financial deregulation

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pages: 267 words: 71,123

End This Depression Now! by Paul Krugman

airline deregulation, Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, business cycle, capital asset pricing model, Carmen Reinhart, centre right, correlation does not imply causation, credit crunch, Credit Default Swap, currency manipulation / currency intervention, debt deflation, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, full employment, German hyperinflation, Gordon Gekko, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low skilled workers, Mark Zuckerberg, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, Paul Samuelson, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Upton Sinclair, We are the 99%, working poor, Works Progress Administration

I noted at the end of chapter 4 that even before the crisis of 2008 it was hard to see why financial deregulation was considered a success story. The savings and loan mess had provided an expensive demonstration of how deregulated bankers could run wild; there had been near-misses that foreshadowed the crisis to come; and economic growth had, if anything, been lower in the era of deregulation than it had been in the era of tight regulation. Yet there was (and still is) a strange delusion among some commentators—by and large, although not entirely, on the political right—that the era of deregulation was one of economic triumph. In the preceding chapter I observed that Eugene Fama, a celebrated finance theorist at the University of Chicago, declared that the era since financial deregulation began has been one of “extraordinary growth,” when it has in fact been nothing of the sort.

First, even though the United States avoided a debilitating financial crisis until 2008, the dangers of a deregulated banking system were becoming apparent much earlier for those willing to see. In fact, deregulation created a serious disaster almost immediately. In 1982, as I’ve already mentioned, Congress passed, and Ronald Reagan signed, the Garn–St. Germain Act, which Reagan described at the signing ceremony as “the first step in our administration’s comprehensive program of financial deregulation.” Its principal purpose was to help solve the problems of the thrift (savings and loan) industry, which had gotten into trouble after inflation rose in the 1970s. Higher inflation led to higher interest rates and left thrifts—which had lent lots of money long-term at low rates—in a troubled position. A number of thrifts were at risk of failing; since their deposits were federally insured, many of their losses would ultimately fall on taxpayers.

(I got some of this into the original, 1999 edition of The Return of Depression Economics, where I drew parallels between the LTCM crisis and the financial crises then sweeping through Asia. In retrospect, however, I failed to see just how broad the problem was.) But the lesson was ignored. Right up to the crisis of 2008, movers and shakers insisted, as Greenspan did in the quotation that opened this chapter, that all was well. Moreover, they routinely claimed that financial deregulation had led to greatly improved overall economic performance. To this day it’s common to hear assertions like this one from Eugene Fama, a famous and influential financial economist at the University of Chicago: Beginning in the early 1980s, the developed world and some big players in the developing world experienced a period of extraordinary growth. It’s reasonable to argue that in facilitating the flow of world savings to productive uses around the world, financial markets and financial institutions played a big role in this growth.


pages: 868 words: 147,152

How Asia Works by Joe Studwell

affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, Gini coefficient, glass ceiling, income inequality, income per capita, industrial robot, Joseph Schumpeter, Kenneth Arrow, land reform, land tenure, large denomination, liberal capitalism, market fragmentation, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Right to Buy, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, urban sprawl, Washington Consensus, working-age population

It is along this road that the Berkeley Mafia and the real Jakarta mafia – inadvertently assisted by the Rolling Stones’ Mick Jagger – brought financial deregulation to a devastating conclusion. The Golden Triangle part is where most of the scores of new bank headquarters were thrown up beginning in 1988. Many of the banks on this ‘Bank Alley’ have disappeared since the crisis, but the buildings remain, one after the other down the boulevard. Plus there are the uncompleted projects, like the BDNI twin towers. Further south, much of the land at the farthest reaches of Sudirman, south of the Semanggi bridge, was a squatter slum when the final push on financial deregulation began. This area became the site for a new, purpose-built financial zone known as the Sudirman Central Business District (SCBD). The story of the SCBD began in the same month that Sumarlin opened up the banking sector, when Mick Jagger (temporarily estranged from the rest of the Rolling Stones) held a concert in the Senayan stadium on the opposite side of the road.

Re-enter the cavalry When the crisis broke, and the IMF was called in, Fund experts had no good ideas about what to do because, like Dr Frankenstein, it had been they who had created this new kind of monster with their deregulation policies. Used to the spendthrift governments of Latin America, the IMF prescribed budget cuts and high interest rates, as it had in Thailand. However, the problem throughout the region was not government budgets, but a private sector speculative frenzy made possible by financial deregulation and the absence of effective development policy. IMF austerity merely throttled the real economy. Financial deregulation had led to a boom in unhedged short-term offshore borrowing by banks and large, non-exporting firms. Such loans outstanding in Indonesia doubled in the eighteen months before the crisis and, as borrowers scrambled for dollars to repay them, they drove the rupiah exchange rate through the floor.110 An exchange rate which dropped from 2,500 to the dollar in July 1997 to a monthly low of 14,000 in July 1998 meant a collapse of import purchasing power, including for inputs needed by Indonesia’s overwhelmingly small-scale manufacturers.

But governments directed the hefty investments this made possible to the wrong ends – to lower-yield, large-scale agriculture, and to companies that were either not focused on manufacturing or only on manufacturing for protected domestic markets. South-east Asian states then made their developmental prospects even worse by following rich country advice to deregulate banking, to open up other financial markets, and to lift capital controls. The same advice had been proffered to Japan, Korea, Taiwan and China in the early stages of their development, but they sensibly resisted for as long as possible. Premature financial deregulation in south-east Asia led to a proliferation of family-business-controlled banks which did nothing to support exportable manufacturing and which indulged in vast amounts of illegal related-party lending. It was a story of banks being captured by narrow, private sector interests whose aims were almost completely unaligned with those of national economic development. The process was one which has also been observed in Latin America and, more recently, in Russia.


pages: 482 words: 149,351

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

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

These apparently very different trends emerged together, and they must be understood together. The story of the global financial crisis can be traced as far back as you like, but a good place to begin is with the waves of financial deregulation that hit the US and UK from the 1980s. Each wave fed the next. In neither country did change have anything to do with the needs of the real economy: the financial system didn’t start servicing its customers noticeably better after deregulation. If anything, things deteriorated. In Britain the biggest event after the collapse of Bretton Woods was Margaret Thatcher’s Big Bang of sudden, massive financial deregulation in 1986. Thatcher’s advisers had previously warned her that this would lead to ‘unethical behaviour’ and ‘boom and bust’ economics, but they were batted aside. ‘The basic common sense of the British public,’ assured John Redwood, the head of her policy unit, ‘will not be tempted into Get-Rich-Quick Limited.’4 Grown-up financial players and sophisticated customers could look after themselves.

It has bamboozled many people in Britain, persuading them that they must deliver a constant stream of financial subsidies, deregulation and other gifts to the City, for fear that all the bankers will run away to more ‘competitive’ places like Singapore or Geneva. These constant calls to support the ‘competitiveness’ of the City have been used as a cosh to bludgeon away opposition to corporate tax cuts, financial deregulation, or Britain’s soft-touch approach to policing dirty money and financial crime. It is the financial sector’s strongest ideological weapon, enabling it to capture Britain’s policymaking apparatus and large parts of the media. This capture is mostly a subtle, networked thing, backed up by dollops of well-aimed sponsorship as banks, insurance firms and hedge funds hurl funding at opinion-forming think tanks, throw banquets for visiting dignitaries, or organise drunken grouse-hunting expeditions for politicians or distinguished members of the metropolitan punditry.

The story might well have ended there – and for Charlie Tiebout it did: he died of a heart attack in January 1968, aged forty-three. When the world finally started to wake up to Tiebout’s paper, the year after his death, it would kick off a debate about one of the most important questions in the modern global economy: what happens when rich people, banks, multinational firms or profits shift across borders in response to different incentives like corporate tax cuts, financial deregulation and so on? This debate goes to the heart of questions around what has been called the competitiveness of nations, and whether competing on things like corporate tax cuts or environmental standards is a good thing or an unhealthy race to the bottom. In the end, Tiebout’s ideas would end up magnified, then distorted and used as ideological underpinning for a wide range of policies that generate the finance curse.


pages: 365 words: 88,125

23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

"Robert Solow", affirmative action, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, borderless world, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, deskilling, ending welfare as we know it, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, full employment, German hyperinflation, Gini coefficient, hiring and firing, Hyman Minsky, income inequality, income per capita, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market fundamentalism, means of production, Mexican peso crisis / tequila crisis, microcredit, Myron Scholes, North Sea oil, offshore financial centre, old-boy network, post-industrial society, price stability, profit maximization, profit motive, purchasing power parity, rent control, shareholder value, short selling, Skype, structural adjustment programs, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, Toyota Production System, trade liberalization, trickle-down economics, women in the workforce, working poor, zero-sum game

Even the government of Korea, a traditional manufacturing powerhouse, is implementing policies aimed at turning itself into the financial hub of Northeast Asia, although its enthusiasm has been dented since the collapse of Ireland and Dubai, after which it was hoping to model the country. Now, the real trouble is that what countries like Iceland and Ireland were implementing were only more extreme forms of the economic strategy being pursued by many countries – a growth strategy based on financial deregulation, first adopted by the US and the UK in the early 1980s. The UK put its financial deregulation programme into a higher gear in the late 1980s, with the so-called ‘Big Bang’ deregulation and since then has prided itself on ‘light-touch’ regulation. The US matched it by abolishing the 1933 Glass-Steagall Act in 1999, thereby tearing down the wall between investment banking and commercial banking, which had defined the US financial industry since the Great Depression.

A study by two French economists, Gérard Duménil and Dominique Lévy – one of the few studies separately estimating the profit rate of the financial sector and that of the non-financial sector – shows that the former has been much higher than the latter in the US and in France during the last two or three decades.2 According to this study, in the US the rate of profit for financial firms was lower than that of the non-financial firms between the mid 1960s and the late 1970s. But, following financial deregulation in the early 1980s, the profit rate of financial firms has been on a rising trend, and ranged between 4 per cent and 12 per cent. Since the 1980s, it has always been significantly higher than that of non-financial firms, which ranged between 2 per cent and 5 per cent. In France, the profit rate of financial corporations was negative between the early 1970s and the mid 1980s (no data is available for the 1960s). However, with the financial deregulation of the late 1980s, it started rising and overtook that of non-financial firms in the early 1990s, when both were about 5 per cent, and rose to over 10 per cent by 2001.

Index active economic citizenship xvi, xvii Administrative Behaviour (Simon) 173–4 Africa see Sub-Saharan Africa AIG 172–3 Air France 131 AOL 132–3 apartheid 214–16 Argentina education and growth 181 growth 73 hyperinflation 53–4 Austria geography 121 government direction 132 protectionism 70 balance of payments 97–100, 101 Baldursson, Fridrik 235 Bangladesh entrepreneurship 159–60 and microfinance 161–2, 163, 164 Bank of England 252 (second) Bank of the USA 68 Bank for International Settlements (BIS) 262 bankruptcy law 227–8 Barad, Jill 154 Bard College 172 Bateman, Milford 162 Baugur 233 Baumol, William 250 Bebchuk, Lucian 154 behaviouralist school 173–4 Belgium ethnic division 122 income inequality 144, 146 manufacturing 70, 91 R&D funding 206 standard of living 109 Benin, entrepreneurship 159 Bennett, Alan 214 Besley, Tim 246 big government 221–2, 260–61 and growth 228–30 see also government direction; industrial policy BIS (Bank for International Settlements) 262 Black, Eugene 126 Blair, Tony 82, 143, 179 borderless world 39–40 bounded rationality theory 168, 170, 173–7, 250, 254 Brazilian inflation 55 Britain industrial dominance/decline 89–91 protectionism 69–70 British Academy 246–7 British Airways 131 brownfield investment 84 Brunei 258 Buffet, Warren 30, 239 Bukharin, Nikolai 139 Bunning, Senator Jim 8 Burkina Faso (formerly Upper Volta) 121, 200 Bush, George W. 8, 158, 159, 174 Bush Sr, George 207 business sector see corporate sector Cameroon 116 capital mobility 59–60 nationality 74–5, 76–7 capitalism Golden Age of 142, 147, 243 models 253–4 capitalists, vs. workers 140–42 captains of industry 16 Carnegie, Andrew 15 Case, Steve 132–3 Cassano, Joe 172–3 CDOs (collateralized debt obligations) 238 CDSs (credit default swaps) 238 CEO compensation see executive pay, in US Cerberus 77–8 Chavez, Hugo 68 chess, complexity of 175–6 child-labour regulation 2–3, 197 China business regulation 196 communes 216 economic officials 244 industrial predominance 89, 91, 93, 96 as planned economy 203–4 PPP income 107 protectionism and growth 63–4, 65 Chocolate mobile phone 129 Chrysler 77–8, 191 Chung, Ju-Yung 129 Churchill, Winston 253 climate factors 120–21 Clinton, Bill 143 cognitive psychology 173–4 collateralized debt obligations (CDOs) 238 collective entrepreneurship 165 communist system 200–204 Concorde project 130–31 conditions of trade 5 Confucianism 212–13 Congo (Democratic Republic) 116, 121 consumption smoothing 163 cooperatives 166 corporate sector importance 190–91 planning in 207–9 regulation effect 196–8 suspicion of 192–3 see also regulation; transnational corporations Cotton Factories Regulation Act 1819 2 credit default swaps (CDSs) 238 Crotty, Jim 236–8 culture issues 123, 212–13 Daimler-Benz 77–8 Darling, Alistair 172 de-industrialization 91 balance of payments 97–100, 101 causes 91–6 concerns 96–9 deflation, Japan 54 deliberation councils 134 Denmark cooperatives 166 protectionism 69 standard of living 104, 106, 232–3 deregulation see under regulation derivatives 239 Detroit car-makers 191–2 developing countries entrepreneurship and poverty 158–60 and free market policies 62–3, 71–3, 118–19, 261–2 policy space 262–3 digital divide 39 dishwashers 34 distribution of income see downward redistribution of income; income irregularity; upward redistribution of income domestic service 32–3 double-dip recession xiii downward redistribution of income 142–3, 146–7 Dubai 235 Duménil, Gérard 236 East Asia economic officials 249–50 educational achievements 180–81 ethnic divisions 122–3 government direction 131–2 growth 42, 56, 243–4 industrial policy 125–36, 205 École Nationale d’Administration (ENA) 133 economic crises 247 Economic Policy Institute (EPI) 144, 150 economists alternative schools 248–51 as bureaucrats 242–3 collective imagination 247 and economic growth 243–5 role in economic crises 247–8 Ecuador 73 Edgerton, David 37 Edison, Thomas 15, 165, 166 education and enterprise 188–9 higher education effect 185–8 importance 178–9 knowledge economy 183–5 mechanization effect 184–5 outcome equality 217–18 and productivity 179–81 relevance 182–3 Elizabeth II, Queen 245–7 ENA (École Nationale d’Administration) 133 enlightened self-interest 255–6 entrepreneurship, and poverty 157–8 and collective institutions 165–7 as developing country feature 158–60 finance see microfinance environmental regulations 3 EPI (Economic Policy Institute) 144, 150 equality of opportunity 210–11, 256–7 and equality of outcome 217–20, 257 and markets 213–15 socio-economic environment 215–17 equality of outcome 217–20 ethnic divisions 122–3 executive pay and non-market forces 153–6 international comparisons 152–3 relative to workers’ pay 149–53, 257 US 148–9 fair trade, vs. free trade 6–7 Fannie Mae 8 Far Eastern Economic Review 196 Federal Reserve Board (US) 171, 172, 246 female occupational structure 35–6 Fiat 78 financial crisis (2008) xiii, 155–6, 171–2, 233–4, 254 financial derivatives 239, 254–5 financial markets deregulation 234–8, 259–60 effects 239–41 efficiency 231–2, 240–41 sector growth 237–9 Finland government direction 133 income inequality 144 industrial production 100 protectionism 69, 70 R&D funding 206 welfare state and growth 229 Fischer, Stanley 54 Ford cars 191, 237 Ford, Henry 15, 200 foreign direct investment (FDI) 83–5 France and entrepreneurship 158 financial deregulation 236 government direction 132, 133–4, 135 indicative planning 204–5 protectionism 70 Frank, Robert H 151 Franklin, Benjamin 65–6, 67 Freddie Mac 8 free market boundaries 8–10 and developing countries 62–3, 71–3, 118–19, 261–2 labour see under labour nineteenth-century rhetoric 140–43 as political definition 1–2 rationale xiii–xiv, 169–70 results xiv–xv, xvi–xvii system redesign 252, 263 see also markets; neo-liberalism free trade, vs. fair trade 6–7 Fried, Jesse 154 Friedman, Milton 1, 169, 214 Galbraith, John Kenneth 16, 245 Garicano, Luis 245 Gates, Bill 165, 166, 200 General Electric (GE) 17, 45, 86, 237 General Motors Acceptance Corporation (GMAC) 194, 237 General Motors (GM) 20, 22, 45, 80, 86, 154, 190–98 decline 193–6 financialization 237 pre-eminence 191–2 geographical factors 121 Germany blitzkrieg mobility 191 CEO remuneration 152–3 cooperatives 166 emigration 69 hyperinflation 52–4 industrial policy 205 manufacturing 90 R&D funding 206 welfare state and growth 228–9 Ghana, entrepreneurship 159 Ghosn, Carlos 75–6, 78 globalization of management 75–6 and technological change 40 GM see General Motors GMAC (General Motors Acceptance Corporation) 194, 237 Golden Age of Capitalism 142, 147, 243 Goldilocks economy 246 Goodwin, Sir Fred 156 Gosplan 145 government direction balance of results 134–6 and business information 132–4 failure examples 130–31 and market discipline 44–5, 129–30, 134 share ownership 21 success examples 125–6, 131–4 see also big government; industrial policy Grameen Bank 161–4 Grant, Ulysses 67 Great Depression 1929 24, 192, 236, 249, 252 greenfield investment 84 Greenspan, Alan 172, 246 Hamilton, Alexander 66–7, 69 Hayami, Masaru 54 Hennessy, Peter 246–7 higher education 185–8 Hirschman, Albert 249 History Boys (Bennett) 214 Hitler, Adolf 54 home country bias 78–82, 83, 86–7 Honda 135 Hong Kong 71 household appliances 34–6, 37 HSBC 172 Human relations school 47 Hungary, hyperinflation 53–4 hyperinflation 52–4 see also inflation Hyundai Group 129, 244 Iceland financial crisis 232–4, 235 foreign debt 234 standard of living 104–5 ICT (Information and Communication Technology) 39 ILO (International Labour Organization) 32, 143–4 IMF see International Monetary Fund immigration control 5, 23, 26–8, 30 income per capita income 104–11 see also downward redistribution of income; income inequality; upward redistribution of income income inequality 18, 72–3, 102, 104–5, 108, 110, 143–5, 147, 247–8, 253, 262 India 99, 121 indicative planning 205 indicative planning 204–6 Indonesia 234 industrial policy 84, 125–36, 199, 205, 242, 259, 261 see also government direction Industrial Revolution 70, 90, 243 infant industry argument 66–8, 69–70, 71–2 inflation control 51–2 and growth 54–6, 60–61 hyperinflation 52–4 and stability 56–61 Information and Communication Technology (ICT) 39 institutional quality 29–30, 112–13, 115, 117, 123–4, 165–7 interest rate control 5–6 international dollar 106–7 International Labour Organization (ILO) 32, 143–4 International Monetary Fund (IMF) 54–5, 57, 66, 72, 244, 262 SAPs 118 International Year of Microcredit 162 internet revolution 31–2 impact 36–7, 38, 39 and rationality 174 investment brownfield/greenfield 84 foreign direct investment 83–5 share 18–19 invisible reward/sanction mechanisms 48–50 Ireland financial crisis 234–5 Italy cooperatives 166 emigrants to US 103 Jackson, Andrew 68 Japan business regulation 196 CEO remuneration 152–3 deflation 54 deliberation councils 134 government direction 133–4, 135, 259 indicative planning 205 industrial policy 131, 135, 242–5 industrial production 100 production system 47, 167 protectionism 62, 70 R&D funding 206 Jefferson, Thomas 67–8, 239 job security/insecurity 20, 58–61, 108–9, 111, 225–8, 247, 253, 259 Journal of Political Economy 34 Kaldor, Nicolas 249 Keynes, John Maynard 249 Kindleberger, Charles 249 knowledge economy 183–5 Kobe Steel 42–3, 46 Kong Tze (Confucius) 212 Korea traditional 211–13 see also North Korea; South Korea Koufax, Sandy 172 Kuwait 258 labour free market rewards 23–30 job security 58–60 in manufacturing 91–2 market flexibility 52 regulation 2–3 relative price 33, 34 Latin America 32–3, 55, 73, 112, 122, 140, 196–7, 211, 245, 262 Latvia 235 Lazonick, William 20 Lenin, Vladimir 138 Levin, Jerry 133 Lévy, Dominique 236 LG Group 129, 134 liberals neo-liberalism xv, 60, 73 nineteenth-century 140–42 limited liability 12–15, 21, 228, 239, 257 Lincoln, Abraham 37, 67 List, Friedrich 249 London School of Economics 245–6 LTCM (Long-Term Capital Management) 170–71 Luxemburg, standard of living 102, 104–5, 107, 109, 232–3, 258 macro-economic stability 51–61, 240, 259, 261 Madoff, Bernie 172 Malthus, Thomas 141 managerial capitalism 14–17 Mandelson, Lord (Peter) 82–3, 87 manufacturing industry comparative dynamism 96 employment changes 91–2 importance 88–101, 257–9 productivity rise 91–6, 184–5 relative prices 94–5 statistical changes 92–3 Mao Zedong 215–16 Marchionne, Sergio 78 markets and bounded rationality theory 168, 173–6, 177, 254 conditions of trade 5 and equality of opportunity 213–15 failure theories 250 financial see financial markets government direction 44–5, 125–36 government regulation 4–6, 168–9, 176–7 participation restrictions 4 price regulations 5–6 and self-interest 44–5 see also free market Marx, Karl 14, 198, 201, 208, 249 Marxism 80, 185, 201–3 mathematics 180, 182–3 MBSs (mortgage-backed securities) 238 medicine’s popularity 222–4 Merriwether, John 171 Merton, Robert 170–71 Michelin 75–6 microfinance critique 162 and development 160–62 Microsoft 135 Minsky, Hyman 249 Monaco 258 morality, as optical illusion 48–50 Morduch, Jonathan 162 mortgage-backed securities (MBSs) 238 motivation complexity 46–7 Mugabe, Robert 54 NAFTA (North American Free Trade Agreement) 67 National Health Service (UK) 261 nationality of capital 74–87 natural resources 69, 115–16, 119–20, 121–2 neo-liberalism xv, 60, 73, 145 neo-classical school 250 see also free market Nestlé 76–7, 79 Netherlands CEO remuneration 152–3 cooperatives 166 intellectual property rights 71 protectionism 71 welfare state and growth 228–9 New Public Management School 45 New York Times 37, 151 New York University 172 Nissan 75–6, 84, 135, 214 Nobel Peace Prize 162 Prize in economics 170, 171–2, 173, 208, 246 Nobel, Alfred 170 Nokia 135, 259–60 North American Free Trade Agreement (NAFTA) 67 North Korea 211 Norway government direction 132, 133, 205 standard of living 104 welfare state and growth 222, 229 Obama, Barack 149 OECD (Organization for Economic Cooperation and Development) 57, 159, 229 Oh, Won-Chul 244 Ohmae, Kenichi 39 Opel 191 Opium War 9 opportunities see equality of opportunity Organization for Economic Cooperation and Development (OECD) 57, 159, 229 organizational economy 208–9 outcomes equality 217–20 Palin, Sarah 113 Palma, Gabriel 237 Park, Chung-Hee 129 Park, Tae-Joon 127–8 participation restrictions 4 Perot, Ross 67 Peru 219 PGAM (Platinum Grove Asset Management) 171 Philippines, education and growth 180, 181 Phoenix Venture Holdings 86 Pigou, Arthur 250 Pinochet, Augusto 245 PISA (Program for International Student Assessment) 180 Plain English Campaign 175 planned economies communist system 200–204 indicative systems 204–6 survival 199–200, 208–9 Platinum Grove Asset Management (PGAM) 171 Pohang Iron and Steel Company (POSCO) 127–8 pollution 3, 9, 169 poor individuals 28–30, 140–42, 216–18 Portes, Richard 235 Portman, Natalie 162 POSCO (Pohang Iron and Steel Company) 127–8 post-industrial society 39, 88–9, 91–2, 96, 98, 101, 257–8 Poverty Reduction Strategy Papers (PRSPs) 118 see also SAPs PPP (purchasing power parity) 106–9 Preobrazhensky, Yevgeni 138–40, 141 price regulations 5–6 stability 51–61 Pritchett, Lant 181 private equity funds 85–6, 87 professional managers 14–22, 44–5, 166, 200 Program for International Student Assessment (PISA) 180 protectionism and growth 62–3, 72–3 infant industry argument 66–8, 69–70, 71–2 positive examples 63–5, 69 PRSPs see Poverty Reduction Strategy Papers purchasing power parity (PPP) 106–9 R&D see research and development (R&D) Rai, Aishwarya 162 Rania, Queen 162 rationality see bounded rationality theory RBS (Royal Bank of Scotland) 156 real demand effect 94 regulation business/corporate 196–8 child labour 2–3, 197 deregulation 234–8, 259–60 legitimacy 4–6 markets 4–6, 168–9, 176–7 price 5–6 Reinhart, Carmen 57, 59 Renault 21, 75–6 Report on the Subject of Manufactures (Hamilton) 66 The Rescuers (Disney animation) 113–14 research and development (R&D) 78–9, 87, 132, 166 funding 206 reward/sanction mechanisms 48–50 Ricardo, David 141 rich individuals 28–30, 140–42 river transport 121 Rogoff, Kenneth 57, 59 Roodman, David 162 Roosevelt, Franklin 191 Rover 86 Royal Bank of Scotland (RBS) 156 Rubinow, I.M. 34 Ruhr occupation 52 Rumsfeld, Donald 174–5 Rwanda 123 Santander 172 SAPs (Structural Adjustment Programs) 118, 124 Sarkozy, Nicolas 90 Scholes, Myron 170–71 Schumpeter, Joseph 16, 165–7, 249 Second World War planning 204 (second) Bank of the USA 68 self-interest 41–2, 45 critique 42–3 enlightened 255–6 invisible reward/sanction mechanisms 48–50 and market discipline 44–5 and motivation complexity 46–7 Sen, Amartya 250 Senegal 118 service industries 92–3 balance of payments 97–100, 101 comparative dynamism 94–5, 96–7 knowledge-based 98, 99 Seychelles 100 share buybacks 19–20 shareholder value maximisation 17–22 shareholders government 21 ownership of companies 11 short-term interests 11–12, 19–20 shipbuilders 219 Simon, Herbert 173–6, 208–9, 250 Singapore government direction 133 industrial production 100 PPP income 107 protectionism 70 SOEs 205 Sloan Jr, Alfred 191–2 Smith, Adam 13, 14, 15, 41, 43, 169, 239 social dumping 67 social mobility 103–4, 220 socio-economic environment 215–17 SOEs (state-owned enterprises) 127, 132, 133, 205–6 South Africa 55, 121 and apartheid 213–16 South Korea bank loans 81 economic officials 244 education and growth 181 ethnic divisions 123 financial drive 235 foreign debt 234 government direction 126–9, 133–4, 135, 136 indicative planning 205 industrial policy 125–36, 205, 242–5 inflation 55, 56 job insecurity effect 222–4, 226, 227 post-war 212–14 protectionism 62, 69, 70 R&D funding 206 regulation 196–7 Soviet Union 200–204 Spain 122 Spielberg, Steven 172 Sri Lanka 121 Stalin, Josef 139–40, 145 standard of living comparisons 105–7 US 102–11 Stanford, Alan 172 state owned enterprises (SOEs) 127, 132, 133, 205–6 steel mill subsidies 126–8 workers 219 Stiglitz, Joseph 250 Structural Adjustment Programs (SAPs) 118, 124 Sub-Saharan Africa 73, 112–24 culture issues 123 education and growth 181 ethnic divisions 122–3 free market policies 118–19, 262 geographical factors 121 growth rates 73, 112, 116–19 institutional quality 123 natural resources 119–20, 121–2 structural conditions 114–16, 119–24 underdevelopment 112–13, 124 Sutton, Willie 52 Sweden 15, 21–2 CEO remuneration 152 income inequality 144 industrial policy 205 industrial production 100 per capita income 104 R&D funding 206 welfare state and growth 229 Switzerland CEO remuneration 152–3 ethnic divisions 122 geography 121 higher education 185–6, 188 intellectual property rights 71 manufacturing 100, 258 protectionism 69, 71 standard of living 104–6, 232–3 Taiwan business regulation 196 economic officials 244 education and growth 180 government direction 136 indicative planning 205 protectionism 69, 70 Tanzania 116 TARP (Troubled Asset Relief Program) 8 tax havens 258 technological revolution 31–2, 38–40 telegraph 37–8 Telenor 164 Thatcher, Margaret 50, 225–6, 261 Time-Warner group 132–3 TIMSS (Trends in International Mathematics and Science Study) 180, 183 Toledo, Alejandro 219 Toyota and apartheid 214 production system 47 public money bail-out 80 trade restrictions 4 transnational corporations historical debts 80 home country bias 78–82, 83, 86–7 nationality of capital 74–5, 76–7 production movement 79, 81–2 see also corporate sector Trends in International Mathematics and Science Study (TIMSS) 180, 183 trickle-down economics 137–8 and upward distribution of income 144–7 Trotsky, Leon 138 Troubled Asset Relief Program (TARP) 8 2008 financial crisis xiii, 144, 155–6, 171–2, 197–8, 233–4, 236, , 238–9, 245–7, 249, 254 Uganda 115–16 uncertainty 174–5 unemployment 218–19 United Kingdom CEO remuneration 153, 155–6 financial deregulation 235–6, 237 NHS 261 shipbuilders 219 see also Britain United Nations 162 United States economic model 104 Federal Reserve Board 171, 172, 246 financial deregulation 235–8 immigrant expectations 103–4 income inequality 144 inequalities 107–11 protectionism and growth 64–8, 69 R&D funding 206 standard of living 102–11 steel workers 219 welfare state and growth 228–30 United States Agency for International Development (USAID) 136 university education effect 185–8 Upper Volta (now Burkina Faso) 200 upward redistribution of income 143–4 and trickle-down economics 144–7 Uruguay growth 73 income inequality 144 USAID (United States Agency for International Development) 136 vacuum cleaners 34 Venezuela 144 Versailles Treaty 52 Vietnam 203–4 Volkswagen government share ownership 21 public money bail-out 80 wage gaps political determination 23–8 and protectionism 23–6, 67 wage legislation 5 Wagoner, Rick 45 Wall Street Journal 68, 83 Walpole, Robert 69–70 washing machines 31–2, 34–6 Washington, George 65, 66–7 Welch, Jack 17, 22, 45 welfare economics 250 welfare states 59, 110–43, 146–7, 215, 220, 221–30 and growth 228–30 Wilson, Charlie 192, 193 Windows Vista system 135 woollen manufacturing industry 70 work to rule 46–7 working hours 2, 7, 109–10 World Bank and free market 262 and free trade 72 and POSCO 126–8 government intervention 42, 44, 66 macro-economic stability 56 SAPs 118 WTO (World Trade Organization) 66, 262 Yes, Minister/Prime Minister (comedy series) 44 Yunus, Muhammad 161–2 Zimbabwe, hyperinflation 53–4


pages: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

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

Expectations that rapid growth would continue emboldened domestic firms to borrow and foreign investors to lend. Success was assumed to breed more success. Financial deregulation by the Asian countries also played a role in the crisis by providing domestic banks and others with greater freedom to borrow from abroad. For example, the Thai government created the Bangkok International Banking Facility in 1992 with the aim of making Bangkok into an international financial center.24 The plan was for overseas money to come into Bangkok and then be lent out to other countries—“out-out” loans. In practice, however, the foreign money was mainly used to finance local Thai loans—instead of “out-out” the loans became “out-in”. Financial deregulation allowed this “out-in” pattern to be repeated across the region as banks borrowed short-term in foreign currencies to make domestic loans, making local banks increasingly vulnerable to withdrawals by foreign investors.

The most important lesson from the North Atlantic crisis, however, may be the inability of financial policies on their own, including the introduction of the Euro, to create prosperity. A striking feature of the time between 1985 and 2008 was that financial deregulation was not accompanied by aggressive programs to improve the workings of the real economy of the type pursued in the 1980s by President Reagan in the United States and Prime Minister Thatcher in the United Kingdom. In the absence of structural reforms that provided new investment opportunities, financial deregulation simply pushed more money into the same places. Rather than being used to create more productive capacity, the additional lending was largely frittered away, mainly on higher land and house prices. Similarly, the massive expansion in mortgage-backed securities was driven by differences in regulation and had few social benefits, in contrast to earlier developments such as the emergence of junk bonds in the 1980s which, for all of the accompanying excesses, allowed small firms to access the bond market.

As their funding base narrowed, the regulated banks increasingly bundled safer and more routine loans such as mortgages into securities and sold them to the shadow banks. The shadow banking system expanded to fill a vacuum created by loss in the competitiveness of regulated banks. This migration of activity from the regulated to the shadow banking system has often been portrayed as a result of excessively speedy financial deregulation driven by self-interested lobbyists.1 While such lobbying played a role in the years immediately preceding the 2008 crisis, the origins of the shadow banking system came from the opposite dynamic, namely the slow response of regulators to strains in the banks. The major components of the shadow banking system all emerged between 1980 and 2002, including mortgage-backed securities, investment banks, money market mutual funds (all of which increased by ten-fold compared to the size of the US economy over this period), and repurchase agreements (which quadrupled).


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The Populist Explosion: How the Great Recession Transformed American and European Politics by John B. Judis

affirmative action, Affordable Care Act / Obamacare, Albert Einstein, anti-communist, back-to-the-land, Bernie Sanders, Boris Johnson, Bretton Woods, capital controls, centre right, collapse of Lehman Brothers, deindustrialization, desegregation, Donald Trump, eurozone crisis, financial deregulation, first-past-the-post, fixed income, full employment, ghettoisation, glass ceiling, hiring and firing, illegal immigration, immigration reform, income inequality, invisible hand, laissez-faire capitalism, mass immigration, means of production, neoliberal agenda, obamacare, Occupy movement, open borders, plutocrats, Plutocrats, post-materialism, rolodex, Ronald Reagan, Silicon Valley, War on Poverty, We are the 99%, white flight, Winter of Discontent

Economic historian Peter Temin argues that these neoliberal policies created a “dual economy” composed of a high-wage FTE (finance, technology and electronics) sector and a low-wage one of semi-skilled and unskilled workers that straddled a shrinking middle-income group of manufacturing and white-collar jobs. Along the same lines, economist Stephen Rose has shown that the rising difference in income and wealth prevailed not just between the 1 percent and the 99 percent, but between the top 30 percent—including a growing upper middle class—and the bottom 70 percent. These trends, reinforced by further financial deregulation, an overvalued dollar, and regressive tax policies, would continue up through the onset of the Great Recession and fuel discontent among the middle and lower-middle classes, many of whom felt cast aside by the move toward a post-industrial economy heavily dependent on finance and financial services. (As I will recount, something very similar happened in Western Europe.) The first visible crisis came in 1991, when the U.S. suffered from a peculiar recession that seemed to drag on for four more years in joblessness and wage stagnation.

In addition, many Americans were troubled by the continuing loss of manufacturing jobs to Japan and Western Europe, and the rapid rise in illegal immigration in the Southwest. Public opinion expert Daniel Yankelovich wrote, “Even though they can’t put their finger on it, [people] fear something is fundamentally wrong with the U.S. economy.” When party leaders’ promises—that free trade deals would create far more jobs than they would threaten, that immigration measures would stop the flood of immigrants entering the country illegally, and that financial deregulation would have no ill effects—proved false, it sparked a populist challenge to the prevailing consensus. That challenge came in the 1992 and 1996 elections from Texas businessman Ross Perot, and from former Nixon and Reagan aide Pat Buchanan. Perot represented a left and center-left populism, and Buchanan a challenge from the right, but like other American populists, they didn’t fit the conventional conflict between Democrats and Republicans or between liberals and conservatives.

With the high-tech boom exhausted, and manufacturing still generally plagued by global overcapacity, these dollars were directly or indirectly fueling consumer debt, particularly in housing. The housing boom was sustaining demand in an economy that might have otherwise slowed. When the housing bubble burst in 2007, millions lost their homes and financial institutions were put at risk. A steep recession followed. But the crash was also precipitated by the politics of neoliberalism—by financial deregulation under Carter, Reagan, and Clinton, and lax regulation under George W. Bush; by trade and investment policies that led to unwieldy dollar surpluses in the hands of China and other Asian nations; and by tax policies and anti-union business practices that widened economic inequality and led to the need to prop up consumer demand through the accumulation of debt. The financial crisis became widely visible in September 2008 when the New York investment bank Lehman Brothers had to close its doors.


pages: 614 words: 174,226

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

"Robert Solow", airline deregulation, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, ending welfare as we know it, financial deregulation, financial innovation, fixed income, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Growth in a Time of Debt, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Long Term Capital Management, low cost airline, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, oil shock, Paul Samuelson, Philip Mirowski, plutocrats, Plutocrats, price stability, profit motive, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Peltzman, Silicon Valley, Simon Kuznets, starchitect, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus

In the first year after the Big Bang, one quarter of the 300 members of the exchange came under foreign ownership. 50. Julia Tanndal and Daniel Waldenstrom, “Does Financial Deregulation Boost Top Incomes? Evidence from the Big Bang,” Economica 85, no. 338 (2018). 51. Jesse Eisinger, “London Banks, Falling Down,” Portfolio, August 1, 2008. 52. The rise of financial profits in the United States was even more spectacular, from about 15 percent of all corporate profits in the early 1980s to around 40 percent on the eve of the financial crisis. For the U.K. statistics, see Michael P. Devereux et al., “Why Has the UK Corporation Tax Raised So Much Revenue?,” February 2004, Institute for Fiscal Studies. 53. Deregulation increased by about 20 percent the share of income delivered to the top 10 percent of the British population. Financial deregulation in Japan in the 1990s yielded a similar result. The sale of British firms to foreign investors provided an immediate windfall for London’s bankers, and that was just a first taste.

Moreover, one of his most basic assertions was wrong. Friedman had said policy makers could count on stability in the velocity of money — the frequency with which money was used. Indeed, velocity was stable between 1948 and 1981.82 But as the Fed targeted the money supply, velocity began to jump around. Ironically, the stability Friedman had taken for granted was undermined by the unwinding of rules he regarded as unnecessary: financial deregulation was shifting patterns of money use. The instability meant Friedman had overstated the central bank’s power to influence economic conditions. It also meant that Friedman had been wrong to dismiss the potential power of fiscal policy to influence conditions. Other central banks ran aground on the same shoals. The Bank of Canada, which adopted monetary targets in 1975, discarded those targets in November 1982.

Interest rates spiked and foreign investors raced to acquire dollars, so they could participate in the lucrative business of lending money to the United States. During the Bretton Woods years, America and other major nations had imposed strict limits on international capital flows to maintain the stability of exchange rates. But the United States had ended those restrictions in 1974 and encouraged other nations to follow its example. The interaction of Reagan’s tax cuts, the Fed’s monetarism, floating rates, and financial deregulation sent the dollar up, up, and away.73 Imports flooded into the United States, creating a windfall for American consumers and a disaster for domestic manufacturers. Kodak made 80 percent of the film sold in the United States in 1979; its largest foreign rival, Japan’s Fuji, had a 4 percent foothold. By 1985, Kodak’s share of the U.S. market was down to 64 percent; Fuji’s was up to 11 percent.74 The rise of the dollar also reduced sales of American goods in other countries.


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Stolen: How to Save the World From Financialisation by Grace Blakeley

"Robert Solow", activist fund / activist shareholder / activist investor, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, basic income, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, bitcoin, Bretton Woods, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, cryptocurrency, currency peg, David Graeber, debt deflation, decarbonisation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, full employment, G4S, gender pay gap, gig economy, Gini coefficient, global reserve currency, global supply chain, housing crisis, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), Kenneth Rogoff, Kickstarter, land value tax, light touch regulation, low skilled workers, market clearing, means of production, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, Northern Rock, offshore financial centre, paradox of thrift, payday loans, pensions crisis, Ponzi scheme, price mechanism, principal–agent problem, profit motive, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Right to Buy, rising living standards, risk-adjusted returns, road to serfdom, savings glut, secular stagnation, shareholder value, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, the built environment, The Great Moderation, too big to fail, transfer pricing, universal basic income, Winter of Discontent, working-age population, yield curve, zero-sum game

As one commentator puts it, “social security capital’ is now as important as other sources of capital… it is a key element in fuelling the expansion of financial markets”.28 By 1995, one estimate put the global assets of pension funds at almost $12trn, at least £600bn of which came from UK savers, making the UK’s the largest pensions pool in the EU.29 It is not a coincidence that corporations began to be governed based on the logic of maximising shareholder value just as institutional investors from around the world emerged as some of the most powerful actors in the City. Historically, these pools of capital have been important: when they are large, those who control them are able to wield immense amounts of power by determining who gets what.30 The mass-scale channelling of people’s savings into stock markets via pension funds and insurance funds after the end of Bretton Woods and the financial deregulation by the 1980s allowed institutional investors and wealthy individuals from around the world to channel money into the UK’s stock markets, unencumbered by capital controls or restrictions on foreign trading. Hyman Minsky has argued that we now live in an age of “money manager capitalism”, in which these pools of capital are some of the most important entities in determining economic activity.31 In this sense, money manager capitalism doesn’t just affect financial markets.

If everyone wants to buy housing, and is able to access a mortgage, but the housing stock remains fixed, then the price of housing will rise. From the end of the 1990s recession, the amount of money created and directed into housing increased at a far faster rate than the number of houses for sale, increasing prices. In place of rising wages, Thatcher may as well have said “let them eat houses”. Financial deregulation and right-to buy, combined with the pension fund capitalism released by the Big Bang, allowed the Conservatives to transform the British middle earners into mini-capitalists who would benefit from the financialisation of the economy. By providing capital gains to a large swathe of the population, the Conservatives would be creating a class of people who had a material interest in the economy remaining as it was, even if most of the gains from growth were going to the top 1%.

But this instability can be traced back to the chronic shortfall in demand that emerged from the disparities naturally created by finance-led growth. On the other hand, the reason this boom was able to go on for so long was that financial globalisation and bank deregulation dramatically increased the amount of liquidity in the international financial system. Financial globalisation allowed banks and investors to draw on capital that had been stored away in states with lots of savings. Financial deregulation reduced restrictions on lending and allowed banks to use this capital to create more money. International banks developed ever more ingenious ways to evade the restrictions on lending that continued to exist. Mortgages were the dynamite at the centre of the explosive device that caused the economic crisis, but the explosive device itself had been transformed due to the financial innovation seen before the crash.


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

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

.* Using different data sources, Lapavitsas estimates that the UK number rose from around 700 per cent in the late 1980s to over 1,200 per cent by 2009 – or 1,800 per cent, if we included assets owned abroad by UK citizens and companies.11 James Crotty, using American government data, calculated that the ratio of financial assets to GDP in the US fluctuated between 400 and 500 per cent between the 1950s and 1970s, but that it started to shoot up from the early 1980s, following financial deregulation. It broke through the 900 per cent mark by the early 2000s.12 The New Financial System and Its Consequences The new financial system was to be more efficient and safer All this meant that a new financial system has emerged in the last three decades. We have seen the proliferation of new and complex financial instruments through financial innovation, or financial engineering, as some people prefer to call it. This process was enormously facilitated by financial deregulation – the abolition or the dilution of existing regulations on financial activities, as I shall discuss later. This new financial system was supposed to be more efficient and safer than the old one, which was dominated by slow-witted commercial banks dealing in a limited range of financial instruments, unable to meet increasingly diverse demands for financial risk.

The US government had to close down nearly one-quarter of S&Ls and inject public money equivalent to 3 per cent of GDP to clean up the mess. The 1990s started with banking crises in Sweden, Finland and Norway, following their financial deregulations in the late 1980s. Then there was the ‘tequila’ crisis in Mexico in 1994 and 1995. This was followed by crises in the ‘miracle’ economies of Asia – Thailand, Indonesia, Malaysia and South Korea – in 1997, which had resulted from their financial opening-up and deregulation in the late 1980s and the early 1990s. On the heels of the Asian crisis came the Russian crisis of 1998. The Brazilian crisis followed in 1999 and the Argentinian one in 2002, both in large part the results of financial deregulation. These are only the prominent ones, but the world has seen so many more financial crises since the mid-1970s. According to a widely cited study,17 virtually no country was in banking crisis between the end of the Second World War and the mid-1970s, when the financial sector was heavily regulated.

According to a study published in 2005, in the US, between the mid-1960s and the late 1970s, the rate of profit for financial firms was lower than that of the non-financial firms. But, following financial deregulation in the early 1980s, the profit rate of financial firms (on a rising trend, ranging between 4 per cent and 12 per cent) was significantly higher than that of non-financial firms (2–5 per cent) until the early 2000s (the data in the study ended there). In France, the profit rate of financial corporations was negative between the early 1970s and the mid-1980s (no data are available for the 1960s). With the financial deregulation of the late 1980s, it started rising and overtook that of non-financial firms in the early 1990s, when both were about 5 per cent, and rose to over 10 per cent by 2001. In contrast, the profit rate of French non-financial firms declined from the early 1990s, to reach around 3 per cent in 2001.


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

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

Gillian Tett, one of the few journalists bold enough to explore and challenge the world of international financiers and creditors, blames a ‘pattern of “social silence” … which ensured that the operations of complex credit were deemed too dull, irrelevant or technical to attract interest from outsiders, such as journalists and politicians.’8 Finance was indeed too dull and arcane to attract the interest of mainstream feminism and environmentalism. As a result of this ‘social silence’ citizens were unprepared for the crisis, and they remain on the whole ignorant of the workings of the financial system and its operations. The experience of financial deregulation has shown that capitalism insulated from popular democracy degenerates into rent-seeking, criminality and grand corruption. As Karl Polanyi predicted in his famous book The Great Transformation, societies are building resistance to the ‘self-regulating market comprising labour, land and money’ – or market fundamentalism, even when blind resistance appears irrational.9 In the US, as I write, the voters of the United States have sought protection from a demagogic president-elect who promised to defend them by erecting a wall between the United States and Mexico.

CHAPTER 5 Class Interests and the Moulding of Schools of Economic Thought Economic fundamentals are all sound; it’s a good time for tighter credit conditions … the recent sell-off in financial markets is good news … The world economy is strong enough to cope with the consequences. The Economist, 4–10 August 2007 Editors and journalists at the Economist magazine were not the only professional economists to make entirely the wrong call in the week that inter-bank credit ‘crunched’ and the 2007–09 global financial crisis began in earnest.1 Most academic economists shared their blind spot for the likely impact of financial deregulation on the financial system, the global economy and societies around the world. A great deal of the power exercised by financiers operating in financial markets derives from the studied indifference of orthodox academic economists to the production of money and the social construct that is the rate of interest on money. Staggering though it might seem to a non-academic audience, the overwhelming majority of mainstream economists do not understand, nor do economists study, the nature of credit and money, or indeed the wider financial and monetary system.

The mighty economy of the United States struggled to fully recover from the crisis, and was not immune to the rise of political populism and the threat of ‘corporate fascism’ – the merger of state and corporate power. Yet economists (with some notable exceptions) stood aloof from these crises largely of their own making. And when they deigned to engage it was to adopt an attitude of defeatism. Often it was victims of financial deregulation – like the sub-prime borrowers of the US’s Rust Belt – that were blamed for borrowing too much and causing the crisis. According to one of the most powerful mainstream and so-called ‘Keynesian’ economists Larry Summers, societies were living through ‘The Age of Secular Stagnation’ caused by a ‘natural’ rate of interest that was too low! The public were constantly enjoined to simply accept the fate of falling incomes, cuts in public investment, financial failure, bankruptcy and unemployment, for as the economists effectively argued: ‘there is nothing to be done’.


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

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

Thomas Philippon and Ariell Reshef have analyzed financial sector compensation and found that the “excess relative wage” in finance—the amount that cannot be explained by differences in education level and job security—grew from zero around 1980 to over 40 percentage points earlier this decade; 30–50 percent of excess wages in finance cannot be explained by differences in individual ability. They also found that deregulation was one factor behind the recent growth of compensation in finance. (Figure 4-2 shows the relationship between the unadjusted relative wage in the financial sector—the ratio between average wages in finance and average wages in the private sector as a whole—and the extent of financial deregulation, as calculated by Philippon and Reshef.)77 Figure 4-2: Relative Financial Wages and Financial Deregulation Source: Thomas Philippon and Ariell Reshef, “Wages and Human Capital in the U.S. Financial Industry: 1909–2006,” Figure 6. The rewards for success grew much, much faster as traders’ potential bonuses climbed into the millions and then the tens of millions. In 2008—which was a horribly bad year for most banks—1,626 JPMorgan Chase employees received bonuses of more than $1 million; at the smaller Goldman Sachs, which had thirty thousand employees, 953 received bonuses of more than $1 million, and 212 received bonuses of more than $3 million.78 In the 1990s, Internet start-ups were seen as the quickest route to vast wealth, for the lucky few who founded companies that successfully went public.

Ordinarily, low equity levels (high debt levels) should increase a bank’s riskiness by increasing the likelihood that it will not be able to pay off its debts in a crisis. Yet despite the increase in leverage, tighter regulation prevented any serious banking crises. As Figure 1-1 demonstrates, the half-century following the Glass-Steagall Act saw by far the fewest bank failures in American history.103 But once financial deregulation began in the 1970s, these low equity levels became increasingly dangerous.104 Figure 1-1: Bank Suspensions and Failures Per Year, 1864—Present * Actual values for 1930-33 are 1,352, 2,294, 1,456, and 4,004. Source: David Moss, “An Ounce of Prevention: Financial Regulation, Moral Hazard, and the End of ‘Too Big to Fail,’” Harvard Magazine, September–October 2009. Used with the permission of Mr.

The eventual result was an out-of-balance financial system that still enjoyed the backing of the federal government—what president would allow the financial system to collapse on his watch?—without the regulatory oversight necessary to prevent excessive risk-taking. Like many major trends, this one was not entirely visible to its participants at the outset. Throughout American history, regulatory change has been more about settling disputes between segments of the business community than about sweeping social transformations, and the beginnings of financial deregulation were no different. Fixed commissions for stock trading were one of the first dominoes to fall. As David Komansky, later CEO of Merrill Lynch, recalled, “There was no discounting, no negotiating. Fixed prices meant fixed prices for the entire Street; we couldn’t give you a discount even if we wanted to. It was the greatest thing in the world.”30 Most Wall Street brokerage firms were happy to profit from this cartel.


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Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens by Nicholas Shaxson

Asian financial crisis, asset-backed security, bank run, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, collapse of Lehman Brothers, computerized trading, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, Double Irish / Dutch Sandwich, failed state, financial deregulation, financial innovation, Fractional reserve banking, full employment, high net worth, income inequality, Kenneth Rogoff, laissez-faire capitalism, land reform, land value tax, light touch regulation, Long Term Capital Management, Martin Wolf, money market fund, New Journalism, Northern Rock, offshore financial centre, oil shock, old-boy network, out of africa, passive income, plutocrats, Plutocrats, Ponzi scheme, race to the bottom, regulatory arbitrage, reserve currency, Ronald Reagan, shareholder value, The Spirit Level, too big to fail, transfer pricing, Washington Consensus

For the City, it was a beautiful, self-reinforcing dynamic: The more countries that opened their financial systems, the more business that would float around internationally, ready to be caught in the nearby nodes of the British offshore spiderweb and then sent up to be serviced in the City and its allies on Wall Street. Not content with all this, the Corporation of London actively promotes international financial deregulation around the globe. With this in mind the Lord Mayor makes 20 or so foreign visits per year.69 An official report into one such visit to Hong Kong, China, and South Korea in 2007, along with the Lady Mayoress, the Sherriff, and a 40-strong business delegation, gives a flavor of the Corporation’s ambition and reach. The delegation’s aim, according to the report, was to Lobby for China to maintain its course of economic and financial liberalisation, and encourage South Korea to adopt more open policies; Promote London as a global financial center …; Explain the UK’s liberal approach to regulation and corporate governance Lobby for liberalisation and improved market access in China’s banking, insurance and capital markets sectors; including highlighting the restrictive implications of ordinance 10 [which is designed to curb illicit financial flows and requires Chinese government approval for companies to list overseas,70] and the benefits of closer engagement with international players.

The narcotics industry alone generates some $500 billion in annual sales worldwide2: To put this into perspective, that is twice the value of Saudi Arabia’s oil exports.3 The profits made by those at the top of the trade find their way into the banking system, the asset markets, and the political process through offshore facilities. You can only fit about $1 million cash into a briefcase. Without offshore, the illegal drugs trade would be more like a cottage industry. Financial deregulation and globalization? Offshore is the heart of the matter, as I will show. The rise of private equity and hedge funds? Offshore. Enron? Parmalat? Long Term Capital Management? Lehman Brothers? AIG? Offshore. Multinational corporations could never have grown so vast and powerful without the tax havens. Goldman Sachs is very, very much a creature of offshore. And every significant financial crisis in the world since the 1970s, including, as noted, the latest global economic crisis, is very much an offshore story.

“When I go in for my salary review, I always say it’s because of the great papers I write for Cato that is forcing governments all over the world [to cut taxes],” Mitchell says. “But the real story is tax competition . . . and tax havens are the most powerful instrument of this tax competition.” It is a hard point to prove, but it is reasonable to think that while the world has fixated on ideas and ideologies as the driving force behind global tax-cutting and financial deregulation, tax competition may have been the bigger force. Many economists see this as a nonstory, though. Although tax rates have fallen, tax revenues have been fairly steady. Since 1965 personal income taxes in rich-world OECD countries have remained remarkably stable at 25 to 26 percent of the total tax haul,10 and total corporation taxes have even risen slightly, from 9 to 11 percent. Some say this proves that tax competition does not matter.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

accounting loophole / creative accounting, Airbnb, basic income, Ben Bernanke: helicopter money, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, disruptive innovation, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal capitalism, market bubble, means of production, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, The Future of Employment, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

Making fortunes in finance requires not just confidential early information on likely developments in ‘the market’, but also intimate knowledge of government policies, preferably in advance, and a capacity to influence such policies, both their conception and their implementation. Not surprisingly, then, no other industry, except perhaps armaments, has developed anything like Wall Street’s rotating door relationship with the U.S. government. There is Robert Rubin, treasury secretary from 1995 to 1999 under Clinton, and Henry Paulsen, in the same position under Bush the Younger, from 2006 to 2009 – both former CEOs of Goldman Sachs, the one instrumental for financial deregulation, the other presiding over its results in 2008. The two are, however, only the tip of a truly titanic iceberg, as there were and are literally hundreds of former and later Goldman people occupying a wide variety of government positions.50 One may also take a figure like Lawrence (‘Larry’) Summers, Rubin’s deputy and successor at the U.S. Treasury, for decades now untiringly moving from academia to government to finance and back, and being richly rewarded for it.51 And not to be forgotten is the Attorney General of the Obama administration, Eric Holder, in office from 2008 to 2014.

In any case, in what looks like an afterthought, Gordon supports his prediction of low or no growth by listing six non-technological factors – he calls them ‘headwinds’ – which would make for long-term stagnation ‘even if innovation were to continue … at the rate of the two decades before 2007’.30 Among these factors he includes two that I argue have for some time been intertwined with low growth: inequality and ‘the overhang of consumer and government debt’.31 What is astonishing is how close current stagnation theories come to the Marxist underconsumption theories of the 1970s and 1980s.32 Recently, none other than Lawrence ‘Larry’ Summers – friend of Wall Street, chief architect of financial deregulation under Clinton, and Obama’s first choice for president of the Federal Reserve, until he had to give way in face of congressional opposition33 – has joined the stagnation theorists. At the IMF Economic Forum on 8 November last year, Summers confessed to having given up hope that close-to-zero interest rates would produce significant economic growth in the foreseeable future, in a world he felt was suffering from an excess of capital.34 Summers’ prediction of ‘secular stagnation’ as the ‘new normal’ met with surprisingly broad approval among his fellow economists, including Paul Krugman.35 What Summers mentioned only in passing was that the conspicuous failure of even negative real interest rates to revive investment coincided with a long-term increase in inequality, in the United States and elsewhere.

The felicitous term, ‘privatized Keynesianism’, was coined to describe what was, in effect, the replacement of public with private debt.12 Instead of the government borrowing money to fund equal access to decent housing, or the formation of marketable work skills, it was now individual citizens who, under a debt regime of extreme generosity, were allowed, and sometimes compelled, to take out loans at their own risk with which to pay for their education or their advancement to a less destitute urban neighbourhood. The Clinton policy of fiscal consolidation and economic revitalization through financial deregulation had many beneficiaries. The rich were spared higher taxes, while those among them wise enough to move their interests into the financial sector made huge profits on the evermore complicated ‘financial services’ which they now had an almost unlimited licence to sell. But the poor also prospered, at least some of them and for a while. Subprime mortgages became a substitute, however illusory in the end, for the social policy that was simultaneously being scrapped, as well as for the wage increases that were no longer forthcoming at the lower end of a ‘flexibilized’ labour market.


pages: 354 words: 118,970

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

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

Reagan’s Justice Department had a Robert Bork–like skepticism about antitrust enforcement, which further empowered the mergers and acquisitions departments at Morgan Stanley and the other Wall Street firms. Toward the end of the period of high interest rates, the savings and loan industry, which had lost its ability to attract deposits at its old modest interest rates, persuaded Congress to pass a major piece of financial deregulation, permitting it to acquire deposits in nontraditional ways, to offer adjustable-rate mortgages, and to make new and riskier kinds of investments—all while retaining federal insurance on their deposits. This meant the government would ultimately have to be responsible for all the new risk it was permitting the savings and loans to take on. Adolf Berle’s dream world of capitalism without capitalists had decisively ended within just a few years, without most of the world even noticing that a significant change had taken place or imagining that capital would now be looking for ways to take advantage of its new empowerment.

Alan Greenspan, then a paid consultant to one of the most aggressive savings and loans, who was soon appointed chairman of the Federal Reserve Board, the most powerful job in financial regulation, wrote Gray a long, admonishing letter, pointing out that many savings and loans were posting record profits. (Of the seventeen savings and loans Greenspan mentioned by name in his letter, fifteen were out of business four years later.) Gray resigned in 1987, just before savings and loans started failing en masse, and he was replaced by a savings and loan lobbyist. One of the few members of Congress who was consistently and loudly skeptical of financial deregulation was James Leach, a moderate Republican from Cedar Rapids, Iowa. Leach was the grandson of a small-town banker who had also served as state banking commissioner, and whose bank later failed. He was adept at playing the part of the fair-haired, blue-eyed, plainspoken midwestern rube, and he had a generous measure of the old middle-of-the-country rural suspicion of big banks on the coasts—their power and their tendency to take risks that could wind up hurting people like farmers and smallholders.

Bill and Hillary Clinton themselves were moving their home base—first psychologically, later physically—to New York, the financial capital. Their daughter and son-in-law later made their careers in the new transaction-oriented parts of the financial world, she for a few years, he permanently. High on the list of more pressing matters that Clinton had to worry about was the impeachment drama that took up much of the last three years of his presidency. In a sense this was collateral damage from financial deregulation, since it had all begun with an investigation of a typically risky real estate investment, called Whitewater, made by an Arkansas savings and loan that went out of business, but Clinton of course didn’t register it that way. Continuing deregulation of finance had an implicit green light from him to proceed, but very little of his attention. During the first year of Clinton’s second term, his Office of Management and Budget issued a report on the costs and benefits of government regulation.


pages: 257 words: 64,763

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

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

This rationalization is all too readily accepted by the mass media, which is not surprising, given that it neatly absolves the majority of business reporters and editors who had missed the story for years until it was too late. The facts are otherwise. It is not conspiratorial but rather accurate to suggest that blame can be assigned to those who consciously developed and implemented a policy of radical financial deregulation that led to a global recession. As President Clinton’s Treasury secretary, Rubin, the former cochair of Goldman Sachs, led the fight to free the financial markets from regulation and then went on to a $15-million-a-year job with Citigroup, the company that had most energetically lobbied for that deregulation. He should remember the line from the old cartoon strip Pogo: “We have met the enemy and he is us.”

Clinton’s public rationale for this watershed shift was that if regulation of Wall Street were not “modernized”—political code for weakened or eliminated—the United States would lose out to foreign competition in capital markets. Much of the groundwork for Clinton’s break was laid by the diligent Republican Wendy Lee Gramm and her husband, Senator Phil Gramm, also a Texas Republican. The high priestess and priest of financial deregulation met at a conference in New York, where Wendy Lee, a PhD student in economics, was interviewing with Phil Gramm for a position at Texas A&M University, where he was a senior professor. Wendy Gramm would later tell interviewers that as Professor Gramm was helping her on with her coat at the interview’s conclusion, he expressed interest in dating her if she came to Texas. She later told the New York Times her reaction to him was “Oh, yuck,” but Gramm persisted, and six weeks after she arrived on campus, they wed.

If regulators approve the merger, Citigroup, as the company will be called, will serve about 100 million customers in 100 countries. In one stroke, [they] will have temporarily demolished the increasingly unnecessary walls built during the Depression to separate commercial banks from investment banks and insurance companies. Nor was there much evidence of that purported indelible line between the newspaper’s editorial position and its journalistic coverage when it came to financial deregulation. A news story in the Times that same day echoed the editorial’s theme, that the merger would force a reversal of the dreaded New Deal legislation. The lead paragraph of the story, ostensibly straight news reporting, gushed over this “bold merger,” reading like a press release for Citigroup:In a single day, with a single bold merger, pending legislation in Congress to sweep away Depression-era restrictions on the financial services industry has been given a sudden, and unexpected, new chance of passage.


pages: 317 words: 71,776

Inequality and the 1% by Danny Dorling

Affordable Care Act / Obamacare, banking crisis, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Boris Johnson, Branko Milanovic, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, centre right, collective bargaining, conceptual framework, corporate governance, credit crunch, David Attenborough, David Graeber, delayed gratification, Dominic Cummings, double helix, Downton Abbey, en.wikipedia.org, Etonian, family office, financial deregulation, full employment, Gini coefficient, high net worth, housing crisis, income inequality, land value tax, longitudinal study, low skilled workers, lump of labour, mega-rich, Monkeys Reject Unequal Pay, Mont Pelerin Society, mortgage debt, negative equity, Neil Kinnock, Occupy movement, offshore financial centre, plutocrats, Plutocrats, precariat, quantitative easing, race to the bottom, Robert Shiller, Robert Shiller, TaskRabbit, The Spirit Level, The Wealth of Nations by Adam Smith, trickle-down economics, unpaid internship, very high income, We are the 99%, wealth creators, working poor

The gap between their respective annual incomes now averages nearly a quarter of a million pounds.90 A salary escalator has been created by the assessment of remuneration through the comparison of top pay in any institution with a group of other institutions which just happen, on average, to pay more. Keeping up with the poshest of Joneses in this way comes with a huge and growing price tag. At last, this is beginning to be widely understood. It may be that even many of the cosmopolitan elite are starting to understand just how extreme and harmful the inequalities have become. Source: Financial Deregulation, nber.org/papers/w14644.pdf; Income share: Piketty and Saez (2003, 2012) Figure 3.5 Financial deregulation in inequality, USA 1910–2010 London is now the most overpaid city in the world, considering the circumstances of the national population. In 2014 the UK minister for cities, Greg Clark, produced a report in which he and his co-author claimed that London was not so unusual. They presented data showing the proportion of the national population living within the capital cities of a number of countries and the share of national GDP received by the people of that city.

Protests are most common here, and the age of the people involved is getting younger and younger. It is the young who have lost the most in recent years, and it is they who are beginning to show their resentment through resistance. That resistance is spreading, and is expressed in many ways, from street demonstrations to the graffiti and other art of the Occupy movement. London is where financial deregulation began, in the 1980s. It is London that benefited most, and it is in London that those with some of the greatest debts now reside. London is home to most of the 1 per cent, most of the rest of whom live just a short distance away from the capital. London’s financial markets were constrained between 1929 and 1978, just as they were in the US, when the 1 per cent was forced to become more normal (see Figure 3.5).

elderly, mortality rates 5.1, 5.2 elitism 2.1, 6.1 Elizabeth II, Queen Elliott, L. nts.1, nts.2 Else, L. Elson, Charles empathy 3.1, 4.1, 5.1 employment sustainability entitlement, culture of equality Equality Trust 3.1, nts.1 equity Estonia Eton College European Banking Authority Exley, D. Fahmy, E., et al. family expectations Farauenfelder, M. Fergusson, R. 3.1, nts.1 Fernandez, J. L., et al. financial deregulation 3.1, 3.2 financial situation, satisfaction with 4.1, 4.2 Financial Times 4.1, 4.2, 4.3, 5.1 Finland 2.1, 2.2, 2.3, 2.4, 4.1, 5.1, 6.1 Fiske, S. T. Fleming, S. Flinders, M. 4.1, nts.1 food poverty 3.1, 3.2, 5.1 Forbes Fordham, J. Forsyth, Bruce Foster, A. Fothergill, S. France 1.1, 1.2, 2.1, 3.1, 3.2, 3.3, 4.1, 6.1, 6.2 Francis, Pope Frank Knight Research Freeland, C. 3.1, nts.1 Freud, Lord David Friedman, M. 2.1, nts.1 Fry, R. and Taylor, P.


pages: 160 words: 46,449

The Extreme Centre: A Warning by Tariq Ali

Affordable Care Act / Obamacare, Berlin Wall, bonus culture, BRICs, British Empire, centre right, deindustrialization, Edward Snowden, Fall of the Berlin Wall, financial deregulation, first-past-the-post, full employment, labour market flexibility, land reform, light touch regulation, means of production, Mikhail Gorbachev, Monroe Doctrine, mortgage debt, negative equity, Neil Kinnock, North Sea oil, obamacare, offshore financial centre, popular capitalism, reserve currency, Ronald Reagan, South China Sea, The Chicago School, The Wealth of Nations by Adam Smith, trade route, trickle-down economics, Washington Consensus, Westphalian system, Wolfgang Streeck

During Reagan’s first term in office, low-income families lost $23bn in revenue and Federal benefits, while high-income families gained over $35bn. This explained the massive endorsement of Reagan in the prosperous suburbs and the Sun Belt. In Britain, more subservient than ever before, individual greed was shamelessly encouraged by the lowering of income tax (helped by the North sea oil bonanza), along with the sale of council houses and other state assets. Financial deregulation stimulated the formation of a class of nouveau entrepreneurs, who thought little of safety regulations or trade-union rights for their employees. A hallucinatory euphoria, aided and abetted by a sycophantic news establishment, helped to cement the new consensus. A full-scale ideological assault was mounted on the old postwar settlement. Overnight, Keynesian economics was consigned to the junkyard as this new social, political, economic, and cultural consensus took hold.

Today, in order to be a truly successful criminal, you have to be inside the system or a top-grade hacker. 3 For more detailed accounts, see Tariq Ali, Pirates of the Caribbean: Axis of Hope (London and New York, 2006); Richard Gott, Hugo Chávez (London and New York, 2005); Gregory Wilpert, Changing Venezuela by Taking Power (London and New York, 2007); David Smilde and Daniel Hellinger, eds, Venezuela’s Bolivarian Democracy (Durham, NC 2011). 4 ‘It was Costas Simitis, PASOK [Socialist] prime minister from 1996 to 2004, aided by Papademos at the central bank, who set the country on a course of sell-offs and deregulation, while also claiming to cut the deficit, lower labour costs and crush inflation, bringing the country into line with EMU convergence criteria and joining the euro in 2001. Financial deregulation had produced a frenzy of speculative activity, boosting the Athens stock market to unprecedented heights and transferring large quantities of wealth upwards to a newly financialized elite; euphoria rose higher still in the run-up to the 2004 Athens Olympics. In reality, as the world now knows, the deficit figures were rigged: Simitis and Papademos oversaw a fee of $300 million to Goldman Sachs to shift billions of euros of debt off the public accounts.

D. 96 DLA Piper 50 Dobson, Frank 27, 58–59 Dorling, Danny, Inequality and the 1% 18n Duménil, Gérard 145n Dyke, Greg 66–67 ED&F Man Holdings Ltd 46 Edinburgh 77 education, Coalition policy 37–39 Egypt 150 Eichmann, Adolf 8n elderly poverty 25 electoral system, UK 13, 20, 30, 33, 34 Elmendorf, Douglas 158 Entwistle, George 65 Euro-immigration 18 ‘EuroMemorandum 2014’ 106–7 European Central Bank 101, 104, 107 European Union 18, 124, 127, 144; authoritarianism 100–108; Council of Ministers 100; democratic deficit 100–101; evolution of 88–91, 97–98; expansion 101; need for reform 96–97; neoliberal turn 92–95; New Labour and 30–31; recession 99–100; sovereign debt crisis, 2008 91–92, 94–95, 98–99, 179–83 Falklands War 14, 63–64, 65, 123 Farage, Nigel 18, 190 Field, Frank 52 financial deregulation 7 Firerush Ventures 43 First World War 73, 90 Fischer, Joschka 187 Five Star Movement (M5S) 187–91 Foot, Michael 14 For Europe! 104–5 France 8–9, 131, 148, 179; and the EU 88–89, 93, 97, 103, 106, 107; and NATO 111, 113 Franco, Francisco 14, 112 Freud, David 36–37 Gaddafi, Muammar 119 Galloway, George 81n García, Beatriz 182–83 GCHQ 124 Germany 7–8, 31, 131, 148, 159, 172, 175–76; and the EU 88, 90–91, 92, 93, 97, 99, 100–101, 103, 105, 105–6, 106–7; the Left Party 186–87; and NATO 111–12; reunification 90–1, 97, 114 Giddens, Anthony 31 Gilligan, Andrew 67 Gilmour, Sir Ian, Dancing with Dogma 13 Ginghly, Youssef 54–55 Glasgow 77, 78, 82, 83 global economic crisis, 2008 8–9, 91–92, 92–95, 98, 132, 134, 135–36, 142, 144–47, 179–83 González, Felipe 112 Gorbachev, Mikhail 12, 42n Gott, Richard 176n Gould, Diana 63–64 Gould, Philip 67 Great Britain 4–5, 6–7, 13–15, 172; devolution 29–30, 56, 75; general election, 1997 20–22; general election, 2001 32–33; general election, 2005 33–34; general election, 2010 35; homeowners 22–23; privatization 7, 11, 27–29, 53; relationship with America 31–32, 123–24, 131; tuition fees 25, 37–39 Great Depression, 1929 144–45 Greece 9, 15, 76, 94, 99, 101, 102, 107, 107–8, 111, 121, 144, 179–81, 183–84 Green Party 82 Grillo, Beppe 187–91 Guanglie, Liang 162 Gulf War, First 34, 44, 45, 66–67, 152–54, 155 Gysi, Gregor 186–87 Habermas, Jurgen 105 Hailsham, Lord 14 Halliday, Jon 127n Harman, Harriet 13 Hattersley, Roy 20, 27 Health and Social Care Act, 2013 54, 56, 57 health insurance 57–58 Heffer, Simon 79–80 Hellinger, Daniel 177n Hewitt, Patricia 48–49 Hobsbawm, Eric 141n Hollande, François 113, 131, 181 housing bubble 94 Hussey, Marmaduke 65 Hutton, Lord Brian 67 Hutton, Will 79 Iceland 94, 111, 144 Iglesias, Pablo 184–86 Ignatieff, Michael 116 Il Fatto Quotidiano 190–91 India 159, 161, 162, 163, 168 International Monetary Fund 101, 104 Iran 166, 191 Iraq 153, 166; invasion of, 2003 154–55 Ireland 9, 94, 100, 101, 107, 121, 144, 179 ISIS 109–10, 150 Ismay, Lord Hastings 110 Israel 150 Italy 94, 100, 107, 144, 179, 187–91 Jacques, Martin 166, 167 Japan 24, 121, 129, 158–59, 161, 163, 168, 172, 173 Johnson, Chalmers 142n Jones, Owen 80 Juncker, Jean-Claude 92, 108 Keating, Timothy 159 Kelly, Dr David 67 Kennedy, Charles 34 Kinnock, Neil 32–33 Klemperer, Victor 149 Kosovo War, the 31, 114–18 Kouvelakis, Stathis 180n KPMG 47 Labour Party 3, 13, 74; party conferences, 1993 and 1994 27; leadership 17, 20–22 Ladyman, Stephen 52 Lafontaine, Oskar 187 Lamont, Johann 82 Lampedusa 189 Lawson, Nigel 5 Le Grand, Julian 50 Lenin, V.


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Home: Why Public Housing Is the Answer by Eoin Ó Broin

Airbnb, carbon footprint, Celtic Tiger, financial deregulation, housing crisis, Kickstarter, land reform, mortgage debt, negative equity, open economy, passive investing, quantitative easing, Right to Buy, Ronald Reagan, the built environment

However, it is important to fully understand the broader European and Global context without which the dramatic house price inflation and the very serious social and economic consequences that came with it would not have happened. Financial deregulation was driven by a desire to generate greater levels of profitability for investors at a time of slowing economic growth in the real economy. Increased lending, both to buy houses and to borrow against the rising value of your home to fund general consumer spending, was believed to be a credible solution to the economic slump of the late 1970s. Yet as we now know the level of risk contained within this debt-driven policy was considerable. Ryan-Collins calls this the ‘housing-finance feedback cycle’ of which Ireland was a very extreme example. He explains that The combination of financial deregulation and innovation, increased expectation of future house price increases, greater opportunities for economic rent extraction via capital gains in land values, housing equity withdrawal, weakening real wages and welfare provision has proved a powerful mix.48 The long-term consequences of this financial-economic model will be discussed further below.

Not only did borrowing for home purchase increase but a new phenomenon of equity withdrawal (borrowing against the value of your home) became an increasingly popular means for households financing other areas of expenditure. The result according to Josh Ryan-Collins was a dramatic increase in the volume of mortgage-related lending, which jumped from 20 percent of Gross Domestic Product in the late 1970s to 55 percent a decade later.18 The immediate impact of this financial deregulation was the British housing bubble of the 1980s, which was to cause significant problems when it burst in the 1990s. Nevertheless, much less obvious at the time was the impact of credit liberalisation on house prices. Ryan-Collins argues in his recent book Why Can’t You Afford a Home? that the most significant impact was a dramatic increase in house prices as mortgage finance actively sought out ever increasing house and land price values which were not only more profitable than standard investment in the productive economy but also more secure.

However, from the 1960s to the 1990s house prices jumped by a dramatic 65 percent.19 His conclusion is that the ‘evidence suggests that the Anglo-Saxon economies that deregulated their mortgage markets in the 1980s saw faster rises and more volatility than those economies that did not’.20 While the impact of credit liberalisation on house prices in Southern Ireland was more delayed than in Britain, it did eventually arrive, albeit assisted by a second wave of financial deregulation led by the European Union in the 1990s and access to cheap credit arising from membership of the single currency. By the end of the 1980s, however, the more significant outcome was a successful transition from a State funded property-owning housing system to a private finance-led model. In 1971, 68 percent of homes were owner-occupied, the figure rose to 74 percent in 1981 and higher still to 79 percent in 1991.


pages: 346 words: 90,371

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

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

Much remaining council housing was transferred to the housing association sector, largely driven by the political desire to keep official public sector borrowing down. The stage was set for the revival of the private rented sector by the Housing Act of 1988’s removal of rent regulation and introduction of the Assured Shorthold Tenancy. Under this new form of rental tenure, private landlords would be able to evict their tenants at will, without having to show grounds, and tenancies could be as short as six months. Meanwhile, further financial deregulation drove a greater allocation of credit to house purchases, fuelling a new house price boom (see Chapter 5) that would burst spectacularly in 1990 when interest rates were raised to keep the value of the pound within the bands of the European Exchange Rate Mechanism. Finally, in recognition that moving towards market housing would leave some people unable to adequately house themselves, the complex systems of individual housing subsidies were amalgamated and Housing Benefit was born (Malpass and Aughton, 1999).

JOSEPH STIGLITZ (2015B, P. 439) Civil government, so far as it is instituted for the security of property, is, in reality, instituted for the defence of the rich against the poor, or of those who have property against those who have none at all. ADAM SMITH (1776, P. 167) 6.1 Introduction In the last two chapters we have seen how a combination of ill-thought-out housing policy, changes in welfare and taxation and financial deregulation have resulted in land and housing in the UK becoming ‘financialised’. In this chapter we explore how this has interacted with two other key economic developments: the increasing role of housing as a source of wealth and the pattern of increasing economic inequality in most advanced economies. Recent decades have seen housing wealth increase at a faster rate than other types of wealth, and considerably faster than national income.

Firstly, it means that the increase in the wealth-to-income ratio observed in Piketty’s data, which has underpinned the rise in inequality, has been driven not by productive activity, but rather by increasing residential land values which have manifested themselves through rising house prices. Put another way, this wealth has originated from windfalls resulting from exclusive control of a scarce natural resource in the face of rising demand from economic development, population growth and financial deregulation. As discussed in Chapter 3, the classical economists would have viewed this as an accumulation of unearned economic rent; a transfer of wealth from the rest of society towards land and property owners (George, [1879] 1979). Secondly, the decoupling of wealth from the productive capacity of the economy points to asymmetries in the way that wealth is measured under modern national accounting frameworks.


pages: 312 words: 93,836

Barometer of Fear: An Insider's Account of Rogue Trading and the Greatest Banking Scandal in History by Alexis Stenfors

Asian financial crisis, asset-backed security, bank run, banking crisis, Big bang: deregulation of the City of London, bonus culture, capital controls, collapse of Lehman Brothers, credit crunch, Credit Default Swap, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, fixed income, game design, Gordon Gekko, inflation targeting, information asymmetry, interest rate derivative, interest rate swap, London Interbank Offered Rate, loss aversion, mental accounting, millennium bug, Nick Leeson, Northern Rock, oil shock, price stability, profit maximization, regulatory arbitrage, reserve currency, Rubik’s Cube, Snapchat, the market place, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, Y2K

The City of London changed remarkably after Margaret Thatcher launched the ‘Big Bang’ in 1986, and similar fireworks took place in a number of financial centres around the same time. In fact, since then, the Eurodollar market has often been downplayed as a historic ‘event’. Rather, focus is placed on the processes of liberalisation, globalisation, privatisation and financialisation that appear to have started in conjunction with the financial deregulation that took place in the 1980s. Whereas this might be logical, the approach can also be misleading. Financial deregulation did not prompt Eurodollar trading. It was the other way round: Eurodollar trading was pivotal in prompting financial deregulation. If we see it this way, as a key innovation that led to change, we need to look closer at the ‘innovators’ – the banks. *** In the summer of 2009, I had lunch with a former competitor at Roka, a Japanese restaurant on Charlotte Street in London. He clearly felt sympathy for what I had been through, following my turbulent exit from the market.

., 45 buy and sell orders, 208 ‘call-outs’, 24; symptom assessing, 25 ‘Can do More’, 144 Canada: dollar, 33; Foreign Exchange Committee, 179 Canary Wharf, London, 6 Cantor Fitzgerald, London office, 264 capital controls, abolishment, 133 Carr Futures, World Trade Centre office, 264 cash markets, importance loss, 139 cash squeezes, year-end, 44 cash-settled derivatives; benchmark need, 122–3; made market, 133 cassettes, history of, 110–11 CDOs (collateralised debt obligations), 11 central bank, 151; -banks unique relationship, 173; foreign exchange interventions, 233; inflation rate target, 70; LIBOR key variable, 53, 151; LIBOR use, 152; money pumping, 50; power, 174; power overestimated, 49, 54; price stability goal, 51; repos, 175; tips, 176; transparency, 40, 166–7; unexpected interest rate moves, 41; weakening of, 114 Channel 4 News, 11 Chase Manhattan, 131 Chemical Bank (JPMorgan Chase), 30 CIBOR (Copenhagen Interbank Offered Rate), 28, 78–9 Citibank, 29, 30, 58, 101, 153, 155, 182, 188, 193, 220, 223; benchmark manipulation fine, 160; ‘Scandi’ desk, 33; Tokyo dealing room, 196 CME (Chicago Mercantile Exchange), 123, 1288; Eurodollar futures, 126 collateral types, central banks lowering, 50 competition law, UK and EU, 222 complex structured products, valuation inability, 50 compliance departments banks, 253; post-scandals increase, 283 Cooke, Mr Justice, 282 copycat behaviour, market making, 202–3 Cosmopolis, 250 counterparties, confirmations, 18 Countrywide, 49 CPI, Inflation index, 149 credit: default swap market, 99; officers, 95; rating agencies, 96; risk, 137; risk measure for, 55 Crédit Agricole Indosuez, 37, 44, 58–9, 134, 155 Crédit Suisse, 153, 193, 221, 223; First Boston, 127 creditworthiness: ‘image problem’, 51; judgments on, 225; signals, 98, 99 cross-currency basis swap, LIBOR-indexed, 62 CRSs, 129 Darin, Roger, 115 dealing relationships, informal reciprocal, 227 dealing rooms, internal monitoring increase, 283 deceptive behaviour, LIBOR banks, 105; quotes post-crisis pressure, 106 Del Missier, Jerry, 77 Den Danske bank, 178 derivatives, ‘abstract’, 123–4; benchmark use, 150; borrowing and lending idea, 138; concrete type, 121; growing market, 79; interest rates, 30; LIBOR-indexed, 28, 71, 80, 104, 129; new instruments, 18; textbook explanation, 119–20; trade tickets, 141’usefulness’ of, 131 derivatives market: benchmark need, 119; LIBOR importance, 37; Scandanavia, 27 Deutsche Bank, 153, 193, 223; LIBOR controls deceptions, 183; LIBOR fine, 83 Diamond, Bob, 77 Dillon Read, 49 ‘discount windows’ lowering, 50 ‘dishonesty’, 249 Donohue, Craig, 128 dot-com bubble, 104 downgrades, credit rating agencies, 96 Dresdner Bank, 17, 155, 197 Duffy, Terry, 128 Easton Ellis, Bret, American Psycho, 236 economic data releases, examples of, 38 efficient market hypothesis, 195, 200–1; unrealistic assumption, 196 ‘emerging markets’, trading desks, 37 ERM (European Exchange Rate Mechanism) crisis, 31–2 Ermotti, Sergio, 213 EURIBOR (Euro Interbank Offered Rate), 14, 76–8, 126, 130; derivatives, 145; new unpredictability, 62; pre-Euro, 148 euro, the: Eurozone crisis, 109; launch of, 36 eurocurrency market, 113; central bank weakening, 111; deregulated, 114; Eurodollars, see below; fast growth of, 112; LIBOR derivatives replaced, 134 Eurodollar market, 113, 133, 152; advantages, 112; banks made, 117, 125; contracts standard maturity dates, 126; financial deregulation prompt, 116; futures, see below; gradual reduction of, 136; history of, 111; LIBOR rate making, 117, 129; rapid growth of, 115 Eurodollar futures, 125, 128, 265; bets on, 146; rationale for, 129; success of, 127 Euromoney, 135 European Banking Federation, 180 European Central Bank (ECB), 50, 109, 145 European Commission, 221 Euroyen LIBOR futures contract, 127 ‘Events’ central bank meetings, 40 excessive lending, inflationary fears, 114 exclusivity, self-perception, 269 expectations, games of, 103; overpriced stock, 104 ‘expert judgments’, banks LIBOR quotes, 278 Fama, Eugene, 195 ‘fat fingers’ errors, 253 FBI, USA, 192–3 FCA (Financial Conduct Authority), 183–4, 188, 219, 282; Fair and Effective Markets Review, 222; prohibited individuals list, 285 fear, rumours of, 266 Federal Reserve, see USA FIBOR (Frankfurt Interbank Offered Rate), 19, 127 financial crisis, Asia 1997, 36 financial crisis 2007–8; decent culture erosion explanation, 279; familiar analysis of, 114; financial market illuminating, 275; -LIBOR implications, 52, 111; money markets freeze, 109 financial markets: cartels, 222; deregulation 115–16; instruments liquidity, 43; misconceptions, 236; self-regulated, 113, 171; see also, money markets Finers Stephens Innocent, 3 Finland: USSR collapse impact, 20; USSR Winter War, 65 ‘firm policy’, interbank spread choosing, 229 fixed exchange rates, sustainability, 32 flat switch, 92–5 flow traders, 143 Forex, 1995 exam, 223; reciprocity endorsed, 227 FRAs (forward rate agreements), 28, 75, 91, 129–30; growth of, 148 Friday dress policy, 135 FSA (Financial Services Authority), UK, 1–2, 67, 77, 98, 105, 124, 163, 180, 243; prohibition orders, 4; suspension, 5 ‘Full Amount’ call, weakness indicator, 143 funding costs:, averages, 104; LIBOR signalling, 97; -market liquidity relation, 44 futures contracts: agricultural, 120; cash-settled, 125; transparent exchanges, 63 FX (foreign exchange) market, 172, 196, 245; bank price influence, 212; big banks domination/market concentration, 193, 195, 210, 212, 223, 234; ‘clear the decks’, 210; ‘community’, 190; ethical problem, 213; global banks 2014 fines, 188; interbank spread survey, 228; interest rate markets joining, 31; Japanese banks borrowing, 33; London ‘banging the close’; 209; non-public information grey zone, 224; order books, 7; reciprocity, 224; scale of significance, 126, 192, 232; spot market desk, 214, 217; standardised norms, 194; swap market, see below; ‘The Cartel’, 220; traders, see below; turnover scale, 212 FX swap market, 134, 137, 145, 146; interest rate speculation, 133; Japanese traders, 34; lower credit risk, 137, 144; 9/11 trading, 265; spot-prices, 31, 227 FX traders, 191; club mentality, 269; desks, 30; respect among, 269; secret code us, 219; ‘techniques’, 204; varied backgrounds, 216 Gelboim, Ellen, 153 gentlemen’s agreements, 141 ‘getting married to your position’, trading attitude, 257–8 global merchandise exports, growth, 112 Goldman Sachs, 49, 140, 193, 223, 272 Goodhart, Charles, 173 Greece, 2015 ATM queues, 109 Greenspan, Alan, 15, 51, 173–4 Greenwald, Bruce, 225 guilt, feelings of, 78, 169, 243, 259 Häyhä, Simo (‘White Death’), 65 ‘Hambros’, 194 Harley, Dean, 231 Hayes, Tom, 8, 13, 72, 92–3, 115, 238; prison sentence, 12 HBOS, 183 headhunters, 160 HELIBOR (Helsinki Interbank Offered Rate), 28 Hester, Stephen, 284 Hintz, Brad, 10 HSBC, bank, 27, 153, 155, 188, 193, 208, 213, 223; FCA fine, 219; FX trading, 116, 187; Group Management Training College, 187; Stockholm, 31 Hull, John, 150 Hunger Games series, 255 Hyogo Bank default, 33 ICAP, 86, 101, 175; LIBOR fine, 85 ICMA (International Capital Market Association), 174 IKB bank, 50; rollover problems, 49 illiquidity, temporary, 43 Indonesia, financial crisis, 36 Industrial Bank of Japan, 34 ‘industry’, financial, 154–5 information: LIBOR delays problem, 49, 54; big banks superior, 210 instincts, 226 interbank money market, 38; central bank influence, 39; efficiency estimate change, 109; lending fall, 111; LIBOR, see below interest rate(s): benchmarks, 14; central banks forecasts, 166; changes impact of, 38; derivatives, 17, 174; hedging, 128; movement, 42; short-term, 28, 133; swaps sizes, 142 International Code of Conduct and Practice for the, 216 International Monetary Market (IMM), 72; contracts conventions, 126; LIBOR fixings, 73–4 investment banks, risk takers, 272 Ireland, Financial Regulator, 4, 168, 281 IRS, interest rate swap, 129–30; short-term, 140 ISDA (International Swaps and Derivatives Association), 174; fix, 14 Japan: bank sector/system: crisis, 47, 81; dollars difficulty period, 34; fear premium, 36; Financial Services Agency, 101; FX market concentration, 193; FX ‘premium’, 35–6; safe perception change, 33; unique derivatives market, 36; yen market, 8, 45 JP Morgan/JP Morgan Chase, 92, 105, 153, 178, 188, 192–3, 220–3 Kahneman, Daniel, 255 Kerviel, Jérôme, 250 Keynes, J.M., General Theory of Employment, 102 Kipling, Rudyard, 127 KLIBOR (Kuala Lumpur), 37 Knight, Angela, 107 Lapavitsas, Costas, 6–7 layering, 204 Leeson, Nick, 250 ‘legacy issues’, 236 Lehman Brothers, 2, 10, 48–9, 59, 105, 162, 272; bankruptcy filing, 160; collapse of aftermath, 96 Lewis, Ken, 164 LIBOR, 19, 28, 76–7, 104, 127, 130, 147, 209, 234, 265; anti-competitive process, 186; banking lobby regulated, 180–1; ‘barometer of fear’, 96; benchmark significance, 192, 225; central banks perfection assumption, 49; controls deception, 184; crisis-induced ‘stickiness’, 106; crucial price, 13; daily individual quotes, 97; derivatives, see below; ‘Eurodollar futures’ origin, 126; FCA regulated, 282; ‘fear’ index, 15; fixing panels, see below; future direction of, 38; inaccuracy possibilities, 74; interbank money market gauge, 39; jurisdiction issue, 115; manipulation, 7, 12, 14, 78; manipulation impossibility assumption, 81; market-determined perception, 88, 149; mechanism, 104; minute change importance, 73; new unpredictability, 62; 1980s invention, 111; objective process ‘evidence’, 148; perception of, 119; players as referees, 80; post 2007 interest, 53; pre-2013 unregulated, 118; predicting difficulty, 70; regulatory oversight lack, 179; retail credit impact, 277; sanctioned secrecy, 181–2; savings and borrowings dominance, 107; scandal breaking, 81; state measure use, 151; three-months, 71; ‘too big to fail’, 279; use of limited post-scandal, 278 LIBOR derivatives market, 8, 45, 137–8, 232; autonomous development of, 111; banks made, 125; ‘community’, 190; -FX connected, 189; imaginary money market, 148; increased abstraction of, 144–6 LIBOR panel banks, 74–5, 79, 98, 118, 172, 282; -LIBOR implications, 52 big banks dominated, 173, 179–80; fixing process, 75; membership criteria, 184–5; punishment idea, 108; post-scandal membership, 186 LIBOR scandal, 77, 152, 167, 245; correctness attempts, 277; post- definition unchanged, 278; breaking of, 81; Wall Street Journal on, 238 LIBOR-OIS spread(s), 51, 54–5, 99, 151 LIFFE, 126–7 liquidity: and credit crunch 2008, 2; credit issues, 45; informal norms need, 284; provision ‘duty’ 229; risk, 42–3, 55, 70 Lloyds Bank, 153, 183; LIBOR fine, 83 long/short positions, 26 Lukes, Steven, 186 makers, price, 24 Malaysia, financial crisis, 36 Mankell, Henning, 235 ‘marked to market’ trading books, 62 market, the financial: ‘colour’ 202; ‘conventions’, 228–33; ‘courtroom’, 171; interbank spread choosing ‘image’, 229; liquidity risk, 42–3; making, see below; perfections of, 15; relationships dependent, 225–6; risks limits management failure, 281 market makers/making, 24, 72, 117, 201, 206, 217, 226–7, 257; ‘ability’, 185; cash-settled derivatives, 133; failure to manage, 281; NIBOR IRS, 132; profession of, 200; two-way price quoting, 228; visibility of, 202 Martin Brokers, 85 Mathew, Jonathan, 139 McAdams, Richard, 231 McDermott, Tracey, 282 Meitan Tradition, 100, 175 Merita Bank, 56 Merrill Lynch, 2–3, 8–9, 12, 46, 49, 59–60, 62, 64, 69, 92–3, 96, 140, 153, 155, 160–1, 164, 188, 272, 285; Bank of America takeover, 67; bonuses, 10, 162–3; financial centre, 48; International Bank Limited Dublin, 4; mismarking, 68; risk taking encouraged, 281; silence rule, 242 Midland Montagu (Midland Bank Stockholm Branch), 20, 22–3, 27, 29; Stockholm, 22, 29 ‘Millenium bug’ fears, LIBOR impact, 44 mismarking, 9 mistakes, fear of, 26 Mollenkamp, Carrick, 98 ‘monetary transmission mechanism’, 39 money market(s): decentralised, 224; freeze, 110; international basis, 112; ‘risk premium’, 42; stable illusion-making, 106; -state link, 224 Moody’s, 96 morals, 66; morality, 69 Morgan Stanley, 49, 193, 223, 272 mortgage bonds, 21 NASDAQ stock exchange, transparency, 220 New York 2001 attacks, 263 New York Times, 4, 9, 11, 163, 241, 243 NIBOR (Norwegian Interbank Offered Rate), 28, 72, 130–1; fixing dates, 76; inaccurate fixing, 74; IRS market, 132; new unpredictability, 62; one month IRS market, 136 nicknames, use of, 25–6 Nordbanken, nationalised, 27 Nordic bank branches, 30 Norges Bank, NIBOR use, 152 Norinchukin Bank, 153 Northern Rock, Newcastle queues, 109 Norway, banking system, 131 ‘objective’ fact, LIBOR, 149 ‘off-balance-sheet’, trading, 137–8 official interest rate, predicting, 38 OIS (overnight index swap), 51; see also LIBOR-OIS one month IRS market, 136 OPEC (Organization of the Petroleum Exporting Countries), US dollar surpluses, 113 options desk, FX, 214 ‘over-the-counter’ trades, 63 derivatives, 129, 134; interest rate options, 130; markets, 227 Philippines, financial crisis, 37 Philips, cassette launch, 111 PIBOR (Paris Interbank Offered Rate), 19, 127 post scandals, reforms, 282 price(s), as interactions, 200; brokers indications role, 87; ‘resolution hypothesis’, 218 primary dealers, 175, 178 privacy, individual rights to, 167 Rabobank, LIBOR fine, 83, 153, 282 RBC, bank, 223 RBS, bank, 92, 153, 185, 188, 192, 220–1, 223, 284; LIBOR scandal fine, 83 reciprocity: -and trust, 226, 284; informal agreements, 228 regret, fear of, 258 regulatory arbitrage: Eurodollar market prompting, 118; platform for, 114 ‘reputation’, 185 respect, among traders, 267 Reuters, 19, 79, 151; Dealing, 41, 195, 260; Dealing 2000–2, 29, 34, 194; indicative prices, 62; screen price, 53 risk, 135; buzz of, 261–2; limits breaking, 274; ‘loss aversion’, 255; managers, 253; organizational limits, 250; pressures for, 63 risk taking: addictive, 262; enjoyment of, 260; fear control, 263; increase, 73; individualistic, 262; reward anticipation, 254; reward interpretation, 259; supervision need, 253 risk takers, 270; respect among, 268–9 Robert, Alain, 260 ‘rogue traders’, 1, 237; ‘bad apples’ narrative, 237, 240, 246, 279; fame, 252; fascination with, 246; losses, 259; ranking list, 250; risk list, 251; scandals, 258; stigma, 247 rogue trading, 274; definitions, 249; labelling, 248; risk link, 250 Royal Bank of Canada, 153 RP Martins, 153 rules of the game, loyalty to, 25 ‘run-throughs’, 87–9, 226–7 Russia, financial crisis, 36 Ryan, Ian, 3, 9, 68 Sanford C.


pages: 481 words: 120,693

Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else by Chrystia Freeland

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, assortative mating, banking crisis, barriers to entry, Basel III, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Boris Johnson, Branko Milanovic, Bretton Woods, BRICs, business climate, call centre, carried interest, Cass Sunstein, Clayton Christensen, collapse of Lehman Brothers, commoditize, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Deng Xiaoping, disruptive innovation, don't be evil, double helix, energy security, estate planning, experimental subject, financial deregulation, financial innovation, Flash crash, Frank Gehry, Gini coefficient, global village, Goldman Sachs: Vampire Squid, Gordon Gekko, Guggenheim Bilbao, haute couture, high net worth, income inequality, invention of the steam engine, job automation, John Markoff, joint-stock company, Joseph Schumpeter, knowledge economy, knowledge worker, liberation theology, light touch regulation, linear programming, London Whale, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, NetJets, new economy, Occupy movement, open economy, Peter Thiel, place-making, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, postindustrial economy, Potemkin village, profit motive, purchasing power parity, race to the bottom, rent-seeking, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, self-driving car, short selling, Silicon Valley, Silicon Valley startup, Simon Kuznets, Solar eclipse in 1919, sovereign wealth fund, starchitect, stem cell, Steve Jobs, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tony Hsieh, too big to fail, trade route, trickle-down economics, Tyler Cowen: Great Stagnation, wage slave, Washington Consensus, winner-take-all economy, zero-sum game

As in the United States, the gains are skewed to the very tip of the pyramid: among the financiers who are part of Britain’s top 1 percent, the top 5 percent (or 0.05 percent of workers overall) take 23 percent of the total wages of that gilded slice of the population. The dominance of top dogs in finance is even stronger than that of the 0.05 percent in other jobs. — One reason the preeminence of the financiers within the global super-elite matters is that it highlights how crucial financial deregulation has been to the emergence of the plutocracy. That story has been told most convincingly in a historical study published in 2011 by economists Thomas Philippon and Ariell Reshef. I first heard of the paper when a draft version of it was presented at the central bankers’ conference in Basel, a prestigious annual wonk fest for the world’s central bankers and the academic economists who are their intellectual groupies.

All of them have some impact, but they find that the change with the single greatest explanatory power is deregulation, which they calculate has driven nearly a quarter of the increase in incomes in finance and 40 percent of the increase in the education of workers in that sector. Volcker and his smartest classmates chose to become professors and civil servants. Today, many of Harvard’s smartest economists choose Wall Street. Emerging market oligarchs who owe their initial fortunes to sweetheart privatizations are perhaps the most obvious beneficiaries of rent-seeking. But through financial deregulation, Western governments, especially in Washington and London, played an even greater role in the rise of the global super-elite. As with the sale of state assets in developing economies, the role of deregulation in creating a plutocracy turns classic thinking about rent-seeking upside down. Deregulation was part of a global liberalization drive whose goal was to pull the state out of the economy and let market forces rule.

What’s especially important about this study is that it documents the relationship between Wall Street and Washington before the 2008 financial crisis and subsequent multitrillion-dollar bailout. That rescue is what prompted populist anger on both right and left and claims, as Sarah Palin put it in an op-ed in the Wall Street Journal, that Washington had occupied Wall Street. But the real government capture actually happened in the three decades before 2008, with the long, steady, bipartisan rollout of financial deregulation. — Dani Kaufmann grew up in Chile. He was studying at Hebrew University when Pinochet seized power in a coup in 1973, and elected not to return, ending up instead at Harvard, where he eventually earned a PhD in economics. His next stop was the World Bank, where he worked on Africa and then, after the collapse of the Soviet Union, the transition to capitalism in what used to be the Warsaw Pact states.


pages: 356 words: 103,944

The Globalization Paradox: Democracy and the Future of the World Economy by Dani Rodrik

affirmative action, Asian financial crisis, bank run, banking crisis, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, colonial rule, Corn Laws, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, Doha Development Round, en.wikipedia.org, endogenous growth, eurozone crisis, financial deregulation, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, George Akerlof, guest worker program, Hernando de Soto, immigration reform, income inequality, income per capita, industrial cluster, information asymmetry, joint-stock company, Kenneth Rogoff, land reform, liberal capitalism, light touch regulation, Long Term Capital Management, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, Paul Samuelson, price stability, profit maximization, race to the bottom, regulatory arbitrage, savings glut, Silicon Valley, special drawing rights, special economic zone, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tobin tax, too big to fail, trade liberalization, trade route, transaction costs, tulip mania, Washington Consensus, World Values Survey

As memories of interwar instability faded, financial interests began to carry even greater weight in the shaping of economic policy. The Europeans and Japanese were willing to contemplate cooperative capital controls to bring some stability to foreign currency markets after 1973, but their demands were blocked by the United States.20 Policy makers in the United States and Britain increasingly advocated global financial deregulation, and they eventually gained an unlikely and crucial ally in France. The impetus behind the French change of heart was the failure of a reflation program the Socialist president François Mitterrand had embarked on in 1981—the so-called “experiment of socialism in one country.”21 Financial markets had responded to Mitterrand by fleeing in droves, putting upward pressure on French interest rates.

Nothing comparable took place in the subsequent fifty years until the savings and loan crisis of the 1980s.21 This era of financial stability owed its existence to an uneasy accommodation between Main Street and Wall Street—between the real and financial sectors—following long centuries of experimentation. The quid pro quo took a simple form: regulation in exchange for freedom to operate. Governments brought commercial banks under a heavy dose of prudential regulation in return for providing public deposit insurance and lender-of-last-resort functions. And equity markets were encumbered with extensive disclosure and transparency requirements before they could develop. The financial deregulation of the 1980s upended the bargain and ushered us into new, uncharted territory. Advocates of liberalization argued that supervision and regulation would hinder financial innovation, and in any case government agencies could not possibly keep up with the technological changes. Self-regulation was the way to go. A multitude of new financial instruments emerged, with strange acronyms and risk characteristics about which even the most sophisticated market players were ultimately clueless.

No one can doubt that banks became politically powerful in the United States, but in getting policy makers to do their bidding they received immense help from economists. The economists’ narrative gave intellectual cover to freeing up finance and convinced politicians that what was good for Wall Street was also good for Main Street. Beyond the United States, economists sparked a global push for financial liberalization, as we have seen. The French Socialists embraced financial deregulation not because of Wall Street’s influence but because their own technocrats had no other alternatives to offer. The IMF’s push for free capital flows was supported by the economics profession’s best minds. Simon Johnson and other economists who had influence and held policy positions actively encouraged the process. I find it difficult to believe that they were the hired guns of the banking industry.


pages: 586 words: 159,901

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

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

The ex-designer, a mathematician and physicist named Victor Makarov, kept an eye on some of Chase's positions in 36 currencies, bonds, loans, stocks, and derivatives; his history, he says, made him especially risk-averse (Lipin 1994). 21. Volatility is measured by the standard deviation of yearly percentage changes; 1980 is as good a dividing time as any between the New Era and the Old. Interest derivatives began trading in 1977; stock derivatives in 1981; 1980 also marked the first bite of Volcker's sadomonetarism, was about the midpoint of financial deregulation, and was the eve of the Reagan transformation. 22. "Aristotle thought that only living beings could bear fruit. Money, not a living being, was by its nature barren, and any attempt to make it bear fruit {tokos, in Greek, the same word used for interest), was a crime against nature" (de Cecco 1992a). 23. Nearly half of the late 19th century in the U.S. was spent in periods of recession or depression; since World War II, only about a fifth of the time has been. 24.

As financial popstar Andrew Tobias (1982) once argued, the insurance industry thrives on its reputation for dullness, which keeps prying eyes away from examining its wealth. So-called mutual life insurance companies, which are owned by their policyholders, are especially fat and obscure, because few small policyholders have the means or will to check out what "their" firm is up to with "their" money. Executives of such firms are among the most cosseted of a cosseted class, though financial deregulation is beginning to bite at the industry. banks, commercial and investment And now to the players that attract the most attention — commercial and investment banks and other star institutions that are synonymous with Wall Street. A striking feature of the general credit scene is that old-style banking has taken a backseat to "the markets." This is a matter of both numbers and style. From the 1950s through the mid-1970s, banks held an average of 28% of total credit market debt; at the end of 1997, their share had fallen to 19%.

Thrift pundit Robert Litan (1992) rejected popular explanations of the crisis, which center on "venality, greed and incompetence," out of professional discomfort. Instead, Litan preferred the terrain of conventional economics — inflation, interest rate volatility, moral hazard, real estate slump, and the rest — and, like a loyal economist, was eager to get deregulation off the hook. PLAYERS Of course inflation and the rest are to blame. But it would be impoverishing to stop there. Litan's fellow economists assured us that financial deregulation was supposed to release untold energies by liberating the self-adjusting mechanisms of the capital markets. Instead, it released imprudence, incompetence, and fraud throughout the entire system. As a Wall Street Journal piece on the thrift disaster noted, the list of malefactors is "so long that some observers conclude there is something profoundly wrong with the country's political and financial systems, which appear easily undone by feckless and reckless behavior.


Global Governance and Financial Crises by Meghnad Desai, Yahia Said

Asian financial crisis, bank run, banking crisis, Bretton Woods, business cycle, capital controls, central bank independence, corporate governance, creative destruction, credit crunch, crony capitalism, currency peg, deglobalization, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, floating exchange rates, frictionless, frictionless market, German hyperinflation, information asymmetry, knowledge economy, liberal capitalism, liberal world order, Long Term Capital Management, market bubble, Mexican peso crisis / tequila crisis, moral hazard, Nick Leeson, oil shock, open economy, price mechanism, price stability, Real Time Gross Settlement, rent-seeking, short selling, special drawing rights, structural adjustment programs, Tobin tax, transaction costs, Washington Consensus

They find confirmation for Kindelberger’s identification of credit expansion as a determining factor behind asset price bubbles. They point out that historically asset price bubbles followed reforms, which led to credit expansion such as financial liberalisation, fiscal expansion and relaxation of reserve requirements. They cite Japan in the 1980s as an example of this phenomenon. The mechanism through which financial deregulation feeds into asset price bubbles according to Alan and Gale is by exacerbating the agency problem. Speculative investors with improved access to credit shift the risk to financial intermediaries. This encourages them to bid prices even higher. Uncertainty over monetary policy further exacerbates this dynamic. On the down side, banks liquidate assets to meet demands, which further accelerates the negative bubble.

The East Asian economies implemented foreign-encouraged programmes of financial liberalisation in the 1980s, but did not adequately regulate and supervise their liberalised financial systems. Hamilton-Hart (2000) emphasises the different political pre-conditions required for prudential supervision and financial liberalisation, which also entail rather different administrative capacities. While the benefits of financial deregulation in the context of an open capital account are relatively concentrated, its costs and risks are diffuse. And conversely, while the costs of compliance with prudential regulation are concentrated, its benefits are diffuse.18 Hence, deregulation, at least in the financial sector, is politically easier to carry out than prudential regulation. The private interests favoured prior to financial reform also gained most from deregulation.19 While significant regulatory weaknesses persist, a financial sector is unlikely to be simultaneously developed, liberalised and stable.

Schulze-Ghattas, M. and Tsikata, T. (1999) IMF-Supported Programs in Indonesia, Korea and Thailand: A Preliminary Assessment, International Monetary Fund, Washington, DC, January. Lim, J. (1999) ‘The macroeconomics of the East Asian crisis and the implications of the crisis for macroeconomic theory’, The Manchester School, Special Issue, 67(5): 428–459. McKinnon, R. and Pill H. (1996) ‘Credible liberalizations and international capital flows: the “overborrowing syndrome” ’, in T. Ito and A. Krueger (eds), Financial Deregulation and Integration in East Asia, University of Chicago Press, Chicago, pp. 7–50. Nasution, A. (2000) ‘The meltdown of the Indonesian economy: causes, responses and lessons’, ASEAN Economic Bulletin, Special issue, April. Neiss, H. (1999) ‘The Asian crisis in perspective’, IMF Media Seminar, Singapore, April 2. Pasuk P. (2000) ‘Beyond crisis: changes, fears, futures’, Processed, Faculty of Economics, Chulalongkorn University, Bangkok.


pages: 772 words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Basel III, Black Swan, blood diamonds, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Gordon Gekko, hiring and firing, income inequality, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, pension reform, performance metric, pirate software, plutocrats, Plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

Johnston concluded that for every $1 of additional income earned by the bottom 99 percent of Americans since 1970, each member of these dynastic families received $7,500 additional; collectively, in 2000, these families received as much income as the poorest 96 million Americans.30 How We Got Here America arrived here as a result of choices made at the polls; specifically the elections of Presidents Ronald Reagan, George H.W. Bush, George W. Bush, and (to a lesser degree) Bill Clinton. Not until the election of President Obama was an effort made to address at least some symptoms of Reaganomics like financial deregulation. But why would Americans make these earlier economically harmful choices? Part of the answer rests with the nature of economic information. Economic results are slow to accumulate in the mind’s eye of voters. Excepting recessions, it takes many years before hindsight can actually distill fiction from facts about the quality of economic leadership. And when the facts become clear sometimes years later, even well-informed voters have difficulty linking their plight to seminal trends such as the regulatory capture of Washington by the business community, or the devolution of the American executive suite culture.

In recent years, rampant front-running induced mutual, hedge, insurance, and pension funds seeking optimum prices to utilize Dark Pools, where their large block trades were presumably obfuscated and anonymous, allowing for more competitive pricing. Yet the certainty of trading gain proved too alluring; the Dark Pool exchange platform Pipeline Trading Systems was discovered front-running its own block traders and was fined by the SEC in 2011.80 The reality is that the discipline of market forces has proven no match for the practices that have proliferated in the wake of financial deregulation. Alan Greenspan called Wall Street bankers who exploited deregulation to conjure new financial products like subprime mortgages “pollinating bees” in his 2009 book, Age of Turbulence. Some of his pollinators’ products proved toxic to investors, who unfortunately still today have only modest recourse under the caveat emptor rules of American law, even in instances when they were denied critical information by broker-dealers or by rating agencies.

Indeed, economists Andrew Berg and Jonathan Ostry with the IMF have concluded that nations with less income disparity experience faster growth. Analyzing data from 1950 to 2006, they discovered that income equality is as important to growth as is openness to free trade. Nations with high-income equality experienced higher average rates of economic growth by avoiding disruptions such as credit crises that are precipitated when economic elites achieve financial deregulation.31 In family capitalism countries, gains from trade and economic growth are widely distributed. They met the challenges of globalization and technology change by opening borders to garner the enormous wealth from the improvement in resource allocations and efficiency. At the same time, they upskilled workforces and adopted institutions to ensure the gains would be broadcasted widely, not monopolized as in the United States.


pages: 283 words: 81,163

How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present by Thomas J. Dilorenzo

banking crisis, British Empire, business cycle, collective bargaining, corporate governance, corporate social responsibility, financial deregulation, Fractional reserve banking, Hernando de Soto, income inequality, invisible hand, Joseph Schumpeter, laissez-faire capitalism, means of production, medical malpractice, Menlo Park, minimum wage unemployment, Norman Mailer, plutocrats, Plutocrats, price stability, profit maximization, profit motive, Ralph Nader, rent control, rent-seeking, Robert Bork, Ronald Coase, Ronald Reagan, Silicon Valley, statistical model, The Wealth of Nations by Adam Smith, transcontinental railway, union organizing, Upton Sinclair, wealth creators, working poor, Works Progress Administration, zero-sum game

The big-government interventionists of the day—Daniel Webster, Henry Clay, and other Whigs—denounced him, but he stuck to his principles. Rather than intervening, Van Buren fought for financial deregulation, ushering in the Independent Treasury System, a new national banking system under which all bank notes were redeemable in gold and silver. This financial deregulation produced what was arguably the most stable monetary system the United States has ever had.5 What bank losses there were stemmed from remaining state-level regulations, such as prohibitions on branch banking and requirements that banks purchase extremely risky and sometimes worthless state government bonds. In addition to financial deregulation, notes historian Jeffrey Hummel, Van Buren “thwarted all attempts to use economic depression as an excuse for expanding government’s role.”6 Henry Clay and the Whigs (including a young Abraham Lincoln) viewed the depression as a political opportunity to get the federal government to enact their favorite pork-barrel schemes for “internal improvements,” which amount to corporate welfare for companies that built roads, railroads, and canals.


pages: 223 words: 10,010

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

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

In the UK output fell by 5 points over this period.229 Not only has the world experienced more and deeper recessions, the crises of recent times have had very different origins. Earlier post-war dips (mild as they were by comparison) were triggered by deflationary policies needed to get inflation under control (as was that of 1980-1982). The most recent recessions have nothing to do with inflation or soaring wage demands. They have much more to do with rising asset prices driven by excess profits and unsustainable credit, fuelled by financial deregulation. This has also been the main cause of the upsurge in financial crises, most of them associated with a torrent of currency, stock or property speculation. In the two decades from 1950 there were no banking crises and relatively few financial crises. Since the end of the 1970s, the number of such crises has mushroomed. As the Financial Times columnist, Martin Wolf, has put it, ‘financial liberalisation and financial crises go together like a horse and carriage’.230 In October 1987, the world’s leading stock markets crashed, their largest fall in a day since the crash of 1929.

From the 1930s through to the end of the 1970s, there were virtually no bank failures while income inequality fell. From the early 1980s, the pattern of the 1920s was repeated. Income inequality rose along with the incidence of financial and banking crises. ‘I could hardly believe how tight the fit was—it was a stunning correlation,’ Moss told the New York Times. ‘And it began to raise the question of whether there are causal links between financial deregulation, economic inequality and instability.’240 Of course, as Moss has accepted, correlation is not the same as causation. As one of his critics, R Glenn Hubbard, dean of the Columbian Business School and top economic adviser to former President George W Bush has put it, ‘Cars go faster every year, and GDP rises every year, but that doesn’t mean speed causes GDP.’ 241 The correlation could mean that the direction of causation is from slump to inequality.

It also came with political sanction. The finance industry—in both the UK and the US—has been encouraged to extend lending further and further down the income scale. As shown in the next chapter, such encouragement has been part of the wider political response to the shrinking income base amongst large sections of the working population. Until the early 1980s, all forms of lending were tightly controlled in the UK. Before financial deregulation, the great majority of mortgages were provided by Britain’s long established building societies. Most of these mutual organisations had been born in the nineteenth century in response to the Victorian self-help ethic to encourage savings and run for the good of their members. These controls involved rules governing mortgage lending from the size of deposits and interest rates to the ratio of loans to income.


pages: 602 words: 120,848

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

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

On Wall Street and beyond, business could count on Republicans to be the party that, in the famous words of conservative patron William F. Buckley Jr., “stands athwart history yelling Stop.” Except, that is, when the party was standing athwart history yelling Full Speed Ahead. As the winner-take-all economy raced relentlessly forward in the first decade of the new century, Republicans promoted that development at every turn. Whether the lever was huge tax cuts, further financial deregulation, or lax oversight, the GOP was there to give a helpful push. And the willingness to provide that aid was hidden right out in the open. Less than a month before his tumultuous victory in November 2000, George W. Bush had made a guest appearance at the Al Smith charity event in New York. At the $800-a-plate dinner, where Bush and Al Gore took turns offering self-deprecating jokes before a diamond-studded crowd of the economy’s biggest winners, the soon-to-be victor signaled what was to come with a wink: “This is an impressive crowd—the haves and the have-mores.

In the Clinton administration, Treasury Secretary Robert Rubin and his deputy (and, later, successor) Lawrence Summers headed a formidable cadre of Wall Street support. Rubin, of course, had come straight out of Wall Street, having spent the previous twenty-six years in the top echelons of Goldman Sachs. Summers was Rubin’s protégé and successor as treasury secretary, a fiercely brilliant economist who shared Rubin’s enthusiasm for financial deregulation if not his Wall Street pedigree. The brief clash over derivatives provided a powerful example of what the two sides of Pennsylvania Avenue could do. By the late 1990s, concern over the massively expanding use of these new financial instruments was growing. Derivatives combined impressively varied forms of mischief—vastly expanded use of leverage, incredible opacity, and an ever-tightening web of invisible threads among firms—into a single perilous package.

The “congressionalist” structure reflected an appreciation for the politics of organized combat, an understanding that producing real changes in governance meant confronting the reality of deeply entrenched interests operating on favorable legislative terrain.12 The composition of Obama’s economic team reflected a different sort of concession to the reality of organized combat—a recognition that the delicate sensitivities of the winner-take-all economy demand their own accommodation. The key positions went to two veterans of the Clinton administration, Tim Geithner and Larry Summers. Of the two, Summers had the greater political experience, having served as treasury secretary (where, as we saw in chapter 9, he pushed for financial deregulation). But neither could be seen as a congressional favorite. Rather, they were respected figures within the mainstream of Democratic economic thinking with strong ties to Wall Street. Of the two, Geithner’s Wall Street ties were the stronger. He had been offered the top spot at Citigroup (though “sorely tempted,” he declined).13 As head of the Federal Reserve Bank of New York in 2008, he had engineered the $182 billion bailout of the giant insurer AIG.


pages: 457 words: 143,967

The Bank That Lived a Little: Barclays in the Age of the Very Free Market by Philip Augar

activist fund / activist shareholder / activist investor, Asian financial crisis, asset-backed security, bank run, banking crisis, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, break the buck, call centre, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, family office, financial deregulation, financial innovation, fixed income, high net worth, hiring and firing, index card, index fund, interest rate derivative, light touch regulation, loadsamoney, Long Term Capital Management, Martin Wolf, money market fund, moral hazard, Nick Leeson, Northern Rock, offshore financial centre, old-boy network, out of africa, prediction markets, quantitative easing, Ronald Reagan, shareholder value, short selling, Sloane Ranger, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, too big to fail, wikimedia commons, yield curve

Barrett admitted that the opportunity to ‘create one of the great banks of the world is a banker’s dream’. However, the proposal posed a problem for the Canadian government. Paul Martin, finance minister in Canada’s Liberal government, had already set up a task force to advise him on competition and concentration in the financial services industry, and he did not like being jumped on in this way. He had a cautious approach to financial deregulation and doubted whether Canada needed to emulate the likes of Citigroup, Chase and Bank of America. After deliberating for several months, he blocked the RBC–BMO deal on the grounds that putting together the first and third largest banks in Canada would be anti-competitive. The government’s veto left Canada with a different kind of financial services industry from the one that Barrett and Cleghorn had in mind.

In a recent study of the world’s top fifty financial cities, London had come first, leading the chancellor to conclude: ‘The financial services sector in Britain and the City of London at the centre of it, is a great example of a highly skilled, high value added, talent-driven industry that shows how we can excel in a world of global competition. Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate.’3 But one week later, on the very same day that he moved into Number 10, Northern Rock, one of the building societies that had taken advantage of financial deregulation by listing on the Stock Exchange and competing with the High Street banks, unexpectedly issued a profit warning. It caused only ripples in the City and Whitehall (and not even those in the country at large) and scarcely registered with the boards of Barclays and ABN who, with the bullish words of the prime minister-to-be ringing in their ears, simply pressed on with the battle. With both sides jostling for position, by the middle of July ABN’s shareholders had a choice: the RBS consortium’s £71.1 billion nearly all in cash or Barclays’ £67.5 billion mainly in shares.

Being the world’s global financial services capital was all very well in the good times, but it was a notoriously volatile industry; in the bad times its problems would affect the rest of the economy. When Tom Camoys started BZW, the City was an inward-looking community of fewer than 100,000 people quietly getting on with their business. It was comfortable and predictable and although the wider public probably paid a bit too much for banking, insurance and pension fund management services, the City posed no risk to the country at large. Globalization, Big Bang and financial deregulation in the US changed all that. By 2007, the City was no longer the self-contained Square Mile around the Bank of England but a dispersed community with global reach. Eighty-seven thousand people worked in the towers of Canary Wharf with its underground shopping malls, glitzy bars and crowded gyms. To the west in Mayfair, hedge funds, private equity funds and family offices went about their business behind discreet nameplates.


pages: 432 words: 127,985

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

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

Desupervision helped make the industry ideal for control fraud. First, and most disastrously, Pratt froze and then reduced the number of examiners. This was a terrible mistake, but Pratt was not alone in making it. President Reagan’s first act was to freeze new hires. The Office of Management and Budget (OMB) wanted the Bank Board to reduce its examiners and supervisors. President Reagan appointed Vice President Bush to head his financial deregulation task force. Bush recommended that financial regulators rely more on computer analyses of industry financial statements and cut both the frequency of examinations and the number of examiners. Martin Lowy (1991, 36) says that Pratt fought with the administration for new examiners and was denied them. The OMB went so far as to threaten Pratt with criminal sanctions if he didn’t obey its spending restrictions.

We were also lucky because the administration’s effort to give Keating control of the Bank Board failed and because Keating used Henkel so crudely that he could be removed from office before he could destroy reregulation. Henkel would have caused enormous damage if he had remained Keating’s mole. We cannot afford to rely on luck. We have to take the selection of senior regulators more seriously. That requires us to discuss the role of the president in regulation. President Reagan failed in this role. His administration (and it is important to remember that Vice President Bush was in charge of financial deregulation) took the following actions: • Insisted on deregulating at a time of mass insolvency • Insisted on covering up the scope of the crisis • Barred Pratt from briefing the cabinet finance committee • Argued in favor of running insolvent S&Ls like Ponzi schemes • Repeatedly cut the number of examiners • Fought the agency’s use of the FHLB system to double the number of examiners and supervisors at no cost to the Treasury • Opposed Gray’s efforts to reregulate • Refused to allow the FSLIC to obtain any money from Treasury • Tried to give Keating majority control of the Bank Board • Appointed Keating’s mole, Henkel, to the Bank Board • Accepted (through Bush) a $100,000 contribution from Keating even after Senator Riegle had returned his contributions in light of the Keating Five scandal • Reappointed Henkel to the Bank Board after he tried to immunize Lincoln Savings’ violations • Tried (through Don Regan) to embarrass Gray into resigning • Threatened to prosecute Pratt and Gray for closing insolvent S&Ls • Threatened to prosecute FDIC chairman Seidman for closing banks • Reached a deal with Speaker Wright to support forbearance and not reappoint Gray • Conducted a criminal investigation of the FHLBSF at Keating’s request • Provided no White House support for the FSLIC recap until Gray left office • Regan testified that while Gray warned of the coming crisis, he, Regan, ignored the warnings • Not only did President Reagan never request a briefing from Gray about the debacle, but they never discussed it personally after Reagan appointed Gray • President Bush insisted on appointing Wall as director of the OTS without the advice and consent of the Senate, which was ruled unconstitutional • Bush appointed Wall OTS director even after he had appeased Keating 10.

This policy incoherence was characteristic of Pratt’s tenure. His motif was to do everything possible for the industry even if the components were logically inconsistent. 8. Ed Kane (1985), however, predicted very early that the industry was headed for disaster, but he did not tie that accurate prediction to opposition to deregulation. 9. This political risk extended to Vice President Bush, for he was Reagan’s head of financial deregulation. 10. For example, our analysts knew that the Soviet Union was deploying nuclear missiles in Cuba because our U-2s spotted the characteristic pattern of antiaircraft defenses the Soviets always used for nuclear missiles. 11. The same thing happened to the SEC in the 1990s. It became so short-staffed that it never knew a wave of control frauds had hit. It never identified patterns of conduct indicating that fraud was likely. 12.


pages: 322 words: 87,181

Straight Talk on Trade: Ideas for a Sane World Economy by Dani Rodrik

3D printing, airline deregulation, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bernie Sanders, blue-collar work, Bretton Woods, BRICs, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, central bank independence, centre right, collective bargaining, conceptual framework, continuous integration, corporate governance, corporate social responsibility, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Donald Trump, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, financial deregulation, financial innovation, financial intermediation, financial repression, floating exchange rates, full employment, future of work, George Akerlof, global value chain, income inequality, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Jean Tirole, Kenneth Rogoff, low skilled workers, manufacturing employment, market clearing, market fundamentalism, meta analysis, meta-analysis, moral hazard, Nelson Mandela, new economy, offshore financial centre, open borders, open economy, Pareto efficiency, postindustrial economy, price stability, pushing on a string, race to the bottom, randomized controlled trial, regulatory arbitrage, rent control, rent-seeking, Richard Thaler, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sam Peltzman, Silicon Valley, special economic zone, spectrum auction, Steven Pinker, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, total factor productivity, trade liberalization, transaction costs, unorthodox policies, Washington Consensus, World Values Survey, zero-sum game, éminence grise

In a world of diverse and changing circumstances, social scientists can do real harm by applying the wrong model. Neoliberal economic policies, predicated on well-functioning markets, misfired in developing countries—just as planning models, presuming competent and capable bureaucrats, failed in an earlier era. The efficient-markets theory led policy makers astray by encouraging them to undertake excessive financial deregulation. It would be costly to apply the analogy of Munich in 1938 to a specific international conflict when the underlying situation is more reminiscent of Sarajevo in 1914. So how should we choose among alternative simplifications of reality? Rigorous empirical tests may eventually settle questions such as whether the US economy today is suffering more from Keynesian lack of demand or from policy uncertainty.

Many observers, such as Simon Johnson and James Kwak, have argued that the policies that produced the crisis were the result of powerful banking and financial interests getting their way, which seems like a straightforward application of the theory of special interests.24 Still, without the wave of ideas “in the air” that favored financial liberalization and self-regulation and emphasized the impossibility (or undesirability) of government regulation, these vested interests would not have gotten nearly as much traction as they did. After all, powerful interests rarely get their way in a democracy by nakedly arguing for their own self-interest. Instead, they seek legitimacy for their arguments by saying these policies are in the public interest. The argument in favor of financial deregulation was not that it was good for Wall Street but that it was good for Main Street. Other observers have argued that the financial crisis was a result of excessive government intervention to support housing markets, especially for lower-income borrowers. These arguments were also grounded on certain ideas—about the social value of homeownership and the inattentiveness of the financial sector to those with lower incomes.

As Rawi Abdelal has shown, this effort was spearheaded in the late 1980s and early 1990s not by free-market ideologues but by French technocrats such as Jacques Delors (at the European Commission) and Henri Chavranski (at the OECD), who were closely associated with the Socialist Party in France.2 Similarly, in the United States, it was technocrats associated with the more Keynesian Democratic Party, such as Lawrence Summers, who led the charge for financial deregulation. France’s Socialist technocrats appear to have concluded from the failed Mitterrand experiment with Keynesianism in the early 1980s that domestic economic management was no longer possible, and that there was no real alternative to financial globalization. The best that could be done was to enact Europe-wide and global rules, instead of allowing powerful countries like Germany or the United States to impose their own.


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

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

Deposit insurance would protect depositors; international agreements would ensure minimum standards for balance sheets (the Basel system of coordinating approaches to financial stability was launched in 1974); and the central banks were fully cognisant of their importance as lenders of last resort. Even if the occasional bank were to collapse, there was no reason for it to develop into a systemic run on all banks. Financial deregulation was the universal panacea, promoted in developing countries just as much as in the West. Dismantling controls would enable them to overcome their cash-flow problems by drawing on the capital of the rich countries. The stronger the financial markets became, the more discipline they could impose on profligate governments and fat, monopolistic firms. Domestic savings would also be allocated better.

Turbo finance The implosion of the Communist Bloc and the triumph of liberal capitalist democracy initiated a further intensification of globalisation and the high-water mark of the Washington consensus. However, although the main contours were agreed – rolling back the state, deregulation, balancing budgets, setting inflation targets, privatisation and generally extending the ‘magic of the market’, as Ronald Reagan had famously dubbed it – there was still room for debate. Some economists, such as Jagwad Bhagwati, had impeccable free trade credentials but still had doubts about financial deregulation. For them, free trade should have been first in the sequence of priorities; deregulating finance, on account of its attendant risk, last. But this was rapidly becoming heresy, despite the two recent British property crashes, the American savings and loans crisis, and a Latin American debt crisis. Nevertheless, while it may have made sense for any individual bank to promote the freedom to manage its balance sheet according to market signals and opportunities for profitable lending, there was clearly a problem of collective action.

So the delusional story that is told about any new boom era – the transformatory impact of mass production in the 1920s; the benefits of globalisation, ICT and financial innovation in the 2000s – always turns out to be false. The risks that were judged to be no risk turn out to be as risky as ever, even though everyone has bet that they were not. ‘Permanent improvements’ turn out to be mere by-products of the economic cycle. There had already been storm warnings from around the financially deregulated world. The World Bank estimated that between the late 1970s and 2000 there were 112 systemic banking crises in 93 countries in the developed and the less developed world alike. This is far higher than the figure for the previous thirty (more regulated) years, and it imposed far higher fiscal costs. A quarter of these crises involved public debt rising by more than 10 per cent of GDP and another half approached 10 per cent of GDP.16 Yet the warnings were disregarded, even as it became obvious that deregulation resulted in a degree of instability that would eventually trigger a systemic Western banking crisis.


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

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

Hundreds of billions of precious American savings were wasted. The new age started with Walter Wriston, the most innovative, aggressive, and admired of the nation’s commercial bankers, head in the 1970s of First National City Bank, later Citicorp. He was an adamant believer in laissez-faire economics—minimal government intervention. He revolutionized banking by circumventing and often ignoring New Deal regulations. Financial deregulation started with him, but three times in thirty years the bank he built nearly went out of business due to the hundreds of millions of dollars of bad loans it made, saved only by federal intervention. The story of Citibank runs through this entire history. Not all those who are the principal focus of a chapter were blatant practitioners of greed—some not at all. Tom Peters, the famed management consultant, was much the opposite.

The anti-inflationary policies were adhered to too firmly, and contributed significantly to slower rates of growth, higher levels of unemployment, the disappointing growth rate of productivity until the late 1990s, and stagnating wages. Extreme speculative excesses arose in other areas while Friedman’s anti-inflation heirs were in charge—in high-technology stocks in the late 1990s and mortgage finance in the 2000s, to take but the starkest examples. Friedman’s assurance that financial deregulation would work turned into an empty promise, with disastrous consequences. Since the early 1980s, the financial markets have been far more unstable than in the 1950s and 1960s. There had been dissenters among mainstream economists who thought the inflation target was too low, but their advice went untaken by those running policy. By 2010, this was changing. Economists at the International Monetary Fund, for example, suggested the annual target for inflation could be raised from 2 percent to 4 percent.

Kahn, who had first worked in the New Deal, had developed an expertise in government regulation as head of the New York Public Service Commission, where he introduced market-oriented reforms. Under Kahn, and with Kennedy’s support, airline fares were deregulated in 1978, and by 1980 trucking and railroads were also deregulated. Guided by the same principles, Carter also wanted to deregulate banking by eliminating Regulation Q. Wriston’s ultimate wish was coming true under a Democrat. Although Kennedy did not support financial deregulation, the Democratic Party was turning into the political party of high finance. Carter was consistent about this deregulatory ideology, and he prevailed. The economy suddenly appeared to be weakening again toward the end of 1977. Now Schultze, largely endorsed by Carter, urged a new stimulus, a $25 billion set of tax cuts, three quarters of which would benefit individuals. The proposal also sought to close tax loopholes for upper-income taxpayers, a favorite concern of Carter’s.


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The Divide: A Brief Guide to Global Inequality and Its Solutions by Jason Hickel

Andrei Shleifer, Asian financial crisis, Atahualpa, Bartolomé de las Casas, Bernie Sanders, Bob Geldof, Bretton Woods, British Empire, Cape to Cairo, capital controls, carbon footprint, clean water, collective bargaining, colonial rule, David Attenborough, David Graeber, David Ricardo: comparative advantage, declining real wages, dematerialisation, Doha Development Round, Elon Musk, European colonialism, falling living standards, financial deregulation, Fractional reserve banking, Francisco Pizarro, full employment, Hans Rosling, happiness index / gross national happiness, Howard Zinn, income inequality, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, James Watt: steam engine, laissez-faire capitalism, land reform, land value tax, liberal capitalism, Live Aid, Mahatma Gandhi, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, Nelson Mandela, offshore financial centre, oil shale / tar sands, out of africa, plutocrats, Plutocrats, purchasing power parity, race to the bottom, rent control, road to serfdom, Ronald Reagan, Scramble for Africa, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, structural adjustment programs, The Chicago School, The Spirit Level, trade route, transatlantic slave trade, transfer pricing, trickle-down economics, Washington Consensus, WikiLeaks, women in the workforce, Works Progress Administration

He even managed to abolish the Glass–Steagall Act, which had been designed to prevent banks from engaging in the sort of reckless speculation that had triggered the Great Depression.55 Margaret Thatcher, who drew inspiration from Milton Friedman, implemented many of these same policies in Britain, at exactly the same time: high interest rates designed to clamp down on inflation, regressive taxation such as the ‘poll tax’ of 1989, and aggressive financial deregulation. Thatcher was particularly focused on breaking the labour unions, which she regarded as preventing the economy from operating efficiently. She defeated the National Union of Mineworkers in 1985 after a bruising battle, and introduced legislation to curb workers’ rights. She also made deep cuts to public spending and – the centrepiece of her economic policy – privatised most of Britain’s famous national companies, including British Petroleum, British Airways and Rolls-Royce, along with public utilities including water and electricity.

Hot money is a term used to describe the rapid movement of capital from one country to another in order to speculate on interest-rate and exchange-rate differences. For example, if the United States looks likely to raise its interest rates, someone with investments in Nigeria might rapidly move their money to the US in the hope of making a quick profit. These rapid, speculative movements of capital are only possible because of the financial deregulation that has been promoted across the developing world over the past few decades by the World Bank, the IMF and free-trade agreements, and they can lead to serious market instability – particularly in small economies. But they also provide an avenue for moving money illegally across borders. In 2013, hot money accounted for 19.4 per cent of total illicit outflows from developing countries, or $211 billion.15 Trade misinvoicing, for its part, involves sending money into secret offshore accounts by cheating the trade system.

At the same time, climate change had caused droughts in a number of key grain-producing countries, reducing their export volumes; global harvests continued to grow, but not as quickly as before. The rising price of oil – which hit historic highs during this period – might also have had something to do with it, driving up the costs of farming inputs and food transportation.26 But none of these drivers were significant enough to account for the sheer scale of what was going on. Beginning in 1991, Goldman Sachs took advantage of new financial deregulations and decided to bundle commodity futures – including food – into a single index. Traders could then speculate on this index and investment funds could link their portfolios to it. It was a new kind of financial derivative, one of many such instruments that were being peddled on Wall Street in those years. For the most part, investors didn’t pay it much mind, and the index remained something of a financial backwater for many years.


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Arguing With Zombies: Economics, Politics, and the Fight for a Better Future by Paul Krugman

affirmative action, Affordable Care Act / Obamacare, Andrei Shleifer, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, bitcoin, blockchain, Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, market bubble, market clearing, market fundamentalism, means of production, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, price stability, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, working-age population

Others raised similar alarms, including a then-Princeton professor by the name of Ben Bernanke. But it wasn’t a message many wanted to hear. But the parallels between ourselves and Japan grew stronger over time. By 2005 or so I and many (but not enough) others had grown concerned about what looked like an immense housing bubble. It seemed obvious that bad things would happen when that bubble burst. As it turned out, it was far worse than almost anyone realized. Years of financial deregulation and financial “innovation” (which often amounted to finding ways to evade regulation) had created a banking system that was, in a modern, high-tech way, just as vulnerable to panics as the banking system on the eve of the Great Depression. And the panic came. The columns in this section describe the growing fear I and others felt that something was going terribly wrong, and the wall of misconception we had to climb when the things we feared might happen, did.

Larry Summers, now the top economic adviser in the Obama administration, once mocked finance professors with a parable about “ketchup economists” who “have shown that two-quart bottles of ketchup invariably sell for exactly twice as much as one-quart bottles of ketchup,” and conclude from this that the ketchup market is perfectly efficient. But neither this mockery nor more polite critiques from economists like Robert Shiller of Yale had much effect. Finance theorists continued to believe that their models were essentially right, and so did many people making real-world decisions. Not least among these was Alan Greenspan, who was then the Fed chairman and a long-time supporter of financial deregulation whose rejection of calls to rein in subprime lending or address the ever-inflating housing bubble rested in large part on the belief that modern financial economics had everything under control. There was a telling moment in 2005, at a conference held to honor Greenspan’s tenure at the Fed. One brave attendee, Raghuram Rajan (of the University of Chicago, surprisingly), presented a paper warning that the financial system was taking on potentially dangerous levels of risk.

For one thing, there was bound to be a shock, sooner or later, too big for the central bankers to handle without help from broader fiscal policy. Also, sooner or later the barbarians were going to go after the monasteries too; and as the current furor over quantitative easing shows, the invading hordes have arrived. FINANCIAL INSTABILITY Last but not least, the very success of central-bank-led stabilization, combined with financial deregulation—itself a by-product of the revival of free-market fundamentalism—set the stage for a crisis too big for the central bankers to handle. This is Minskyism: the long period of relative stability led to greater risk-taking, greater leverage, and, finally, a huge deleveraging shock. And Milton Friedman was wrong: in the face of a really big shock, which pushes the economy into a liquidity trap, the central bank can’t prevent a depression.


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The Man Who Knew: The Life and Times of Alan Greenspan by Sebastian Mallaby

"Robert Solow", airline deregulation, airport security, Andrei Shleifer, anti-communist, Asian financial crisis, balance sheet recession, bank run, barriers to entry, Benoit Mandelbrot, Bretton Woods, business cycle, central bank independence, centralized clearinghouse, collateralized debt obligation, conceptual framework, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, energy security, equity premium, fiat currency, financial deregulation, financial innovation, fixed income, Flash crash, forward guidance, full employment, Hyman Minsky, inflation targeting, information asymmetry, interest rate swap, inventory management, invisible hand, Kenneth Rogoff, Kickstarter, Kitchen Debate, laissez-faire capitalism, Long Term Capital Management, low skilled workers, market bubble, market clearing, Martin Wolf, money market fund, moral hazard, mortgage debt, Myron Scholes, new economy, Nixon shock, Northern Rock, paper trading, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, popular capitalism, price stability, RAND corporation, rent-seeking, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, Saturday Night Live, savings glut, secular stagnation, short selling, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, unorthodox policies, upwardly mobile, WikiLeaks, women in the workforce, Y2K, yield curve, zero-sum game

It was Jimmy Carter, a Democrat, who got rid of the last vestiges of interest-rate regulation for banks. It was Bill Clinton, another Democrat, who signed the banking reform of 1999 that ratified the breakdown of the Depression-era separation between banks, insurers, and securities houses. It was, for that matter, a global club of technocrats who, in setting rules for bank capital, deferred to banks’ own risk models, effectively handing the teenagers the keys to the Mercedes. To paint financial deregulation as the product of some right-wing conspiracy is laughably off the mark. Intelligent people were grappling with deep forces driving financial evolution and making the best judgments they could. The sincerity of their purpose makes their errors all the more illuminating. One of the virtues of biography is that it allows readers to understand decision making as it really is—imperfect, improvised, contingent upon incomplete information and flawed human nature.

If a monopoly extracted fat rents from its customers, its share price would soar; that would give entrepreneurs an incentive to create rivals to the monopoly, and it would give financiers an incentive to ply those rivals with abundant capital. The best guarantor of competition, Greenspan argued, was not the antitrust enforcement beloved by statists. It was the emergence of increasingly vibrant capital markets, which should be further encouraged with financial deregulation. Greenspan’s skepticism about antitrust enforcement was shared by many leading intellectuals of the era. But what distinguished Greenspan’s contribution was its sweeping style—he had leaped the entire length of the continuum between intellectual caution and polemical audacity. In The Constitution of Liberty, published in 1960, the libertarian icon Friedrich Hayek had argued that government attacks on monopolies could do more harm than good; but he qualified his position by conceding that monopolies did cause abuses.38 Two years later, in Capitalism and Freedom, Milton Friedman adopted a similarly nuanced position, conceding that antitrust legislation might be welcome.39 Greenspan’s Alice-in-Wonderland barrage was altogether cruder: “The entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance,” he stated flatly.

High stock prices anticipated surges in investment not only for the economy as a whole, but also within industries; moreover, the time between stock price rises and jumps in capital expenditure was short, reflecting the power of the association that Greenspan had identified. If price signals from financial markets could drive shifts in the real economy so rapidly despite extensive regulation of finance, it followed that financial deregulation could make the transmission even slicker, so that capital would flow to the corners of the economy that would use it most productively.18 After Greenspan completed his presentation, the research chief at the Wall Street brokerage Van Alstyne, Noel pronounced himself impressed. He asked Greenspan to stay in touch. Perhaps they could have lunch together? What with Greenspan’s travels, it took a little while for the two men to get together.


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The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality by Branko Milanovic

Berlin Wall, Branko Milanovic, colonial rule, crony capitalism, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, endogenous growth, Fall of the Berlin Wall, financial deregulation, full employment, Gini coefficient, high net worth, illegal immigration, income inequality, income per capita, Joseph Schumpeter, means of production, open borders, Pareto efficiency, plutocrats, Plutocrats, purchasing power parity, Simon Kuznets, very high income, Vilfredo Pareto, Washington Consensus, zero-sum game

Nigeria does not need to spend time and effort building land phone lines, nor does it need to invent cell phone technology. It can ignore the old technology and simply imitate Nokia, setting up a cell phone factory itself. Third, and somewhat novel, is a reason that has to do with institutions. As countries integrate, they also come to know better what type of institution works best. Suppose that we all agree that it involves strong protection of property rights and financial deregulation. Then, poor countries that generally have less “efficient” institutions will again benefit more because they will be able to imitate the better institutions of the rich world. We have seen in Essay II that these simple predictions were found quite wrong when it came to explaining the growth of the world during Globalization 2.0. This fact is by now generally acknowledged, and alternative theories of economic growth have been proposed to account for it.

Actually, one of the greatest draws to soccer lay in the unpredictability of its outcomes, its replication of life5—namely, the combination of deserved wins of a “better” team with random outcomes where an obviously weaker side would, by a stroke of luck or sudden inspiration, overwhelm a Goliath. Today, as the gap between the Goliaths and Davids is much greater than ever, surprises are much less likely to happen. Goliaths always win; moreover, they often do not deign to play with Davids. Vignette 3.6 Income Inequality and the Global Financial Crisis The current financial crisis is generally blamed on feckless bankers, financial deregulation, crony capitalism, and the like.1 Although all of these elements may have contributed, this purely financial explanation of the crisis overlooks its fundamental reasons. They lie in the real sector, and more exactly in the distribution of income across individuals and social classes. Deregulation, by helping irresponsible behavior, just exacerbated the crisis; it did not create it. To understand the origins of the crisis, one needs to go to rising income inequality within practically all countries in the world, and the United States in particular, over the past thirty years.


The Fix: How Bankers Lied, Cheated and Colluded to Rig the World's Most Important Number (Bloomberg) by Liam Vaughan, Gavin Finch

asset allocation, asset-backed security, bank run, banking crisis, Bernie Sanders, Big bang: deregulation of the City of London, buy low sell high, call centre, central bank independence, collapse of Lehman Brothers, corporate governance, credit crunch, Credit Default Swap, eurozone crisis, fear of failure, financial deregulation, financial innovation, fixed income, interest rate derivative, interest rate swap, Kickstarter, light touch regulation, London Interbank Offered Rate, London Whale, mortgage debt, Northern Rock, performance metric, Ponzi scheme, Ronald Reagan, social intelligence, sovereign wealth fund, urban sprawl

The BBA established a panel of banks that would be polled each day and tweaked the original formula to strip out the bottom and top quartile of quotes to discourage cheating. Otherwise the rate looked similar to the one first conceived by Zombanakis. In the quarter-century between then and Hayes’s time at UBS, the suite of currencies was expanded to 10 and the process became electronic, but not much else changed. The same could not be said of the U.K. banking industry, which was transformed by Prime Minister Margaret Thatcher’s “Big Bang” financial deregulation program of 1986. Overnight, Thatcher cleared the way for retail banks to set up integrated investment banks that could make markets, advise clients, sell them securities and place their own side bets, all under one roof. She also removed obstacles to foreign banks taking over U.K. firms, leading to an influx of big U.S. and international lenders that brought with them a more aggressive, cutthroat ethos.

Finch lives with his wife, Cece, and two boys, Oscar and Milo, in Brighton. 193 The Fix: How Bankers Lied, Cheated and Colluded to Rig the World’s Most Important Number By Liam Vaughan and Gavin Finch © 2017 Liam Vaughan and Gavin Finch Index 4 p.m. fix 171–2 Aarons, Lee 64–5 ABC News 107 ABN Amro 93 Adoboli, Kweku 154–5 Adolph, Guillaume 84, 117, 129, 151 Agius, Kate 140 Agius, Marcus 95, 137, 138–9, 140–1, 142, 143–4, 145 Ainsworth, Sarah 10, 61 Allen & Overy 126, 127 Alykulov, Mirhat 80, 124–6, 130, 148 American Electric 42 American International Group 57 Arcuri, Jennifer 132 Argus 41 Armstrong, Lance xii Armstrong, Neil 13 Atlas Mara 170 Audit Bureau of Circulation 42 Bailey, Andrew 142, 143, 144 Ball, Matthew 148 Bank for International Settlements 43, 54–5 Bank of America 47, 103 Bank of England xi, 16, 53, 54, 56–8, 60, 89–91, 94–100, 105–7, 139, 141–6, 163 Bank of Japan 22 Bank of Scotland 163 Barclays Capital 47, 90, 92, 142 Barclays Global Investors (BGI) 108 Barclays xi, 46, 47, 51, 76, 87–8, 90, 92–9, 101, 104, 106–8, 126, 128, 133–43, 145, 146, 149, 170, 172, 174 Barings 92 basis swaps 10 basis trade 23 BBA Libor see LIBOR Bear Stearns 40 195 196 IN DEX Bermingham, David 154 “Big Bang” financial deregulation program (1986) (U.K.) 16, 92 Black Wednesday 54 Blair, Tony 92 Blankfein, Lloyd 137 Bloomberg 46, 51, 171 Blue Index 159 BNP Paribas 49, 163 Bond, Tim 46–7 Born, Brooksley 71 Bowles, Stan 152 Brasserie Roque 28 Breuer, Lanny 103, 104, 149 Bribery Act (2011) (U.S.) 66 British Bankers’ Association (BBA) 16, 42, 49–51, 54, 56, 59, 60, 75, 93, 105, 161–3, 167 “Understanding the Construction and Operation of Libor—Strengthening for the Future” 58 brokers relationship 27 relationship with traders 27 role of 26–7 technical 27 Brown, Gordon 96, 105 BT Group 144 Calyon Securities 10 Cameron, David 28, 137 Cantwell, Maria 71 Caplin, David 31 Casterton, David 68 Cazenove 92 Cecere, Chris 81–2, 83, 112, 113, 114, 115, 120, 121, 124, 130 Cela, Phyllis 109 Celtik, Burak 113, 115, 118, 119, 120 CFTC 17, 39–40, 41, 44–7, 57, 58, 67, 70, 73–6, 87–90, 99, 101–2, 104, 105, 107–9, 115, 117, 119, 126, 128, 129, 133, 135, 136, 139, 140, 152, 157, 163, 168, 169, 173 CGMJ 124 Chadwick, Matthew 148 Chance, Clifford 108 Chawla, Mukul 158–9, 160, 163, 165, 169 Chicago Mercantile Exchange (CME) 17, 46 Chicago Sun-Times 42 Christofferson, Robb & Co. 17 Citibank 57 Citigroup x, 43, 46, 47, 57, 62, 75, 81–3, 92, 103, 104, 111–16, 118–24, 126, 130, 148, 161, 164, 172, 174 Clark, Robin 66 Clinton, Bill 103 administration 70 Clinton, Hillary 70, 169 Cole, Margaret 105–6, 107 Commodity Exchange Act 45 Commodity Futures Modernization Act (2000) (U.S.) 71 Commodity Futures Trading Commission see CFTC Compton, Steve 116 Confederation of British Industry 144 Contogoulas, Stylianos 88 Cooke, Jeremy 158, 164, 168 Corney & Barrow 9 Cornthwaite, Richard 155 Covington & Burling 103 Cravath Swaine & Moore 107 credit default swap prices 46 Credit Suisse 139 Credit Suisse First Boston 91 Criminal Cases Review Commission 168 Cryan, Noel 78–9, 85, 123, 168, 169 Dallas Morning News, The 42 Danieli, Francesca 72 Daniels, Eric 95 Index Danziger, Neil 7, 64, 65–6, 129, 148 Darin, Roger 33, 34–5, 80, 81, 82, 86, 126, 149, 152 Davies, Brent 118, 123, 148 Dearlove, Mark 89, 90, 93, 99 Del Missier, Jerry 89, 97, 98–9, 134, 141–2, 143, 145 Department of Justice 41–2, 67, 101–3, 104, 108, 125–6, 128, 133, 134, 139, 149, 150, 152, 168, 174 Deutsche Bank 84, 117, 119, 129, 134, 135, 151 Dewar, Sally 106 Diamond, Anne 90 Diamond, Robert Edward, Jr.


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

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

It was not inevitable, though, that the anger would take the form that it did. It could have been directed against those who were most responsible for the plight faced by the vanishing middle—those who had advocated unfettered globalization and financialization, but who simultaneously opposed progressive taxes and transfer programs and assistance for workers who lost their jobs as a result of globalization or were hurt by financialization, financial deregulation, and their aftermath.26 Why it took the form it did—an attack on people who were more aligned with their interests, though not perfectly so—is a question that will surely be debated for years to come. Perhaps it was because the “Clinton” and “Obama” Democrats seemed most hypocritical; at least the Republicans didn’t make a pretense of caring for ordinary workers. Perhaps it was just bad luck: the arrival of a demagogue able to articulate a story about the betrayal of ordinary Americans by the “enlightened” elites and use that to engineer a hostile takeover of the Republican Party.

With this calculus, which gives our children short shrift, no wonder there is no interest in doing something about climate change.50 Third, for a variety of reasons large fractions of young people don’t have the opportunities that, say, I had when I was starting out. Millions are saddled with burdensome student debt, which impedes their ability to choose a career freely—they’re constantly thinking of the payments due—or even start a family or own a home. Meanwhile, house prices, relative to incomes, have soared as a result of easy money, a poorly designed tax code, and financial deregulation. Our generation got the capital gains. The next generation has to figure out how to get affordable housing. This divide in well-being across generations is one of the most troubling. Parents who made a killing in real estate may share that wealth with their children, who, in turn, may hand it down to their children. But parents who don’t own any real estate have little or nothing to pass on to their children and grandchildren, and that leaves their descendants scrambling.

The administration raised no similar concern about panel members who receive grants from industries that the EPA regulates, such as, say, oil and gas. See Warren Cornwall, “Trump’s EPA Has Blocked Agency Grantees from Serving on Science Advisory Panels. Here Is What It Means,” Science, Oct. 31, 2017. 39.And there were, of course, some academics who became handmaidens to these ideologies, acting as cheerleaders for globalization and financial deregulation. In chapter 4, I explain how, in standard economic analysis, trade integration with developing countries and emerging markets results in a lower demand for unskilled labor in the US, at any wage, implying that even if we succeed in maintaining full employment, real wages of unskilled workers will fall, even though GDP has increased. During my years in the Clinton administration—one seemingly concerned about the plight of blue-collar workers—it was hard, nonetheless, to find an economist who was worried about the impact of globalization on unskilled real wages.


pages: 515 words: 132,295

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

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

The paper concluded that most of the time the economists did not reveal possible conflicts of interest or private industry affiliations when they should have.50 One of the more shocking examples of such conflicts of interest was unveiled in the Oscar-winning 2010 documentary Inside Job,51 which examined the policy decisions that led to the financial crisis. Filmmakers profiled Columbia University economist and business school dean Glenn Hubbard, formerly the chief economic adviser to the George W. Bush administration, interviewing him about his role in financial deregulation as well as various private sector associations that may have encouraged him to take a more finance-friendly view to policy issues. These associations included, among others, working as a $1,200-an-hour consultant for Countrywide Financial (a mortgage lender that was deeply involved in the subprime crisis and had to be bailed out by the Fed) and getting paid $100,000 to testify in the defense of Ralph Cioffi and Matthew Tannin, two Bear Stearns hedge fund managers who were prosecuted (and later acquitted) for fraud.52 Hubbard had also coauthored a Goldman Sachs report in 2004, entitled “How Capital Markets Enhance Economic Performance and Facilitate Job Creation,” in which he said that credit derivatives were protecting banks from losses by redistributing risk.

HOW TO FIX THE SYSTEM So, until tax and other market and governance reforms happen, look for this type of corporate financial wizardry to continue. As economist Joseph Stiglitz and others have pointed out, fixing things like the buyback dilemma is tough, because it’s not a matter of finding a silver bullet. As I have sketched in this chapter, the Kafkaesque financial market dysfunction exemplified by the share buyback boom is the result of more than thirty years of policy decisions and market shifts—from legal changes to financial deregulation to the privatization of retirement to easy-money monetary policy and terrible incentive structures for corporate leaders. There’s no one fix that will change the system overnight. But there are several smart things we could do to start moving toward that change. One solution that has been proposed to create a more equal distribution of corporate wealth is cash profit sharing, an idea put forward by Joseph Blasi, a professor at Rutgers University’s School of Management and Labor Relations.

There isn’t a lot of new real estate development in such places, but there’s a lot of buying and selling of existing property, which creates rising asset values but doesn’t add too many jobs. Real estate buying and selling is thus particularly vulnerable to financialization cycles, because we’re basically talking about money staying within that closed loop.43 That’s one of the reasons that real estate regulation needs to be crafted much more carefully, as I will explore in chapter 11. As we saw earlier in the book, many of the major pushes for financial deregulation on the part of the banking industry in recent times have been done with an eye to increasing the amount of business that finance can do in the housing sector. As academics Charles Calomiris and Stephen Haber meticulously outline in their book, Fragile by Design: The Political Origins of Banking Crises & Scarce Credit, the subprime crisis itself was “the outcome of a series of spectacular political deals that distorted the incentives of both bankers and debtors.”44 Unfortunately, nothing about this paradigm has changed—indeed, things have arguably gotten worse.


pages: 278 words: 82,069

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

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

But that kind of transforma tion could succeed only as part of a broader transformation of financial relations that would include, as a start: the establishment of nonprofit banks that would provide low-cost checking and savings accounts as well as low-interest loans for community and regional development; tight regulation of the existing for-profit banks; taxes on securities trading to cool speculative fevers; tight controls on international capital flows; reform of corporate boards to include worker, community and public sector representatives; a radically new approach to the management of pension funds; and a wealth tax that would simultaneously reduce the influence of the moneyed and provide funds for a vast rebuilding of our social and physical environment. Short of these reforms—which, it must be emphasized, would be taken by Wall Street as revolutionary—reform of the Fed alone would turn out to be little more than cosmetic. Breaking Glass-Steagall E D I T O R S O F T H E N AT I O N November 15, 1999 Although wall street has pushed for financial deregulation for two decades, it was last year’s merger of Citicorp and Travelers that set the stage for Congress’s effective revocation of the Glass-Steagall Act in late October. The merger was a violation of the longstanding laws separating banking and insurance companies, but Citicorp and Travelers, because they well knew their power to ram deregulation through Congress, exploited loopholes that gave them a temporary exemption.

Fox News’s Stuart Varney explained that Larry Summers, who held the post under Clinton, and former Fed chair Paul Volcker would both “give great confidence to the market.” We learned from MSNBC’s Joe Scarborough that Summers is the man “the Street would like the most.” Let’s be clear about why. “The Street” would cheer a Summers appointment for the same reason the rest of us should fear it: because traders will assume that Summers, champion of financial deregulation under Clinton, will offer a transition from Henry Paulson so smooth we will barely know it happened. Someone like FDIC chair Sheila Bair, on the other hand, would spark fear on the Street—for all the right reasons. One thing we know for certain is that the market will react violently to any signal that there is a new sheriff in town who will impose serious regulation, invest in people and cut off the free money for corporations.


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The Greed Merchants: How the Investment Banks Exploited the System by Philip Augar

Andy Kessler, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, business cycle, buttonwood tree, buy and hold, capital asset pricing model, commoditize, corporate governance, corporate raider, crony capitalism, cross-subsidies, financial deregulation, financial innovation, fixed income, Gordon Gekko, high net worth, information retrieval, interest rate derivative, invisible hand, John Meriwether, Long Term Capital Management, Martin Wolf, new economy, Nick Leeson, offshore financial centre, pensions crisis, regulatory arbitrage, Sand Hill Road, shareholder value, short selling, Silicon Valley, South Sea Bubble, statistical model, Telecommunications Act of 1996, The Chicago School, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, tulip mania, value at risk, yield curve

Their downfall was a sensation that damaged confidence in US capital markets and precipitated a collapse of the junk bond market in 1990.19 The junk bond crisis spread out across Wall Street and corporate America as a number of highly leveraged deals – including 1988’s landmark $23 billion takeover of RJR Nabisco by the buy-out specialists Kohlberg Kravis Roberts – struggled under the weight of debt repayments and asset write-downs.20 Surprising victims included the savings and loans institutions who, following deregulation in 1982, had loaded up with junk bonds with the backing and advice of the investment banks. When the junk bond market crashed, they were left with bucketloads of unmarketable and worthless bonds and US taxpayers were faced with a $500 billion bill to bail them out.21 The excesses of the 1980s spilled over into the 1990s. By this time globalization and financial deregulation had spread Wall Street’s influence to the UK. Following revelations from Ivan Boesky about an illegal support operation to keep the Guinness share price high at crucial stages of its bid for Distillers Company, three senior financiers and businessmen, including Ernest Saunders, the Guinness CEO, received jail sentences in Britain in 1990.22 Back in America, Robert Freeman, the head of arbitrage trading at Goldman Sachs, was convicted of insider trading in 1990, fined $1.1 million and given a jail sentence.23 Soon after, Prudential-Bache Securities had to pay $1.4 billion of compensation to investors defrauded during a limited partnership scam described in a study of the case as ‘the most destructive fraud ever perpetrated on investors by Wall Street’.24 In 1991 Salomon Brothers was shamed, suspended and fined after rigging the US Government’s Treasury bond market.

Rule after rule, sometimes law after law, were changed to make it easier for the world to do business with the financial services industry, and for the financial services industry to do business with the world. During the eighties and nineties nearly every change and every new interpretation of existing laws and regulations went in their favour, culminating in the Gramm-Leach-Bliley Act of 1999, which effectively repealed Glass Steagall. The results were acclaimed by economic liberals: ‘Over the past two decades financial deregulation has brought huge benefits in the form of more competition, greater innovation and easier and cheaper access to capital.’23 Expediency followed conviction when the American and British governments found that they needed financial markets to survive. The ability of markets to fund the US budget deficits was crucial to Presidents Reagan, Bush, Clinton and George W. Bush. In Britain, privatization generated receipts of £60 billion, 1981–96, in many years baling out a budget deficit.


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The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business by Richard Brooks

accounting loophole / creative accounting, bank run, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, carried interest, Celtic Tiger, collateralized debt obligation, commoditize, Corn Laws, corporate social responsibility, crony capitalism, Double Irish / Dutch Sandwich, financial deregulation, haute couture, intangible asset, interest rate swap, Jarndyce and Jarndyce, mega-rich, Northern Rock, offshore financial centre, race to the bottom, shareholder value, short selling, supply-chain management, The Chicago School, The Wealth of Nations by Adam Smith, transfer pricing

But that was exactly where, within a few years, they would end up. Offshore plc While the exploitation of industrial tax breaks was taking serious avoidance from Mayfair to the City, outside the tax advisers’ and inspectors’ offices the era of late-twentieth century economic liberalization was dawning. From 1979 Margaret Thatcher’s government began implementing the monetarism and financial deregulation advocated by the ‘Chicago school’ of economic theory and championed here by the new prime minister’s favoured think tanks such as the Institute for Economic Affairs. Her first and perhaps most significant move was the abolition of exchange controls, the system of currency regulation designed to prevent destabilizing inward and outward flows of finance. Soon followed by the removal of credit controls and the ‘Big Bang’ deregulation of the City, the reforms opened up the British economy in more than just the intended sense.

In 2001 and 2002 Prudential’s corporate tax charges were £21m and £44m,‌4 so £30m would be a big saving and add almost 10% to the earnings per share that stock market analysts keep their eyes on. Prudential typified the transformation of many a staid British multinational into exotic tax avoider, as strains on corporate earnings fuelled demand for tax reduction across business. Happily for them, both the financial markets and tax systems had developed in ways that maximized the opportunities for the likes of Ernst & Young to peddle exactly this service. After two decades of financial deregulation a multinational company could borrow hundreds of millions of pounds’ worth of foreign currency with a single phone call. Scores of companies could all do so at the same time and the multi-trillion dollar foreign exchange markets would register barely a flicker. And the cash was available equally for real business or speculation. The €500m debt at the heart of the Pru’s scheme was itself no more than a punt on exchange rates, the tax tribunal noting: ‘Between the date of issue … in December 2001 and 2011 when redemption was possible, Prudential anticipated … no need for euros.’


pages: 585 words: 151,239

Capitalism in America: A History by Adrian Wooldridge, Alan Greenspan

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bonfire of the Vanities, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, corporate governance, corporate raider, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, fixed income, full employment, George Gilder, germ theory of disease, global supply chain, hiring and firing, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, Louis Pasteur, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, means of production, Menlo Park, Mexican peso crisis / tequila crisis, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, plutocrats, Plutocrats, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Ronald Reagan, Sand Hill Road, savings glut, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

Children’s Hospital, 194 advertising, 208, 208 affluent society, 205–6 Afghanistan, 267, 300, 369, 438 agrarian vs. industrial visions of America, 61–68 Agricultural Adjustment Act, 244–45, 248, 257–58 agriculture, 433, 434–35 collapse of southern, 83–86 Granger movement, 171–72 New Deal farm and rural programs, 241, 244–45, 248, 249, 257–58, 259 new nation, 33, 35–36, 46–48, 58, 65–66, 72–73 post–World War II, 275, 276 railroad age, 114–22 World War I and, 233–34 Ahamed, Liaquat, 227 Aid to Families with Dependent Children (AFDC), 303–4, 305 AIG (American International Group), 374–75, 385–86 Airbnb, 402 air-conditioning, 213–14 air flight, and Wright brothers, 107–9 air travel, 199–200, 262–63, 286–87 Alaska Purchase, 95 Alger, Horatio, 165 Alibaba, 391 alternating current (AC), 106 Aluminum Company of America (Alcoa), 132 Amazon, 349, 355, 390, 396, 402 America-first nationalism, 217–18 American attitudes to government, 176–79 American Barbed Wire Company, 116 American Civil War, 9, 81–85, 161, 266, 267, 455 American colonies, 5–6, 29–34 American Economic Association (AEA), 178 American Enterprise Institute, 277, 324 American Express, 374 American Federation of Labor (AFL), 193–94, 261, 290 American Fur Company, 123 American Individualism (Hoover), 218 American Revolution, 5–6, 31, 34–35, 38–40, 62, 69, 135, 266, 266 “Americans” identity, 58–59 American Tobacco Company, 214 “American way of life,” 296–97 Amos ‘n’ Andy (radio show), 204 Anderson, Edward, 224–25 Anderson, Sherwood, 218 Andrews, Dan, 397 antibiotics, 284 antitrust, 182–83, 184, 257, 337–38 Sherman Antitrust Act of 1890, 143, 154, 159–60, 162, 184 Apple, 323–24, 334, 347, 349, 353, 360, 390, 396, 402 Argonne National Laboratory, 285 arms race, 279–80 Army Air Corps, 212 Articles of Confederation, 39 Asian financial crisis of 1997, 366 assembly line, 146–47, 194–95 Astor, John Jacob, 35, 123, 135 AT&T, 91–92, 140, 144, 148, 149, 206, 288, 319, 341 Atlas Shrugged (Rand), 277–78 Atomic Energy Act, of 1954, 285 Atomic Energy Commission, 284–85 atomic power, 284–85 Auden, W. H., 264–65 Autor, David, 371 Babbitt (Lewis), 205–6 baby-boom retirement, 26, 403–4 Bader, William, 179 Bagehot, Walter, 374 Baltimore and Ohio Railroad, 53, 138 banking (banking system), 10, 25. See also Federal Reserve capital reserves, 444–47, 446 financial cycles and, 425–26 financial deregulation, 338–43 Great Depression and, 234–36 New Deal-era reforms, 254–55, 340 new nation, 32, 42, 65, 73 panic of 1907 and Pujo Committee, 42, 131, 185 Bank of America, 3 Bak of England, 32, 63, 226–27, 374 Bank of New York, 32 Bank of North America, 32 Bank of the United States, 42, 65, 67, 73, 156, 234 barbed wire, 115–16 Barings Bank, 40, 227 Barnett Shale, 357–58 Basel Accords, 382–83, 384 Bates, Edward, 389 Battle Cry of Freedom (McPherson), 41 Battle of New Orleans, 16 Baumol, William, 403 Bayard, James, 66 Bayonne Bridge, 412 Beame, Abraham, 323 Bear Stearns, 381, 385–86 Beckert, Sven, 75 Bell, Alexander Graham, 11, 109 Bell, Daniel, 281, 360, 423 Bell Labs, 350–51, 352 Bell Telephone, 109–10 Bentsen, Lloyd, 332 Benz, Karl, 104 Berle, Adolf, 206–7, 240–41, 260 Berners-Lee, Timothy, 348 Bernhardt, Sarah, 119 Bessemer, Henry, 14–15, 99 Bessemer steel, 14–15, 99–100, 100, 128 Bevin, Ernest, 278–79 Bezos, Jeff, 355 Bhidé, Amar, 334 Bildt, Carl, 441 Bill of Rights, 157 birthrates, 11, 274, 363 Bismarck, Otto von, 247 bison, 116–17 Black, Fischer, 383 Blackstone, William, 30, 419 Blaine, James, 167 “blitzscaling,” 140 Bloch, Richard and Henry, 293 BNP Paribas, 374 Boesky, Ivan, 338 Bogardus, James, 110 bonanza farms, 114–15 boom-bust cycle, 41–42 bootlegging, 192, 197 Borden, Gail, 119–20 Boston & Maine Railroad, 156 Boston Manufacturing Company, 71 Bower, Marvin, 264, 317–18 Bragg, Arial, 70 Brandeis, Louis, 176–77, 241 Bretton Woods Agreement, 278, 279, 306–7 Brin, Sergey, 354–55, 356, 439 British Labour Party, 188, 276 Broniewska, Janina, 276 Brown, John, 77 Brown, Lewis, 209 Brown Brothers, 79 Bryan, William Jennings, 150–53, 172, 174–75, 181, 183, 195–96 Bryce, James, 158, 159 Bubble Act, 135 Buchanan, Patrick, 344, 423 budget deficit, 27, 139, 305, 331, 367, 368, 372, 409–10 Buffalo Forge Company, 213 Buffett, Warren, 392 Bull, John, 95 Burbank, Luther, 118 bureaucratization, 250–51, 333 Burj Khalifa (Dubai), 395 Burke, Edmund, 5 Burling, Walter, 74 buses, 198–99 Bush, George H.

See national debt Federal Deposit Insurance Corporation (FDIC), 243, 384 Federal Drug Administration (FDA), 284 Federal Emergency Relief Administration (FERA), 244 federal government employees, 154, 156 federalism, 61–67, 157 Federalist Papers, 65, 157, 239 Federal Open Market Committee (FOMC), 235–36 Federal Reserve, 304, 324–25, 331, 372, 427 creation of, 156–57, 184–85 financial crisis of 2007–2008, 384–86 Great Depression and, 242–43 stock market crash of 1929, 235–36, 237, 238 Federal Reserve Act of 1913, 156–57, 184–85 Federal Trade Commission (FTC), 184, 209 Federal Trade Commission Act of 1914, 184 FedEx, 333 female workers, 362–65, 434, 435, 437 Feminine Mystique, The (Friedan), 364 Fessenden, Thomas Green, 73 fiat currency, 38–39, 82, 161, 162–63 Fifties, 273–98, 435–36 financial crisis of 2007–2008, 27, 192–93, 223, 368–69, 373–85, 443 origins of, 376–85 financial cycles, 425–26 financial deregulation, 338–43 financial panics, 42, 135, 425. See also specific panics Firestone, Harvey, 110 first transcontinental railroad, 16, 18, 90, 114 “fiscal drag,” 303 Fischer, David Hackett, 60 Fisher, Irving, 221, 231, 232–33, 256 fishing industry, 36–37 Fishlow, Albert, 50, 53, 54 Fisk, James, 124, 130, 139 Fitch, John, 100–101 Fitzgerald, F. Scott, 195 Flagler, Henry, 128 Flexner, Abraham, 429 Florida Purchase, 5, 40 flu pandemic of 1918, 429 Fogel, Robert, 54 “fog of war,” 34 Food Administration, 186, 187 food preservation, 119–20 Ford, Gerald, 299, 309–10, 323, 328 Ford, Henry, 3, 9, 16, 107, 110, 119, 124, 126, 136, 142, 146–47, 190, 197, 198, 201–2, 268–69, 314, 360, 422, 439, 454 Ford Model T, 107, 194–95, 198 Ford Motor Company, 146–47, 209–10, 212, 294, 314, 422 Fordney-McCumber Tariff Act of 1922, 230 Ford Pinto, 312 Foreign Corrupt Practices Act of 1977, 411 forestry, 37–38 Fountainhead, The (Rand), 277–78 Fourteenth Amendment, 159 fracking revolution, 356–59 franchising, 293 Franklin, Benjamin, 29, 43, 48 Freddie Mac, 379–81 freedmen, 86–87 freedom of contract, 159, 160, 163 Frick, Henry Clay, 136, 173–74 Friedan, Betty, 364 Friedman, Milton, 26, 236, 337 frontier thesis, 180 Fuel Administration, 186, 187 fuel efficiency, 313 Fuld, Dick, 374 futures markets, 120 Gal, Peter, 397 Galbraith, John Kenneth, 235, 295–96, 333 Galton, Francis, 49, 163–64 gambling, 265 Gans, Herbert, 296 Gardner, Erle Stanley, 265 Garfield, James, 167 garment industry, 322–23 Gates, Bill, 9, 323, 333, 338, 354, 356 GDP (gross domestic product), 2, 17 China and, 448 data and methodology, 13, 452–53 financial crisis and, 377, 382, 386 gross domestic savings and government social benefits, 407, 407–8 new workforce and, 361–62 Reagan and, 326–27 Union vs.

Steel, 12, 101, 144, 145 Vanderbilt, Cornelius, 125, 139, 167, 170–71 Vanderbilt, George, 170–71 Van Hise, Charles, 241 Varian Associates, 352 Varney, Walter, 200 Varney Airlines, 200 Veblen, Thorstein, 169–70 venture capital, 352–53, 355 Victorian era, 94–95, 311 Vietnam War, 267, 300, 304, 305 Virginia Company, 8, 134 Visa International, 324 Volcker, Paul, 324–25, 329, 343 Volkswagen Beetle, 318 Volta, Alessandro, 104 von Stade, Francis Skiddy, 364 voter participation rate, 157–58, 158 wages, 174, 175, 301–2, 304, 416. See also minimum wage Wagner Act of 1935, 257, 260, 261, 271 Walden (Thoreau), 427 Wales, Jimmy, 354 Wallace, Henry, 259 Wall Street, 220–23, 381–82, 391 financial crisis of 2007–2008, 27, 373–85, 443 financial deregulation and, 338–43 Wall Street (movie), 338 Wall Street Crash of 1929, 27, 221–24, 222, 242 Wall Street Journal, 138 Walmart, 293, 356, 423 Walton, Sam, 293 war bonds, 82 Ward, Aaron Montgomery, 140–41 War Industries Board, 186, 187 Warner, Charles Dudley, 164–65, 439 War of 1812, 16, 59, 68, 266 Warsaw Pact, 279 Washington, George, 5, 33, 34, 38–39, 46, 58, 62, 65, 67, 157, 161, 420 Watson, Thomas, 9, 422 Wealth of Nations, The (Smith), 6–7, 36, 256 Webb, Beatrice and Sidney, 178 Weber, Max, 22 WebMD, 403 Welch, Jack, 335–36, 391–92 “welfare capitalism,” 208–9 Wellington, Arthur, 137 Wells, David, 97 West, the closing of the frontier, 179–81 rise of (westward expansion), 110–22 Western Union, 138, 147–48 Westinghouse, 280, 335, 359 Westinghouse, George, 110, 203 whaling, 36–37 wheat, 10, 15, 117–18, 120, 121, 122 White, Harry Dexter, 279 White, Richard, 112–13, 139 White, William Allen, 115 White Castle, 197 Whitman, Walt, 37, 94 Whitney, Amos, 72 Whitney, Eli, 15–16, 46, 72, 73–74, 146 Whitney, Willis, 149 Whole Foods, 345 Whyte, William H., 295 Wikipedia, 354 Wilder, Laura Ingalls, 111 Williamson, Oliver, 210 Wilson, Charles, 289 Wilson, Edmund, 224 Wilson, Henry, 167 Wilson, Kemmons, 293 Wilson, Woodrow, 25, 152–53, 156–57, 178, 179, 184–86, 199, 230, 232, 427 Wolfe, Tom, 338 women workers, 362–65, 434, 435, 437 Woodruff, Ernest, 215 Woodruff, Robert, 215 Woolf, Virginia, 428 Woolworth, Frank, 95, 140–41 Woolworth Building, 92 Wordsworth, William, 38 Work, Hubert, 217 worker displacement, 21–22 workforce, 359–65, 398 workforce growth rate, 403–4 work hours, 208–9 workweek, 430–31, 454 World Bank, 278 WorldCom, 337 World Trade Organization (WTO), 278, 346 World War I, 184, 185–86, 187–88, 227, 267 World War II, 4, 267, 268–70 casualties, 275–76 post-war economic expansion, 270–72, 273–98 World Wide Web (WWW), 348–49 Wozniak, Steve, 323–24 Wright, Orville and Wilbur, 107–9 Wrigley, Philip, 209 Wyeth, Nathaniel, 70 Xerox Corporation, 350 Xerox PARC, 283, 319 Xi Jinping, 371 Yablochkov, Pavel, 105 Yale University, 364 Yerkes, Charles Tyson, 94 Yom Kippur War, 309 Young, Brigham, 45, 111–12 Zero to One (Thiel), 423 Zhu Rongji, 371 ABCDEFGHIJKLMNOPQRSTUVWXYZ About the Authors Alan Greenspan was born in 1926 and reared in the Washington Heights neighborhood of New York City.


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Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe by Greg Ip

Affordable Care Act / Obamacare, Air France Flight 447, air freight, airport security, Asian financial crisis, asset-backed security, bank run, banking crisis, break the buck, Bretton Woods, business cycle, capital controls, central bank independence, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Daniel Kahneman / Amos Tversky, diversified portfolio, double helix, endowment effect, Exxon Valdez, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, global supply chain, hindsight bias, Hyman Minsky, Joseph Schumpeter, Kenneth Rogoff, lateral thinking, London Whale, Long Term Capital Management, market bubble, money market fund, moral hazard, Myron Scholes, Network effects, new economy, offshore financial centre, paradox of thrift, pets.com, Ponzi scheme, quantitative easing, Ralph Nader, Richard Thaler, risk tolerance, Ronald Reagan, Sam Peltzman, savings glut, technology bubble, The Great Moderation, too big to fail, transaction costs, union organizing, Unsafe at Any Speed, value at risk, William Langewiesche, zero-sum game

Household Indebtedness: Causes and Consequences,” 2007-37. 17 As Frederic Mishkin: “Housing and the Monetary Transmission Mechanism,” presented at the Economic Symposium of the Federal Reserve Bank of Kansas City, Housing, Housing Finance, and Monetary Policy (2007): 393, available at http://www.kc.frb.org/Publicat/Sympos/2007/PDF/Mishkin_0415.pdf. 18 Brad DeLong, an economist: J. Bradford DeLong, “Confessions of a Financial Deregulator,” Project Syndicate, June 30, 2011, available at http://www.project-syndicate.org/commentary/confressions-of-a-financial -deregulator. 19 One evening in February 2005: Paul Volcker, “Remarks to the Stanford Institute for Economic Policy Research” (author’s transcript), February 11, 2005. 20 “I wanted to flag it”: Interview with the author. 21 “History has not dealt kindly”: Alan Greenspan, “Reflections on Central Banking,” Aug. 26, 2005, available at http://www.federalreserve.gov/Boarddocs/speeches/2005/20050826/default.htm. 22 “Even before the crisis”: Bernanke’s crisis preparations are based on an interview with me after he retired, and on my article “Bernanke, in First Crisis, Rewrites Fed Playbook,” Wall Street Journal, October 31, 2007. 23 rarely did any of these seem important enough: Stephen Golub, Ayse Kaya, and Michael Reay, “What Were They Thinking?


pages: 324 words: 92,805

The Impulse Society: America in the Age of Instant Gratification by Paul Roberts

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, asset allocation, business cycle, business process, Cass Sunstein, centre right, choice architecture, collateralized debt obligation, collective bargaining, computerized trading, corporate governance, corporate raider, corporate social responsibility, creative destruction, crony capitalism, David Brooks, delayed gratification, disruptive innovation, double helix, factory automation, financial deregulation, financial innovation, fixed income, full employment, game design, greed is good, If something cannot go on forever, it will stop - Herbert Stein's Law, impulse control, income inequality, inflation targeting, invisible hand, job automation, John Markoff, Joseph Schumpeter, knowledge worker, late fees, Long Term Capital Management, loss aversion, low skilled workers, mass immigration, new economy, Nicholas Carr, obamacare, Occupy movement, oil shale / tar sands, performance metric, postindustrial economy, profit maximization, Report Card for America’s Infrastructure, reshoring, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Rodney Brooks, Ronald Reagan, shareholder value, Silicon Valley, speech recognition, Steve Jobs, technoutopianism, the built environment, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, Walter Mischel, winner-take-all economy

But no other sector exhibits the “rentier” tendency as dramatically as finance. For centuries, financiers have found ways—lobbying for a regulatory loophole, say, or devising a technology so complex, or a technique so arcane, that no one else understands it—to extract a larger profit than would otherwise be necessary to persuade the financiers to perform the socially essential function of finance. (It’s hardly coincidental that during the 1990s, as financial deregulation and financial technologies were just ramping up, the median compensation for investment bank executives, which until then had been on par with compensation at other companies, leapt ahead by a factor of between seven and ten.29) And like some black hole, as finance’s surplus has grown, so, too, has the distortion of the economy as steadily more resources are pulled away from sectors that are arguably more socially productive yet don’t offer returns that are as competitive.

At the same time, the absence of a left wing has allowed the Democratic Party to become far more comfortable with practices once associated mainly with the right, such as pumping corporate donors for campaign funds and befriending Wall Street. “Democrats have found it easier to forge relationships with the conservative worlds of big business and high finance,” Beinart notes, “because they have not faced much countervailing pressure from an independent movement of the left.”37 In a sense, financial deregulation and the mess that followed were a direct result of the left’s more self-centered politics. So focused was the left on self-expression and personal fulfillment that it largely neglected its historic function: keeping government from falling totally in the thrall of the marketplace and the blind march for efficiency. The Tea Party, by contrast, suffered no such absence of support. From the moment of its inception, the revolution on the right found a warm reception from the conservative political machine that was much more geared for action—and vastly better funded—than anything on the left.


words: 49,604

The Weightless World: Strategies for Managing the Digital Economy by Diane Coyle

"Robert Solow", barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, blue-collar work, Bretton Woods, business cycle, clean water, computer age, Corn Laws, creative destruction, cross-subsidies, David Ricardo: comparative advantage, dematerialisation, Diane Coyle, Edward Glaeser, everywhere but in the productivity statistics, financial deregulation, full employment, George Santayana, global village, hiring and firing, Howard Rheingold, income inequality, informal economy, invention of the sewing machine, invisible hand, Jane Jacobs, Joseph Schumpeter, Kickstarter, knowledge economy, labour market flexibility, laissez-faire capitalism, lump of labour, Marshall McLuhan, mass immigration, McJob, microcredit, moral panic, Network effects, new economy, Nick Leeson, night-watchman state, North Sea oil, offshore financial centre, pension reform, pensions crisis, Ronald Reagan, Silicon Valley, spinning jenny, The Death and Life of Great American Cities, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tobin tax, two tier labour market, very high income, War on Poverty, winner-take-all economy, working-age population

Subsequently a number of other countries including France switched to much wider bands of permitted fluctuation against the core currency in the system, the Deutschemark. Many commentators in continental Globalism and Globaloney 167 Europe blamed the ERM crisis — soon named ‘Black Wednesday’ in Britain — on ‘Anglo-Saxon speculators’. In their eyes it was the untrammelled power of international financial markets, unleashed by financial deregulation in the US and UK, which had torpedoed the centrepiece of European monetary arrangements after more than a decade of careful construction and management. One of those speculators, who started the run that was estimated to have cost the British taxpayer more than £10 billion in the futile attempt to prevent a sterling devaluation, was George Soros. Anglo-Saxon only in the sense that he and the managers of his investment vehicle, the Quantum Fund, are based in the US, the Hungarian-born financier is a fervent supporter of the European project.

There are those who claim the unprecedented degree of globalisation of international markets, both financial markets and markets for goods and services, has transformed the world. Companies face a new headwind of international competition, to a degree unimaginable two decades ago. The ability to transfer millions of dollars worth of funds at the touch of a key has transferred power from governments to financiers. Deregulation and technology have combined to change things utterly. Then there are those to whom this is just so much globaloney. As discussed in Chapter 3, international trade and investment have grown steadily since World War II, but are nowhere near recovering the peak, in relation to the size of the world economy, that they attained at the turn of the last century. Information and communications technology make it possible now to transfer huge sums in seconds, but it only took perhaps three or four hours by telegraph in the Edwardian era.


pages: 294 words: 89,406

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

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

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

The 1844 Companies Act introduced a requirement to present shareholders with an annual report and even to have it audited, but did not set out any standards for what that might involve – a company was considered to have been ‘audited’ if another businessman had spent half an hour looking over its books on the way to one of his other appointments. This was how the accounts of the North Wales Railway Company were passed despite having been written in code to conceal unapproved payments to directors. And even the extremely weak standards of the 1844 Act were quickly weakened; as laissez-faire economics was also just getting off the ground, the Victorian era saw the ideology of financial deregulation grow up at the same time as, and in many cases faster and more vigorously than, financial regulation itself. In 1856, during a debate over weakening the requirements, the Times wrote: ‘In the face of all that has been shown of the effect of legislative attempts to keep men prudent … there are always a number of persons ready whenever any financial disaster occurs to propose measures of control, the fact being wholly lost sight of that a multitude of regulations serves merely to confuse the general public.’


Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition by Kindleberger, Charles P., Robert Z., Aliber

active measures, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Black Swan, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, joint-stock company, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War

The volume of shares traded did not quite keep pace, going from 120 billion shares in 1983 to 280 billion in 1989.18 The increase in the real estate prices fed the boom in stock prices. Many of the firms listed on the Tokyo Stock Exchange were real estate companies that owned substantial property in central Tokyo and Osaka and Nagoya and a few other major cities. The boom in real estate prices and financial deregulation led to a surge in construction activity. Banks owned large amounts of real estate and stocks so increases in their values led to increases in the value of bank stocks. Banks usually required that borrowers pledge real estate as collateral; the increases in the value of real estate meant that the value of the collateral increased, and the banks were eager to make more loans because they wanted to increase their size – their total footings – relative to other Japanese banks and to banks in the United States and Europe.

Banks usually required that borrowers pledge real estate as collateral; the increases in the value of real estate meant that the value of the collateral increased, and the banks were eager to make more loans because they wanted to increase their size – their total footings – relative to other Japanese banks and to banks in the United States and Europe. Industrial firms were increasingly eager to borrow to buy real estate, since the profit rate on real estate investments was many times higher than the profit rates from producing steel and automobiles and TVs. The rapid expansion of bank loans was facilitated by financial deregulation, which was partly a response to pressure from the US government. Officials in the US were motivated by the unevenness of the regulatory framework, since US firms found many regulations impeded their expansion in the Tokyo markets while Japanese firms found it much easier to expand in the United States. Moreover the US Treasury wanted Japanese financial institutions to buy US government securities as the US fiscal deficit increased.

One motive for financial liberalization was that the industrial demand for bank loans had declined so that it was not longer necessary to allocate credit among borrowers on a preferential basis; another was that the US authorities demanded that US banks and other US financial firms have access to the banking and capital markets in Tokyo on terms comparable to the access available to Japanese banks in New York. Financial deregulation enabled the banks headquartered in Tokyo and in Osaka to increase their real estate loans at a rapid rate. Because of building restrictions and the time consumed in assembling larger lots for construction, the increase in the demand for real estate had a much larger impact on the price of land than on the supplies of living space and office space. Many of the firms that were listed on the Tokyo Stock Exchange were real estate investment companies; the increases in real estate prices contributed to sharp increases in the value of their assets and in the prices of their stocks.


pages: 443 words: 98,113

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

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

The argument was that, if left alone, financial markets would reward efficient firms and punish inefficient ones, which would go out of business; meanwhile, financiers could help with mergers and transfers of ownership to the more efficient. This reasoning also bolstered demands for the privatisation of state enterprises, which was soon embraced with almost as much enthusiasm by social democratic parties as by their right-wing opponents – witness the French socialist government of Lionel Jospin and the New Labour government of Tony Blair. It was soon evident that the effects of financial deregulation were nothing like the predictions of neo-liberal theory. Instead of channelling money from savers to productive investments, financiers indulged in a frenzy of speculative activity to make money from interest, commissions and capital gains. The result was an unstable bubble economy, as investor ‘herds’ moved en masse from place to place. The titans of finance became ‘masters of the universe’, in Tom Wolfe’s famous phrase in The Bonfire of the Vanities, his 1987 novel satirising Wall Street, as they mingled with heads of state and spent time in senior government posts before returning to make yet more money from speculation.

D’Erasmo, A Quantitative Model of Banking Industry Dynamics, mimeo, March 2013. 49 For example, Chris Huhne and Vince Cable, former Liberal Democrat ministers in the British coalition government, cited in C. Huhne, ‘Gloomy, but right’, Prospect, October 2015, pp. 72–4. 50 M. Wolf, ‘Helicopter drops might not be far away’, Financial Times, 23 February 2016. 51 Standing, 2014, op. cit. 52 J. Tanndal and D. Waldenstrom, Does Financial Deregulation Boost Top Incomes? Evidence from the Big Bang, Centre for Economic Policy Research, DP11094, February 2016. 53 K. Cooper, ‘Emerging market loans threaten British banks’, Sunday Times, 4 October 2015, p. 2. 54 A. Haldane, ‘A radical prescription’, Prospect, October 2015, pp. 36–8. 55 J. Kay, Other People’s Money: Masters of the Universe or Servants of the People? (London: Profile Books, 2015); W.


pages: 305 words: 98,072

How to Own the World: A Plain English Guide to Thinking Globally and Investing Wisely by Andrew Craig

Airbnb, Albert Einstein, asset allocation, Berlin Wall, bitcoin, Black Swan, bonus culture, BRICs, business cycle, collaborative consumption, diversification, endowment effect, eurozone crisis, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, Long Term Capital Management, low cost airline, mortgage debt, negative equity, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, passive income, pensions crisis, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Silicon Valley, smart cities, stocks for the long run, the new new thing, The Wealth of Nations by Adam Smith, Yogi Berra, Zipcar

“Prime” central London property has also been particularly strong given the explosion in the British financial service industry and its bonus culture and, in addition, the vast numbers of global rich who see London as an excellent long-term investment due to its strong legal system, favourable tax treatment of foreign nationals, and perfect geographical placement for international business. Interest rates Perhaps even more important than these factors, however, has been the price and supply of money. The price of money, otherwise known as the interest rate, has been held extremely low for a long time by the policies of central banks on both sides of the Atlantic. This fact, combined with financial deregulation and developments in the global debt markets, means that there has been an unprecedented amount of “cheap money” available to anyone who has wanted to buy a house in the last several years. This more than anything is why the price of housing has gone up for such a long time and by so much. When considering where house prices might go from here, it is perhaps most instructive for us to think about whether there will continue to be a vast supply of money at low interest rates.

When thinking about the US and UK markets, it is perhaps instructive to realise that until the 1980s they were not dissimilar to the current French market. I would argue that what then changed became a catalyst for the explosion in property prices on both sides of the Atlantic and set the stage for the horrendous crash we have seen in the US (where prices are roughly where they were ten years ago), and may well yet see in the UK. FINANCIAL DEREGULATION MADE BORROWING TOO EASY Historically, getting a mortgage in both the UK and the US had always been reasonably hard. An applicant needed a decent deposit, a reasonable track record in their personal finances and they often had to demonstrate a grasp of the metrics we have just discussed. They would have to provide all this to a bank manager (who they most likely had some previous relationship with) before they were able to borrow money.


pages: 414 words: 101,285

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It by Ian Goldin, Mike Mariathasan

"Robert Solow", air freight, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bretton Woods, BRICs, business cycle, butterfly effect, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, failed state, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, global pandemic, global supply chain, global value chain, global village, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, Silicon Valley, six sigma, Stuxnet, supply-chain management, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, transaction costs, uranium enrichment

See ecosystem environmental externalities of economic growth, 134, 136–37, 138–39, 140–41, 143 environmental Kuznets curve (EKC), 139, 141 environmental regulation, 140, 142–43 environmental risks. See ecological risks epidemics, distinction from pandemics, 146, 152–53. See also health risks Epstein, Larry G., 25 equality of opportunity, 196. See also inequality equity, 40–41. See also stock markets Estonia, cyberattacks on, 114, 116 Esty, Daniel C., 139 Europe: air travel in, 15–16, 17f, 205; energy supply networks in, 110; financial deregulation in, 50, 62; transportation infrastructure in, 104 European Aviation Safety Agency, 205 European Central Bank (ECB), 56, 59–60, 63 European Commission, 189 European Parliament: election turnout for, 189, 189f; right-wing parties in, 191t European Union: agricultural subsidies in, 197; democratic deficit in, 188, 189; free trade area of, 73; legal system of, 218; Maastricht Treaty, 209; political instability in, 188 Eurozone, 9–10, 62, 188, 189, 190, 192, 209 Evans, Tim G., 159, 163–64 evolutionary biology, 95 extensive margin, 139 externalities: of bank failures, 58; of ecological risks, 128; environmental, of economic growth, 134, 136–37, 138–39, 140–41, 143; of globalization, 30–31, 32, 123; of individual rationality, 33; negative, 32, 33, 72, 79, 96–97, 123, 130–31 extinctions, 2, 137.

See also air transportation transportation infrastructure: capacity of, 101, 104; complexity of, 101, 102; expansion of, 12; geographic concentration of nodes, 101–2, 103–4, 212; highways, 103; improvements in, 75; investments in, 105; natural disasters and, 102–3; resilience of, 122; risks, 101–5; vulnerability of critical nodes in, 101–2, 103–4 travel. See transportation Treasury Department, U.S., 65, 230n36 Twitter, 117 UBS, 49 UNAIDS (Joint United Nations Programme on HIV/AIDS), 145 uncertainty, 25–27. See also risks unemployment: in Iceland, 38; political instability and, 192 United Kingdom: airports in, 104; corporate taxes in, 205; defense spending of, 214; effects of Icelandic financial crisis, 38, 50; exports of, 74f; financial deregulation in, 49; financial sector of, 50; Independence Party, 200; Scottish independence referendum, 200; transportation infrastructure in, 104 U.K. Manufacturers’ Organisation (EEF), 91 United Nations Environment Programme (UNEP), 102 United Nations Office for the Coordination of Humanitarian Affairs, 206 United Nations Security Council, 206 United States: agricultural subsidies in, 197; bank bailouts in, 47, 229n30; blackouts in, 106–8, 107f, 109; defense spending of, 214; exports of, 74f; income inequality in, 170, 173, 175f; National Strategy for Global Supply Chain Security, 91; reactions to globalization of, 201–2.


pages: 463 words: 105,197

Radical Markets: Uprooting Capitalism and Democracy for a Just Society by Eric Posner, E. Weyl

3D printing, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, anti-communist, augmented reality, basic income, Berlin Wall, Bernie Sanders, Branko Milanovic, business process, buy and hold, carbon footprint, Cass Sunstein, Clayton Christensen, cloud computing, collective bargaining, commoditize, Corn Laws, corporate governance, crowdsourcing, cryptocurrency, Donald Trump, Elon Musk, endowment effect, Erik Brynjolfsson, Ethereum, feminist movement, financial deregulation, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, guest worker program, hydraulic fracturing, Hyperloop, illegal immigration, immigration reform, income inequality, income per capita, index fund, informal economy, information asymmetry, invisible hand, Jane Jacobs, Jaron Lanier, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, labor-force participation, laissez-faire capitalism, Landlord’s Game, liberal capitalism, low skilled workers, Lyft, market bubble, market design, market friction, market fundamentalism, mass immigration, negative equity, Network effects, obamacare, offshore financial centre, open borders, Pareto efficiency, passive investing, patent troll, Paul Samuelson, performance metric, plutocrats, Plutocrats, pre–internet, random walk, randomized controlled trial, Ray Kurzweil, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Rory Sutherland, Second Machine Age, second-price auction, self-driving car, shareholder value, sharing economy, Silicon Valley, Skype, special economic zone, spectrum auction, speech recognition, statistical model, stem cell, telepresence, Thales and the olive presses, Thales of Miletus, The Death and Life of Great American Cities, The Future of Employment, The Market for Lemons, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, trickle-down economics, Uber and Lyft, uber lyft, universal basic income, urban planning, Vanguard fund, women in the workforce, Zipcar

Ballooning inequality, stagnating living standards, and rising economic insecurity made a mockery of the old style of policy analysis. The angry political reaction to the recession—exemplified in the United States by the Occupy Wall Street and Tea Party movements—did not subside as the economy recovered. The public lost faith in the mainstream policy analysis of elites who had supported financial deregulation and then the unpopular bailouts. With the old ways of doing things in doubt and new directions unclear, public opinion polarized. And because of long-simmering controversies over cultural issues, especially immigration, anger at the elites took an ugly nativist turn. Xenophobia and populism at a level not seen since the 1930s erupted across the world. Unfortunately, ideas have not kept up with the crisis.

., 78 Cabral, Luís, 202 Cadappster app, 31 Caesar, Julius, 84 Canada, 10, 13, 159, 182 capitalism, xvi; basic structure of, 24–25; competition and, 17 (see also competition); corporate planning and, 39–40; cultural consequences of, 270, 273; Engels on, 239–40; freedom and, 34–39; George on, 36–37; growth and, 3 (see also growth, economic); industrial revolution, 36, 255; inequality and, 3 (see also inequality); labor and, 136–37, 143, 159, 165, 211, 224, 231, 239–40, 316n4; laissez-faire, 45; liberalism and, 3, 17, 22–27; markets and, 278, 288, 304n36; Marx on, 239–40; monopolies and, 22–23, 34–39, 44, 46–49, 132, 136, 173, 177, 179, 199, 258, 262; monopsony and, 190, 199–201, 223, 234, 238–41, 255; ownership and, 34–36, 39, 45–49, 75, 78–79; property and, 34–36, 39, 45–49, 75, 78–79; Radical Markets and, 169, 180–85, 203, 273; regulations and, 262; Schumpeter on, 47; shareholders and, 118, 170, 178–84, 189, 193–95; technology and, 34, 203, 316n4; wealth and, 45, 75, 78–79, 136, 143, 239, 273 Capitalism and Freedom (Friedman), xiii Capitalism for the People, A (Luigi), 203 Capra, Frank, 17 Carroll, Lewis, 176 central planning: computers and, 277–85, 288–93; consumers and, 19; democracy and, 89; governance and, 19–20, 39–42, 46–48, 62, 89, 277–85, 288–90, 293; healthcare and, 290–91; liberalism and, 19–20; markets and, 277–85, 288–93; property and, 39–42, 46–48, 62; recommendation systems and, 289–90; socialism and, 39–42, 47, 277, 281 Chetty, Raj, 11 Chiang Kai-shek, 46 China, 15, 46, 56, 133–34, 138 Christensen, Clayton, 202 Chrysler, 193 Citigroup, 183, 184, 191 Clarke, Edward, 99, 102, 105 Clayton Act, 176–77, 197, 311n25 Clemens, Michael, 162 Coase, Ronald, 40, 48–51, 299n26 Cold War, xix, 25, 288 collective bargaining, 240–41 collective decisions: democracy and, 97–105, 110–11, 118–20, 122, 124, 273, 303n17, 304n36; manipulation of, 99; markets for, 97–105; public goods and, 98; Quadratic Voting (QV) and, 110–11, 118–20, 122, 124, 273, 303n17, 304n36; Vickrey and, 99, 102, 105 colonialism, 8, 131 Coming of the Third Reich, The (Evans), 93 common ownership self-assessed tax (COST): broader application of, 273–76; cybersquatters and, 72; education and, 258–59; efficiency and, 256, 261; equality and, 258; globalization and, 269–70; growth and, 73, 256; human capital and, 258–61; immigrants and, 261, 269, 273; inequality and, 256–59; international trade and, 270; investment and, 258–59, 270; legal issues and, 275; markets and, 286; methodology of, 63–66; monopolies and, 256–61, 270, 300n43; objections to, 300n43; optimality and, 61, 73, 75–79, 317n18; personal possessions and, 301n47, 317n18; political effects of, 261–64; predatory outsiders and, 300n43; prices and, 62–63, 67–77, 256, 258, 263, 275, 300n43, 317n18; property and, 31, 61–79, 271–74, 300n43, 301n47; public goods and, 256; public leases and, 69–72; Quadratic Voting (QV) and, 123–25, 194, 261–63, 273, 275, 286; Radical Markets and, 79, 123–26, 257–58, 271–72, 286; taxes and, 61–69, 73–76, 258–61, 275, 317n18; technology and, 71–72, 257–59; true market economy and, 72–75; voting and, 263; wealth and, 256–57, 261–64, 269–70, 275, 286 communism, 19–20, 46–47, 93–94, 125, 278 competition: antitrust policies and, 23, 48, 174–77, 180, 184–86, 191, 197–203, 242, 255, 262, 286; auctions and, xv–xix, 49–51, 70–71, 97, 99, 147–49, 156–57; bargaining and, 240–41, 299n26; democracy and, 109, 119–20; by design, 49–55; elitism and, 25–28; equilibrium and, 305n40; eternal vigilance and, 204; horizontal concentration and, 175; imperfect, 304n36; indexing and, 185–91, 302n63; innovation and, 202–3; investment and, 196–97; labor and, 145, 158, 162–63, 220, 234, 236, 239, 243, 245, 256, 266; laissez-faire and, 253; liberalism and, 6, 17, 20–28; lobbyists and, 262; monopolies and, 174; monopsony and, 190, 199–201, 223, 234, 238–41, 255; ownership and, 20–21, 41, 49–55, 79; perfect, 6, 25–28, 109; prices and, 20–22, 25, 173, 175, 180, 185–90, 193, 200–201, 204, 244; property and, 41, 49–55, 79; Quadratic Voting (QV) and, 304n36; regulations and, 262; resale price maintenance and, 200–201; restoring, 191–92; Section 7 and, 196–97, 311n25; selfishness and, 109, 270–71; Smith on, 17; tragedy of the commons and, 44 complexity, 218–20, 226–28, 274–75, 279, 281, 284, 287, 313n15 “Computer and the Market, The” (Lange), 277 computers: algorithms and, 208, 214, 219, 221, 281–82, 289–93; automation of labor and, 222–23, 251, 254; central planning and, 277–85, 288–93; data and, 213–14, 218, 222, 233, 244, 260; Deep Blue, 213; distributed computing and, 282–86, 293; growth in poor countries and, 255; as intermediaries, 274; machine learning (ML) and, 214 (see also machine learning [ML]); markets and, 277, 280–93; Mises and, 281; Moore’s Law and, 286–87; Open-Trac and, 31–32; parallel processing and, 282–86; prices of, 21; recommendation systems and, 289–90 Condorcet, Marquis de, 4, 90–93, 303n15, 306n51 conspicuous consumption, 78 Consumer Reports magazine, 291 consumers: antitrust suits and, 175, 197–98; central planning and, 19; data from, 47, 220, 238, 242–44, 248, 289; drone delivery to, 220; as entrepreneurs, 256; goods and services for, 27, 92, 123, 130, 175, 280, 292; institutional investment and, 190–91; international culture for, 270; lobbyists and, 262; machine learning (ML) and, 238; monopolies and, 175, 186, 197–98; preferences of, 280, 288–93; prices and, 172 (see also prices); recommendation systems and, 289–90; robots and, 287; sharing economy and, 117; Soviet collapse and, 289; technology and, 287 cooperatives, 118, 126, 261, 267, 299n24 Corbyn, Jeremy, 12, 13 corruption, 3, 23, 27, 57, 93, 122, 126, 157, 262 Cortana, 219 cost-benefit analysis, 2, 244 “Counterspeculation, Auctions and Competitive Sealed Tenders” (Vickrey), xx–xxi Cramton, Peter, 52, 54–55, 57 crowdsourcing, 235 crytocurrencies, 117–18 cybersquatters, 72 data: algorithms and, 208, 214, 219, 221, 281–82, 289–93; big, 213, 226, 293; computers and, 213–14, 218, 222, 233, 244, 260; consumer, 47, 220, 238, 242–44, 248, 289; diamond-water paradox and, 224–25; diminishing returns and, 226, 229–30; distribution of complexity and, 228; as entertainment, 233–39, 248–49; Facebook and, 28, 205–9, 212–13, 220–21, 231–48; feedback and, 114, 117, 233, 238, 245; free, 209, 211, 220, 224, 231–35, 239; Google and, 28, 202, 207–13, 219–20, 224, 231–36, 241–42, 246; investment in, 212, 224, 232, 244; labeled, 217–21, 227, 228, 230, 232, 234, 237; labor movement for, 241–43; Lanier and, 208, 220–24, 233, 237, 313n2, 315n48; marginal value and, 224–28, 247; network effects and, 211, 236, 238, 243; neural networks and, 214–19; online services and, 211, 235; overfitting and, 217–18; payment systems for, 210–13, 224–30; photographs and, 64, 214–15, 217, 219–21, 227–28, 291; programmers and, 163, 208–9, 214, 217, 219, 224; Radical Markets for, 246–49; reCAPTCHA and, 235–36; recommendation systems and, 289–90; rise of data work and, 209–13; sample complexity and, 217–18; siren servers and, 220–24, 230–41, 243; social networks and, 202, 212, 231, 233–36; technofeudalism and, 230–33; under-employment and, 256; value of, 243–45; venture capital and, 211, 224; virtual reality and, 206, 208, 229, 251, 253; women’s work and, 209, 313n4 Declaration of Independence, 86 Deep Blue, 213 DeFoe, Daniel, 132 Demanding Work (Gray and Suri), 233 democracy: 1p1v system and, 82–84, 94, 109, 119, 122–24, 304n36, 306n51; artificial intelligence (AI) and, 219; Athenians and, 55, 83–84, 131; auctions and, 97, 99; basic structure of, 24–25; central planning and, 89; check and balance systems and, 23, 25, 87, 92; collective decisions and, 97–105, 110–11, 118–20, 122, 124, 273, 303n17, 304n36; collective mediocrity and, 96; competition and, 109, 119–20; Declaration of Independence and, 86; efficiency and, 92, 110, 126; elections and, 22, 80, 93, 100, 115, 119–21, 124, 217–18, 296n20; elitism and, 89–91, 96, 124; Enlightenment and, 86, 95; Europe and, 90–96; France and, 90–95; governance and, 84, 117; gridlock and, 84, 88, 122–24, 261, 267; Hitler and, 93–94; House of Commons and, 84–85; House of Lords and, 85; impossibility theorem and, 92; inequality and, 123; Jury Theorem and, 90–92; liberalism and, 3–4, 25, 80, 86, 90; limits of, 85–86; majority rule and, 27, 83–89, 92–97, 100–101, 121, 306n51; markets and, 97–105, 262, 276; minorities and, 85–90, 93–97, 101, 106, 110; mixed constitution and, 84–85; multi-candidate, single-winner elections and, 119–20; origins of, 83–85; ownership and, 81–82, 89, 101, 105, 118, 124; public goods and, 28, 97–100, 107, 110, 120, 123, 126; Quadratic Voting (QV) and, 105–22; Radical Markets and, 82, 106, 123–26, 203; supermajorities and, 84–85, 88, 92; tyrannies and, 23, 25, 88, 96–100, 106, 108; United Kingdom and, 95–96; United States and, 86–90, 93, 95; voting and, 80–82, 85–93, 96, 99, 105, 108, 115–16, 119–20, 123–24, 303n14, 303n17, 303n20, 304n36, 305n39; wealth and, 83–84, 87, 95, 116 Demosthenes, 55 Denmark, 182 Department of Justice (DOJ), 176, 186, 191 deregulation, 3, 9, 24 Desmond, Matthew, 201–2 Dewey, John, 43 Dickens, Charles, 36 digital economy: data producers and, 208–9, 230–31; diamond-water paradox and, 224–25; as entertainment, 233–39; facial recognition and, 208, 216, 218–19; free access and, 211; Lanier and, 208, 220–24, 233, 237, 313n2, 315n48; machine learning (ML) and, 208–9, 213–14, 217–21, 226–31, 234–35, 238, 247, 289, 291, 315n48; payment systems for, 210–13, 221–30, 243–45; programmers and, 163, 208–9, 214, 217, 219, 224; rise of data work and, 209–13; siren servers and, 220–24, 230–41, 243; spam and, 210, 245; technofeudalism and, 230–33; virtual reality and, 206, 208, 229, 251, 253 diversification, 171–72, 180–81, 185, 191–92, 194–96, 310n22, 310n24 dot-com bubble, 211 double taxation, 65 Dupuit, Jules, 173 Durkheim, Émile, 297n23 Dworkin, Ronald, 305n40 dystopia, 18, 191, 273, 293 education, 114; common ownership self-assessed tax (COST) and, 258; data and, 229, 232, 248; elitism and, 260; equality in, 89; financing, 276; free compulsory, 23; immigrants and, 14, 143–44, 148; labor and, 140, 143–44, 148, 150, 158, 170–71, 232, 248, 258–60; Mill on, 96; populist movements and, 14; Stolper-Samuelson Theorem and, 143 efficient capital markets hypothesis, 180 elections, 80; data and, 217–18; democracy and, 22, 93, 100, 115, 119–21, 124, 217–18, 296n20; gridlock and, 124; Hitler and, 93; multi-candidate, single-winner, 119–20; polls and, 13, 111; Quadratic Voting (QV) and, 115, 119–21, 268, 306n52; U.S. 2016, 93, 296n20 Elhauge, Einer, 176, 197 elitism: aristocracy and, 16–17, 22–23, 36–38, 84–85, 87, 90, 135–36; bourgeoisie and, 36; bureaucrats and, 267; democracy and, 89–91, 96, 124; education and, 260; feudalism and, 16, 34–35, 37, 41, 61, 68, 136, 230–33, 239; financial deregulation and, 3; immigrants and, 146, 166; liberalism and, 3, 15–16, 25–28; minorities and, 12, 14–15, 19, 23–27, 85–90, 93–97, 101, 106, 110, 181, 194, 273, 303n14, 304n36; monarchies and, 85–86, 91, 95, 160 Emergency Economic Stabilization Act, 121 eminent domain, 33, 62, 89 Empire State Building, 45 Engels, Friedrich, 78, 240 Enlightenment, 86, 95 entrepreneurs, xiv; immigrants and, 144–45, 159, 256; labor and, 129, 144–45, 159, 173, 177, 203, 209–12, 224, 226, 256; ownership and, 35, 39 equality: common ownership self-assessed tax (COST) and, 258; education and, 89; immigrants and, 257; labor and, 147, 166, 239, 257; liberalism and, 4, 8, 24, 29; living standards and, 3, 11, 13, 133, 135, 148, 153, 254, 257; Quadratic Voting (QV) and, 264; Radical Markets and, 262, 276; trickle down theories and, 9, 12 Espinosa, Alejandro, 30–32 Ethereum, 117 Europe, 177, 201; democracy and, 88, 90–95; European Union and, 15; fiefdoms in, 34; government utilities and, 48; income patterns in, 5; instability in, 88; labor and, 11, 130–31, 136–47, 165, 245; social democrats and, 24; unemployment rates in, 11 Evans, Richard, 93 Evicted (Desmond), 201–2 Ex Machina (film), 208 Facebook, xxi; advertising and, 50, 202; data and, 28, 205–9, 212–13, 220–21, 231–48; monetization by, 28; news service of, 289; Vickrey Commons and, 50 facial recognition, 208, 216–19 family reunification programs, 150, 152 farms, 17, 34–35, 37–38, 61, 72, 135, 142, 179, 283–85 Federal Communications Commission (FCC), 50, 71 Federal Trade Commission (FTC), 176, 186 feedback, 114, 117, 233, 238, 245 feudalism, 16, 34–35, 37, 41, 61, 68, 136, 230–33, 239 Fidelity, 171, 181–82, 184 financial crisis of 2008, 3, 121 Fitzgerald, F.


pages: 493 words: 98,982

The Tyranny of Merit: What’s Become of the Common Good? by Michael J. Sandel

affirmative action, Affordable Care Act / Obamacare, anti-communist, Berlin Wall, Bernie Sanders, Boris Johnson, Capital in the Twenty-First Century by Thomas Piketty, centre right, coronavirus, COVID-19, Credit Default Swap, Deng Xiaoping, Donald Trump, ending welfare as we know it, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, global supply chain, helicopter parent, High speed trading, immigration reform, income inequality, Khan Academy, laissez-faire capitalism, meta analysis, meta-analysis, Nate Silver, new economy, obamacare, Occupy movement, plutocrats, Plutocrats, Ronald Reagan, smart grid, Steve Jobs, Steven Levy, the market place, The Wealth of Nations by Adam Smith, Washington Consensus

In his 2008 presidential campaign, he offered a stirring alternative to the managerial, technocratic language that had come to characterize liberal public discourse. He showed that progressive politics could speak a language of moral and spiritual purpose. But the moral energy and civic idealism he inspired as a candidate did not carry over into his presidency. Assuming office in the midst of the financial crisis, he appointed economic advisors who had promoted financial deregulation during the Clinton years. With their encouragement, he bailed out the banks on terms that did not hold them to account for the behavior that led to the crisis and offered little help for those who had lost their homes. His moral voice muted, Obama placated rather than articulated the seething public anger toward Wall Street. Lingering anger over the bailout cast a shadow over the Obama presidency and ultimately fueled a mood of populist protest that reached across the political spectrum—on the left, the Occupy movement and the candidacy of Bernie Sanders; on the right, the Tea Party movement and the election of Trump.

They won World War II, helped rebuild Europe and Japan, strengthened the welfare state, dismantled segregation, and presided over four decades of economic growth that flowed to rich and poor alike. By contrast, the elites who have governed since have brought us four decades of stagnant wages for most workers, inequalities of income and wealth not seen since the 1920s, the Iraq War, a nineteen-year, inconclusive war in Afghanistan, financial deregulation, the financial crisis of 2008, a decaying infrastructure, the highest incarceration rate in the world, and a system of campaign finance and gerrymandered congressional districts that makes a mockery of democracy. Not only has technocratic merit failed as a mode of governance; it has also narrowed the civic project. Today, the common good is understood mainly in economic terms. It is less about cultivating solidarity or deepening the bonds of citizenship than about satisfying consumer preferences as measured by the gross domestic product.


The Future of Money by Bernard Lietaer

agricultural Revolution, banks create money, barriers to entry, Bretton Woods, business cycle, clean water, complexity theory, corporate raider, 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 Future of Employment, the market place, the payments system, Thomas Davenport, trade route, transaction costs, trickle-down economics, working poor

This extraordinary build-up of speculative activity can be explained by three cumulative changes over the past decades: 1 A Structural shift: On August 15, 1971, President Nixon disconnected the dollar from gold, inaugurating an era of currencies whose values would be determined predominantly by market forces. This gave rise to a systemic change in which currency values could fluctuate significantly at any point in time. This was the beginning of the 'floating exchanges' and a market that would prove highly profitable for those who know how to navigate it. 2. 1980s financial deregulation: The governments of Margaret Thatcher in the UK and Ronald Reagan in the US embarked simultaneously on massive financial deregulation programmes. The Baker Plan (a reform package named after the then US Secretary to the Treasury, Mr Baker), imposed a similar deregulation in 16 key developing countries in the wake of the developing countries' debt crisis. These deregulation’s enabled a much larger array of people and institutions to become involved in currency trading than would have previously been possible. 3.


Capitalism, Alone: The Future of the System That Rules the World by Branko Milanovic

"Robert Solow", affirmative action, Asian financial crisis, assortative mating, barriers to entry, basic income, Berlin Wall, bilateral investment treaty, Black Swan, Branko Milanovic, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carried interest, colonial rule, corporate governance, creative destruction, crony capitalism, deindustrialization, dematerialisation, Deng Xiaoping, discovery of the americas, European colonialism, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, ghettoisation, gig economy, Gini coefficient, global supply chain, global value chain, high net worth, income inequality, income per capita, invention of the wheel, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, labor-force participation, laissez-faire capitalism, land reform, liberal capitalism, low skilled workers, Lyft, means of production, new economy, offshore financial centre, Paul Samuelson, plutocrats, Plutocrats, post-materialism, purchasing power parity, remote working, rent-seeking, ride hailing / ride sharing, Silicon Valley, single-payer health, special economic zone, The Wealth of Nations by Adam Smith, Thorstein Veblen, uber lyft, universal basic income, Vilfredo Pareto, Washington Consensus, women in the workforce, working-age population, Xiaogang Anhui farmers

Even if they might verbally claim that they would follow Antipater, they would in fact behave like Diogenes. And behavior is all that counts, not what we say about how we would have behaved. Outsourcing morality through reliance solely on the law or on rule enforcers means that everyone tries to game the system. Any laws that are introduced to punish new forms of unethical or amoral behavior will always stay one step behind those who are able to find ways around them. Financial deregulation and tax evasion provide excellent examples. There is no internal moral rule, as we have amply seen, that would check the behavior of top banks and hedge funds, or of companies like Apple, Amazon, and Starbucks, when it comes to tax evasion or tax avoidance; or that of the rich, who hide their wealth from tax authorities, in part legally and in part illegally, in the Caribbean or the Channel Islands.

See also Rich; Upper class Ellul, Jacques, 208–209 Employee stock ownership plans (ESOPs), to deconcentrate capital ownership, 48 The End of History and the Last Man (Fukuyama), 70 Engels, Friedrich, 1, 2, 3, 114, 224 Entrepreneurship, 25 Entry costs, rich and, 33–34 Equilibrium corruption, 121 Escaping Poverty (Vries), 115 Ethical imperialism, 126 Ethical vs. legal, 182 Ethics of ruling class, 66 Europe, performance of socialist vs. capitalist economies in, 84–85 Export pessimism, 149–150 Extractive institutions, 73 Fallacy: of the lump of labor doctrine, 198–199; of lump of raw materials and energy, 200–201; that human needs are limited, 199 Family, decreased usefulness of, 187–190 Fascism, explaining rise of, 70–72 Feldstein, Martin, 33 Ferguson, Niall, 72 Financial assets, rich and rate of return on, 32–33 Financial centers, corruption and global, 169–170 Financial deregulation, 183 Financial settlements, amorality and, 183–184 Finland, universal basic income in, 202 First Congress of the Peoples of the East, 223 Fischer, Fritz, 72 Fisher, Irving, 48 Fixed investment in China, 89–90 France: inherited wealth in, 62; minority support for globalization in, 9; share of capital as percent of national income in, 15 Frank, André Gunder, 148 Fraser, Nancy, 195 Freeman, Richard, 144, 198 Freund, Caroline, 50, 161–163 Fu, Zhe, 102 Fukuyama, Francis, 68, 70, 115, 120 Functional distribution of income, 233 Funding of political parties and campaigns, control of political process by rich and, 57–58 Future, inability to visualize, 197–201 GDP per capita: for China and India, 8, 211, 212; in countries with political capitalism, 97; decline in global inequality and, 213; growth rate in China, Vietnam, and United States, 86; household net wealth and, 27, 30, 31; in socialist vs. capitalist economies in Europe in 1950, 83–84; universal basic income and, 203 Gender, ruling class and, 66 Geopolitical changes, global inequality and, 211–214 Germany: cracking down on tax evasion in, 173; inequality in income from capital and labor in, 26–27, 29; limits of tax-and-transfer redistribution in, 44–45; migration and, 137, 242n47; share of global GDP, 9, 10; subcitizenship in, 136 Gernet, Jacques, 105–106, 115 Ghettoization, of migrants, 146–147 Gig economy, 190, 192, 194 Gilens, Martin, 56 Gini coefficients, 6, 27, 231, 241–242n40 Gini points, 6, 7, 239n22, 240n30 Gintis, Herbert, 209–211 Giving Pledge, 242n44 Global attractiveness of political capitalism, 112–113; Chinese “export” of political capitalism and, 118–128 Global capitalism, future of, 176–218; amorality of hypercommercialized capitalism, 176–187; atomization and commodification, 187–197; fear of technological progress and, 197–205; global inequality and geopolitical changes, 211–214; leading toward people’s capitalism and egalitarian capitalism, 215–218; political capitalism vs. liberal capitalism, 207–211; war and peace, 205–207 Global capitalism, globalization and, 153–155 Global GDP: China’s share of, 9, 10; Germany’s share of, 9, 10; India’s share of, 9, 10; United States’ share of, 9, 10 Global inequality, 6–9; decline in, 257n36; geopolitical changes and, 211–214; history of income inequality, 6–9; measurement of, 231–233 Global Inequality (Milanovic), 102 Globalization: capitalism and, 3; eras of, 150–155; facilitating worldwide corruption, 107; inequality in liberal meritocratic capitalism and, 22; malaise in the West about, 9–10; scenarios for evolution of, 209–211; support for in Asia, 9; tax havens and, 44; welfare state and, 50–55, 155–159; welfare state in era of, 50–55; worldwide corruption and, 159–175.


pages: 398 words: 105,917

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

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

‘These outsiders saw the giant lie at the heart of the economy and they saw it by doing something the rest of the suckers never thought to do. They looked.’ It wasn’t the first time the Big Short’s protagonists had looked at the subprime housing market, which mushroomed out of a dangerous combination of well-meant policies to expand home ownership to low-income groups across the States and the financial deregulation of the 1980s. Back in the mid 1990s, Steve Eisman, the most outspoken short-seller (renamed Mark Baum and played by Steve Carell in the film), had crunched the subprime numbers with the help of a disaffected young accountant he’d recruited from Arthur Andersen. Vincent Daniel had been trying to understand how investment banks made their money so that he could audit them properly, but had found Andersen uninterested.

As former Bank of England governor Sir Mervyn King wrote in 2016: ‘The strange thing is that after arguably the biggest financial crisis in history, nothing has really changed in terms either of the fundamental structure of banking or the reliance on central banks to restore macroeconomic prosperity.’25 With a crisis in the eurozone unresolved and political fragmentation throwing up new dangers, in 2017 the International Monetary Fund warned that ‘threats to financial stability are emerging from elevated political and policy uncertainty around the globe’.26 At the same time, the Trump era (and perhaps post-Brexit Britain) is ushering in a new period of financial deregulation, with many of the post-2008-crash measures being repealed. Debt levels across the globe, including US household debt, are above their pre-crisis levels, and regulators are warning of possible bubbles in areas from the multi-trillion-dollar bond market to car loans and credit card debt. Troublingly, these are partly inflated by generous accounting of the sort seen in the subprime housing bubble.27 The accounting standard-setters’ response to the financial crisis, in the view of many commentators, was inadequate.


Money and Government: The Past and Future of Economics by Robert Skidelsky

anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, market clearing, market friction, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, mobile money, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, placebo effect, price stability, profit maximization, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

An uncontrolled banking system was left free to place its bets anywhere. As long as current account deficits were being financed, no one paid any attention to them. But as John Harvey wrote: ‘the driving factors of these massive financial flows [are] . . . fundamentally distinct from those determining trade flows – different people, different agendas, different goals and worldviews’. 3 None of this worried the apostles of financial deregulation. By 2007, the US was running a persistent and growing current account deficit; East Asia, especially China, but also Japan and Middle East countries (major oil exporters) were running persistent and growing current account surpluses. In Europe, Germany was running a persistent current account surplus; the peripheral Eurozone countries were running current account deficits, especially in the five years pre-crisis.

., 179 Erie Canal, 90 Eshag, Eprime, 71 European Central Bank, 139, 188, 198, 217, 242–3, 253, 254, 361 institutional constraints on, 50, 234, 242, 249, 274–5 misreading of Eurozone crisis, 275 quantitative easing (QE) by, 273–4 on ‘stress testing’, 364 taxing of ‘excess’ reserves, 266 use of LTROs, 257 European Commission, 139, 3612, 365 European Exchange Rate Mechanism, 188 European Investment Bank, 354 European Union (EU, formerly EEC), 153, 318, 379, 383 Financial Stability Board (FSB), 363 ‘Four Freedoms’, 375 lack of state, 376 Single Resolution Board, 365 Eurozone current account imbalances, 333, 334, 335, 336–7, 341–2 Juncker investment programme, 274 proposed European Monetary Fund, 376, 382 structural flaw in, 341, 375–7 two original sins of, 274, 376–5 Eurozone debt crisis (2010–12), 50, 223, 377, 382 and double-dip recession, 241, 242–3, 274 ECB’s misreading of, 275 and financial crowding-out theory, 234 and Greece, 32, 224, 224–5, 226, 233, 235, 242–3, 243, 365 and ‘troika’, 32, 139, 243 469 i n de x exchange-rate policy, 127–8, 139 and Congdon’s ‘real balance effect’, 285 and domestic interest rates, 251 fixed rates under Bretton Woods, 16, 159, 161, 162, 168 floating rates from 1970s, 16–17, 184 and Friedman, 182 IMF ‘scarce currency’ clause, 380–81 Nixon’s dollar devaluation (1971), 153, 154, 165 and quantitative easing, 267, 267 sterling crisis (1951), 145 sterling devaluation (November 1967), 152 sterling-dollar peg (from 1949), 148, 150, 152 sterling/franc/deutschmark devaluations (1949), 152 ‘Triffin paradox’, 161, 165 ‘expansionary fiscal consolidation’, 192, 225, 231 Fabian socialism, 96 Fama, Eugene, 208, 311–12, 313 Fanny Mae, 217, 256, 309, 320 fascism, 13, 98, 131, 175 Federal Reserve, US and 2008 crash, 50, 217, 254, 256 AIG bail-out (2008), 325 Federal Open Market Committee (FOMC), 185–6 and Great Depression, 104–6 inflation targeting, 188 and monetarism, 185–6, 188 monetary policy in 1950s, 146 ‘Operation Twist’, 268 quantitative easing (QE) by, 256–7, 273–4 ‘Reserve Position Doctrine’ (1920s), 103–4 and under-consumption theory, 298 Ferguson, Niall, 73, 79, 80, 91 financial collapse (2007–8) acute phase, 218–20, 223 ‘Austrian’ explanation, 104, 303 banks as proximate cause, 343, 361, 365 Bear Stearns rescue, 217 British analogies with Greece, 235 British debate after, 225–8 causes of, 3–4, 343–4, 365, 366, 368 central bank responses, 3, 217, 219, 234–5, 253–4, 254, 256–8, 359 comparative recovery patterns, 241–4, 242, 273, 273–4 compared to 1929 crash, 218 Conservative narrative, 226–8, 229–31, 233, 234–5, 237–9 and crisis of conservative economics, 17 and embedded leverage, 318, 322, 325 five distinct stages of crisis, 216–19 ‘global imbalances’ explanation, 11, 331, 333, 336–43, 337 government responses, 3, 217–18, 219–20, 221–36, 237–47 Hayekian view of cause, 303 hysteresis after, 239–41, 240, 241, 370 inequality as deeper cause of, 299–306, 368 Lehman Brothers bankruptcy, 3, 50, 217, 365 leverage (debt to equity) ratios on eve of, 317–18 liquidity-solvency confusion, 317 outbreaks of populism following, 13, 371–3, 376, 383 post-crash deficit, 226–33, 229, 237–8 private debt as proximate cause, 3–4 470 i n de x stagnation of real earnings as deep cause, 4, 303, 367 standard account of origins of, 3–4 as test of two theories, 2–3, 76 theoretical and policy responses, 10, 129, 219–20, 223–36, 237–47 see also austerity policy and under-consumption theory, 303–6 US sub-prime mortgage market, 3, 216, 304–5, 309, 323, 328, 341 see also Great Recession (2008–9) Financial Services Authority, U K, 321–2, 330 financial system and causes of 2008 collapse, 3, 4–5, 253, 307–9, 361 and crisis of conservative economics, 17 deregulation, 307–9, 310–16, 318–22, 328, 332–3, 384 East Asian financial crisis (1997–8), 202, 339, 371, 382 ‘Efficient Market Hypothesis’ (EMH), 311–13, 321–2, 328, 388 ‘financialization’ of the economy, 5, 305, 307–9, 366–7 fraud and criminality, 3, 4, 5, 7, 328, 350, 365–6, 367 and free-market orthodoxy, 5, 308–16 loosening of moral restraints, 319 mark-to-market (M2M) framework, 314 offshore euro-dollar market, 308, 332 privatised gain and socialised loss, 319–20 released from national regulation (1980s/90s), 131, 318–22 structural power of finance, 6–7, 14, 309 systemic under-estimation of risk, 314–16, 316*, 320–22, 323, 329–30 Thatcher’s Big Bang (1980s), 319 tradable public debt instruments, 43, 80–81 Turner’s ‘financial intensity’ concept, 366 unrealism of assumptions, 310–16 value at risk (VaR) framework, 314–15, 315, 330 ‘Washington consensus’ deregulation, 198, 200 see also banks FinTech, 356 First World War, 86, 95, 106–7, 374, 375 ‘fiscal consolidation’, 10–11, 129, 225 Darling’s plan (2009), 225–6 ‘expansionary’, 192, 225, 231 and Osborne, 227–8, 229–30, 231, 233, 237–9, 243–4, 244, 245 fiscal policy and 2008 collapse, 10, 217–18, 219–20, 223–36, 265–6, 273–4, 286 ‘Barber boom’, 167, 168 during Blair-Brown years, 221–4, 223, 225–6, 227 British experience (1692–2012), 77 Congdon’s total rejection of, 280, 285–6 ‘crowding out’ argument, 83–4, 109–11, 226, 233–5 current and capital spending, 107–8, 114, 142, 155–6, 193, 221–3, 237–8, 355–7 directing flow of new spending, 286–7 fiscal multiplier, 110–11, 125–6, 133–6, 138, 230–31, 233, 235, 244–5 471 i n de x fiscal policy – (cont.) in inter-war Britain, 106–17 and Keynesian economics, 2–3, 109, 111, 114–17, 125–7, 129–31, 133–4, 137–8, 173, 278 Keynesian full employment phase (1945–60), 141–8 Krugman’s ‘confidence fairy’, 117 Lawson counterrevolution, 185, 192–3, 222, 358 legacy of monetarism, 190–93 May Committee (1931), 112 national income accounts, 138 New Classical view of, 200 in new macroeconomic constitution, 351–2, 355–7, 360–61 nineteenth-century theory of, 9, 29 post-Keynesian disablement of, 193, 221, 258, 304, 328 pre-crash orthodoxy, 221–2, 223–4, 230–31 Public Sector Borrowing Requirement (PSBR), 155–6 see also balanced budget theory; public investment; taxation Fisher, Irving, 9, 52, 61, 99, 280 ‘compensated dollar’ scheme, 66 equation of exchange, 62–4, 71–2, 258, 278–9, 283, 284, 287 QTM formulation, 62–7, 71–2 and quantitative easing, 258, 278–9 Santa Claus money, 62–4, 258, 278–9 Fitch (CR A), 329 France assignats in 1790s, 64–5 and gold standard, 50, 102, 104, 127 ‘indicative planning’ system, 150 ‘physiocrats’in, 81 protectionism in late nineteenthcentury, 59 state holding companies, 356 statism in, 140, 144 university campus revolts (1968), 164 Freddie Mac, 217, 256, 309, 320 free trade, xviii, 9, 58–9, 76, 79, 81–2 abandoned in Britain (1932), 113 general presumption in favour of, 377 and Hume’s ‘price-specie-flow’ mechanism, 37–8, 53, 54, 104, 332 and Irish potato famine, 15 List’s ‘infant industry’ argument, 88–9, 90, 378–7 and nationalist–globalist split, 371–3 and post-war liberalization, 16, 374 and presumption of peace, 379 repeal of Corn Laws (1846), 15, 85 Ricardo’s doctrine of comparative advantage, 88, 378, 379, 379 US conversion to (1940s), 90 Freiburg School, 140 Friedman, Milton adaptive expectations theory, 180–81, 183, 194, 206–11 and Cartesian distinction, 22 as Fisher’s heir, 278 The Great Contraction (with Schwartz; 1865), 105 idea of ‘helicopter money’, 63 and monetary base, 185, 280 and Mont Pelerin Society, 176–7 and ‘natural’ rate of unemployment, 163, 177, 181, 195, 206, 208 onslaught on Keynesianism, 170, 174, 177–83, 261 ‘permanent income hypothesis’ (1957), 178, 183 and Phillips Curve, 38, 180–81, 194, 206–8, 207 472 i n de x policy implications of work of, 182–3 political motives of, 177, 183–4 and quantity theory, 61, 70, 177–9, 182, 183, 194 ‘stable demand function for money’, 179 view of Great Depression, 104–6, 179, 183, 256, 276, 278 weaknesses in arguments of, 183 Frydman, Roman, 389 Fullarton, John, 49 Funding for Lending programme, 265–6 G20 Financial Stability Board, 363 summits (2009/10), 219–20, 223, 225 G7 finance ministers meeting (February 2010), 224–5 Galbraith, James, 303, 361 game theorists, 389 Gasperin, Simone, 357* Geddes, Sir Eric, 108 German Historical School, 88–9 Germany and 2008 crash, 217, 218, 243 current account surplus, 333, 334, 341, 342, 380, 381 employer–union bargains, 147, 167 and Eurozone crisis, 341, 365, 376, 377 and Great Depression, 97, 111, 129–30 growth Keynesianism (1960–70), 153–4 high growth rates in 1950/60s, 149, 156 Hitler’s reduction in unemployment, 111, 112, 129–30 hyperinflation of early 1920s, 275 as Keynesian in 1960s, 140 nineteenth-century expansion and unification, 89, 91 ‘ordo-liberalism’ in, 140 post-war modernization/catch-up, 156–7 protectionism in late nineteenthcentury, 59 return to gold standard (1924), 102 ‘Rhenish capitalism’ model, 154 Giffen, Robert, 51 Giles, Chris, 219, 302 Gini coefficient, 299, 300 Gladstone, William, 42–3, 86 Glass–Steagall Act (1933), 319, 361, 362 global imbalances basic theory of, 335–6 and capital account liberalization, 318–19 capital flight, 59, 334, 337, 341, 343 Eurozone see Eurozone: current account imbalances as explanation for 2007–8 crash, 11, 331, 333, 336–43, 337 and financial deregulation, 318–19, 332–3 and First World War, 95 increases in pre-crash years, 333, 333–4, 334, 335 problematic nature of, 333–4 reserve accumulation, 336, 337–41 ‘saving glut’ vs ‘money’ glut, 338–41, 342 structural causes still in place, 344 US dollar as main reserve currency, 338 global warming, 383 globalization, 17, 300, 334–5 absence of the state, 350, 373, 375–6 anti-globalist movements, 371–2, 373 first age of, 51, 55, 57, 59, 374, 375 473 i n de x globalization – (cont.) future of, 382–4 Geneva and Seattle protests (1998/99), 371 and inflation rate, 252–3 and lower wages in developed world, 252–3, 300, 379 nationalist-globalist split, 371–3 ‘neo-liberal’ agenda of IMF, 139, 181, 318–19 popular protest against, 351, 371–2 resurgence of after Cold War, 374 Rodrik’s ‘impossible trinity’, 375 gold, 23, 24, 25, 28, 35, 37 new gold production, 51, 52, 55, 62 gold standard, xviii, 1, 9, 27, 29, 338 and Britain, 9, 42, 43, 44, 45–50, 53, 57–9, 80, 101, 102, 113 collapse of US exchange standard (1971), 160, 165 commitment to convertibility, 55–6 and Cunliffe model, 54–5, 102 depressions in later nineteenthcentury, 51–2 dysfunctional after First World War, 95, 97 final suspension in Britain (1931), 113, 125 Fisher’s ‘compensated dollar’ scheme, 66 Hume’s ‘price-specie-flow’ mechanism, 37–8, 53, 54, 104, 285, 332 and international bond markets, 92 as international by 1880s, 50–52 Keynes on, 58, 101, 127 Kindleberger thesis, 58–9 move to ‘managed’ system, 71, 99–100 replaces silver standard (1690s), 42, 43 restored (1821), 48 return to in 1920s, 102, 104, 107 suspension during Napoleonic wars, 43, 45–7 suspension of convertibility (1919), 101–2 triumph of by mid-nineteenthcentury, 44, 50 working and design of, 52–9 as working in tandem with empire, 57, 58 Goldberg, Michael D., 389 Goldman Sachs, 315 Goodhart, Charles, 168, 187 Graeber, David, 28 Great Depression (1929–32), 9, 13, 96, 97–8, 110–13, 127 compared to 2008 crash, 218 Friedman-Schwartz view, 104–6, 179, 183, 256, 276, 278 impact on US policy-makers in 2008 period, 256, 275, 278 left-wing explanations of, 298 rise in inequality in lead-up to, 289 and second wave of collectivism, 15–16 Great Moderation (early 1990s–2007), 4, 53, 202, 278 economic problems during, 348 financial deregulation during, 318–22, 328 financial innovation during, 322–8 and independent central banks, 215 inflation during, 106, 215, 216, 252–3, 253, 348, 359, 360 international financial network, 309, 318–28 output growth during, 215, 253, 348 Great Recession (2008–9), xviii Congdon’s view of, 281–2, 287 co-ordinated global response, 219–20, 383 decline in productivity after, 305–6 474 i n de x initial signs of recovery (2009), 218–19, 225, 226 monetary interpretation of, 105, 106 ‘premature withdrawal’ of fiscal stimulus, 219–20, 223–36, 245, 352 reform agenda after, 361–8 rise in inequality in lead-up to, 289–90, 299–300 see also financial collapse (2007–8) Greece and Eurozone debt crisis, 32, 224, 224–5, 226, 233, 235, 242–3, 243, 337, 341, 365 in gold standard era, 59 Greenspan, Alan, 188, 313 Hamilton, Alexander, 88, 90, 92 Hammond, Philip, 236, 352 Hannover Re scandal, 329 Harrison, George, 105 Harrod, Roy, 123 Harvey, John, 333, 387 Hawtrey, Ralph, 109–10, 280 Hayek, Friedrich, 33, 46, 177, 195, 350, 367 founds Mont Pelerin Society, 176 ‘over-consumption’ theory, 296 The Road to Serfdom (1944), 16, 175–6 on Wall Street Crash, 104 Heath, Edward, 167–8 Heckscher, Eli, 37 Help to Buy programme, 265, 266 Henderson, Hubert, 109 Henderson, W.

., 389 Goldman Sachs, 315 Goodhart, Charles, 168, 187 Graeber, David, 28 Great Depression (1929–32), 9, 13, 96, 97–8, 110–13, 127 compared to 2008 crash, 218 Friedman-Schwartz view, 104–6, 179, 183, 256, 276, 278 impact on US policy-makers in 2008 period, 256, 275, 278 left-wing explanations of, 298 rise in inequality in lead-up to, 289 and second wave of collectivism, 15–16 Great Moderation (early 1990s–2007), 4, 53, 202, 278 economic problems during, 348 financial deregulation during, 318–22, 328 financial innovation during, 322–8 and independent central banks, 215 inflation during, 106, 215, 216, 252–3, 253, 348, 359, 360 international financial network, 309, 318–28 output growth during, 215, 253, 348 Great Recession (2008–9), xviii Congdon’s view of, 281–2, 287 co-ordinated global response, 219–20, 383 decline in productivity after, 305–6 474 i n de x initial signs of recovery (2009), 218–19, 225, 226 monetary interpretation of, 105, 106 ‘premature withdrawal’ of fiscal stimulus, 219–20, 223–36, 245, 352 reform agenda after, 361–8 rise in inequality in lead-up to, 289–90, 299–300 see also financial collapse (2007–8) Greece and Eurozone debt crisis, 32, 224, 224–5, 226, 233, 235, 242–3, 243, 337, 341, 365 in gold standard era, 59 Greenspan, Alan, 188, 313 Hamilton, Alexander, 88, 90, 92 Hammond, Philip, 236, 352 Hannover Re scandal, 329 Harrison, George, 105 Harrod, Roy, 123 Harvey, John, 333, 387 Hawtrey, Ralph, 109–10, 280 Hayek, Friedrich, 33, 46, 177, 195, 350, 367 founds Mont Pelerin Society, 176 ‘over-consumption’ theory, 296 The Road to Serfdom (1944), 16, 175–6 on Wall Street Crash, 104 Heath, Edward, 167–8 Heckscher, Eli, 37 Help to Buy programme, 265, 266 Henderson, Hubert, 109 Henderson, W.


pages: 422 words: 113,830

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

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

Part of this was necessary to fuel the sector’s workaday needs and ambitions—from ensnaring college students through credit-card come-ons or peddling mortgages with initial low payments—but much more of the borrowing funded grand strategies of credit derivatives, leveraged buyouts, or the ability of institutions to take positions with 30:1 leverage. This meant $30 million borrowed dollars in play for every million actually owned. The cheaper the interest rate, the better. One facet of the quarter century multibubble worth some amplification is how the three U.S. speculative binges born out of booms and financial deregulation—in 1984-1989, 1996-2000, and 2003-2007—each created so much excess, corruption, misjudgment, and threatened (or actual) insolvency that the Federal Reserve had to come to the rescue. Its usual technique was to drop interest rates as low as possible—in 1989-1992, 2001-2005, and 2007-2009. This gave the shaky and hungover financial institutions in particular a chance to get new funds for almost nothing and to loan them out at 8 percent, 12 percent, or even 25 percent (via credit cards).

You can intimidate everybody.”15 Clinton, somewhat like conservative Democratic president Grover Cleveland at the height of the late-nineteenth-century Gilded Age, slowly drifted into the orbit of New York finance. He got along well with the Republican chairman of the Federal Reserve Board; promoted Rubin to treasury secretary; raised a lot of reelection money on Wall Street (which, as we will see, was also becoming more Democratic); joined with Citigroup chairman Sanford Weill, an active Democrat, to promote the sweeping federal financial deregulation act of 1999; exulted over the rocketing stock market averages; gravitated to resorts like the Hamptons and Martha’s Vineyard; and on the occasion of one visit found himself hailed by a Hamptons chronicler who called the ebullient president “the spirit of the bull market.” Before leaving the White House in 2001, Bill and Hillary Clinton moved their residence to New York, where Mrs. Clinton had won a U.S.


pages: 403 words: 111,119

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

"Robert Solow", 3D printing, Asian financial crisis, bank run, basic income, battle of ideas, Berlin Wall, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, en.wikipedia.org, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, land reform, land value tax, Landlord’s Game, loss aversion, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, mobile money, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, Richard Thaler, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, Steve Ballmer, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

They create money from nothing each time they issue loans – recording on their books both a liability (since the loan is withdrawn by the borrower) and a credit (since the loan will be repaid with interest over time). Such credit creation is hardly new – it started several thousand years ago – and it can play a valuable role, but it has grown hugely in scale since the 1980s. That expansion was triggered by financial deregulation (think reregulation) – including the 1986 Big Bang in the UK and the 1999 repeal of the Glass–Steagall Act in the US – which ended the requirement for banks to keep customers’ savings and loans separate from their own speculative investments. Second, financial markets do not tend to promote economic stability, despite the claims that they do. Thanks to financial deregulation, said US Federal Reserve Chair Alan Greenspan in 2004, ‘not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.’45 Four years later, the financial crash disproved that claim in a fairly decisive way.


pages: 482 words: 122,497

The Wrecking Crew: How Conservatives Rule by Thomas Frank

affirmative action, anti-communist, barriers to entry, Berlin Wall, Bernie Madoff, British Empire, business cycle, collective bargaining, corporate governance, Credit Default Swap, David Brooks, edge city, financial deregulation, full employment, George Gilder, guest worker program, income inequality, invisible hand, job satisfaction, Mikhail Gorbachev, Mont Pelerin Society, mortgage debt, Naomi Klein, Nelson Mandela, new economy, P = NP, plutocrats, Plutocrats, Ponzi scheme, Ralph Nader, rent control, Richard Florida, road to serfdom, rolodex, Ronald Reagan, school vouchers, shareholder value, Silicon Valley, stem cell, Telecommunications Act of 1996, the scientific method, too big to fail, union organizing, War on Poverty

The disaster was, in this sense, a perfect test of the conservative state, in which its trademark features were each tried and found to be as worthless as the mortgage-backed securities moldering in Citibank’s basement. The landmark deregulations that made the whole mess possible to begin with were tributes to lobbyist power and the allure of the revolving door. Securing the great financial deregulation act of 1999, which permitted the megabanks that would be judged “too big to fail” nine years later, had been the object of decades of bank industry lobbying. When the man who finally got the bill passed, Texas senator Phil Gramm, left Congress, he promptly got a job as an investment banker. Gramm also co-sponsored the great financial deregulation act of 2000, which closed off the possibility of regulating futures and derivatives—the instruments that brought down Enron shortly thereafter and just about everybody else later on—although according to one knowledgeable account it was largely written by a financial industry lobbyist.2 Phil Gramm’s wife, incidentally, had been an ardent foe of futures regulation in her own right when she worked in the Reagan administration; she went on to serve as an Enron board member and then as a professor at the Mercatus Center, the Northern Virginia think tank dedicated to assailing regulation by whatever weapon presents itself.


pages: 538 words: 121,670

Republic, Lost: How Money Corrupts Congress--And a Plan to Stop It by Lawrence Lessig

asset-backed security, banking crisis, carried interest, circulation of elites, cognitive dissonance, corporate personhood, correlation does not imply causation, crony capitalism, David Brooks, Edward Glaeser, Filter Bubble, financial deregulation, financial innovation, financial intermediation, invisible hand, jimmy wales, Martin Wolf, meta analysis, meta-analysis, Mikhail Gorbachev, moral hazard, Pareto efficiency, place-making, profit maximization, Ralph Nader, regulatory arbitrage, rent-seeking, Ronald Reagan, Sam Peltzman, Silicon Valley, single-payer health, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, WikiLeaks, Zipcar

When combined with the implicit and explicit promise to bail out failure, it encouraged a radical increase in risk that ultimately blew up the economy. So what explains this foolish decision? What explains the power of these deregulatory ideas? Even Alfred Kahn, the architect of the very first deregulatory initiative during the administration of President Carter, could only shake his head decades later at the race to financial deregulation. Banks, he insisted, “were a different kind of animal…. They were animals that had a direct effect on the macroeconomy. That is very different from the regulation of industries that provid inl out alled goods and services…. I never supported any type of deregulation of banking.”50 So why did everyone else, including supposedly progressive Democrats? There is no simple answer. As I’ve argued, the ideology of deregulation flowed for many as a matter of principle.

Alan Greenspan, for example, truly believed that markets would take care of themselves, that even regulations against fraud were unnecessary. Greenspan was wrong. He admitted as much. But he was not being guided by an improper dependence upon money. These were the beliefs of a true believer at work. They were not the beliefs of a hired gun. And not just Greenspan: there were plenty in the army of financial deregulators who were true believers, not just mercenaries. It may well be, as John Kenneth Galbraith puts it, that “out of the pecuniary and political pressures and fashions of the time, economics and larger economic and political systems cultivate their own version of truth.”51 But these “versions” are still experienced as “versions of the truth,” not outright fraud. “No conspiracy was necessary,” as Simon Johnson and James Kwak put it in their 2010 book, 13 Bankers: “By 1998, it was part of the worldview of the Washington elite that what was good for Wall Street was good for America.”52 As Raghuram Rajan writes, “Cognitive capture is a better description of this phenomenon than crony capitalism.”53 Still, pure ideas are not the whole story.


pages: 154 words: 47,880

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

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

Dimon continues to claim that giant banks like his can be managed so as to avoid any risk to taxpayers. “There’s huge strength in this company that units get from each other,” he says. Splitting up JPMorgan would be “very short-sighted.” Today, the financial sector of the U.S. economy is larger than ever. Americans now turn over $1 out of every $12 of the entire economy to it. In the 1950s, bankers took only $1 out of every $40. The third systemic change—financial deregulation—allowed the bankers to run wild. They’re still on the run. * * * — When the debt and housing bubbles burst in 2008, most Americans woke up to the startling reality that they could no longer afford to live as they had been living, nor as they thought they should be living relative to the lavish lifestyles of those at the top, nor as they expected to be living given their continuing aspirations for a better life, nor as they assumed they could be living, given how large the economy had grown, nor as they assumed they would be living given what they experienced in the three decades after World War II.


pages: 545 words: 137,789

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

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

In 1999, Clinton signed into law the Gramm-Leach-Bliley Act (aka the Financial Services Modernization Act), which allowed commercial banks and investment banks to combine and form vast financial supermarkets. Lawrence Summers, a leading Harvard economist who was then serving as Treasury secretary, helped shepherd the bill through Congress. (Today, Summers is Barack Obama’s top economic adviser.) Some proponents of financial deregulation—lobbyists for big financial firms, analysts at Washington research institutes funded by corporations, congressmen representing financial districts—were simply doing the bidding of their paymasters. Others, such as Greenspan and Summers, were sincere in their belief that Wall Street could, to a large extent, regulate itself. Financial markets, after all, are full of well-paid and highly educated people competing with one another to make money.

“There is no doubt that Greenspan has been an amazingly successful chairman of the Federal Reserve System,” Alan Blinder, a Princeton economist and former Fed governor, opined. Raghuram G. Rajan, an economist at the University of Chicago Booth School of Business, who was then the chief economist at the International Monetary Fund, took a more critical line, examining the consequences of two decades of financial deregulation. Rajan, who was born in Bhopal, in central India, in 1963, obtained his Ph.D. at MIT, in 1991, and then moved to the University of Chicago Business School, where he established himself as something of a wunderkind. In 2003, his colleagues named him the scholar under forty who had contributed most to the field of finance. That same year, he took the top economics job at the IMF, where he stayed until 2006.


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

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

And if the prevailing mood was inhospitable to stricter enforcement of existing regulations focused on banks, it was downright hostile to reforms modernizing those regulations or extending them to nonbanks. The financial industry, flush with profits, defended its prerogatives by pouring more money than ever into Washington lobbying and campaign contributions. Congress had passed a major financial deregulation bill in the Gramm-Leach-Bliley Act of 1999, and the main question before the crisis was whether there would be additional deregulation, not re-regulation. The three of us learned, as had some of our predecessors, that reform is extremely tough to achieve without a crisis to make the case for it, most vividly with Fannie Mae and Freddie Mac. Those two firms owned or guaranteed half the residential mortgages in the United States.


pages: 554 words: 158,687

Profiting Without Producing: How Finance Exploits Us All by Costas Lapavitsas

"Robert Solow", Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, borderless world, Branko Milanovic, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, computer age, conceptual framework, corporate governance, credit crunch, Credit Default Swap, David Graeber, David Ricardo: comparative advantage, disintermediation, diversified portfolio, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, financial deregulation, financial independence, financial innovation, financial intermediation, financial repression, Flash crash, full employment, global value chain, global village, High speed trading, Hyman Minsky, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, job satisfaction, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, London Interbank Offered Rate, low skilled workers, M-Pesa, market bubble, means of production, money market fund, moral hazard, mortgage debt, Network effects, new economy, oil shock, open economy, pensions crisis, price stability, Productivity paradox, profit maximization, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, savings glut, Scramble for Africa, secular stagnation, shareholder value, Simon Kuznets, special drawing rights, Thales of Miletus, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, total factor productivity, trade liberalization, transaction costs, union organizing, value at risk, Washington Consensus, zero-sum game

Removing international capital controls and abolishing domestic regulations laid the ground for financial liberalization. An important step was the partial abolition of regulation Q in the US in the 1960s, thus freeing some interest rates on bank liabilities. Equally important was the introduction of Competition and Credit Control legislation in the UK in 1970s which began to dismantle international regulations constraining British banks. Financial deregulation accelerated in the 1970s and became the norm in the 1980s.11 The end result was substantial disappearance of controls on financial prices, quantities, and functions – thus of the very substance of systemic market-negating regulation. Financial liberalization also spread to developing countries in the 1970s mostly on the grounds that low interest rates had failed to encourage investment by productive capitalists.

., pp. 135–68. 8 Yoshio Suzuki, ‘Financial Reform in Japan – Developments and Prospects’, Monetary and Economic Studies 5:3, December 1987. 9 Helleiner, States and the Re-emergence of Global Finance, pp. 101–14; and Paul Langley, World Financial Orders: An Historical International Political Economy, London: Routledge, 2002, p. 86. 10 John Eatwell and Lance Taylor, Global Finance at Risk, Cambridge: Polity Press, 2000. 11 For discussion of the adoption of financial deregulation, see Helleiner, States and the Re-emergence of Global Finance. 12 The literature on financial liberalization is enormous, emanating from Ronald McKinnon, Money and Capital in Economic Development, Brookings Institution, 1973; and Edward S. Shaw, Financial Deepening in Economic Development, Oxford: Oxford University Press, 1973. A further key contribution was made in Ronald McKinnon, The Order of Economic Liberalization, London: Johns Hopkins University Press, 1991.


pages: 226 words: 59,080

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

airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, business cycle, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, 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, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, 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, Vilfredo Pareto, Washington Consensus, white flight

Bureaucrats and regulators were either captive to special interests or incompetent—and sometimes both at once. The less they did, the better. And in any case, financial markets were now so sophisticated that any effort at regulating them was futile. Financial institutions would always find a way around the regulations. Government was condemned to follow one step behind. Such thinking by economists had legitimized and enabled a great wave of financial deregulation that set the stage for the crisis. And it didn’t hurt that these views were shared by some of the top economists in government, such as Larry Summers and Alan Greenspan. In sum, economists (and those who listened to them) became overconfident in their preferred models of the moment: markets are efficient, financial innovation improves the risk-return trade-off, self-regulation works best, and government intervention is ineffective and harmful.


pages: 258 words: 63,367

Making the Future: The Unipolar Imperial Moment by Noam Chomsky

"Robert Solow", Albert Einstein, Berlin Wall, Bretton Woods, British Empire, capital controls, collective bargaining, corporate governance, corporate personhood, creative destruction, deindustrialization, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Frank Gehry, full employment, Howard Zinn, Joseph Schumpeter, kremlinology, liberation theology, Long Term Capital Management, market fundamentalism, Mikhail Gorbachev, Nelson Mandela, Occupy movement, oil shale / tar sands, precariat, RAND corporation, Ronald Reagan, structural adjustment programs, The Great Moderation, too big to fail, uranium enrichment, Washington Consensus, WikiLeaks, working poor

The Unelected “Architects of Policy” March 10, 2010 Shifts in global power, ongoing or potential, are a lively topic among policymakers and observers. One question is whether (or when) China might displace the United States as the dominant global player, perhaps along with India. Such a shift would return the global system to something like it was before the European conquests. Economic growth in China and India has been rapid, and thanks to their having rejected the West’s policies of financial deregulation, they survived the recession better than most. Nonetheless, questions arise. One standard measure of social health is the U.N. Human Development Index, available most recently through 2008. India ranks 134th, slightly above Cambodia and below Laos and Tajikistan, about where it has been for many years. China ranks 92nd—tied with Belize, a bit above Jordan, below the Dominican Republic and Iran.


pages: 221 words: 55,901

The Globalization of Inequality by François Bourguignon

Berlin Wall, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Credit Default Swap, deglobalization, deindustrialization, Doha Development Round, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, financial intermediation, gender pay gap, Gini coefficient, income inequality, income per capita, labor-force participation, liberal capitalism, minimum wage unemployment, offshore financial centre, open economy, Pareto efficiency, purchasing power parity, race to the bottom, Robert Gordon, Simon Kuznets, structural adjustment programs, The Spirit Level, too big to fail, very high income, Washington Consensus

But placing certain public companies under private control often led to a profound restructuring of their activity, the number of people they employed, and their geographic footprint, which in turn had dramatic effects on particular social groups and regions. Two kinds of measures deserve a more in-­depth analysis, given that they have had a clear and significant impact on distribution: financial deregulation and the deregulation of the labor market. The Deregulation and Globalization of Finance The boom in the financial sector that characterized the last two or three decades was the result of several factors. At the macroeconomic level, the disinflation that took place at the beginning of the 1980s re-­energized financial markets by eliminating a major source of uncertainty about the cost of and the real return on capital.


pages: 305 words: 69,216

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression by Richard A. Posner

Andrei Shleifer, banking crisis, Bernie Madoff, business cycle, collateralized debt obligation, collective bargaining, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, diversified portfolio, equity premium, financial deregulation, financial intermediation, Home mortgage interest deduction, illegal immigration, laissez-faire capitalism, Long Term Capital Management, market bubble, money market fund, moral hazard, mortgage debt, Myron Scholes, oil shock, Ponzi scheme, price stability, profit maximization, race to the bottom, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, savings glut, shareholder value, short selling, statistical model, too big to fail, transaction costs, very high income

It is when low interest rates create inflation that a threat of recession looms, because the Federal Reserve will be motivated to raise interest rates in order to break the inflation; that was the cause of the severe 1980—1982 recession. That low interest rates might cause a credit binge that would cause a recession and even a depression was off the policy radar screen, in part because the synergistic effect of cheap credit and financial deregulation was missed. It was like winning World War II and being blindsided by guerrilla warfare in Vietnam. The United States had had plenty of experience with such warfare in earlier days, notably in the Philippines, but that seemed ancient history, as did the Great Depression —until a few months ago. So there is blame aplenty to go around and there are also the adventitious factors that I mentioned earlier —the timing of the crisis in relation to the presidential campaign and transition and the Christmas shopping season.


pages: 232 words: 70,361

The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay by Emmanuel Saez, Gabriel Zucman

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Berlin Wall, business cycle, Cass Sunstein, collective bargaining, corporate governance, Donald Trump, financial deregulation, income inequality, income per capita, informal economy, intangible asset, Jeff Bezos, labor-force participation, Lyft, Mark Zuckerberg, market fundamentalism, Mont Pelerin Society, mortgage debt, mortgage tax deduction, new economy, offshore financial centre, oil shock, patent troll, profit maximization, purchasing power parity, race to the bottom, rent-seeking, ride hailing / ride sharing, Ronald Reagan, shareholder value, Silicon Valley, single-payer health, Skype, Steve Jobs, The Wealth of Nations by Adam Smith, transfer pricing, trickle-down economics, uber lyft, very high income, We are the 99%

In the post–World War II decades, regulations encouraged firms to provide funded pensions to their employees. The federal government sponsored the creation of thirty-year mortgages, providing an effective tool to save over a lifetime—because paying down your mortgage debt and building home equity, now that’s saving. After the 1980s, by contrast, student loans boomed as public funding for higher education retreated. Financial deregulation made it easier for people to get into debt, for example by facilitating the perpetual rollover of mortgage debt through refinancing, or by boosting the supply of consumer credit. This is perhaps the main lesson of behavioral economics, the fast-growing field of research that strives to take a more realistic view of human behavior than the standard, hyper-rational economic model: when it comes to influencing the saving rate, nontax policies swamp tax incentives.17 Take default options, for example.


pages: 257 words: 71,686

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

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

‘That is why you need strong people in risk and compliance.’ Was the middle office strong enough to resist this pressure? Well, he answered evasively, ‘a lot has changed since the 1970s. Overall finance has become much more meritocratic and diverse. On the negative side, the sector as a whole has become relentlessly focused on profit, and out to screw the customer. Much of banking is best done as a public utility. Let’s say I’m not a fan of financial deregulation.’ I asked about the crash and he explained with a distinct sense of pride that his team had seen the implosion of the American housing market coming. ‘What we didn’t catch was just how awful it would be.’ They had assumed that, thanks to the new generation of complex financial products, risks had been spread over so many points that the system as a whole was stable. He remembered, ‘as if it were yesterday’, sitting in his office with his colleagues in 2008 and seeing another institution’s share price collapse.


The Handbook of Personal Wealth Management by Reuvid, Jonathan.

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

This was the first time a collection had been formed specifically for that purpose due to the adverse economic climate. At the end of 1974 in the UK inflation and tax were high, stock and property markets had fallen heavily, the pound was weak, exchange controls were in operation and index-linked gilts were unavailable. Advised by Sotheby’s, the fund made 2,525 purchases across a wide range of art sectors. However, political pressure, along with 1980s financial deregulation, a booming stock market, high costs and lack of any accurate measure for art precipitated the fund’s gradual art sales after 1987. In 1989 a quarter of the art was sold, indicating a better return than property and a worse performance than equities. By 1997 the fund had yielded a real annual return of 4.3 per cent, including 11.9 per cent for Impressionist and modern art and 7.7 to 8.5 per cent for Chinese works of art.


pages: 322 words: 77,341

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

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

The abolition of exchange controls in 1979 and the increasingly international flow of capital, combining with the abolition of restrictions on trading practices which culminated in the “Big Bang” in 1986, have all led to the City’s increasing dominance of British economic life. The Big Bang in turn caused the “Wimbledonization” of the City, making it a place where most of the major players were foreign. As for the Big Bang, it consisted of a series of rule changes which boiled down to one simple thing: the biggest act of deregulation the financial sector had ever seen. Because financial deregulation has been a primary culprit in the current crisis, there’s a temptation to act as if it is inherently a bad thing. You need a short memory to think that. I grew up abroad and can vividly remember what a pain in the backside things such as currency restrictions were. When Margaret Thatcher came to power, you couldn’t take more than £500 out of the country at any one time—a restriction which now seems as distant as that of whalebone corsetry.


pages: 225 words: 11,355

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

asset-backed security, bank run, banking crisis, Bernie Madoff, bonus culture, Bretton Woods, business cycle, 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, George Santayana, global reserve currency, Home mortgage interest deduction, Isaac Newton, joint-stock company, Kickstarter, liquidity trap, London Interbank Offered Rate, long peace, margin call, market clearing, mass immigration, money market fund, 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 new new thing, the payments system, too big to fail, value at risk, very high income, War on Poverty, Y2K, yield curve

It made the American role less visible to both the country being saved and, most importantly, to the U.S. public. What the system never envisioned was that the U.S. financial system itself would be the source of a crisis that infected all of the other financial systems of the world 6 t THE LIMITS OF FINANCIAL REGULATION It is a common and perverse myth of partisan politics that it was the financial deregulation—something that gained momentum in the United States during the 1980s and 1990s and was largely complete before the Bush years—that led directly to the 2008 crisis. A more accurate depiction of things is that deregulation, like regulation, is a trailing rather than a causal factor. Deregulation, such as it was, largely occurred because the U.S. financial system was already in the midst of a jailbreak.


pages: 280 words: 79,029

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

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

Donghoon Lee, “Household Debt and Credit: Student Debt” (Federal Reserve Bank of New York, 2013); “Degrees of Debt,” Economist, July 6, 2013; “Not What It Used to Be,” Economist, December 1, 2012. 14. “Young Student Loan Borrowers Retreat from Housing and Auto Markets,” Liberty Street Economics blog (Federal Reserve Bank of New York, April 2013). 15. Jeffrey Brown, Chichun Fang, and Francisco Gomes, “Risks and Returns to Education” (NBER Working Paper 18300, 2012). 16. Stephen Teng Sum and Constantine Yannelis, “Credit Constraints and Higher Education: Evidence from Financial Deregulation” (University Library of Munich MPRA Paper 48726, 2013). 17. Philippe Belley and Lance Lochner, “The Changing Role of Family Income and Ability in Determining Educational Achievement” (NBER Working Paper 13527, 2007); Claire Callender and Jon Jackson, “Fear of Debt and Higher Education Participation” (Families and Social Capital ESRC Research Group, 2004). 18. Deborah Gage, “The Venture Capital Secret: 3 Out of 4 Start-Ups Fail,” Wall Street Journal, September 20, 2012.


Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Pérez

agricultural Revolution, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, business cycle, capital controls, commoditize, Corn Laws, creative destruction, David Ricardo: comparative advantage, deindustrialization, distributed generation, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Hyman Minsky, informal economy, joint-stock company, Joseph Schumpeter, knowledge economy, late capitalism, market fundamentalism, new economy, nuclear winter, offshore financial centre, post-industrial society, profit motive, railway mania, Robert Shiller, Robert Shiller, Sand Hill Road, Silicon Valley, Simon Kuznets, South Sea Bubble, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, trade route, tulip mania, Upton Sinclair, Washington Consensus

The generalized shift into ‘the logic of the new’ requires two or three turbulent decades of transition from one to the other, when the successful installation of the new superior capacities accentuates the decline of the old. By the time the process has fully taken place, the end of the previous revolution is little more than a whimper. 12. Unfortunately this cosmological metaphor was also chosen to signal financial deregulation in the 1980s. In spite of the risk of confusion, it was still kept here because of its appropriateness to describe a point in time that explodes into an expanding universe of opportunities. Technological Revolutions and Techno-Economic Paradigms 13 B. Five Constellations of New Industries and Infrastructures Each technological revolution results from the synergistic interdependence of a group of industries with one or more infrastructural networks.


pages: 300 words: 76,638

The War on Normal People: The Truth About America's Disappearing Jobs and Why Universal Basic Income Is Our Future by Andrew Yang

3D printing, Airbnb, assortative mating, augmented reality, autonomous vehicles, basic income, Ben Horowitz, Bernie Sanders, call centre, corporate governance, cryptocurrency, David Brooks, Donald Trump, Elon Musk, falling living standards, financial deregulation, full employment, future of work, global reserve currency, income inequality, Internet of things, invisible hand, Jeff Bezos, job automation, John Maynard Keynes: technological unemployment, Khan Academy, labor-force participation, longitudinal study, low skilled workers, Lyft, manufacturing employment, Mark Zuckerberg, megacity, Narrative Science, new economy, passive income, performance metric, post-work, quantitative easing, reserve currency, Richard Florida, ride hailing / ride sharing, risk tolerance, Ronald Reagan, Sam Altman, self-driving car, shareholder value, Silicon Valley, Simon Kuznets, single-payer health, Stephen Hawking, Steve Ballmer, supercomputer in your pocket, technoutopianism, telemarketer, The Wealth of Nations by Adam Smith, Tyler Cowen: Great Stagnation, Uber and Lyft, uber lyft, unemployed young men, universal basic income, urban renewal, white flight, winner-take-all economy, Y Combinator

On the flip side, CEOs were granted stock options for the first time that wedded their individual gain to the company’s share price. The ratio of CEO to worker pay rose from 20 to 1 in 1965 to 271 to 1 in 2016. Benefits were streamlined and reduced and the relationship between company and employee weakened to become more transactional. Simultaneously, the major banks grew and evolved as Depression-era regulations separating consumer lending and investment banking were abolished. Financial deregulation started under Ronald Reagan in 1980 and culminated in the Financial Services Modernization Act of 1999 under Bill Clinton that really set the banks loose. The securities industry grew 500 percent as a share of GDP between 1980 and the 2000s while ordinary bank deposits shrank from 70 percent to 50 percent. Financial products multiplied as even Main Street companies were driven to pursue financial engineering to manage their affairs.


pages: 264 words: 76,643

The Growth Delusion: Wealth, Poverty, and the Well-Being of Nations by David Pilling

Airbnb, banking crisis, Bernie Sanders, Big bang: deregulation of the City of London, Branko Milanovic, call centre, centre right, clean water, collapse of Lehman Brothers, collateralized debt obligation, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, dark matter, Deng Xiaoping, Diane Coyle, Donald Trump, double entry bookkeeping, Erik Brynjolfsson, falling living standards, financial deregulation, financial intermediation, financial repression, Gini coefficient, Goldman Sachs: Vampire Squid, Google Hangouts, Hans Rosling, happiness index / gross national happiness, income inequality, income per capita, informal economy, invisible hand, job satisfaction, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, Monkeys Reject Unequal Pay, mortgage debt, off grid, old-boy network, Panopticon Jeremy Bentham, peak oil, performance metric, pez dispenser, profit motive, purchasing power parity, race to the bottom, rent-seeking, Robert Gordon, Ronald Reagan, Rory Sutherland, science of happiness, shareholder value, sharing economy, Simon Kuznets, sovereign wealth fund, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, total factor productivity, transaction costs, transfer pricing, trickle-down economics, urban sprawl, women in the workforce, World Values Survey

The “contribution” of the financial sector to national income grew enormously. In the 1950s, when banks were banks rather than “great vampire squids,” they contributed about 2 percent to the US economy.10 By 2008, that had quadrupled.11 Similar things happened in Britain. Until 1978 financial intermediation accounted for around 1.5 percent of whole economy profits. By 2008, that ratio had risen to about 15 percent. The perceived success of financial deregulation in generating economic dynamism encouraged other countries to do the same. New Zealand, Australia, Ireland, Spain, Russia, and even little Iceland were seduced by the Anglo-Saxon model. The financial industry exploded all over the world. For the year to April 2008, the largest 1,000 banks reported aggregate pre-tax profits of almost $800 billion.12 Countries that adopted these policies, including ones that gave freer and freer rein to their “wealth-creating” banks, did well, while others appeared to lag.


pages: 246 words: 74,341

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

accounting loophole / creative accounting, bank run, banking crisis, Bernie Madoff, Black Swan, business cycle, capital controls, central bank independence, collateralized debt obligation, creative destruction, 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, money market fund, 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

The powers of the Entente were victorious in World War I because they could finance their war effort by selling bonds in their global financial centers, such as Paris, London, and New York, while the Germans had to rely on their own resources. The liberalization of financial markets, for example, through competition among private banks and through open stock markets, seems to increase investment and raise productivity in an economy. The largest effect is due not to increased saving but to the fact that more capital ends up where it has the most impact. American studies show that the U.S. states that implemented the most financial deregulation in the 1970s are those that have since enjoyed the fastest growth. Research shows that the level of development that a country's financial markets had attained in 1960 was very important to its subsequent growth. A developing country that doubles the amount of private capital available to business and industry will increase its GDP by almost 2 percent per year. This means that, in 35 years' time, a country that does what it takes to make markets that liquid may be twice as rich as a country that is equally poor today but that does not take the action required.'


pages: 255 words: 75,172

Sleeping Giant: How the New Working Class Will Transform America by Tamara Draut

affirmative action, Affordable Care Act / Obamacare, always be closing, American ideology, battle of ideas, big-box store, blue-collar work, collective bargaining, creative destruction, David Brooks, declining real wages, deindustrialization, desegregation, Detroit bankruptcy, Donald Trump, Edward Glaeser, ending welfare as we know it, Ferguson, Missouri, financial deregulation, full employment, immigration reform, income inequality, invisible hand, job satisfaction, knowledge economy, knowledge worker, low skilled workers, mass incarceration, minimum wage unemployment, mortgage tax deduction, new economy, obamacare, occupational segregation, payday loans, pink-collar, plutocrats, Plutocrats, Powell Memorandum, profit motive, race to the bottom, Ralph Nader, rent-seeking, rising living standards, Ronald Reagan, shared worldview, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, trickle-down economics, union organizing, upwardly mobile, War on Poverty, white flight, women in the workforce, young professional

And this shift was anything but accidental—a political thriller of a story that we’ll visit in the next chapter. For now, let’s stick to how the views of the rich and the working class diverge significantly on fundamental economic issues, and how the affluent almost always win in this tug-of-war. There’s a saying in Washington, D.C., that if you’re not at the table, you’re on the menu. And America’s big business lobbies and high-powered donors have gotten fat off a menu of free trade, financial deregulation, weak labor protections, and tax cuts. The power to set the agenda in Washington and in state capitals across the nation—the menu, if you will—rests almost entirely on having the money of a big corporation or trade association behind you, or a very fat bank account that can easily support checks containing six or seven zeros in the amount box. This cozy connection between big money and government has prompted many respected journalists and academics to declare that the United States is no longer a democracy but a plutocracy or oligarchy.10 Money has always played a role in our nation’s elections, but there used to be commonsense rules about where that money could come from, how it could be spent, and how much any individual or corporation could contribute.


pages: 283 words: 77,272

With Liberty and Justice for Some: How the Law Is Used to Destroy Equality and Protect the Powerful by Glenn Greenwald

Ayatollah Khomeini, banking crisis, Bernie Madoff, Clive Stafford Smith, collateralized debt obligation, Corrections Corporation of America, crack epidemic, Credit Default Swap, credit default swaps / collateralized debt obligations, David Brooks, deskilling, financial deregulation, full employment, high net worth, income inequality, Julian Assange, mandatory minimum, nuremberg principles, Ponzi scheme, Project for a New American Century, rolodex, Ronald Reagan, too big to fail, Washington Consensus, WikiLeaks

(Lederman) Card, Andrew Carney, John Carothers, Thomas Carter, Jimmy CBS network CBS News Center for Labor Market Studies Center for Responsive Politics Central Intelligence Agency (CIA) contractors detainee interrogation videos inspector general’s report of 2004 Iran-Contra and Obama and Plame outing and renditions and torture and warrantless eavesdropping and whistle-blowers and Cheney, Dick Iran-Contra and Iraq war and Libby and torture and warrantless eavesdropping and China Church Committee Citigroup civil rights movement civil suits Clarke, Richard Clinton, Bill campaign of 1992 campaign of 1996 Bush and financial deregulation and impeachment of Iraqgate and law and order and NSA and telecoms and Clinton, Hillary CNBC CNN Español Coats, Dan cocaine Cohen, Richard Cole, David Cole, USS, attacks Columbia Journalism Review Comcast Comey, James Commerce and Labor Department Commodity Future Trading Commission Common Sense (Paine) Communications Act Congressional Quarterly Conrad, Kent Consortium News Consumer Federation of America Contract with America Convention Against Torture Conyers, John Coolidge, Calvin Cordray, Richard Corn, David Corp Watch correctional population Corrections Corporation of America Countrywide Cox, Archibald Cox, Douglas W.


pages: 253 words: 79,214

The Money Machine: How the City Works by Philip Coggan

activist fund / activist shareholder / activist investor, algorithmic trading, asset-backed security, Bernie Madoff, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, call centre, capital controls, carried interest, central bank independence, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, disintermediation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, endowment effect, financial deregulation, financial independence, floating exchange rates, Hyman Minsky, index fund, intangible asset, interest rate swap, Isaac Newton, joint-stock company, labour market flexibility, large denomination, London Interbank Offered Rate, Long Term Capital Management, merger arbitrage, money market fund, moral hazard, mortgage debt, negative equity, Nick Leeson, Northern Rock, pattern recognition, purchasing power parity, quantitative easing, reserve currency, Right to Buy, Ronald Reagan, shareholder value, South Sea Bubble, sovereign wealth fund, technology bubble, time value of money, too big to fail, tulip mania, Washington Consensus, yield curve, zero-coupon bond

Some explain this by the concept of ‘overshooting’, in which because of market inefficiencies, exchange rates over-adjust in response to inflationary differentials. If they do, that makes it all the more difficult to use PPP theory as an exchange-rate predictor. The level of interest rates is clearly a major factor in the strength or weakness of a currency. This is even more the case after the wave of financial deregulation which we noted in Chapter 1. The world is now virtually a single capital market, in which vast quantities of money shift from one country to another in search of short-term gains. The influence of interest rates is not as easy to assess as might first be thought. To begin with, are investors attracted by the nominal rate or the real rate (the nominal rate adjusted for inflation)? Second, are high interest rates a sign of a healthy or of an ailing economy?


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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

US financial markets in fact remained “almost certainly the most highly regulated markets in history, if regulation is measured by volume (number of pages) of rules, probably also if measured by extent of surveillance, and possibly even by vigour of enforcement.”89 Indeed, rather than trying to understand the relationship between states and markets in the neoliberal era as being primarily about financial deregulation, it may be more useful to see it in terms of financialization developing through the agency of both old and new regulatory bodies. Indeed, the sheer density and continuing fragmentation of the regulatory landscape meant that either escaping or changing regulations became a key dimension in strategies of financial innovation and the construction of competitive advantage. This could especially be seen in relation to the “derivatives revolution.”

The Ikeda system for providing cheap credit to industry was named after the finance minister during the crucial transition years of the late 1950s. 51 Moran, Politics of the Financial Services Revolution, p. 93. 52 Vogel, Freer Markets, p. 173. 53 In contrast to Susan Strange’s lament that Japan was opened up to the Western-style “casino capitalism,” Michael Moran points out that Japanese stock markets “have historically been, precisely, casinos—and, in British and American terms, casinos where trading took place in remarkably dishonest ways . . . The exchanges were privately controlled bodies whose purpose was to organize arenas for particular sorts of gambling, not to provide funds for industrial investment.” Politics of the Financial Services Revolution, pp. 112–13. 54 Iwami, “Removing Capital Controls,” p. 23. 55 See K. Osugi, “Japan’s Experience of Financial Deregulation since 1984 in an International Perspective,” BIS Economic Papers, no. 26 (January 1990); Iwami, “Removing Capital Controls,” p. 5; Goodman and Pauly, “The Obsolescence of Capital Controls?” p. 309. 56 Paul Volcker and Toyoo Gyohten, Changing Fortunes, New York: Times Books, 1992, p. 239. 57 R. Taggart Murphy, The Weight of the Yen, New York: Norton, 1996, pp. 144–5. 58 Ibid., p. 64. 59 Tett, Saving the Sun, p. 22. 60 In 1980 the US and Southeast Asia each accounted for 24 percent of Japanese exports, and Western Europe accounted for 17 percent; by 1984 Southeast Asia’s portion had fallen to 22 percent and Western Europe’s to 14 percent, while the US portion had risen to 35 percent.


pages: 299 words: 83,854

Shortchanged: Life and Debt in the Fringe Economy by Howard Karger

big-box store, blue-collar work, corporate social responsibility, credit crunch, delayed gratification, financial deregulation, fixed income, illegal immigration, labor-force participation, late fees, London Interbank Offered Rate, low skilled workers, microcredit, mortgage debt, negative equity, New Journalism, New Urbanism, offshore financial centre, payday loans, predatory finance, race to the bottom, Silicon Valley, Telecommunications Act of 1996, telemarketer, underbanked, working poor

Snarr, No Cash ‘til Payday: The Payday Lending Industry, CCRA Compliance Center, Federal Reserve Bank of Philadelphia, 1st Quarter 2002. 13 Keith Ernst, John Farris, and Uriah King, Quantifying the Economic Cost of Predatory Payday Lending, Center for Responsible Lending, Wilmington, NC, February 24, 2004. 14 Jean Ann Fox and Edmund Mierzwinski, Rent-a-Bank Payday Lending, Consumer Federation of America, Washington, DC, November 2001. 15 Michael Bush, “3 ‘Fringe Financiers’ Turn a Profit on Poverty,” Moneycentral, 2003. 16 Ernst, Farris, and King, Quantifying the Economic Cost of Predatory Payday Lending. 17 Center for Responsible Lending, Payday Lending Basics, 2004. 18 Trihouse Enterprises, Las Vegas, Nevada. 19 Fox and Mierzwinski, Rent-a-Bank Payday Lending. 20 Ibid. 21 Nolo Press, the ‘Lectric Law Library, 1995, www.lectlaw.com. 22 Quik Payday, APR disclosure, 2002, www.quikpayday.com. 23 Center for Responsible Lending, Payday Lending Basics. 24 Cited in Ernst, Farris, and King, Quantifying the Economic Cost of Predatory Payday Lending. 25 Check ‘n Go, www.checkngo.com/questions.asp. 26 Amanda Sapir and Karen Uhlich, Pay Day Lending in Pima County, Arizona, Southwest Center for Economic Integrity, Tucson, AZ, December 2003. 27 Ernst, Farris, and King, Quantifying the Economic Cost of Predatory Payday Lending. 28 Sapir and Uhlich, Pay Day Lending in Pima County, Arizona. 29 Center for Responsible Lending, Payday Lending Basics. 30 Elliehausen and Lawrence, Payday Advance Credit in America. 31 Community Financial Services Association of America (CFSAA). 32 Tim Schooley, “Neighborhood Groups Oppose Cash Advance Stores,” Pittsburgh Business Times, May 7, 2004. 33 Madis Senner, “Financial Deregulation-Promoting Discrimination and the Rise of Fringe Banking,” Jubilee Initiative, www.jubileeinitiative.org/RiggedDeregulation.htm, July 2001. 34 James Carr, Lopa Kolluri, and Jennie Schuetz, Financial Services in Distressed Communities, Washington, DC, Fannie Mae Foundation, 2001. 35 Fast Cash Leasing, 2003, www.fastcashleasing.com. 36 Fox and Mierzwinski, Rent-a-Bank Payday Lending. 37 Alex Berenson, “Banks Are Reaping Billions from Stealth Overdraft Charges,” The New York Times, January 23, 2003. 38 Lucy Lazarony, “States Act Against Bank Policies That Create Extra Bounced Checks,” Bankrate, January 31, 2002.226 39 Chi Chi Wu and Jean Ann Fox, Consumer Groups Urge Federal Reserve Board to Stop Abusive Bank Overdraft Charges, National Consumer Law Center, January 28, 2003. 40 David Shipler, The Working Poor (New York: Alfred A.


pages: 310 words: 85,995

The Future of Capitalism: Facing the New Anxieties by Paul Collier

"Robert Solow", accounting loophole / creative accounting, Airbnb, assortative mating, bank run, Berlin Wall, Bernie Sanders, bitcoin, Bob Geldof, bonus culture, business cycle, call centre, central bank independence, centre right, Commodity Super-Cycle, computerized trading, corporate governance, creative destruction, cuban missile crisis, David Brooks, delayed gratification, deskilling, Donald Trump, eurozone crisis, financial deregulation, full employment, George Akerlof, Goldman Sachs: Vampire Squid, greed is good, income inequality, industrial cluster, information asymmetry, intangible asset, Jean Tirole, job satisfaction, Joseph Schumpeter, knowledge economy, late capitalism, loss aversion, Mark Zuckerberg, minimum wage unemployment, moral hazard, negative equity, New Urbanism, Northern Rock, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, race to the bottom, rent control, rent-seeking, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, sovereign wealth fund, The Wealth of Nations by Adam Smith, theory of mind, too big to fail, trade liberalization, urban planning, web of trust, zero-sum game

Local governments are best placed to plan new building programmes, while execution can be in partnership with commercial developers. Local authorities could plan build-to-buy, instead of build-to-rent. But an increase in the supply of housing needs to be gradual: a quantum increase would risk crashing house prices, plunging many young home owners into negative equity. Correspondingly, it makes sense to curb household growth by restoring restrictions on immigration. The credit frenzy unleashed by financial deregulation did not usher in nirvana – it ended in the regulatory disgrace of a bank run. The sight of depositors besieging the branches of Northern Rock was the first such spectacle in Britain for 150 years. As with a house building programme, change will need to be gradual, but its direction is unambiguous: we need to return to ceilings on the ratios of mortgages to income and of mortgages to deposits.


pages: 318 words: 85,824

A Brief History of Neoliberalism by David Harvey

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

While the wealthiest Chinese business elite decamped to Singapore, a wave of revenge killings and attacks on property engulfed the rest of the Chinese minority, as ethnonationalism reared its ugly head in search of a scapegoat for the social collapse.9 The standard IMF/US Treasury explanation for the crisis was too much state intervention and corrupt relationships between state and business (‘crony capitalism’). Further neoliberalization was the answer. The Treasury and the IMF acted accordingly, with disastrous consequences. The alternative view of the crisis was that impetuous financial deregulation and the failure to construct adequate regulatory controls over unruly and speculative portfolio investments lay at the heart of the problem. The evidence for this latter view is substantial: those countries that had not liberated their capital markets—Singapore, Taiwan, and China—were far less affected than those countries, such as Thailand, Indonesia, Malaysia, and the Philippines, that had.


pages: 353 words: 81,436

Buying Time: The Delayed Crisis of Democratic Capitalism by Wolfgang Streeck

activist fund / activist shareholder / activist investor, banking crisis, basic income, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, corporate governance, creative destruction, David Graeber, deindustrialization, Deng Xiaoping, Eugene Fama: efficient market hypothesis, financial deregulation, financial repression, fixed income, full employment, Gini coefficient, Growth in a Time of Debt, income inequality, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, labour mobility, late capitalism, liberal capitalism, means of production, moral hazard, Myron Scholes, Occupy movement, open borders, open economy, Plutonomy: Buying Luxury, Explaining Global Imbalances, profit maximization, risk tolerance, shareholder value, too big to fail, union organizing, winner-take-all economy, Wolfgang Streeck

Growth of public debt since 2007 (% of GDP) Source: OECD Economic Outlook: Statistics and Projections A further spurt of financialization then came with the Clinton administration and its spectacularly if only temporarily successful measures to shore up public finances.9 The budget surpluses briefly recorded around the turn of the millennium were due inter alia to sharp cuts in social spending. Financial deregulation made it possible to plug the gaps resulting from deficit reduction, by means of a rapid extension of loan facilities for private households at a time when falling or stagnant wages and transfer incomes, combined with rising costs of ‘responsible self-provision’, might otherwise have jeopardized support for the policy of economic liberalization. Credit expansion to replace collective provision and compensate for stagnant household incomes amounted to a crossroads in the economic history of democratic capitalism, which under the presidency of George W.


pages: 207 words: 86,639

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

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

It should take the chance to demerge these behemoths that grew so complicated that they couldn’t keep track of our money or their own money. A rich, diverse ecology of different economic systems is needed, not a banking monoculture of giant actors which, when they topple, threaten us all. 2 Segregate financial markets – by separating activities such as trading and retail banking A central plank of the process of financial de-regulation has been the removal of restrictions on what activities different institutions can undertake. It took more than 50 years for policy makers to forget the lessons of the Wall Street crash of 1929, which led to the Glass-Steagal Act in the USA to prevent financial institutions exploiting their market position and power and profiting from conflicts of interest. Segregation was seen as ‘inefficient’ and was swept away by liberalization.


pages: 261 words: 81,802

The Trouble With Billionaires by Linda McQuaig

"Robert Solow", battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, British Empire, Build a better mousetrap, carried interest, collateralized debt obligation, computer age, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Douglas Engelbart, Douglas Engelbart, employer provided health coverage, financial deregulation, fixed income, full employment, George Akerlof, Gini coefficient, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invention of the wheel, invisible hand, Isaac Newton, Jacquard loom, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, lateral thinking, Mark Zuckerberg, market bubble, Martin Wolf, mega-rich, minimum wage unemployment, Mont Pelerin Society, Naomi Klein, neoliberal agenda, Northern Rock, offshore financial centre, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, pre–internet, price mechanism, purchasing power parity, RAND corporation, rent-seeking, rising living standards, road to serfdom, Ronald Reagan, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, trickle-down economics, Vanguard fund, very high income, wealth creators, women in the workforce

They also held each other in check, since the reckless behaviour of one individual could lead to losses that affected all partners in the firm. But things changed in the 1970s and ’80s – because the rules governing the marketplace changed. In 1970, the New York Stock Exchange lifted its ban on investment banks becoming public corporations with listings on the stock exchange. As a result, the major US investment banks gradually switched over to the public model. In Britain, with the sudden financial deregulation of the Big Bang in 1986, small partnerships were also replaced by large investment houses. In both countries, investment banks, no longer constricted by the responsibilities inherent in partnerships, were able to raise huge amounts of cash and grow much larger in size. ‘The Big Bang generation became millionaires at the same time as they were freed from the responsibility of looking after the partnerships,’ notes former British investment banker Philip Augar in ‌The Death of Gentlemanly Capitalism.6 Senior bank executives were no longer personally liable for their firms’ debts.


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low skilled workers, market clearing, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War

In particular, whereas US citizens can easily borrow on the back of future incomes, Chinese citizens cannot. Imagine, also, that Chinese excess savings (in other words, the current-account surplus) are a fixed proportion of the value of Chinese national income. This is not a particularly far-fetched assumption: the vast majority of G7 countries found themselves with high household savings rates during the 1950s and 1960s, before the advent of financial deregulation.3 With this assumption, it’s easy enough to show that the US current-account deficit has to get bigger and bigger over time. In my two-country model, the Chinese and US current-account positions must cancel each other out (there are only two countries, so there is no trade with the UK, Germany or Mars because these additional countries and planets don’t exist). If Chinese excess savings are a fixed proportion of Chinese national income, and Chinese national income is rising more quickly than US national income, it must follow that Chinese excess savings are rising as a share of US national income.


pages: 285 words: 86,174

Twilight of the Elites: America After Meritocracy by Chris Hayes

affirmative action, Affordable Care Act / Obamacare, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, carried interest, circulation of elites, Climategate, Climatic Research Unit, collapse of Lehman Brothers, collective bargaining, creative destruction, Credit Default Swap, dark matter, David Brooks, David Graeber, deindustrialization, Fall of the Berlin Wall, financial deregulation, fixed income, full employment, George Akerlof, Gunnar Myrdal, hiring and firing, income inequality, Jane Jacobs, jimmy wales, Julian Assange, Kenneth Arrow, Mark Zuckerberg, mass affluent, mass incarceration, means of production, meta analysis, meta-analysis, money market fund, moral hazard, Naomi Klein, Nate Silver, peak oil, plutocrats, Plutocrats, Ponzi scheme, Ralph Waldo Emerson, rolodex, The Spirit Level, too big to fail, University of East Anglia, Vilfredo Pareto, We are the 99%, WikiLeaks, women in the workforce

Mishkin even took $124,000 from the Iceland Chamber of Commerce to write a paper endorsing the country’s economic model, just a few years before it collapsed. What we are left with is confusion that arises from an ambiguity of roles: Are our regulators attempting to rein in the excesses of those they regulate or are they auditioning for a lucrative future job? Are economists who publish papers praising financial deregulation giving us an honest assessment of the facts and trends or courting extremely lucrative consulting fees from banks? In her book about the new global elite, Janine Wedel recalls visiting the newly liberated Eastern Europe after the fall of the Berlin Wall and finding the elites she met there, those at the center of building the new capitalist societies, toting an array of different business cards that represented their various roles: one for their job as a member of parliament, another for the start-up business they were running (which was making its money off government contracts), and yet another for the NGO on the board of which they sat.


pages: 345 words: 92,849

Equal Is Unfair: America's Misguided Fight Against Income Inequality by Don Watkins, Yaron Brook

3D printing, Affordable Care Act / Obamacare, Apple II, barriers to entry, Berlin Wall, Bernie Madoff, blue-collar work, business process, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, collective bargaining, colonial exploitation, corporate governance, correlation does not imply causation, creative destruction, Credit Default Swap, crony capitalism, David Brooks, deskilling, Edward Glaeser, Elon Musk, en.wikipedia.org, financial deregulation, immigration reform, income inequality, indoor plumbing, inventory management, invisible hand, Isaac Newton, Jeff Bezos, Jony Ive, laissez-faire capitalism, Louis Pasteur, low skilled workers, means of production, minimum wage unemployment, Naomi Klein, new economy, obamacare, Peter Singer: altruism, Peter Thiel, profit motive, rent control, Ronald Reagan, Silicon Valley, Skype, statistical model, Steve Jobs, Steve Wozniak, The Spirit Level, too big to fail, trickle-down economics, Uber for X, urban renewal, War on Poverty, wealth creators, women in the workforce, working poor, zero-sum game

Securities and Exchange Commission (SEC) Financial Industry Regulatory Authority (FINRA) Commodity Futures Trading Commission (CFTC) Federal Reserve (Fed) Federal Deposit Insurance Corporation (FDIC) Office of the Comptroller of the Currency (OCC) National Credit Union Administration (NCUA) Office of Thrift Supervision (OTS) All of these agencies were enormously active during the so-called laissez-faire era. As the former CEO of BB&T Bank John Allison notes, “Government spending alone . . . on financial regulations (not company bailouts) increased, in adjusted dollars, from $725 million in 1980 to $2.07 billion in 2007.”41 Meanwhile, between 1980 and 2009, for every one instance of financial deregulation, there were four instances of new financial regulation.42 It is one thing to claim that regulators didn’t do their job during the last few decades, or that the government should have placed even more regulatory restrictions on the financial industry—all that is debatable—but it is quite another thing to describe the last few decades as a time when financial markets were deregulated, let alone unregulated.43 The Inequality Narrative tells a seductively simple story: when the government intervenes in the economy to fight inequality, a nation prospers; when the government takes a hands-off approach to the economy, “the rich” gain at the expense of everyone else.


pages: 809 words: 237,921

The Narrow Corridor: States, Societies, and the Fate of Liberty by Daron Acemoglu, James A. Robinson

Affordable Care Act / Obamacare, agricultural Revolution, AltaVista, Andrei Shleifer, bank run, Berlin Wall, British Empire, California gold rush, central bank independence, centre right, collateralized debt obligation, collective bargaining, colonial rule, Computer Numeric Control, conceptual framework, Corn Laws, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Dava Sobel, David Ricardo: comparative advantage, Deng Xiaoping, discovery of the americas, double entry bookkeeping, Edward Snowden, en.wikipedia.org, equal pay for equal work, European colonialism, Ferguson, Missouri, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, income inequality, income per capita, industrial robot, information asymmetry, interest rate swap, invention of movable type, Isaac Newton, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Kula ring, labor-force participation, land reform, Mahatma Gandhi, manufacturing employment, mass incarceration, Maui Hawaii, means of production, megacity, Mikhail Gorbachev, Nelson Mandela, obamacare, openstreetmap, out of africa, PageRank, pattern recognition, road to serfdom, Ronald Reagan, Skype, spinning jenny, Steven Pinker, the market place, transcontinental railway, War on Poverty, WikiLeaks

In both cases the majority of the effects were felt by workers at the lower end of the skill distribution. Wall Street Unhinged Economic globalization and automation are not the only trends contributing to high levels of inequality. The rapid deregulation of several industries in the United States, accompanied by more modest changes in other developed economies, has been a major contributor to inequality as well. Particularly important in this process was financial deregulation. The financial industry in much of the world was highly regulated during the several decades following World War II, so much so that in the United States banking occupations came to be viewed as typical white-collar jobs, and their pay reflected this, typically hovering around the same level that workers would receive in other sectors. The bedrock of the postwar financial system in the United States was “Regulation Q,” which restricted interest rates on savings accounts, limiting competition between different financial institutions, as well as interstate branching restrictions that prevented banks from competing for deposits in multiple states.

Between 1980 and 2006, the financial sector grew from 4.9 percent of gross domestic product in the United States to 8.3 percent, and its profits rose 800 percent in real terms, more than three times the growth of profits in the nonfinancial sector. In a powerful feedback cycle, greater size and profits led to increased political power. By 2006, the financial sector was contributing $260 million to political campaigns, up from about $61 million in 1990. The consequence of this was continued and bolder financial deregulation. Other important pillars of post–Great Depression financial regulations were dismantled, beginning with the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act which relaxed interstate banking regulations and opened the way to a series of mergers leading to the formation of gargantuan banking corporations such as JPMorgan Chase, Citicorp, and Bank of America. In 1999, the Gramm-Leach-Bliley Act demolished most of the remaining barriers between commercial and investment banking.


pages: 353 words: 98,267

The Price of Everything: And the Hidden Logic of Value by Eduardo Porter

Alvin Roth, Asian financial crisis, Ayatollah Khomeini, banking crisis, barriers to entry, Berlin Wall, British Empire, capital controls, Carmen Reinhart, Cass Sunstein, clean water, Credit Default Swap, Deng Xiaoping, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, Ford paid five dollars a day, full employment, George Akerlof, Gordon Gekko, guest worker program, happiness index / gross national happiness, housing crisis, illegal immigration, immigration reform, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: technological unemployment, Joshua Gans and Andrew Leigh, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, longitudinal study, loss aversion, low skilled workers, Martin Wolf, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Monkeys Reject Unequal Pay, new economy, New Urbanism, peer-to-peer, pension reform, Peter Singer: altruism, pets.com, placebo effect, price discrimination, price stability, rent-seeking, Richard Thaler, rising living standards, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Stewart Brand, superstar cities, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, transatlantic slave trade, ultimatum game, unpaid internship, urban planning, Veblen good, women in the workforce, World Values Survey, Yom Kippur War, young professional, zero-sum game

.: Pearson Prentice Hall, 2006); Bureau of Labor Statistics (www.bls.gov/news.release/wkyeng.t05.htm, accessed 08/08/2010); Census Bureau, “Income, Poverty, and Health Insurance Coverage in the United States,” 2008 (www.census.gov/prod/2009pubs/p60-236.pdf, accessed 08/09/2010); Bureau of Labor Statistics, “100 Years of U.S. Consumer Spending: Data for the Nation, New York City, and Boston,” May 2006 (www.bls.gov/opub/uscs/home.htm, accessed 08/09/2010); and Bureau of Labor Statistics (www.bls.gov/bls/wages.htm, accessed 08/08/2010). 127-129 A Banker’s Paradise: The narrative about financial deregulation and the rise of bankers’ pay draws from Thomas Philippon and Ariell Reshef, “Wages and Human Capital in the U.S. Financial Industry: 1909-2006,” NBER working paper, January 2009. The data on banks’ share of corporate profits comes from the Bureau of Economic Analysis, NIPA Tabes No. 6.16A-D (www.bea.gov/national/nipaweb/Index.asp, accessed 08/09/2010). The data on university graduates taking jobs in finance comes from Claudia Goldin and Lawrence F.


pages: 364 words: 99,613

Servant Economy: Where America's Elite Is Sending the Middle Class by Jeff Faux

back-to-the-land, Bernie Sanders, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, call centre, centre right, cognitive dissonance, collateralized debt obligation, collective bargaining, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, David Brooks, David Ricardo: comparative advantage, disruptive innovation, falling living standards, financial deregulation, financial innovation, full employment, hiring and firing, Howard Zinn, Hyman Minsky, illegal immigration, indoor plumbing, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kickstarter, lake wobegon effect, Long Term Capital Management, market fundamentalism, Martin Wolf, McMansion, medical malpractice, mortgage debt, Myron Scholes, Naomi Klein, new economy, oil shock, old-boy network, Paul Samuelson, plutocrats, Plutocrats, price mechanism, price stability, private military company, Ralph Nader, reserve currency, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, school vouchers, Silicon Valley, single-payer health, South China Sea, statistical model, Steve Jobs, Thomas L Friedman, Thorstein Veblen, too big to fail, trade route, Triangle Shirtwaist Factory, union organizing, upwardly mobile, urban renewal, War on Poverty, We are the 99%, working poor, Yogi Berra, Yom Kippur War

Morgan explained away the loss of billions from betting in the subprime mortgage market with the observation that the housing market’s direction is notoriously unpredictable.5 “I wasn’t good enough to tell you what was going to happen,” said Jimmy Cayne, the ex-CEO of Bear Stearns who had driven his company into oblivion.6 Unpredictable, incredible, and unbelievable were the words used in the fall of 2008 to describe the economic crisis by newspaper columnists, TV talking heads, and caption writers for newspaper photos of slumping floor traders with their heads in their hands. A once-in-a-lifetime catastrophe that no one could have foreseen, wrote thousands of financial advisers to their clients, desperately explaining away the massive meltdown of the customers’ 401(k) portfolios. For years the influential New York Times columnist Thomas Friedman had been a breathless promoter of global financial deregulation. Through his columns, books, speeches, and TV appearances, Friedman had long rationalized the values of the get-rich-quick buccaneer economy. “International finance,” he proclaimed from the vortex of the boom, “has turned the world into a parliamentary system” that permitted newly enfranchised global citizens “to vote every hour, every day, through their mutual funds, their pension funds, their brokers.”7 As this glorious system unraveled, Friedman grasped Rubin’s reputation-saving metaphor: We are in the middle of an economic perfect storm, and we don’t know how much worse it’s going to get.


pages: 334 words: 98,950

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

affirmative action, Albert Einstein, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, business cycle, 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, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, 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

.* In addition to the impact of the introduction of New Public Management, neo-liberal policies have also indirectly, and unintentionally, increased corruption by promoting trade liberalization, which weakens government finances, which, in turn, makes corruption more likely and difficult to fight.14 Also, deregulation, another key component of the neo-liberal policy package, has increased corruption in the private sector. Private sector crookedness is often ignored in the economic literature because corruption is usually defined as the abuse of public office for personal gain.15 But dishonesty exists in the private sector too. Financial deregulation and relaxation of accounting standards have led to insider trading and false accounting even in rich nations – recall cases like the energy company Enron, and the telecommunications company WorldCom and their accountancy firm Arthur Andersen in the ‘Roaring Nineties’ in the US.16 Deregulation can also increase the power of private-sector monopolies, which expands the opportunities for their unscrupulous purchasing managers to take bribes from sub-contractors.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bernie Madoff, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, law of one price, light touch regulation, Long Term Capital Management, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, minimum wage unemployment, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, rolodex, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

Central bankers have to be barred from having too much influence on matters of financial regulation. They are much too aligned with bankers’ interests. There has to be regulatory knowledge and regulatory powers wielded by democratically accountable people and institutions sufficiently removed from the banking industry. A Man-Made Crisis (and a Woman Who Tried to Prevent It) What happened between approximately 1980 and 2007 was credit creation for speculative purposes run amok. Financial deregulation – arranged in no small part by investment bankers in their capacity as treasury secretaries – allowed the financial sector to use and massively expand a series of financial innovations that ostensibly served to distribute risk and 90 ECONOMISTS AND THE POWERFUL make the system safer. The real purpose was to extend the limits on money creation. By the second quarter of 2007, after two decades of exponential growth, assets held by securitization pools or at similar shadow banking institutions that buy up loans and fund themselves by issuing securities was US$16.5 trillion, or approximately the entire economic output of the United States for one year.


pages: 347 words: 99,317

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

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, business cycle, 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, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, 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

If they know that they are not going to stay in the civil service very long, they will have all the more incentive to cultivate their future employment prospects.iii In addition to the impact of the introduction of New Public Management, neo-liberal policies have also indirectly, and unintentionally, increased corruption by promoting trade liberalization, which weakens government finances, which, in turn, makes corruption more likely and difficult to fight.14 Also, deregulation, another key component of the neo-liberal policy package, has increased corruption in the private sector. Private sector crookedness is often ignored in the economic literature because corruption is usually defined as the abuse of public office for personal gain.15 But dishonesty exists in the private sector too. Financial deregulation and relaxation of accounting standards have led to insider trading and false accounting even in rich nations – recall cases like the energy company Enron, and the telecommunications company WorldCom and their accountancy firm Arthur Andersen in the ‘Roaring Nineties’ in the US.16 Deregulation can also increase the power of private-sector monopolies, which expands the opportunities for their unscrupulous purchasing managers to take bribes from sub-contractors.


pages: 357 words: 94,852

No Is Not Enough: Resisting Trump’s Shock Politics and Winning the World We Need by Naomi Klein

Airbnb, basic income, battle of ideas, Berlin Wall, Bernie Sanders, Brewster Kahle, Celebration, Florida, clean water, collective bargaining, Corrections Corporation of America, desegregation, Donald Trump, drone strike, Edward Snowden, Elon Musk, energy transition, financial deregulation, greed is good, high net worth, Howard Zinn, illegal immigration, income inequality, Internet Archive, Kickstarter, late capitalism, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, Mikhail Gorbachev, moral panic, Naomi Klein, Nate Silver, new economy, Occupy movement, offshore financial centre, oil shale / tar sands, open borders, Peter Thiel, plutocrats, Plutocrats, private military company, profit motive, race to the bottom, Ralph Nader, Ronald Reagan, Saturday Night Live, sexual politics, sharing economy, Silicon Valley, too big to fail, trade liberalization, transatlantic slave trade, Triangle Shirtwaist Factory, trickle-down economics, Upton Sinclair, urban decay, women in the workforce, working poor

If that is allowed to happen, it really would rob us of our last chance of averting catastrophic climate change. So, in a very real sense, preventing war and averting climate chaos are one and the same fight. Economic Shocks Just as Trump could not be unaware that his anti-Muslim actions and rhetoric make terror attacks more likely, I suspect that many in the Trump administration are fully cognizant of the fact that their frenzy of financial deregulation makes other kinds of shocks and disasters more likely as well. Trump has announced plans to dismantle Dodd–Frank, the most substantive piece of legislation introduced after the 2008 banking collapse. Dodd–Frank wasn’t tough enough, but its absence will liberate Wall Street to go wild blowing new bubbles, which will inevitably burst, creating new economic shocks. Trump’s team are not unaware of this, they are simply unconcerned—the profits from those market bubbles are too tantalizing.


pages: 371 words: 98,534

Red Flags: Why Xi's China Is in Jeopardy by George Magnus

3D printing, 9 dash line, Admiral Zheng, Asian financial crisis, autonomous vehicles, balance sheet recession, banking crisis, Bretton Woods, BRICs, British Empire, business process, capital controls, carbon footprint, Carmen Reinhart, cloud computing, colonial exploitation, corporate governance, crony capitalism, currency manipulation / currency intervention, currency peg, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, full employment, Gini coefficient, global reserve currency, high net worth, hiring and firing, Hyman Minsky, income inequality, industrial robot, Internet of things, invention of movable type, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, land reform, Malacca Straits, means of production, megacity, money market fund, moral hazard, non-tariff barriers, Northern Rock, offshore financial centre, old age dependency ratio, open economy, peer-to-peer lending, pension reform, price mechanism, purchasing power parity, regulatory arbitrage, rent-seeking, reserve currency, rising living standards, risk tolerance, smart cities, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, speech recognition, The Wealth of Nations by Adam Smith, total factor productivity, trade route, urban planning, Washington Consensus, women in the workforce, working-age population, zero-sum game

The People’s Bank of China no longer sets official benchmark interest rates, though banks continue to practise favourable discrimination in lending to SOEs. The principal interest rate targeted by the People’s Bank nowadays to manage liquidity conditions and steer the overall monetary policy stance is the seven-day repurchase rate, which is used heavily to price money in the interbank market. The financial system has been both the engine of vibrant economic growth in China and a source of rising angst. Financial deregulation and innovation are often urged as the agents of economic efficiency and growth, but there are circumstances in which they can also wreak havoc and threaten economic and political stability. China’s financial system played a central role in funding growth in the 1990s, for example, but it was eventually riddled with non-performing loans and instability. These originated from many years of imprudent lending to financially fragile or weak SOEs.


pages: 391 words: 102,301

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

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

As the historian Harold James notes, this liberalization of capital flows meant that “economic issues became globalised—in other words, it was ever harder for national authorities to control them.”9 By 1981, three of Thatcher’s signature policies were in place: the abolition of exchange controls, cuts in direct taxation, and moves to curb the power of trade unions. Britain was in the midst of a deep recession and manufacturing industries were suffering badly. But the foundations for a boom in the City of London had been laid. In 1982, the evocatively named LIFFE futures trading exchange opened in the City. In 1986, the Thatcher government pushed through the “Big Bang” of financial deregulation in the City, which Andrew Marr suggests “has a claim to be the single most significant change of the whole Thatcher era.”10 The brash city trader, along with the striking miner, became one of the emblematic figures of the Thatcher era. Thatcher herself seemed ambivalent about the surge in conspicuous consumption in the City. She never quite shook off her Methodist origins and perhaps she also sensed that the electorate disapproved of the champagne-swilling, Porsche-driving “wide boys” in the City.


pages: 851 words: 247,711

The Atlantic and Its Enemies: A History of the Cold War by Norman Stone

affirmative action, Ayatollah Khomeini, bank run, banking crisis, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, British Empire, business cycle, central bank independence, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, European colonialism, facts on the ground, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, Gunnar Myrdal, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, illegal immigration, income per capita, interchangeable parts, Jane Jacobs, Joseph Schumpeter, labour mobility, land reform, long peace, mass immigration, means of production, Mikhail Gorbachev, Mitch Kapor, new economy, Norman Mailer, North Sea oil, oil shock, Paul Samuelson, Ponzi scheme, popular capitalism, price mechanism, price stability, RAND corporation, rent-seeking, Ronald Reagan, Silicon Valley, special drawing rights, Steve Jobs, strikebreaker, The Death and Life of Great American Cities, trade liberalization, trickle-down economics, V2 rocket, War on Poverty, Washington Consensus, Yom Kippur War, éminence grise

Bohley, Bärbel Böhm, Karl Bokassa, Jean-Bédel Bolivia Bologna Bolsheviks: and bureaucracy and China Civil War Congress of the Peoples of the East (1920) lies of Revolution and science Bond, James (fictional character) Bonn Borinage Borland Software Corporation Borodin, Mikhail Boston Bourgès-Maunoury, Maurice BP (British Petroleum) Bradlee, Ben Braestrup, Peter Brandt, Willy: background and character elected Chancellor foreign minister mayor of West Berlin memoirs Nobel Peace Prize Ostpolitik resignation Braşov Bratislava author’s imprisonment in Braudel, Fernand Braun, Otto Brazil Breakfast at Tiffany’s (film) Brecht, Bertolt Brentano, Lujo Brescia Brest-Litovsk Bretherton, Russell Bretton Woods conference (1944) Bretton Woods system end of Triffin Dilemma Brezhnev, Leonid: and Afghanistan and arms limitiation talks background and character and de Gaulle death and East Germany and Helsinki conference (1975) and Johnson and Middle East nationalities policy and Orthodox Church ‘our common European home’ and Poland political reforms and ‘Prague Spring’ and Soviet satellite states and Stalin succeeds Khrushchev and Vietnam Brioni island Britain: agriculture atomic bombs automobile industry balance of payments banking system and Chinesewar civil service class system coal industry Communist Party council housing crime cultural institutions currency controls and Cyprus defence expenditure Department of Trade and Industry Depression (1930s) devaluation of sterling divorce rates economic and political decline education system (see also universities) and EEC/EU and Egypt emigration and establishment of NATO and European Exchange Rate Mechanism (ERM) Falklands War (1982) family breakdown film industry financial deregulation fishing industry general elections: (1945); (1950); (1951); (1959); (1970); (1974); (1979); (1983) gold reserves and GreekWar IMF bail-out (1976) import surcharges income per capita Industrial Revolution industrial wastelands inflation intelligentsia and Iran Lend-Lease aid and Malaya and Marshall Plan middle classes miners’ strike (1984-5) monarchy National Health Service nationalization of industry navy North Sea oil nuclear weapons oil imports Poll Tax post-war debt post-war shortages and rationing privatizations productivity levels property prices public transport race riots scientific and technological developments Second World War shipbuilding steel industry strikes Suez crisis taxation television textile industry trade unions underclass unemployment universities Welfare State Westland affair (‘Westgate’; 1986) winter weather of 1946-7 withdrawal of forces from Gulf (1971) zone of occupation in Germany British Airways British Commonwealth British Empire: American antipathy towards decline of decolonization revitalization attempts trade British Leyland (automobile manufacturer) British Petroleum (BP) British Steel British Telecom Brittan, Sir Samuel Bronfman, Edgar Brown, Andrew Brucan, Silviu Bruce, David Bruges Brussels Brussels Exhibition (1958) Brussels Pact (1948) Bryan, William Jennings Brzezinski, Zbigniew Bucak, Mehmet Celal Bucharest Buck, Pearl S.

Turin University Turing, Alan Türkeş, Alparslan Turkey: Alevi population ANAP (‘Motherland’ Party) banking system Christian minorities coal industry consumer goods production corruption and Cyprus Democratic Party education system (see also universities) and EEC/EU elections: (1950); (1974); (1977); (1983); (1986); (1989); (1991) emigration establishment and success of Atatürk’s republic GAP project Greek population ‘guest workers’ in Germany and human rights hydro-electricity inflation infrastructure Inönü’s government intelligentsia Islam Jews in Justice Party and Korean War Kurdish population language and Marshall Plan Marxism military coup (1960) military coup (1971) military coup (‘generals’ coup’; 1980) Nationalist Party NATO membership Özal’s economic reforms Özal’s premiership and presidency peasantry political instability of multi-party period population growth refugees in relations with USSR Republican Party Second World War secularism Soviet territorial claims steel industry taxation trade unions universities US aid US bases war with Greece (1919-22) Turner Broadcasting Tutzing U2 spy planes UB (Polish secret police) Uganda Uglich Ukraine: birth rate Communist takeover demolition of churches Khrushchev as Party head nationalism Russian population transfer of Crimea to Uniates Ukrainians: in Poland in Soviet Politburo Ulbricht, Walter unemployment: Britain Chile ‘downsizing’ France Nazi Germany Phillips Curve reunified Germany USA Uniates (Orthodox Church) ‘Uniscan’ (proposed European free-trade area) Unitarians United Nations: and Afghanistan and Chilean coup (1973) and Cuban crisis of 1962 and Cyprus development of bureaucracy establishment of as forum for ‘world opinion’ investigation of German reunification and Korean War ‘non-aligned’ states and Palestine ‘peacekeeping’ role Security Council and Suez crisis and Yom Kippur War United Nations Economic Council for Latin America United Nations Human Rights Commission United Nations Relief and Rehabilitation Administration (UNRRA) United Workers’ Party (Hungarian) universities: Belgium Britain Chile France Germany Italy Poland Romania student demonstrations student exchanges student loans Turkey USA USSR UNRRA (United Nations Relief and Rehabilitation Administration) Untergang, Der (Downfall; film) uranium Uriage, administrators’ school Urrutia, Manuel USA: and Afghanistan ‘Alliance for Progress’ (plan for Latin America) armaments industry atomic bombs automobile industry balance of payments banking system Bay of Pigs invasion (1961) business management methods and Chile and Chinesewar Civil Rights Act (1964) coal production coin-clipping Communists conservatism Constitution consumer goods production crime Cuban crisis of 1962 and Cyprus Declaration of Independence defence expenditure Democratic Party Depression (1930s) and division of Germany education system (see also universities) and Egypt and establishment of NATO and European Defence Community European resistance to cultural domination and Falklands War (1982) family breakdown farm subsidies fast food Federal Reserve feminism film industry financial deregulation and German economic miracle gold reserves grain exports to USSR Great Society and Greekwar and Haiti health care ICBMs (intercontinental ballistic missiles) immigration income per capita inflation intelligentsia interest rates and Iran Iran-Contra affair and Israel Jews in Korean War Lend-Lease aid to Britain McCarthyism mass culture missionaries in China motorways National Security Council (NSC) New Deal New Frontier nuclear weapons development oil industry and Pakistan personal debt and Poland post-war occupation of Japan poverty Presidential elections: (1952); (1960); (1964); (1968); (1972); (1976); (1980); (1984); (1988) productivity public transport ‘pursuit of happiness’ racial problem refugee groups Republican Party ‘rust belt’ SALT (Strategic Arms Limitation Talks) and Saudi Arabia Savings and Loans crisis Second World War space programme steel production Strategic Defense Initiative (‘Star Wars’) strikes ‘supplyside’ economics Supreme Court taxation technological developments trade unions and Turkey underclass unemployment universities urban development and decay visa system Watergate scandal welfare system westward migration see also CIA; Marshall Plan; Vietnam War USSR: Afghanistan war (1979-89) Agitation and Propaganda department alcoholism American grain imports and Angola anti-alcohol campaign atomic bombs and Austria Berlin blockade (1948-9) birth rate border conflicts with China business management methods censorship and Chile and Chinesewar collapse of communism collectivization policy commissariat for culture coup of August 1991 Cuban crisis of 1962 cultural institutions deportations disintegration dissidents ‘Doctors’ plot’ (1952) and East Germany economic stagnation and Egypt and Ethiopia Five Year Plans friendship treaty with China (1950) German invasion (1941) glasnost and human rights and Hungarian uprising of 1956 ICBMs (intercontinental ballistic missiles) inflation information technology institutchiki intelligentsia internment camps invasion of Czechoslovakia and Iran Jews in and Korean War life expectancy rates and Marshall Plan Molotov Plan nationalism navy New Economic Policy non-Russian populations nuclear power nuclear weapons development oil and gas production ‘Optimal Functioning’ planning system ‘our common European home’ ‘peaceful coexistence’ doctrine peasantry perestroyka and Poland power struggle following Stalin’s death and ‘Prague Spring’ refugees in Turkey relations with West Germany religious persecution reparations demands and Romania SALT (Strategic Arms Limitation Talks) scientific and technological developments Second World War shortages and starvation Siberian gas pipeline Sino-Soviet split slave labour space programme Spetsnaz (‘special forces’ troops) stage managment of revolutions of 1989 Stalin’s purges steel industry strikes television and Turkey underground theatre universities and Vietnam Western studies of Soviet economy winter war with Finland (1939-40) see also Communist Party of Soviet Union; KGB; Red Army; RussianWar; Russian Revolution Ussuri river Ustinov, Dmitry Uzbekistan Uzbeks Uzunada island Vaizey, John, Baron Valparaíso Van, Turkey Vance, Cyrus Vandenberg Resolution (1948) Vann, John Vatican Papal Guard Vatican(ecumenical council) Venezuela, oil production Venice Venice conference (1956) venture capital Verheugen, Günter Verlaine, Paul Vernadsky, George Vernadsky, Vladimir Vial (Chilean conglomerate) Vichy France Vienna: airport bombing (1985) Atomic Energy Commission author’s studies in espionage in Karl-Marx Hof bombardment (1934) Kraus on OPEC headquarters post-war rebuilding State Opera Taylor on Vienna conference (1961) Vienna OPEC conference (1973) Vienna school of economics Vietnam: agricultual collectivization ‘boat people’ Buddhists Catholics Chinese minority population Communist Party famine French rule France-Indochina war independence movement industrialization invasion of Cambodia (1978) Japanese invasion (1941) partition peasantry war with China see also North Vietnam; South Vietnam Vietnam War (1959-75): American conscription American public opposition Ap Bac, battle of (1963) bombing campaigns ceasefire CIA involvement civilian casualty totals corruption European response to fall of Saigon (1975) guerrilla warfare Gulf of Tonkin incident (1964) Ho Chi Minh Trail Khe Sanh, battle of (1968) Lam Son operation (1971) media coverage military casualty totals My Lai massacre (1968) numbers of American troops deployed origins of Paris peace talks ‘peace initiatives’ Phoenix ‘pacification’ programme Tet offensive (1968) use of Agent Orange use of helicopters ‘Vietnamization’ Vilna Vinde, Pierre Vladikavkaz Volcker, Paul Volga Famine (1921-2) Volga river Volhynia Volkswagen (automobile manufacturer) Volobuyev, P.


pages: 372 words: 107,587

The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg

3D printing, agricultural Revolution, back-to-the-land, banking crisis, banks create money, Bretton Woods, business cycle, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, global village, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Kenneth Rogoff, late fees, liberal capitalism, mega-rich, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, Ronald Reagan, short selling, special drawing rights, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, WikiLeaks, working poor, zero-sum game

BOX 2.1 Plenty of Blame to Go Around The bipartisan Financial Crisis Inquiry Commission (established by Congress as part of the Fraud Enforcement and Recovery Act of 2009) released its report in January 2011. The many causal factors it highlighted include: • Federal Reserve Chairman (1987–2006) Alan Greenspan’s refusal to perform his regulatory duties because he did not believe in them. Green–span allowed the credit bubble to expand, driving housing prices to dangerously unsustainable levels while advocating financial deregulation. The Commission called this a “pivotal failure to stem the flow of toxic mortgages” and “the prime example” of government negligence. • Federal Reserve Chairman (2006-present) Ben Bernanke’s failure to foresee the crisis. • The Bush administration’s “inconsistent response” in saving one financial giant — Bear Stearns — while allowing another — Lehman Brothers — to fail; this “added to the uncertainty and panic in the financial markets


pages: 367 words: 108,689

Broke: How to Survive the Middle Class Crisis by David Boyle

anti-communist, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, call centre, collateralized debt obligation, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, delayed gratification, Desert Island Discs, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, financial deregulation, financial independence, financial innovation, financial intermediation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, housing crisis, income inequality, Jane Jacobs, job satisfaction, Kickstarter, knowledge economy, knowledge worker, market fundamentalism, Martin Wolf, mega-rich, mortgage debt, Neil Kinnock, Nelson Mandela, new economy, Nick Leeson, North Sea oil, Northern Rock, Occupy movement, off grid, offshore financial centre, pension reform, pensions crisis, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, positional goods, precariat, quantitative easing, school choice, Slavoj Žižek, social intelligence, too big to fail, trickle-down economics, Vanguard fund, Walter Mischel, wealth creators, Winter of Discontent, working poor

The Cartel was presided over by a joint committee of building societies, regulators and ministers, whose task was to set an interest rate low enough to keep the house builders building, but high enough to stop house prices rising. The first step in its demise was when Lawson, as Chief Secretary to the Treasury, refused to provide new guidelines for an interest rate. He said afterwards that he didn’t realize he had to. Without the interest-rate guidelines, there was no point in a Joint Advisory Committee. ‘It was the first step in what was to become a far-reaching programme of financial deregulation, with consequences — some of them wholly unforeseen — which were to have a major impact on the course of the economy and the conduct of policy,’ said Lawson later.[15] The joint committee limped on until 1984. Once again, it all depended on the Corset and — now that exchange controls had gone — the Corset could not stand. For months, the stockbroker Gordon Pepper had been saying so. The new ministers set great store by Pepper and copied his speeches to each other.


pages: 357 words: 110,017