South Sea Bubble

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Company: A Short History of a Revolutionary Idea by John Micklethwait, Adrian Wooldridge

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“They are behind the times,” thundered one governor of Pennsylvania, “they belong to an age that is past.”2 New companies were chartered, of course; but the process of doing so was cumbersome. It was not until a combination of legal and economic changes from the 1820s onward that the modern company began to take shape.3 SLAVERS AND INDUSTRIALISTS In Britain, the prejudice against joint-stock companies created by the South Sea Bubble was later reinforced by scandals involving both the Charitable Corporation and the York Building Company. As we have already noted, the ironically named South Sea Bubble Act survived the scandal. It required every joint-stock company to possess a charter from parliament—something that involved huge costs in terms of money, time, and uncertainty. Most British businessmen preferred other sorts of organizations, such as partnerships and various unincorporated companies (partnerships that tried to mimic some of the qualities of companies by making their shares freely transferable and doing something to limit the liability of sleeping partners who were not directly involved in the business).4 There were several frenzies of joint-stock company creation—most notably to build canals.

In general, companies have become more ethical: more honest, more humane, more socially responsible. The early history of companies was often one of imperialism and speculation, of appalling rip-offs and even massacres. People who now protest about the new evil of global commerce plainly have not read much about slavery or opium. People who talk in terrified tones about the unprecedented skulduggery at WorldCom seem to have forgotten about the South Sea Bubble. Those who fear the unparalleled might of Bill Gates could do with a little reading on J. P. Morgan. Today, the number of private-sector companies that a country boasts—the United States had 5½ million corporations in 2001, North Korea, as far as we can tell, none—is a better guide to its status than the number of battleships it can muster. It is also not a bad guide to its political freedom.

Still, it was the big chartered companies that hogged the limelight. And it was thanks to their abuses that, as late as 1800, many reformers saw the joint-stock company as dangerous and old-fashioned. The main evidence for the prosecution came from the most remarkable company of the period, the English East India Company, and from its most remarkable financial scandal—the frothy combination of the South Sea Bubble and the collapse of the Mississippi Company. THE HONORABLE COMPANY The East India Company was more than just a modern company in embryo. “The grandest society of merchants in the Universe” possessed an army, ruled a vast tract of the world, created one of the world’s greatest civil services, built much of London’s docklands, and even provided comfortable perches for the likes of James Mill and Thomas Love Peacock.7 It all began on September 24, 1599, when a group of eighty merchants and adventurers, including veterans of the Levant Company and a few of Francis Drake’s crew, met at the Founders Hall in the City of London.

 

Investment: A History by Norton Reamer, Jesse Downing

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These later acts were accomplished by the purchase and sale of the company’s stock in the open market and originally, therefore, by transactions undertaken between existing shareholders (the sellers) and other existing or new shareholders (the buyers). The South Sea Bubble No sooner had the modern corporate form emerged than the need for its regulation did as well. The South Sea Bubble, economically ruinous to a host of early investors, highlighted the dangers of a lack of adherence to fiduciary duty and revealed some of the weaknesses of this new form. The South Sea Bubble began with the South Sea Company, founded by Robert Harley and John Blunt in 1711. The company was given unrestricted and monopolized access to trade in South America in return for agreeing to purchase the public debt that resulted from the War of Spanish Succession.

While a more unruffled member of Parliament called the event “a notorious breach of trust,” another proclaimed that the fraudsters should be placed in sacks with snakes and loose change and thrust into the river to drown.8 The South Sea Bubble brought serious harm not only to much of the investing public but also to the broader English economy. One of the foremost ironies of the episode was the passage of the Bubble Act of 1720, which required all joint-stock companies to possess royal charters. Contrary to common conception, this was not passed out of a desire for reform; rather, it was passed prior to the collapse of the firm and was meant to aid and insulate the South Sea Company from competition for investors’ funds by preventing other smaller entities from marketing shares, as they did not possess the required charter.9 Nonetheless, the Bubble Act came to be used to regulate these early companies and made them less likely to do widespread harm. Ultimately, the South Sea Bubble reminded investors of exploitable information asymmetries between the body of shareholders and management, and it drove many to approach the task of allocating money with greater scrutiny and diligence.

Robert Gibson-Jarvie, The City of London: A Financial and Commercial History (Cambridge: Woodhead-Faulkner, 1979), 24 and 98. 3. Ibid., 24–25. 4. Mira Wilkins, The History of Foreign Investment in the United States to 1914. Harvard Studies in Business History 41 (Cambridge, MA: Harvard University Press, 1989), 3–4. 5. Ibid., 4–5. 6. “South Sea Bubble Short History,” Baker Library, Harvard Business School, accessed 2014, http://www.library.hbs.edu/hc/ssb/history .html; Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (New York: Free Press, 2004), 6–8. 7. “South Sea Bubble Short History.” 8. Bakan, The Corporation, 6–7. 9. Colin Arthur Cooke, Corporation, Trust and Company: An Essay in Legal History (Cambridge, MA: Harvard University Press, 1951), 83. 10. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Modern Library, 1937), 334–335. 11.

 

pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

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As this conviction spread, prices fell, and never rose again. Note the typical bubble phenomenon that people stopped buying for long-term economic reasons and merely bought to sell on at a short-term profit. This feedback phenomenon, which has been better understood by novelists and poets than many Chicago economists, was also at work in the South Sea Bubble, as we saw in my initial quotation from Alexander Pope. Pope, incidentally, was himself one of those irresistibly charmed by the South Sea Bubble. So, too, was the greatest genius of the day, Isaac Newton. As Master of the Royal Mint and the man who put England onto the gold standard when he was not busy discovering the physical laws of the universe, he was hardly a novice in finance. Having made an initial 100 per cent profit of £7,000 on his shares in the South Sea Company, he was unlucky enough to go back into the market close to the top and lost £20,000, equivalent to £2.5 million in today’s money.

It also sits oddly with the extreme booms and busts that take place in the property market, which are so often the cause of financial crises. The recurring collective memory loss exhibited by bankers in property lending does not look like the result of measured deliberations by homo economicus. And how can the efficient markets hypothesis be reconciled with great financial aberrations such as the South Sea Bubble, of which Alexander Pope wrote: At length Corruption, like a gen’ral flood, (So long by watchful Ministers withstood) Shall deluge all; and Av’rice creeping on, Spread like a low-born mist, and blot the Sun; Statesman and Patriot ply alike the stocks, Peeress and Butler share alike the Box, And Judges job, and Bishops bite the town, And mighty Dukes pack cards for half a crown. See Britain sunk in lucre’s sordid charms… ‘All this is madness,’ cries a sober sage: But who, my friend, has reason in his rage?

Later that year he made a speech in which he famously referred to ‘irrational exuberance’ in the stock market. Yet from then on he spent much time justifying the ever increasing level of the market by reference to a productivity miracle. He did this in the face of considerable scepticism on the part of senior Fed staff members. When the market was at its wildest, Michael Prell, a Fed economist, told the FOMC that initial public offerings of dot.com stocks were redolent of the atmosphere in the South Sea Bubble. Yet the chairman had little time for such input. And those members of the FOMC who worried about the bubble were sidelined by Greenspan in the committee’s deliberations. He exerted rigid control throughout his tenure.75 As the dot.com saga spiralled out of hand, Greenspan’s view, which became highly influential, was that since it was impossible for central banks to identify and prick bubbles, all they could do was to clean up after the event.

 

pages: 416 words: 118,592

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

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Down and down they went until most bulbs became almost worthless—selling for no more than the price of a common onion. THE SOUTH SEA BUBBLE Suppose your broker has called you and recommended that you invest in a new company with no sales or earnings—just great prospects. “What business?” you say. “I’m sorry,” your broker explains, “no one must know what the business is, but I can promise you enormous riches.” A con game, you say. Right you are, but 300 years ago in England this was one of the hottest new issues of the period. And, just as you guessed, investors got very badly burned. The story illustrates how fraud can make greedy people even more eager to part with their money. At the time of the South Sea Bubble, the British were ripe for throwing away money. A long period of prosperity had resulted in fat savings and thin investment outlets.

Castle House, 75/76 Wells Street, London W1T 3QT TO NANCY AND SKIPPER CONTENTS Preface Acknowledgments from Earlier Editions Part One STOCKS AND THEIR VALUE 1. FIRM FOUNDATIONS AND CASTLES IN THE AIR What Is a Random Walk? Investing as a Way of Life Today Investing in Theory The Firm-Foundation Theory The Castle-in-the-Air Theory How the Random Walk Is to Be Conducted 2. THE MADNESS OF CROWDS The Tulip-Bulb Craze The South Sea Bubble Wall Street Lays an Egg An Afterword 3. SPECULATIVE BUBBLES FROM THE SIXTIES INTO THE NINETIES The Sanity of Institutions The Soaring Sixties The New “New Era”: The Growth-Stock/New-Issue Craze Synergy Generates Energy: The Conglomerate Boom Performance Comes to the Market: The Bubble in Concept Stocks The Nifty Fifty The Roaring Eighties The Return of New Issues Concepts Conquer Again: The Biotechnology Bubble ZZZZ Best Bubble of All What Does It All Mean?

My first task will be to acquaint you with the historical patterns of pricing and how they bear on the two theories of pricing investments. It was Santayana who warned that if we did not learn the lessons of the past we would be doomed to repeat the same errors. Therefore, in the pages to come I will describe some spectacular crazes—both long past and recently past. Some readers may pooh-pooh the mad public rush to buy tulip bulbs in seventeenth-century Holland and the eighteenth-century South Sea Bubble in England. But no one can disregard the new-issue mania of the early 1960s, or the “Nifty Fifty” craze of the 1970s. The incredible boom in Japanese land and stock prices and the equally spectacular crash of those prices in the early 1990s, as well as the “Internet craze” of 1999 and early 2000, provide continual warnings that neither individuals nor investment professionals are immune from the errors of the past.

 

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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As in the case of Tulipmania, this structural transformation in economic conditions gave rise to an unsustainable financial boom, the South Sea Bubble. This bubble burst in 1720, exposing colossal fraud and political corruption. It brought ruin to many notable British business and aristocratic families. Financial acumen and analytical brainpower were no defense against the bubble’s devastation, as Newton discovered. The indiscriminate nature of its financial devastation may explain why the South Sea Bubble, along with Tulipmania, is usually considered the quintessential case of the financial markets’ detachment from reality, a view expressed in the title of probably the most famous book on the history of finance, Charles MacKay’s Extraordinary Popular Delusions and the Madness of Crowds. But was the South Sea Bubble, along with the Mississippi Company speculation that blew up in Paris at about the same time, really nothing more than an extraordinary delusion?

When the bubble burst three months later, Newton had lost his entire fortune of £20,000, equivalent to $5 million today if adjusted for consumer prices or roughly $90 million in relation to the average wages in eighteenth-century England.2 Newton retreated from public life and soon left London, venting his bitterness against the world of finance in a famous quote: “I can calculate the motions of the heavenly bodies, but not the madness of people.”3 Recurrent booms and busts have shaken capitalism since its inception, with routine financial panics occurring every few decades and earth-shattering crises, such as the South Sea Bubble or the Lehman bankruptcy, every generation or two. These financial manias, going back even before the South Sea Bubble to Tulipmania in seventeenth-century Holland, often caused severe economic dislocations, especially in financially oriented countries. Such disruptions have usually been powerful enough to overwhelm, at least temporarily, the strongest of favorable historic trends. In the long run, however, the arrow of progress has always prevailed against the ring of finance.

—George Soros, October 1987, twenty years before the subprime crisis The collapse of the global marketplace would be a traumatic event with unimaginable consequences. Yet I find it easier to imagine than the continuation of the present regime.1 —George Soros, February 1995, twelve years before the subprime crisis SIR ISAAC NEWTON was not just the world’s greatest mathematician and scientist. He was also Master of the Royal Mint in London from 1699 to 1727, a period that took in the South Sea Bubble, perhaps the most notorious of all the booms and busts that have punctuated financial history. With his incomparable intellect and his access to what today might be called insider information, he invested in the South Sea Company and cashed out his shares with a 100 percent profit in April 1720, judging that their price had advanced too far. But Newton, supreme mathematician though he was, had miscalculated.

 

pages: 218 words: 63,471

How We Got Here: A Slightly Irreverent History of Technology and Markets by Andy Kessler

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Albert Einstein, Andy Kessler, automated trading system, bank run, Big bang: deregulation of the City of London, Bretton Woods, British Empire, buttonwood tree, Claude Shannon: information theory, Corn Laws, Edward Lloyd's coffeehouse, fiat currency, floating exchange rates, Fractional reserve banking, full employment, Grace Hopper, invention of the steam engine, invention of the telephone, invisible hand, Isaac Newton, Jacquard loom, Jacquard loom, James Hargreaves, James Watt: steam engine, John von Neumann, joint-stock company, joint-stock limited liability company, Joseph-Marie Jacquard, Maui Hawaii, Menlo Park, Metcalfe's law, packet switching, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, railway mania, RAND corporation, Silicon Valley, Small Order Execution System, South Sea Bubble, spice trade, spinning jenny, Steve Jobs, supply-chain management, supply-chain management software, trade route, transatlantic slave trade, transatlantic slave trade, tulip mania, Turing machine, Turing test, William Shockley: the traitorous eight

All bubbles end, and usually for no good reason except an economically unsustainable business is, well, unsustainable. As soon as 70 HOW WE GOT HERE the stock starts dropping, if only because it has exhausted its buyers, the whole thing unwinds. People who had borrowed money sold the stock to pay off the loans, which sent the stock price lower, the upside in exact reverse. Gravity works. In fact, Sir Isaac Newton himself dropped 20,000 pounds faster than an apple falls from a tree. The South Sea bubble is a great story, especially in relation to the Internet Bubble of 1999-2000, when shares of Priceline.com, which sold discount tickets on airlines such as Delta Airlines, were worth more than the airline companies themselves. But it is the ramifications of the burst Bubble that is more telling. Banks which lent money went bankrupt. People hoarded gold and the British economy ground to a halt.

While this may have solidified the government’s grip on trade and kept mercantilism dominant, it had the opposite effect in the long run. Businessmen became so disgusted with government mandated monopolies, that mercantilism probably peaked on that same June 24th day when South Sea hit 1050 pounds. Adam Smith was born in 1723, and his book Wealth of Nations would not be published until 1776 at the dawn of the Industrial Revolution, but the memory of the South Sea bubble kept England in the muck for 50 years. A minor footnote in the Bubble Act also forbade any company except for the Royal Exchange Assurance and London Assurance from writing marine insurance policies. Lloyd’s of London slipped through a loophole since it wasn’t a company, but a meeting place for individuals who underwrote insurance. I’ll get to the implications of insurance in a coming chapter, but it added to England’s aversion to risk.

In the 1870’s, the British were wealthy and America was poor. Undersea telegraphs opened America to British capital markets, and tons of money flowed to the U.S. to finance the build out of the U.S. railroads. But rather than owning equity in these railroads, the British mainly lent money, still more comfortable with getting paid interest and their eventual money back, rather than take the risk in equity, 250 years after the South Sea Bubble burst. Even today, you find a much less developed venture capital business in England and all of Europe vs. the risk junkies of Silicon Valley. *** But the consols allowed England to raise capital, and never have to pay it back! The French never invented such an instrument after their Mississippi Company bubble, and were forced to borrow capital with very short duration, meaning they had to pay back their debts within a year.

 

The Corporation: The Pathological Pursuit of Profit and Power by Joel Bakan

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Berlin Wall, Cass Sunstein, corporate governance, corporate personhood, corporate social responsibility, energy security, Exxon Valdez, IBM and the Holocaust, joint-stock company, laissez-faire capitalism, market fundamentalism, Naomi Klein, new economy, race to the bottom, Ralph Nader, Ronald Reagan, shareholder value, South Sea Bubble, The Wealth of Nations by Adam Smith, Triangle Shirtwaist Factory, urban sprawl

The directors of the South Sea Company were called before Parliament, where they were fined, and some of them jailed, for "notorious fraud and breach of trust."5 Though one parliamentarian demanded they be sewn up in sacks, along with snakes and monies, and then drowned, they were, for the most part, spared harsh punishment . As for the corporation itself, in 1720 Parliament passed the Bubble Act, which made it a criminal offense to create a company "presuming to be a corporate body," and to issue "transferable stocks without legal authority." Page 8 JOEL BABAN Today, in the wake of corporate scandals similar to and every bit as nefarious as the South Sea bubble, it is unthinkable that a government would ban the corporate form. Even modest reforms-such as, for example, a law requiring companies to list employee stock options as expenses in their financial reports, which might avoid the kind of misleadingly rosy financial statements that have fueled recent scandals '-seem unlikely from a U.S. federal government that has failed to match its strong words at the time of the scandals with equally strong actions.

., 35-39, 41, 46,57 see also regulatory laws corporate mascots, 26 corporations: amorality of, 53-59, 69, 79, 88-89, 110,134 backlash against, 25-27, 140-43 benevolent, 18-19, 151 church replaced by, 134 definition of, 3 democracy corrupted by, 101-2 devastation as opportunity for, 111, 124-25 dominance of, 5, 21-27, 134, 139-40,153,159 elimination of, 159-60 English banning of, 6-8, 9 exploitation by, 74, 112, 118, 122, 123, 138, 139, 140, 148, 149, 163 as "Frankenstein monsters," 19, 149 as government creations, 153-58, 164 grant theory of, 16 historical development of, 5-21, 153,156 as institutions, 1-3, 28, 50, 56-57, 59,64 as instruments of destruction, 71-73,110 natural entity theory of, 16, 154-55 Nazis assisted by, 87-89 no accountability of, 152 nonprofit, 166 philanthropy of, 30, 31, 45, 47-49 political systems as viewed by, 88-89 profits and, 31, 34, 36, 41, 45, 48, 49, 50,51,52,53,55,57,58,62,69, 88-89 profits and, 31, 34, 36, 41, 45, 48, 49, 50,51,52,53,55,57,58,62,69, 73,82,88-89,101,103,105, 113,117,122,126-27,138,154, 165 psychopathy of, 28, 56-59, 60, 69, 79, 85, 110, 122, 134, 158, 161 public good and, 156, 158 public-purpose, 160-61 "rising tide lifts all boats" principle of, 142-43 and self-interest as human nature, 116-17,134-35,138 self-interest of, 1-2, 28, 37-39, 44-50,58-59,60,61,80,101-2, 105,109-10,117-18,134,142, 149, 156, 160, 161, 167 cost-benefit analysis, 62-65, 79-80, 149-50,152 in oil industry, 82-83 costs: externalized, 61, 62-65, 71-73, 149-50 of social responsibility, 45, 47-48, 49 'creative destruction" toys, 126-27 Croix de Feu, 91 Back Matter Page 1 70 2 NOTES 6. Carswell, The South Sea Bubble, 210. 7. Especially in high-technology companies, where stock options are widely used to compensate employees, failure to account for them unduly inflates reported earnings, sometimes by hundreds of millions of dollars. Yet, despite criticism of the practice by investor groups, accounting bodies, and the likes of Alan Greenspan and Warren Buffett, the federal government seems reluctant to stop it.

The War Against America's Public Schools: Privatizing Schools, Commercializing Education. Boston: Allyn & Bacon, 2001. Bracey, Gerald W. What You Should Know About the War Against America's Public Schools. Boston: Allyn & Bacon, 2002. Brummer, James J. Corporate Responsibility and Legitimacy: An Interdisciplinary Analysis. New York: Greenwood Press, 1991. Cadman, John W. The Corporation in New Jersey. Cambridge, Mass.: Harvard University Press, 1949. Carswell, John. The South Sea Bubble. London: Cresset Press, 1960. Cassels, Jamie. The Uncertain Promise of Law: Lessons from Bhopal. Toronto and London: University of Toronto Press, 1993. Chandler, Afred D., Jr., ed. The Railroads: The Nation's First Big Business. Back Matter Page 27 And What You Can Do About It. New York: Tarcher/Putnam, 2003. Crawford, Margaret. "The World in a Shopping Mall." In Variations on a Theme Park, ed.

 

pages: 632 words: 159,454

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

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

Murphy, Richard Cantillon: Entrepreneur and Economist, Oxford, 1986, p. 67. 26John Carswell, The South Sea Bubble, Dover, NH, 1993 (1st edn, London, 1960), p. 35. 27Murphy, Cantillon, pp. 67–8; Edward Chancellor, Devil Take the Hindmost: A History of Financial Speculation, London, 1999, p. 93. 28Carswell, The South Sea Bubble, p. 79. 29Ibid., p. 83. 30William Coxe, Memoirs of the Life and Administration of Sir Robert Walpole, Earl of Orford, 3 vols, London, 1798, vol. 1, pp. 131–3; Chancellor, Devil Take the Hindmost, pp. 63–4. 31Coxe, Memoirs of Sir Robert Walpole, vol. 1, p. 135. 32Chancellor, Devil Take the Hindmost, pp. 73, 88. 33Malcolm Balen, A Very English Deceit: The Secret History of the South Sea Bubble and the First Great Financial Scandal, London, 2002, p. 119. 34Ibid., p. 92. 35Chancellor, Devil Take the Hindmost, p. 88. 36Ibid., p. 93. 37Dickson, The Financial Revolution in England, pp. 11–12.

Despite his shortage of ready money, he left, by modern standards, an invaluable collection of art; the inventory of twenty-two paintings he bequeathed as a legacy included a Titian, a Raphael, four Tintorettos and three of Rubens’s works.23 At his death, he was about fifty-eight years old. He had lived a life of adventure and excitement such as few of his contemporaries could match.24 As we have seen, Law’s innovations attracted the attention of the English, but, in many ways, his scheme had been modelled on an English example. The story of the South Sea Company, and its denouement in the South Sea Bubble, has been told countless times. Both bubbles had a common origin in the need to find new ways to finance government spending, aggravated by lengthy military campaigns in the struggle between Britain and France. Both the South Sea Company and Law’s Compagnie d’Occident owed their immediate origin to the ‘accumulated debts created during the War of the Spanish Succession which was waged from 1701 to 1713’.

It has been calculated that the inherent, or ‘fair’, value of the shares, based simply on the fixed income the government gave the Company, was around £150.36 The idea behind the Company taking on the national debt was that the revenue from the trade would meet the burden of the interest on the national debt, and so, inevitably, if such trade failed to materialize, the worth of the Company’s shares would be considerably lower. Both the South Sea Bubble and John Law’s Mississippi system can be easily categorized. Behind all the drama and fascination of the bubbles, both companies represented an early attempt to solve the problem of government indebtedness. By substituting equity, or shares, in a company for government debt, it was hoped that a lower interest rate could be achieved on the debt, while giving the equity investor a prospect of capital appreciation.

 

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

Buyers do not believe prices are justified but think they will find a gullible buyer willing to pay even more. They buy apartments sight unseen and purchase Internet stocks with no dividends or even revenues. Investors who take part in such bubbles will usually feel much more sophisticated than the naïve fools who fall for pyramid schemes, but they are making a similar mistake. Even Isaac Newton lost money in the South Sea bubble of the early eighteenth century, declaring afterwards, ‘I can calculate the motions of heavenly bodies, but not the madness of people.’ In the long run, the value of an asset must be linked to the income that can be generated from it (rent in the case of property, dividends in the case of shares). It is quite possible for individual assets to shoot up in price since residential areas can become more fashionable and companies can have very successful products.

The bond market could suffer indigestion. Some suspect that, as a result of this constraint, central banks may never get round to reducing their bond holdings. If one thinks back to the early eighteenth century, John Law’s scheme also amounted to quantitative easing, as it involved the creation of money, which was used to buy stock in the Mississippi Company, which was then used to buy government debt. The British South Sea bubble was a similar scheme; the company bid for the right to take over the national debt, relying on speculative interest in its shares to make the plan work. These schemes did not last very long, because of their Ponzi-like nature, and because the newly created money tended to leak into other speculative propositions, including a plan to drain the bogs of Ireland and turn lead into silver.10 Japan’s experience also raises the question of whether it is as easy for central banks to generate inflation as Mr Bernanke suggested.

But once annual inflation passes 5% or so, and certainly when it reaches double digits, problems emerge. 2. IGNORING POLONIUS 1 James Macdonald, A Free Nation Deep in Debt: The Financial Roots of Democracy, Princeton, 2003. 2 Sidney Homer and Richard Sylla, A History of Interest Rates, 4th edn, New York, 2005. 3 Macdonald, A Free Nation. 4 Charles Kindleberger, A Financial History of Western Europe, London, 1984. 5 Virginia Cowles, The Great Swindle: The Story of the South Sea Bubble, London, 1960. 6 Hilaire Belloc, Usury, London, 1931. 7 Homer and Sylla, Interest Rates. 8 Ibid. 9 Plutarch, Life of Lucullus. 10 Homer and Sylla, Interest Rates. 11 Ibid. 12 Ibid. 13 Ian Mortimer, The Perfect King: The Life of Edward III, the Father of the English Nation, London, 2006. 14 Macdonald, A Free Nation. 15 Carmen Reinhart and Kenneth Rogoff, This Time Is Different, Princeton, 2009. 16 All quotes from Ron Chernow, Alexander Hamilton, London, 2004. 17 From ibid. 18 Homer and Sylla, Interest Rates. 19 One might raise the objection that the debtor is making no such rational calculation, that he or she is unable to wait to get his or her hands on the desired goods.

 

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Money Changes Everything: How Finance Made Civilization Possible by William N. Goetzmann

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Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, banking crisis, Benoit Mandelbrot, Black Swan, Black-Scholes formula, Bretton Woods, Brownian motion, capital asset pricing model, Cass Sunstein, collective bargaining, colonial exploitation, compound rate of return, conceptual framework, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, delayed gratification, Detroit bankruptcy, disintermediation, diversified portfolio, double entry bookkeeping, Edmond Halley, en.wikipedia.org, equity premium, financial independence, financial innovation, financial intermediation, fixed income, frictionless, frictionless market, full employment, high net worth, income inequality, index fund, invention of the steam engine, invention of writing, invisible hand, James Watt: steam engine, joint-stock company, joint-stock limited liability company, laissez-faire capitalism, Louis Bachelier, mandelbrot fractal, market bubble, means of production, money: store of value / unit of account / medium of exchange, moral hazard, new economy, passive investing, Paul Lévy, Ponzi scheme, price stability, principal–agent problem, profit maximization, profit motive, quantitative trading / quantitative finance, random walk, Richard Thaler, Robert Shiller, Robert Shiller, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, spice trade, stochastic process, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, time value of money, too big to fail, trade liberalization, trade route, transatlantic slave trade, transatlantic slave trade, tulip mania, wage slave

Defoe’s plan for illicit trade in goods other than human cargo also eventually came to fruition. By the late 1730s, Sevillian merchants complained that the British had so thoroughly crowded out the Latin American markets for textiles that they could sell nothing at all in the New World.10 EXCHANGE ALLEY Few people think of slavery when they think of the South Sea Company. It conjures up instead the South Sea Bubble—the great inflation of share prices in 1720 that burst in spectacular fashion. Most economic studies of the South Sea Bubble focus on the company’s complex financial engineering in 1719 and 1720: a series of new share issues that were eagerly snapped up by the British aristocracy, creating and destroying vast fortunes. This disjunction between the company’s business—slavery—and the strange behavior of its shares in 1720 may be partly an accident of history’s selective memory: our fascination with crashes and blindness to the central role that slavery played in the eighteenth-century world economy.

In true Defoe style, he wrote: And here it must be confessed with the greatest concern that unreasonable Jealousies, groundless fears, the most unaccountable Apprehensions, or rather an universal Infatuation, has so far seized on Mankind, as to run down the stock much below its Value, and beyond all expectation to the undoing of many, and the Loss of most … by purchasing vastly beyond what their abilities could make good … plunged into irretrievable ruin.17 Defoe correctly perceived that the true adverse effect of the bursting of South Sea bubble was a sudden contraction of credit and that the solution would require the concerted effort of government and people: A decay of credit must unavoidably end in a decay of substance. The farmer will find no Market to take the Produce and Effects of his labor, and consequently will be unable to pay his landlord. The Merchants will find no Demands for their Commodities, and the industrious manufacturer no Employment for his hands.

The plan, if fully realized, would have been an alternative form of democracy—a shareholder democracy—in which investors participated in the future economic gains to government grants and rights—as well as in the exploration and exploitation of French-controlled territories around the world held by the company. It would have been a one share–one vote model, as opposed to a one person–one vote model. What was missing from the Mississippi Bubble, in contrast to the South Sea Bubble, was the wellspring of innovation. France had its projectors, with plans for public works and trading companies, but there seems to be no evidence that any other shares were seriously traded in the Rue Quinquepoix. Law apparently had no successful competitors for the public appetite for share investing. The creation of a share market appears to have been a means to an end—a method for building the Mississippi Company out of investor cash, rather than an institution used to channel resources to innovation.

 

pages: 442 words: 39,064

Why Stock Markets Crash: Critical Events in Complex Financial Systems by Didier Sornette

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Asian financial crisis, asset allocation, Berlin Wall, Bretton Woods, Brownian motion, capital asset pricing model, capital controls, continuous double auction, currency peg, Deng Xiaoping, discrete time, diversified portfolio, Elliott wave, Erdős number, experimental economics, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, global village, implied volatility, index fund, invisible hand, John von Neumann, joint-stock company, law of one price, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, market design, market fundamentalism, mental accounting, moral hazard, Network effects, new economy, oil shock, open economy, pattern recognition, Paul Erdős, quantitative trading / quantitative finance, random walk, risk/return, Ronald Reagan, Schrödinger's Cat, short selling, Silicon Valley, South Sea Bubble, statistical model, stochastic process, Tacoma Narrows Bridge, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, Tobin tax, total factor productivity, transaction costs, tulip mania, VA Linux, Y2K, yield curve

Bulbs worth tens of thousands of U.S. dollars (in present value) in early 1637 became valueless a few months later. This remarkable event is often discussed by present-day commentators, and parallels are drawn with modern speculation mania. The question is asked, Do the tulip market’s build-up and its subsequent crash have any relevance for today’s markets? The South Sea Bubble The South Sea bubble is the name given to the enthusiatic speculative fervor that ended in the first great stock market crash in England, in 1720 [454]. The South Sea bubble is a fascinating story of mass hysteria, political corruption, and public upheaval. (See Figure 1.2.) It is really a collection of thousands of stories, tracing the personal fortunes of countless individuals who rode the wave of stock speculation for a furious six months in 1720. The “bubble year,” as it is called, actually 10 chapter 1 involves several individual bubbles, as all kinds of fraudulent joint-stock companies sought to take advantage of the mania for speculation.

HB3722.S66 2002 332.63 222–dc21 2002024336 British Library Cataloging-in-Publication Data is available This book has been composed in Times Printed on acid-free paper. www.pupress.princeton.edu Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 Contents xiii Preface Chapter 1 3 financial crashes: what, how, why, and when? 3 What Are Crashes, and Why Do We Care? 5 The Crash of October 1987 Chapter 2 fundamentals of financial markets 26 7 7 9 12 Historical Crashes The Tulip Mania The South Sea Bubble The Great Crash of October 1929 15 Extreme Events in Complex Systems 20 Is Prediction Possible? A Working Hypothesis 27 27 30 33 The Basics Price Trajectories Return Trajectories Return Distributions and Return Correlation 38 The Efficient Market Hypothesis and the Random Walk The Random Walk 38 vi contents 42 45 A Parable: How Information Is Incorporated in Prices, Thus Destroying Potential “Free Lunches” Prices Are Unpredictable, or Are They?

This correlation was found to swamp the influence of the institutional market characteristics. This signals the possible existence of a subtle but nonetheless influential worldwide cooperativity at times preceding crashes. HISTORICAL CRASHES In the financial world, risk, reward, and catastrophe come in irregular cycles witnessed by every generation. Greed, hubris, and systemic fluctuations have given us the tulip mania, the South Sea bubble, the land booms in the 1920s and 1980s, the U.S. stock market and great crash in 1929, and the October 1987 crash, to name just a few of the hundreds of ready examples [454]. The Tulip Mania The years of tulip speculation fell within a period of great prosperity in the republic of the Netherlands. Between 1585 and 1650, Amsterdam became the chief commercial emporium, the center of the trade of the northwestern part of Europe, owing to the growing commercial activity in newly discovered America.

 

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

A series of humorously allegorical engravings were produced and published as The Great Scene of Folly, which depicted barearsed stockbrokers eating coin and excreting Mississippi stock; demented investors running amok in the rue Quincampoix, before being hauled off to the madhouse; and Law himself, blithely passing by castles in the air in a carriage pulled by two bedraggled Gallic cockerels.70 Law himself did not walk away financially unscathed. He left France with next to nothing, thanks to his bet with Londonderry that English East India stock would fall to £180. By April 1720 the price had risen to £235 and it continued to rise as investors exited the Paris market for what seemed the safer haven of London (then in the grip of its own less spectacular South Sea Bubble). By June the price was at £420, declining only slightly to £345 in August, when Law’s bet fell due. Law’s London banker, George Middleton, was also ruined in his effort to honour his client’s obligation. The losses to France, however, were more than just financial. Law’s bubble and bust fatally set back France’s financial development, putting Frenchmen off paper money and stock markets for generations.

A naked Fortuna rains down Mississippi stock and options on a mob emanating from the rue Quincampoix, while a juggernaut drawn by Indians crushes an accountant under a huge wheel of fortune and two men brawl in the foreground.71 Brokers turning coin into Mississippi stock and wind: engraving from The Great Scene of Folly (1720) Bernard Picart, Monument Consecrated to Posterity (1721) In Britain, by contrast, the contemporaneous South Sea Bubble was significantly smaller and ruined fewer people - not least because the South Sea Company never gained control of the Bank of England the way Law had controlled the Banque Royale. In essence, his English counterpart John Blunt’s South Sea scheme was to convert government debt of various kinds, most of it created to fund the War of the Spanish Succession, into the equity of a company that had been chartered to monopolize trade with the Spanish Empire in South America.

The liability of the underwriters (who literally wrote their names under insurance contracts, and were hence also known as Lloyd’s Names) was unlimited. And the financial arrangements were what would now be called pay as you go - that is, the aim was to collect sufficient premiums in any given year to cover that year’s payments out and leave a margin of profit. Limited liability came to the insurance business with the founding of the Sun Insurance Office (1710), a fire insurance specialist and, ten years later (at the height of the South Sea Bubble), the Royal Exchange Assurance Corporation and the London Assurance Corporation, which focused on life and maritime insurance. However, all three firms still operated on a pay-as-you-go basis. Figures from London Assurance show premium income usually, but not always, exceeding payments out, with periods of war against France causing huge spikes in both. (This was not least because before 1793 it was quite normal for London insurers to sell cover to French merchants.14 In peacetime the practice resumed, so that on the eve of the First World War most of Germany’s merchant marine was insured by Lloyd’s.15) Life insurance, too, existed in medieval times.

 

pages: 407 words: 114,478

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein

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asset allocation, Bretton Woods, British Empire, buy low sell high, carried interest, corporate governance, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dava Sobel, diversification, diversified portfolio, Edmond Halley, equity premium, estate planning, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, German hyperinflation, high net worth, hindsight bias, Hyman Minsky, index fund, invention of the telegraph, Isaac Newton, John Harrison: Longitude, Long Term Capital Management, loss aversion, market bubble, mental accounting, mortgage debt, new economy, pattern recognition, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, South Sea Bubble, transaction costs, Vanguard fund, yield curve

But whatever the underlying conditions, bubbles occur whenever investors begin buying stocks simply because they have been going up. This process feeds on itself, like a bonfire, until all the fuel is exhausted, and it finally collapses. The fuel, as Minsky points out, is usually borrowed cash or margin purchases. The South Sea Bubble The diving company bubble was, in fact, simply the warm-up for a far greater speculative orgy. Most bubbles are like Shakespeare’s dramas and comedies: the costumes, dialect, and historical setting may be foreign, but the plot line and evocation of human frailty are intimately familiar to even the most casual observer of human nature. The South Sea Bubble’s origins were complex and require a bit of exposition. For starters, it was not one bubble, but two, both beginning in 1720: the first in France, followed almost immediately by one in England. As we saw in the first chapter, government debt was a relatively late arrival in the investment world, but once the warring nation-states of the late Middle Ages got a taste of the abundant military financing available from the issuance of state obligations, they could not get enough.

Financial writer Fred Schwed astutely observed that, “The burnt customer certainly prefers to believe that he has been robbed rather than that he has been a fool on the advice of fools.” History shows that when an entire nation has acted unwisely on bad advice, the rules of the game are likely to change drastically, and that the sources of that advice should beware. The political reaction to the South Sea Bubble was violent. Many of the company’s directors, including four MPs, were sent to the Tower. Most of their profits were confiscated, despite the fact that such a seizure of assets was a violation of common law. No one cared about such niceties, and the directors were lucky to escape with their lives. The legislative repercussions from the South Sea episode haunted the English capital markets for nearly two centuries thereafter.

PILLAR THREE The Psychology of Investing The Analyst’s Couch The biggest obstacle to your investment success is staring out at you from your mirror. Human nature overflows with behavioral traits that will rob you faster than an unlucky nighttime turn in Central Park. We discovered in Chapter 5 that raw brainpower alone is not sufficient for investment success, as demonstrated by Sir Isaac Newton, one of the most notable victims of the South Sea Bubble. We have no historical record of William Shakespeare’s investment returns, but I’m willing to bet that, given his keen eye for human foibles, his returns were far better than Sir Isaac’s. In Chapter 7, we identify the biggest culprits. I guarantee you’ll recognize most of these as the face in the looking glass. In Chapter 8, we’ll devise strategies for dealing with them. 7 Misbehavior The investor’s chief problem—and even his worst enemy—is likely to be himself.

 

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

Politicians and public began to suspect that the recurrent crises of the finance sector were not simply the result of unexpected and unpredictable events, but symptomatic of deep-seated problems with the culture of the financial services industry. They were right. From crisis to crisis I can predict the motion of heavenly bodies but not the madness of crowds. Isaac Newton18 Speculative booms and busts have recurred throughout financial history. In the 1630s Dutch merchants pushed the price of tulips to levels at which a prize bulb was as valuable as a house. A century later, the cream of English society participated in the South Sea Bubble. In the 1840s railway mania seized the public imagination. The 1920s saw boom and bust in stock and land values and ended in the Wall Street Crash and the Great Depression. The immediate consequences of the Crash and Depression were political as well as economic: the rise of political extremism led to the Second World War. But the post-war settlement established regulated capitalism in most of the developed world, while the Soviet empire maintained financial stability, of a sort, in eastern Europe.

In the new economy bubble some early-stage investors made money, but most stayed on in the hope of making still more. Even highly intelligent people overestimate their ability to time the correction of market mispricing. Legendary investors such as Julian Robertson and George Soros misjudged the new economy bubble and damaged their reputations. Warren Buffett stayed resolutely on the sidelines, and was derided for his failure to ‘get it’. Isaac Newton famously lost money in the South Sea Bubble, an early Ponzi scheme. As the new economy bubble expanded, I asked myself often, ‘Do people in financial conglomerates selling products really believe these things, or are they cynical in their deception?’ I came to realise that the truth lay somewhere in between: neither naïveté nor fraud provided sufficient explanation. It was convenient to repeat the received opinions of organisations and colleagues.

[aloud] CAPTAIN RENAULT: Everybody out at once! Casablanca (1942), Warner Bros We were all appalled and shocked when we heard about these allegations yesterday. I have to tell you that I am sickened that these events are alleged to have happened. Not just because I was editor of the News of the World at the time. Rebekah Brooks, Chief Executive, News International, in a memo to staff, 8 July 2011 After the South Sea Bubble burst in 1721, John Aislabie, chancellor of the exchequer, was found guilty of ‘the most notorious, dangerous and infamous corruption’, and sent to prison.15 The last significant bank failure in the UK before the global financial crisis was that of the City of Glasgow Bank, which collapsed in 1878. Within three months, all the directors were behind bars. Richard Whitney, president of the New York Stock Exchange, spent over three years in New York’s fearsome Sing Sing maximum-security gaol.

 

pages: 273 words: 93,419

Let them eat junk: how capitalism creates hunger and obesity by Robert Albritton

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Bretton Woods, California gold rush, clean water, collective bargaining, computer age, corporate personhood, deindustrialization, Food sovereignty, Haber-Bosch Process, illegal immigration, immigration reform, invisible hand, joint-stock company, joint-stock limited liability company, land reform, late capitalism, means of production, offshore financial centre, oil shale / tar sands, peak oil, price stability, profit maximization, profit motive, South Sea Bubble, the built environment, union organizing, Unsafe at Any Speed, upwardly mobile

Second, the mobilization and concentration of social savings through institutions, such as banks and stock markets, that grant credit to capital, also facilitate concentration into larger units. 44 L E T T H E M E AT J U N K In order to understand something like the “merger movement” of the late nineteenth century, however, we need to move to midrange theory and historical analysis, because many of the causal factors are phase-specific and cannot therefore be derived from capital in the abstract and in general. In England, for example, the leading capitalist power in the world until the late nineteenth century, the corporate form had been legally constrained since the burst of the South Sea Bubble in 1720, which nearly bankrupted the country.39 Giving the limited-liability joint stock company the legal go-ahead was a prerequisite for the merger movement of the late nineteenth century. Other causal factors or conditions of existence of the merger movement would include: • • • • • • • • • the development of financial institutions, like banks and stock markets the increasing movement of capital into resource extraction and heavy industry where economies of scale are important protective tariffs and dumping government spending on infrastructure and military build-ups the need to control a more militant work force the need for corporations to influence government policy better transportation and communication technologies the increasing importance of having a global reach in many industries for the cheapest resource extraction inter-imperialist rivalry.

With the shrinking and weakening of trade unions in the United States and the shrinking of the welfare state, it would seem that between 1965 and 2007 there has been a significant recommodification of labour power. 31. Marx (1976: 548). 32. For an analysis of Marxian crisis theory see Albritton (2008). 33. Marx (1976: Chapter 25). 34. Marx (1976: Chapter 6). 35. See Albritton (2008) for an explication of crisis theory. 36. See Chapter 5. 37. Bales (1999, 2005) and Bowe (2007). 38. Roberts (2008: 44). 39. The South Sea Bubble involved the collapse in the value of the stock of a large monopolistic trading company, and as a result, legislation was passed limiting the corporate form to existing banks and trading companies. 40. Seeing the writing on the wall, US Sugar has agreed to sell its Everglades sugar plantations for $1.75 billion to the state of Florida, which will take possession in six years. 41. For a full treatment of monopoly see Baran and Sweezy (1966) or Foster (1986). 42.

B. 57, 217 judicial system 85–7, 169–70, 183–4, 190 junk food 2, 3, 5–6, 92, 123, 172, 174, 176–7, 191 see also empty calories junk capitalism 5–6 K King, David 194 knowledge 8 Kyoto Accord 154 L labelling 162, 189, 236 labour 124 labour-intensive 140, 143–4, 220 land 21, 156–8 degradation 156–7 landless workers movement (MST) 203 Las Vegas 159 legal subjectivity 46, 47, 207 levels of analysis 10–14, 202 liberal-democracy 9, 14, 182–97 see also democracy liberalism 183 livestock 150, 155, 224 living conditions 142 long run 22–3 M Malawi 140 Malaysia 142 Mali 129 malnutrition x, 90, 106–7, 212 Marie Antoinette 2 256 INDEX market failure 15–16 marketing 86, 140, 168, 171–2, 177, 220 marketing to children 69, 70, 140, 165, 166, 172–7 markets 14–15, 19, 43, 144, 208 see also democratizing markets Marlboro Man 169, 171 Marx, Karl 9, 10, 11, 12, 18, 19, 20, 21, 22, 28, 30, 31, 39, 43, 46, 76, 81 massacre x meat production 149, 155 meatification 101, 104 mechanization 64, 128, 202 media 45, 85, 169, 172–77, 183–6, 195–7 medicalization 90, 91 mental illness 173, 177 merger movement 44 Mexico 136 mid-range theory 12–13, 51–78, 202, 216 see also levels of analysis military Keynesianism 75 military-industrial complex 75 miscarriages 151 monoculture 34, 66, 118, 151, 161, 203 see also homogenization, species diversity monopolistic trading companies 44–5 Monsanto 162, 189 movements xii, 8, 33, 203 see also cooperation, international cooperation N National Cancer Institute 62 nation-state xiii see also government, state, state intervention natural disasters 204 nemagon 137, 190, 193 Nestle, Marion 115, 149 Nicaragua 138 nitrates 151 nitrous oxide (N2O) 151, 155 Nixon, President Richard 63, 146 non-governmental organization (NGO) 211 North American Free Trade Agreement (NAFTA) 107, 136 nutrients 4, 115–17 nutrition 6, 80–122, 195 O obesity 4, 41, 90, 91, 93, 97–9, 104, 109, 172–3, 180, 188, 190, 221 obesity epidemic 32, 43–6 89, 93 objectification 47–9 see also subjectification oceans 154, 159–60 ocean levels 154 oestrogen 109–10, 225 Ogallala aquifer 157 oligopoly 43–6, 70–2 organic farming 144, 162, 205, 212 organic food 167 Organization of Petroleum Exporting Countries (OPEC) 57 P palm oil 142–3, 151 palm oil workers 142–3 peak oil 142–54 per capita emissions 155 perfect storm ix pesticides 58, 86, 110, 127–8, 130, 137–40, 142–4, 161, 179, 195, 206 petro-chemicals 147, 179 see also pesticides, petroleum petro-dollars 134 petro-food 58, 149, 150, 195 petroleum x, 57, 147, 149, 217 pharmaceutical industry 153 phase of consumerism 13, 51–77, 217 phase of imperialism 54 phase of liberalism 54 phase of mercantilism 54 INDEX Pimentel, David 5, 149 plankton 159 planning 14 policy 8 politics of fear xiii pollution 14, 146–7, 157, 159, 217 portion size 104, 121 possessive individualism 26, 46, 72, 166, 184 see also atomism, individualism, islandization, subjectification pouring rights 175 poverty 107, 128, 134, 141, 210, 213 poverty line 126, 127, 130, 227 power 21, 167, 175, 183, 185 see also class, corporations, state preference schedules 166–7 private property 21, 46–7, 207 privatize profits 62, 84, 180, 206, 208 processed food 92, 120, 149 profit 6, 9, 11, 15, 20, 22–3, 26–33, 62–3, 77, 82–4, 86–7, 92, 108, 112, 115, 121, 127, 129–33, 139, 142–3, 147–8, 153, 159, 162–3, 169, 171–2, 179–80, 189–90, 192–3, 197, 201–2, 206, 224 Proctor, Robert 192 public health 190 public sector 144, 180, 185, 191–2, 194, 204, 206 public transportation 179, 209, 217 pulp and paper industry 157 pure capitalism 23, 26, 38, 39, 42, 43, 43, 44, 48, 49, 50 see also abstract theory, deep structure, inner logic putting-out system 25, 54 Q quality versus quantity 20, 22, 27, 28, 32–3, 35, 37, 47 see also indifference to use-value R race 99 257 racism 66–7, 111, 124 rainforest 157, 179 Randall, Peggy 96 rationality xii, 19, 49, 86–7, 126, 164 capitalist rationality 9, 11, 15, 18, 19, 20, 146, 166, 169, 192 Reagan, President Ronald 62, 74, 140, 171–2 redistribution of wealth 123, 144, 204, 209 see also distributive justice, equality, inequality, progressive taxation reductionism 9 refrigeration 149 reproduction 109–110 rice 108 right to food 122, 226 rights x, 126, 132 formal rights 122 individual rights x social rights x Roundup 118–19, 195 see also glyposate rule of law 183 S salmonella 114 salt 108–9 schools 123, 172, 175–6 science 85, 90, 169, 183, 190–7 seeds 66, 83 see also genetically modified organisms, monoculture, species diversity self-regulating markets 48, 50 sense of community 49, 73 shopping malls 65 silent tsunami ix, xiii slaughterhouse workers 131–2 slavery 49, 127–8, 138–9, 144, 179, 227, 229 smoker’s bill of rights 170, 196 snacks 41 social costs xii, 8–9 14–15, 24, 28, 32, 258 INDEX 57, 64, 76, 83, 87, 102–4, 111, 183, 186, 200, 206–8 social injustice 144, 152, 164 social needs 210 social responsibility 26, 191, 197, 205 socialism 52–3, 62, 65, 74–5 socialization of costs 14, 62, 180, 206, 208 soft drinks/soda pop 92, 96, 98, 100, 174, 222 soil 18, 117–18, 215 South Sea Bubble 216 soy 109, 142, 151 soy formula 109 space 33–7, 64–6 see also homogenization, monoculture species diversity 34, 160–1 see also homogenization, monoculture speed 24, 30–3 53, 61–64, 72, 126, 131–2, 147, 178, 193, 218 see also intensification, space, time Sri Lanka 142 starvation ix, 88, 90, 105, 108, 153 see also hunger state see warfare state, welfare state state intervention 12, 15, 20, 38, 75, 75, 77, 186 see also regulation status symbol 73, 166 sterility 137–8, 193 Stern Report 16, 157 stewardship 23, 36, 45 strict settlement 215 structural adjustment policies (SAPs) 134, 141, 203, 205 subjectivity 46–9, 72–6 subsidies 15, 59, 69, 71, 75, 78, 86, 100–1, 107–8, 121, 124, 128–9, 131, 133, 135–6, 139, 141, 144, 150, 152, 154, 159, 171, 180, 187, 189, 204–6, 208–9, 236 suburbanization 65–6, 72 see also homogenization, space sugar 91, 95–6, 172, 177, 227 sugar industry 15, 45, 47, 97, 100, 127–8, 139, 151, 171, 188 suicide 129–30, 162, 228 Sumatra 155 supermarkets 119–20, 132–3 supply/demand 24, 37, 43, 48 Surgeon General (US) 170 surtax 208–9 sustainability 10, 16, 50, 164, 200, 201, 209, 210 T Tanzania 140 tax evasion 204–5, 207 taxation 194, 204–5, 220 Taylorism 30 tea workers 142 television 66, 69–70, 172–3, 217 Thatcher, Prime Minister Margaret 74 time 30–33, 61–4, 177, 215 see also intensification, speed tobacco industry 8, 60, 70, 84–7, 139–40, 143, 157, 168–71, 174, 182, 191, 217 tomatoes 34 toxic food environment 91, 173, 190, 226 toxic waste 156 toxicity 32, 61–2, 112–12, 127, 147, 167 toys 175 trade 152 deficit 171 trade unions 133, 215, 216 trans fat 102 transition 54 transparency 73, 207 transportation 149, 153 see also public transportation tree plantations 157 tropical commodities 14, 72, 141 tween strategy 173 see also marketing to children INDEX U underconsumption 25, 41–3, 68–71 underfunding of schools 175 undocumented workers 126–8, 132, 136 unemployment 227 uneven development 54 United Nations 107, 155, 160, 197, 211 United States Center for Disease Control (CDC) 112 government 3 food security 4 hegemony see American hegemony military 149 urban slums 107, 125, 136, 141 use-value 22, 28, 33 see also indifference to use-value, quality versus quantity V Valium 72 259 W water 108 wages 24–5, 37, 40–1, 67, 124–33, 137 warfare state 74, 76 war on cancer 63 welfare state 74–6 Winfrey, Oprah 189 women 6, 40, 72, 99, 107, 133 Wootan, M. 93 workers 7, 18, 21, 24, 28, 37–41, 124–45 food workers 125 working class 4, 80, 92–3 working conditions 67, 131–2 working day 31 World Bank 93 Z Ziegler, Jean 100

 

pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

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airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Edward Glaeser, Eugene Fama: efficient market hypothesis, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Washington Consensus, white flight

The discipline needed to be rethought and reconfigured. But what makes this episode particularly curious is that there were, in fact, plenty of models to help explain what had been going on under the economy’s hood. Bubbles—steady increases in asset prices divorced from their underlying value—are not a new phenomenon. Their presence was known going back at least to the tulip craze of the seventeenth century and the South Sea bubble of the early eighteenth century. They were the object of study in models of varying complexity, including models based on perfectly rational, forward-looking investors (so-called rational bubbles). The financial crisis of 2008 had all the features of a bank run, and that, too, was a staple of economics. Models of self-fulfilling panic—a coordination failure in which individually rational withdrawals of credit lines produce collective irrationality in the form of a systemic drying up of liquidity—were well known to every student of economics, as were the conditions that facilitate such panics.

., 177n Schumpeter, Joseph, 31 science, simplicity and, 179 Scott, Joan, xiv Second Fundamental Theorem of Welfare Economics, 47n segregation, tipping points in white flight and, 42 self-interest, 21, 104, 158, 186–88, 190 Shaw, George Bernard, 151 Shiller, Robert, 154, 157, 159 signaling, 69 Simon, Herbert, 203 Singapore, congestion pricing and, 3 single market (partial-equilibrium) analysis, 56, 58, 91 skill-biased technological change (SBTC), 142–43 skill premium, 138–40, 142 skill upgrading, 140, 141, 142 Smith, Adam, xi 48–49, 50, 98, 116, 182, 203 Smith, John Maynard, 35n Smith, Noah, 148 social choice theory, 36 social media, big data and, 38 social sciences: critical review in, 79–80 economics and, xii–xiii, 45, 181–82, 202–7 universal theories and, 116 Sokal, Alan, 79n “Sokal’s Hoax” (Weinberg), 66n South Africa, 24, 86, 91, 111 South Sea bubble, 154 Soviet Union, 98, 151–52 White and, 1n Spain, 207 speculative capital flow, 2 Spence, Michael, 68 stagflation, 130–31 statistical analysis, 7 Steil, Benn, 1n–2n Stiglitz, Joseph, 31, 68 Stockholm, Sweden, congestion pricing and, 3 Stolper, Wolfgang, 58n, 140n Stolper-Samuelson theorem, 58n, 140n stotting, 35n strategic interactions, economic models and, 61–62, 63 string theory, 113 Structure of Scientific Revolutions, The (Kuhn), 64n Subramanian, Arvind, xv subsidies, 4, 34–35, 75, 105, 149, 193, 194 Sugden, Robert, 112, 172n Summers, Larry, 136, 159 sunk costs, 70, 73 Superiority of Economists, The (Fourcade, Ollion, and Algan), 79n, 200n supply and demand, 3, 13–14, 20, 99, 122, 128–30, 132, 136–37, 170 prices and, 14, 119 taxes and, 14 surrogate mothers, 192 Switzerland, 188 Taiwan, 163 Tanzania, 55 tariffs, 149, 161, 162 taxes, taxation, 14, 17, 27–28, 87, 88, 136, 137, 151, 174, 180–81 carbon emissions and, 188–90, 191–92 entrepreneurship and, 74 fiscal stimulus and, 74, 75, 149, 171 negative income and, 171 technology, income inequality and, 141–43 telecommunications, game theory and, 5, 36 Thailand, 166 Thatcher, Margaret, 49 theories: models vs., 113–45 specific events explained by, 138–44 universal validity of, 114 time-inconsistent preferences, 62–63 “Time to Build and Aggregate Fluctuation” (Kydland and Prescott), 101n tipping points, 42 Tirole, Jean, 208–9 trade, 11, 87, 91, 136, 141, 182–83, 194 in business cycles, 127 comparative advantage in, 52–55, 58n, 59, 139, 170 computational models in tracking of, 41 current account deficits and, 153 general-equilibrium effects and, 41, 56–58, 69n, 91, 120 income inequality in, 139–40 liberalization of, 160, 162–63, 165, 169 outsourcing and, 149 public sector size and, 109–10 second-best theory applied in, 58–61, 163–64, 166 2x2 model of, 52–53 trade creation effect, 59 trade diversion effect, 59 trade unions, 124, 143 Transatlantic Trade and Investment Partnership (TTIP), 41 Transforming Traditional Agriculture (Schultz), 75n transportation, congestion pricing and, 2–3 Truman, Harry S., 151 tulip bubble, 154 Turkey, 166 Ulam, Stanislaw, 51 ultimatum game, 104 unemployment, 102 in business cycles, 125–37 classical view of, 126 in Great Recession, 153 wages and, 118, 150 see also employment Unger, Roberto Mangabeira, xi United States: comparative advantage principle and, 59–60, 139 deficit in, 149 educational vouchers in, 24 federal system in, 187 garment industry in, 57–58 Gold Standard in, 127 Great Depression in, 128 Great Recession in, 115, 134–35, 152–59 housing bubble in, 153–54, 156 immigration issue in, 56–57 income inequality in, 117, 124–25, 138–44 labor productivity and wages in, 123–24, 141 national debt in, 153 outsourcing in, 149 trade agreements of, 41 universal validity, 66–67 Uruguay, 86 validity, external vs. internal types of, 23–24 value, theories of, 117–21 Varian, Hal, 20 verbal models, 34 Vickrey, William, 2–3 Vietnam, 57–58 Vietnam War, 108 “Views among Economists: Professional Consensus or Point-Counterpoint?”

 

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

These can degenerate into mindless The Natural History of Financial Folly mob psychology very easily. The dull euphoria of a market entranced by the commercial possibilities of the internet can quite quickly morph into a full-blown mania like the dot.com boom of the 1990s. THE FIRST BUBBLE Everybody who has even a passing interest in economic history has a favorite folly. I confess that the South Sea Bubble of the 1720s is my own top pick, although the extraordinary adventures of the Scots financier John Law in France during the same period makes for even more exciting reading in Ferguson’s hands. In London, bubble mania even swept up Sir Isaac Newton, perhaps the smartest man who ever lived. (While most of us struggled with calculus in school, he largely invented it from scratch.) Like most of the dot.com stocks of the 1990s, the South Sea Company was a company that important people said would make a fortune without ever being quite able to explain how (the story kept changing, from the Latin American slave trade to government debt refinancing, and it never really did much or showed a profit).

See Money payments system, 12, 16, 28, 105, 173 Phillips curve, 153 ‘‘Plunge Prevention Committee’’ (PPC) as a myth, 140 political risk to markets, 187, 189 Ponzi, Charles, Ponzi schemes, 23, 175, 187 prices, xiii, xix–xx, 7, 27, 30, 109, 112–114, 120–121, 131, 146, 153, 158, 167; how set in markets, xii–xv, 20, 28, 41, 44–51, 53, 55, 70, 87, 93–99, 138; price discovery, xii, 136; ‘‘law of supply and demand,’’ xii; in war, 125 private equity, 27 ‘‘product’’ concept in banking, in structured finance, 25, 60–61, 67–68, 71, 91, 167, 176–177 Progressive era, politics, 125, 163, 180, 182 Promissory notes, 38 Public Banks in Italy, conflict with private bankers, 78–79, 100, 102 RAROC (Risk Adjusted Return on Capital), 68, 71–72, 74 Rating Agencies, 41, 65–68, 74 RCC, Japan, 171 Reagan, Ronald, 48, 182, 184, 188 Real economy, 1–6, 14, 42, 110, 150, 152, 155, 169 regulation, 12, 25, 60, 70, 74, 85–86, 117–119, 121–122, 125–128, 130, 132–133, 136, 142, 148, 150, 159, 167, 171, 176, 184, 187; regulatory state, 127 Regulation Q, 130 retail banking revolution, 61 Riegle-Neal Act of 1994, 158 risk management, as science, 68–69, 176 Roosevelt, Franklin Delano (FDR), 110, 114, 126, 154, 181, 187, 189 Roosevelt, Theodore, 125 Roubini, Nouriel, 185 Royal Exchange, London, 82, 95 RTC (Resolution Trust Corporation), 132, 171 rule of law, and markets, 99, 119, 121, 126 runs (on banks), 16, 86, 110, 122, 128 S&L (Savings and Loan), 56–57, 130–132, 140, 144, 156, 159, 186 Sarbanes-Oxley Act, 136 SEC (Securities and Exchange Commission), 130, 142 self regulation, origins in Clearing Houses, in practice, 85–86 sell side, 22, 24–25, 67–68, 146 Semenenko, Serge, and term loans, 143 settlement, 13–14, 28, 84, 87, 90, 138 shares. See Stocks silver, xv, xvi, 8, 34, 83, 95 197 198 Index Sixteenth Amendment (to US constitution), 181 Smith, Adam, 179–180 Social Security, 23, 157 Socialism, 124–126, 182–183, 188–189 South Sea Bubble, 137 sovereign immunity, 151 sovereign lending, 151–152 speculation, 53, 109, 132, 138 Spitzer, Eliot, 138 stimulus and crisis management in US, Japan, 114, 169, 172 stocks, x–xi, xix, 3, 7, 13, 20, 22, 25, 27, 42, 49, 50–55, 60, 70–73, 80, 87, 137, 139, 142, 165, 167–168, 188; defined, 46; in Great Depression, 109–110; stock exchange, 88–89; stock prices, 47; versus bonds, 48; why stocks are risky, 47 Strong, Benjamin (‘‘Ben Strong’’), 105–106, 108–111 ‘‘structured finance,’’ 60, 64–68, 72, 133, 175–176, 185 sub prime, 55, 63–64, 176, 185 SVA (Shareholder Value Added), 71 Sweden banking crisis, 166 TARP (Troubled Asset Relief Program), 170 technology in banking and finance, xviii, 11, 40, 61–62, 70, 100, 117, 184 Term Loans, defined, 38–39; history, 143, 146 Thatcher, Margaret, 182, 184, 188 Thrift.

 

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

Off-market trading and the role of the CDO and CDS markets in the financial crisis Some specific features of the financial crisis are apparently novel, notably the role of the CDO and CDS “markets”. CDSs are instruments not historically traded on any recognised market, but nonetheless are now traded on a global scale. The scale of fraud relating to mortgage application and approval in the sub-prime mortgage market in the US is also different from problems in the recent past. There have been historical precedents of large-scale bubbles in unlisted securities – such as the notorious South Sea Bubble of 1720. However, such a widespread development of a massive market in unlisted securities in such a short time frame was a distinguishing feature of the sub-prime crisis. This in itself does not raise ethical concerns, but given the novelty of the products, the duty of care on Recent Ethical Issues in Investment Banking 91 institutions trading in or investing in such products should have been very high.

., 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

Alexander Hamilton, America’s first treasury secretary, was desperate to prevent severe damage to the country’s nascent financial system. He responded by, among other things, buying up government debt in order to prop up its price and protect the banks that owned it and by channeling cash to lenders that needed it. For the first time in US history, but not the last, the state stepped in when finance got into trouble. Other countries had already been through booms and busts of their own. In Britain there was the South Sea bubble of 1720, a crash in the share price of the South Sea Company, which had been granted a monopoly to trade with South America. That same year, French investors were hit by the collapse of the so-called Mississippi scheme, under which they subscribed to the shares of a company set up to exploit economic opportunities in what is now the United States. Before that there was the seventeenth-century “tulipmania” in Holland.

See Social-impact bonds Sims, Kath, 96 Single-family-home rental sector, 85 Single-family rental bond, 85 Skype, 190 Sleeping sickness, SIB program for elimination of, 103 Small businesses, as marginal borrowers, 215–219 Smart money, comparison of to dumb money, 155–158 SmartNest, 129–131, 211 Social Finance, 93, 97 Social-impact bonds (SIBs) benefits of, 91, 98–102, 104, 106 in Britain, 95–97 cost-effectiveness of, 100–102 data collection, 104 defined, 90 financial incentive, effect of on donors, 110–111 flexibility of, 105–106 Fresno, California, pilot program in, 103–104 G-8 task force on, 97 health-impact bonds, 103–104 individual givers, attraction of, 109 Massachusetts, prisoner-rehabilitation programs in, 98 New York City, prisoner-rehabilitation program in, 108 Peterborough, England, pilot in, 90–91, 94–95, 104–105, 107 philanthropists, role of, 108 possible abuses of, 111 purpose, 107 risk management in, 108 in United States, 98 Social-impact bonds (SIBs), uses for accomodation for homeless people, 96–97, 106–107 adoption of hard-to-place children, 97 cutting HIV infection rates in Swaziland, 103 early detection of health conditions, 102–104 elimination of sleeping sickness in Uganda, 103 improving educational outcomes for girls in India, 103 keeping troubled adolescents out of foster care, 96 prisoner rehabilitation programs, 90–91, 94–95, 98, 108 soldiers reentering civilian life, 102 Social insurance, 183 Social-investment bank, 92–93 Social Security, 128 Societas publicanorum, 7 SoFi, 184 South Sea Bubble, 36 South Sea Company, 36 S&P 500 index, 29, 40, 157 Spain, banking crisis in, xiv–xv, 69, 75 Spanish flu outbreak (1918–1919), 228, 230 Spear, Leeds & Kellogg, 61 St. Mungo’s, 96 Standard & Poor’s (S&P), 24, 49, 157, 184, 234 Standardization, 39–41, 45, 47 Stevens, David, 151–152 Stevens, Teresa, 151–153 Stock exchanges, 14–16 Stocker, Anil, 207, 217 Stop-loss orders, 56 Straw, Jack, 94 Structured Bioequity, xii–xiii Structured finance, 237–238 Structured investment vehicle, 37 Stub quotes, 56 Student loans, 164, 166–167, 169–171 Stumpf, John, 192 Subprime mortgage tranches, loss amounts on, 233 Subprime mortgages, x, 79, 197–198, 233 Sufi, Amir, 204 Summers, Larry, 180 Suppa, Enrico, 9 Sutherland, Martinez, 89–90, 95, 105, 112 Svenska Handelsbanken, 206–207 Swaps, credit-default, 29–30 Swaps, interest-rate, 29 Swaziland, social-impact bonds (SIBs) in Sweden, banking crisis in, 75 Syndicated loans, 41 Tail risks, 221, 237 Tanzania, financial liberalization and, 34 Testosterone and cortisol, effect of on risk appetite and aversion, 116 Thailand, insurance claims for flooding, 225 Thaler, Richard, 137 Thales of Miletus, 10 Thayer, Ignacio, 210–211 Thiel, Peter, 163 This Time is Different (Reinhart and Rogoff), 35 Titmuss, Richard, 110 TransferWise, 190–192 Trente demoiselles de Genève, 22 True Link Financial, 144 Tufano, Peter, 59, 213–214 Tulipmania, 33, 36 Tversky, Amos, 137 UBS, 60 Uganda, social-impact bonds (SIBs) in, 103 Unbanked households, 200 United States aggregate value of property, 69 consumer debt, 183, 204 corporate debt, 120 cost of diagnosed diabetes, 102 cost of entitlements, 100 credit card debt, 183 general solicitation by private firms, 153–154 government interest in alternatives to student debt, 168 government spending, 99 home-ownership rates, 28, 85, 170 household debt, 205 leverage ratio, 2007, 77 life expectancy, 125 median house price, 70 monetary charitable gifts, 109 money raised through IPOs, 120 mortgage debt, 69 nonprofits in, 105–106 prepaid cards, 203 property bubbles, 74–75 real estate cycles, 237 savings-and-loan crisis (1990s), 30 social-impact bonds (SIBs), 98 student debt, 169 Unsecured lending, 206 Upstart, 166–168, 173, 175, 182 Used-car market, use of heuristics in, 46 Vega, Joseph de la, 24 Venture capital (VC), 150–151 Veterans, SIB program for, 102 Veterans Support Organization, 102 Viatical settlements, 142 Victory Loans, 28 Vishny, Robert, 42, 44 Volcker, Paul, xv, 30 Wachovia, xiv Wadhwa, Vivek, xv Warren, Elizabeth, xiv Washington Mutual, xiv Westlake, Darren, 153–154, 158, 161–162 “What Everybody Ought to Know About This Stock and Bond Business” Merrill Lynch ad, 28 When the Money Runs Out (King), 99 Wonga, 203, 205, 208 Woo, Gordon, 221–222, 227–229, 231, 233, 238 World Bank, 169 Wren, Christopher, 16 Wyman, Oliver, 204 Yale University, income-contingent financing program of, 165 Yale University, study of loss aversion, 136 Yunus, Muhammad, 203 Zaccaria, Benedetto, 9 ZestFinance, 199, 201, 205–206 Zombanakis, Minos, 41 Zopa, 181, 187, 188, 195 Zuckerberg, Mark, 174

 

pages: 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

-Marcus Velleius Paterculus, Compendium of Roman History Contents PREFACE Xi 1. PREEMPTIVE KEYNESIANISM 1 2. CASTLES IN THE AIR 23 3. HOW TO BUILD FINANCIAL WEAPONS OF MASS DESTRUCTION 45 4. HURRICANE SEASON 69 5. MADLY IN ALL DIRECTIONS 99 6. TOMORROW CAPITALISM? 129 MY DEBTS 157 NOTES 159 REFERENCES 167 INDEX 179 Preface I can calculate the motions of the heavenly bodies, but not the madness of people. -Isaac Newton, after losing a fortune in the South Sea Bubble in 1720 In the fall of 1991, a high-pressure system from northern Canada collided with a powerful low-pressure system over the coast of New England. The large temperature contrast in such a small area gave rise to a cyclone. The cyclone, in turn, absorbed a nearby dying hurricane, which created an enormously powerful storm. The winds at times attained 75 miles per hour, and 35-foot waves shook unfortunate seafarers.

The best outcome to be hoped for is that they will prevent market players from making exactly the same mistake they made last time-that is, the mistake everybody is focusing on avoiding anyway. And on top of that, you also get a whole new battery of regulations that may well make the next crisis considerably worse. We do not know where the next crisis will come from. From history we learn that we do not learn from history. Even Isaac Newton, one of the greatest geniuses of all time, lost a fortune in the South Sea Bubble. Not even those whose job it is to make forecasts know what will happen next. One of those who did that best, Economic Cycle Research Institute founder Geoffrey Moore, told his students that someone who can predict a recession at the exact time when it starts is a very successful forecaster. Companies and investors hardly need more bureaucrats looking over their shoulders trying to guess what they are doing right or wrong.

 

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

The notion of financial markets as rational and self-correcting mechanisms is an invention of the last forty years. Before that, most economists sympathized with Charles Mackay, the journalist and sometime colleague of Charles Dickens whose 1841 book, Extraordinary Popular Delusions and the Madness of Crowds, compared speculative manias, such as the “tulipomania” that gripped Holland in the 1630s and the South Sea bubble of 1720s London, to witch trials, millennialism, and other examples of collective insanity. The transition from Mackay’s jaundiced opinion of finance to Greenspan’s sunny view took a long time, and it was based, at least partially, on a misreading of the theory of the invisible hand, which Smith had never intended to be applied to finance. The transition began, ironically enough, in the 1930s and 1940s, when capitalism appeared to be floundering and many economists were looking favorably on replacing the price system with central planning. 3.

Despite the fund’s lagging the S&P 500 for a number of years, Stansky ended up running it until late 2005. The notion that rational behavior on the part of individual investors can lead to a collectively irrational outcome—a bubble—goes back a long way. In his 1841 book, Extraordinary Popular Delusions and the Madness of Crowds, the Scottish journalist Charles Mackay gave a pointed account of the famous South Sea bubble of 1720, which was based on the promise of unbounded riches to be garnered from trade with Spain’s colonies in Latin America. Many of the investors who took part in the bubble knew full well that the South Seas trade had been exaggerated, and that many of the bubble companies that issued stock in the London market were fraudulent, but they seized on the chance to make some quick money anyway.

Banking Committee Senior, Nassau September 11, 2001, terrorist attacks (9/11) shadow banking system Shakespeare, William Shearson Lehman Sherman Antitrust Act (1890) Shiller, Robert Shin, Hyun Song Shleifer, Andrei Shmelev, Nikolai Shultz, George Simons, Henry Sinai, Todd 60 Minutes Skidelsky, Robert Smith, Adam on banking death of divison of labor described by on duties of government Greenspan influenced by Hayek and legacy of invisible hand metaphor of moral philosophy of public goods addressed by Smith, Debbie Smith, Vernon Smoot-Hawley Tariff Act (1930) Socialism (Mises) Socialist Party Social Security Société Générale Solomon, Amit Solow, Robert Sonnenschein, Hugo Soros, George Soros Fund Mangement South Africa Southern California, University of Southern Pacific Railroad South Korea South Sea bubble Soviet Union collapse of Ministry of Light Industry Spain Spamann, Holger special-purpose vehicles (SPVs) speculative bubbles, see bubbles Spence, Michael Sperry Lease Finance Corporation spillovers Spitzer, Eliot Sputnik I Sraffa, Piero stability, illusion of Stabilizing an Unstable Economy (Minsky) Stack, Brian E. Stalin, Joseph Standard & Poor’s (S&P) S&P 500 S&P/Case-Shiller Home Price Indices Standard Oil Company Stanford Magazine Stanford University Stansky, Robert State Department, U.S.

 

pages: 493 words: 145,326

Fire and Steam: A New History of the Railways in Britain by Christian Wolmar

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accounting loophole / creative accounting, Beeching cuts, carbon footprint, collective bargaining, computer age, Corn Laws, cross-subsidies, financial independence, hiring and firing, James Watt: steam engine, joint-stock company, railway mania, rising living standards, Silicon Valley, South Sea Bubble, strikebreaker, union organizing, upwardly mobile, working poor, yield management

Other banks were until then restricted to the amount of capital that could be raised by six people, but once the regulation had been removed several banks operating on the joint stock principle quickly emerged. Moreover, railway companies had a privileged position in relation to other enterprises. Until 1860, they were the only type of companies that could raise capital from more than five people, a restriction imposed on manufacturers following the South Sea Bubble collapse in the eighteenth century. This ensured that the railway companies were the most favoured alternative investment to government stocks. While, at best, the latter yielded 4 per cent, people with a bit of spare cash saw that the Liverpool & Manchester was paying dividends of just under 10 per cent. Crucially, too, railway investors were protected right from the beginning by limited liability – in other words, they could not be held responsible for any losses beyond the amount they had already paid for their shares.

The Lords were much sought after as figureheads to give respectability to businesses, much as they are today, and one fortunate fellow was a director of no fewer than twenty-three railway companies. Railway shares became far more sought after than the government securities that had been the staple fare of the big brokers and traders. The relationship between shareholder and promoter became more distant and consequently more fraught with risk. The investor had little to go on other than the often sparse information in the prospectus. Yet the momentum of the boom – just like the South Sea Bubble of the early eighteenth century or the dotcom madness of the late twentieth – swept along people who were in too much of a hurry to consider what they were doing. Dealings in railway securities became the lifeblood of both the London stock exchange and the host of smaller exchanges that had emerged in provincial towns, which frequently sold stock at a premium compared to the price in the capital.

., ref1 Romans, ref1, ref2 Rosslare, ref1 rostering, flexible, ref1 rotten boroughs, ref1 Rouen, ref1 Roulette, ref1 Royal Commission on Metropolis Railway Termini, ref1, ref2, ref3 Royal Engineers, ref1 Royal George, ref1 Royal Greenwich Observatory, ref1 Royal Scots, ref1 royal trains, ref1 Rugby, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10, ref11, ref12 rugby specials, ref1 Runcorn, ref1 running rights, ref1, ref2, ref3, ref4 Russia, ref1, ref2, ref3 Ryde, ref1 Saatchi & Saatchi, ref1 safety, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9; train protection systems, ref10, ref11; under Big Four, ref12; under BR, ref13, ref14; under privatization, ref15, ref16; legislation, ref17; see also accidents sails, ref1 St Helens, ref1, ref2, ref3 St Mary Cray, ref1 St Mungo, ref1 St Pancras station, ref1, ref2, ref3, ref4, ref5, ref6, ref7; construction, ref8; Gothic grandeur, ref9, ref10; Midland Grand Hotel, ref11; undercroft, ref12; bombed, ref13; compared with Euston, ref14; see also Bedford–St Pancras line St Patrick (liner), ref1 Salford, ref1 Salisbury, ref1, ref2; accident, ref3 Salisbury Plain, ref1 Salmon, Roger, ref1 Sampson, Anthony, ref1 Sandars, Joseph, ref1, ref2 Sandwich, ref1 Sandy Lodge (Moor Park) station, ref1 Sankey viaduct, ref1, ref2 Sans Pareil, ref1 Saturday-only services, ref1 Save Our Railways, ref1 Saville, Jimmy, ref1 Scapa Flow, ref1 Scarborough, ref1 Schull & Skibbereen Railway, ref1 Schwarzenberg, Prince von, ref1 Scotland, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8; railway network, ref9, ref10; connection with England, ref11, ref12, ref13, ref14, ref15; and Settle & Carlisle line, ref16, ref17; labour conflict, ref18; and amalgamation, ref19, ref20; air service, ref21; branch lines, ref22 Scotrail, ref1 Scots Fusiliers, ref1 Scotsman, ref1 Scott, Sir George Gilbert, ref1 Scott, Jane, ref1 Scott, John, ref1 Scottish Region, ref1, ref2 seaside holidays, ref1 Sebastopol, fall of, ref1 Second World War, ref1, ref2, ref3, ref4, ref5, ref6; impact on railways, ref7; legacy for railways, ref8, ref9 Sefton, Lord, ref1, ref2, ref3 Selby, ref1 Selsey, ref1 Serpell, Sir David, ref1, ref2 Settle & Carlisle line, ref1, ref2, ref3; cost, ref4; death toll, ref5 Severn tunnel, ref1, ref2 Shanklin, ref1 Shap, ref1 Sharland, Charles, ref1 sheep, ref1, ref2 Sheffield, ref1, ref2, ref3, ref4, ref5 Sheffield and Rotherham Independent, ref1 Sheffield, Ashton-under-Lyne & Manchester Railway, ref1 Shenfield, ref1, ref2 Shepperton, ref1 Shepton Mallet, ref1 ships, ref1, ref2, ref3, ref4; see also liners; steamships Short, Clare, ref1 Shrewsbury, ref1 Shrewsbury & Chester Railway, ref1, ref2 Shropshire, ref1, ref2, ref3 signalling, ref1, ref2, ref3; and accidents, ref4, ref5, ref6, ref7; interlocking, ref8, ref9; and high-speed trains, ref10, ref11; radio, ref12, ref13, ref14 signals passed at danger (SPADs), ref1 Silver Jubilee, ref1 Simmons, Jack, ref1, ref2, ref3, ref4, ref5, ref6; on Watkin, ref7, ref8; on Big Four, ref9 Skerne, river, ref1 Skibbereen, ref1 Skipton, ref1 Skye, ref1 slave trade, ref1 Sleaford, ref1 sleeper services, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9 sleepers, ref1, ref2, ref3 Slesser, Sir Henry, ref1 Slough, ref1 smallpox, ref1 Smith, Adam, ref1 Smith, Delia, ref1 Smithfield, ref1 Snailbeach District Railway, ref1 ‘snow, wrong type of’, ref1 Snow Hill station, ref1 Snowdon, ref1 Soham, ref1 Somers Town, ref1 Somerset & Dorset line, ref1, ref2, ref3 Somersetshire Midland Railway, ref1 Sonning, ref1 Souter, Brian, ref1 South Africa, ref1 South America, ref1 South Croydon accident, ref1 South Devon Railway, ref1, ref2 South Eastern & Chatham Railway, ref1, ref2, ref3; and amalgamation, ref4, ref5, ref6 South Eastern Railway, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8; Staplehurst accident, ref9; and Great Central Railway, ref10; electrification, ref11 South Kensington station, ref1 South Korea, ref1 South Sea Bubble, ref1, ref2 South West Trains, ref1, ref2 Southall, ref1; accident, ref2, ref3 Southampton, ref1, ref2, ref3, ref4; and wartime, ref5, ref6 Southampton & Dorchester Railway, ref1 Southampton Docks, ref1, ref2, ref3, ref4 Southend, ref1, ref2 Southern Railway, ref1, ref2, ref3, ref4; formation of, ref5; electrification, ref6, ref7, ref8, ref9; commuter base, ref10; public relations, ref11; profitability, ref12, ref13, ref14, ref15; standardized running times, ref16; livery, ref17; food and drink, ref18; service improvements, ref19; platform lighting, ref20; and wartime, ref21, ref22, ref23; and diesels, ref24 Southern Region, ref1, ref2, ref3 Southgate, ref1 Southport Chapel Street station, ref1 Spain, ref1, ref2 ‘sparks effect’, ref1, ref2 ‘Special Scotch Express’, ref1 specials, ref1, ref2, ref3 Spence, Elizabeth Isabella, ref1 Stafford, Marquess of, ref1 Stafford, ref1 Staffordshire, ref1 Stagecoach, ref1, ref2 stagecoaches, ref1, ref2, ref3, ref4, ref5; heyday of, ref6; journey times, ref7, ref8, ref9; decline of, ref10; train connections, ref11 Stamp, Joshua, ref1, ref2 standard gauge, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8; half-standard gauge, ref9; see also broad gauge Stanier, William, ref1 Stanley, Albert, ref1, ref2 Stanley Junction, ref1 Staplehurst accident, ref1 stations, ref1, ref2, ref3, ref4; private, ref5, ref6; closures, ref7, ref8, ref9; refurbishment, ref10, ref11, ref12, ref13; lighting, ref14; platform edges, ref15; numbers of, ref16; reopened, ref17; platform extensions, ref18 Statutes (Definition of Time) Act, ref1 steam, high-pressure, ref1 Steam Horse, ref1 steamships, ref1, ref2, ref3, ref4, ref5, ref6 Stephens, Colonel Holman Fred, ref1, ref2 Stephenson, George, ref1, ref2, ref3, ref4, ref5, ref6, ref7; and standard gauge, ref8, ref9, ref10, ref11; reputation, ref12; and Liverpool & Manchester Railway, ref13, ref14, ref15, ref16, ref17, ref18, ref19; salary, ref20; described by Fanny Kemble, ref21; and Midland railways, ref22, ref23, ref24; Tyne bridge, ref25 Stephenson, Robert, ref1, ref2, ref3, ref4, ref5; and London & Birmingham Railway, ref6, ref7; bridge collapses, ref8 Stirlingshire, ref1 stock exchanges, ref1, ref2 Stockport, ref1 Stockton, ref1, ref2, ref3, ref4 Stockton & Darlington Railway, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10; origins and building, ref11; gauge, ref12, ref13; horses on, ref14, ref15; opening, ref16, ref17, ref18; passenger services, ref19; economics, ref20; single track, ref21, ref22; turnpike system, ref23, ref24; dividends, ref25; carriages, ref26; amalgamation, ref27; workmen’s trains, ref28 Stoke, ref1 Strategic Rail Authority, ref1, ref2, ref3 Stratford & Moreton Railway, ref1, ref2 Stratford-on-Avon & Midland Junction Railway, ref1 Stratford-upon-Avon, ref1, ref2 Strathmore, Earl of, ref1 strikes, ref1, ref2, ref3, ref4; and wartime, ref5, ref6; post-war, ref7; General Strike, ref8; under BR, ref9, ref10 Stromeferry, ref1 Strood, ref1, ref2 Submarine Railway Company, ref1 subsidies, ref1, ref2, ref3, ref4, ref5, ref6, ref7 suburbs, ref1, ref2, ref3; and electrification, ref4, ref5 suffragettes, ref1 Sunday services, ref1, ref2 Sunderland, ref1 suppliers, to railways, ref1 Surbiton, ref1 Surrey, ref1, ref2, ref3 Surrey Iron Railway, ref1, ref2 Sussex, ref1 Sutherland, Duke of, ref1 Swannington, ref1 Swansea, ref1, ref2 Swansea & Mumbles Railway, ref1 Swindon, ref1, ref2, ref3, ref4, ref5, ref6, ref7; railway hotel, ref8; workshops, ref9, ref10, ref11 Swiss Cottage, ref1 Szlumper, Gilbert S., ref1 Taff Vale Railway, ref1 Taiwan, ref1 Taunton, ref1 Tay Bridge, ref1 Tebay, ref1 Tees, river, ref1 telephones, ref1, ref2 Telford, Thomas, ref1 Telford, Tony, ref1 Templecombe, ref1 tenders, corridor, ref1 Territorial Army, ref1 TGV Est, ref1 Thames, river, ref1, ref2, ref3, ref4; boat services, ref5; tunnel, ref6 Thames & Medway Canal Company, ref1 Thatcher, Margaret, ref1, ref2, ref3, ref4, ref5, ref6 Thomas, David St John, ref1, ref2, ref3, ref4 Thomas, Jimmy, ref1, ref2 Thurso, ref1, ref2, ref3 tickets, ref1, ref2; seat reservations, ref3; through booking, ref4; standardization of, ref5; season, ref6, ref7, ref8, ref9; hunters’, ref10; interchangeable, ref11; concessions scrapped, ref12; excursion and tourist, ref13, ref14; cheap day, ref15; and privatization, ref16 Tilling, ref1 tilting trains, ref1 time, standardization of, ref1 Times, The, ref1, ref2, ref3, ref4 timetables, ref1, ref2, ref3, ref4, ref5, ref6; and accidents, ref7, ref8; and railway races, ref9; summer, ref10; wartime, ref11, ref12; pre-war, ref13, ref14, ref15; standardized running times, ref16, ref17; and high-speed trains, ref18; under privatization, ref19; working, ref20 Tinsley, James, ref1 Tiptree, ref1 toilet breaks, ref1, ref2, ref3 Tonbridge, ref1, ref2 Torquay, ref1, ref2 Torr, Cecil, ref1 Tottenham, ref1 TPOs, ref1 Trades Union Congress, ref1, ref2 traffic management, ref1 train paths, ref1 Train Protection and Warning System (TPWS), ref1, ref2 trainspotting, ref1, ref2, ref3 trams, ref1, ref2, ref3 ‘tramways’, ref1 Transport Acts, ref1, ref2 travel agents, ref1 travelcards, ref1 Travellers Fare, ref1 Trent Valley Railway, ref1, ref2 trespassers, ref1 Trevithick, Richard, ref1, ref2, ref3 troop trains, see military trains tunnels, ref1, ref2 Turkey, ref1 turkey specials, ref1 turnpikes, ref1, ref2, ref3 Tyndall Centre for Climate Change, ref1 Tyne, river, ref1 Tyne Mercury, ref1 Tyneside, ref1 typists, travelling, ref1 U-boats, ref1 Ufton Nervet accident, ref1 unions, ref1, ref2, ref3, ref4; and wartime, ref5, ref6, ref7, ref8; and women’s employment, ref9, ref10, ref11; post-war position, ref12; and nationalization, ref13; and General Strike, ref14; opposition to closures, ref15; under BR, ref16, ref17 United Pointsmen and Signalmen, ref1 United States of America, ref1, ref2, ref3, ref4, ref5, ref6 Unwin, Philip, ref1, ref2, ref3 Usk valley, ref1 Vaughan, Adrian, ref1, ref2, ref3, ref4 Vauxhall Bridge station, ref1 Verney Junction, ref1 Versailles, ref1, ref2 Victoria, Queen, ref1, ref2, ref3, ref4, ref5, ref6 Victoria station, ref1, ref2, ref3 Vienna, ref1 Vignoles, Charles, ref1, ref2 Virgin Trains, ref1, ref2 Voyager trains, ref1 Waddington, David, ref1 Wadebridge, ref1 wagon ways, ref1, ref2, ref3 Wales, ref1, ref2, ref3, ref4, ref5, ref6, ref7; iron works, ref8; railway network, ref9, ref10, ref11, ref12; coal, ref13, ref14, ref15; and amalgamation, ref16, ref17; branch line, ref18, ref19 Walker, Sir Herbert, ref1, ref2, ref3, ref4 Walsall, ref1 Walthamstow, ref1 Wandle valley, ref1 Wandsworth, ref1 War Department railways, ref1 Warburton, Ivor, ref1 Ware, ref1 Ware, Hadham & Buntingford Railway, ref1 Wareham, ref1 Warrenpoint, ref1 Warrington, ref1, ref2 Warrington & Newton Railway, ref1 Washington DC, ref1 water troughs, ref1 Waterloo & City Railway, ref1 Waterloo Necropolis station, ref1 Waterloo station, ref1, ref2, ref3, ref4, ref5, ref6 Watford, ref1, ref2, ref3, ref4 Watkin, Edward, ref1, ref2, ref3, ref4, ref5, ref6, ref7; and Great Central Railway, ref8; character, ref9, ref10; and Channel Tunnel, ref11 Watt, James, ref1 Watt, James (son), ref1, ref2 wayleave, ref1 Wear, river, ref1 Weaver, river, ref1 Wellington, Duke of, ref1 Welshpool, ref1 Welwyn Garden City, ref1 Wembley, ref1, ref2 West Coast main line, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9; and railway races, ref10, ref11; and accidents, ref12, ref13; expresses, ref14, ref15; electrification, ref16, ref17, ref18, ref19, ref20; work stops, ref21; tilting trains, ref22; and privatization, ref23 West End & Crystal Palace Railway, ref1 West Highland Railway, ref1 West Indies, ref1 ‘West of England Express’, ref1 Western Region, ref1, ref2, ref3 Westinghouse, George, ref1 Weston, Clevedon & Portishead Railway, ref1 Weston-super-Mare, ref1 Weymouth, ref1, ref2 wheels, flanged, ref1, ref2; cogged, ref3; steel tyres, ref4 whistles, steam, ref1 Whitelaw, William, ref1 Whiteley, William, ref1 Whitstable, ref1 Wick, ref1, ref2 Wigan, ref1; Wallgate station, ref2 Wilkinson, Norman, ref1 Willetts, David, ref1 Wilson, Harold, ref1, ref2 Windsor, ref1, ref2 Wisonsin Central, ref1 Wojtczak, Helena, ref1, ref2, ref3, ref4 Woking, ref1 Wolverhampton, ref1, ref2 Wolverton, ref1 Wood Green, ref1 Woodhead tunnel, ref1, ref2 Woolwich, ref1 workmen’s trains, ref1, ref2 Worrall, Terry, ref1 Wright brothers, ref1 Wylam, ref1 Yarmouth, ref1 Yelverton, ref1, ref2 Yeovil, ref1, ref2 York, ref1, ref2, ref3, ref4, ref5, ref6; London services, ref7, ref8, ref9, ref10, ref11, ref12, ref13, ref14; and electrification, ref15 York & North Midland Railway, ref1, ref2, ref3 York, Newcastle & Berwick Railway, ref1, ref2 Yorkshire, ref1, ref2, ref3, ref4, ref5; coal, ref6, ref7, ref8 Ypres, ref1 Zeppelins, ref1 LIST OF MAPS AND ILLUSTRATIONS MAPS 1.

 

pages: 505 words: 137,572

Dr. Johnson's London: Coffee-Houses and Climbing Boys, Medicine, Toothpaste and Gin, Poverty and Press-Gangs, Freakshows and Female Education by Liza Picard

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clean water, double entry bookkeeping, joint-stock company, New Urbanism, Plutocrats, plutocrats, South Sea Bubble

After all, ‘the poor are a large as well as useful part of the community … they have a just claim to the protection of the rich … If affluence and independence could universally prevail, the benevolent would not experience the inexpressible pleasure of relieving the distressed.’1 The state did not yet concern itself with welfare. At parish level, the administration of the Poor Law left much to be desired. It was unlikely that an individual would ever again have the money and the inclination to found a charity on his own. So, despite the shadow over joint-stock companies since the South Sea Bubble had burst in 1720, the answer had to be a joint exercise of concerned individuals. By mid-century an Englishman could pride himself on ‘the many noble Foundations for the relief of the miserable and the friendless, [and] the large annual supplies from voluntary charities to these Foundations’.2 Foundlings Think of a pregnant girl without resources, employed in a job – almost certainly domestic service – which she will lose if she bears a child.

The same impulse that had driven medieval men to endow monasteries to care for the souls and bodies of the poor impelled eighteenth-century philanthropists to found hospitals to care for their bodies. The concept of funding a project by joint effort had become familiar in business circles, and could be applied to hospital-building, despite the slight reverse to its reputation caused by the collapse of the South Sea bubble in 1720. Cliques of well-heeled gentlemen, often of the same political persuasion, with an appropriate president at their head, gathered together to found hospitals. It may be that the advance in medical knowledge, itself, was a contributory cause of this wave of new hospitals: yet I doubt it. The new knowledge tended to be theoretical. While the Royal Society astonished itself by almost transfusing blood from one animal to another, blood transfusion as a therapeutic technique was centuries away, and the best thing to do with blood was to ‘let’ it – take it away.

Dorothy: London Life in the Eighteenth Century Gill, John (‘Miss Beasley’) gin Gin Acts: (1736); (1751) girls: education of see schools Glasse, Hannah: Servant’s Directory Goldsmith, Oliver: The Deserted Village gonorrhea Goodge’s brickworks Gordon Riots (1780) Gough, Mr (menagerie owner) gout Grand Tour see foreign tours grave robbers Great Fire (1666) Green Park Gresham’s Institute Gretna Green Grosley, Pierre Jean: as source (A Tour to London); on lack of law enforcement officers; on road accidents; falls asleep in Kensington Gardens; on St James’s Park; on Lincoln’s Inn statues; visits Bedlam; sees executed highwaymen on gibbets; on teaching of French in England; on apprentices; attends synagogue service; on manners and behaviour; dislikes wine in England; admitted to club; on men’s conduct of business; bagnios; on prostitutes; and women’s fashion; on London dirt; lodgings; on maintaining lawns; on English seriousness at pleasure gardens; on shopping; on British Museum; on theatre; confused by English language; on smuggled French silk; on accepting gambling losses; describes trial of Lord Byron Grosvenor estate Grosvenor, Henrietta, Lady: adultery with Duke of Cumberland Grosvenor, Lord Grosvenor, Mary, Lady (née Davies) Grosvenor, Sir Thomas Grosvenor Square Guild of Master Bakers Guy Fawkes night Guy, Thomas Guy’s Hospital Gwynn, John Gwynn, Nell hackney coaches hairstyles Hamley’s toy shop Hampstead: as leisure area Handel, George Frederick: music for the royal fireworks, with rehearsal; Judas Maccabeus; Portugese wine-making may have caused death; statue in Vauxhall; life and works hanging in chains hangings see executions hangmen Hanover Hanover Square Hanway, Jonas Hanway, Captain Thomas Hardwicke, Lord Harley, Lord Hartshorne Lane Water Company harvest workers hats: men’s; etiquette of; caps hatters Hayman, Francis health; through gardening Henrietta Maria, wife of Charles I hernias Hervey, Lord highwaymen; women as Hill, Dr John: Old Man’s Guide to Health and Longer Life Hoare, Henry Hogarth, Mary and Anne Hogarth, William: portrait of Coram; designs uniforms for Foundling Hospital children; paints supper boxes at Vauxhall; designs trade cards; as governor of Foundling Hospital; Analysis of Beauty (book); Beer Street; The Cockpit; The Enraged Musician; Evening; The First Stage of Cruely; The Four Stages of Cruelty; Gin Lane; The Good Samaritan; A Harlot’s Progress; The March to Finchley; Marriage à la Mode; Morning; Night; Noon; Pool of Bethesda; Rake’s Progress; The Reward of Cruelty; The Sleeping Congregation; Times of Day holidays homes homosexuality: brothels; sodomites pilloried hoops (petticoats) Horse Guards parade horses hospitals; governors and administration; efficacy; see also individual hospitals household remedies housemaids houses: middle-sized; small; regulations for; leases; for the rich; see also mansions housework Howard, John Huguenots: charitable aid for Hunt, John Hunter, John Hunter, William (surgeon) Hyde Park hygiene (personal) illness: among the poor; see also fevers; industrial diseases; kwashiorkor; rickets; scurvy immigrants: charitable aid for incomes: and occupation; businessmen’s; in professions; see also poor, the; wages Indians (North American) infant mortality Inns of Court inoculation see smallpox insanity: hospitals for; private madhouses interior decoration Irish: poor in London; undercut agreed wage rates ironing jewellery Jews: aid for immigrants; status as aliens Jockey Club Johnson, Samuel: in London; compiles Dictionary of the English Language; bad manners; on driving in post-chaise; travels by stage coach; on horseless carriages; on the poor; on deaths by starvation; visits Bedlam; on slavery; on gin; dismisses efficacy of Dominicetti’s fumigation; disapproves of periodic bloodletting; on Methodism; on marriage and celibacy; attends clubs; indifference to personal cleanliness; praises Ranelagh pleasure gardens; defends The Beggar’s Opera; on Boswell’s accent; on English speech; granted pension by George III; writes for Gentleman’s Magazine; employs negro servant; Irene (play) Johnson (servant): shot by Earl Ferrers Jonathan’s (coffee-house) Justices of the Peace Kalm, Per Keith, Revd Dr Kensington Gardens Kensington Palace Kent, William Kew: Royal Botanic Gardens kidnapping Kilmarnock, Lord King, Tom: coffee-house king’s evil Knightsbridge kwashiorkor labour relations Ladies’ Complete Pocket Book Ladies’ Diary or Women’s Almanac Ladies Dispensatory, The, or Every Woman Her Own Physician Ladies’ Magazine, The lady’s maid, duties of lap-dogs laundry work lavatories: indoor; in gardens; public lavatories; lack of, in St James’s Park; in Chesterfield House law enforcement lawyers: apprentices to; profession Layard (male midwife) Leadenhall market leases (building) Leicester House Leicester Fields (Square) libraries, circulating licensing laws life expectancy lighting: street; domestic Lincoln’s Inn literacy among the poor Literary Club Little Theatre, Haymarket livery companies livestock see animals Lloyd’s of London Lock Hospital, The (for venereal disease) locusts Loddiges, Joachim lodgings see accommodation London: population; geographical area London Advertiser London Bridge London Evening Post London Hospital, The Lord Mayor’s Christmas collection Lord Mayor’s procession lotteries Loudon (nurseryman) Lovat, Lord (execution of) love: and marriage Low-Life (anonymous pamphlet) Lowther, Lord Lowther, Sir James Lud Gate luncheon Lying-In Charity for Delivering Poor Women in Their Own Homes lying-in hospitals see maternity hospitals McLean (or Maclean; highwayman) Magdalen Charity mahogany make-up see cosmetics manners: at table; children’s; see also etiquette Mansfield, Lord Chief Justice mansions mantuas manure Marine Society market gardens markets; see also individual markets marriage: Fleet weddings; women and; Lord Hardwicke’s Act; ceremonies; legal age of; average age at; among rich; see also weddings Marylebone reservoir Masquier, Mrs (boarding-school keeper) Massie, Joseph: on family incomes; on charity for girls; on pepper consumption; on middle-income household expenses; on merchants’ earnings; on professions; and funeral costs; on the rich; Calculations of the Present Taxes … of each Rank, Degree or Class masturbation maternity hospitals Mauclerc, John Henry May Day May Fair Mead, Dr Richard measles medicine: folk remedies; patent medicines; see also doctors (medical) men: and conduct of business; clothes menageries: in the Tower of London; private menageries mental illness see insanity Merchant Taylors’ school merchants and traders mercury Methodism Methuen wine Middlesex Hospital Middleton, Sir Hugh midwifery and midwives Mile End militia: patrols in 1745 milk Mint, The Misaubin, ‘Dr’ Mitre Tavern, Charing Cross mobs: at public executions; and King Modena, Duke of Molesworth, Lady (house fire) money (coins and notes) Monument morality: and crime Moritz, Peter (Thames water-wheels) ‘Morocco men’ Morris, Arabella mourning Mozart, Leopold Mozart, Wolfgang Amadeus muffs mumps music; see also oratorios Mutiny Act (1720) Napoleon Bonaparte: allegedly poisoned by arsenic Navy: recruits from Marine Society; seamen’s tickets; living conditions; as profession; prize money negroes: as slaves and servants New River New River Water Company New Road, the New Theatre, Haymarket Newberry, John Newgate Calendar: on Brownrigg trial Newgate prison newspapers Newton, Revd James night soil: collection of night wear Noble, Francis (bookshop and library) Norfolk, Duke of North Briton (journal) Northumberland House Northumberland, Duke of nursery maids nurserymen (‘florists’) nurses: in hospitals ‘oars’ (water taxis) occupations: and income; see also Massie, Joseph Old Bailey trials old people: charitable aid for; health opera opium: as anaesthetic oratorios orphans: asylums for; sale of outdoor relief Oxford, coaches to Oxford Street see Tyburn Road painting and decorating palaces, royal pardons parishes: within the Bills of Mortality; and poor relief; parish constables Park Lane see Tyburn Lane parks; see also individual parks parties: for rich patches (cosmetic) pattern books: French silks; furniture paving pawnshops pearls peine fort et dur Penley, Bosavern pensions: Johnson and Pepys, Samuel perquisites for servants personal hygiene philanthropy Physic Garden, Chelsea physicians see doctors Piccadilly pickpockets picture exhibitions pillory Pimlico Pitt, William, the Elder Place, Francis: as source; boyhood; father; sisters’ education; hairstyles plague plaster work pleasure gardens plumbing: and burst pipes pneumonia Pollard, Elizabeth (peruke maker) pollution Pomfret Castle, Arlington Street Pomfret, Countess of Poole, Robert poor: Massie’s analysis; parish liability, babies; apprentices; workhouses; contracting out; badges; the Irish; death; homes; food; schooling; Fleet weddings; children; clothes; loans; imprisonment for debt; funerals; foundlings; work; gin; street games and amusements; crime; influence of Wesley; see also philanthropy; hospitals; slums poorhouses; see also workhouses population pornography port see Methuen wine porters Portman Square Postlethwaite, Malarchy Potts, Dr Percival: Treatise on Ruptures Powell, Mr (Holborn garden supplier) pregnancy: plea in criminal trial; advice books on; see also childbirth; midwifery press-gangs prices Pringle, Sir John prisons: debtors’; conditions in; prostitution in the Bridewell at Clerkenwell prize money processions professions property: entailing of prostitutes: recovery of; child; vengeance on; activities Purefoy, Elizabeth quacks (doctors) Quakers (Society of Friends): refusal to observe royal mourning Raffald, Elizabeth Raikes, Robert Ranelagh pleasure gardens: robberies at; women at; features; songs at; George III enjoys Raper, Elizabeth Rathbone Place Redmond, William rents see accommodation respiratory diseases Reynolds, Sir Joshua Richmond, Duke of rickets Rigg, John riots; theatre; see also mobs river traffic see Thames road-rage roads: new (1756); condition of; accidents robbers; see also highwaymen; thieves Robin Hood club Rocque, John: Plan of the Cities of London and Westminster and the Borough of Southwark Roman Catholicism: services Roubiliac, Louis François round-houses Royal Exchange Royal Society royalty rumour Russell, Lady Caroline Russia Company Sadler’s Wells sailors: and marriage; wage disputes; and press-gangs; cheated; prize-money St Bartholomew’s fair St Bartholomew’s Hospital St George’s Hospital St James’s Palace St James’s Park St James’s Square St Luke’s Hospital ‘Saint Monday’ St Paul’s coffee-house St Paul’s School St Thomas’s Hospital Sandwich, Lord Saussure, César de Scarbrough, Earl of scarlet fever scavengers schools: charity schools; day schools for girls; and for boys; boarding schools; public schools Scotland: marriage laws in; unpopularity Scots Corporation scullions scurvy seamen see sailors Searchers: employed by parish to report cause of death sedan chairs sentences (penal) servants: living accommodation; domestic service; foreign servants settlement (in parish) Seven Years War (1756–63) Severs, Dennis sewage and drainage sex: marital intercourse; prostitution; among the rich shaving Shepherd’s Market shirts shoes shop signs shoplifting shops and shopping: food shops; buying from catalogues; shopping as a pastime; goods on approval/credit; shop premises sightseeing silk: smuggled silks; Spitalfields designs; silk velvet; prices silk weavers silver, domestic Silvie, Mme (maker of teeth) Sion House, Middlesex skating slang slaves: in London; Somerset’s case; in America; cost of slums smallpox: inoculation against; hospitals for; among servants; among children; symptoms Smellie, William (obstetrician); Treatise on the Theory and Practice of Midwifery Smith, Eliza: home treatment for tuberculosis; cookery recipes and menus; cosmetics; Compleat Housewife or Accomplish’d Gentlewoman’s Companion Smithfield meat market Smollett, Tobias: as source; on body odours; on bread; on diseased prostitutes; Humphry Clinker; Roderick Random snuffboxes soap Society of Artists of Great Britain (later Royal Academy of Arts) Society for the Propagation of Christian Knowledge Society for the Propagation of the Gospel Soho: name Soho Square: built; Mrs Cornelys’ house Somerset, Duchess of Somerset House ‘Soupe, La’ South Sea Bubble (1720) spas Spence, Joseph (garden planner) Spencer House Spencer, John, 1st Earl Spitalfields; market sports and pastimes: of the poor; of the rich sprinkler carts stage coaches Star and Garter Tavern, Pall Mall starvation: as cause of death Stavordale, Lord stays Sterne, Laurence stockings stone: operation for Strand street vendors streets: layout; cleaning; paving; lighting; trees in; fashionable Stuart, James (‘Athenian’); The Antiquities of Athens Sunday: for the poor; schools; ‘Sunday men’ superstition: and folk remedies surgery; see also doctors (medical) Sutton (inoculator) Swallow Street Swift, Jonathan swimming swords syphilis tables tailors talleymen tapestries taverns Tavistock, Lord taxes; see also window tax teachers and teaching; see also schools teeth: care of; transplanting; babies’ teething; see also dentistry; false teeth teetotalism: as cure for gout Temple Bar Temple, Lady tenter grounds textiles see fabrics Thames, river: bridges; waterwheels; watermen; not embanked; frozen; traffic; state occasions and processions on; see also water supply theatre-going Theatre Royal, Covent Garden thieves: in parks; see also crime and punishment; criminals; highwaymen throwing at cocks tips see vails toothpaste Tottenham Court Tower of London; see also menageries town planning and developments toys trade unions (‘combinations’) traffic transport see traffic Transportation Act (1718) transportation (of criminals to America) trees: in streets and courts; in gardens trials (criminal) trusses tuberculosis see consumption turnpikes Twelfth Night Twining, Thomas Tyburn Tyburn Lane (Park Lane) Tyburn Road (Oxford Street) Tyers, Jonathan typhus: in prisons umbrellas undertakers (funeral directors) underwear: women’s; men’s unions (combinations) see trade unions universities urine: uses of vagabonds: accommodation for Vagrancy Act vails (tips) Vardy, John Vauxhall pleasure gardens: robberies at; layout and facilities; pictures at; songs at venereal disease: hospitals for; among prostitutes; mercury treatment and ‘salivation’; patent medicines verdigris Viagra wages; see also incomes wagons waistcoats wallpaper and wall coverings Walpole, Horace: describes London life; attacked by thieves; disapproves of Adelphi; and servants; encounters highwayman; on popularity of McLean (highwayman); uses alum on teeth; hears Wesley preach; on gambling; on English summers; visits Vauxhall; on Ranelagh jubilee masquerade; on earthquake Ware, Isaac (architect) warships: classification of washerwomen Watch, the water supply:; lead pipes to houses; water-wheels on the Thames; water mains (wooden pipes); undrinkable water; supply to the middling sort; to the poor water closets see lavatories water companies watermen: complain of London Bridge; and frozen Thames; wage rates; exempt from impressment water-taxis weather weddings Wedgwood, Josiah Welch, Saunders welfare: and poor relief Wellington, Arthur Wellesley, 1st Duke of Wells, Mrs (procuress) Wesley, Charles Wesley, John: medical knowledge; travels by stage coach; on Kensington Gardens; on workhouses; on treatment for consumption; recommends massage brush; recommends mercury treatment; on medical treatment by electricity; opposes education of girls; ministry and popular appeal; hears Handel oratorio; on averting earthquake West End: described Westbourne (river) Westminster: defined; slums; street cleaning Westminster Abbey: tombs Westminster Bridge Westminster Hall Westminster Hospital Westminster School whales Whigs: dominance whipping Whitbread, Samuel Whitehall Palace White’s club Whittington, Sir Richard (‘Dick’) whooping cough Wigmore Row wigs; theft of Wilberforce, William Wilkes, John: fights duel; rules on impressment case; provokes riots; and commitment to pillory; popularity William III, King William of Orange: marries Princess Anne William, Prince (later King William IV): inoculated Wilson, Revd Dr wind power window tax wine: as curative; see also Methuen wine wise women women: as governors of General Dispensary; sentenced to transportation; masturbation; emigration of; in employment; marriage; household management; family planning; gambling; in prison; dress and fashion; hairstyles Wood, Robert: The Ruins of Palmyra Worcester, Isaac Maddox, Bishop of (on inoculation for smallpox) work workhouses Wren, Sir Christopher York Buildings Water Company York, Edward Augustus, Duke of York, Frederick Augustus, Duke of York, William (child murderer) DR.

 

pages: 334 words: 98,950

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang

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affirmative action, Albert Einstein, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, falling living standards, Fellow of the Royal Society, financial deregulation, fixed income, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labour mobility, land reform, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, moral hazard, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

Flimnap is the prime minister of the empire of Lilliput and champion of Dance of the Rope, the frivolous method by which the holders of high offices in Lilliput are selected.11 Yet Walpole was a highly competent economic manager. During his time as chancellor of the exchequer, he enhanced the creditworthiness of his government by creating a ‘sinking fund’ dedicated to repaying the debts. He became prime minister in 1721 because he was considered the only person who had the ability to manage the financial mess left behind by the infamous South Sea Bubble.* Upon becoming prime minister, Walpole launched a policy reform that dramatically shifted the focus of British industrial and trade policies.Prior to Walpole, the British government’s policies were, in general, aimed at capturing trade through colonization and the Navigation Act (which required that all trade with Britain should be conducted in British ships) and at generating government revenue.

Law was named the ‘moneymaker’ by the author of his popular biography, Janet Gleeson.12 He was a moneymaker in more than one sense. He was an extremely successful financier, making huge killings on currency speculation, setting up and merging large banks and trading companies, getting royal monopolies for them and selling their shares at huge profits. His financial scheme was too successful for its own good. It led to the Mississippi Bubble – a financial bubble three times bigger than the contemporary South Sea Bubble discussed in chapter 2 – which wrecked the French financial system.* Law was also known as a great gambler with an incredible ability to calculate the odds. As an economist, he advocated the use of paper money backed by a central bank.13 The idea that we can make worthless paper into money through government fiat was a radical notion then. At the time, most people believed that only things that have a value of their own, like gold and silver, could serve as money.

 

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

The recovery will be a long, slow haul, and there will be a legacy of spending cuts, tax increases, and a huge government debt burden in many countries. The debate about public spending is not whether it will have to be cut, but rather how much and how quickly. It is hard to see where jobs will come from for the next few years. Financial crises have happened frequently throughout the history of capitalism. Many are relatively brief and small in scale, but a few do go down in the history books as major catastrophes, from the South Sea Bubble to the Great Crash of 1929, to our own recent experience.1 Part of the continuing debate about the merits of capitalism concerns precisely this constant vulnerability to crises, and to boom and bust. Market economies are unstable. The price of increasing prosperity is uncertainty about what the future holds. But even though the financial crisis has prompted many people to revisit this longstanding issue of instability, there are many other deep problems facing all the world’s richest economies at present.

See distribution Inconvenient Truth, An (Gore), 60 Index of Sustainable Economic Welfare (ISEW), 36 India, 212; emerging middle class of, 125; fairness and, 122–26, 133; inequality and, 125–26; nature and, 63, 65, 81; posterity and, 108; purchasing power parity (PPP) and, 306n19; Satyam and, 146; trust and, 146, 149, 163, 172; wage penalties and, 133; World Bank influence and, 163 Industrial Revolution, 27, 149, 290, 297 inequality, 4–5, 11, 17, 84, 306n19, 308n34; Bush and, 127–28; consequences for growth, 135–36; decline in trust and, 139–44; dramatic increase in, 126–27, 131; extraction ratio for, 124; fairness and, 114–16, 122–43; fractal character of, 134; Gini coefficient and, 126; globalization and, 122–24, 127, 131, 155; happiness and, 25, 36, 42, 44, 53; high salaries and, 130, 143–44, 193, 223, 277–78, 286, 296; historical perspective on, 126–27; institutions and, 116, 127–31, 141; measurement of, 126; policy recommendations for, 267, 276, 295–97; poverty and, 43, 55–56, 100, 125, 128, 138, 142, 168–69, 261, 267; reduction of, 276–77; Republican administrations and, 127–28; social corrosiveness of, 139–44; structural causes of, 131–35; superstar effect and, 134; taxes and, 115–16, 123, 127–28, 131, 135–36; trends in, 125–30; unequal countries and, 124–30; United Kingdom and, 125–30; United States and, 122, 125–31, 135, 276; values and, 223–24, 234–36; well-being and, 137–43; within/between countries, 123–24 inflation, 37, 43, 61, 89, 102–5, 110–11, 189, 281, 305n17 information and communication technology (ICT), 6–7, 15, 17; data explosion and, 205, 291; decreased cost of, 254; fairness and, 133; happiness and, 24–25; institutional impacts of, 252–53; structural effects of, 194–98; trust and, 156–60, 165–67, 174 innovation, 6–7, 12; consumer electronics and, 36–37; fairness and, 121, 134; growth and, 271–73, 281, 290–92; happiness and, 37; institutions and, 244, 258, 263, 290–91; measurement and, 183, 196, 201–8, 273–74; musicians and, 195; nature and, 69–70, 81; policy recommendations for, 290–91; posterity and, 102; statistics and, 201–7; trust and, 157; values and, 210, 216, 220, 236 In Praise of Slowness, 27 institutions, 18; anomie and, 48, 51; balance and, 12–17; blindness of to financial crises, 87–88; broad framework for, 249–52; capitalism and, 240; consumption and, 254, 263; decentralization and, 246; democracy and, 242–43, 251–52, 262; downsizing and, 175, 246, 255; economies of scale and, 253–58; efficiency and, 245–46, 254–55, 261; extinction crisis and, 288; face-to-face contact and, 7, 147, 165–68; failures of, 240–44, 257, 262–63, 267, 289–90; fall of communism and, 226, 239–40, 252; freedom and, 244, 262; globalization and, 244; governance and, 242, 247, 255–58, 261–62; government and, 240–63; growth and, 258, 261, 263; health care and, 247, 252–53; high salaries and, 130, 143–44, 193, 223, 277–78, 286, 296; impact of new technologies and, 252–54; importance of, 261–63; inequality and, 116, 127–31, 141; innovation and, 244, 258, 263, 290–91; legitimacy and, 8, 16, 50, 66, 68–69, 162–63, 213, 226, 269, 274, 292, 296–97; managerialism and, 259; morals and, 254; nature and, 66–69, 82–84; New Public Management and, 245–47; outsourcing and, 159, 161, 175, 219, 287; policy recommendations for, 269, 284–91; politics and, 239–48, 251, 256–63; pollution and, 15, 35, 228; productivity and, 244–47, 257, 263; public choice theory and, 242–43; public deliberation and, 258–60; reform and, 245–48, 256, 285, 288–91, 296–97; responsibility to posterity and, 296; shareholders and, 145, 248, 257–58, 277; statistics and, 245; technology and, 244–46, 251–54, 257–63 (see also technology); values and, 240–42, 246–47, 258–60 intangible assets: measurement and, 199–201, 204–6; satellite accounts and, 38, 81, 204–6, 271; social capital and, 149–52, 157, 161, 199–201 InterAcademy Council, 66–67 interbank market, 1–2 Intergovernmental Panel on Climate Change (IPCC), 59, 66–69, 82, 297 International Monetary Fund (IMF), 90, 101–3, 111, 162–64, 176, 211, 287, 297 International Price Comparison, 124 International Telecommunications Union, 219 Internet, 155, 195, 245, 260, 273, 287–89, 291, 296 invisible hand, 209 iPods, 195 Ipsos Mori poll, 66, 247 Ireland, 172 Iron Curtain, 183, 239, 252 Italy, 95, 97–98, 146, 152 Jackson, Michael, 198 Japan, 42; debt of, 102; equal income distribution in, 125; fairness and, 125–26, 140–41; inequality and, 126; lost decade of, 102; posterity and, 91–92, 95, 97–98, 102; savings rates in, 280; trust and, 169, 175; voter turnout and, 175 Jazz Age, 127 Jefferson, Thomas, 184, 253–54 Johns, Helen, 41 Johnson, Simon, 256–57 Johnson, Steven, 187 Justice (Sandel), 237 Kahneman, Daniel, 215 Kamarck, Elaine, 247–48 Kay, John, 139, 245–46, 257 Kennedy School of Government, 247 Keynes, John Maynard, 101, 183–84, 190 Kleinwort, Dresdner, 87 knowledge economy, 191 Kobayashi, Keiichiro, 102 Korea, 126 Krugman, Paul, 100–103, 127–29, 232, 282 Kyoto Protocol, 62–64 labor: absorbing work and, 10, 48–49; call centers and, 131, 133, 161; creativity and, 166–68, 205–7; downsizing and, 175, 246, 255; global cities and, 165–70; globalization and, 131, 149 (see also globalization); human capital and, 81, 203–4, 282; measurement and, 189–99; migration and, 108–10, 172; outsourcing and, 159, 161, 175, 219, 287; pensions and, 4, 25, 85–86, 90, 92–100, 103–7, 111–13, 174–76, 191, 203, 243, 269–71, 275, 280, 286, 289–90, 293; Protestant work ethic and, 13–14, 236; retirement age and, 94, 97–99, 106–7, 112; skilled, 132–33, 159, 166–67, 276; specialization and, 160–61; technology and, 131–33; unemployment and, 3, 10, 43, 51, 56, 89, 107, 169, 207, 212–13, 243; unions and, 15, 51, 224, 249; unskilled, 132–33, 158, 172, 193; well-being and, 137–39; Whitehall Studies and, 139 lack of control, 47, 138–39 Lawson, Neal, 26 Layard, Richard, 31, 39–40, 43 Lehman Brothers, 1, 85, 87–88, 145, 211, 275–76 Leipzig marches, 239 Leviathan (Hobbes), 114 light bulbs, 59–61 Linux, 205 Lipsky, John, 102, 111 List, John, 117 literacy, 36 Live Nation, 197 living standards, 78–79, 106, 113, 136, 151, 162, 190, 194, 267 lobbyists, 15, 71, 247, 257, 276, 285, 289, 296 Lolapaloozza, 197 Louis Vuitton, 150 Luxury Fever (Frank), 40 Mackenzie, Donald, 221 Madonna, 194 Malthusianism, 95 Mama Group, 197 managerial competence, 2, 16, 150, 209, 259 Manzi, Jim, 231–32 Mao Zedong, 10 markets: asymmetric information and, 17, 186, 214, 219–20, 229, 248, 254, 262–63; black, 225; boom–bust cycles and, 4, 22, 28, 93, 102, 106–9, 136–37, 145, 147, 213, 222–23, 233, 277, 280, 283; capitalism and, 182, 230–38 (see also capitalism); culture and, 230–38; declining population and, 86, 89–90, 95–99, 103, 113; democracy and, 230–38; deregulation and, 7, 212; evidence–based policy and, 233–34; exchange advantage and, 214; externalities and, 15, 70, 80, 211, 228–29, 249, 254; failures of, 226–30, 240–44, 257, 262–63, 267, 289–90; Fama hypothesis and, 221–22; flaws of, 215–16; fractal character of, 134; free market model and, 14, 121, 129, 182–83, 210–11, 218–24, 232, 240, 243, 251; fundamentalism for, 213; gift economy and, 205–7; interbank, 1–2; international trade and, 110, 148, 159, 163; invisible hand and, 209; mathematical models of, 214; merits of, 211–17; missing, 229; moral, 210, 213, 220–25, 230–33; music, 194–98; network effects and, 253, 258; options, 222; as organizing economy, 218; performativity and, 224–25; Protestant work ethic and, 13–14, 236; public choice theory and, 220, 242–45; public domain and, 196; rational calculation and, 214–15; satellite accounts and, 81; shorting of, 86; social, 217–20; stability issues and, 2–4, 25, 70, 101, 124, 135, 140–41, 174, 176, 218, 296; trilemma of, 230–38; values and, 209–10 (see also values); winner take all, 134 Marx, Karl, 14, 28, 131, 221 McDonalds, 27 McKitrick, Ross, 68 Mean Fiddler Group, 197 Measuring Australia’s Progress, 274 measurement: asymmetric information and, 17, 186, 214, 219–20, 229, 248, 254, 262–63; Australian model and, 271, 274; balance and, 12–17; bankers and, 193, 200; capitalism and, 182; challenges of, 188–93; consumption and, 181–82, 198; distribution and, 191–99; evidence–based policy and, 233–34; GDP, 10 (see also gross domestic product [GDP]); Gini coefficient and, 126; governance and, 183, 186; government and, 182–88, 191, 193, 196, 202–3, 206; growth and, 181–85, 188–90, 194, 201–5, 208; happiness and, 35–39; health issues and, 181, 188–93, 200, 207; hedonic techniques and, 274; importance of, 184–85, 187–89; of inequality, 126; innovation and, 183, 196, 201–8, 273–74; intangible assets and, 199–201, 204–6; labor and, 189–99; less publication of, 271–72; living standards and, 13, 65, 78–79, 106, 113, 136, 139, 151, 162, 190, 194, 267; Measuring Progress exercise and, 294; policy recommendations for, 270–74; politics and, 182–84, 191, 193, 203, 208; productivity and, 189–90, 194, 199–201, 206–7; resources for, 294; social capital and, 154; statistics and, 187–89, 198–208; technology and, 181–85, 188–91, 194–201, 204–6; time constraints and, 204–7; trust and, 152–57; uncertainty of accuracy and, 273; unmeasurable entities and, 187; values and, 209, 212–13, 224 Medicare, 93–94 Meek, James, 26 metrification, 184 Metropolitan Museum of Art symposium, 100–101 Mexico, 226 Microsoft, 253, 258 migration, 108–10, 172 Milanovic, Branko, 123–24 Mill, John Stuart, 31–32 Minsky, Hyman, 226 monopolies, 196, 245, 252, 254 Montreal Protocol, 59 Moore’s Law, 156 morals: bankers and, 90, 277–78; criticism of poor and, 142; fairness and, 116–20, 127, 131, 142, 144; greed and, 221 (see also greed); growth and, 275–76, 279, 293, 295, 297; happiness and, 22, 26, 30, 34, 43, 48–49; institutions and, 254; nature and, 55, 70–72, 76, 78; performativity and, 224–25; posterity and, 90; trust and, 149, 174; values and, 185, 210, 213, 220–25, 230–33 MP3 players, 195 music, 11, 194–98, 204, 208, 229, 254 nature: Brundtlandt Report and, 77; carbon prices and, 70–71; climate change and, 57–84 (see also climate change); consumption and, 58–61, 71–76, 79, 82; Copenhagen summit and, 62, 64–65, 68, 162, 292; democracy and, 61, 66, 68; efficiency and, 61–62, 69, 82; environmentalists and, 29, 55–59, 69–70, 99; freedom and, 79; future and, 75–83; global warming and, 57, 64, 66, 68; government and, 58–62, 65–71, 82–84; greenhouse gases and, 23, 29, 35, 59, 61–63, 68, 70–71, 83; green lifestyle and, 55, 61, 76, 289, 293; gross domestic product (GDP) and, 56–60, 75–76, 80–82; growth and, 56–59, 62–66, 69–72, 76, 79–82; happiness and, 56–59, 75–76, 80–84; health issues and, 81; hybrid cars and, 61; innovation and, 69–70, 81; institutions and, 66–69, 82–84; InterAcademy Council and, 66–67; Intergovernmental Panel on Climate Change (IPCC) and, 59, 66–69, 82, 297; Kyoto Protocol and, 62–64; light bulbs and, 59–61; Montreal Protocol and, 59; morals and, 55, 70–72, 76, 78; natural capital and, 79–81, 151, 271, 273; philosophy and, 69–70; plastic and, 61; politics and, 57–71, 75, 77, 82–84; population issues and, 99; productivity and, 78, 82; satellite accounts and, 81; self-interest and, 65; squandered natural wealth and, 181–82; statistics and, 66, 81–82; stewardship and, 78, 80; technology and, 69–72, 76–77, 80, 84; TEEB project and, 78–79 network effects, 253, 258 New Deal, 129 New Economics Foundation, 36 New Public Management theory, 245–47 Newton, Isaac, 214–15 Niger, 122 Nobel Prize, 18, 60, 102, 215, 220, 236, 250, 261 noise, 47 No Logo (Wolf), 34 Nordhaus, William, 37, 70, 73, 156 North, Douglass, 261 Northern Rock, 1, 146 Obama, Barack, 62–63, 87, 173, 260, 285, 288 Oberholzer-Gee, Felix, 197 obesity, 137–38, 279 Office for National Statistics, 274 Olson, Mancur, 242 opinion formers, 61 option pricing theory, 222 Orchestra of the Age of Enlightenment, 194 Organization for Economic Cooperation and Development (OECD), 4, 11, 201, 305n11; happiness and, 38, 52; inequality in, 125–26; nature and, 60, 68; policy recommendations for, 273–74, 281, 283, 287, 291, 293; posterity and, 87, 93–94, 97–99, 112; trust and, 160, 171; values and, 212, 243–44, 246 organized crime, 277 Ormerod, Paul, 41 Orwell, George, 56 Ostrom, Elinor, 17, 220, 250–51, 261–63 Pakistan, 81, 226 Paradox of Choice, The (Schwartz), 10–11, 40 Parmalat, 146 partisanship, 2, 16, 101, 128, 269, 285 Peake, Mervyn, 9 pensions, 4, 25, 243; burden of, 92–95; Chinese savings and, 94; measurement and, 191, 203; policy recommendations for, 269–71, 275, 280, 286, 289–90, 293; posterity and, 85–86, 90–100, 103–7, 111–13; retirement age and, 92, 97–99, 106–7, 112; trust and, 174–76 performativity, 224–25 Persson, Torsten, 136 Pew surveys, 140 philanthropy, 33 philosophy, 16; fairness and, 114–15, 123; freedom and, 237; happiness and, 21, 27, 31–32, 49–50; nature and, 69–70; utilitarian, 31–32, 78, 237; values and, 237–39 Pickett, Kate, 137–40 Piereson, James, 183 Piketty, Thomas, 127, 129 Pimco, 287 Pinch (Willetts), 98–99 Pinker, Steven, 118, 305n4 Poland, 239 police service, 5, 35, 163, 193, 200, 247 policy: Commission on the Measurement of Economic Performance and Social Progress and, 37–38; deregulation and, 7, 212; errors in standard, 8; evidence–based, 233–34; first ten steps for, 294–98; future and, 75–83, 291–98; Intergovernmental Panel on Climate Change (IPCC) and, 59, 66–69, 82, 297; legitimacy and, 8, 16, 50, 66, 68–69, 162–63, 213, 226, 269, 274, 292, 296–97; measurement and, 187–89; OECD countries and, 4, 11, 38, 52, 60, 68, 87, 93–94, 97–99, 112, 125–26, 160, 171, 201, 212, 243–44, 246, 273–74, 281, 283, 287, 291, 293; population growth and, 95–100; practical recommendations for, 269–91; reform and, 8, 82–83, 85 (see also reform); stability issues and, 2–4, 25, 70, 101, 124, 135, 140–41, 174, 176, 218, 296; stimulus packages and, 91, 100–103, 111; sustainability and, 57 (see also sustainability); tradition and, 9; transparency and, 83, 164, 288, 296; trilemma of, 13–14, 230–36, 275; World Forum on Statistics, Knowledge, and Policy and, 38 political correctness, 173, 231 political economy, 27–28 pollution, 15, 35, 228 Population Bomb, The (Ehrlich), 70 population issues: aging, 4, 95–100, 106, 109, 206, 267, 280, 287, 296; baby boomers and, 4, 106, 109; declining population and, 86, 89–90, 95–99, 103, 113; demographic implosion and, 95–100; environmentalists and, 99; global cities and, 165–70; Malthusianism and, 95; migration and, 108–10; one-child policy and, 95–96; posterity and, 89–90, 94–95, 105–6, 109, 112–13; retirement age and, 94, 97–99, 106–7, 112 Porter, Roy, 184 Portugal, 126, 287 posterity, 298; aging population and, 89–90, 94–95, 105–6, 109, 112–13; bankers and, 85–91, 94, 99–102; consumption and, 86, 104–6, 112–13; current generation’s debt to, 90–92, 112–13; declining population and, 86, 89–90, 95–99, 103, 113; default and, 110–12; democracy and, 106; demographic implosion and, 95–100; freedom of investors and, 108; globalization and, 108; government and, 84–95, 98–113; gross domestic product (GDP) and, 91–94, 98–99, 103, 108, 111; growth and, 90, 95, 97, 99, 102, 105–8, 111; health issues and, 89, 93–94, 97–99, 103, 106, 111–13; higher retirement age and, 94–98, 106–7, 112; innovation and, 102; institutional responsibility and, 296; less leisure and, 106–7; Medicare and, 93–94; migration and, 108–9; morals and, 90; pensions and, 85–86, 90, 92–100, 103–7, 111–13; politics and, 86–94, 98, 101–8, 111–13; poverty and, 100; productivity and, 88, 97–99, 102, 105–8, 112; public debt and, 85–86; reform and, 85–86, 98, 111–12; savings and, 86–87, 94, 98, 100–101, 105–8, 112; Social Security and, 93–94; social welfare and, 85, 100, 112; sustainability and, 79 (see also sustainability); taxpayer burden and, 85–91, 94, 99, 103–5; technology and, 107; welfare burden and, 92–95 poverty, 261, 267; desire to spend and, 55–56; fairness and, 125, 128, 138, 142; happiness and, 43; posterity and, 100; trust and, 168–69 printing press, 7 productivity, 16; balance and, 268, 271, 273–76, 281, 287; bureaucratic obstacles to, 285–86; Commission on the Measurement of Economic Performance and Social Progress and, 37–38; fairness and, 131, 135; globalization and, 131 (see also globalization); governance and, 173–77; happiness and, 27, 38, 42, 51; improvements in, 107–8; institutions and, 244–47, 257, 263; measurement and, 189–90, 194, 199–201, 206–7; nature and, 78, 82; posterity and, 88, 97–99, 102, 105–8, 112; public services and, 257; Soviet method and, 246; technology and, 107–8, 157–59, 268; trilemma of, 13–14, 230–36, 275; trust and, 156–59, 162, 166–67, 170, 174 property rights, 80, 174, 195–96, 261 Protestant work ethic, 13–14, 236 psychology: altruism and, 118–22; anomie and, 48, 51; anxiety and, 1, 25, 47–48, 136–38, 149, 174; behavioral economics and, 116–17, 121, 282; choice and, 10–11; coherence and, 49; commuting and, 47; conflict in relationships and, 47; Easterlin Paradox and, 39–44; face-to-face contact and, 7, 147, 165–68; freedom and, 237 (see also freedom); game theory and, 116–18, 121–22; gift economy and, 205–7; greed and, 26, 34, 54, 88, 129, 150, 221–23, 248, 277–79; happiness and, 9–12, 44–50 (see also happiness); lack of control and, 47; noise and, 47; paradox of prosperity and, 174; positive, 9–10, 49–50, 303n51; public choice theory and, 220, 242–45; rational choice theory and, 214–15; shame and, 47; Slow Movement and, 27–28, 205; thrift education and, 283–84, 294–95; well-being and, 137–43 Ptolemy, 274 public choice theory, 220, 242–45 Public Domain, The (Boyle), 196 public goods, 185–86, 190, 199, 211, 229, 249, 261 purchasing power parity (PPP), 306n19 Putnam, Robert, 140–41, 152–54 Quiet Coup, The (Johnson), 256–57 Radio Corporation of America (RCA), 195 Rajan, Raghuram, 136 Rank, Robert, 40 rational choice theory, 214–15 Rawls, John, 31 Reagan, Ronald, 93, 121, 127, 211, 240, 243, 247–48 recession, 9, 11–12, 275; happiness and, 22, 24, 41, 54; nature and, 55–56, 66; plethora of books following, 55; posterity and, 85, 88, 91–93, 100–101, 108, 110; recovery from, 3, 103; trust and, 182; values and, 209–10, 213, 222 reciprocal altruism, 118–22 reform, 8; benchmark for, 218; bankers and, 277–79; bonus taxes and, 278; collective assent to, 269; courage needed for, 203; first ten steps for, 294–98; health care, 285; improving statistics and, 271; institutions and, 245–48, 256, 285, 288–91, 296–97; nature and, 82–85; New Public Management and, 245–46; politics and, 287–88; posterity and, 98, 111–12; public sector, 288–90; trust and, 162–64, 176–77; values and, 218, 233, 275–78, 295 Reinhardt, Carmen, 111 religion, 10; happiness and, 32–33, 43, 50; nature and, 76, 78; Protestant work ethic and, 13–14, 236; trust and, 147 Renaissance, 7 retirement age, 94, 97–99, 106–7, 112 revalorization, 275 Road to Wigan Pier, The (Orwell), 56 Rodrik, Dani, 136 Rogoff, Kenneth, 111 Romantic Economist, The (Bronk), 28 Romanticism, 27 Rothschilds, 147 Rousseau, Jean–Jacques, 114 Royal Bank of Scotland, 146 runs, 1 Ruskin, John, 27–28 Russia, 97–98, 123; Cold War and, 93, 112, 147, 209, 213, 239; Iron Curtain and, 183, 239, 252; production targets and, 246; as Soviet Union, 228, 246 Saez, Emmanuel, 127, 129 salaries: high, 130, 143–44, 193, 223, 277–78, 286, 296; measurement and, 191–99; paradox of, 193; superstar effect and, 134; technology and, 2, 89 Sandel, Michael, 224–25, 237 Sarkozy, Nicolas, 37, 202, 274 satellite accounts, 38, 81, 204–6, 271 Satyam, 146 savings, 1, 280–82, 293; China and, 87, 94, 100, 108; necessary increasing of, 105–6; negative, 105; policy recommendations for, 280–84; posterity and, 86–87, 94, 98, 100–101, 105, 108, 112; thrift education and, 283–84, 294–95 savings clubs, 283 Schumpeter, Joseph, 14 Schwartz, Barry, 10–11, 40 Seabright, Paul, 148–49, 170, 213–14, 228 self-interest: fairness and, 114–22; greed and, 26, 34, 54, 88, 129, 150, 221–23, 248, 277–79; moral sentiments and, 119–20, 142, 221; nature and, 65; reciprocal altruism and, 118–22; values and, 214, 221 Selfish Gene, The (Dawkins), 118 Sen, Amartya, 18, 37, 43, 82, 202, 237, 274, 310n25 shame, 47 shareholders, 88, 145, 248, 257–58, 277 Silicon Valley, 166 Simon, Herbert, 249–50, 254, 261, 270 Simon, Julian, 70 Singapore, 126 Sloan School, 256 Slow Food, 27 Slow Movement, 27–28, 205 smart cards, 252–53 Smith, Adam, 119–20, 209, 221, 255 Smith, Vernon, 215 social capital, 8, 12, 17; definition of, 152–53; fairness and, 116, 121, 139–43; intangible assets and, 149–52, 157, 161, 199–201; measurement of, 154, 185; policy recommendations for, 267, 271, 273, 276; Putnam on, 152–54; trust and, 5, 151–57, 168–74, 177; values and, 223–25, 231, 257 social justice, 31, 43, 53, 65, 123, 164, 224, 237, 286 Social Limits to Growth, The (Hirsch), 190, 231 social markets, 217–20 social networks, 260, 270, 288–89 Social Security, 93–94 social welfare. See welfare Socrates, 32 software, 253 Solow, Robert, 77–78, 80, 82 Soulful Science, The (Coyle), 121 South Sea Bubble, 3 Spain, 126, 287 spillovers, 186, 228–29 Spirit Level, The (Wilkinson and Pickett), 137–39 Stagecoach Festival, 197 Standard & Poor’s, 201 statistics, 10; fairness and, 115, 138; growth and, 270–74, 290–94; happiness and, 35–42, 51–52; innovation and, 12, 201–7; institutions and, 245; measurement and, 187–89, 198–208; nature and, 66, 81–82; policy recommendations for, 270–74; posterity and, 92; resources for, 294; trust and, 154; user–generated content and, 273; values and, 13; World Forum on Statistics, Knowledge, and Policy and, 38.

 

pages: 347 words: 99,317

Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity by Ha-Joon Chang

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affirmative action, Albert Einstein, banking crisis, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, falling living standards, Fellow of the Royal Society, financial deregulation, fixed income, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labour mobility, land reform, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, moral hazard, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

Flimnap is the prime minister of the empire of Lilliput and champion of Dance of the Rope, the frivolous method by which the holders of high offices in Lilliput are selected.11 Yet Walpole was a highly competent economic manager. During his time as chancellor of the exchequer, he enhanced the creditworthiness of his government by creating a ‘sinking fund’ dedicated to repaying the debts. He became prime minister in 1721 because he was considered the only person who had the ability to manage the financial mess left behind by the infamous South Sea Bubble.i Upon becoming prime minister, Walpole launched a policy reform that dramatically shifted the focus of British industrial and trade policies. Prior to Walpole, the British government’s policies were, in general, aimed at capturing trade through colonization and the Navigation Act (which required that all trade with Britain should be conducted in British ships) and at generating government revenue.

Law was named the ‘moneymaker’ by the author of his popular biography, Janet Gleeson.12 He was a moneymaker in more than one sense. He was an extremely successful financier, making huge killings on currency speculation, setting up and merging large banks and trading companies, getting royal monopolies for them and selling their shares at huge profits. His financial scheme was too successful for its own good. It led to the Mississippi Bubble – a financial bubble three times bigger than the contemporary South Sea Bubble discussed in chapter 2 – which wrecked the French financial system.ii Law was also known as a great gambler with an incredible ability to calculate the odds. As an economist, he advocated the use of paper money backed by a central bank.13 The idea that we can make worthless paper into money through government fiat was a radical notion then. At the time, most people believed that only things that have a value of their own, like gold and silver, could serve as money.

 

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

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Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

This seemingly miraculous development offered an intoxicating mix of rapid productivity gains (particularly in the US), technological advance, strong growth, low inflation and ever higher stock prices. The elixir of ever rising wealth that, temporarily, had been Japan’s monopoly to enjoy in the 1980s had been uncovered by the US and, in patchy fashion, by Europe too. Technology companies with only the vaguest of business plans found that money grew on trees, a repeat of the extraordinary events first seen in the 1720 South Sea Bubble when, famously, a company hoped to raise money ‘for carrying out an undertaking of great advantage, but nobody to know what it is’. Such was the enthusiasm for the new economy that Business Week ran the following story at the end of January 2000 under the headline ‘The New Economy: It works in America: Will it go global?’ It seems almost too good to be true. With the information technology sector leading the way, the U.S. has enjoyed almost 4% growth since 1994.

L. 41 Knickerbocker Trust Company 131 Korea 14, 193, 195, 202–4, 205 Krugman, Paul 112–15, 117, 118–19 labour market 115–16, 252 productivity 53 Landes, David 26 Latin American debt crisis 216 Layard, Richard 114, 117 Lehman Brothers 30, 255 Leveson inquiry 148 Libor 126 life expectancy 47 liquidity 84, 90 liquidity trap 72 Liquidity Coverage Ratio (LCR) 83 Little Dorrit (Dickens) 138–9 living standards 11, 27, 158, 169, 180–1 belief in ever rising 13, 34 China 27 Indonesia 197 Japan 23 Korea 195 late 19th century 185, 186 Malaysia 198 post-Second World War 139 US 11, 163 loan-to-value ratios, mortgage 51–2 Long Depression 189–90 loss aversion 40–1 lotteries 164–5 Macroeconomic Imbalance Procedure (MIP) 233 macroeconomic policies 32, 60, 121, 181, 253 Japan 21 macroprudential rules 256 Madoff, Bernie 35 Mahathir Mohamad 198–201, 205 Malaysia 193, 198–201, 205 Malthus, Thomas 37–9 Manchester United 165–6 Marr, Wilhelm 189 Marx, Karl 57, 179–80 Mary Poppins 131–2 May Report 98 Megawati Sukarnoputri 197 Mellon, Andrew 106, 108 Mexico 158 Mieno, Yasushi 21 miners 103–4 Mississippi 163 mistrust creditors and debtors 141 cross-border 176 endemic 147–9 governments 140, 217–18 of money 219–21 and political extremism 227 monetarism 59 monetary policy 58, 68–74, 77–9, 87–9, 97, 111–12 a new monetary framework 245–50 see also Gold Standard; interest rates; quantitative easing (QE) Monetary Policy Committee 90–1 monetary unions 236–7 see also eurozone moral hazard 62 mortgage-backed securities 30, 65, 136–7 mortgages 51–2, 63–5 Napoleon Bonaparte 156 Napoleon III 182 National Bank of North America 131 national incomes 32, 49–50, 141–2, 247 Germany 33 Japan 32 UK 33, 110–11, 112 US 33, 70, 109, 115, 117–18 284 4099.indd 284 29/03/13 2:23 PM Index National Lottery 164–5 nationalism 228 the Netherlands 48 New Deal 108–9 ‘new economy’ of the 1990s 29–30 New Order (Indonesia) 197 New Zealand 187 Nicholson, Viv 50 Nigeria 19 Northern Rock 30, 51–2, 129, 255 Norway 158 Occupy movement 162, 170–1 Office for Budget Responsibility 33 Oliver Twist (Dickens) 43 Osborne, George 231 Overend, Gurney and Co. 131 painkillers 70–1, 89 ‘The Panic of 1873’ 186 Paul, Ron 93 Peasants’ Revolt 213 Pension Protection Fund (PPF) 172 pensioners’ voting patterns 88 pensions 47, 51, 75, 171–3, 174 per capita incomes 27, 49, 159–60, 163 Argentina and Germany 14 China 251 France 101, 105 Germany 101, 105 India 27, 251 Indonesia 197 Japan 21 Korea 202 Malaysia 198 UK 1, 44, 101, 105 US 14, 101, 105 Perón, Eva 16 Perón, Juan 16–17 Pew Center report 173 Pickett, Kate 159 Pigou, Arthur 59 policies and central bankers 65 fiscal 58, 66–7, 69–70, 77–8, 246–7 macroeconomic 21, 32, 60, 121, 181, 253 monetary 58, 68–74, 77–9, 87–9, 97, 111–12 new monetary framework 245–50 political extremism 226–9 politics and central bankers 78, 89–90, 91–5 and economics 24–6, 34, 102, 191–2, 217 and the eurozone 224–5, 237 and expectations 152–3 and income inequality 160–1 and lack of trust 147–8, 149 and monetary regimes 119–20 voters 50, 78, 88, 222, 242–4 poll tax 211 populations, ageing 78, 88, 250 age-related expenditure 48 generational divide 171–4, 241, 243–5 Germany 136 Japan 23, 25 Portugal 50, 146, 158, 191 precious metal standards 183–4 see also Gold Standard prices asset 73 commodity 77, 109, 116–17 rising 157 see also deflation; inflation property sector see housing markets protectionism 214–15 capital controls 16, 199–200, 201, 234 tariffs 16 Protestant work ethic 26, 28 public sector see governments public spending 49–50, 66, 142, 147–8, 203 government spending 58, 109, 119 social spending 45–7 quantitative easing (QE) 72–82, 84–6, 91, 97, 176–7 ratings agencies 234–5 rationing 114–15, 142–3 recessions 2 recovery from the Asian crisis 195–6, 204–5, 206, 208–9 UK in the 1930s 101–2 redistribution by stealth 90 Reform Acts 222, 242–3 regulation 125, 256 dangers of further 214, 251 dollar transactions 177 reduction 168 the regulatory trap 83–4 Statute of Labourers 213 renminbi (currency) 177 Réveillon, Jean-Baptiste 155–6 Ricardo, David 183–4 Richard II 211–12 ringgit (currency) 198 285 4099.indd 285 29/03/13 2:23 PM When the Money Runs Out risk and banks 255–6 creditors and debtors imbalance 234 and financial services 168 and rapid economic change 170 risk aversion 216 Roosevelt, Franklin Delano 107–9, 117–18, 119, 219 Royal Bank of Scotland 30 Royal Navy 99 Russia 117, 135 Rwanda 19 Samuel, Herbert 104 Saudi Arabia 117, 135 savers and banks 136 confidence 65 and illusions 137 and income inequality 162–3 and interest rates 90, 91, 97 and the subprime boom 133–4 schisms between debtors and creditors 174–7, 191 generational 170–4 income inequality 158–70 Schwartz, Anna 59, 106, 188 second-hand car market 123–4 Sierra Leone 163 silver standard 183 SIVs (structured investment vehicles) 129–30 Skidelsky, R. and E. 37 Smith, Adam 39–40, 207 melancholy state 42, 124–5, 159–60 Snowden’s budget 99–102, 105 soccer 165 social contract, between generations 244–5 social insurance 44–8 social security systems 12 social spending 45–7 Soros, George 200 South Korea 14, 193, 195, 202–4, 205 South Sea Bubble 29 space exploration 9–10, 35 Spain deficit 54, 134 and the eurozone 191, 235–6 exports 82 fiscal position 85 government borrowing 144 interest rates 146 political disenfranchisement 95 property bubble 140 suicide of Amaia Egana 153 spending government 58, 109, 119 public sector 49–50, 66, 142, 147–8, 203 social 45–7 stagnation 37–43, 50, 52–3, 158, 219 and political extremism 227–8 Standard & Poor’s 80 ‘stately home’ effect 221–3 Statute of Labourers 211, 213 sterling 98–106, 110 Stern Review 38–9 stimulus 3–4 and jobs 116 monetary and fiscal 30, 57–8, 181 Paul Krugman 112–15, 118–19 policy 32, 69–70, 82 political debate 205 prior to the financial crisis 67 stock markets 20–1, 30, 193 stock-market crashes 18, 61–2, 66, 99, 186 Straw, Jack 212 structured investment vehicles (SIVs) 129–30 subprime boom 130, 133–4 crisis 190 Suharto 196–7, 205 surpluses 66, 135–7, 204, 232–4 Sweden 158, 204 Switzerland 158, 184 Taiwan 14 Takeshita, Noburo 24 Tanzania 19 tariffs 16 tax avoidance 49, 211, 214 taxation ancien régime and the French Revolution 154–5 death duties 139 medieval poll tax 211 taxpayers 145, 170, 174, 215, 254 technological progress 2–3, 10–11 dotcom bubble 169 and financial industry wages 167 Industrial Revolution 38 Thailand 193, 195 Thaler, R.

 

pages: 471 words: 97,152

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

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

Who has not taken a hike and come across a long-abandoned railway line— someone’s past dream of a path to riches and wealth? Who has not heard of the Great Tulip Bubble of the seventeenth-century Netherlands— a country famous, we might add, for its stalwart Rembrandt burghers and often caricatured as the home of the world’s most cautious people. Who does not know that even Isaac Newton—the father of modern physics and of the calculus—lost a fortune in the South Sea bubble of the eighteenth century? All of which takes us back to Trondheim. Akerlof had stored the observation prompted by his relative’s million-dollar home in the wrong place in his brain. He should have seen that home prices in Trondheim were not merely indicative of curiously high real estate prices in Scandinavia; they were part of a worldwide real estate bubble. He had been too trusting. But that takes us even further back, to Keynes’ passage about animal spirits.

., 71–72 Smith, Adam, xxiii, 2, 3, 5, 6, 125, 177n5,1 Smith, Edgar Lawrence, 66, 185n23 Smith, Vernon L., 189n15 Snake oil, 26–27, 28, 35, 37, 87, 146–47, 155, 175 Snower, Dennis, 189n17 Snow Shovel price vignette, 21 Socialism, xxii, 2 Social Security, 124–25, 129–30, 146 sociology, 23–25 Solow, Robert, 46, 188n2 Sorensen, Elaine, 197n15 Sorkin, Andrew Ross, 186n13 South Sea bubble, 13 Soviet Union, 26 spiritus animalis, 3, 178n3 sporting events, studies of outcomes, 179n3 staggered contracts, 5 Staiger, Douglas, 183n8 Stalin, Joseph, 26 Standard & Poor’s Composite Stock Price Index, 59 status, 24–25 Steeples, Douglas, 62, 184n8,11 Stein, Jeremy C., 182n21, 195n36 Sternberg, Robert J., 52, 184n4 Sticky wages, 48, 109, 110, 111, 183n14, 185n32 Stiglitz, Joseph E., 104–5, 188n12 Stock, James H., 183n8 stock market, xxi, 174; depression of the 1890s and, 59; margin credit of, 64; in the 1920s, 64, 66–67; price volatility in, 131–40, 145–46, 193n6; rate of return in, 117; real estate market and, 149, 152–53, 154; recession of 2001 and, 33, 35; stories and, 55 stock market crash of 1902, 11 stock market crash of 1929, 15, 66, 67, 68, 131, 145, 177n7 stock market crash of 2000, 169 Stoft, Steven, 188n12 stories, 5, 6, 51–56, 167, 170, 172, 174, 183–84n1–14; on central banks, 75–78; changes in, 173, 174–75; confidence and, 55–56; of corporate investments, 144, 145; depression of the 1890s and, 61; epidemics of, 56; of financial crisis of 2007–8, 88; financial prices and, 137, 138, 142, 146, 147; minorities and, 159–60, 162, 163, 164; new era, 55–56, 66; of our time, 171; overheated economy and, 66–67; patterns to, 52; political-economic, 53–54; real estate market and, 149, 151, 156; relevant to whole economies, 54; saving and, 119, 127–28; Tobin’s q as, 145; World War II and, 72 strikes, 138, 139, 140, 194n23 subprime mortgages, 73, 149; corruption and, 36–37, 38, 182n21; effect on housing prices, 155 Summers, Lawrence, 103, 188n9, 189n17, 191n11, 194n30,36, 195n37 Sunde, Uwe, 183n14 sunspot equilibria, 12, 179n2 supply and demand: for labor, 98, 99–100, 103, 104; open market operations and, 76 Swedish financial crisis, 93, 188n15 Switzerland, 109 Tabasco, Mexico, 53 TAF.

 

pages: 725 words: 221,514

Debt: The First 5,000 Years by David Graeber

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

The Dutch Republic, which pioneered the development of stock markets, had already experienced this in the tulip mania of 1637—the first of a series of speculative “bubbles,” as they came to be known, in which future prices would first be bid through the ceiling by investors and then collapse. A whole series of such bubbles hit the London markets in the 1690s, in almost every case built around a new joint-stock corporation formed, in imitation of the East India Company, around some prospective colonial venture. The famous South Sea Bubble in 1720—in which a newly formed trading company, granted a monopoly of trade with the Spanish colonies, bought up a considerable portion of the British national debt and saw its shares briefly skyrocket before collapsing in ignominy—was only the culmination. Its collapse was followed the next year by the collapse of John Law’s famous Banque Royale in France, another central-bank experiment—similar to the Bank of England—that grew so quickly that within a few years it had absorbed all the French colonial trading companies, and most of the French crown’s own debt, issuing its own paper money, before crashing into nothingness in 1721, sending its chief executive fleeing for his life.

On the one end were the periodic bubbles, propelled in part by rumor and fantasy and in part by the fact that just about everyone in cities like Paris and London with any disposable cash would suddenly become convinced that they would somehow be able to profit from the fact that everyone else was succumbing to rumor and fantasy. Charles MacKay has left us some immortal descriptions of the first of these, the famous “South Sea Bubble” of 1710. Actually, the South Sea Company itself (which grew so large that at one point it bought up most of the national debt) was just the anchor for what happened, a giant corporation, its stock constantly ballooning in value, that seemed, to put it in contemporary terms, “too big to fail.” It soon became the model for hundreds of new start-up offerings: Innumerable joint-stock companies started up everywhere.

On the other hand, it does seem that the moment a significant portion of the population begins to actually believe this, and particularly, starts treating credit institutions as if they really will be around forever, everything goes haywire. Note here how it was the most sober, cautious, responsible capitalist regimes—the seventeenth-century Dutch Republic, the eighteenth-century British Commonwealth—the ones most careful about managing their public debt—that saw the most bizarre explosions of speculative frenzy, the tulip manias and South Sea bubbles. Much of this seems to turn on the nature of national deficits and credit money. The national debt is, as politicians have complained practically since these things first appeared, money borrowed from future generations. Still, the effects have always been strangely double-edged. On the one hand, deficit financing is a way of putting even more military power in the hands of princes, generals, and politicians; on the other, it suggests that government owes something to those it governs.

 

pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

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accounting loophole / creative accounting, banking crisis, banks create money, barriers to entry, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, Fractional reserve banking, full employment, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, invisible hand, iterative process, John von Neumann, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, open economy, place-making, Ponzi scheme, profit maximization, quantitative easing, RAND corporation, random walk, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave

It documents the links between business and government figures in the USA, and leading neoclassical economists like Larry Summers feature prominently (see http://blog.littlesis.org/2011/01/10/evidence-of-an-american-plutocracy-the-larry-summers-story/). 11 | THE PRICE IS NOT RIGHT Why finance markets can get the price of assets so badly wrong In the first edition of this book, this chapter began with the following paragraphs: The Internet stock market boom was1 the biggest speculative bubble in world history. Other manias have involved more ridiculously overvalued assets, or more preposterous objects of speculation – such as the tulip craze in 17th century Holland, the South Sea Bubble and Mississippi Bubble of the 18th century, or Japan’s 1980s Bubble Economy speculation over Tokyo real estate. But no other bubble – not even the ‘Roaring Twenties’ boom prior to the Great Depression – has involved so many people, speculating so much money, in so short a time, to such ridiculous valuations. But of course, an economist wouldn’t tell you that. Instead, economists have assured the world that the stock market’s valuations reflect the true future prospects of companies.

But Bentham’s more important sleight of mind was to ignore the macroeconomic argument that the legislative ceiling to the rate of interest improved the overall quality of investment by favoring ‘sober people’ over ‘prodigals and projectors.’ The historical record favored Smith. The seventeenth, eighteenth and nineteenth centuries are awash with examples of projectors promoting fantastic schemes to a gullible public. The most famous have entered the folklore of society: the Tulip Mania, the South Sea Bubble, the Mississippi Land Scheme (Mackay 1841). What has not sunk in so deeply is that the financial panics that occurred when these bubbles burst frequently ruined whole countries.6 However, the tide of social change and the development of economic theory favored Bentham. The statutes setting maximum rates were eventually repealed, the concept of usury itself came to be regarded as one of those quaint preoccupations of a more religious age, and modern economics extended Bentham’s concept that ‘putting money out at interest, is exchanging present money for future’ (Bentham 1787).

Shedlock, Mish Shiller, Robert shocks, exogenous short run short-term funding, dependence on Simulink system dynamics program Sippel, Reinhard size, importance of Smith, Adam; The Wealth of Nations Smith, Edgar, Common Stocks as Long Term Investment Smith, Yves social conflict, not taken into account social security social welfare; maximization of social well-being socialism; perceived inevitability of; scientific socialist economies, shortages in society, as sum of individuals soft budget constraint Solow, Robert Sonnenschein, H. F. Sonnenschein-Mantel-Debreu (SMD) conditions Sornette, Didier Soros, George South Sea Bubble speculation; debt-financed; in housing; on stock market Sraffa, Piero; alternative outlook of; and law of diminishing marginal returns; ‘The law of returns under competitive conditions’; neoclassical response to; on aggregation; The Production of Commodities by Means of Commodities; summing up of Sraffian economics stability: negative; of markets stagflation standard deviation measurement state, role in creating money static analysis Steedman, Ian Stevens, Glenn Stigler, George Stiglitz, Joseph stock market: behavior of; Keynes’s view of; volatility of Stoekel, A.

 

pages: 467 words: 154,960

Trend Following: How Great Traders Make Millions in Up or Down Markets by Michael W. Covel

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Albert Einstein, asset allocation, Atul Gawande, backtesting, Bernie Madoff, Black Swan, buy low sell high, capital asset pricing model, Clayton Christensen, commodity trading advisor, correlation coefficient, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, diversification, diversified portfolio, Elliott wave, Emanuel Derman, Eugene Fama: efficient market hypothesis, fiat currency, fixed income, game design, hindsight bias, housing crisis, index fund, Isaac Newton, John Nash: game theory, linear programming, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market fundamentalism, market microstructure, mental accounting, Nash equilibrium, new economy, Nick Leeson, Ponzi scheme, prediction markets, random walk, Renaissance Technologies, Richard Feynman, Richard Feynman, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, shareholder value, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, systematic trading, the scientific method, Thomas L Friedman, too big to fail, transaction costs, upwardly mobile, value at risk, Vanguard fund, volatility arbitrage, William of Occam

Although that talent is impressive, being able to read and critique a balance sheet doesn’t necessarily translate into knowing when and how much to buy or sell as trend following trader Richard Donchian pointed out (see Chapter 2, “Great Trend Followers”). Crash and Panic What do Julian Robertson, the concept of losers average losers, the dot-com stock crash, and October 2008 have in common? Bubbles. The 2008 crash is no different from the tulip bubble made famous in Holland. In 1720, when the south sea bubble was at its height, even the greatest genius of his time, Sir Isaac Newton, got sucked into the hysteria. Investing as if his brilliance in science carried over to his finances, Newton eventually lost £20,000. Although bubbles might appear as short-term blips in economic history, more often the aftermath is long term, resulting in severe recessions and government intervention that usually makes the situation worse.

Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends? American Economic Review, 71 (1981). Sloan, Allen. Even With No Bull Market, Baby Boomers Can Thrive. March 2002. See www.washingtonpost.com. Slywotzky, Adrian J. Value Migration: How to Think Several Moves Ahead of the Competition. Boston: Harvard Business School Press, 1996. Smant, Dr. D.J.C. Famous First Bubbles, South Sea Bubble? The Fundamentals of Early Manias. October 2001. Soros, George. The Alchemy of Finance: Reading the Mind of the Market. New York: John Wiley & Sons, Inc., 1994. Spurgin, Richard. Some Thoughts on the Source of Return to Managed Futures. CISDM and School of Management at University of Massachusetts. Steinhardt, Michael. No Bull: My Life In and Out of Markets. Canada: John Wiley & Sons, Inc., 2001.

 

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

As early as the 1730s the first de facto Prime Minister, Robert Walpole, was ferociously criticised by the Lord Bolingbroke for abusing the system to buy support. (Bolingbroke would have behaved in exactly the same way, had their roles been reversed.) By the nineteenth century, Parliament itself was being lampooned as the ‘Old Corruption’. The greatest scandal had occurred in 1720, when shares in a slave-trading monopoly – the South Sea Company – had departed far from economic reality. The result was the so-called South Sea Bubble. Even the Chancellor of the Exchequer speculated on it. Then the bubble popped. The losses and devastation were unprecedented. However, Parliament learned its lesson: in future it would be more circumspect to which joint stock companies it granted a monopoly – and whether they should have monopolies at all. After 1750, the pace of reform accelerated. The parliamentary system was relatively open, and the ‘Old Corruption’, for which the remedy was more and better parliament, was blamed for the traumatising loss of the thirteen American colonies.

., 64, 65 Rowthorn, Robert, 292, 363 Royal Bank of Scotland (RBS), 25, 150, 152, 157, 173, 181, 199, 251, 259; collapse of, 7, 137, 150, 158, 175–6, 202, 203, 204; Sir Fred Goodwin and, 7, 150, 176, 340 Rubin, Robert, 174, 177, 183 rule of law, x, 4, 220, 235 Russell, Bertrand, 189 Russia, 127, 134–5, 169, 201, 354–5, 385; fall of communism, 135, 140; oligarchs, 30, 65, 135 Rwandan genocide, 71 Ryanair, 233 sailing ships, three-masted, 108 Sandbrook, Dominic, 22 Sands, Peter (CEO of Standard Chartered Bank), 26 Sarkozy, Nicolas, 51, 377 Sassoon, Sir James, 178 Scholes, Myron, 169, 191, 193 Schumpeter, Joseph, 62, 67, 111 science and technology: capitalist dynamism and, 27–8, 31, 112–13; digitalisation, 34, 231, 320, 349, 350; the Enlightenment and, 31, 108–9, 112–13, 116–17, 121, 126–7; general-purpose technologies (GPTs), 107–11, 112, 117, 126–7, 134, 228–9, 256, 261, 384; increased pace of advance, 228–9, 253, 297; nanotechnology, 232; New Labour improvements, 21; new opportunities and, 33–4, 228–9, 231–3; new technologies, 232, 233, 240; universities and, 261–5 Scotland, devolving of power to, 15, 334 Scott, James, 114–15 Scott Bader, 93 Scott Trust, 327 Second World War, 134, 313 Securities and Exchanges Commission, 151, 167–8 securitisation, 32, 147, 165, 169, 171, 186, 187, 196 self-determination, 85–6 self-employment, 86 self-interest, 59, 60, 78 Sen, Amartya, 51, 232, 275 service sector, 8, 291, 341, 355 shadow banking system, 148, 153, 157–8, 170, 171, 172, 187 Shakespeare, William, 39, 274, 351 shareholders, 156, 197, 216–17, 240–4, 250 Sher, George, 46, 50, 51 Sherman Act (USA, 1890), 133 Sherraden, Michael, 301 Shiller, Robert, 43, 298, 299 Shimer, Robert, 299 Shleifer, Andrei, 62, 63, 92 short selling, 103 Sicilian mafia, 101, 105 Simon, Herbert, 222 Simpson, George, 142–3 single mothers, 17, 53, 287 sixth form education, 306 Sky (broadcasting company), 30, 318, 330, 389 Skype, 253 Slim, Carlos, 30 Sloan School of Management, 195 Slumdog Millionaire, 283 Smith, Adam, 55, 84, 104, 112, 121, 122, 126, 145–6 Smith, John, 148 Snoddy, Ray, 322 Snow, John, 177 social capital, 88–9, 92 social class, 78, 130, 230, 304, 343, 388; childcare and, 278, 288–90; continued importance of, 271, 283–96; decline of class-based politics, 341; education and, 13, 17, 223, 264–5, 272–3, 274, 276, 292–5, 304, 308; historical development of, 56–8, 109, 115–16, 122, 123–5, 127–8, 199; New Labour and, 271, 277–9; working-class opinion, 16, 143 social investment, 10, 19, 20–1, 279, 280–1 social polarisation, 9–16, 34–5, 223, 271–4, 282–5, 286–97, 342; Conservative reforms (1979-97) and, 275–6; New Labour and, 277–9; private education and, 13, 223, 264–5, 272–3, 276, 283–4, 293–5, 304; required reforms for reduction of, 297–309 social security benefits, 277, 278, 299–301, 328; contributory, 63, 81, 283; flexicurity social system, 299–301, 304, 374; to immigrants, 81–2, 282, 283, 284; job seeker’s allowance, 81, 281, 298, 301; New Labour and ‘undeserving’ claimants, 143, 277–8; non-contributory, 63, 79, 81, 82; targeting of/two-tier system, 277, 281 socialism, 22, 32, 38, 75, 138, 144, 145, 394 Soham murder case, 10, 339 Solomon Brothers, 173 Sony, 254–5 Soros, George, 166 Sorrell, Martin, 349 Soskice, David, 342–3 South Korea, 168, 358–9 South Sea Bubble, 125–6 Spain, 123–4, 207, 358–9, 371, 377 Spamann, Holger, 198 special purpose vehicles, 181 Spitzer, Matthew, 60 sport, cheating in, 23 stakeholder capitalism, x, 148–9 Standard Oil, 130–1, 132 state, British: anti-statism, 20, 22, 233–4, 235, 311; big finance’s penetration of, 176, 178–80; ‘choice architecture’ and, 238, 252; desired level of involvement, 234–5; domination of by media, 14, 16, 221, 338, 339, 343; facilitation of fairness, ix–x, 391–2, 394–5; investment in knowledge, 28, 31, 40, 220, 235, 261, 265; need for government as employer of last resort, 300; need for hybrid financial system, 244, 249–52; need for intervention in markets, 219–22, 229–30, 235–9, 252, 392; need for reshaping of, 34; pluralism, x, 35, 99, 113, 233, 331, 350, 394; public ownership, 32, 240; target-setting in, 91–2; threats to civil liberty and, 340 steam engine, 110, 126 Steinmueller, W.

 

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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

I’ll explain how that worked shortly, but first let’s pause for a moment to think about remedies—or at least palliatives. Can we prevent asset-price bubbles in the future? Here, unfortunately, the answer is mostly no. Speculative markets have succumbed to occasional bubbles for as long as there have been speculative markets. Indeed, one of the first common stocks ever issued, in the South Sea Company in England, was hyped into the first stock-market bubble—the famed South Sea Bubble of 1720—which devastated, among others, a pretty smart fellow named Isaac Newton. And the Dutch had managed to grow a gigantic bubble in—of all things—tulip bulbs almost a century earlier. No, while we may be lucky enough to nip a few bubbles in the bud, we will never stamp them out. The herding behavior that produces them may well be programmed into our DNA. Our best hope is to minimize the consequences when bubbles go splat—as they inevitably will.

See also Mortgage-backed securities (MBS) collateralized debt obligation (CDO), 74–79 Dodd-Frank provisions, 307, 311 early forms, 73–74 process of, 72–74 regulatory needs for, 286–88, 294 tranches, 74–79 Senior tranche, 74–75 Shadow banking system, 59–64 institutions related to, 59–60 markets related to, 60 size of, 60 Shareholders, protecting in future, 434–35 Shelby, Richard, 305 Shiller, Robert, 17, 31–32. See also Case-Shiller index warning about crisis, 92 Shorting, 282 Signaling theory, 189–90 Simpson, Alan, 360, 397 Simpson-Bowles, deficit reduction plan, 397, 401–2, 405–8 Social Security, and deficit reduction, 407 Sorkin, Andrew Ross, 184, 186–87 Soros, George, 181 South Sea Bubble (1720), 46–47 Sovereign crisis, European as, 169, 409, 412, 419, 425–26 Spain, financial crisis, 168, 410, 418, 419, 428 Spector, Warren, 102 Sperling, Gene, 216 Spread. See Interest-rate spreads Standard & Poor’s, 400 rating failures, 79–81 Starr, C.V., 130–31 State Street Bank, TARP funds for, 201 Steel, Bob, 79, 110, 122–23, 158–60 Stiglitz, Joseph, 181 Stigma avoiding and TARP, 189–91, 202 defined, 190 Stimulus under Bush (G.W.), 224 Keynesian view, 210–12 Stimulus package, 223–36 amount requested, 225, 228 effectiveness of, 233–34 and federal budget deficit, 234–36 Republicans against, 225–28, 351 shortcomings of, 229–32 as timely/targeted/temporary, 224–26, 229, 232–34 Stock market S & P losses (2007–2008), 114, 193 S & P losses (2009), 256–57 Stock options call option, 53–54 as derivative, 53–54, 61 option premium, 52–53 potential losses from, 54 strike price, 52–53 as synthetic leverage, 53–54 Stock value, determinants of, 29 Stress tests on American banks, 257–60 on European banks, 420 Strike price, 52–53 Structured investment vehicles (SIVs), 50–52 features of, 50–52 leverage ratio of, 50–51 in shadow banking system, 60 Subprime mortgages, 68–72 borrowing balance (2005), 58 collapse of market, 88–90 and credit default swaps (CDS), 68 default as design of, 57, 70–71, 84 and Fannie Mae/Freddie Mac, 71–72, 116–17 and financial crisis, 71–72 liar loans, 69, 70 as low-doc/no-doc loans, 69, 70 negative amortization loans, 71 NINJA loans, 70 nonbank lenders, 59 originations (1994–2005), 70 rationale for product, 69–70 regulatory failure related to, 58–59 securitization of, 72–79 unregulated lenders of, 59 warnings about, 58 Sullivan, Martin, 133–34 Summers, Lawrence on AIG bailout, 138 derivatives regulation failure, 63 on effective stimulus, 224–25 as Obama national economic adviser, 214–16, 259 Suskind, Ron, 215 Suspensions of specie payments, 90 Swagel, Phillip, 178–79, 197–98, 202, 328 Synthetic leverage credit default swaps (CDS) as, 66–67 and derivatives, 53–55, 62, 281 stock options example, 53–54 Systemically important financial institutions (SIFIs), regulatory needs for, 269–70, 294–95, 298, 302 Systemic risk Dodd-Frank provisions, 307 regulatory needs for, 270–71, 293 Systemic risk exception, by FDIC, 162–63 TARP (Troubled Assets Relief Program), 126, 159, 177–209 and AIG bailout, 137 amount requested, 184–85, 228 bait and switch tactics, 193, 197, 200, 205, 208 Bernanke/Paulson conflicts, 180–81 Break-the-Glass Memo, 178–80, 184 and capital injections, 179–81, 192, 193, 195–99 Capital Purchase Program (CPP) flaws, 202–3 Citigroup bailout, 163 congressional leaders briefing about, 181–84 effectiveness of, 178, 203, 207–9 evaluation of, 191, 207–9 executive pay issue, 183, 188–91, 202 final disbursements, types/amount of, 205 and foreclosure mitigation, 179, 332–33 initial draft, flaws of, 185–87, 195, 207 investment banks, funds forced on, 200–203, 208 oversight of, 192 passage of, 161, 192–93, 200 political issues, 181, 187–88, 190–91, 193 profitability, 203, 206, 209 purposes/necessity of, 179–80 redesign by Congress, 187–93 stigma avoidance, 189–91, 202 troubled asset purchase, 181, 192, 194–95, 205 troubled asset purchase canceled, 179, 208 Tax cuts by Bush (G.W.), 97–98, 224, 360, 389, 391 by Obama, 360 Tax reform, and deficit reduction, 405–6, 430 Taylor, John, 349, 351 Taylor Bean & Whitaker, 354–56 Taylor rule, 352 Tea Party, 7, 339, 344, 349, 362, 397 Tech bubble, 39 TED spread, 114 Temporary Liquidity Guarantee Program (TLGP), 161–62, 208, 242–43 Term Asset-Backed Securities Loan Facilities (TALF), 206–7, 223 Term Auction Facility (TAF), 96 Term Securities Lending Facility (TSLF), 98–99 Thain, John, 150, 152–53.

 

pages: 447 words: 126,219

The Subterranean Railway: How the London Underground Was Built and How It Changed the City Forever by Christian Wolmar

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British Empire, full employment, invention of the telephone, profit motive, railway mania, South Sea Bubble, urban sprawl, V2 rocket, women in the workforce

TWO THE UNDERGROUND ARRIVES To build a railway in Victorian times, developers needed three things in addition to luck and gumption: Parliamentary permission, capital and labour. Railway companies were fortunate in having a privileged position which allowed them to adopt a corporate form that meant they were able to raise capital from more than six people. Other companies operated under a restriction which limited the number of investors to five or fewer, a result of legislation introduced in response to the scandal of the South Sea Bubble in the eighteenth century and which remained in force for manufacturing companies until the 1860s. Moreover, the railways could compulsorily purchase property, but to obtain planning permission they had to introduce a private Bill and successfully negotiate it through both houses of Parliament. This was not a straightforward process since Parliament was chock-full of people with vested interests, which might incline them to be in favour or against a particular Bill, irrespective of its merits or obvious failings.

., ref1 Shillibeer, George, ref1 Shoreditch, ref1, ref2, ref3 Siemens, Sir William (Wilhelm), ref1 signalling, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8 Sloane Square, ref1, ref2 Smithfield, ref1, ref2, ref3 smoking, ref1, ref2, ref3, ref4, ref5 Snow Hill, ref1, ref2 songs, ref1 South Acton, ref1 South Eastern Railway, ref1, ref2, ref3, ref4, ref5, ref6 South Harrow, ref1, ref2, ref3 South Kensington, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10, ref11, ref12 South Kentish Town, ref1 South London Press, ref1 South Sea Bubble, ref1 Southend, ref1 Southern Railway, ref1 Southgate, ref1, ref2 Southwark, ref1 Speyer, Sir Edgar, ref1, ref2, ref3, ref4, ref5, ref6 Spiers and Pond, ref1 spivs, ref1 Stalin, Josef, ref1 Stamford Hill, ref1 Stanley, Albert, see Ashfield, Lord Stanmore, ref1, ref2 Star, ref1 station staff, ref1 stations architecture, ref1, ref2, ref3, ref4, ref5, ref6 cast-iron construction, ref1 distance between, ref1 on inclines, ref1 lighting, ref1 upgrades, ref1 steamboats, ref1 Stephenson, George, ref1 Stephenson, Robert, ref1 Stockwell, ref1, ref2, ref3, ref4 Stoke Mandeville, ref1 Strand, The, ref1 straphanging, ref1 Stratford, ref1, ref2 strip tickets, ref1, ref2 Submarine Railway Company, ref1 Sunday Dispatch, ref1 Sutherland, Graham, ref1 Sutton, ref1, ref2 Swiss Cottage, ref1, ref2, ref3, ref4 Tate Gallery, ref1 Tavistock Square, ref1 Temple, ref1, ref2 Tennant, Henry, ref1 terrorist attacks, ref1, ref2 Thames Embankment, ref1, ref2 Thames Tunnel, ref1, ref2 Thameslink, ref1, ref2, ref3 Thatcher, Margaret, ref1 theatres, ref1, ref2, ref3, ref4, ref5 Thomas, J.P., ref1 Thrush, Ernest, ref1 Times, The, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10 and Central London Railway, ref1, ref2 and City & South London Railway, ref1 and electrification, ref1 and Metropolitan and District construction, ref1 and strip tickets, ref1 Tooting, ref1 Tottenham, ref1, ref2 Tottenham Court Road, ref1, ref2 Tower Bridge, ref1 Tower Hill, ref1, ref2, ref3 Tower of London, ref1, ref2 Tower Subway, ref1 track gauge, ref1 Trafalgar Square, ref1, ref2 train stop system, ref1, ref2 trams, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10 and network integration, ref1, ref2, ref3, ref4 tramways American, ref1 LCC, ref1 Transport & General Workers Union, ref1 Transport for London, ref1, ref2 Travelcards, ref1, ref2 Trav-o-lators, ref1, ref2 Tring, ref1 Trinity Square, ref1 Tube Lines, ref1 tunnel collapses, ref1, ref2 tunnels cut and cover method, ref1, ref2, ref3, ref4 deepest on network, ref1 East London line, ref1 shield method, ref1, ref2, ref3, ref4, ref5, ref6 Tunnicliffe, Denis, ref1, ref2 Turnham Green, ref1, ref2, ref3 Twain, Mark, ref1 Underground Electric Railways Company of London (UERL), ref1, ref2, ref3, ref4, ref5, ref6, ref7 attention to detail, ref1 improvements, ref1 and London & North Western, ref1 and network integration, ref1, ref2 and wartime, ref1 Underground Group of Companies, ref1, ref2, ref3, ref4, ref5, ref6 unemployment, ref1, ref2, ref3, ref4, ref5, ref6, ref7 United States Steel Corporation, ref1 university boat race, ref1 Upminster, ref1, ref2 Uxbridge, ref1, ref2, ref3, ref4 Uxendon Hill, ref1 Verney Junction, ref1 Victoria, Queen, ref1 Victoria, ref1, ref2, ref3, ref4, ref5, ref6, ref7 Victoria & Albert Museum, ref1 Victoria Line, ref1, ref2, ref3, ref4 Vienna, ref1 Walthamstow, ref1, ref2 Wanstead, ref1, ref2 Wapping, ref1 Waterloo, ref1, ref2, ref3, ref4 Waterloo & City Line, ref1, ref2, ref3, ref4, ref5 Watford, ref1, ref2, ref3, ref4 Watford Junction, ref1 Watford Observer, ref1, ref2, ref3 Watkin, Edward, ref1, ref2, ref3 Channel Tunnel scheme, ref1 expansion plans, ref1, ref2 rivalry with Forbes, ref1, ref2, ref3, ref4, ref5, ref6 ‘Watkin’s folly’, ref1, ref2 Watling Estate, ref1 Wealdstone, ref1 Webb, Sidney and Beatrice, ref1 weighing machines, ref1 Wells, H.G., ref1 Wembley, ref1, ref2 Wembley Park, ref1, ref2, ref3, ref4, ref5 Wendover, ref1 West Brompton, ref1, ref2 West Croydon, ref1, ref2 West Hampstead, ref1 West India Dock, ref1 West Indians, ref1 West Kensington, ref1, ref2 West London Advertiser, ref1 West London Line, ref1, ref2, ref3, ref4, ref5 West London Railway, see West London Line West Ruislip, ref1 Westbourne, river, ref1 Westbourne Grove, ref1 Westminster, ref1, ref2, ref3, ref4, ref5 Westminster Central Hall, ref1 White City, ref1 White Star Line, ref1 Whitechapel, ref1, ref2, ref3 Whiteleys, ref1 Willesden, ref1, ref2 Willesden Green, ref1 Willesden Junction, ref1, ref2 Williams, Watkin, ref1 Willing, J., ref1 Wimbledon, ref1, ref2 Windsor, ref1, ref2, ref3, ref4 Wire, David, ref1 Wolseley, Lieutenant General Sir Garnet, ref1 women staff, ref1, ref2, ref3, ref4 Wood Green, ref1, ref2, ref3, ref4 Wood Lane, ref1, ref2 Woodcock Hill and Woodcock Dell Estates, ref1 Woolwich, ref1, ref2 workmen’s trains, ref1, ref2, ref3, ref4, ref5 Wright, Whitaker, ref1 Yerkes, Charles Tyson, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10 in America, ref1 his death, ref1, ref2 District Railway takeover, ref1, ref2, ref3, ref4 fares policy, ref1, ref2, ref3 forward thinking, ref1 and J.P.

 

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

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

Britain and the Netherlands became major trading nations in the seventeenth and eighteenth centuries. While Spanish colonists were soldiers in search of gold, British and Dutch colonization was managed by businesses such as the East India Company and the VOC (Vereenigde Oostindische Compagnie) and its purpose was commercial exploitation. The beginning of the eighteenth century was a period of rapid financial innovation, which culminated in the boom and bust of the South Sea bubble. The Market Economy Crosses the Atlantic ••••••••••••••••••••••••••••••••••••• The Pilgrim fathers came to Plymouth from Britain via the Netherlands. Thus the connection with the two countries at the forefront of the development of economic institutions in the seventeenth and eighteenth centuries was established at the inception of modern America. The colonists of the Northeastern states brought with them the technology and the economic institutions of the countries they had left.

The Limited Liability Corporation ••••••••••••••••••••••••••••••••••••• The process by which corporations came to exercise that dominance was lengthy. In Greek and Roman times and in the Middle Ages, business was conducted by individuals, or partnerships of people who knew each other well-who else would take on the risks? When larger partnerships were formed, speculation and fraud followed, and after the South Sea bubble large-scale commercial organization was prohibited. The objective was to restrict investment to ventures the participants might expect to understand. But throughout history, from the tulip mania of 1636 to the dot-com bubble of 1999, greed and gullibility have defeated that purpose. The precursors of the modern corporation were international trading companies, such as the English East India Company or the Dutch VOC.

 

The Great Turning: From Empire to Earth Community by David C. Korten

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Albert Einstein, banks create money, big-box store, Bretton Woods, British Empire, clean water, colonial rule, Community Supported Agriculture, death of newspapers, declining real wages, European colonialism, Francisco Pizarro, full employment, George Gilder, global supply chain, global village, Hernando de Soto, Howard Zinn, informal economy, invisible hand, joint-stock company, land reform, market bubble, market fundamentalism, Monroe Doctrine, Naomi Klein, neoliberal agenda, new economy, peak oil, planetary scale, Plutocrats, plutocrats, Ronald Reagan, Rosa Parks, South Sea Bubble, stem cell, structural adjustment programs, The Chicago School, trade route, Washington Consensus, World Values Survey

The Hudson Bay Company, which was founded in 1670 to establish British control over the fur trade in the Hudson Bay watershed of North America, was an important player in the British colonization of what is now Canada. Armed skirmishes with the rival North West Company were common until the British government forced their merger in 1821 into a single company with a monopoly over the fur trade in much of North America, including the Northwest Territories. The British South Sea Company, which was chartered primarily to sell African slaves to Spanish colonies in America, became the centerpiece of the “South Sea Bubble,” one of history’s most famous financial scams.13 The new corporate form, the joint stock company created to fulfill the above functions, combined two ideas from the Middle Ages: the sale of shares in public markets and the protection of owners from personal liability for the corporation’s obligations. These two features made it possible to amass virtually unlimited financial capital within a single firm, assured the continuity of the firm beyond the death of its founders, and absolved owners of personal liability for the firm’s losses or misdeeds beyond the amount of their holdings in the company.

., 269–270 Skull and Bones Society, 182 slavery, 102, 112, 118, 131, 146, 214 abolishment of, 202 antislavery petition, 204 Aristotle’s defense of, 150–151 desperate volunteers/runaways, 168 in early American colonies, 173 guarantees for, 185–186 involuntary conscripts, 167–168 race, 168–169 Thirteenth Amendment, 187 use of term, 166–167 social authority, 45 social classes Aristotle on, 150 division among, 216 middle class, 206–212, 213–214, 215, 227 owning class, 139–140, 186, 208–209, 215–216, 243, 289 producing classes, 118, 206, 210 separation of, 67 working class, 206–212 social contract, 153 social Darwinism, 247–248 social ills, 225 Socialized Consciousness, 44–46, 48, 52, 53, 55, 56, 84, 250, 286 social movements, 84, 134 social pathology, 35–36, 108, 124 social relationships, 37 social roles, women’s rejection of definitions of, 323 Social Security, 212–213 social systems, 20–21, 94 social units, 103 social welfare, 227–228 society, balancing feminine and masculine principles in, 105 sociopaths, 46, 49, 51 institutional, 132–133 Socrates, 144–145, 146, 147–148, 151, 154 solar system, 255 Somoza, Anastasio, 196 Sons of Neptune, 175 Soros, George, 239 Soul of Adulthood, The (Friel and Friel), 271 South America, 356 South Sea Bubble, 131 Soviet Empire, 134, 196 Soviet Union, 194 Spain, 127–128, 131, 134 Spanish-American War, 193 spirit model, 262 spiritual awakening, 21–22, 73, 75, 80, 322 spiritual bankruptcy, 340 Spiritual Consciousness, 47–48, 52, 53, 56, 78–79, 289, 316–317, 330 Spiritual Creatives, 80–81, 323–324, 326, 330, 353 spiritual identity, 105–106 spiritual inquiry, 324–326 INDEX spiritual intelligence, 308 spiritual wisdom, 73 Stamp Act, 175, 176 Stanton, Elizabeth Cady, 204 Star Trek, “The Cloud Minders,” 56, 63, 67, 68, 173, 182 State of the Possible retreats, 18 statesmanship, 104 status quo, threats to U.S., 70–72 stealth politics, 223–227 stock market (share market), 68 stock shares, number of households owning, 68 Stone, Merlin, 98, 99 stories.

 

pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

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Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, bank run, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, capital asset pricing model, card file, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discovery of the americas, diversification, diversified portfolio, Edward Glaeser, endowment effect, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, floating exchange rates, George Akerlof, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, invisible hand, Isaac Newton, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market design, New Journalism, Nikolai Kondratiev, Paul Lévy, pension reform, performance metric, Ponzi scheme, prediction markets, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, South Sea Bubble, statistical model, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, value at risk, Vanguard fund, volatility smile, Yogi Berra

That there were cycles seemed obvious to most. Securities markets as we understand them today (continuously operating, indoor exchanges) developed in the late 1700s as European governments began selling bonds on a regular basis, mainly to finance wars. There had been famous market manias and panics before—tulip mania in 1630s Holland, and in the early 1700s the Mississippi Bubble in France and the South Sea Bubble in England. It was only in the 1800s that observers began to see a certain regularity in them. Near-clockwork regularity, it seemed. In England there were market panics in 1804–5, 1815, 1825, 1836, 1847, and 1857. A famous early explanation for these cycles came from William Stanley Jevons, the mathematical economist, who proposed in the 1870s that the waxing and waning of spots on the sun—that occurred on an eleven-year cycle—was to blame.

., 355n. 2 Sloan School of Industrial Management, 70–71, 71–72 Slutsky, Eugene, 41–42, 51 small-cap stocks, 205–6, 208–9 small-stock effect, 225, 296 Smith, Adam and agricultural futures, 39–40 and corporations, xiv, 153–54 and equilibrium theory, 78, 193 Smith, Adam and the “invisible hand,” 9, 158–59, 335n. 11 and neoclassical economics, 29–30 and rational market hypothesis, xiii Smith, Edgar Lawrence, 21–22, 25, 38, 99, 141, 256 Smith, Vernon, 188–89, 289 social Darwinism, 9, 93 social responsibility, 159–61 socialism, 91 Society for the Advancement of Behavioral Economics, 187 Soros, George, 266 South Africa, 12 South Sea Bubble, 16, 153 S&P 500, 19–20, 38, 128, 163, 196, 219–20, 227, 230, 249, 260 Sparkman, John, 124 spectral analysis, 70 Standard & Poor’s, 16–17. See also S&P 500 standard deviation, 6 Standard Oil, 15 Standard Statistics Co., 15, 16–17, 19, 38, 116 Stanford Business School, 135 Stanford Center for Advanced Study in Behavioral Sciences, 106–7 State Street Global, 112, 143 Statistical Research Group, 47–48, 52 Statman, Meir, 186–87, 200, 359n. 25 Stern, Joel, 163–64, 222, 270 Stigler, George, 90, 92, 95, 159, 182 Stiglitz, Joseph, 181, 196, 202, 207, 288, 328 Stocks for the Long Run (Siegel), 256 Strong, Benjamin, 20, 24 The Structure of Scientific Revolutions (Kuhn), 107, 203 Stulz, René, 251–52 subprime lending, 313–15 subsidies, 194 Summers, Lawrence, 328 and Black, 200 and the efficient market hypothesis, 203 and Fama, 207 and market crashes, 232 and the National Bureau of Economic Research, 183 and overvaluations, 269–70 and political appointments, 252 and Samuelson, 198, 358n. 19 and the Santa Fe conference, 302 and Shiller, 198–99 and Shleifer, 248, 250–51, 363n. 4 Sumner, William Graham, 9, 10, 12, 31, 93 Sun Life Canada, 27 Sunstein, Cass, 295 superior intrinsic-value analysis, 97 supply-demand graphs, 30 Surowiecki, James, 307 Taleb, Nassim Nicholas, 239 taxes, 244, 274–77, 280 tech bubble, 261–62 Technical Analysis of Stock Trends (Edwards and Magee), 68 technological advance, 120, 258.

 

pages: 200 words: 60,987

The Invention of Air: A Story of Science, Faith, Revolution, and the Birth of America by Steven Johnson

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Albert Einstein, Chance favours the prepared mind, conceptual framework, Copley Medal, Danny Hillis, discovery of DNA, Edmond Halley, Edward Lloyd's coffeehouse, Isaac Newton, James Watt: steam engine, Kevin Kelly, planetary scale, side project, South Sea Bubble, stem cell, Stewart Brand, the scientific method, Thomas Kuhn: the structure of scientific revolutions

With the university system languishing amid archaic traditions, and corporate R&D labs still on the distant horizon, the public space of the coffeehouse served as the central hub of innovation in British society. How much of the Enlightenment do we owe to coffee? Most of the epic developments in England between 1650 and 1800 that still warrant a mention in the history textbooks have a coffeehouse lurking at some crucial juncture in their story. The restoration of Charles II, Newton’s theory of gravity, the South Sea Bubble—they all came about, in part, because England had developed a taste for coffee, and a fondness for the kind of informal networking and shoptalk that the coffeehouse enabled. Lloyd’s of London was once just Edward Lloyd’s coffeehouse, until the shipowners and merchants started clustering there, and collectively invented the modern insurance company. You can’t underestimate the impact that the Club of Honest Whigs had on Priestley’s subsequent streak, precisely because he was able to plug in to an existing network of relationships and collaborations that the coffeehouse environment facilitated.

 

pages: 177 words: 54,421

Ego Is the Enemy by Ryan Holiday

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Airbnb, Berlin Wall, Bernie Madoff, Burning Man, delayed gratification, Google Glasses, Jeff Bezos, Lao Tzu, Paul Graham, Ponzi scheme, Ralph Waldo Emerson, Richard Feynman, Richard Feynman, side project, South Sea Bubble, Steve Jobs, Upton Sinclair

Someone recently calculated that it takes but a chain of six individuals who shook hands with one another across the centuries to connect Barack Obama to George Washington. There’s a video you can watch on YouTube of a man on a CBS game show, “I’ve Got a Secret,” in 1956, in an episode that also happened to feature a famous actress named Lucille Ball. His secret? He was in Ford’s Theatre when Lincoln was assassinated. England’s government only recently paid off debts it incurred as far back as 1720 from events like the South Sea Bubble, the Napoleonic wars, the empire’s abolition of slavery, and the Irish potato famine—meaning that in the twenty-first century there was still a direct and daily connection to the eighteenth and nineteenth centuries. As our power or talents grow, we like to think that makes us special—that we live in blessed, unprecedented times. This is compounded by the fact that so many of the photos we see from even fifty years ago are still in black and white, and we seem to assume that the world was in black and white.

 

pages: 144 words: 43,356

Surviving AI: The Promise and Peril of Artificial Intelligence by Calum Chace

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3D printing, Ada Lovelace, AI winter, Airbnb, artificial general intelligence, augmented reality, barriers to entry, bitcoin, blockchain, brain emulation, Buckminster Fuller, cloud computing, computer age, computer vision, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, dematerialisation, discovery of the americas, disintermediation, don't be evil, Elon Musk, en.wikipedia.org, epigenetics, Erik Brynjolfsson, everywhere but in the productivity statistics, Flash crash, friendly AI, Google Glasses, industrial robot, Internet of things, invention of agriculture, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Kevin Kelly, life extension, low skilled workers, Mahatma Gandhi, means of production, mutually assured destruction, Nicholas Carr, pattern recognition, Peter Thiel, Ray Kurzweil, Rodney Brooks, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley ideology, Skype, South Sea Bubble, speech recognition, Stanislav Petrov, Stephen Hawking, Steve Jobs, strong AI, technological singularity, theory of mind, Turing machine, Turing test, universal basic income, Vernor Vinge, wage slave, Wall-E

Old hands began to fear that another bubble was forming, and they were proved right in the late 1980s when the funding dried up again. The reason was (again) the under-estimation of the difficulties of the tasks being addressed, and also the fact that desktop computers and what we now call servers overtook mainframes in speed and power, rendering very expensive legacy machines redundant. The boom and bust phenomenon was familiar to economists, with famous examples being Tulipmania in 1637 and the South Sea Bubble in 1720. It has also been a feature of technology introduction since the industrial revolution, seen in canals, railways and telecoms, as well as in the dot-com bubble of the late 1990s. The second AI winter thawed in the early 1990s, and AI research has been increasingly well funded since then. Some people are worried that the present excitement (and concern) about the progress in AI is merely the latest boom phase, characterised by hype and alarmism, and will shortly be followed by another damaging bust, in which thousands of AI researchers will find themselves out of a job, promising projects will be halted, and important knowledge and insights lost.

 

pages: 180 words: 61,340

Boomerang: Travels in the New Third World by Michael Lewis

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Berlin Wall, Bernie Madoff, Carmen Reinhart, Celtic Tiger, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, fiat currency, full employment, German hyperinflation, Irish property bubble, Kenneth Rogoff, offshore financial centre, pension reform, Ponzi scheme, Ronald Reagan, Ronald Reagan: Tear down this wall, South Sea Bubble, tulip mania, women in the workforce

Digging into the data, he found in Iceland the outlines of what was so clearly a historic act of financial madness that it belonged in a textbook. “The Perfect Bubble,” Aliber calls Iceland’s financial rise, and he has the textbook in the works: an updated version of Charles Kindleberger’s 1978 classic, Manias, Panics, and Crashes. Aliber is editing the new edition. In it, Iceland, he decided back in 2006, would now have its own little box, along with the South Sea Bubble and tulip mania—even though Iceland had yet to crash. For him the actual crash was a mere formality. Word spread in Icelandic economic circles that this distinguished professor at Chicago had taken a special interest in Iceland. In May 2008, Aliber was invited by the University of Iceland’s economics department to give a speech. To an audience of students, bankers, and journalists, he explained that Iceland, far from having an innate talent for high finance, had all the markings of a giant bubble, but he spoke the technical language of academic economists.

 

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

Stocks and bonds are the two biggest single fields of global investment, reaching into every corner of economic life. At the beginning of the new millennium, however, both of them were going through an odd patch. The stock market had undergone a spectacular bubble in Internet and new-economy stocks. Some of what was happening seemed to belong to a classic hysteria equal to that of the great historical bubbles such as the Dutch tulip mania, the South Sea bubble, or the nineteenth-century bubble in railway stocks. The broad rules of these bubbles and implosions are well known. They were first systematized by the economist Hyman Minsky, and their best-known popular formulation is in the classic text by Charles P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises. The basic pattern of these manias is that a real phenomenon comes along (overseas exploration, railways, the Internet), is latched onto by investors, is blown out of all proportion, and continues surging upward anyway, so more investors pile in on the basis of what’s now called “greater fool theory.”

 

pages: 252 words: 80,636

Bureaucracy by David Graeber

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3D printing, Affordable Care Act / Obamacare, airport security, Albert Einstein, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, David Graeber, George Gilder, High speed trading, hiring and firing, late capitalism, means of production, music of the spheres, new economy, obamacare, Occupy movement, Parkinson's law, Peter Thiel, planetary scale, price mechanism, Ronald Reagan, self-driving car, Silicon Valley, South Sea Bubble, transcontinental railway, union organizing, urban planning

The sort of thinkers most likely to come up with new conceptual breakthroughs are the least likely to receive funding, and if, somehow, breakthroughs nonetheless occur, they will almost certainly never find anyone willing to follow up on the most daring implications. • Let me return in more detail to some of the historical context briefly outlined in the introduction. Giovanni Arrighi, the Italian political economist, has observed that after the South Sea Bubble, British capitalism largely abandoned the corporate form. The combination of high finance and small family firms that had emerged after the industrial revolution continued to hold throughout the next century—Marx’s London, a period of maximum scientific and technological innovation; or Manchester; or Birmingham were not dominated by large conglomerates but mainly by capitalists who owned a single factory.

 

pages: 231 words: 72,656

A History of the World in 6 Glasses by Tom Standage

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Berlin Wall, British Empire, Colonization of Mars, Copley Medal, Edmond Halley, Edward Lloyd's coffeehouse, Eratosthenes, European colonialism, interchangeable parts, invention of agriculture, Isaac Newton, joint-stock company, laissez-faire capitalism, Lao Tzu, multiplanetary species, out of africa, South Sea Bubble, spice trade, spinning jenny, The Wealth of Nations by Adam Smith, trade route, transatlantic slave trade

It was in coffeehouses that science and commerce became intertwined. The coffeehouse spirit of innovation and experiment extended into the financial sphere too, giving rise to new business models in the form of innumerable novel variations on insurance, lottery, or joint-stock schemes. Of course, many of the ventures hatched in coffeehouses never got off the ground or were spectacular failures; the drama of the South Sea Bubble, a fraudulent investment scheme that collapsed in September 1720, ruining thousands of investors, was played out in coffeehouses such as Garraway's. But among the successful examples, the best known began in the coffeehouse opened in London in the late 1680s by Edward Lloyd. It became a meeting place for ship captains, shipowners, and merchants, who went to hear the latest maritime news and to attend auctions of ships and their cargoes.

 

pages: 240 words: 73,209

The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment by Guy Spier

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Albert Einstein, Atul Gawande, Benoit Mandelbrot, big-box store, Black Swan, Checklist Manifesto, Clayton Christensen, Daniel Kahneman / Amos Tversky, Exxon Valdez, Gordon Gekko, housing crisis, Isaac Newton, Long Term Capital Management, Mahatma Gandhi, mandelbrot fractal, NetJets, pattern recognition, pre–internet, random walk, Ronald Reagan, South Sea Bubble, Steve Jobs, winner-take-all economy, young professional

These primitive survival routines embedded in our brains are easily capable of bypassing the neocortex. We might like to perceive ourselves as potential Isaac Newtons, but it’s perilous to forget that we also have this other aspect of our nature. Indeed, Newton himself would have been better off if he’d recognized this, given that he was an infamously dumb investor who lost his life savings in the South Sea Bubble. As Newton wryly observed: “I can calculate the movement of stars, but not the madness of men.” The problem is not just that our brains are highly irrational. It’s also that the economic universe operates in ways that are mind-blowingly complicated. The elegant economic theories that I learned at Oxford and Harvard blinded me to this awesome complexity. A few years after I started investing, the money manager Nick Sleep introduced me to the Santa Fe Institute, a transdisciplinary research community.

 

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

In the finance-speak of today, you can “diversify the risk” by sharing it.9 For such systems of mutual obligation to work, you need to be sure that those who promote them will fulfill their promises. In the 1700s, few people would have been foolhardy enough to place their money in commercial ventures. Within Wallace and Webster’s lifetime, people had seen fortunes wiped out in the manipulations known as the South Sea bubble. The widows of Scottish clergymen would hardly have trusted financial markets to meet their needs in any future crisis. But Wallace and Webster were clerics who offered their service in good faith to other ministers of the Church of Scotland. They could not have been seen as more trustworthy.10 Here was the formula for success. Wallace and Webster’s pension was run by people who could be seen as having both technical skills and the absolute integrity to work solely in the interests of the saver.

 

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William J. Bernstein

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asset allocation, backtesting, capital asset pricing model, computer age, correlation coefficient, diversification, diversified portfolio, Eugene Fama: efficient market hypothesis, fixed income, index arbitrage, index fund, Long Term Capital Management, p-value, passive investing, prediction markets, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, South Sea Bubble, the scientific method, time value of money, transaction costs, Vanguard fund, Yogi Berra, zero-coupon bond

Actually, a more accurate term would be “keep back.” The most effective way of coping with current market conditions is to learn as much about market history as you possibly can. A superb place to start is Charles Mackay’s Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, originally published in 1841, and easily available from reprinted editions. The first chapters detail the Mississippi Scheme, South Sea Bubble, and Tulipomania of centuries ago. Change a few of the names and you’re reading about Internet stocks. Also, I suggest almost anything by James Grant, whose entertaining prose and grasp of financial history are second to none. (Money of the Mind, Minding Mr. Market, and The Trouble with Prosperity are all excellent places to start.) If you really want to keep up, subscribe to the Journal of Finance ($80 per year, along with membership in the American Finance Association) and Financial Analysts Journal (about $150 per year).

 

pages: 603 words: 182,781

Aerotropolis by John D. Kasarda, Greg Lindsay

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

Like the Big Three, however, it grew fat and sluggish on its profits, gradually ceding market share to the nimbler, more aggressive English East India Company—the Toyota of its day. The Amsterdam exchange made markets in 360 commodities, none of which were tulips. Fueled by the gross margins of the spice trades, bulb auctions devolved into speculative frenzies. At the peak of tulipomania in the 1630s, a single bulb could fetch a row house along Amsterdam’s canals. The tulip bubble set the pattern for all that followed—from the South Seas Bubble in 1720 to the railroad bust of 1847 and on through the Roaring Twenties and subsequent Depression. Every bubble, at its core, was a bet on greater global integration—whether by trade or trains or effervescent auto and radio stocks. Most recently, the Internet boom promised us a frictionless, one-click world, while our splattered housing bubble was financed by China’s savings and spent on Chinese goods.

., 7, 60–61, 63, 79, 86, 213, 386; see also Federal Express Smith, Gerry, 125–26 Smithson, Robert, 93 SNC-Lavalin, 53 Snyder, Daryl, 421 Snyder, Wes, 77–78 Social Security, 268 Soden, Jack, 84, 85–86 Solazyme, 348 Solley-Kanipe, Linda, 88, 89 Southeastern Pennsylvania Transportation Authority, 176 Southeast Michigan Council of Governments, 180 South Korea: automotive industry in, 203–205; IMF bailout of, 354; as trading partner with China, 354; see also New Songdo City Southlake, Tex., 105, 119 South Seas Bubble, 210 Southwest Airlines, 118 space: friction posed by, 12, 168; overcome by speed, 11, 25–26, 270 Spain, high-speed rail in, 352 speed: in competition, 180, 369,375; as critical to aerotropoli development, 174, 192, 195–96; of floral auctions, 214; luxury rendered obsolete by, 412; space overcome by, 11, 25–26; of successful supply chains, 61, 76, 174, 183–84, 369 Spirit AeroSystems, 172 “Spruce Goose,” 27 Stansted Airport, 16 Stapleton International Airport, 131–34; death and rebirth of, 147–52; history of, 423–24 start-ups: Chinese manufacturing for, 366–68; as decentralized, 127; Internet and, 42–43 steel industry, 187, 332 Stemmons, John M., 111–12 Stewart, Amy, 217, 221 Stough, Roger, 114 Subic Bay Freeport Zone, 171, 372 suburban age, cities of, 11, 23 Suez Canal, 386 supply chains: in auto industry, 199; Chinese cities specializing along, 365; competition across, 8, 174–75; jobs created by, 87, 338, 339; oil prices and airborne, 331–33; Sea Air Model (SAM) across, 317–25; speed of successful, 174, 183–84 Supreme Court, Thailand, 253–54, 258 Suvarnabhumi International Airport, 19–20, 245–48, 250–53, 254–56, 258, 428;construction problems at, 254–55; failure of, 259–63; governance of, 251; Kasarda’s attempt to salvage, 258; opposition to, 255; political turf wars over, 251–52; renderings of, 250–51; shut down by protesters, 256–57, 428 Swift Freight, 317–25; flowers handled by, 317, 319 Synder, Wes, 77–78 Synthetic Genomics, 349 Synthia, 349 tablets, 371 Taipei, Taiwan, aerotropolis plans in, 388–89 Taiwan: China’s relations with, 388–89; economy of, 389; electronics manufacturing in, 369–71; production freeze in, 257 Tam, Jim, 104–105, 106, 118, 119 Tata, J.R.D., 280 Tata Group, 280 tea trade, 385 technology: in aviation, 341; commodity prices lowered by, 340; connectivity via, 112–13; in floral industry, 210–11; and growth of travel, 341; human drive for, 343, 349; and Kasarda’s Law, 113–19; road warriors and, 102; shipping changed by, 66–68; and urbanization, 11–12 telecommuting, 341 Tellinghuisen, Brian, 131–32, 147 Temasek Holdings, 253 Tempo Group, 205–206 Tennessee, business costs in, 193–94 Terminal, The, 97, 98 Tesco, carbon footprint reduction plans of, 228–30, 232, 241 textiles, 374–75, 391 Thai Airways, 252 Thailand, 245–75; airports in recovery of, 257, 261; economy of, 248–49, 257; floral industry in, 221; tourism in, 256–57, 264–65; see also medical tourism; see also Bangkok Thanarat, Sarit, 245 Third Ring Road, 338–39 Thirteen Factories, 384–85 Thompson, Clive, 371 Thompson, Emma, 15 Thompson, James, 48 Tianjin, China, airport in, 406–408 Tin Goose, 179 Toffler, Alvin, 174, 175 Tokyo, Akihabara district in, 364 tomatoes, carbon footprint of, 231–32 Tomlin, Steve, 30 Topis, David, 107 Toral, Ruben, 265–66, 267, 268, 269, 270, 271, 272, 273–74, 277, 278 Toronto, Canada, airport expansion in, 193 tourism: cheap fares fueling, 334; in developing countries, 338; in developing world, 264–65;as foreign investment, 265; growth in, 428–29; in Japan, 403; jobs created by, 334; in Memphis, 85–86; as part of GDP, 338; in Thailand, 256–57, 264–65 Town and Country Planning Association, 16 Toy Center, 374–75 trains: high-speed rail, 432; as links to airports, 155–56; as part of Detroit aerotropoli plans, 197, 198; stimulus money for, 198, 353 transparks, as early aerotropolis prototype, 169–73 transportation: diffusion of, 414; spending on, 10 Tri-Motors, 179 Tsukiji fish market, 226 Tucker, Preston, 365–66 tulips, 209–10, 212 TWA, 27, 58, 179 Twitter, 113 Tysons Corner, Va., 40, 46 Ultimus, 127 United Airlines, 48, 421; Continental merger with, 193 United Arab Emirates: oil reserves in, 294; see also Abu Dhabi; Dubai United Kingdom: coal use in, 328; home ownership in, 334; Open Skies agreement signed by, 282 United Nations, 19 United Parcel Service (UPS), 64–69; Louisville airport expansion for, 87–90; outsourcing by, 63; relations with Lousiville, 86–87 United States: China as largest trading partner to, 393, 398; floral market in, 221, 223; health care costs in, 267–68; high-speed rail plans in, 351; job loss in, 393; medical community in, 271–72; medical tourists from, 266, 276; medical tourists to, 271; national markets in, 243; number of airports in, 283; Open Skies agreement signed by, 282 United Steelworkers, medical tourism opposed by, 273–74 universal health care coverage, 268 Unnithan, Shaju, 320–21, 322, 323–24 Up in the Air (Kirn), 97–98 UPS Supply Chain Solutions, 69 UPS Worldport, 64, 65–68, 72; Bantu working at, 68; jobs deskilled at, 68; technology at, 66–68 urbanization: in Chicago, 12; of China, 5, 10, 18–19, 360, 364–65, 381, 389, 394–95; as green lifestyle, 356; as inevitable, 176; pace of, 12, 19; spending on, 10; technology and, 11–12 Ussher, Kitty, 14 Venice, as shaped by shipping, 12 Venter, Craig, biofuel development by, 349 Verenigde Bloemenveiling Aalsmeer, 211, 212–17, 218–19, 222, 322 Verni, Ron, 127–28 Vietnam, airports in, 263 Virgin Atlantic, 21; environmental efforts of, 345–48, 350 Virgin Green Fund, 345 virtual density, 293–94 Visteon, 199–201 Visteon Village, 199, 200–201, 202 von Klemperer, Jamie, 355, 357 Walmart, sustainability index of, 240–41 Walsh, Willie, 16 Wang Chuanfu, 204 Wanisubut, Suwat, 259–62, 263 Wanxiang Group, 206 Washington, D.C., 355 Washington National Airport, 38–39 Washtenaw County, Mich., 188 water, recycling of, 356 Waterfront City, 293 Wayne County, Mich., 182–83 Wayne State University, 188 Webber, Melvin, 11, 12, 115–16, 124–25 Welch, Jack, 202 Wen Jiabao, 369 Weymouth, Leanne, 124 whaling, 327–28 Whitehaven, Tenn., 83 Whitman, Walt, 23 Whyte, William H., 139 Why Your World Is About to Get a Whole Lot Smaller (Rubin), 332 Wice, Nathaniel, 367 Wilkes-Barre, Pa., 7 Williams, Adrian, 233 Williams, Fred, 89–90 Willow Run, Mich., 180, 182, 188, 425 Willow Run Airport, 180, 188; auto shipments through, 182 Wilmington, Ohio, 87–88 Wilson, Charles E., 186 Window on the World, 409–10 Wipro, 281, 283 Wongsawat, Somchai, 252, 256 World Bank, 337 World’s Fair (1939), 192 “World’s Unofficial Longest Line” video, 13–14 World Trade Organization, Seattle clashes and, 168 World War II: aviation and aerospace industry in, 27; Ford production during, 179–80, 188 Wright Brothers, 341, 349, 412, 413 Wrigley Field, 411, 413, 414 Xi’an, China, 387, 390 YouTube, 13–14 Zahavi, Yakov, 117 Zappos.com, 66, 69–77, 422; business expansion of, 72;customer service at, 70–71; as decentralized, 74; fulfillment by, 73–74; inventory management at, 73, 74; ordering from, 71–73; shipping strategy of, 70, 72 Zemcik, Marty, 142–44 Zhang Qian, 409 Zhao, Jeff, 205–207 Zheng He, 390 Zhou Tianbao, 205–206 Zhuhai, China, 378, 383 Zimbabwe, economy of, 325 Zoellick, Robert, 400 A Note About the Authors John D.

 

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

In the carry trade, how do you define high and low rates and what kind of investments and borrowing do you do and for how long? The process gives you an idea of the risks. How often will the strategy work? What kind of profits does it produce? How often will it lose money and how much? Margin and Smitz’s answers to my probing are vague, reminiscent of the investment strategy in a prospectus during the South Sea bubble: “A company for carrying on an undertaking of great advantage, but nobody to know what it is.” Ambush “I have analyzed a number of your past trades in detail.” Margin and Smitz look at me, surprised. Dr Woori, the Korean nuclear physicist in charge of risk, has supplied me details of Margin and Smitz’s trading, unaware of the reasons for my interest. “Now let’s take the gold trade....”

The available tools and knowledge were insufficient to manage the crisis and restore the health of the global economy. 22. Financial Gravity In 2007, everyone discovered what Joseph Conrad knew: “[a civilized life is] a dangerous walk on a thin crust of barely cooled lava which at any moment might break and let the unwary sink into fiery depths.”1 The end arrived unexpectedly, reflecting author Alexander Pope’s description of the collapse of the 1720 South Sea Bubble: “Most people thought it wou’d come but no man prepar’d for it; no man consider’d it would come like a thief in the night, exactly as it happens in the case of death.”2 Air Pockets As interest rates increased from 1 percent to 5.25 percent per annum, reflecting higher oil and food prices, U.S. house prices stalled and then fell. Subprime mortgages predicated on low rates, rising house prices and the ability to refinance on favorable terms defaulted.

 

pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

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accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money: store of value / unit of account / medium of exchange, mortgage debt, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer lending, Ponzi scheme, post scarcity, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Wave and Pay, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

The model was improved in rigor and reliability by other city-states in northern Europe, particularly in the Netherlands. After revolutions in 1688 and 1776, the British and the Americans adopted Dutch-style finance, funding wars by selling bonds to citizen creditors rather than resorting to excessive taxation or inflation. The contrast between France and England in the eighteenth century is especially illuminating: in both countries there were serious economic problems, triggered by the Mississippi and South Sea bubbles, respectively. The French devalued their currency, regulated finance tightly, and confiscated wealth gained from speculation, seriously damaging its creditor class. The English did exactly the opposite, canceling the South Sea Company’s debt to the government. The English approach led to an accommodation whereby two separate classes (merchants handling financial affairs, landholders dealing in politics) eventually merged until the system operated in a unified fashion, much as the Dutch system had done.

See also total social fact social inequality, 79, 339; and debt, 91, 102; and money, 389 social lending, 14 social, power 32, 51, 72, 392 social welfare, 79 socialism, 14, 115, 146, 160, 240, 244, 313, 315, 337, 357; and bank bailouts, 116; in Benjamin, 146; ethical, 320; versus liberalism, 323–25, 329, 382, 383; and money, 315, 316–17, 321, 322; in Simmel, 14, 139, 140, 197, 314n3, 316, 322–25, 329, 344, 355, 382–83 Société Générale, 258 society, 8, 13, 14, 71, 101; as community, 8, 93, 309, 351; of control, 239–40; and debt, 25, 94; and faith, 137; and fictitious commodities, 280; and finance, 122; and the financial crisis, 79, 102; and God, 148, 158; hierarchical concept of, 352; and the individual, 125; and money, 4, 7, 8, 13, 14, 26, 92, 93, 94, 102, 103, 124, 125, 133, 226, 238, 267, 268, 281; and the multitude, 293; as nation, 8, 309; as nation-state, 8, 309; in Nietzsche, 138; and power, 102; in Rousseau, 37–38; and the sacred, 173; and self-repression, 150; as state, 8, 26, 106, 211, 226; and territory, 226; and trust, 137. See also Gemeinschaft, Gesellschaft; perfect society socius, 251 Sontag, Susan, 190 South Sea bubble, 126 South Sea Company, 126 sovereign debt, 2, 58, 66n17, 71, 91, 110, 127, 129, 131, 219, 242, 253, 257–58, 265, 388 sovereign wealth funds, 66, 220–21 sovereignty, 216, 245, 250, in Agamben, 266n; and banks, 116, 237; in Balibar, 261–62; in Bodin, 223–24, 261–62; in Derrida, 165, 185, 209; in the Eurozone, 46, 127, 129, 252, 253, 255, 261, 264–66, 267; and the fiscus, 261–62; in Hardt and Negri, 238, 239, 244, 245, 247; of the individual, 185, 360; and insolvency, 260–61; in Karatani, 86–87; and law, 224; in Marx, 53; and monetary governance, 45, 246, 307–8; and money, 20, 43, 44, 77, 110, 217, 237, 246–47, 249, 251; and the multitude, 247; in Proudhon, 53; in Schmitt, 223–24, 266, 267; and the state, 106; and territory, 226.

 

pages: 636 words: 202,284

Piracy : The Intellectual Property Wars from Gutenberg to Gates by Adrian Johns

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banking crisis, Berlin Wall, British Empire, Buckminster Fuller, business intelligence, Corn Laws, demand response, distributed generation, Douglas Engelbart, Edmond Halley, Ernest Rutherford, Fellow of the Royal Society, full employment, Hacker Ethic, Howard Rheingold, informal economy, invention of the printing press, Isaac Newton, James Watt: steam engine, John Harrison: Longitude, Marshall McLuhan, Mont Pelerin Society, new economy, New Journalism, Norbert Wiener, pirate software, Republic of Letters, Richard Stallman, road to serfdom, Ronald Coase, software patent, South Sea Bubble, Steven Levy, Stewart Brand, Ted Nelson, the scientific method, traveling salesman, Whole Earth Catalog

At Garraway’s or Jonathan’s coffeehouses, customers might find themselves looking at printed proposals for a new edition of the church fathers or a new fendrainage scheme, and the rhetoric in both would be remarkably congruent. And because many projects failed – editions as much as engines – questions of plausibility dogged the entire culture of projecting. The enterprise of books was credit dependent and risk prone at a time when risk was publicly notorious. It is telling that the most famous of all the swindles of the South Sea Bubble period was rumored to be that of a printer, who pocketed £2,000 from subscribers to his project for “an undertaking of Great Advantage, but no one to know what it is.” What is even more telling is that the scam itself seems to have been a figment of Grub Street machinations – there is no substantive evidence that it ever really happened. It was this concern for credit that led major booksellers to band together to defend their interests.

The proponents of such property, by contrast, sought to demonstrate that they were radically distinct. Their debate proved critical not only to the outcome of the contest itself, but to the subsequent history that that outcome made possible. Mechanical invention was a child of the projecting age. Attended by the same problems of credit and speculation as stockjobbing and publication, projectors blossomed and crashed as fast as South Sea Bubble companies. We now tend to perceive the first signs of the Industrial Revolution in their schemes, but that perception requires a lot of hindsight. For contemporaries the problem was to discern the plausible – or even possible – from the fanciful or fraudulent. Something of a market arose in expertise dedicated to making such distinctions. In consequence, the meanings, nature, and relative authority of artisanal and theoretical knowledge had to be thrashed out.

 

pages: 670 words: 194,502

The Intelligent Investor (Collins Business Essentials) by Benjamin Graham, Jason Zweig

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accounting loophole / creative accounting, air freight, Andrei Shleifer, asset allocation, buy low sell high, capital asset pricing model, corporate governance, Daniel Kahneman / Amos Tversky, diversified portfolio, Eugene Fama: efficient market hypothesis, hiring and firing, index fund, Isaac Newton, Long Term Capital Management, market bubble, merger arbitrage, new economy, passive investing, price stability, Ralph Waldo Emerson, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, sharing economy, short selling, Silicon Valley, South Sea Bubble, Steve Jobs, the market place, transaction costs, tulip mania, VA Linux, Vanguard fund, Y2K, Yogi Berra

The sales charge is universally stated as a percentage of the selling price, which includes the charge, making it appear lower than if applied to net asset value. We consider this a sales gimmick unworthy of this respectable industry. 2. The Money Managers, by G. E. Kaplan and C. Welles, Random House, 1969. 3. See definition of “letter stock” on p. 579. 4. Title of a book first published in 1852. The volume described the “South Sea Bubble,” the tulip mania, and other speculative binges of the past. It was reprinted by Bernard M. Baruch, perhaps the only continuously successful speculator of recent times, in 1932. That was locking the stable door after the horse was stolen. Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds (Metro Books, New York, 2002) was first published in 1841. Neither a light read nor always strictly accurate, it is an extensive look at how large numbers of people often believe very silly things—for instance, that iron can be transmuted into gold, that demons most often show up on Friday evenings, and that it is possible to get rich quick in the stock market.

Sequoia has been closed to new investors since 1982, which has reinforced its superb performance. 15 Jason Zweig, “What Fund Investors Really Need to Know,” Money, June, 2002, pp. 110–115. 16 See interview with Ellis in Jason Zweig, “Wall Street’s Wisest Man,” Money, June, 2001, pp. 49–52. 1 Alternatively, you could buy back the call option, but you would have to take a loss on it—and options can have even higher trading costs than stocks. 1 To put this statement in perspective, consider how often you are likely to buy a stock at $30 and be able to sell it at $600. 2 Benjamin Graham, The Intelligent Investor (Harper & Row, 1949), p. 4. 3 A “hedge fund” is a pool of money, largely unregulated by the government, invested aggressively for wealthy clients. For a superb telling of the LTCM story, see Roger Lowenstein, When Genius Failed (Random House, 2000). 4 John Carswell, The South Sea Bubble (Cresset Press, London, 1960), pp. 131, 199. Also see www.harvard-magazine.com/issues/mj99/damnd. html. 5 Constance Loizos, “Q&A: Alex Cheung,” InvestmentNews, May 17, 1999, p. 38. The highest 20-year return in mutual fund history was 25.8% per year, achieved by the legendary Peter Lynch of Fidelity Magellan over the two decades ending December 31, 1994. Lynch’s performance turned $10,000 into more than $982,000 in 20 years.

 

pages: 706 words: 206,202

Den of Thieves by James B. Stewart

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discounted cash flows, diversified portfolio, fudge factor, George Gilder, index arbitrage, Internet Archive, margin call, Ponzi scheme, rolodex, Ronald Reagan, shareholder value, South Sea Bubble, The Predators' Ball, walking around money, zero-coupon bond

Then the screen vanished and Diana Ross, dazzling in a sequined gown, stepped into the spotlight as the evening's surprise star. She sang a medley of Motown hits and managed to change outfits twice. Most participants were suitably impressed. Yet a few doubts remained. "What you don't know is if you have a watershed in American business," one participant that year told the San Francisco Chronicle, "or a South Sea Bubble." 5. Wilkis answered the phone in his office at Lazard Freres. It was the first call of the morning and, not surprisingly, it was Levine. "Don't work today," he began. "Dennis," Wilkis replied wearily, "you know I can't." Wilkis was amazed that Levine had so much free time; nothing had really changed since his days of playing hookey at Citibank. "Then let's have lunch," Levine continued.

page 118 The quotation is from Peter Dworkin, "The Inside Story on the High Tech of Finance," San Francisco Chronicle, Apr. 4, 1985. The full quotation is " 'You have to be pretty impressed by the aggressiveness and acuity of these fellows,' said Tully Friedman, a partner in the San Francisco investment firm of Hellman & Friedman. 'What you don't know is if you have a watershed in American business or a South Sea bubble,' he said, referring to one famous speculative binge." Chapter 5 page 119 Levine's receipt from the River Cafe was included in the expense receipts disclosed by the SEC. page 121 Ken Auletta, Greed and Glory on Wall Street: The Fall of the House of Lehman (New York: Random House, 1986). page 124 Reich's effort to distance himself from Levine, and his re-ensnarement, are described in Reich sentencing memo, pp. 18-21.

 

pages: 263 words: 84,410

Tulipomania: The Story of the World's Most Coveted Flower & the Extraordinary Passions It Aroused by Mike Dash

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Ponzi scheme, random walk, South Sea Bubble, spice trade, trade route, tulip mania

Toneel, ofte Beschrijvinghe des Landts, ende Steden van Hollandt ende West-Vrieslandt. Amsterdam: Hendrik Hondius, 1632. Brereton, William. Travels in Holland, the United Provinces etc … 1634–1635. London: Chetham Society, 1844. Bulgatz, Joseph. Ponzi Schemes, Invaders from Mars and More Extraordinary Popular Delusions and the Madness of Crowds. New York: Harmony, 1992. Carswell, John. The South Sea Bubble. Stroud: Alan Sutton, 1993. Cassels, Lavender. The Struggle for the Ottoman Empire, 1717–1740. London: John Murray, 1966. Cos, P. Verzameling van een Meenigte Tulipaanen, naar het Leven Geteekend met Hunne Naamen, en Swaarte der Bollen, zoo als die Publicq Verkogt Zijn, te Haarlem in den Jaare A.1637, door P. Cos, Bloemist te Haarlem. Haarlem: n.p., 1637. Cotterell, Geoffrey. Amsterdam: The Life of a City.

 

pages: 258 words: 83,303

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization by Jeff Rubin

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air freight, banking crisis, big-box store, BRICs, carbon footprint, collateralized debt obligation, collective bargaining, credit crunch, David Ricardo: comparative advantage, decarbonisation, energy security, food miles, hydrogen economy, illegal immigration, immigration reform, invisible hand, James Watt: steam engine, Just-in-time delivery, market clearing, megacity, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit maximization, reserve currency, South Sea Bubble, the market place, The Wealth of Nations by Adam Smith, trade liberalization

A beery breakfast may fill your stomach, not to mention your waistline, but it will do little to clear your head. And the minds of 17th-century London required great clarity. It was a time of rapid innovation and even revolution in nearly every field: politics, philosophy, science and, perhaps above all, finance. Both the great failures and enduring successes of the early days of capitalism played out in London’s coffeehouses. The notorious South Sea Bubble—a fraudulent investment scheme that has provided fodder for generations of economics textbooks—unfolded largely in a coffeehouse called Garraway’s. A coffee shop that opened in 1680 created a legacy that has lasted much longer. Called Lloyd’s, it was a meeting place for ship captains, investors and merchants. It was the place to go to learn the latest maritime news, and it was not long before Lloyd’s was selling this information in the form of a newsletter.

 

pages: 302 words: 86,614

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja, Myron Scholes, Mohamed El-Erian

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Asian financial crisis, asset allocation, asset-backed security, backtesting, Bernie Madoff, Bretton Woods, business process, call centre, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, en.wikipedia.org, family office, fixed income, high net worth, interest rate derivative, Isaac Newton, Long Term Capital Management, Mark Zuckerberg, merger arbitrage, NetJets, oil shock, pattern recognition, Ponzi scheme, quantitative easing, quantitative trading / quantitative finance, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, systematic trading

ISBN 978-1-118-06552-5 (cloth); ISBN 978-1-118-16759-5 (ebk); ISBN 978-1-118-16758-8 (ebk); ISBN 978-1-118-16757-1 (ebk) 1. Hedge funds. 2. Investment advisors. I. Title. HG4530.A389 2012 332.64’524—dc23 2012010363 To God — The Ultimate Alpha Master Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, ‘I can calculate the movement of the stars, but not the madness of men.’ If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases. —Warren Buffett Foreword The Less Mysterious World of Hedge Funds Mohamed A. El-Erian CEO and Co-CIO of PIMCO The mystique of hedge funds is undeniable.

 

pages: 339 words: 109,331

The Clash of the Cultures by John C. Bogle

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asset allocation, collateralized debt obligation, corporate governance, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, estate planning, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, Flash crash, Hyman Minsky, income inequality, index fund, interest rate swap, invention of the wheel, market bubble, market clearing, mortgage debt, new economy, Occupy movement, passive investing, Ponzi scheme, principal–agent problem, profit motive, random walk, rent-seeking, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, short selling, South Sea Bubble, statistical arbitrage, The Wealth of Nations by Adam Smith, transaction costs, Vanguard fund, William of Occam

Much of the trading in derivatives—including stock index futures, credit default swaps, and commodities—reflects risk aversion and hedging. However, a substantial portion—perhaps one-half or more—reflects risk seeking, or rank speculation, another component of the whirling dervish of today’s trading activity. Most of this excessive speculation is built on a foundation of sand, hardly a sound basis for our financial well-being. Sooner or later—as the great speculative manias of the past such as Tulipmania and the South Sea Bubble remind us—speculation will return to its proper and far more modest role in our financial markets. I’m not sure just when or how, but the population of investors will one day come to recognize the self-defeating nature of speculation, whether on Wall Street or in a casino. I imagine that I’m not the only author who, poring over his manuscript yet one more time, gets a huge lift when he comes across a perceptive essay in a celebrated newspaper that (at least to the author!)

 

pages: 363 words: 107,817

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

Reflecting on this situation some years later, Francis Rawle, a successful Philadelphia merchant, wrote that “a running Stock of Money now wanting is the Cause of this Decay: The common Necessaries for Families brought to the Market are not bought, because Change (as Silver and Copper is commonly called) is not to be had; all our Domestic Trade is become nothing but Discount, a miserable Make-shift good for Nought, but to enrich Knaves and beggar Fools”. (As quoted in Lester R., 1938, cited in Zarlenga, 2002.) The problems arising from the lack of a medium of exchange were exacerbated by the South Sea Bubble bursting in 1720, which caused a financial crisis and a wave of bankruptcies (as those who had borrowed to invest lost more than their initial investment). With Britain (and some parts of America) in recession and prices deflating, people began hoarding their money. This had three effects on Pennsylvania. Firstly, the lower demand for goods negatively affected Pennsylvania’s exports to Britain.

 

pages: 323 words: 95,939

Present Shock: When Everything Happens Now by Douglas Rushkoff

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algorithmic trading, Andrew Keen, bank run, Benoit Mandelbrot, big-box store, Black Swan, British Empire, Buckminster Fuller, cashless society, citizen journalism, clockwork universe, cognitive dissonance, Credit Default Swap, crowdsourcing, Danny Hillis, disintermediation, Donald Trump, double helix, East Village, Elliott wave, European colonialism, Extropian, facts on the ground, Flash crash, game design, global supply chain, global village, Howard Rheingold, hypertext link, Inbox Zero, invention of agriculture, invention of hypertext, invisible hand, iterative process, John Nash: game theory, Kevin Kelly, laissez-faire capitalism, Law of Accelerating Returns, loss aversion, mandelbrot fractal, Marshall McLuhan, Merlin Mann, Milgram experiment, mutually assured destruction, Network effects, New Urbanism, Nicholas Carr, Norbert Wiener, Occupy movement, passive investing, pattern recognition, peak oil, price mechanism, prisoner's dilemma, Ralph Nelson Elliott, RAND corporation, Ray Kurzweil, recommendation engine, Silicon Valley, Skype, social graph, South Sea Bubble, Steve Jobs, Steve Wozniak, Steven Pinker, Stewart Brand, supply-chain management, the medium is the message, The Wisdom of Crowds, theory of mind, Turing test, upwardly mobile, Whole Earth Catalog, WikiLeaks, Y2K

We may as well call it fractalnoia. For not only is the pattern supposed to repeat on different scales and in progressively larger time frames; it’s also supposed to be repeating horizontally across different industries and aspects of human activity. Prechter titled his report on fractals and the stock market “The Human Social Experience Forms a Fractal.” And, at least as of this writing, the biggest market crash since the South Sea Bubble of 1720 has yet to occur. Fractalnoia of this sort is less dangerous for the individually incorrect predictions it suggests to its practitioners and their customers than for the reductionist outlook on humanity that it requires. Machines, math equations, molecules, bacteria, and humans are often similar but hardly equivalent. Yet the overriding urge to connect everything to everything pushes those who should know better to make such leaps of logic.

 

pages: 338 words: 106,936

The Physics of Wall Street: A Brief History of Predicting the Unpredictable by James Owen Weatherall

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Albert Einstein, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Asian financial crisis, bank run, Benoit Mandelbrot, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, Brownian motion, butterfly effect, capital asset pricing model, Carmen Reinhart, Claude Shannon: information theory, collateralized debt obligation, collective bargaining, dark matter, Edward Lorenz: Chaos theory, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial innovation, George Akerlof, Gerolamo Cardano, Henri Poincaré, invisible hand, Isaac Newton, iterative process, John Nash: game theory, Kenneth Rogoff, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, martingale, new economy, Paul Lévy, prediction markets, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical arbitrage, statistical model, stochastic process, The Chicago School, The Myth of the Rational Market, tulip mania, V2 rocket, volatility smile

.”: This history of the 2007 quant crisis, including numbers cited below, comes from Patterson (2010), from news articles from August/September 2007 (Patterson and Raghavan 2007; Lahart 2007; Nocera 2007; Ahrens 2007), as well as from academic work on the topic (Gorton 2010; Khandani and Lo 2011). “Isaac Newton despaired . . .”: While it is known that Newton suffered some losses in the South Seas bubble, this quote is sometimes disputed. The attribution seems to originate with Spence (1820, p. 368). “On average . . .”: These numbers come from Sourd (2008). The Medallion returns are from Willoughby (2008). It is worth pointing out that Renaissance’s other principal fund, the Renaissance Institutional Equities Fund, which uses strategies similar to those of the other quant funds and which is designed to have a much higher capitalization than the Medallion Fund, did suffer losses of about 1% in 2007 (Strasburg and Burton 2008)

 

pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

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

Braudel, F. (1992), The Wheels of Commerce: Civilization and Capitalism lj-i&th Century, Vol. 2. Berkeley, CA: University of California Press. Buchan, J. (1997), Frozen Desire. London: Picador. Capie, F. (2012), “200 years of financial crises: lessons learned and forgotten.” Mimeo: available at http://​www2.​uah.​es/​financial_​crisis_​spain/​congreso2012/​papers/​For-​rest​%20Capie.​pdf. Carswell, J. (i960), The South Sea Bubble. London: Cresset Press. Central Bank of Ireland (1970), Report on Economic Effects of Bank Dispute 1970. Dublin: Central Bank of Ireland. Clanchy, M. (1993), From Memory to Written Record: England 1066-1307. Oxford: Blackwell. Clapham, J. (i944), The Bank of England: A History, 2 volumes. Cambridge: Cambridge University Press. Coggan, P. (2011), Paper Promises: Money, Debt, and the New World Order.

 

pages: 326 words: 106,053

The Wisdom of Crowds by James Surowiecki

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AltaVista, Andrei Shleifer, asset allocation, Cass Sunstein, Daniel Kahneman / Amos Tversky, experimental economics, Frederick Winslow Taylor, George Akerlof, Howard Rheingold, I think there is a world market for maybe five computers, interchangeable parts, Jeff Bezos, Joseph Schumpeter, knowledge economy, lone genius, Long Term Capital Management, market bubble, market clearing, market design, moral hazard, new economy, offshore financial centre, Picturephone, prediction markets, profit maximization, Richard Feynman, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Toyota Production System, transaction costs, ultimatum game, Yogi Berra

Personal-computer companies, biotechs, real estate, biotechs again: all have been the object of investor mania in the past twenty years. But these bubbles were confined to discrete sectors of the market, and most investors were not swept up in them. Far more devastating are those rare historical moments when seemingly all investors are caught up in the frenzy and everyone appears to have succumbed to what Charles Mackay called “the madness of crowds”—like the South Sea Bubble in England of the 1720s, the Japanese real estate market of the 1980s (when one piece of land in Tokyo was supposedly worth more than all of California), and, of course, the tech-stock bubble of the late 1990s. During a true bubble, price and value lose all connection. Prices rise because people expect them to keep rising. At least they do until the moment when they don’t. Then comes the stampede for the exit.

 

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

This is a reckless strategy, for the obvious reason that at some point the price is going to stop going up; but it is very difficult thing to resist the momentum of a rising market, especially when everyone around you is coining it. Isaac Newton, who has a claim to be the most intelligent person ever to have lived, and who knew a lot about the operation of money thanks to his day job as master of the King’s Mint, himself fell victim to the Greater Fool theory. When the South Sea bubble came along, Newton could see it was based on nothing and was certain to collapse; it was certain to collapse; it was certain to . . . oh, the hell with it, since everyone else was making to much money, he piled in too. Then the bubble collapsed, and he lost all his money. The moral of the story is (a) that it’s hard even for very bright people to hold their nerve during a bubble and (b) that the temptations of Greater Fool theory are strong, and should be resisted.

 

The Future of Money by Bernard Lietaer

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agricultural Revolution, banks create money, barriers to entry, Bretton Woods, clean water, complexity theory, dematerialisation, discounted cash flows, diversification, fiat currency, financial deregulation, financial innovation, floating exchange rates, full employment, George Gilder, German hyperinflation, global reserve currency, Golden Gate Park, Howard Rheingold, informal economy, invention of the telephone, invention of writing, Lao Tzu, Mahatma Gandhi, means of production, microcredit, money: store of value / unit of account / medium of exchange, Norbert Wiener, North Sea oil, offshore financial centre, pattern recognition, post-industrial society, price stability, reserve currency, Ronald Reagan, seigniorage, Silicon Valley, South Sea Bubble, the market place, the payments system, trade route, transaction costs, trickle-down economics, working poor

Four key design features All Industrial Age currencies have four key characteristics in common, which gradually came to be considered as self-evident for the first time in England between the 17th and early 18th centuries. It's not as if some conspiratorial group of Englishmen gathered in a dark, smoked-filled room to dream up the current money system. What happened instead was a slow and gradual evolution of payment and banking habits. This was accompanied by dramatic changes in personal insights and collective crises such as the need to finance wars, or the political reactions to the South Sea Bubble of the 1720s. Such a combination of more or less conscious choices by the many and the few shaped a money system remarkably in tune with the pre-Victorian English Zeitgeist, the priorities and mindset of an island country poised to carve out its empire in the world. Many aspects of the modern money system can be traced back to the customs of medieval goldsmith money lending, or to Renaissance banks from Tuscany and Lombardy.

 

pages: 1,073 words: 302,361

Money and Power: How Goldman Sachs Came to Rule the World by William D. Cohan

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asset-backed security, Bernie Madoff, buttonwood tree, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, fear of failure, financial innovation, fixed income, Ford paid five dollars a day, Goldman Sachs: Vampire Squid, Gordon Gekko, high net worth, hiring and firing, hive mind, Hyman Minsky, interest rate swap, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, merger arbitrage, moral hazard, mortgage debt, paper trading, passive investing, Ponzi scheme, price stability, profit maximization, risk tolerance, Ronald Reagan, Saturday Night Live, South Sea Bubble, time value of money, too big to fail, traveling salesman, value at risk, yield curve, Yogi Berra

Human beings’ enduring infatuation with climbing aboard one freight train of get-rich-quick schemes after another has rarely ended well and always provides invaluable fodder for financial journalists and historians. Why we never seem to learn from the problems caused by our own ongoing reckless behavior is mysterious and unexplainable. According to Galbraith, “Historians have told with wonder of one of the promotions at the time of the South Seas Bubble,” which—you will no doubt recall—was what happened when the South Sea Company agreed to refinance the £10 million of British debt incurred during the course of the War of the Spanish Succession, which ended in 1713. The British government agreed to grant the South Sea Company exclusive trading rights to all South American countries in exchange for South Sea’s agreement to refinance the government war debt.

., Goldman Sachs hearing at, prl.1, prl.2, prl.3, 22.1, 23.1, 23.2, 24.1 “big short” denied at, prl.1, prl.2, prl.3 Blankfein’s testimony at, prl.1, prl.2, prl.3 Senderra Funding Senior CDO axes September 11, 2001 terrorist attacks, 11.1, 17.1, 17.2, 22.1 Serres, Marine, 20.1, 20.2, 20.3 7–Eleven Shah, Rahul Dilip Shawn, Wallace Shearson Lehman Brothers Shearson Loeb Rhoades Sheehan, Don Sheehan, Robert, 3.1, 3.2 Sheffield Farms Sheinberg, Eric, 7.1, 14.1, 14.2, 14.3, 14.4, 14.5, 15.1 shell company Shenandoah Corporation Sherwood, Michael “Woody,” 23.1, 23.2, 23.3 Shinsei Bank short positions see also “big short” Shultz, George, 9.1, 14.1 Siegel, Martin, 9.1, 11.1, 11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 11.8, 11.9, 11.10, 11.11, 11.12, 11.13 as ‘CS-1,’ 254, 11.1, 11.2, 11.3, 11.4, 11.5, 11.6 Silfen, David Silverstein, Howard, 15.1, 15.2 Simmons, Ruth Simon, Norton “Simple Algorithm to Compute Short-Dated CMM Forwards, A” Sinclair Oil Singapore, 2.1, 15.1 Sinha, Gyan, 20.1, 20.2 Siva-Jothy, Christian, 14.1, 16.1 60 Minutes, 23.1 Skidmore, Owings & Merrill Sloss-Sheffield Steel & Iron Company, 1.1, 2.1 Smeal, Frank, 10.1, 14.1 Smith, Bernadette Smith, John K. Smith, Roy, 5.1, 5.2, 7.1, 7.2, 8.1 Smith Barney Smith Breeden Associates Smithies, Arthur Social Reponsibilities of Business, The (Goldman), 9.1 Social Security Société Générale, 17.1, 23.1, 23.2 Sokolow, Ira Soros, George Sosin, Howard Sotheby’s Southland Corp. South Seas Bubble Soviet Union, 1.1, 1.2, 3.1, 3.2, 9.1, 17.1 Sparks, Daniel, 18.1, 20.1, 21.1, 21.2, 21.3, 21.4, 22.1, 23.1 “big short” of, prl.1, prl.2, 19.1, 19.2, 19.3, 20.1, 20.2, 20.3, 20.4, 20.5, 21.1, 21.2, 21.3, 21.4, 22.1, 23.1 Senate testimony of, prl.1, prl.2 Spear, Leeds & Kellogg, 17.1, 17.2, 17.3 special purpose acquisition corporations (SPAC) Special Situations Group (SSG), 15.1, 18.1 Spector, Warren speculators, speculation, 1.1, 3.1 get-rich-quick schemes and Wall Street crash created by Wall Street created by Sperling, Gene, 13.1, 13.2, 13.3 Speyer, Jerry Spitzer, Eliot, 16.1, 17.1, 17.2, 23.1, 24.1 Standard & Poor’s (S&P), 18.1, 18.2, 18.3, 21.1, 23.1 Stand House Stanfield Capital Partners Stanford University Stanton, Louis, 11.1, 11.2 STAR TV State Department, U.S., prl.1, 5.1 Staten Island, N.Y.

 

pages: 1,088 words: 297,362

The London Compendium by Ed Glinert

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1960s counterculture, anti-communist, Big bang: deregulation of the City of London, British Empire, Corn Laws, Dava Sobel, double entry bookkeeping, Edward Lloyd's coffeehouse, Exxon Valdez, hiring and firing, invention of the telegraph, Isaac Newton, John Harrison: Longitude, John Snow's cholera map, Khartoum Gordon, Mahatma Gandhi, Nick Leeson, price stability, Ronald Reagan, South China Sea, South Sea Bubble, spice trade, the market place, trade route, union organizing, V2 rocket

Coldbath Square Barely noticeable as a square, and occupying a squalid location opposite the huge Mount Pleasant post office, it marks the site of the Cold Bath Fields where, in 1697, Walter Baynes found a cold spring and bottled a water ‘famed for the curing compulsion, creeping fevers, dropsy, disorders of the spleen, deafness… and most nerval disorders’. In 1737 Eustace Budgell, a resident of the square and barrister in the Inner Temple, who had lost three-quarters of his fortune in the South Sea Bubble crash and was later disgraced in contesting a will, left his house in Coldbath Square, took a boat out on the Thames, and having filled his pockets with stones jumped in the water half-way across and drowned. In 1794 the Middlesex House of Correction, also known as Coldbath Prison, was built here, ruining the square’s residential status. The prison was often used for those suspected of insurrection against the state, but its best-known incumbent was John Williams, the prime suspect for the 1811 Ratcliff Highway Murders, who committed suicide in gaol before he could be brought to trial.

Cavendish Square Edward Harley, 2nd Earl of Oxford, laid out what was originally Oxford Square, renamed Cavendish Square after his wife, Lady Henrietta Cavendish Holles, in 1717, and its excellent location soon came to the attention of the Duke of Chandos, who owned much land between here and Canons, his mansion in Edgware, which Daniel Defoe described as ‘the finest in England’. The duke announced that he would build himself a mansion to take up the north side of the square, and line the 12-mile route to it with luxurious properties that would form a grand processional way, but his plans were spoiled by the South Sea Bubble financial crash of 1720, in which he lost a fortune, and he settled for just two mansions at the northern corners of the square. Cavendish Square was also meant to include a market, but the scheme was obstructed by Lord Craven, owner of Carnaby Market, south of Oxford Street. The square’s gardens, which used to contain a statue of the Duke of Cumberland (‘Butcher Cumberland’, victor of Culloden), were uprooted during the building of the Victoria Line in the 1960s and replanted when the work was completed

 

pages: 343 words: 41,228

Memoirs of Extraordinary Popular Delusions and the Madness of Crowds - the Original Classic Edition by Charles MacKay

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clean water, invention of gunpowder, invisible hand, joint-stock company, railway mania, South Sea Bubble, the market place

Printable format for Mackay, Charles, Memoirs of Extraordinary Popular ... 1 of 1 http://www.econlib.org/cgi-bin/printarticle.pl Printable format for http://www.econlib.org/library/Mackay/macEx.html FAQ: Print Hints Memoirs of Extraordinary Popular Delusions and the Madness of Crowds Mackay, Charles (1814-1889) BIO TABLE OF CONTENTS Cover Table of Contents Prefaces 1. Money Mania.—The Mississippi Scheme 2. The South Sea Bubble 3. The Tulipomania 4. The Alchymists 5. Modern Prophecies 6. Fortune-Telling 7. The Magnetisers 8. Influence of Politics and Religion on the Hair and Beard 9. The Crusades 10. The Witch Mania 11. The Slow Poisoners 12. Haunted Houses 13. Popular Follies of Great Cities 14. Popular Admiration of Great Thieves 15. Duels and Ordeals 16. Relics Footnotes Return to top Copyright ©1999 Liberty Fund, Inc.

End of Notes Return to top Copyright ©1999 Liberty Fund, Inc. All Rights Reserved 13/10/2008 17:32 Printable format for Mackay, Charles, Memoirs of Extraordinary Popular ... 1 of 21 http://www.econlib.org/cgi-bin/printarticle.pl Printable format for FAQ: Print Hints http://www.econlib.org/library/Mackay/macEx2.html Memoirs of Extraordinary Popular Delusions and the Madness of Crowds Mackay, Charles (1814-1889) BIO Chapter 2 The South-Sea Bubble 2.0 At length corruption, like a general flood, Did deluge all, and avarice creeping on, Spread, like a low-born mist, and hid the sun. Statesmen and patriots plied alike the stocks, Peeress and butler shared alike the box; And judges jobbed, and bishops bit the town, And mighty dukes packed cards for half-a-crown: Britain was sunk in lucre's sordid charms. —Pope. 2.1 2.2 2.3 THE SOUTH-SEA COMPANY was originated by the celebrated Harley, Earl of Oxford, in the year 1711, with the view of restoring public credit, which had suffered by the dismissal of the Whig ministry, and of providing for the discharge of the army and navy debentures, and other parts of the floating debt, amounting to nearly ten millions sterling.

 

pages: 586 words: 159,901

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

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

Yet that's exactly how the financial press plays it: reflexively fellative. Historically, the financial press has served a deeply ideological role. As Wayne Parsons (1990) showed, the dissemination of price and product information was crucial to the development of national markets in Britain and America from the 17th through the 19th century. Like today, some of that information was good, but some of it was little more than shilling for the touts of the day; the South Sea Bubble, for example, probably never would have inflated without the help of the London press. But more than prices were circulated — so were ideas. The Economist, under editor Walter Bagehot, was crucial to the spread of the free-trade and laissez-faire religion through the British elite. As Bagehot said. The Economist, the magazine that mysteriously calls itself a newspaper, was a great "belief producer" for the new bourgeoisie.

 

pages: 374 words: 114,600

The Quants by Scott Patterson

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Albert Einstein, asset allocation, automated trading system, Benoit Mandelbrot, Bernie Madoff, Bernie Sanders, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, buttonwood tree, buy low sell high, capital asset pricing model, centralized clearinghouse, Claude Shannon: information theory, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, Doomsday Clock, Emanuel Derman, Eugene Fama: efficient market hypothesis, fixed income, Gordon Gekko, greed is good, Haight Ashbury, index fund, invention of the telegraph, invisible hand, Isaac Newton, job automation, John Nash: game theory, law of one price, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, merger arbitrage, NetJets, new economy, offshore financial centre, Paul Lévy, Ponzi scheme, quantitative hedge fund, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Sergey Aleynikov, short selling, South Sea Bubble, speech recognition, statistical arbitrage, The Chicago School, The Great Moderation, The Predators' Ball, too big to fail, transaction costs, value at risk, volatility smile, yield curve, éminence grise

Amazingly, not one of the quants, despite their chart-topping IQs, their walls of degrees, their impressive Ph.D.’s, their billions of wealth earned by anticipating every bob and weave the market threw their way, their decades studying every statistical quirk of the market under the sun, saw the train wreck coming. How could they have missed it? What went wrong? A hint to the answer was captured centuries ago by a man whose name emblazoned the poker chips the quants wagered with that night: Isaac Newton. After losing £20,000 on a vast Ponzi scheme known as the South Sea Bubble in 1720, Newton observed: “I can calculate the motion of heavenly bodies but not the madness of people.” Just past 5:00 A.M. on a spring Saturday in 1961, the sun was about to dawn on a small, ratty casino in Reno, Nevada. But inside there was perpetual darkness punctuated by the glow of neon lights. A blackjack player sat at an otherwise empty table, down $100 and exhausted. Ed Thorp was running on fumes but unwilling to quit.

 

pages: 402 words: 110,972

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

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

Mencken, the author, reporter, and editor known as the Sage of Baltimore, wrote, “No one in this world, so far as I know, has ever lost money by underestimating the intelligence of the great masses of the plain people.” Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds, originally published in 1841,4 supplies ample evidence to support Mencken’s thesis. The best known events are the Dutch tulip bulb mania, when sufficiently exotic bulbs (stripes were big) sold for more than a house, and the South Sea Bubble, when utterly worthless securities came to dominate the financial markets. Imagine something like that happening today. One anonymous Amazon reviewer concisely summarizes Mackay: “Why do otherwise intelligent individuals form seething masses of idiocy when they engage in collective action? Why do financially sensible people jump lemming-like into harebrained speculative frenzies—only to jump broker-like out of windows when their fantasies dissolve?”

 

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

Thatcher promoted him generously nonetheless, by giving him charge of the merged departments of trade and industry. Not knowing when a scandal might break over his head, Parkinson arrived in a hurry to achieve something. He decided to end a seven-year dispute between the government and the London Stock Exchange. The Stock Exchange was one of the nation’s least loved cartels, with its brokers and jobbers who never crossed one another’s demarcation lines under rules introduced after the South Sea Bubble of 1720. Brokers handled accounts for clients outside the Stock Exchange; jobbers did no business with anyone on the outside, but made their money by standing on pitches in the City like racecourse bookies, buying shares off the brokers if they thought the price was right, and selling when the price went up. There were also specialist investment houses to advise companies that wanted to f oat their shares on the Exchange.

 

pages: 349 words: 134,041

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

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

However, the text is different. 6 ‘What Worries Warren’ (3 March 2003) Fortune. 13_INDEX.QXD 17/2/06 4:44 pm Page 325 Index accounting rules 139, 221, 228, 257 Accounting Standards Board 33 accrual accounting 139 active fund management 111 actuaries 107–10, 205, 289 Advance Corporation Tax 242 agency business 123–4, 129 agency theory 117 airline profits 140–1 Alaska 319 Allen, Woody 20 Allied Irish Bank 143 Allied Lyons 98 alternative investment strategies 112, 308 American Express 291 analysts, role of 62–4 anchor effect 136 Anderson, Rolf 92–4 annuities 204–5 ANZ Bank 277 Aquinas, Thomas 137 arbitrage 33, 38–40, 99, 114, 137–8, 171–2, 245–8, 253–5, 290, 293–6 arbitration 307 Argentina 45 arithmophobia 177 ‘armpit theory’ 303 Armstrong World Industries 274 arrears assets 225 Ashanti Goldfields 97–8, 114 Asian financial crisis (1997) 4, 9, 44–5, 115, 144, 166, 172, 207, 235, 245, 252, 310, 319 asset consultants 115–17, 281 ‘asset growth’ strategy 255 asset swaps 230–2 assets under management (AUM) 113–4, 117 assignment of loans 267–8 AT&T 275 attribution of earnings 148 auditors 144 Australia 222–4, 254–5, 261–2 back office functions 65–6 back-to-back loans 35, 40 backwardation 96 Banca Popolare di Intra 298 Bank of America 298, 303 Bank of International Settlements 50–1, 281 Bank of Japan 220 Bankers’ Trust (BT) 59, 72, 101–2, 149, 217–18, 232, 268–71, 298, 301, 319 banking regulations 155, 159, 162, 164, 281, 286, 288 banking services 34; see also commercial banks; investment banks bankruptcy 276–7 Banque Paribas 37–8, 232 Barclays Bank 121–2, 297–8 13_INDEX.QXD 17/2/06 326 4:44 pm Page 326 Index Baring, Peter 151 Baring Brothers 51, 143, 151–2, 155 ‘Basel 2’ proposal 159 basis risk 28, 42, 274 Bear Stearns 173 bearer eurodollar collateralized securities (BECS) 231–3 ‘behavioural finance’ 136 Berkshire Hathaway 19 Bermudan options 205, 227 Bernstein, Peter 167 binomial option pricing model 196 Bismarck, Otto von 108 Black, Fischer 22, 42, 160, 185, 189–90, 193, 195, 197, 209, 215 Black–Scholes formula for option pricing 22, 185, 194–5 Black–Scholes–Merton model 160, 189–93, 196–7 ‘black swan’ hypothesis 130 Blair, Tony 223 Bogle, John 116 Bohr, Niels 122 Bond, Sir John 148 ‘bond floor’ concept 251–4 bonding 75–6, 168, 181 bonuses 146–51, 244, 262, 284–5 Brady Commission 203 brand awareness and brand equity 124, 236 Brazil 302 Bretton Woods system 33 bribery 80, 303 British Sky Broadcasting (BSB) 247–8 Brittain, Alfred 72 broad index secured trust offerings (BISTROs) 284–5 brokers 69, 309 Brown, Robert 161 bubbles 210, 310, 319 Buconero 299 Buffet, Warren 12, 19–20, 50, 110–11, 136, 173, 246, 316 business process reorganization 72 business risk 159 Business Week 130 buy-backs 249 ‘call’ options 25, 90, 99, 101, 131, 190, 196 callable bonds 227–9, 256 capital asset pricing model (CAPM) 111 capital flow 30 capital guarantees 257–8 capital structure arbitrage 296 Capote, Truman 87 carbon trading 320 ‘carry cost’ model 188 ‘carry’ trades 131–3, 171 cash accounting 139 catastrophe bonds 212, 320 caveat emptor principle 27, 272 Cayman Islands 233–4 Cazenove (company) 152 CDO2 292 Cemex 249–50 chaos theory 209, 312 Chase Manhattan Bank 143, 299 Chicago Board Options Exchange 195 Chicago Board of Trade (CBOT) 25–6, 34 chief risk officers 177 China 23–5, 276, 302–4 China Club, Hong Kong 318 Chinese walls 249, 261, 280 chrematophobia 177 Citibank and Citigroup 37–8, 43, 71, 79, 94, 134–5, 149, 174, 238–9 Citron, Robert 124–5, 212–17 client relationships 58–9 Clinton, Bill 223 Coats, Craig 168–9 collateral requirements 215–16 collateralized bond obligations (CBOs) 282 collateralized debt obligations (CDOs) 45, 282–99 13_INDEX.QXD 17/2/06 4:44 pm Page 327 Index collateralized fund obligations (CFOs) 292 collateralized loan obligations (CLOs) 283–5, 288 commercial banks 265–7 commoditization 236 commodity collateralized obligations (CCOs) 292 commodity prices 304 Commonwealth Bank of Australia 255 compliance officers 65 computer systems 54, 155, 197–8 concentration risk 271, 287 conferences with clients 59 confidence levels 164 confidentiality 226 Conseco 279–80 contagion crises 291 contango 96 contingent conversion convertibles (co-cos) 257 contingent payment convertibles (co-pays) 257 Continental Illinois 34 ‘convergence’ trading 170 convertible bonds 250–60 correlations 163–6, 294–5; see also default correlations corruption 303 CORVUS 297 Cox, John 196–7 credit cycle 291 credit default swaps (CDSs) 271–84, 293, 299 credit derivatives 129, 150, 265–72, 282, 295, 299–300 Credit Derivatives Market Practices Committee 273, 275, 280–1 credit models 294, 296 credit ratings 256–7, 270, 287–8, 297–8, 304 credit reserves 140 credit risk 158, 265–74, 281–95, 299 327 credit spreads 114, 172–5, 296 Credit Suisse 70, 106, 167 credit trading 293–5 CRH Capital 309 critical events 164–6 Croesus 137 cross-ruffing 142 cubic splines 189 currency options 98, 218, 319 custom repackaged asset vehicles (CRAVEs) 233 daily earning at risk (DEAR) concept 160 Daiwa Bank 142 Daiwa Europe 277 Danish Oil and Natural Gas 296 data scrubbing 142 dealers, work of 87–8, 124–8, 133, 167, 206, 229–37, 262, 295–6; see also traders ‘death swap’ strategy 110 decentralization 72 decision-making, scientific 182 default correlations 270–1 defaults 277–9, 287, 291, 293, 296, 299 DEFCON scale 156–7 ‘Delta 1’ options 243 delta hedging 42, 200 Deming, W.E. 98, 101 Denmark 38 deregulation, financial 34 derivatives trading 5–6, 12–14, 18–72, 79, 88–9, 99–115, 123–31, 139–41, 150, 153, 155, 175, 184–9, 206–8, 211–14, 217–19, 230, 233, 257, 262–3, 307, 316, 319–20; see also equity derivatives Derman, Emmanuel 185, 198–9 Deutsche Bank 70, 104, 150, 247–8, 274, 277 devaluations 80–1, 89, 203–4, 319 13_INDEX.QXD 17/2/06 4:44 pm Page 328 328 Index dilution of share capital 241 DINKs 313 Disney Corporation 91–8 diversification 72, 110–11, 166, 299 dividend yield 243 ‘Dr Evil’ trade 135 dollar premium 35 downsizing 73 Drexel Burnham Lambert (DBL) 282 dual currency bonds 220–3; see also reverse dual currency bonds earthquakes, bonds linked to 212 efficient markets hypothesis 22, 31, 111, 203 electronic trading 126–30, 134 ‘embeddos’ 218 emerging markets 3–4, 44, 115, 132–3, 142, 212, 226, 297 Enron 54, 142, 250, 298 enterprise risk management (ERM) 176 equity capital management 249 equity collateralized obligations (ECOs) 292 equity derivatives 241–2, 246–9, 257–62 equity index 137–8 equity investment, retail market in 258–9 equity investors’ risk 286–8 equity options 253–4 equity swaps 247–8 euro currency 171, 206, 237 European Bank for Reconstruction and Development 297 European currency units 93 European Union 247–8 Exchange Rate Mechanism, European 204 exchangeable bonds 260 expatriate postings 81–2 expert witnesses 310–12 extrapolation 189, 205 extreme value theory 166 fads of management science 72–4 ‘fairway bonds’ 225 Fama, Eugene 22, 111, 194 ‘fat tail’ events 163–4 Federal Accounting Standards Board 266 Federal Home Loans Bank 213 Federal National Mortgage Association 213 Federal Reserve Bank 20, 173 Federal Reserve Board 132 ‘Ferraris’ 232 financial engineering 228, 230, 233, 249–50, 262, 269 Financial Services Authority (FSA), Japan 106, 238 Financial Services Authority (FSA), UK 15, 135 firewalls 235–6 firing of staff 84–5 First Interstate Ltd 34–5 ‘flat’ organizations 72 ‘flat’ positions 159 floaters 231–2; see also inverse floaters ‘flow’ trading 60–1, 129 Ford Motors 282, 296 forecasting 135–6, 190 forward contracts 24–33, 90, 97, 124, 131, 188 fugu fish 239 fund management 109–17, 286, 300 futures see forward contracts Galbraith, John Kenneth 121 gamma risk 200–2, 294 Gauss, Carl Friedrich 160–2 General Motors 279, 296 General Reinsurance 20 geometric Brownian motion (GBM) 161 Ghana 98 Gibson Greeting Cards 44 Glass-Steagall Act 34 gold borrowings 132 13_INDEX.QXD 17/2/06 4:44 pm Page 329 Index gold sales 97, 137 Goldman Sachs 34, 71, 93, 150, 173, 185 ‘golfing holiday bonds’ 224 Greenspan, Alan 6, 9, 19–21, 29, 43, 47, 50, 53, 62, 132, 159, 170, 215, 223, 308 Greenwich NatWest 298 Gross, Bill 19 Guangdong International Trust and Investment Corporation (GITIC) 276–7 guaranteed annuity option (GAO) contracts 204–5 Gutenfreund, John 168–9 gyosei shido 106 Haghani, Victor 168 Hamanaka, Yasuo 142 Hamburgische Landesbank 297 Hammersmith and Fulham, London Borough of 66–7 ‘hara-kiri’ swaps 39 Hartley, L.P. 163 Hawkins, Greg 168 ‘heaven and hell’ bonds 218 hedge funds 44, 88–9, 113–14, 167, 170–5, 200–2, 206, 253–4, 262–3, 282, 292, 296, 300, 308–9 hedge ratio 264 hedging 24–8, 31, 38–42, 60, 87–100, 184, 195–200, 205–7, 214, 221, 229, 252, 269, 281, 293–4, 310 Heisenberg, Werner 122 ‘hell bonds’ 218 Herman, Clement (‘Crem’) 45–9, 77, 84, 309 Herodotus 137, 178 high net worth individuals (HNWIs) 237–8, 286 Hilibrand, Lawrence 168 Hill Samuel 231–2 329 The Hitchhiker’s Guide to the Galaxy 189 Homer, Sidney 184 Hong Kong 9, 303–4 ‘hot tubbing’ 311–12 HSBC Bank 148 HSH Nordbank 297–8 Hudson, Kevin 102 Hufschmid, Hans 77–8 IBM 36, 218, 260 ICI 34 Iguchi, Toshihude 142 incubators 309 independent valuation 142 indexed currency option notes (ICONs) 218 India 302 Indonesia 5, 9, 19, 26, 55, 80–2, 105, 146, 219–20, 252, 305 initial public offerings 33, 64, 261 inside information and insider trading 133, 241, 248–9 insurance companies 107–10, 117, 119, 150, 192–3, 204–5, 221, 223, 282, 286, 300; see also reinsurance companies insurance law 272 Intel 260 intellectual property in financial products 226 Intercontinental Hotels Group (IHG) 285–6 International Accounting Standards 33 International Securities Market Association 106 International Swap Dealers Association (ISDA) 273, 275, 279, 281 Internet stock and the Internet boom 64, 112, 259, 261, 310, 319 interpolation of interest rates 141–2, 189 inverse floaters 46–51, 213–16, 225, 232–3 13_INDEX.QXD 17/2/06 4:44 pm Page 330 330 Index investment banks 34–8, 62, 64, 67, 71, 127–8, 172, 198, 206, 216–17, 234, 265–7, 298, 309 investment managers 43–4 investment styles 111–14 irrational decisions 136 Italy 106–7 Ito’s Lemma 194 Japan 39, 43, 82–3, 92, 94, 98–9, 101, 106, 132, 142, 145–6, 157, 212, 217–25, 228, 269–70 Jensen, Michael 117 Jett, Joseph 143 JP Morgan (company) 72, 150, 152, 160, 162, 249–50, 268–9, 284–5, 299; see also Morgan Guaranty junk bonds 231, 279, 282, 291, 296–7 JWM Associates 175 Kahneman, Daniel 136 Kaplanis, Costas 174 Kassouf, Sheen 253 Kaufman, Henry 62 Kerkorian, Kirk 296 Keynes, J.M. 167, 175, 198 Keynesianism 5 Kidder Peabody 143 Kleinwort Benson 40 Korea 9, 226, 278 Kozeny, Viktor 121 Krasker, William 168 Kreiger, Andy 319 Kyoto Protocol 320 Lavin, Jack 102 law of large numbers 192 Leeson, Nick 51, 131, 143, 151 legal opinions 47, 219–20, 235, 273–4 Leibowitz, Martin 184 Leland, Hayne 42, 202 Lend Lease Corporation 261–2 leptokurtic conditions 163 leverage 31–2, 48–50, 54, 99, 102–3, 114, 131–2, 171–5, 213–14, 247, 270–3, 291, 295, 305, 308 Lewis, Kenneth 303 Lewis, Michael 77–8 life insurance 204–5 Lintner, John 111 liquidity options 175 liquidity risk 158, 173 litigation 297–8 Ljunggren, Bernt 38–40 London Inter-Bank Offered Rate (LIBOR) 6, 37 ‘long first coupon’ strategy 39 Long Term Capital Management (LTCM) 44, 51, 62, 77–8, 84, 114, 166–75, 187, 206, 210, 215–18, 263–4, 309–10 Long Term Credit Bank of Japan 94 LOR (company) 202 Louisiana Purchase 319 low exercise price options (LEPOs) 261 Maastricht Treaty and criteria 106–7 McLuhan, Marshall 134 McNamara, Robert 182 macro-economic indicators, derivatives linked to 319 Mahathir Mohammed 31 Malaysia 9 management consultants 72–3 Manchester United 152 mandatory convertibles 255 Marakanond, Rerngchai 302 margin calls 97–8, 175 ‘market neutral’ investment strategy 114 market risk 158, 173, 265 marketable eurodollar collateralized securities (MECS) 232 Markowitz, Harry 110 mark-to-market accounting 10, 100, 139–41, 145, 150, 174, 215–16, 228, 244, 266, 292, 295, 298 Marx, Groucho 24, 57, 67, 117, 308 13_INDEX.QXD 17/2/06 4:44 pm Page 331 Index mathematics applied to financial instruments 209–10; see also ‘quants’ matrix structures 72 Meckling, Herbert 117 Melamed, Leo 34, 211 merchant banks 38 Meriwether, John 167–9, 172–5 Merrill Lynch 124, 150, 217, 232 Merton, Robert 22, 42, 168–70, 175, 185, 189–90, 193–7, 210 Messier, Marie 247 Metallgesellschaft 95–7 Mexico 44 mezzanine finance 285–8, 291–7 MG Refining and Marketing 95–8, 114 Microsoft 53 Mill, Stuart 130 Miller, Merton 22, 101, 194 Milliken, Michael 282 Ministry of Finance, Japan 222 misogyny 75–7 mis-selling 238, 297–8 Mitchell, Edison 70 Mitchell & Butler 275–6 models financial 42–3, 141–2, 163–4, 173–5, 181–4, 189, 198–9, 205–10 of business processes 73–5 see also credit models Modest, David 168 momentum investment 111 monetization 260–1 monopolies in financial trading 124 moral hazard 151, 280, 291 Morgan Guaranty 37–8, 221, 232 Morgan Stanley 76, 150 mortgage-backed securities (MBSs) 282–3 Moscow, City of 277 moves of staff between firms 150, 244 Mozer, Paul 169 Mullins, David 168–70 multi-skilling 73 331 Mumbai 3 Murdoch, Rupert 247 Nabisco 220 Napoleon 113 NASDAQ index 64, 112 Nash, Ogden 306 National Australia Bank 144, 178 National Rifle Association 29 NatWest Bank 144–5, 198 Niederhoffer, Victor 130 ‘Nero’ 7, 31, 45–9, 60, 77, 82–3, 88–9, 110, 118–19, 125, 128, 292 NERVA 297 New Zealand 319 Newman, Frank 104 news, financial 133–4 News Corporation 247 Newton, Isaac 162, 210 Nippon Credit Bank 106, 271 Nixon, Richard 33 Nomura Securities 218 normal distribution 160–3, 193, 199 Northern Electric 248 O’Brien, John 202 Occam, William 188 off-balance sheet transactions 32–3, 99, 234, 273, 282 ‘offsites’ 74–5 oil prices 30, 33, 89–90, 95–7 ‘omitted variable’ bias 209–10 operational risk 158, 176 opinion shopping 47 options 9, 21–2, 25–6, 32, 42, 90, 98, 124, 197, 229 pricing 185, 189–98, 202 Orange County 16, 44, 50, 124–57, 212–17, 232–3 orphan subsidiaries 234 over-the-counter (OTC) market 26, 34, 53, 95, 124, 126 overvaluation 64 13_INDEX.QXD 17/2/06 4:44 pm Page 332 332 Index ‘overwhelming force’ strategy 134–5 Owen, Martin 145 ownership, ‘legal’ and ‘economic’ 247 parallel loans 35 pari-mutuel auction system 319 Parkinson’s Law 136 Parmalat 250, 298–9 Partnoy, Frank 87 pension funds 43, 108–10, 115, 204–5, 255 People’s Bank of China (PBOC) 276–7 Peters’ Principle 71 petrodollars 71 Pétrus (restaurant) 121 Philippines, the 9 phobophobia 177 Piga, Gustavo 106 PIMCO 19 Plaza Accord 38, 94, 99, 220 plutophobia 177 pollution quotas 320 ‘portable alpha’ strategy 115 portfolio insurance 112, 202–3, 294 power reverse dual currency (PRDC) bonds 226–30 PowerPoint 75 preferred exchangeable resettable listed shares (PERLS) 255 presentations of business models 75 to clients 57, 185 prime brokerage 309 Prince, Charles 238 privatization 205 privity of contract 273 Proctor & Gamble (P&G) 44, 101–4, 155, 298, 301 product disclosure statements (PDSs) 48–9 profit smoothing 140 ‘programme’ issuers 234–5 proprietary (‘prop’) trading 60, 62, 64, 130, 174, 254 publicly available information (PAI) 277 ‘puff’ effect 148 purchasing power parity theory 92 ‘put’ options 90, 131, 256 ‘quants’ 183–9, 198, 208, 294 Raabe, Matthew 217 Ramsay, Gordon 121 range notes 225 real estate 91, 219 regulatory arbitrage 33 reinsurance companies 288–9 ‘relative value’ trading 131, 170–1, 310 Reliance Insurance 91–2 repackaging (‘repack’) business 230–6, 282, 290 replication in option pricing 195–9, 202 dynamic 200 research provided to clients 58, 62–4, 184 reserves, use of 140 reset preference shares 254–7 restructuring of loans 279–81 retail equity products 258–9 reverse convertibles 258–9 reverse dual currency bonds 223–30 ‘revolver’ loans 284–5 risk, financial, types of 158 risk adjusted return on capital (RAROC) 268, 290 risk conservation principle 229–30 risk management 65, 153–79, 184, 187, 201, 267 risk models 163–4, 173–5 riskless portfolios 196–7 RJ Reynolds (company) 220–1 rogue traders 176, 313–16 Rosenfield, Eric 168 Ross, Stephen 196–7, 202 Roth, Don 38 Rothschild, Mayer Amshel 267 Royal Bank of Scotland 298 Rubinstein, Mark 42, 196–7 13_INDEX.QXD 17/2/06 4:44 pm Page 333 Index Rumsfeld, Donald 12, 134, 306 Rusnak, John 143 Russia 45, 80, 166, 172–3, 274, 302 sales staff 55–60, 64–5, 125, 129, 217 Salomon Brothers 20, 36, 54, 62, 167–9, 174, 184 Sandor, Richard 34 Sanford, Charles 72, 269 Sanford, Eugene 269 Schieffelin, Allison 76 Scholes, Myron 22, 42, 168–71, 175, 185, 189–90, 193–7, 263–4 Seagram Group 247 Securities and Exchange Commission, US 64, 304 Securities and Futures Authority, UK 249 securitization 282–90 ‘security design’ 254–7 self-regulation 155 sex discrimination 76 share options 250–1 Sharpe, William 111 short selling 30–1, 114 Singapore 9 single-tranche CDOs 293–4, 299 ‘Sisters of Perpetual Ecstasy’ 234 SITCOMs 313 Six Continents (6C) 275–6 ‘smile’ effect 145 ‘snake’ currency system 203 ‘softing’ arrangements 117 Solon 137 Soros, George 44, 130, 253, 318–19 South Sea Bubble 210 special purpose asset repackaging companies (SPARCs) 233 special purpose vehicles (SPVs) 231–4, 282–6, 290, 293 speculation 29–31, 42, 67, 87, 108, 130 ‘spinning’ 64 333 Spitzer, Eliot 64 spread 41, 103; see also credit spreads stack hedges 96 Stamenson, Michael 124–5 standard deviation 161, 193, 195, 199 Steinberg, Sol 91 stock market booms 258, 260 stock market crashes 42–3, 168, 203, 257, 259, 319 straddles or strangles 131 strategy in banking 70 stress testing 164–6 stripping of convertible bonds 253–4 structured investment products 44, 112, 115, 118, 128, 211–39, 298 structured note asset packages (SNAPs) 233 Stuart SC 18, 307, 316–18 Styblo Bleder, Tanya 153 Suharto, Thojib 81–2 Sumitomo Corporation 100, 142 Sun Tzu 61 Svensk Exportkredit (SEK) 38–9 swaps 5–10, 26, 35–40, 107, 188, 211; see also equity swaps ‘swaptions’ 205–6 Swiss Bank Corporation (SBC) 248–9 Swiss banks 108, 305 ‘Swiss cheese theory’ 176 synthetic securitization 284–5, 288–90 systemic risk 151 Takeover Panel 248–9 Taleb, Nassim 130, 136, 167 target redemption notes 225–6 tax and tax credits 171, 242–7, 260–3 Taylor, Frederick 98, 101 team-building exercises 76 team moves 149 technical analysis 60–1, 135 television programmes about money 53, 62–3 Thailand 9, 80, 302–5 13_INDEX.QXD 17/2/06 4:44 pm Page 334 334 Index Thatcher, Margaret 205 Thorp, Edward 253 tobashi trades 105–7 Tokyo Disneyland 92, 212 top managers 72–3 total return swaps 246–8, 269 tracking error 138 traders in financial products 59–65, 129–31, 135–6, 140, 148, 151, 168, 185–6, 198; see also dealers trading limits 42, 157, 201 trading rooms 53–4, 64, 68, 75–7, 184–7, 208 Trafalgar House 248 tranching 286–9, 292, 296 transparency 26, 117, 126, 129–30, 310 Treynor, Jack 111 trust investment enhanced return securities (TIERS) 216, 233 trust obligation participating securities (TOPS) 232 TXU Europe 279 UBS Global Asset Management 110, 150, 263–4, 274 uncertainty principle 122–3 unique selling propositions 118 unit trusts 109 university education 187 unspecified fund obligations (UFOs) 292 ‘upfronting’ of income 139, 151 Valéry, Paul 163 valuation 64, 142–6 value at risk (VAR) concept 160–7, 173 value investing 111 Vanguard 116 vanity bonds 230 variance 161 Vietnam War 182, 195 Virgin Islands 233–4 Vivendi 247–8 volatility of bond prices 197 of interest rates 144–5 of share prices 161–8, 172–5, 192–3, 199 Volcker, Paul 20, 33 ‘warehouses’ 40–2, 139 warrants arbitrage 99–101 weather, bonds linked to 212, 320 Weatherstone, Dennis 72, 268 Weil, Gotscal & Manges 298 Weill, Sandy 174 Westdeutsche Genosenschafts Zentralbank 143 Westminster Group 34–5 Westpac 261–2 Wheat, Allen 70, 72, 106, 167 Wojniflower, Albert 62 World Bank 4, 36, 38 World Food Programme 320 Worldcom 250, 298 Wriston, Walter 71 WTI (West Texas Intermediate) contracts 28–30 yield curves 103, 188–9, 213, 215 yield enhancement 112, 213, 269 ‘yield hogs’ 43 zaiteku 98–101, 104–5 zero coupon bonds 221–2, 257–8

 

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

The best way to deal with the possibility of default of course, is to make good loans in the first place. That’s why banks have underwriting standards. But even the soundest loan portfolio is going to have defaults; it’s inevitable. Nobody can know what the future holds. Strong companies can become weak. Unforeseen events can take place. No loan is risk free. Nor, of course, are bank portfolios always sound. The history of banking is filled with episodes of mania, going back at least to the South Sea Bubble in the 1720s, when bankers lost their heads and made foolish loans. In such instances, when a raft of bad loans couldn’t be paid back, banks were suddenly shuttered and a financial crisis often ensued, requiring government intervention. To protect against defaults, banks hold capital in reserve, which can be used to fill the hole in the balance sheet if loans go bad. In the late nineteenth century, the U.S. government forced banks to hold a staggering 30 percent of their capital in reserve.

 

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

Their future was lunchtime. Greenspan’s dyspeptic (for him) outburst was probably in reaction to staff economist Michael Prell’s earlier discussion of an IPO prospectus. The indefatigable Prell had discussed VA Linux, which entered the carnival on December 9, 1999. VA Linux jumped 700 percent on its first day of trading. It was valued at $9 billion. Prell compared the current atmosphere to that of England’s South Sea Bubble fiasco in 1720 which so devastated Isaac Newton, he would not discuss it for the rest of his life. He quoted from the South Sea share offering: “ ‘A company for carrying on an undertaking of great advantage, but nobody to know what it is.’”28 25 For FOMC comments, see William A. Fleckenstein with Frederick Sheehan, Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve (New York: McGraw-Hill, 2008), pp. 78–79. 26 FOMC meeting transcript, December 21, 1999, p. 49.

 

pages: 404 words: 118,759

The Bohemians: Mark Twain and the San Francisco Writers Who Reinvented American Literature by Ben Tarnoff

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California gold rush, interchangeable parts, Maui Hawaii, new economy, New Journalism, Plutocrats, plutocrats, Ralph Waldo Emerson, Ronald Reagan, South of Market, San Francisco, South Sea Bubble, transcontinental railway, traveling salesman

But the coyness of Stoddard’s tone kept him safely within the bounds of propriety. He could play at “barbarianism” without his readers realizing how serious he was. He could talk about “hating civilization” and pretend he was kidding. Harte loved the piece. “Now you have struck it,” he told Stoddard. “Keep on in this vein and presently you will have enough to fill a volume and you can call it South Sea Bubbles!” In prose, Stoddard found the original sound that had eluded him in poetry. It was laced with a distinctly western irreverence for the pieties of proper society—what William Dean Howells later called his “mustang humor,” born of a frontier even farther off the map than the California mining camps. At times Stoddard sounded positively Twain-like: “If you want to do any thing particularly, I should advise you to do it, and then be sufficiently sorry to make it all square.”

 

pages: 464 words: 117,495

The New Trading for a Living: Psychology, Discipline, Trading Tools and Systems, Risk Control, Trade Management by Alexander Elder

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additive manufacturing, Atul Gawande, backtesting, Benoit Mandelbrot, buy low sell high, Checklist Manifesto, deliberate practice, diversification, Elliott wave, endowment effect, loss aversion, mandelbrot fractal, margin call, offshore financial centre, paper trading, Ponzi scheme, price stability, psychological pricing, quantitative easing, random walk, risk tolerance, short selling, South Sea Bubble, systematic trading, The Wisdom of Crowds, transaction costs, transfer pricing, traveling salesman, tulip mania

A high degree of consensus precedes reversals. When the crowd becomes highly bullish, get ready to sell, and when it becomes strongly bearish, get ready to buy. This is the contrary opinion theory, whose foundations were laid by Charles Mackay, a Scottish barrister. His classic book, Extraordinary Popular Delusions and the Madness of Crowds (1841) describes the infamous Dutch Tulip Mania and the South Seas Bubble in England. Humphrey B. Neill in the United States applied the theory of contrary opinion to stocks and other financial markets. In his book, The Art of Contrary Thinking, he made it clear why the majority must be wrong at the market's turning points: prices are established by crowds, and by the time the majority turns bullish, there aren't enough new buyers to support a bull market. Abraham W.

 

pages: 500 words: 145,005

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

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Albert Einstein, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, Berlin Wall, Bernie Madoff, Black-Scholes formula, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, market clearing, Mason jar, mental accounting, meta analysis, meta-analysis, More Guns, Less Crime, mortgage debt, Nash equilibrium, Nate Silver, New Journalism, nudge unit, payday loans, Ponzi scheme, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Walter Mischel

Scientia 98, no. 612: 108. ———. 1979. “Why We Should Not Make Mean Log of Wealth Big Though Years to Act Are Long.” Journal of Banking and Finance 3, no. 4: 305–7. Samuelson, William, and Richard J. Zeckhauser. 1988. “Status Quo Bias in Decision Making.” Journal of Risk and Uncertainty 1, no. 1: 7–59. Schachter, Stanley, William Gerin, Donald C. Hood, and Paul Anderassen. 1985a. “I. Was the South Sea Bubble a Random Walk?” Journal of Economic Behavior and Organization 6, no. 4: 323–9. Schachter, Stanley, Donald C. Hood, William Gerin, Paul Andreassen, and Michael Rennert. 1985b. “III. Some Causes and Consequences of Dependence and Independence in the Stock Market.” Journal of Economic Behavior and Organization 6, no. 4: 339–57. Schelling, Thomas C. 1968. “The Life You Save May Be Your Own.” In Samuel B.

 

pages: 497 words: 144,283

Connectography: Mapping the Future of Global Civilization by Parag Khanna

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1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, 9 dash line, additive manufacturing, Admiral Zheng, affirmative action, agricultural Revolution, Airbnb, Albert Einstein, amateurs talk tactics, professionals talk logistics, Amazon Mechanical Turk, Asian financial crisis, asset allocation, autonomous vehicles, banking crisis, Basel III, Berlin Wall, bitcoin, Black Swan, blockchain, borderless world, Boycotts of Israel, Branko Milanovic, BRICs, British Empire, business intelligence, call centre, capital controls, charter city, clean water, cloud computing, collateralized debt obligation, complexity theory, corporate governance, corporate social responsibility, credit crunch, crony capitalism, crowdsourcing, cryptocurrency, cuban missile crisis, data is the new oil, David Ricardo: comparative advantage, deglobalization, deindustrialization, dematerialisation, Deng Xiaoping, Detroit bankruptcy, diversification, Doha Development Round, edge city, Edward Snowden, Elon Musk, energy security, ethereum blockchain, European colonialism, eurozone crisis, failed state, Fall of the Berlin Wall, family office, Ferguson, Missouri, financial innovation, financial repression, forward guidance, global supply chain, global value chain, global village, Google Earth, Hernando de Soto, high net worth, Hyperloop, ice-free Arctic, if you build it, they will come, illegal immigration, income inequality, income per capita, industrial robot, informal economy, Infrastructure as a Service, interest rate swap, Internet of things, Isaac Newton, Jane Jacobs, Jaron Lanier, John von Neumann, Julian Assange, Just-in-time delivery, Kevin Kelly, Khyber Pass, Kibera, Kickstarter, labour market flexibility, labour mobility, LNG terminal, low cost carrier, manufacturing employment, mass affluent, megacity, Mercator projection, microcredit, mittelstand, Monroe Doctrine, mutually assured destruction, New Economic Geography, new economy, New Urbanism, offshore financial centre, oil rush, oil shale / tar sands, oil shock, openstreetmap, out of africa, Panamax, Peace of Westphalia, peak oil, Peter Thiel, Plutocrats, plutocrats, post-oil, post-Panamax, private military company, purchasing power parity, QWERTY keyboard, race to the bottom, Rana Plaza, rent-seeking, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scramble for Africa, Second Machine Age, sharing economy, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, six sigma, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, Stuxnet, supply-chain management, sustainable-tourism, TaskRabbit, telepresence, the built environment, Tim Cook: Apple, trade route, transaction costs, UNCLOS, uranium enrichment, urban planning, urban sprawl, WikiLeaks, young professional, zero day

Brave New Math: Information, Globalization, and New Economic Thinking in the 21st Century. World Policy Institute, 2014. Martel, William C. Grand Strategy in Theory and Practice. Cambridge University Press, 2015. Mayer-Schonberger, Viktor, and Kenneth Cukier. Big Data: A Revolution That Will Transform How We Live, Work, and Think. Eamon Dolan/Mariner Books, 2014. Mays, Andrew, and Gart S. Shea. “East India Company and Bank of England Shareholders During the South Sea Bubble: Partitions, Components, and Connectivity in a Dynamic Trading Network.” University of St. Andrews, Centre for Dynamic Macroeconomic Analysis, 2011. Mazzucato, Mariana. The Entrepreneurial State: Debunking Public vs. Private Sector Myths. Anthem Press, 2013. McFate, Sean. The Modern Mercenary: Private Armies and What They Mean for World Order. Oxford University Press, 2015. McGregor, Richard.

 

pages: 565 words: 164,405

A Splendid Exchange: How Trade Shaped the World by William J. Bernstein

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Admiral Zheng, asset allocation, bank run, Benoit Mandelbrot, British Empire, call centre, clean water, Columbian Exchange, Corn Laws, David Ricardo: comparative advantage, deindustrialization, Doha Development Round, domestication of the camel, double entry bookkeeping, Eratosthenes, financial innovation, Gini coefficient, ice-free Arctic, imperial preference, income inequality, intermodal, James Hargreaves, John Harrison: Longitude, Khyber Pass, low skilled workers, non-tariff barriers, placebo effect, Port of Oakland, refrigerator car, Silicon Valley, South China Sea, South Sea Bubble, spice trade, spinning jenny, Steven Pinker, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade liberalization, trade route, transatlantic slave trade, transatlantic slave trade, transcontinental railway, upwardly mobile, working poor

The disturbance ended only with the onset of winter, when even the most fashionable ladies clad themselves in warmer wool.5; The specter of insurrection frightened Parliament and the new Hanoverian monarchy. They debated how to mollify mobs of weavers, who on at least one other occasion again angrily surrounded Parliament, chanted, and demanded action. The legislative battle raged for two years. Finally, in 1721, following the economic chaos caused by the collapse of the South Sea Bubble, Parliament banned even the importation of plain Indian cloth. Wearing it also became a crime; violators were fined £5, which could be claimed by the informer. Thenceforth, only thread or raw cotton could be imported. Curiously, Parliament allowed one exception to the ban on whole cloth: women were allowed to wear imported cottons if dyed an unfashionable plain blue.54 Inevitably, these protectionist measures backfired against the woolen industry and the silk weavers.

 

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies by Jeremy J. Siegel

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asset allocation, backtesting, Black-Scholes formula, Bretton Woods, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, joint-stock company, Long Term Capital Management, loss aversion, market bubble, mental accounting, new economy, oil shock, passive investing, prediction markets, price anchoring, price stability, purchasing power parity, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, Vanguard fund

Psychologists call this penchant to follow the crowd the herding instinct—the tendency of individuals to adapt their thinking to the prevailing opinion. The Internet bubble has many precedents. In 1852, Charles Mackay wrote the classic Extraordinary Delusions and the Madness of Crowds, which chronicled a number of financial bubbles during which speculators were driven into a frenzy by the upward movement of prices: the South Sea bubble in England and the Mississippi bubble in France around 1720 and the tulip mania in Holland a century earlier.8 Let me read you my favorite passage from the book. See if you can relate with this: We find that whole communities suddenly fix their minds upon one subject, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion and run after it. . . .

 

pages: 369 words: 120,636

Commuter City: How the Railways Shaped London by David Wragg

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

Companies seldom had large headquarters, but instead the proprietor would often live above the business, and if it was larger, he would live above the counting house rather than the workshops or warehouses. That the railways were an uncertain investment became obvious for those with cool heads as early as the 1820s. Even before this, within living memory, there had been the ‘canal’ of 1791-94, when forty-two new canals had received parliamentary approval. Even earlier, there had been the South Sea Bubble of 1719-20. Boom and bust The boom of the 1820s had been created not just by the railways but by changes in the legislation governing companies and limiting the liability of shareholders. No longer could a creditor bankrupt the owners of a business if it was a limited company. Money was readily available and this encouraged many entrepreneurs to float new concerns, including utility companies and mining.

 

pages: 801 words: 242,104

Collapse: How Societies Choose to Fail or Succeed by Jared Diamond

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clean water, colonial rule, correlation does not imply causation, cuban missile crisis, Donner party, European colonialism, Exxon Valdez, illegal immigration, job satisfaction, means of production, new economy, North Sea oil, Piper Alpha, polynesian navigation, profit motive, South Sea Bubble, statistical model, Stewart Brand, Thomas Malthus, trade route, transcontinental railway, unemployed young men

Barbara Tuchman, The March of Folly: From Troy to Vietnam (New York: Ballantine Books, 1984) covers disastrous decisions over exactly the time span that she names in the book’s title, also reflecting en route from Troy to Vietnam on the follies of the Aztec emperor Montezuma, the fall of Christian Spain to the Moslems, England’s provocation of the American Revolution, and other such self-destructive acts. Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (New York: Barnes and Noble, 1993, reprint of the original 1852 edition) covers an even wider range of follies than does Tuchman, including (just to name a few) the South Sea bubble in 18th-century England, tulip madness in 17th-century Holland, prophecies of the Last Judgment, the Crusades, witch hunting, belief in ghosts and sacred relics, dueling, and kings’ decrees about hair length, beards, and mustaches. Irving Janis, Groupthink (Boston: Houghton Mifflin, 1983, revised 2nd ed.) explores the subtle group dynamics that contributed to the success or failure of deliberations involving recent American presidents and their advisors.

 

pages: 584 words: 187,436

More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby

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Andrei Shleifer, Asian financial crisis, asset-backed security, automated trading system, bank run, barriers to entry, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency peg, Elliott wave, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, fixed income, full employment, German hyperinflation, High speed trading, index fund, Kenneth Rogoff, Long Term Capital Management, margin call, market bubble, market clearing, market fundamentalism, merger arbitrage, moral hazard, natural language processing, Network effects, new economy, Nikolai Kondratiev, pattern recognition, pre–internet, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, technology bubble, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs

Kondratiev’s teachings had helped Cilluffo to anticipate the crash of 1973, which presumably meant that the next cataclysm was not due until 1997; yet in 1987 Jones nonetheless believed that the theory reinforced the case that “total rock and roll” was imminent. Jones was even more enamored of Elliott wave analysis, as expounded by an investment guru named Robert Prechter. The guru asserted with great confidence that stocks would experience one last upward explosion before plunging at least 90 percent: It would be the greatest crash since the bursting of the South Sea bubble in England in 1720. Jones told one interviewer, apparently in all sincerity, “I attribute a lot of my own success to the Elliott Wave approach.”11 But Prechter’s predictions of disaster were wildly overblown, and even Jones agreed that Prechter had no way of pinpointing when the crash would happen.12 The truth was that Jones’s trading profits came from agile short-term moves, not from understanding multidecade supercycles whose existence was dubious.

 

pages: 753 words: 233,306

Collapse by Jared Diamond

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clean water, colonial rule, correlation does not imply causation, cuban missile crisis, Donner party, European colonialism, Exxon Valdez, illegal immigration, job satisfaction, means of production, new economy, North Sea oil, Piper Alpha, polynesian navigation, prisoner's dilemma, South Sea Bubble, statistical model, Stewart Brand, Thomas Malthus, trade route, transcontinental railway, unemployed young men

Barbara Tuchman, The March of Folly: From Troy to Vietnam (New York: Ballantine Books, 1984) covers disastrous decisions over exactly the time span that she names in the book's title, also reflecting en route from Troy to Vietnam on the follies of the Aztec emperor Montezuma, the fall of Christian Spain to the Moslems, England's provocation of the American Revolution, and other such self-destructive acts. Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (New York: Barnes and Noble, 1993, reprint of the original 1852 edition) covers an even wider range of follies than does Tuchman, including (just to name a few) the South Sea bubble in 18th-century England, tulip madness in 17th-century Holland, prophecies of the Last Judgment, the Crusades, witch hunting, belief in ghosts and sacred relics, dueling, and kings' decrees about hair length, beards, and mustaches. Irving Janis, Groupthink (Boston: Houghton Mifflin, 1983, revised 2nd ed.) explores the subtle group dynamics that contributed to the success or failure of deliberations involving recent American presidents and their advisors.

 

pages: 540 words: 168,921

The Relentless Revolution: A History of Capitalism by Joyce Appleby

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

Among all the legitimate interests at play in the market are the less appealing opportunities to exploit legal loopholes, buyers’ ignorance, and unexpected windfalls. Because of these and without coordination from any center, capitalists can cause serious damage, as the subprime mortgage meltdown abundantly proved. And it will not be the last panic. The dot-com bubble and the housing bubble had their forerunners in the South Sea Bubble of the eighteenth century and the tulip bubble of the seventeenth century. It’s hard to believe that it won’t happen again. Capitalism’s history suggests that democracy and capitalism might be decoupled because they generate values that are often in conflict. Democracy means majority rule with regular, contested elections; American and European democracies include the protection of civil and personal rights.

 

The Companion Guide to London by David Piper, Fionnuala Jervis

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British Empire, Edward Lloyd's coffeehouse, haute couture, Isaac Newton, Jarndyce and Jarndyce, South Sea Bubble, V2 rocket

Change Alley now is a crosswork of sterile ways, sunk among sevenstorey backsides of banks all glazed in white tiles, like a giant’s lavatory. But there in the early eighteenth century most stock exchange business was done, and there at Jonathan’s or Garraway’s even amateurs or hopeful incompetent poets liked to have a flutter; thus Pope wrote to a friend there in 1720, the year of the great financial crash known as the South Sea Bubble, asking to be remembered to John Gay ‘for anywhere else (I deem) you will not see him as yet…’ It was at No. 16 Lombard Street that Edward Lloyd had his coffeehouse whence sprang Lloyd’s of London. Some banks still have the agreeable medieval habit of indicating their presence by a sign hanging out over the pavement, and outside No. 68 is a large and beautiful, gilt grasshopper – the house is said to have belonged to Gresham, and later Martin’s Bank (the oldest in England, founded in 1163).

 

pages: 713 words: 203,688

Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough, John Helyar

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buy low sell high, Donald Trump, Gordon Gekko, margin call, Ronald Reagan, shareholder value, South Sea Bubble

He questioned whether the committee could truly “safeguard the stockholders’ interests,” in light of the “close relationships between certain committee members and Mr. Johnson.” Bagley’s letter, while never acted on, upped the pressure one more notch when it was released to the press. On a national scale, the fight for RJR Nabisco prompted new debate on the danger LBO debt held for the country. “Our nation is blindly rushing toward the precipice,” warned Martin Lipton, the famed merger attorney, in a memo to clients. “As with tulip bulbs, South Sea bubbles, pyramid investment trusts,…Texas banks and all the other financial frenzies of the past, the denouement will be a crash.” Federal Reserve Board chairman Alan Greenspan urged Congress to have banks reconsider how LBO loans would fare in a recession. The comptroller of the currency instructed federal bank examiners to take a closer look at LBO loans. Senate minority leader Bob Dole and other politicians began growling about the need to reform the tax code to curb LBOs.

 

pages: 650 words: 203,191

After Tamerlane: The Global History of Empire Since 1405 by John Darwin

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agricultural Revolution, Atahualpa, Berlin Wall, Bretton Woods, British Empire, Cape to Cairo, colonial rule, Columbian Exchange, cuban missile crisis, deglobalization, deindustrialization, European colonialism, failed state, Francisco Pizarro, invisible hand, Isaac Newton, joint-stock company, Khartoum Gordon, laissez-faire capitalism, land reform, Mahatma Gandhi, Malacca Straits, mutually assured destruction, new economy, New Urbanism, oil shock, open economy, price mechanism, reserve currency, Ronald Reagan, Scramble for Africa, South China Sea, South Sea Bubble, spice trade, The Wealth of Nations by Adam Smith, trade route, transaction costs, transatlantic slave trade

Plumb, ‘The Commercialization of Leisure’, in Neil McKendrick, John Brewer and J. H. Plumb, The Birth of a Consumer Society: The Commercialization of Eighteenth-Century England (London, 1982). 26. For this argument, I. Wallerstein, The Modern World System (2 vols., London, 1974, 1980). 27. De Vries, Crisis, p. 142. 28. For the Royal Africa Company, K. G. Davies, The Royal Africa Company (London, 1962). For the South Seas Company, J. Carswell, The South Sea Bubble (Stanford, 1960). The declining profitability of the Dutch East India Company and the failure of the two Dutch West India Companies are discussed in J. de Vries and Ad van der Woude, The First Modern Economy: Success, Failure and Perseverance of the Dutch Economy, 1500–1815 (Cambridge, 1997), pp. 463–4,468. 29. See Holden Furber, Rival Empires of Trade in the Orient 1600–1800 (Minneapolis, 1976; repr.

 

pages: 686 words: 201,972

Drink: A Cultural History of Alcohol by Iain Gately

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barriers to entry, British Empire, California gold rush, delayed gratification, Deng Xiaoping, Edward Lloyd's coffeehouse, Fellow of the Royal Society, Gordon Gekko, greed is good, Haight Ashbury, Hernando de Soto, imperial preference, invisible hand, joint-stock company, Louis Pasteur, megacity, music of the spheres, Peace of Westphalia, refrigerator car, Ronald Reagan, South Sea Bubble, spice trade, strikebreaker, the scientific method, Tim Cook: Apple, trade route, traveling salesman, Upton Sinclair, V2 rocket, working poor

However, London in 1750 was no longer the rowdy place it had been at the turn of the century. The threat of rebellion had been countered and suppressed, wars had been won in Europe and elsewhere. The best and cruelest work of the golden age of English satire had been written. The epic drinkers who had electrified Parliament with their drunken rhetoric had retired or died. The first half of the eighteenth century had been one of crazes— the South Sea Bubble, lotteries, mad and extravagant fashions, music, the revived theater, and latterly, preaching. By 1750 London had settled down a little. A full third of its population were described as being of the middling sort, i.e., middle class. These people had begun to develop an identity and, with it, an ideology. Their priorities may be gauged by the topics of conversation at their dinner parties, which, according to a contemporary observer, were “the fineness or dullness of the weather, beauty of their children, goodness of their husbands, and badness of their several trades and callings.”

 

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

All quotes in this paragraph come from this source. 29 Cassidy, “Rational Irrationality.” 30 Ibid. 31 “[T]his inability to predict does not concern me much. It is almost tautological that severe crises are essentially unpredictable” (Caballero, “Macroeconomics After the Crisis,” p. 85). 32 S. Johnson, “The Economic Crisis and the Crisis in Economics.” 33 Acemoglu, “The Crisis of 2008,” p. 3. 34 This tendency dates back to Mackay, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, if not all the way back to the South Sea Bubble. 35 Hands, “Economics, Psychology, and the History of Consumer Choice Theory.” 36 Berg and Gigerenzer, “As-if Behavioral Economics”; Harford, “Why We Do What We Do.” “There is no question that economics has been improved by being reminded of the heterogeneity of economic behavior, and the fact that much of the behavior observed does not fit well with existing models. . . .However, now begins the more serious task of restating, re-applying and extending the tools of traditional economics” (Harrison, “The Behavioral Counter-revolution,” p. 56).

 

pages: 687 words: 189,243

A Culture of Growth: The Origins of the Modern Economy by Joel Mokyr

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Andrei Shleifer, barriers to entry, Berlin Wall, clockwork universe, cognitive dissonance, Copley Medal, David Ricardo: comparative advantage, delayed gratification, deliberate practice, Deng Xiaoping, Edmond Halley, epigenetics, Fellow of the Royal Society, financial independence, framing effect, germ theory of disease, Haber-Bosch Process, hindsight bias, income inequality, invention of movable type, invention of the printing press, invisible hand, Isaac Newton, Jacquard loom, Jacquard loom, Jacques de Vaucanson, James Watt: steam engine, John Harrison: Longitude, Joseph Schumpeter, knowledge economy, labor-force participation, land tenure, law of one price, Menlo Park, moveable type in China, new economy, phenotype, price stability, principal–agent problem, rent-seeking, Republic of Letters, Ronald Reagan, South Sea Bubble, statistical model, the market place, The Structural Transformation of the Public Sphere, The Wealth of Nations by Adam Smith, transaction costs, ultimatum game, World Values Survey, Wunderkammern

A Culture of Growth A Culture of Growth The Origins of the Modern Economy The Graz Schumpeter Lectures Joel Mokyr Princeton University Press Princeton and Oxford Copyright © 2017 by Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, 6 Oxford Street, Woodstock, Oxfordshire OX20 1TW press.princeton.edu Jacket art: Change Alley, London, 1853. Street scene depicting events surrounding the South Sea Bubble (1711-1720). The scene is taking place in front of Garraway’s Coffee House, with a pawn shop at left. Photo credit: HIP / Art Resource, NY All Rights Reserved Library of Congress Cataloging-in-Publication Data Names: Mokyr, Joel, author. Title: A culture of growth : the origins of the modern economy / Joel Mokyr. Description: Princeton, NJ : Princeton University Press, 2016. | Includes bibliographical references and index.

 

pages: 1,169 words: 342,959

New York by Edward Rutherfurd

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Bonfire of the Vanities, British Empire, illegal immigration, margin call, millennium bug, out of africa, place-making, Plutocrats, plutocrats, rent control, short selling, Silicon Valley, South Sea Bubble, the market place, urban renewal, Y2K, young professional

But nineties money, it seemed to Gorham, was different. The dot.com boom was about using the new technology to provide all kinds of services, so that new companies could be invented with such speed that he couldn’t keep track of them. Some, he reckoned, had a chance of success. But others appeared to Gorham to be based on concepts so flimsy that it reminded him of the story he’d once read about a prospectus, issued before London’s great South Sea Bubble market crash of 1720, which had announced that a company was to be formed “for a purpose yet to be discovered.” Yet these companies were being formed, their initial public offerings were being oversubscribed, and making their founders instantly rich, often before there was even a smell of profit. “The way I see it,” he’d said to Maggie, “the process is similar to what happened in the nineteenth century with the railroads.