ross Sorkin

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affirmative action, Asian financial crisis, Berlin Wall, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Fall of the Berlin Wall, fear of failure, fixed income, Goldman Sachs: Vampire Squid, housing crisis, indoor plumbing, invisible hand, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, Mikhail Gorbachev, moral hazard, NetJets, Northern Rock, oil shock, paper trading, risk tolerance, rolodex, Ronald Reagan, savings glut, shareholder value, short selling, sovereign wealth fund, supply-chain management, too big to fail, value at risk, éminence grise

Paulson had gotten to know Darling over the past two years, and though they had visited each other on both sides of the Atlantic, they had not grown close. Paulson considered Darling more a politician than a businessman, and he had nothing like the experience that Paulson himself had had in financial markets. But he respected Darling’s judgment and admired the quick and decisive action he had taken a year earlier when Northern Rock, one of Britain’s biggest mortgage lenders, was on the brink of failing. Darling has prevented a run on the bank by authorizing the Bank of England to lend Northern Rock billions of dollars to guarantee its deposits. That incident had been an early wake-up call for Paulson. Darling, who had just ended a daylong meeting in Nice with other European finance ministers, made a bit of chitchat and, after an awkward pause, said that he was calling about Barclays. “You should know that we have serious concerns about this deal,” he told Paulson sternly.


pages: 593 words: 189,857

Stress Test: Reflections on Financial Crises by Timothy F. Geithner

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Affordable Care Act / Obamacare, asset-backed security, Atul Gawande, bank run, banking crisis, Basel III, Bernie Madoff, Bernie Sanders, Buckminster Fuller, Carmen Reinhart, central bank independence, collateralized debt obligation, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Doomsday Book, eurozone crisis, financial innovation, Flash crash, Goldman Sachs: Vampire Squid, housing crisis, Hyman Minsky, illegal immigration, implied volatility, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Nate Silver, Northern Rock, obamacare, paradox of thrift, pets.com, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, RAND corporation, regulatory arbitrage, reserve currency, Saturday Night Live, savings glut, short selling, sovereign wealth fund, The Great Moderation, The Signal and the Noise by Nate Silver, Tobin tax, too big to fail, working poor

In the emerging-market crises, I had attended countless international meetings where similar arguments about moral hazard, inflation risk, and central bank credibility had been invoked to justify delay. Well, delay could be risky, too. Mervyn King, governor of the Bank of England, had criticized the ECB and the Fed for overreacting after we pumped liquidity into the markets in early August, warning that we were creating dangerous moral hazard. He was less critical after September 14, when he had to provide similar assistance to Northern Rock, a mortgage lender that had become the target of England’s first bank run in nearly 150 years. On September 18, we cut the federal funds rate target by a half point, and the markets rallied. Financial tensions in Europe and the United States eased a bit. We cut another quarter point in October, and the markets continued to show signs of calm. I was still worried we faced a long war, so I assigned my staff to investigate new ways to inject liquidity in times of stress, including potential aid to nonbanks.

At one point, Michael Barr and Laurie Schaffer, Treasury’s banking lawyer, stopped by my office to tell me Dodd wanted to eliminate much of the Fed’s supervisory responsibility. My instant reaction was no way—or, as I sometimes abbreviated it, NFW. The United Kingdom had separated its lender-of-last-resort function from its supervision function, with disastrous results; its central bank, lacking the situational awareness that comes with supervisory boots on the ground, badly underestimated the crisis and allowed a run to cripple Northern Rock. But after the President invited Dodd to the Oval Office and expressed similar NFW sentiments in more polite terms, Dodd changed his mind. He pushed us to be more practical, and to bend where we needed to, but he knew he needed the President to get the bill done. We had a similar uh-oh moment, with less satisfactory results, over derivatives regulation. In early April 2010, Senate Agriculture Committee Chair Blanche Lincoln of Arkansas, a moderate Democrat from a deep-red state, sent Barr some weak compromise language on derivatives that did not include mandatory clearing of derivatives and did not require derivatives to be more openly traded.


pages: 662 words: 180,546

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

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Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, Bretton Woods, Brownian motion, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, 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, invisible hand, Jean Tirole, joint-stock company, Kenneth Rogoff, knowledge economy, l'esprit de l'escalier, labor-force participation, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, payday loans, Ponzi scheme, 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 glut, school choice, sealed-bid auction, Silicon Valley, South Sea Bubble, Steven Levy, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, War on Poverty, Washington Consensus, We are the 99%, working poor

In the midst of the downdraft of 2008–9, I remember people saying to me: Yes, it’s been awful, but maybe the trial by fire will cleanse as well as sear. As Jenny Turner reminisced in the London Review of Books, “People imagined that a crash, when it came, would act like Occam’s Razor, cutting out the hedge funds and leaving the world a little saner . . .” Who among us back then did not suspect that the collapse of Bear Stearns, Lehman Brothers, AIG, Northern Rock, Lloyd’s Bank, Anglo Irish Bank, Kaupthing, Landsbanki, Glitnir (and a parade of lesser institutions) would at least cut through the smarmy triumphalism of those who claimed to fully comprehend the workings of the globalized economy? Such a simultaneous worldwide collapse, first of finance, then of the rest of economic activity, had up till then been the hallmark of conspiracy theorists, apocalypse mongers, and some unreconstructed historical materialists.

See Mont Pèlerin Society (MPS) Mulligan, Casey Mundell, Robert Murdoch, Rupert Murketing MySpace Myth of the Rational Market (Fox) N NAFTA (North American Free Trade Agreement) Nassirian, Barmak National Academy National Bureau of Economic Research (NBER) National Economic Council National Health Service National Income and Product Accounts National Institutes of Health National Public Radio (NPR) National Science Foundation (NSF) National Transportation and Safety Board NBER (National Bureau of Economic Research) Neoclassical econimics as empty Neoclassical economists Neoliberal Ascendancy Neoliberal Follies Neoliberal Thought Collective (NTC) about on agency bolstering of connection between economics profession and “conservatism,” “constructivism” in core insight of on crime current topography of defense mechanisms of doctrines for on economic crisis emergency executive committee meeting on equality exercising hostility toward federal government and Federal Reserve on Fannie Mae and Freddie Mac Foucault on on freedom Friedman on function of geoengineering and “good society,” major ambition of membership of on neuroenhancers normalization of everyday sadism orthodox macroeconomics and parallels between Seekers and persistence of on personhood political mobilizations of Radin on on “risk,” Russian doll structure of sociological structure of success stories think tanks affiliated with Thirteen Commandments writings of members of Neoliberalism Alternatives to Crisis response Defined Distinguished from neoclassical econimics Left epithet Premature obituaries for Netflix New Age New Deal New Disrespect New Economic Thinking New Industrial State (Galbraith) “New Keynesianism,” New Keynesians model New Knowledge Economy New Labour New Orthodox Seer New Right New Statesman New York Federal Reserve Bank New York Review of Books New York Times New York University (NYU) New Yorker Newbery, David on “investments,” News Corporation Newshour Newsnight Newsweek Nietzsche, Friedrich “The Night they Re-read Minsky,” Nik-Khah, Edward Nine Lives of Neoliberalism Nobel Prize Nobelists Nocera, Joe Nolan, Christopher A Non-Random Walk Down Wall Street (Lo and MacKinley) Northern Rock Nostradamus Codex Notre Dame, University of NPR (National Public Radio) NSF (National Science Foundation) NTC. See Neoliberal Thought Collective (NTC) Nugent, Ted NYU (New York University) O Obama, Barack Occam’s Razor Occupiers Occupy Handbook Occupy London Occupy Movement Occupy Wall Street (OWS) Odyssey (Homer) Old Thinking Oldham, Taki, Turf Wars Open questions Open Society The Open Society and Its Enemies (Popper) Oracle at Delphi Ordoliberalism Oreskes, Naomi Original Sin O’Rourke, Kevin Orszag, Peter Orwell, George Osborne, George Outsourced Self (Hochschild) OWS (Occupy Wall Street) P Page, Scott Palin, Sarah Pareto, Vilfredo Patterson, Scott, Dark Pools Paul, Ron Paulson, Hank Payday loans Payne, Christopher PBS Peck, Jamie Pecora, Ferdinand Perry, Rick Pesaran, Hashem Pew Economic Policy Group Financial Reform Project Philip Morris Phillips Curve Philosopher’s Stone Pimco Pinochet, Augusto Pinto, Edward Pissarides, Christopher Pity the Billionaire (Frank) Plant, Raymond Plato Plehwe, Dieter Ponzi scheme Poon, Martha Popper, Karl Portes, Richard Posner, Richard Power Auctions Predator Nation (Ferguson) Prediction as red herring Prescott, Edward C.


pages: 708 words: 176,708

The WikiLeaks Files: The World According to US Empire by Wikileaks

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affirmative action, anti-communist, banking crisis, battle of ideas, Boycotts of Israel, Bretton Woods, British Empire, capital controls, central bank independence, Chelsea Manning, colonial exploitation, colonial rule, corporate social responsibility, credit crunch, cuban missile crisis, Deng Xiaoping, Edward Snowden, energy security, energy transition, European colonialism, eurozone crisis, experimental subject, F. W. de Klerk, facts on the ground, failed state, financial innovation, Food sovereignty, Francis Fukuyama: the end of history, full employment, future of journalism, high net worth, invisible hand, Julian Assange, Mikhail Gorbachev, millennium bug, Mohammed Bouazizi, Monroe Doctrine, Naomi Klein, Northern Rock, RAND corporation, Ronald Reagan, Silicon Valley, South China Sea, statistical model, structural adjustment programs, too big to fail, trade liberalization, trade route, UNCLOS, UNCLOS, uranium enrichment, Washington Consensus, WikiLeaks, éminence grise

The negative publicity was even more damaging for the company when a former employee who had supplied the incriminating information came forward in 2011 with thousands more documents pertaining to high-net-worth clients, which he said would shed more light on the company’s practices7 and on the wealthy individuals avoiding tax. Among the other corporate targets of WikiLeaks over the years have been Kaupthing Bank, Peruvian oil dealers, Northern Rock, and Barclays Bank. WikiLeaks was also passed information on Bank of America and British Petroleum that it was unable to publish, partly because it lacked the resources to carry out a thorough fact-check. All of this by itself may simply constitute some good old-fashioned muck-raking journalism, exposing corporate malpractice and its almost inevitable corollaries of political corruption and repression.

Michael 335–7 Mubarak, Hosni 30, 32, 36–40 Mugabe, Robert 481 Mujahedin-e-Khalq, the 251, 339 Mukhin, Aleksey 214 Mulet, Edmond 61 Multilateral Agreement on Investment 136 Muslim Brotherhood 36, 38, 39, 41, 47–8 Myanmar 458, 460–2, 470 Myers, Richard 378 Nabucco pipeline 247, 248 Nation (newspaper) 427, 514, 533 national archives 5 National Democratic Institute (NDI) 519 National Endowment for Democracy (NED) 29, 30, 39, 40, 129, 484, 519 National Intelligence Council 66 National Intelligence Estimate (NIE), 1995 331 Nationalist Republican Alliance (ARENA) 486 National Lawyers Guild 95 National Salvation Front, Syria 303 National Security Archive 66 national security religiosity 6–10 National Security Strategy, 2002 445 national self-determination 26–7 NATO 16, 212, 238–42, 245; and Afghanistan 372, 382, 384, 388, 389 Negroponte, John 84, 354–5 neoliberalism 57, 59–60, 64 Netanyahu, Benjamin 264, 266, 267–70, 271, 274, 281, 282, 286–7, 326–8, 335 Nethercutt Amendment, the 162, 177 Neumann, Ronald E. 166 New People’s Army 464 New Republic 216–17 Newsnight (TV program) 197, 198 New START Treaty negotiations 231–4 Newsweek (magazine) 88 New World Order 46 New York Times 11, 88–9, 148, 184, 333, 335, 398–9, 411–12, 420, 426, 431, 445–6, 474 Nicaragua 18, 26, 50, 51, 57, 57–8, 60, 123, 484, 516, 542; Contra war 306; democracy promotion 493–4, 496; elections, 1990 58; occupation, 1912 52; US intervention 492–7 Nicaraguan Liberal Alliance (ALN) 495–6 Nikel, Rolf 205–6 Nixon, Richard 63, 66, 67, 119–20, 471–2 Non-Aligned Movement 460 Nonproliferation Treaty Review Conference, 2009 460 Noriega, Roger 23, 173 North American Free Trade Agreement (NAFTA) 121 Northern Rock 115 North Korea 23, 395, 458, 460; ICBM development 226, 229, 333–4, 410, 423; nuclear-weapons 397, 420, 423; and South Korea 396–7, 420–4 Ntaganda, Bosco 178 nuclear-weapons 217–19, 223–5, 231–6, 413; Israel 295; North Korea 397, 420, 423 Nuclear-Weapons-Free Zone in the Middle East (MENWFZ) 291–2 nuclear-weapons treaties 213, 224, 231–4, 291–2 Nyýazow, Saparmyrat 24 Obama, Barack 156, 225, 408–9, 482; and Afghanistan 382–4; antiwar platform 401; applepie rhetoric 24–5; China policy 455–8; East Asia policy 395–6; engagement with ICC 177–80; and Guantánamo 101; and the Honduran coup, 2009 71–2, 73; Iran policy 326; Israel policy 271, 283, 323, 326–8; and Japan 408–19; Middle East policy 41; missile-defense program 331; and Mubarak 38–9; and North Korea 423–4; Palestinian negotiations 326–8; Southeast Asia policy 446–50, 467–9; and South Korea 397; Syria policy 297–8, 314, 320–21; and torture prosecutions 160; and Tunisia 35; and the Ukraine crisis 210; UN speech, May 2011 47 Ocampo, Luis Moreno 179 Office of Public Safety 101 Office of Transition Initiatives (OTI) 517–18, 519, 520, 523, 525 oil 42, 127, 128, 148–9, 245–6, 454–5, 515, 530–4, 535–7 Okinawa 398, 417, 426, 427, 428–32 Omar, Abu, abduction 206–8 Operation Condor 69 Operation Enduring Freedom – Philippines 445 Organization of American States (OAS) 71, 128, 483 Ortega, Daniel 492, 493, 495, 496–7, 516, 542 Oslo Accords 265, 277, 327 Ottawa Treaty 379 Oxfam 123 P5+1 15, 286, 294, 328 Pacific Alliance 529 Pakistan 75 Palacio, Alfredo 175, 176–7 Palestine 39, 42, 179, 265–7; elections 266; security 272–3; statehood rights 271–4; two-state solution 272 Palestinian Authority (PA) 179–80, 265–6, 276, 293, 328.


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

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asset-backed security, bank run, banking crisis, Basel III, Black Swan, Black-Scholes formula, bonus culture, capital asset pricing model, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, 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, Kenneth Rogoff, Long Term Capital Management, margin call, market bubble, Nick Leeson, Northern Rock, offshore financial centre, price mechanism, regulatory arbitrage, rent-seeking, Richard Thaler, risk tolerance, risk/return, Ronald Reagan, shareholder value, short selling, statistical model, The Chicago School, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, yield curve

As they did when the New York Fed first learned about VAR in the early 1990s, the multinationals continue to argue that bigger really is better.1 They say that in order to keep growing in new markets, their clients need global banks that can follow them, providing bundles of services, from currency trading to M&A. The lie that bigger is better (and smarter) now stands exposed as one of the biggest governance flaws ever in the regulatory system. Shareholders and bonus-receiving bankers enjoyed the upside during the credit boom, and taxpayers became responsible for the downside in 2008. Defenders of the bank conglomerates point out that smaller banks, such as America’s IndyMac or Britain’s Northern Rock, also failed and cost taxpayers. But failures at that scale could be contained, while the failure of RBS or Citigroup could not. The large banks were able to play a game of chicken with governments, a stratagem that wasn’t an option for their smaller peers. Despite a populist backlash, the giants emerged largely intact from the Dodd-Frank bill. Although legislation gave federal regulators new powers to seize and break up rogue conglomerates like AIG or Lehman Brothers, the track record of the New York Fed, OCC, and SEC in kowtowing to megabanks does not bode well.


pages: 346 words: 101,763

Confessions of a Microfinance Heretic by Hugh Sinclair

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accounting loophole / creative accounting, Bernie Madoff, colonial exploitation, en.wikipedia.org, financial innovation, financial intermediation, Gini coefficient, high net worth, illegal immigration, inventory management, microcredit, Northern Rock, peer-to-peer lending, pirate software, Ponzi scheme, principal–agent problem, profit motive

The moment the public loses faith in the ability of financial institutions to return their savings, their natural tendency is to remove money as soon as possible, a so-called “run on the bank” that would instigate the collapse itself. Governments rightly fear such panics and thus regulate who can take deposits from the general public. This is not a fear unique to poor African countries: consider the recent collapse of Northern Rock in England during the financial crisis, with queues of people withdrawing their funds from the bank, and the government doing everything it could to persuade the rest that their savings were safe. Or of Argentines queuing up for days outside banks in 2001. I needed to find out if FCC was allowed to take savings, and what it was doing with these deposits. Some MFIs are essentially full-fledged banks.


pages: 320 words: 96,006

The End of Men: And the Rise of Women by Hanna Rosin

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affirmative action, call centre, cognitive dissonance, David Brooks, delayed gratification, edge city, facts on the ground, financial independence, hiring and firing, housing crisis, income inequality, informal economy, job satisfaction, low skilled workers, manufacturing employment, meta analysis, meta-analysis, new economy, New Urbanism, Northern Rock, postindustrial economy, purchasing power parity, Results Only Work Environment, Silicon Valley, Steven Pinker, union organizing, upwardly mobile, women in the workforce, young professional

If there is any relevant ethnography to apply: Cindy D. Ness, Why Girls Fight: Female Youth Violence in the Inner City (New York: New York University Press, 2010). A 2010 White House report on women and girls: “Women in America: Indicators of Social and Economic Well-Being,” p. 53. A recent British study showed: Marianne Hester, “Who Does What to Whom? Gender and Domestic Violence Perpetrators,” University of Bristol in association with the Northern Rock Foundation, June 2009. http://www.nr-foundation.org.uk/wp-content/uploads/2011/07/Who-Does-What-to-Whom.pdf. One British study found: John Mays, “Domestic Violence: The Male Perspective,” Parity, July 2010. http://www.parity-uk.org/RSMDVConfPresentation-version3A.pdf. One of the bombers was “emotionally distressed”: Andrew E. Kramer, “Russia’s Fear of Female Bombers Is Revived,” The New York Times, March 29, 2010


pages: 261 words: 86,905

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

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

Instead AIG got its bailout, which mainly involved direct transfers of cash to the banks that were its counterparties. The banks suffered no consequences for their mistakes, and so had no incentives to avoid such mistakes in the future—a textbook example of moral hazard. It was worry about moral hazard that made the Bank of England slow to act when the first signs of the credit crunch appeared with the collapse of the bank Northern Rock in autumn 2007. The term is close to being an example of reversification, but perhaps it’s more like a simple obfuscation: what we’re really talking about is the bad guys getting away with it. mortgage The word literally means “dead pledge,” and if it were called that maybe more people would think twice about getting one. It is a classic example of a financial entity that would scare people off if they thought more clearly about what it is: a highly leveraged form of long-term borrowing with regular demands for cash payment against an illiquid asset that is known to be even more illiquid in difficult times.


pages: 428 words: 117,419

Cyclopedia by William Fotheringham

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Berlin Wall, British Empire, carbon footprint, Fall of the Berlin Wall, intermodal, Northern Rock, éminence grise

• Étape Caledonia, 80 miles through the Scottish Highlands from the town of Pitlochry, the only UK event offering closed roads. In 2009, it was hit by saboteurs who strewed tacks on the road, causing over 50 punctures. • The Fred Whitton Challenge, in the Lake District, a 112-mile event starting and finishing at Coniston and including the climbs of Kirkstone, Honister, Whinlatter, Hardknott, and Wrynose passes. • Northern Rock Cyclone, the British round of Golden Bike, starting and finishing on the north side of Newcastle and taking in the moors of North East England. • Gran Fondo Nove Colli Marco Pantani, starting and finishing in Pantani’s birthplace of Cesenatico on the Adriatic Coast, and taking in nine tough ascents in the Apennines. The field is up to 11,000. • The Ardechoise, is a hugely popular and often overlooked series of events in the tough hills of Central France. 14,000 people took part in 2007; they offer a big range of distances, up to 654 km in three days, with 11,255 m of climbing.


pages: 613 words: 151,140

No Such Thing as Society by Andy McSmith

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anti-communist, Ayatollah Khomeini, Berlin Wall, Big bang: deregulation of the City of London, British Empire, call centre, cuban missile crisis, Etonian, F. W. de Klerk, feminist movement, Francis Fukuyama: the end of history, friendly fire, full employment, glass ceiling, greed is good, illegal immigration, index card, means of production, Mikhail Gorbachev, mortgage debt, mutually assured destruction, North Sea oil, Northern Rock, Ronald Reagan, South Sea Bubble, strikebreaker, The Chicago School, union organizing, upwardly mobile, urban decay, Winter of Discontent, young professional

If the building societies had restricted themselves to the service they had always provided, without borrowing on the money markets or becoming institutionally linked to investment banks, none would have been caught up in the crash of 2008. As it was, not one of the ten building societies that had converted to banks had survived on its own. Most had been bought up – Abbey by Santander in 2004, the Halifax by the Bank of Scotland, and so on. Northern Rock converted in 1997, and bankrupted itself by borrowing with a freedom that a building society could not have exercised. The last to demutualize was Bradford & Bingley, which had survived through every recession for 150 years, but in its new incarnation as a bank it went bust in just 8 years. The Trustee Savings Bank (TSB) was one of the biggest and most popular banking institutions in Scotland.


pages: 330 words: 117,313

On the Road by Jack Kerouac

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jitney, Northern Rock, refrigerator car, traveling salesman

Major and I were great pals; he thought I was the farthest thing from an arty type. Major liked good wines, just like Hemingway. He reminisced about his recent trip to France. “Ah, Sal, if you could sit with me high in the Basque country with a cool bottle of Poignon Dix-neuf, then you’d know there are other things besides boxcars.” “I know that. It’s just that I love boxcars and I love to read the names on them like Missouri Pacific, Great Northern, Rock Island Line. By Gad, Major, if I could tell you everything that happened to me hitching here.” The Rawlinses lived a few blocks away. This was a delightful family—a youngish mother, part owner of a decrepit, ghost-town hotel, with five sons and two daughters. The wild son was Ray Rawlins, Tim Gray’s boyhood buddy. Ray came roaring in to get me and we took to each other right away. We went off and drank in the Colfax bars.


pages: 435 words: 127,403

Panderer to Power by Frederick Sheehan

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Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, British Empire, call centre, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversification, financial deregulation, financial innovation, full employment, inflation targeting, interest rate swap, inventory management, Isaac Newton, Long Term Capital Management, margin call, market bubble, McMansion, Menlo Park, mortgage debt, new economy, Northern Rock, oil shock, place-making, Ponzi scheme, price stability, reserve currency, rising living standards, rolodex, Ronald Reagan, Sand Hill Road, savings glut, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, supply-chain management, supply-chain management software, The Great Moderation, too big to fail, transaction costs, trickle-down economics, VA Linux, Y2K, Yom Kippur War

In London, he told the Daily Telegraph that “Britain is more exposed than we are [to mortgage defaults]—in the sense that you have a good deal more adjustable-rate mortgages.”17 That would seem to contradict his variable-rate advice in February 2004, when he advised Americans to look overseas, “where adjustable-rate mortgages are far more common.”18 His statement to the Telegraph was on September 17, in the midst of a bank run on Northern Rock, a British bank. He may not have heightened the hysteria sweeping Britain, but he could have kept his mouth shut. 14 Interview with Leslie Stahl, 60 Minutes, September 16, 2007. 15 Jane Wardell, “Greenspan Defends Subprime,” Associated Press, October 2, 2007. 16“World Markets Still Affected by Fear: Greenspan,” Le Figaro, September 23, 2007. 17“UK More Vulnerable than America to the Credit Crunch, Greenspan says,” Daily Te l eg raph (London), September 18, 2007.


pages: 382 words: 120,064

Bank 3.0: Why Banking Is No Longer Somewhere You Go but Something You Do by Brett King

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3D printing, additive manufacturing, Albert Einstein, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, asset-backed security, augmented reality, barriers to entry, bitcoin, bounce rate, business intelligence, business process, business process outsourcing, call centre, capital controls, citizen journalism, Clayton Christensen, cloud computing, credit crunch, crowdsourcing, disintermediation, en.wikipedia.org, George Gilder, Google Glasses, high net worth, I think there is a world market for maybe five computers, Infrastructure as a Service, invention of the printing press, Jeff Bezos, jimmy wales, London Interbank Offered Rate, M-Pesa, Mark Zuckerberg, mass affluent, microcredit, mobile money, more computing power than Apollo, Northern Rock, Occupy movement, optical character recognition, performance metric, platform as a service, QWERTY keyboard, Ray Kurzweil, recommendation engine, RFID, risk tolerance, self-driving car, Skype, speech recognition, stem cell, telepresence, Tim Cook: Apple, transaction costs, underbanked, web application

It was no surprise, given the economic downturn, that Chase back-pedalled on those plans in its Q3 earnings call and then again in its Q4 earning call, bringing the number down to 1100, then 900 branches. The number of bank branches in the US peaked in 2010 and has been falling since—of course it remains to be seen whether this is the start of a trend, or simply a statistical anomaly. In the United Kingdom, the Royal Bank of Scotland, Northern Rock, Lloyds and HSBC are all reducing branch numbers. Lloyds has been trying to sell 632 of its branches now for close to 12 months at the asking price of approximately £4 billion, but has been unable to find serious interest. In the UK we have seen one branch closing every day since 1990,2 or more than 7000 in the last 20 years—that’s almost half of the 16,000 odd branches in 1990. In Australia, branch activity peaked in 2007 with 13,648 points of presence, and had decreased by seven per cent to 12,828 in 2011.3 However, expectations are that this trend will continue and perhaps steepen.


pages: 388 words: 125,472

The Establishment: And How They Get Away With It by Owen Jones

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anti-communist, Asian financial crisis, bank run, battle of ideas, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, British Empire, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, centre right, citizen journalism, collapse of Lehman Brothers, collective bargaining, don't be evil, Edward Snowden, Etonian, eurozone crisis, falling living standards, Francis Fukuyama: the end of history, full employment, glass ceiling, hiring and firing, housing crisis, inflation targeting, investor state dispute settlement, James Dyson, laissez-faire capitalism, market fundamentalism, Monroe Doctrine, Mont Pelerin Society, moral hazard, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, open borders, Plutocrats, plutocrats, profit motive, quantitative easing, race to the bottom, rent control, road to serfdom, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, stakhanovite, statistical model, The Wealth of Nations by Adam Smith, transfer pricing, union organizing, unpaid internship, Washington Consensus, Winter of Discontent

The entire British government demonstrated, not for the first time, that it was one giant lobbying operation for the City of London. The City of London’s ability to manage the aftermath of the 2008 crash was helped by other forms of influence. A total of 134 Tory MPs and peers are currently or were once employed in the financial sector.28 One example is Matt Ridley, a popular science writer and self-described ‘rational optimist’, who inherited the chair of Northern Rock from his father. His ‘rational optimism’ appeared of little use when, under his stewardship, the bank collapsed and had to be bailed out by the taxpayer. At the beginning of 2013 he inherited his father’s viscountcy and became a Conservative peer. Around half of the donations to the Conservative Party come from the City. One financial backer of the Tories is Richard Sharp,29 who donated £402,420 in the years leading up to the 2010 general election.


pages: 840 words: 202,245

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

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

Within hours of that ECB announcement, Bernanke at last reduced interest rates. Credit conditions in the United States were freezing up as investors stopped buying corporate and other bonds and bought U.S. Treasurys for safety. The Fed kept reducing the Fed funds rate until it reached almost zero at the end of 2009. That fall, the rating agencies downgraded mortgage bonds, and later that fall they started downgrading CDOs themselves. In September, Northern Rock, a giant British bank, was bailed out by its government. The two major insurers of mortgages, Ambac Assurance Corporation and MBIA Insurance Corporation, were also put on a credit watch list by the rating agencies. In early October, having recently assured investors all was fine, Merrill announced that it had to write down $5.5 billion of its assets, probably mostly mortgage securities. By late October, it raised the estimate to more than $8 billion.


pages: 614 words: 176,458

Meat: A Benign Extravagance by Simon Fairlie

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agricultural Revolution, Albert Einstein, back-to-the-land, call centre, carbon footprint, Community Supported Agriculture, deindustrialization, en.wikipedia.org, food miles, Food sovereignty, Haber-Bosch Process, Hugh Fearnley-Whittingstall, informal economy, Just-in-time delivery, land reform, Mahatma Gandhi, Martin Wolf, megacity, Northern Rock, Panamax, peak oil, refrigerator car, scientific mainstream, stem cell, The Wealth of Nations by Adam Smith, trade liberalization, University of East Anglia, upwardly mobile, women in the workforce

The short term solution to this problem, we should not forget, was the elimination of about a third of the population in the Black Death – an event that the modern historian might consider to be not so much fortuitous as ‘Gaian’. Opponents of organic agriculture have not been slow to point this out. There is a camp of 800 scientists and pundits, including Norman Borlaug (the architect of the green revolution), James Lovelock (of Gaia fame), Dennis Avery (of the Hudson Institute) and Matt Ridley (the UK’s best known contrarian and former chairman of Northern Rock) who, under the aegis of the Center for Global Food Issues, have signed a declaration ‘In Support of Protecting Nature with High Yielding Farming and Forestry’.35 The gist of this declaration, laid out most explicitly in supporting information written by Dennis Avery, is that to provide sufficient nitrogen to feed the future population of 8.5 billion people which industrialization will spawn, we will have to resort not only to chemical fertilizers, but also to genetic manipulation.


pages: 796 words: 242,660

This Sceptred Isle by Christopher Lee

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agricultural Revolution, Berlin Wall, British Empire, colonial rule, Corn Laws, cuban missile crisis, Edward Lloyd's coffeehouse, failed state, financial independence, glass ceiling, half of the world's population has never made a phone call, James Hargreaves, James Watt: steam engine, Khartoum Gordon, Khyber Pass, Mikhail Gorbachev, Monroe Doctrine, new economy, Northern Rock, Ronald Reagan, spice trade, spinning jenny, The Wealth of Nations by Adam Smith, trade route, urban decay

1401 First Lollard Martyr 1403 Percy’s Revolt; Henry Percy killed at Shrewsbury 1406 James I of Scots 1409 Owen Glyndŵr 1411 Foundation of Guildhall in London 1413 Henry V 1415 Agincourt 1420 Treaty of Troyes; Paston Letters 1422 Henry VI 1429 Joan of Arc at Orléans 1437 James II of Scots 1450 Cade’s Rebellion 1453 End of Hundred Years War; Gutenberg Bible 1455 Wars of the Roses begin 1460 James III of Scots 1461 Edward IV c.1474 Caxton prints first book in English 1483 Richard III 1485 Henry VII; founding of the Yeomen of the Guard 1488 James IV of Scots 1492 Christopher Columbus reaches America 1509 Henry VIII marries Catherine of Aragon 1513 James V of Scots 1519 Charles V, Holy Roman Emperor 1527 Henry VIII fails in attempt to divorce Catherine of Aragon 1533 Henry VIII marries Anne Boleyn; Cranmer, Archbishop of Canterbury 1536 Henry VIII marries Jane Seymour; Wales annexed to England 1540 Henry VIII marries and divorces Anne of Cleves; marries Catherine Howard 1540 Henry VIII, King of Ireland 1542 Mary, Queen of Scots 1547 Edward VI 1549 First Book of Common Prayer 1553 Mary I 1556 Cranmer executed 1558 Elizabeth I 1561 Mary, Queen of Scots returns to Scotland from France 1562 British slave trade starts 1567 James VI, King of Scotland 1571 First anti-Catholic Penal Law 1580 Drake’s circumnavigation 1587 Mary, Queen of Scots executed 1596 Robert Cecil, Secretary of State 1600 British East India Company incorporated 1601 Essex executed 1603 James I 1603 Ralegh treason trial and imprisonment 1611 Authorized Version of the Bible 1616 Death of William Shakespeare 1618 Ralegh executed; Thirty Years War starts 1625 Charles I 1632 Lord Baltimore granted patent for the settlement of Maryland 1641 The Grand Remonstrance issued 1642 Civil War starts; Battle of Edgehill 1643 Battle of Newbury 1644 Battle of Marston Moor 1645 New Model Army established 1649 Charles I executed; massacres at Wexford and Drogheda 1651 Charles II crowned at Scone; Hobbes’ Leviathan published 1655 Jamaica captured 1658 Cromwell dies 1660 Charles II; Declaration of Breda; Pepys begins his diary 1662 The Royal Society; Boyle’s Law 1666 Fire of London 1670 Hudson’s Bay Company 1673 Test Act 1678 Bunyan’s Pilgrim’s Progress 1685 James II 1689 William III and Mary II 1690 Battle of the Boyne 1692 Massacre of Glencoe 1694 Bank of England 1695 Bank of Scotland 1702 Queen Anne 1704 Battle of Blenheim; capture of Gibraltar 1707 Union with Scotland 1714 George I 1719 Daniel Defoe’s Robinson Crusoe 1722 Walpole, first Prime Minister 1727 George II 1740 War of Austrian Succession; Arne composes ‘Rule Britannia’ 1742 Handel’s Messiah 1746 Battle of Culloden 1751 Clive captures Arcot 1755 Dr Johnson’s Dictionary 1756 Seven Years War 1759 General Wolfe dies at Battle of Quebec 1760 George III 1765 Stamp Act; Hargreaves’ spinning jenny 1767 Revd Laurence Stone’s Tristram Shandy 1768 Royal Academy of Arts founded 1772 Warren Hastings, first Governor General of Bengal 1773 Boston Tea Party 1774 Priestley isolates oxygen 1775 American Revolution – Lexington and Concord 1776 American Declaration of Independence 1779 Captain Cook killed in Hawaii 1780 Gordon Riots; Epsom Derby 1781 Battle of Yorktown 1783 Pitt the Younger PM 1788 Regency Crisis 1789 French Revolution 1792 Tom Paine’s The Rights of Man 1799 Napoleon 1801 Union with Ireland 1805 Trafalgar 1807 Abolition of Slave Trade Act 1815 Waterloo 1820 George IV 1828 University of London founded 1829 Catholic Emancipation Act 1830 William IV 1832 First Reform Act 1833 Abolition of slavery in British colonies Act 1834 Houses of Parliament burned down 1836 Births, Marriages & Deaths Act 1837 Queen Victoria 1838 Public Records Office founded 1839 Bed Chamber Crisis; Opium War 1840 Prince Albert; Treaty of Waitangi 1843 Joule’s First Law 1844 Rochdale Pioneers; first telegraph line in England 1846 Repeal of Corn Laws 1847 Marks and Engels’ The Communist Manifesto 1849 Punjab conquered 1850 Public libraries; Tennyson, Poet Laureate 1854 Crimean War; British Medical Association founded 1855 Daily Telegraph founded; Palmerston PM 1857 Sepoy Rebellion (Indian Mutiny); Trollope’s Barchester Towers 1858 Canning, first Viceroy of India 1859 Darwin’s On the Origin of Species 1861 Prince Albert dies; American Civil War 1865 Abraham Lincoln assassinated 1867 Second Reform Act; first bicycle 1868 TUC 1869 Suez Canal opened; Cutty Sark launched 1870 Death of Dickens 1876 Victoria made Empress of India 1880 Gladstone PM 1881 First Boer War 1884 Third Reform Act 1885 Gordon dies at Khartoum 1887 Queen Victoria’s Golden Jubilee 1891 Elementary school fees abolished 1895 Salisbury PM 1896 Daily Mail founded 1898 Omdurman 1899 Second Boer War 1900 Elgar’s Dream of Gerontius 1901 Edward VII 1903 Suffragettes 1904 Entente Cordiale 1908 Borstal opened 1909 Old Age Pensions 1910 George V 1914 Irish Home Rule; First World War 1916 Lloyd George PM 1918 RAF formed from Royal Flying Corps; Marie Stopes 1919 John Maynard Keynes’ Economic Consequences of the Peace 1920 Black and Tans; Anglican Church in Wales disestablished 1921 Irish Free State 1922 Bonar Law PM 1923 Baldwin PM 1924 First Labour Government (MacDonald PM); Baldwin PM; Lenin dies 1925 Britain joins Gold standard 1926 General Strike 1928 Women over twenty-one given vote 1929 The Depression; MacDonald PM 1931 National Government; Statute of Westminster 1932 British Union of Fascists 1933 Hitler 1935 Baldwin PM 1936 Edward VIII; George VI; Spanish Civil War 1937 Chamberlain PM 1938 Austria annexed by Germany; Air Raid Precautions (ARP) 1939 Second World War 1940 Battle of Britain; Dunkirk; Churchill PM 1942 Beveridge Report; fall of Singapore and Rangoon 1944 Butler Education Act; Normandy allied landings 1945 Attlee PM; Germany and Japan surrender 1946 UN founded; National Insurance Act; National Health Service 1947 India Independence; Pakistan formed 1948 Railways nationalized; Berlin Airlift; Ceylon (Sri Lanka) independence 1949 NATO; Irish Independence; Korean War 1951 Churchill PM 1952 Elizabeth II 1955 Eden PM; Cyprus Emergency 1956 Suez Crisis 1957 Macmillan PM 1958 Life Peerages; EEC 1959 Vietnam War; Fidel Castro 1960 Macmillan’s Wind of Change speech 1963 Douglas-Home PM; De Gaulle veto on UK EEC membership; Kennedy assassination 1964 Wilson PM 1965 Southern Rhodesia UDI 1967 Pound devalued 1969 Open University; Northern Ireland Troubles; Robin Knox-Johnston first solo, non-stop sailing circumnavigation 1970 Heath PM 1971 Decimal currency in UK 1972 Bloody Sunday, Northern Ireland 1973 Britain in EEC; VAT 1974 Wilson PM 1976 Callaghan PM; first Concorde passenger flight 1979 Thatcher PM; Rhodesian Settlement 1982 Falklands War 1985 Mikhail Gorbachev; Global warming – British report hole in ozone layer 1986 Chernobyl; Reagan–Gorbachev Zero missile summit 1987 Wall Street Crash 1988 Lockerbie 1989 Berlin Wall down 1990 John Major PM; Iraq invades Kuwait 1991 Gulf War; Helen Sharman first Briton in space; Tim Berners-Lee first website; collapse of Soviet Communism 1992 Maastricht Treaty 1994 Church of England Ordination of Women; Channel Tunnel opens 1995 British forces to Sarajevo 1996 Dolly the Sheep clone 1997 Blair PM; Diana Princess of Wales dies; Hong Kong returns to China 1998 Rolls-Royce sold to BMW; Good Friday Agreement 1999 Scottish Parliament and Welsh Assembly elections 2001 Terrorist attacks on New York 2002 Elizabeth the Queen Mother dies 2003 Second Gulf War 2004 Asian Tsunami 2005 Freedom of Information Act; Prince of Wales and Camilla Parker-Bowles wed; terrorist attacks on London 2006 Queen’s eightieth birthday 2007 Ministry of Justice created; Brown PM 2008 Northern Rock collapse 2009 Market crash; banks partly nationalized; MPs expenses scandal 2010 Cameron PM. First post-Second World War British Coalition Government Acknowledgements No book writes itself. Even revised versions and updates rely on people who encourage and those who help as a matter of course or because it is something they do every day, even without knowing who the author is or seeing the bigger picture.

Great Britain by David Else, Fionn Davenport

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active transport: walking or cycling, Albert Einstein, Beeching cuts, British Empire, call centre, car-free, carbon footprint, clean water, colonial rule, Columbine, congestion charging, credit crunch, David Attenborough, Etonian, food miles, glass ceiling, global village, haute cuisine, illegal immigration, Isaac Newton, James Watt: steam engine, land reform, Livingstone, I presume, Mahatma Gandhi, new economy, North Sea oil, Northern Rock, offshore financial centre, place-making, Skype, South of Market, San Francisco, Stephen Hawking, the market place, trade route, transatlantic slave trade, transatlantic slave trade, upwardly mobile, urban planning, urban renewal, urban sprawl, Winter of Discontent

However, critics claim that this success has been built on the insecure foundations of an irrational housing market and a mountain of consumer debt. The ratio of household debt to national income in 2008 was 1.62, the highest of any major economy, and the total stock of consumer debt has trebled over the last 10 years – at £1,325 billion it is now greater than Britain’s GDP. The global credit crunch that began in late 2007 hit Britain hard. The nationalisation of Northern Rock and Bradford & Bingley – two major British banks – was followed by a massive taxpayer bailout of the financial sector, including the merger of HBOS with Lloyds TSB to create a megabank that holds one third of the country’s savings and current accounts. House prices tumbled, unemployment increased and, at the time of writing in late 2008, Britain’s economy was in a recession. Return to beginning of chapter POPULATION Britain’s population is around 59 million.