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The Handbook of Personal Wealth Management by Reuvid, Jonathan.
asset allocation, banking crisis, BRICs, collapse of Lehman Brothers, correlation coefficient, credit crunch, cross-subsidies, diversification, diversified portfolio, estate planning, financial deregulation, fixed income, high net worth, income per capita, index fund, interest rate swap, laissez-faire capitalism, land tenure, market bubble, merger arbitrage, new economy, Northern Rock, pattern recognition, Ponzi scheme, prediction markets, risk tolerance, risk-adjusted returns, risk/return, short selling, side project, sovereign wealth fund, statistical arbitrage, systematic trading, transaction costs, yield curve
He is manager of the Trust department and has worked as a Client Manager for over five years, administering trusts for high-net-worth donors. CAF is a charity whose mission is to create greater value for charities and social enterprises. This is done by transforming the way donations are made and charitable funds are managed. CAF’s core activity is to provide innovative financial services to charities and their supporters. Philip Watson assumed the position of Head of Investment Analysis and Advisory Group (IAAG) at Citi Private Bank EMEA in April 2006, having previously been a senior portfolio analyst since 2003. He oversees a team of 12 professionals who manage the asset allocation and portfolio construction of the Bank’s high-net-worth clients. The work of IAAG is a competitive differentiator for Citi Private Bank, contributing to its intellectual leadership and forming the cornerstone of investment conversation with clients.
When Mr Market makes that difficult, capital-protected instruments that can generate returns on flat, falling or rising markets have provided, and continue to provide, a useful alternative to cash. 45 1.5 Advisory services Mary Schwartz, Jonathan Binstock and Glenn Kurlander, Citi Private Bank Introduction In addition to offering standard investment advice, wealth managers often serve the needs of their high-net-worth clients with distinctive advisory services. These services are established to harmonize the clients’ personal and professional wellbeing while maximizing their financial assets. Clients benefit from a ‘one-stop shop’ enabling them to manage their affairs quickly and efficiently through a small group of people. Family advisory services Family advisers provide clients with access to professional advice and expertise on inheritance, succession planning, issues of family unity, raising children in affluence, and supporting foundations, all of which may affect a high-net-worth individual’s long-term financial strategy. When most wealthy individuals and families think about intergenerational wealth planning, they think, first and foremost, about the effective disposition of property and the minimization of taxes.
Consequently, however expedient the arrival of the private foundation may seem from a fiscal point of view, it is an innovation whose place in our statute book could soon seem to be an appropriate expression of the natural order of things. 57 Part 2 Real estate and forestry 58 59 2.1 UK commercial property review Tim Bowring, Citi Private Bank Why high-net-worth individuals invest in real estate as an asset class Real estate is tangible. In times of great uncertainty the lure of ‘bricks and mortar’ is stronger than ever, and even though the market has recently seen a dramatic collapse high-net-worth investors (HNWIs) still feel comfortable with this asset class. And rightly so; even if the let investment loses value they will always have the value of the land, which remains in limited supply. Real estate has been a ‘fashionable’ asset class globally. Whether one is looking for a trophy asset to add to a collection or an addition to a portfolio for succession purposes, the asset remains highly fashionable.
Portfolio Design: A Modern Approach to Asset Allocation by R. Marston
asset allocation, Bretton Woods, capital asset pricing model, capital controls, carried interest, commodity trading advisor, correlation coefficient, diversification, diversified portfolio, equity premium, Eugene Fama: efficient market hypothesis, family office, financial innovation, fixed income, German hyperinflation, high net worth, hiring and firing, housing crisis, income per capita, index fund, inventory management, Long Term Capital Management, mortgage debt, passive investing, purchasing power parity, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, Silicon Valley, superstar cities, transaction costs, Vanguard fund
Today I advise a committee that has the fiduciary responsibility over portfolio design for a large number of clients, both institutions and individuals. For the last dozen years, I have been academic director of a unique program at Wharton for ultra-high net worth investors, the Private Wealth Management Program. In this program, which Charlotte Beyer of the Institute for Private Investors and I founded in 1999, the investors themselves come to Wharton for a week to learn about how to invest their wealth. As of 2010, almost 600 ultra-high net worth investors have taken part in this program. This program has given me perspective from the investor’s side of the advisor-investor relationship. I have also had extensive experience as an advisor to the family offices of ultra-high net worth investors and as a consultant to pension funds and endowments. What I have learned is that investing isn’t easy. But as shown in this book, thoughtful asset allocation provides discipline to the investment process and gives the best chance of building and safeguarding wealth.
When alternative assets are added to the portfolio, domestic and foreign stocks remain in the same proportion as in the benchmark portfolio. HIGH NET WORTH (HNW) PORTFOLIOS Several portfolios with alternative investments are examined. The first two portfolios are designed for high net worth investors who are willing to invest in hedge funds and commodity futures as well as in real estate, stocks, and bonds. Both HNW portfolios have 25 percent invested in bonds, 50 percent in stocks, and 25 percent in alternative investments (including real estate). The first of these portfolios has 10 percent in hedge funds, 5 percent in commodity futures, and 10 percent in REITS. This portfolio is illustrated on the right side of Figure 13.3. The second HNW portfolio excludes commodity futures with the REIT allocation increased to 15 percent from 10 percent. The other portfolios are designed for ultra-high net worth investors who can cope with the illiquidity of venture capital and private equity investments.
Now it is time to consider how well they perform in a portfolio. The first section of the chapter considers what we might term alternative investments for the ordinary investor as recommended by a leading institutional investor. The second section then introduces what we might term more exotic alternative investments, namely hedge funds, commodity futures, and private equity. The investments are evaluated in portfolios designed for high net worth and ultra-high net worth investors, respectively. The third section then examines the extraordinary record of one institutional investor, the Yale University Endowment, over the period since 1985 when David Swensen took over its direction. The analysis of the Yale endowment will be designed to disentangle the effects of asset allocation from the superior access to managers provided by the Yale Endowment.
The Little Book of Hedge Funds by Anthony Scaramucci
Andrei Shleifer, asset allocation, Bernie Madoff, business process, carried interest, Credit Default Swap, diversification, diversified portfolio, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, fixed income, follow your passion, Gordon Gekko, high net worth, index fund, Long Term Capital Management, mail merge, margin call, merger arbitrage, NetJets, Ponzi scheme, profit motive, quantitative trading / quantitative ﬁnance, random walk, Renaissance Technologies, risk-adjusted returns, risk/return, Ronald Reagan, Saturday Night Live, Sharpe ratio, short selling, Silicon Valley, too big to fail, transaction costs, Vanguard fund, Y2K, Yogi Berra
The same technique is needed to provide a definition of hedge funds. But instead of dissecting an animal, we are going to dissect the colloquial and controversial definitions presented over time by the experts. Let’s start with a technical definition provided by Jack Gain, president of the Managed Fund Association: A pragmatic definition would be a private investment pool with a limited number of high-net-worth individual and institutional investors on the one hand and, on the other, a manager with the utmost flexibility. Hmm . . . that definition doesn’t say much, now does it? Besides, I’ve never been one for pragmatism. Let’s keep moving. According to the Alternative Investment Management Association’s Roadmap to Hedge Funds: A hedge fund constitutes an investment program whereby the managers or partners seek absolute returns by exploiting investment opportunities (taking risk) while protecting principle from financial loss.
And when they do, there will be countless stories written about his investing genius, skillful prowess, big and contrarian trades, overabundant and luxurious real estate, one-of-a-like art collections, and board memberships. Against this backdrop, the industry will continue to grow; the best and the brightest from top-tier Ivy League business schools will continue to flock to an industry that was started by a mysterious journalist who developed a legendary investing (and payment) scheme; high-net-worth investors will continue to pour money into these private pools in the hopes of achieving alpha-like returns that will fulfill their champagne wishes and caviar dreams; and mainstream Americans will continue to be fascinated by a cloaked industry whose mystique paradoxically lures the attention it was intended to avert. And through it all, hedge funds will remain the alternative investment that not only makes money, but perhaps more important, rationalizes the irrational market by flattening out the kinks in the global market.
Yale, in particular, was successful, generating $7.8 billion of the $14 billion in its endowment from hedge fund investments by 2005. (In 1999, David Swensen wrote a groundbreaking book entitled Pioneering Portfolio Management, where he shared his insights and careful analysis with fellow investors.) And so, higher education administrators, who now saw hedge funds as a legitimized and credible cash cow, saved the day. As a result, hedge funds began to see a shift in audience—no longer were they only used by high-net-worth, wealthy individuals; institutions wanted a piece of the action, too. And who can blame them? While the market fell approximately 40 percent after the dot-com collapse, the average hedge fund did not lose money. Still sore from these self-inflicted wounds, institutional investors were happy to pay the notoriously high “two-and-twenty” hedge fund fee for downside protection against market turbulence.5 A Piece of the Pie Since then, a rising number of institutional investors—such as public pension funds, endowments, private pension funds, and foundations—have been allocating larger portions of their portfolios to hedge funds so as to improve returns while reducing systematic risk.
Getting a Job in Hedge Funds: An Inside Look at How Funds Hire by Adam Zoia, Aaron Finkel
backtesting, barriers to entry, collateralized debt obligation, commodity trading advisor, Credit Default Swap, credit default swaps / collateralized debt obligations, discounted cash flows, family office, fixed income, high net worth, interest rate derivative, interest rate swap, Long Term Capital Management, merger arbitrage, offshore financial centre, random walk, Renaissance Technologies, risk-adjusted returns, rolodex, short selling, side project, statistical arbitrage, systematic trading, unpaid internship, value at risk, yield curve, yield management
Description Our client is seeking an experienced fund-raiser to join the firm. In general, the fundraiser will be responsible for raising assets from the high net worth and family office investing community. Responsibilities • Arrange for and conduct fund-raising meetings with clients and their respective investment consultants. • Provide leadership and day-to-day management of firmwide marketing initiative. • Create and/or redesign existing marketing literature. Requirements • Minimum of five years of fund-raising experience from a fund of hedge funds, hedge fund, or private client division of a large bank. • Extensive and active high-net-worth investor Rolodex. • Strong leadership and communication skills. • Strong teamwork skills. • Top-tier undergraduate degree. c06.indd 80 1/10/08 11:07:14 AM Fund Marketing 81 Search 4: Director of Client Relations Multibillion-dollar fundamental value hedge fund The top candidates for this search will have both investing and fund-raising experience at a hedge fund.
I finally joined a venture-funded education company in Boston doing business and corporate development with an emphasis on acquisitions. I ended up working there for about two years and left soon after the firm was bought by a major media company. Fortunately, I had stayed in contact with former colleagues from my banking program and through someone I met there was able to join the private equity group of an investment firm that managed the capital of a high net worth individual. During my time there (almost six years), I was able to work on some public market investments, which I found I enjoyed more than private equity. This firm was value focused and maintained a long-term bias with a three- to six-year time horizon. I wasn’t necessarily looking to join a hedge fund. The opportunity to work at my current firm really came through some contacts I had kept in touch with.
CASE STUDIES To follow are the stories of two individuals who secured fund marketing positions. The first began in a private bank where she had direct exposure to hedge funds. The second person was able to land a more senior position after working on both the buy- and sell-sides in marketing capacities. Case Study 17: A Classic Fund Marketer This person took one of the classic routes into hedge fund marketing—beginning at a private bank. By working with high-net-worth clients and researching hedge funds she set herself up perfectly to move into a hedge fund IR role. ■■■ c06.indd 81 1/10/08 11:07:14 AM 82 Getting a Job in Hedge Funds Although I was interested in finance and graduated with a degree in economics from an Ivy League school (class of 2002), I didn’t want to go into an investment banking program—the long hours were not for me. Instead, I applied to and was accepted into a two-year internal consulting program at a bulge-bracket bank (I had done an internship with the same bank the summer after my junior year).
3D printing, additive manufacturing, Albert Einstein, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, asset-backed security, augmented reality, barriers to entry, bitcoin, bounce rate, business intelligence, business process, business process outsourcing, call centre, capital controls, citizen journalism, Clayton Christensen, cloud computing, credit crunch, crowdsourcing, disintermediation, en.wikipedia.org, George Gilder, Google Glasses, high net worth, I think there is a world market for maybe five computers, Infrastructure as a Service, invention of the printing press, Jeff Bezos, jimmy wales, London Interbank Offered Rate, M-Pesa, Mark Zuckerberg, mass affluent, microcredit, mobile money, more computing power than Apollo, Northern Rock, Occupy movement, optical character recognition, performance metric, platform as a service, QWERTY keyboard, Ray Kurzweil, recommendation engine, RFID, risk tolerance, self-driving car, Skype, speech recognition, stem cell, telepresence, Tim Cook: Apple, transaction costs, underbanked, web application
The flagship stores emerging today are generally going to be a mass retail brand space, or a high-net-worth luxury service space. We hear of a myriad of “branch of the future” concepts and so forth often, but there’s no use making a branch that is chock-a-block full of technology gadgetry if you don’t send the right brand message—remember the psychology involved. You don’t make me trust your brand by shoving digital screens and coffee machines in the space, you build trust through a great, personalised experience. When I discuss disruption to branch banking and the channels around shifting models, I’m often told that the “advisory” capability is what differentiates the branch experience from other channels. Then when I actually visit a branch, I get offered no advice, and the service experience is lousy. Even high-net-worth customers might be lucky to be “advised” once a year at their annual review meeting with a relationship manager, and this all too often descends into a “product of the month” pitch session instead of honest, tailored advice.
The problem for banks is that increasingly this group of de-banked customers who use non-bank value stores for power purchasing are not the poor underprivileged struggling with unemployment and with dismal credit ratings (as banks imagine they might be). Increasingly these are technology-enabled professionals, university graduates with prime credit ratings. Valuable future customers for sure, but hardly unattractive today either. You might argue that the most profitable high-net-worth customers or mortgage holders are hardly going to unhinge themselves entirely from the banking system. You’d be correct. But the problem with the unhinging of the bank account is not that you’ll lose the high-end, investment-class business. The problem is that you lose the day-to-day connection with the customer. The key to really understanding the fourth phase of disruption is that we all need the utility of banking, but increasingly we don’t need a bank to provide that utility.
There are two other core drivers that need to go into branch design and placement. For branch banking and design, different strategies need to be adopted for customers who are financially and cognitively less resourceful, and those who are wealthier, but time-poor. If you are catering for those customers who are less profitable but also less inclined to use digital channels, you have a cost burden for carrying legacy behaviour. If you are targeting mass-affluent and high-net-worth customers with $100k+ or more in ready cash to invest, the very nature of their busy lifestyles means that coming to a “space” is a luxury they can rarely afford. For many bankers this might seem counterintuitive. The dilemma then is that the most profitable customers you want to get into a branch are increasingly likely to try a direct channel first because their time is their most valuable commodity, which prevents them from seeking out a rich, face-to-face experience.
Investment: A History by Norton Reamer, Jesse Downing
Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Berlin Wall, Bernie Madoff, Brownian motion, buttonwood tree, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, index fund, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, moral hazard, mortgage debt, Network effects, new economy, Nick Leeson, Own Your Own Home, pension reform, Ponzi scheme, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, underbanked, Vanguard fund, working poor, yield curve
It is difficult to generalize about the investment activity of individuals because they are such a varied and heterogeneous group, but every individual is faced with a complicated series of investment constraints. These constraints include individual risk preferences, tax considerations, a need for accumulation early in life to support spending during retirement, a length of life that is limited and uncertain, and possibly the need to provide a bequest. To complicate matters further, different individuals also have different investment alternatives available to them. High-net-worth individuals, for example, have access to investment advisers and alternative investments, but those not meeting certain wealth or income thresholds typically cannot participate in certain investment structures. The plight of the individual investor is distinct from the situation confronted by an institution or a corporation. Rather than facing the relatively straightforward ﬁduciary responsibility of a business or nonproﬁt organization, individuals must consider a range of complications and uncertainties.
More New Investment Forms 257 ALTERNATIVE INVESTMENTS: HEDGE FUNDS, PRIVATE EQUITY, AND VENTURE CAPITAL The realm of alternative investments is vast and includes not just hedge funds, private equity, and venture capital but also commodities, real estate, and infrastructure. These investment vehicles have captured the attention of many, fueled in great part by stories of brilliant managers and stellar returns. Undoubtedly, the awe and reverence some investors have for these sophisticated vehicles derives in part from the fact that they have long been limited to high-net-worth individual investors and institutional investors, rendering them somewhat inscrutable to the public. The truth is more nuanced. Snapshot of Alternatives Alternative investments have been available to institutional and professional investors since the 1970s. While the term alternative investments generally refers to nontraditional investments in securities such as equities, bonds, property, or more esoteric assets, the term is a catch-all of sorts and can refer to investments made in hedge funds, private equity, venture capital, real estate, and other ﬁnancial contracts and derivatives.
Difficult conditions in equities markets, combined with a more complicated and expensive listing process, produced a barrier to initial public offerings, frequently the ultimate exit of a venture deal.41 The National Venture Capital Association (NVCA) was founded as an industry association in 1973, and over the next several decades the dollar amounts ﬂowing into venture capital as an alternative investment class ballooned signiﬁcantly (see ﬁgure 8.1 and table 8.2). The industry is now seen as a leading alternative investment class for institutional and high-net-worth investors looking for ways to diversify their portfolios. Venture capital is intimately tied to Silicon Valley in the San Francisco Bay area. This area—blessed with a conﬂuence of some of the world’s top research universities and technology companies— was a natural place for the venture capital industry to emerge and grow, given the initial near-synonymy of venture capital ﬁrms with Capital under management U.S. venture funds ($ billions), 1985– 2011 350 300 ($ billions) 250 200 150 100 50 0 ‘85‘86‘87‘88‘89‘90‘91‘92‘93‘94‘95‘96‘97‘98‘99‘00‘01‘02‘03‘04‘05‘06‘07‘08‘09 ‘10 ‘11 Year Figure 8.1 Capital Under Management U.S.
Commodity Trading Advisors: Risk, Performance Analysis, and Selection by Greg N. Gregoriou, Vassilios Karavas, François-Serge Lhabitant, Fabrice Douglas Rouah
Asian financial crisis, asset allocation, backtesting, capital asset pricing model, collateralized debt obligation, commodity trading advisor, compound rate of return, constrained optimization, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, discrete time, distributed generation, diversification, diversified portfolio, dividend-yielding stocks, fixed income, high net worth, implied volatility, index arbitrage, index fund, interest rate swap, iterative process, linear programming, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, p-value, Ponzi scheme, quantitative trading / quantitative ﬁnance, random walk, risk-adjusted returns, risk/return, Sharpe ratio, short selling, stochastic process, systematic trading, technology bubble, transaction costs, value at risk
All chapters in this book are written by leading academics and practitioners in the area of alternative investments. Although some chapters are technical in nature, we have asked the contributors of those chapters to emphasize the impact of their analytical results on managed futures investing, rather than to focus on technical topics. We, therefore, believe this book can serve as a guide for institutional investors, pension funds managers, endowment funds, and high-net-worth individuals wanting to add CTAs to traditional stock and bond portfolios. T ix Acknowledgments T he editors would like to thank Richard E. Oberuc Sr. of Laporte Asset Allocation System (www.laportesoft.com) and Sol Waksman of the Barclay Trading Group, Ltd. (www.barclaygrp.com) for providing data and software. As well, we thank www.alternativesoft.com for their use of Extreme Metrics and HF Optimizer software.
However, with a proper choice of risk factors, a significant proportion of CTA returns can be explained and the abnormal performance of each strategy can be assessed properly. Performance 3 Chapter 7 applies the basic, cross-evaluation, and superefficiency DEA models to evaluate the performance of CTA classifications. With the everincreasing number of CTAs, there is an urgency to provide money managers, pension funds, and high-net-worth individuals with a trustworthy appraisal method for ranking CTA efficiency. Data envelopment analysis can achieve this, with the important benefit that benchmarks are not required, thereby alleviating the problem of using traditional benchmarks to examine nonnormal returns. CHAPTER 1 Managed Futures and Hedge Funds: A Match Made in Heaven Harry M. Kat n this chapter we study the possible role of managed futures in portfolios of stocks, bonds, and hedge funds.
CHAPTER 2 Benchmarking the Performance of CTAs Lionel Martellini and Mathieu Vaissié he bursting of the Internet bubble in March 2000 plunged traditional market indices (stocks, bonds, etc.) into deep turmoil, leaving most institutional investors with the impression that portfolio diversification tends to fail at the exact moment that investors have a need for it, namely in periods when the markets drop significantly.1 At the same time, most alternative investments (e.g., hedge funds, CTAs, real estate, etc.) posted attractive returns. They benefited from large capital inflows from high-net-worth individuals (HNWI) and institutional investors, who were both looking for investment vehicles that would improve the diversification of their portfolios. At the same time, many recent academic and practitioner studies have documented the benefits of investing in alternative investments in general, and hedge funds in particular (see Amenc, Martellini, and Vaissié 2003; Amin and Kat 2002, 2003b; Anjilvel Boudreau, Urias, and Peskin 2000; Brooks and Kat 2002; Cerrahoglu and Pancholi 2003; Daglioglu and Gupta 2003a; Schneeweis, Karavas, and Georgiev 2003).
Affordable Care Act / Obamacare, bank run, banking crisis, Bernie Madoff, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, high net worth, housing crisis, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, moral hazard, obamacare, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, Robert Shiller, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, yield curve
By the way, I learned an interesting lesson about the fundamental difference between institutional shareholders and high-net-worth individual shareholders through this process. Unfortunately, many institutional shareholders are short-term-oriented and care little about principles. Their incentive systems drive them toward short-term investment. The worst institutional shareholders are state pension plans (especially CalPERS), which confuse the political correct notion of the day with meaningful principled action. The best shareholders are older high-net-worth individuals who have earned their money by running an operating business. They have a longer-term perspective, appreciate the role of principles, and have business wisdom. If you manage a business, attract all the self-made, high-net-worth individual shareholders you can. 10 How Freddie and Fannie Grew to Dominate the Home Mortgage Lending Business AN INTERESTING QUESTION IS, HOW DID FREDDIE AND FANNIE come to dominate the home mortgage lending business?
They sold the property at a deep discount (once a bank owns a piece of property, its value typically falls 20 to 25 percent). This sale set a precedent for a new lower commercial real estate valuation in this relatively small market. The three partners all filed personal bankruptcy. (I assume the Obama administration is now worried about them, as they are truly low income and will be so for years.) If BB&T could have worked with this high-net-worth borrower under our traditional program, our loan would ultimately have been paid in full, and the secondary negative consequences would not have occurred. Frankly, the regulators do not care about this type of issue. They have their rules, some less harmful than others, but they individually and the regulatory system as a process are unable to use judgment regardless of the destructive consequences of their actions.
., 188–189 Greenspan’s view of, 32 Golden West, 39, 91, 92, 98, 159 Goldman Sachs, 71, 173 as AIG counterparty, 128–129 bailout of, 104, 164, 179 CDSs of, 126 counterparty risk at, 124 crony capitalism at, 6 financial “innovations” of, 101 Government policy: as cause of financial crisis, 1, 5–6, 251 and residential real estate bubble, 6 (See also Housing policy; Policy reforms) Government regulation, 5–8, 41–48, 204 Government spending, 180–183, 197–199 Government-sponsored enterprises (GSEs), 59, 64–65, 98, 137 (See also Fannie Mae; Freddie Mac) Great Depression: and avoidance of stock market, 74 banking industry in, 70–72 economic policies after, 161 and Federal Reserve, 19–20, 24, 188 and gold standard, 188 and government interference, 170 and Smoot-Hawley Tariff Act, 205 Great Recession, 1, 251–254 and Federal Reserve, 188 Freddie Mac and Fannie Mae in, 65 and interest-rate variation, 33 market corrections and depth of, 160 and monetary policy, 17 and residential real estate, 9–15 Great Society, 6, 55, 96 Greece, 51, 52, 137, 228 Greenspan, Alan, 23–30, 32, 33, 160 Gross domestic product, 183, 197–199 Hamilton, Alexander, 19 Harvard University, 43, 131 Hayek, Friedrich, 31 Health insurance, 201–202 High-net-worth shareholders, 93 Home Builders Association, 60 Home foreclosure laws, 77–80 Homeownership, 53–55 Hoover, Herbert, 24, 161, 205 Housing: as consumption, 9–12, 54–55, 73–74 government support of, 12 Housing policy, 53–65 HUD (Department of Housing and Urban Development), 15, 58 Human Action (von Mises), 238 Immigration, 19, 205–206 India, 10, 25, 205 IndyMac, 39, 75, 98 Inflation: CPI as indicator of, 26–27 and fair-value accounting, 103 and Federal Reserve, 21–22 and prices, 24–25 (See also Monetary policy) Initial public offerings, 150 Insurance: bond, 86–87 cross-guarantor, 48–52 FDIC (see FDIC insurance) health, 201–202 private deposit, 48–52 self-insurance at banks, 48–52 unemployment, 212–213 Interest rates, 26–27, 31–35 Inverted yield curves, 27–29 Investment banks: disclosure requirements for, 151 government bailout of, 162 “innovations” of, 101–102 leverage ratios of, 71–72 IPOs, 150 Iran, 198, 199, 227 Iraq, 198 Ireland, 77 Isaac, Bill, 107–108, 161–162 Italy, 51, 52 Japan, 159, 200, 205 Jefferson, Thomas, 19, 220 Johnson, Lyndon Baines, 6, 55, 96, 161, 188 JPMorgan Chase, 75 and Bear Stearns, 162 and shadow banking system, 120 as “too-big-to-fail” firm, 173 and Washington Mutual, 163 Keynes, John Maynard, 181 Labor: allocation of, 10–11, 14 minimum-wage laws, 209–212 Lehman Brothers, 71, 76, 101, 104, 129, 164 and Bear Stearns bailout, 162–163 corporate debt at, 107 counterparty risk at, 124 derivatives from, 123 Limited government, 182–183, 195, 231, 253 Liquidity: of banks, 68–69 and FDIC insurance, 171 and financial crises, 70–72 and housing prices, 74–75 and TARP, 171–172 Loan loss reserves accounting, 152–154 Loans: capital standards for, 51–52 qualified, 98 substandard, 140–141 Madoff, Bernie, 149, 225 March of Dimes, 241 Market corrections, 157–165 Federal Reserve’s prevention of, 23, 32 prevention of, 13 residential real estate, 78 and response to financial crisis, 177–180 Market discipline, 21, 38 Market-based monetary policy, 31–35 Market-clearing price, 209 Mathematical modeling: for loan loss reserves, 152–153 by ratings agencies, 82–83 for risk management, 136–138 MBIA, 86 Medicaid, 6, 55, 201 Medicare, 6, 8, 55, 201, 203 Meltdown (Michaels), 35 Merrill Lynch, 101, 124–125 Michaels, Patrick J., 35 Microsoft, 217 Military spending, 198–199, 227 Minimum-wage laws, 209–212 Mises, Ludwig von, 34, 238 Monetary policy, 17–35 of Bernanke, 27–31, 33, 35, 40, 125, 213 and federal debt, 21–22 and Federal Reserve, 17–23 of Greenspan, 23–27 market-based, 31–35 and unemployment, 208–209 Money market mutual funds, bailout of, 120–121, 192 Money supply, 21–22, 24, 189 Moody, John, 83, 150 Moody’s, 81–87 investor confidence in, 84–87 misratings by, 82–84, 101, 125, 126 and SEC, 81–82, 149–150 Morgan Stanley, 71, 101, 124, 173 Mortgage lending, 95–102 by Fannie Mae and Freddie Mac, 97–101 and investment bank innovations, 101–102 prime, 59, 97–99 by private banks, 97–99 savings and loan industry in, 95–97 subprime, 43, 56–57, 99–101 Mortgages: by BB&T Corporation, 97–98 jumbo, 62 pick-a-payment (see Pick-a-payment mortgages) selling vs. servicing, 113–114 Mozilo, Angelo, 46 Multiplier effect, 181 Naked shorting, 127–128, 151 Nationally recognized statistical rating organizations, 82 Negative real interest rates, 26–27 Neo-Keynesian response to financial crisis, 185–186 Neutral taxes, 197 New Deal, 53, 170, 232 Nixon, Richard, 96, 161, 188 North Korea, 34, 198, 227, 247, 252 NRSROs, 82 Obama administration, 142–144: and Dodd-Frank Act, 64 economic policies of, 15, 161 healthcare bill, 183, 201 and Patriot Act, 45 stimulus plan, 181–182 Office of the Comptroller of the Currency (OCC), 40, 154 Office of Thrift Supervision, 40, 41, 45–46 Operating earnings, 103–106 OTS, 40, 41, 45–46 Panics, 137–138, 161–165 Patriot Act, 45, 46, 48, 133–136, 147 Paulson, Henry: in 2008 panic, 164, 167 and AIG bailout, 128, 129 credibility of, 164 development of TARP, 76, 168–170, 172 Pick-a-payment mortgages, 89–93 borrowers using, 90–91 and FDIC, 91 and rise of Fannie Mae/Freddie Mac, 98 Policy reforms, 195–206 for entitlement programs, 199–204 and free trade, 204–205 and government regulations, 204 for government spending, 197–199 for immigration, 205–206 for political system, 206–207 and tax rate, 196–197 Politics: in banking regulation, 42–46 and crony capitalism, 129 and failure of Fannie Mae/Freddie Mac, 59–62 and Federal Reserve appointments, 18 policy reforms for, 206–207 Poor, Henry Varnum, 150 Portugal, 51 Price fixing, 31, 193 Price setting, 31–32 Prime lending, 59, 97–99 Prince, Charlie, 217 Principles-based accounting, 109 Privacy Act, 133, 135 Private accounting systems, 177–178 Private banks, 97–99, 187–188 Private deposit insurance, 48–52 Public schools, 228, 233–235 Racial discrimination (in lending), 42–45 Raines, Frank, 59 Rand, Ayn, 225, 231 Rating agencies, 81–87 investor confidence in, 84–87 mathematical modeling by, 136 and subprime mortgage bonds, 82–84 and “too-big-to-fail” firms, 173 and SEC, 81–82, 149–150 Real estate: commercial, 11, 97 residential (see Residential real estate market) Recessions, 28, 29, 160 Recovery (see Economic recovery) Reforms: banking industry (see Banking industry reforms) government policy (see Policy reforms) Regions Bank, 237 Regulation: of banking industry (see Banking regulation) by government (see Government regulation) Reporting, financial, 150–152 Reserve currency, U.S. dollar as, 77, 188, 229 Residential real estate market: economics of, 73–74 misinvestment in, 9–15 Residential real estate market bubble, 73–80 and government policy, 6 international impact of, 77 and job creation, 80 and state home foreclosure laws, 77–80 Risk: contagion, 123 counterparty, 123, 124 with derivatives, 122–124 diversification of, 67–69 and economic cycles, 189–193 and FDIC insurance, 38–41 and government regulation, 50–51 liquidity, 68–70 mathematical modeling for, 136–138 and “originate and sell” model, 100 systemic, 50–51 RMBS (residential mortgage-backed securities), 81 Roman empire, fall of, 230 Roosevelt, Franklin D., 24, 37, 103, 161 Rules-based accounting, 109 Russia, 198 Samuelson, Paul, 238 Sarbanes-Oxley Act, 133–134 and fair-value accounting, 106 and Fannie Mae/Freddie Mac, 99 misregulation by, 48, 147 and SEC, 150 violations of, 136 SARs (Suspicious Activity Reports), 136 Satchwell, Jack, 57 Savings and loan (S&L) industry, 95–97, 110, 191 Securities and Exchange Commission (SEC), 149–155 capital ratio guidelines, 71–72 and complexity of accounting rules, 116–117 and expensing of stock options, 114, 115 loan loss reserves accounting for, 152–154 misallocation of resources by, 14 and rating agencies, 81–82, 149–150 requirements for shorting stock, 127–128, 151 and rules-based accounting, 109, 110 and Sarbanes-Oxley Act, 150 Self-insurance, 48–52 Selgin, George, 189 Senate Banking Committee, 46 Shadow banking system, 119–131 and AIG bailout, 128–130 credit default swaps in, 126–128 and derivatives, 122–124 Federal Reserve’s role in, 30 losses from, 131 S&L industry, 95–97, 110, 191 Small businesses, 144–147, 183–184 Smoot-Hawley Tariff Act, 205 Social Security, 8, 199–204 South Financial, 237 South Korea, 247 Soviet Union, 34, 195–196, 252, 254 S&P (see Standard & Poor’s) Spain, 51, 52, 77 Spitzer, Eliot, 71, 134–135, 151 Stagflation, 181, 208 Standard & Poor’s (S&P), 81–87 investor confidence, 84–87 misratings by, 82–84, 101, 125, 126 and SEC, 81–82, 149–150 Standard of living, 6–7, 10, 161, 177 Start-up banks, 38–39 State home foreclosure laws, 77–80 Stimulus plan, 181–182 Stock options, expensing of, 114–117 Stocks, shorting, 127–128, 151 Stress tests, banks, 171 Subprime lending: and CRA, 56–57 by Fannie Mae and Freddie Mac, 99–101 and racial discrimination in lending study, 43 Subprime mortgage bonds, 82–87 Substandard loans, 140–141 SunTrust, 152, 237 Suspicious Activity Reports (SARs), 136 Tails (mathematical models), 137 TARP (see Troubled Asset Relief Program) Tax rate, 196–197 Tea Party Movement, 218, 231 Technology industry, 5 “Too-big-to-fail” firms, 130, 173, 193 Trader principle, 92, 223–224 Troubled Asset Relief Program (TARP), 167–175 and 2008 panic, 165 and FDIC, 37 Underwriters Laboratories, 117, 150 Unemployment, 207–213 in economic recovery, 207–208 and minimum-wage laws, 209–212 and misinvestment in residential real estate, 10–11 and monetary policy, 208–209 Unemployment insurance, 212–213 Unions, 179, 180, 212 United Auto Workers, 179, 180 United States: demographic problem in, 228 economic future of, 8, 227–230, 252–253 educational system of, 230–235 founding concepts of, 219–220 as free trade zone, 204–205 GDP of China vs., 183 mixed economy of, 5–6 public schools of, 233–235 university system of, 230–233 United Way, 224, 241 University system, 230–233 U.S.
8-hour work day, Albert Einstein, barriers to entry, Bernie Madoff, butterfly effect, buy low sell high, California gold rush, Donald Trump, financial independence, high net worth, Mark Zuckerberg, passive income, payday loans, self-driving car, Snapchat, Stephen Hawking, Steve Jobs, Tony Hsieh, Y2K
You could liquidate your assets and never need to work again because your assets far outweigh your liabilities. Bill Gates is rich because he has so many assets. One of his assets just happens to be a company called Microsoft, which, according to a January 2014 report in Forbes, has a market capitalization value of $200 billion! The term high net worth has been creeping into the popular vernacular in recent years. People seem more inclined to refer to themselves as being high net-worth people, or high net-worth families, rather than as rich people or rich families. This is related to the fact (as we described at the beginning of this book) that wealth has less to do with money in the bank and more to do with a favourable balance of assets against liabilities. And you don't always need to use cash to increase your net worth.
See also Investors; Loans Flipping Forbes Ford, Henry Foreign currency market Forex Framestore Franchises Friends, negativity as roadblock to success Frost, Robert Frugality Fuller, Thomas Gambling Gates, Bill Generosity financial abundance and of rich people undesirable truths about Wealth Dragon principle Germany, economic success based on past failures Get-rich-quick schemes Gibran, Khalil Gladwell, Malcolm Goals Goals to Gold: Trading the Football Pitch for the Financial Markets (Sandford) Golden rules of property investing Great Britain dragon folklore economic success frugality in higher education in laziness in lottery Greed Gretzky, Wayne Hamlet (Shakespeare) Happiness Hard work fear of get-rich-quick schemes vs wealth and Wealth Dragon principle Harford, Tim Harry Potter series Hawking, Stephen Higher education High net-worth people Hill, Napoleon Holland, lease option legalization Home equity Hourly wage calculation How to Get Rich (Dennis) Hsieh, Tony Humiliation Individual voluntary agreements (IVAs) Infinite wealth, path to Information gathering Intangible assets Investments control over financial planner cautions in securities vs. property strategy for See also Property investment Investors finding structuring deals with types of Isaacson, Walter Jeffers, Susan Jobs, Steve Jordan, Michael Kiyosaki, Robert Kutcher, Ashton Lake District property deal Law of attraction Laziness Leads Learning curve Lease options Lee, Bruce Lee, John abundance vs. scarcity thinking Bruce Lee influence education family background and childhood financial abundance financial planners learning curve more money mindset negative people personal crisis philanthropy property investment beginnings property investment deal making tips property investment experiences property investment marketing tactics rat race trap relationship with Vincent Wong spending money taking action Wealth Dragon origins working smarter Legal work Lewis, C.
Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else by Chrystia Freeland
Albert Einstein, algorithmic trading, banking crisis, barriers to entry, Basel III, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Branko Milanovic, Bretton Woods, BRICs, business climate, call centre, carried interest, Cass Sunstein, Clayton Christensen, collapse of Lehman Brothers, conceptual framework, corporate governance, credit crunch, Credit Default Swap, crony capitalism, Deng Xiaoping, 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, joint-stock company, Joseph Schumpeter, knowledge economy, knowledge worker, 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, stem cell, Steve Jobs, 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
In its 2011 edition, Credit Suisse noted the difference between the world’s rising middle class, which remains rooted in and defined by nationality, and the increasingly shared and global character of people at the very top: The base of the wealth pyramid is occupied by people from all countries of the world at various stages of their life-cycles; in contrast, HNW [high net worth, defined as people with an investable income of between $1 million and $50 million] and UHNW [ultra high net worth, defined as people with an investable income of at least $50 million] individuals are heavily concentrated in particular regions and countries, sharing a much more similar lifestyle. Even members at other locations tend to participate in the same global markets for high coupon consumption items. The wealth portfolios of individuals are also likely to be similar, dominated by financial assets and, in particular, equity holdings in public companies traded in international markets.
A recent academic study of the Forbes list of the four hundred richest Americans found that between 1983 and 2000 all of the wealthy prospered, but the very richest did best of all. In the course of those years, the top 25 percent of this group became 4.3 times wealthier, while the bottom 75 percent of them got “only” 2.1 times richer. In 2011, in its annual report on the world’s rich, Credit Suisse, the international investment bank, noted that the number of super-rich—whom it delicately dubs “ultra high net worth individuals,” or UHNWIs, with assets above $50 million—surged: “Although comparable data on the past are sparse, it is almost certain that the number of UHNW individuals is considerably greater than a decade ago. The general growth in asset values accounts for some of the increase, along with the appreciation of other currencies against the U.S. dollar. However, it also appears that, notwithstanding the credit crisis, the past decade has been especially conducive to the establishment of large fortunes.”
This nascent split between probusiness, promoney Americans of the bottom of the 1 percent and the 0.1 percent is in many ways more potentially incendiary than the antiestablishment idealism of Occupy Wall Street. We always knew the left was suspicious of high finance. What is surprising is that Wall Street’s yeomen have become suspicious of their bosses. Here’s how Joshua Brown, a New York–based investment adviser to high-net-worth individuals, charitable foundations, and retirement plans responded to complaints by a number of Wall Street chiefs that they are being unjustly vilified in America today. Brown’s tirade, which he posted on his blog, The Reformed Broker, quickly went viral: “Not only do we not ‘hate the rich’ as you and other em-bubbled plutocrats have postulated, in point of fact, we love them,” Brown wrote.
The Bogleheads' Guide to Investing by Taylor Larimore, Michael Leboeuf, Mel Lindauer
asset allocation, buy low sell high, corporate governance, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, endowment effect, estate planning, financial independence, financial innovation, high net worth, index fund, late fees, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, market bubble, mental accounting, passive investing, random walk, risk tolerance, risk/return, Sharpe ratio, statistical model, transaction costs, Vanguard fund, yield curve
The paper reports the results of a study done by economists Steven Vend and David Wise that compared the lifetime earnings of several thousand American households with their net worth at retirement. The purpose of the study was to determine what factors influence the accumulation of wealth. As you might suspect, Venti and Wise found some households with high lifetime earnings and relatively low net worth at retirement. Conversely, they also found households with modest lifetime earnings and relatively high net worth at retirement. Their next step was to determine why some people accumulated more wealth than others. Was it because some people enjoyed better health? Were some people smarter or luckier in their choice of investments? Was it due to receiving large inheritances? The economists concluded from their research that none of these factors had a significant impact on wealth at retirement. They only found one significant factor: Some people choose to save more than others.
Six hundred out of 1, 000 people will require a nursing home stay: average cost: $50, 000 per year, with an average stay of three to five years. Since Ms. Stevens wrote that article, nursing home costs have risen substantially. In some parts of the country, average nursing home costs are approaching $100,000 per year and will surely continue to rise in the future. Long-term care isn't for everyone. Two groups of people will never need it-those with very high net worth and those with little or no net worth. Those with multi-million dollar portfolios can probably self-insure and pay for long-term care out of pocket. Those with little or no savings qualify for Medicaid, which means the government will pay for your nursing home care. Medicaid is the nursing-home equivalent of welfare, which means you won't likely get the best of care, but you won't be paying for it, either.
Table 22.1 shows the current and scheduled estate tax exemption equivalents and tax rates. Because of the sunset provision written into the current estate tax law, in 2011 the exemption limits and tax rates will revert back to the lower equivalent exemption and higher tax rates that were in effect in 2002, unless Congress acts to extend repeal or make it permanent. Due to these changing estate tax laws, high-net-worth individuals who would be subject to the estate tax may want to think about stipulating in their advance healthcare directive that, should they be on life support and declared by doctors to be in a persistent vegetative state with no hope of recovery late in the year 2009, they wish to be kept alive until the very beginning of 2010 before the life-support machines are disconnected. And, they may also want to state that if it's late in the year 2010, and they're on life support with no hope of recovery, they want to make sure any life-saving and life-extending measures are ended sometime before 2011.
algorithmic trading, asset allocation, asset-backed security, automated trading system, backtesting, Black Swan, Brownian motion, business process, capital asset pricing model, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, diversification, equity premium, fault tolerance, financial intermediation, fixed income, high net worth, implied volatility, index arbitrage, interest rate swap, inventory management, law of one price, Long Term Capital Management, Louis Bachelier, margin call, market friction, market microstructure, martingale, New Journalism, p-value, paper trading, performance metric, profit motive, purchasing power parity, quantitative trading / quantitative ﬁnance, random walk, Renaissance Technologies, risk tolerance, risk-adjusted returns, risk/return, Sharpe ratio, short selling, Small Order Execution System, statistical arbitrage, statistical model, stochastic process, stochastic volatility, systematic trading, trade route, transaction costs, value at risk, yield curve
Broker-dealers use inter-dealer brokers to quickly find the best price for a particular security among the network of other broker-dealers. Occasionally, broker-dealers also deal directly with other broker-dealers, particularly for less liquid instruments such as customized option contracts. Broker-dealers’ transacting clients are investment banking clients (institutional clients), large corporations (corporate clients), medium-sized firms (commercial clients), and high-net-worth individuals (HNW clients). Investment institutions can in turn be brokerages providing trading access to other, smaller institutions and individuals with smaller accounts (retail clients). Until the late 1990s, it was the broker-dealers who played the central and most profitable roles in the financial ecosystem; broker-dealers controlled clients’ access to the exchanges and were compensated handsomely for doing so.
The institutional investors, the well-capitalized professional investment outfits, were served by the elite class of institutional sales brokers that sought volume; the individual investors were assisted by the retail brokers that charged higher commissions. This hierarchical structure existed from the early 1920s through much of the 1990s when the advent of the 11 Evolution of High-Frequency Trading Commercial Clients Investment Banking Broker-Dealers Exchanges or Inter-dealer Brokers Corporate Clients Private Client Services Private Bank Institutional Investors High-Net-Worth Individuals Retail Clients FIGURE 2.3 Twentieth-century structure of capital markets. Internet uprooted the traditional order. At that time, a garden variety of online broker-dealers sprung up, ready to offer direct connectivity to the exchanges, and the broker structure flattened dramatically. Dealers trade large lots by aggregating their client orders. To ensure speedy execution for their clients on demand, dealers typically “run books”—inventories of securities that the dealers expand or shrink depending on their expectation of future demand and market conditions.
Figure 2.4 illustrates the resulting “distributed” nature of a typical modern network incorporating ECNs and dark pool structures. The lines connecting the network participants indicate possible dealing routes. Typically, only exchanges, ECNs, dark pools, broker-dealers, and retail brokerages have the ability to clear and settle the transactions, although Institutional Clients Dark Pool Exchange ECN Corporate Clients Investment Banking BrokerDealers Retail Brokerages Commercial Clients Retail Clients High-NetWorth Individuals FIGURE 2.4 Contemporary trading networks. Evolution of High-Frequency Trading 13 selected institutional clients, such as Chicago-based Citadel, have recently acquired broker-dealer arms of investment banks and are now able to clear all the trades in-house. EVOLUTION OF TRADING METHODOLOGY One of the earlier techniques that became popular with many traders was technical analysis.
Freedom Without Borders by Hoyt L. Barber
accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, banking crisis, diversification, El Camino Real, estate planning, fiat currency, financial independence, fixed income, high net worth, illegal immigration, interest rate swap, obamacare, offshore financial centre, passive income, quantitative easing, reserve currency, road to serfdom, too big to fail
Their services may vary, but the following services can be found: managed investment accounts offering excellent returns; precious metals trading accounts and physical bullion storage; investment banking, some specializing in areas like natural resource companies; investment brokerage accounts, in such areas as market access to stock, options, futures, forex, commodities, bonds, and precious metals in markets worldwide; and asset management and financial services to high-net-worth individuals, families, corporations, and trusts. Typically, and in compliance with Know Your Customer (KYC) rules required by most financial institutions worldwide in compliance with money-laundering regulations, certain personal identity documents, also known as due diligence documents (DDDs), are required. Institutions vary slightly in their requirements, but the minimum the bank will need to know and have substantiated proof of is your identity, as shown by a copy of a passport, and where you live, shown by a copy of a current utility bill.
Switzerland has had a lot to offer foreign investors in the form of sophisticated banking, with a wide array of banking services, financial accounts, investment knowledge, and personalized service. Switzerland’s financial community has attracted approximately one-quarter to one-third of the world’s private assets as a result of its banking and investment expertise. Today, its main focus is investment management of high-net-worth individuals from around the world, the crème de la crème of the banking world. Other countries, such as Singapore, are competing with Switzerland for the same business and have had some success; by doing so, they help to keep capital within their own region, and certainly under their control. Switzerland has been under attack for decades by the high-tax countries and some international organizations that would like to break Swiss banks open like a child’s piggy bank.
., Bahnhofstrasse 36, CH-8010 Zurich, Switzerland. Telephone 41 58 888 58 42. Fax 41 58 888 50 23. Website: www. juliusbaer.com. Swiss personal portfolio management. Minimum opening portfolio $500,000. Richard Colombik, International Tax Associates, 1111 Plaza Drive, Suite 430, Schaumburg, IL 60173. Telephone (847) 619-5700. Fax (847) 619-0971. E-mail: rcolom firstname.lastname@example.org. Asset management for high net worth individuals. Unique offshore insurance strategies. Neil J. George, Jr., Leeb Brokerage Services, 500 Fifth Avenue, Suite 3120, New York, NY 10110. Telephone (212) 246-3696. E-mail: email@example.com. Global markets. Adrian Hartmann/Mr. Robert Vrijhof, Weber Hartmann Vrijhof and Partners Ltd., Zurichatrasse 110B, CH-8134 Adilswil, Switzerland. Telephone 41 1 709 11 15. Fax 41 1 709 11 13. Independent portfolio management and Swiss banking.
Andrei Shleifer, asset-backed security, balance sheet recession, bank run, banking crisis, Ben Bernanke: helicopter money, Carmen Reinhart, collapse of Lehman Brothers, debt deflation, Edward Glaeser, en.wikipedia.org, financial innovation, full employment, high net worth, Home mortgage interest deduction, housing crisis, Joseph Schumpeter, Kenneth Rogoff, liquidity trap, Long Term Capital Management, market bubble, Martin Wolf, moral hazard, mortgage debt, paradox of thrift, quantitative easing, Robert Shiller, Robert Shiller, school choice, shareholder value, the payments system, the scientific method, tulip mania, young professional
But we shouldn’t think of the mortgage lender in this example as an independent entity. The mortgage lender uses money from savers in the economy. Savers give money to the bank either as deposits, debt, or equity, and are therefore the ultimate owners of the mortgage bank. When we say that the mortgage lender has the senior claim on the home, what we really mean is that savers in the economy have the senior claim on the home. Savers, who have high net worth, are protected against house-price declines much more than borrowers. Now let’s take a step back and consider the entire economy of borrowers and savers. When house prices in the aggregate collapse by 20 percent, the losses are concentrated on the borrowers in the economy. Given that borrowers already had low net worth before the crash (which is why they needed to borrow), the concentration of losses on them devastates their financial condition.
If the house price falls and the borrower sells, he must still pay back the full amount of the mortgage. The borrower has the junior claim on the home and therefore experiences the first losses associated with any decline in house prices. Borrowers tend to be households that have low net worth, which is exactly the reason they have to borrow to buy a home. Savers tend to be households that have high net worth. In the model, the savers lend directly to the borrowers, which is equivalent to saying the rich lend to the poor. In reality, of course, the savers put their money into a bank, a money-market fund, or direct holdings of financial assets such as stocks. That money finds its way into mortgages for the borrower. The point remains: Savers, through their financial holdings, have the senior claim on the underlying houses.
Of course, the exact same test can be performed for all jobs, not just those in the auto industry. And the evidence is pretty clear. The decline in non-tradable jobs catering to local demand was much larger in indebted counties experiencing the biggest drop in household net worth. But the decline in tradable jobs catering to national demand was widespread across the country. Figure 5.1 plots the pattern graphically. Just as in chapter 3, high net-worth-decline counties are the 20 percent of counties that experienced the largest drop in housing net worth during the recession, and low net-worth-decline counties are the 20 percent with the smallest drop. As the left panel illustrates, the drop in non-tradable jobs was much larger in counties getting hammered by the housing shock. But the right panel demonstrates how tradable jobs were lost at the same rate across the country.
No One Would Listen: A True Financial Thriller by Harry Markopolos
backtesting, barriers to entry, Bernie Madoff, call centre, centralized clearinghouse, correlation coefficient, diversified portfolio, Emanuel Derman, Eugene Fama: efficient market hypothesis, family office, fixed income, forensic accounting, high net worth, index card, Long Term Capital Management, Louis Bachelier, offshore financial centre, Ponzi scheme, price mechanism, quantitative trading / quantitative ﬁnance, regulatory arbitrage, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, statistical arbitrage, too big to fail, transaction costs
The SEC Division of Enforcement officially closed this investigation more than a year later, in November 2007. Their report acknowledged that Madoff had lied, or as they described it, “did not fully disclose” to the examiners “the nature of the trading conducted in the hedge fund accounts or the number of such accounts.” But even then they concluded, “The staff found no evidence of fraud. The staff did find, however, that BLM acted as an investment advisor to certain hedge funds, institutions and high net worth individuals in violation of the registration requirements of the Advisors Act. The staff also found that Fairfield Greenwich Group disclosures to its investors did not adequately describe BLM’s advisory role and described BLM as merely an executing broker to FFG’s accounts. As a result of discussions with the staff, BLM registered with the Commission as an investment advisor and FFG revised its disclosures to investors to reflect BLM’s advisory role.
There just wasn’t much more we could do to stop Madoff. All we could do was watch and wait for his inevitable downfall. And wait. And continue waiting. I never lost interest; whenever I had the opportunity I’d take a look at his returns—and always shake my head in disbelief. As I finally had to admit to Neil, “I hate to say it, but Bernie’s pulled off the perfect crime. He finds HFOFs that need his return stream to sell their stupid (high net worth) clients. He’s got to be managing at least $30 billion.” And as long as he was able to raise more money each month than he had to pay out, he could keep going indefinitely; by offering such a high and steady return, presumably he had attracted many clients who were using their investment with him as a savings account. Bernie was their bank; they invested their money with him and left it there, and it grew 10 percent a year, every year, far more than they possibly could earn anywhere else.
Tremont Capital Management, Inc. Corporate Headquarters is located at 555 Theodore Fremd Avenue; Rye, New York 10580; T: (914) 925-1140 F: (914) 921-3499. Tremont oversees on an advisory and fully discretionary basis over $10.5 billion in assets. Clients include institutional investors, public and private pension plans, ERISA plans, university endowments, foundations, and financial institutions, as well as high net worth individuals. Tremont is owned by Oppenhiemer Funds Inc. which is owned by Mass Mutual Insurance Company so they should have sufficient reserves to make investors whole. Mass Mutual is currently under investigation by the Massachusetts Attorney General, the Department of Justice, and the SEC. e. Kingate Fund run by FIM Advisers LLP is headquartered in London at 20 St. James Street; London SW1A 1ES; telephone # +44 20 7389 8900; fax # +44 20 7389 8911; www.fim-group.com/.
Realizing Tomorrow: The Path to Private Spaceflight by Chris Dubbs, Emeline Paat-dahlstrom, Charles D. Walker
Berlin Wall, call centre, desegregation, Donald Trump, Doomsday Book, Elon Musk, high net worth, Iridium satellite, iterative process, Jeff Bezos, Mikhail Gorbachev, multiplanetary species, Richard Feynman, Richard Feynman, Ronald Reagan, Search for Extraterrestrial Intelligence, Silicon Valley, Skype, Steve Jobs, Steve Wozniak, technoutopianism, V2 rocket, X Prize, young professional
In the tourism sector, two companies, Zegrahm Expeditions and Space Adventures (sA), commenced marketing suborbital flights in 1997, using their experience selling and marketing in the adventure travel business, just as SE had done more than a decade earlier. Zegrahm Expeditions is a luxury adventure travel company, founded in 199o, that offers high-end soft adventure programs on seven continents. Years of experience and luxury service had endeared the company to a loyal group of high-net-worth clients. Its president, Werner Zehnder, and vice president, Scott Fitzsimmons, had both worked for SE in the r98os. Zegrahm established its own space division, Zegrahm Space Voyages, and began offering its suborbital space flight program in 1997 by collecting $9,000 dollar deposits ($5,000 deposit + $4,000 flight insurance) for a $98,000 suborbital ride. The program materials offered a two-and-a-halfhour flight on the Space Cruiser System, to be developed by Vela Technology Development, Inc., an aerospace company headed by Pat Kelley, who had more than thirty years' experience in the space business, including missile warning satellites, launch vehicles, and missile defense projects.
As the business grew, Moltzan transitioned to sales, selling individual and corporate space and flight experiences, a role that included shepherding the company's suborbital clients. This contact with dozens of potential candidates gave him an understanding of the type of individual attracted to suborbital flights. "Everybody had a passion for space for slightly different reasons," Moltzan recalls. They were mostly male, in their mid-thirties and older. There were thrill seekers, pilots, and wanna-be astronauts who had significantly high net worth. Some were lured by the prospect of becoming the first citizen from their country to fly in space. By 2004 Moltzan was serving as director of business development. Traveling to Asia, the Middle East, Europe, and South America, he managed relationships with international organizations such as the Japanese advertising agency Dentsu and the Japanese Aerospace Exploration Agency (JAXA). He also visited companies that were interested in offering sA's suborbital program and space-related activities as unique employee incentives or promotional products that instantly generated "buzz" for their national or regional marketing campaigns.
Unlike its predecessors, which were strapped for cash to market suborbital flights, Virgin benefits from its global brand and large, wellfunded marketing machine. The company's suborbital booking structure is very similar to Zegrahm's and sA's. Clients wanting to be at the front of the line when flights become available are called Founders and are invited to book the first one hundred seats. Founders pay the full $200,000 upfront and are entitled to numerous perks and privileges, not to mention access to a social network of high-net-worth individuals. Other categories include Pioneers and Voyagers. Pioneers pay a deposit of $100,000 to $175,000 and are expected to fly within the first year of Virgin Galactic's operations. Voyagers, who pay $zo,ooo deposits, will follow the Pioneers, estimated to be after one thousand seats have gone up. Since 2005, public interest in spaceflight has increased dramatically. Virgin Galactic and Richard Branson became familiar names, synonymous with space tourism.
accounting loophole / creative accounting, airline deregulation, Andrei Shleifer, asset allocation, Bretton Woods, buy low sell high, capital asset pricing model, commodity trading advisor, corporate governance, discounted cash flows, diversification, diversified portfolio, fixed income, frictionless, high net worth, index fund, inflation targeting, invisible hand, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market bubble, merger arbitrage, new economy, passive investing, price mechanism, purchasing power parity, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, shareholder value, Sharpe ratio, short selling, statistical arbitrage, the market place, transaction costs, Y2K, yield curve
As with a traditional strategic asset allocation (SAA), the CAA approach is flexible and robust enough to accommodate differences in risk tolerances, investment objectives, and other investor constraints. But, it’s also flexible and robust enough to merge with, enhance, or outright revolutionize the approaches of various asset management firm types. In what follows, I summarize some investment advisors’ (with whom I am close friends) experiences to illustrate the CAA’s versatile approach. 144 Case Study: An Asset Management Firm for High-Net-Worth Individuals A financial-management firm based in Hawaii is our first case study. This firm’s investment philosophy is fairly straightforward, using a focused approach to produce consistent and rewarding performance for clients. Although this group offers a variety of portfolio-management approaches— including equity, balanced, fixed-income, and aggressive-growth options—it is best known for its balanced approach to meeting client objectives.
In the process, if she convinces the committee of the outlying forecast’s likelihood, the probabilities are revised accordingly. 146 UNDERSTANDING ASSET ALLOCATION Style Size Value Large 50% 70% Growth Chapter 8 The Cyclical Asset Allocation Strategy’s Versatility 50% Asset Type Benchmark/ETFs S&P BARRA Value S&P BARRA Growth Value Domestic Equities Mid 50% 50% 20% Growth 50% S&P 400 Value S&P 400 Growth Value World Small 50% 10% Growth 50% 100% S&P 600 Value S&P 600 Growth Cash Equivalent 25% Money Market Fund Short Term Fixed Income 25% 50% Intermediate Term 25% Lehman 1–3-Year Treasury Bond Lehman 7–10-Year Treasury Bond Long Term 25% Figure 8.1 Lehman 20+-Year Treasury Bond Strategic asset allocation for a manager of high-net-worth individuals. 147 Table 8.1 Investment advisory committee quarterly questionnaire. Economic Drivers Inflation Rate Rising Stable Falling Real Interest Rates Rising Stable Falling Taxes and Regulation Rising Stable Falling FX Dollar Value Rising Stable Falling P/E Ratio Expanding Stable Contracting Relative Attractiveness of Asset Class (10 Is Highest Likelihood) T-Bonds > Cash 0 1 2 3 4 5 6 7 8 9 10 Equities > T-Bonds 0 1 2 3 4 5 6 7 8 9 10 Value > Growth 0 1 2 3 4 5 6 7 8 9 10 Large-Cap > Mid-Cap 0 1 2 3 4 5 6 7 8 9 10 Mid-Cap > Small-Cap 0 1 2 3 4 5 6 7 8 9 10 Large-Cap > Small-Cap 0 1 2 3 4 5 6 7 8 9 10 U.S. > International 1 2 3 4 5 6 7 8 9 10 0 Are We a Consensus?
See cyclical asset allocation California energy crisis example (location effect), 194-198, 273 cap-weighted indexes versus equal-weighted indexes, 175-180, 242-245 capital asset pricing model (CAPM), 2-3, 19, 113, 253 capital gains, 72-73, 76-79, 83-84. See also return-delivery vehicles capital tax sensitivity (CATS), 213-214 capitalized earnings model (CEM), 90-100 CAPM (capital asset pricing model), 2-3, 19, 113, 253 Carhart, Mark, 165 case studies financial-management firm for high-net-worth, 145-146, 149 global financial management plan, 149-152 hedge funds, 157-161 lifecycle funds, 152-157 309 CATS (capital tax sensitivity), 213-214 CEM. See capitalized earnings model Clinton, William J., 55, 73, 76, 83, 90, 95, 238 commodities prices, location effect and, 201 consol, 91 consolidation, incentive for, 185 corporate behavior, tax-rate changes and, 68-70 capital gains, 76-79 debt financing, 73-76 incentive structure effects, 70-73, 80-84 corporate debt, 72-76.
The New Science of Asset Allocation: Risk Management in a Multi-Asset World by Thomas Schneeweis, Garry B. Crowder, Hossein Kazemi
asset allocation, backtesting, Bernie Madoff, Black Swan, capital asset pricing model, collateralized debt obligation, commodity trading advisor, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, fixed income, high net worth, implied volatility, index fund, interest rate swap, invisible hand, market microstructure, merger arbitrage, moral hazard, passive investing, Richard Feynman, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, risk-adjusted returns, risk/return, Sharpe ratio, short selling, statistical model, systematic trading, technology bubble, the market place, Thomas Kuhn: the structure of scientific revolutions, transaction costs, value at risk, yield curve
In fact, standard deviation merely offers an estimate of the probability of certain outcomes based on assumptions concerning the underlying asset’s return distribution. In brief, standard deviation offers an estimate of the degree to which (e.g., the probability) a bad or good outcome is greater or less than the expected outcome. A 20 Measuring Risk 21 It is probably important in a chapter on risk and a book that emphasizes risk management to lay one’s cards on the table early. Most of today’s retail investor and high net worth industry based asset allocation models are centered on too simple an approach to return and risk estimation. For the most part they are based on portfolio return and risk estimates derived from historical performance with the assumption that the future risk of an asset or a portfolio mirrors that of the past. Moreover, they do not take into account many types of risk (e.g., uncertain changes in inflation or regulatory environment), changing correlations between and among assets, new assets, or the vagaries or herd instincts of investors.
They appeal to a central neurosis of the capitalist psyche—the world is fair, all information is understandable, and all asset allocation models exist in an efficient market of ideas in which each model is well reviewed and tested such that—while differing in emphasis—each approach stands on solid ground of academic theory and practitioner experience. Many asset allocation programs are developed to meet the expectations of a retail and high net worth market that simply does not have the statistical or theoretical background to use more advanced asset allocation procedures, all of which have their own unique advantages and disadvantages. In the previous chapter we focused primarily on the evolution of return estimation and the necessity of concentrating on the conditional nature of expected returns; that is, if risk changes then return changes.
Will-Risk Aversion: The investor’s subjective disposition for taking risks, that is, how much risk the investor is willing to accept.3 ■ Know-how: An investor’s understanding of the financial market and its products is a major influence. The better the understanding, the higher the risk level an investor will accept. For instance, even though according to objective measures of risk, hedge funds are less risky than long equity positions, individual investors may avoid any allocation to hedge funds because of their lack of familiarity. An important task of a financial consultant is, therefore, to educate high net worth individuals about the risk-return characteristics of the various private equity opportunities and hedge fund strategies. ■ Positive Experience: Positive experiences with different asset classes in the past increase the willingness to take new risks (i.e., invest in unfamiliar asset classes). 119 Core and Satellite Investment: Market/Manager Based Alternatives BarCap US Corporate High-Yield Private Equity Index SPDR Barclays Capital High Yield Bond ETF S&P GSCI FTSE NAREIT ALL REITS CISDM EW HF Index CISDM CTA EW Index PowerShares Listed Private Equity Portfolio iShares S&P GSCI Commodity Indexed Trust iShares FTSE NAREIT Real Estate 50 Index Fund HF Replication CTA Replication 0.95 0.94 0.99 0.99 0.94 Lipper HI Cur Yld Bd Private Equity MF Lipper Nat Res Fd IX Lipper Real Estate Fd HF Investable (Mgr.
Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, implied volatility, income inequality, index fund, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, loss aversion, margin call, Mark Zuckerberg, McMansion, mortgage debt, mortgage tax deduction, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative ﬁnance, railway mania, randomized controlled trial, Richard Feynman, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application
Not everyone gets onto the site: around 70–80 percent of entrepreneurs are told by Crowdcube to provide more information in their business plans. That is often enough to put off the fly-by-night operators and the people who have had a bright idea in the pub. On the other side of the marketplace are the investors. Crowdcube is not quite open to all: people either have to self-certify that they are high net-worth individuals or sophisticated investors or have to fill out a questionnaire that is designed to weed out anyone who really doesn’t understand the risks of start-up investing. But the bar is not set very high. You get asked things like whether most start-ups (a) succeed or (b) fail, and whether the founders are obliged to pay you back if the company gets into trouble. This is not a test, more like a lengthy reminder that you are very likely to end up losing money if you play the VC game.
Lenders were often no better: like other auction sites, Prosper found that there was a small group of people whose goal was to win the auction no matter how low the rate they received as a result. This sort of foolishness is not just restricted to retail investors. MarketInvoice, an electronic platform in London that allows small firms to sell off their outstanding invoices at a discount, also used to run auctions. Its investors were not members of the public, but high-net-worth individuals, family offices, and specialist funds. Even so, it observed exactly the same kind of behavior, with investors determined to invest their allocation of money no matter what and bidding discounts down to minuscule levels. Prosper’s experiment with an auction system has long since ended. It now assesses borrowers itself and puts them into risk bands that come with a preordained interest rate attached.
Swimming With Sharks: My Journey into the World of the Bankers by Joris Luyendijk
bank run, barriers to entry, Bonfire of the Vanities, bonus culture, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, Emanuel Derman, financial deregulation, financial independence, Flash crash, glass ceiling, Gordon Gekko, high net worth, hiring and firing, inventory management, job-hopping, London Whale, Nick Leeson, offshore financial centre, regulatory arbitrage, shareholder value, sovereign wealth fund, the payments system, too big to fail
Sid worked at one such brokerage firm, as did the interdealer broker who made the point that only a few per cent in the City make ‘the huge sums’. Most people who do enjoy huge sums of money need someone to invest it for them, which brings us to the third and last vast continent: asset management. These firms charge a fee for investing the money entrusted to them not only by wealthy people (‘high net worth individuals’), but also from pension funds, oil-rich countries and insurance companies, who have to put their premiums somewhere. There are plain asset managers who tend to invest in relatively straightforward bonds and shares. In addition, there are private equity firms that use their investors’ capital to take over companies in order to sell them at a profit later on; hedge funds that follow ‘unorthodox’ investment strategies with high risks and rewards; while venture capitalists employ their expertise and clients’ capital to help promising small companies and entrepreneurs grow.
(Davies) 1 financial sector (see also bankers; banks; City; global financial crisis): amorality in 1, 2, 3, 4 ‘animal’ types within 1 blame culture in 1 blog’s negative comments on 1 Brown’s praise for 1 and caveat emptor 1, 2, 3, 4, 5, 6 and charity donations 1 code of silence governs 1, 2, 3, 4 competition vs co-operation in 1 countries/blocs played against each other by 1 ethical dilemmas in 1 immune to exposure 1 and insider jokes 1 IT’s role in 1, 2 and patches and workarounds 1 ‘map’ of 1 and mergers and acquisitions 1, 2, 3, 4 countries’ legal systems affected by 1 number of employees in 1 politicians identify with 1 post-crash books about 1, 2 PR people within 1, 2 and project finance 1 protest demonstrations against 1 regulators identify with 1 remuneration in 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 bonuses 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and leisure-time spending 1 restructuring in 1 scandals within 1, 2, 3 (see also rogue traders) Barings 1 FX 1, 2 HSBC 1, 2 JP Morgan 1, 2 LIBOR 1, 2, 3 London Whale, see Iksil, Bruno Société Générale 1 UBS 1 sport and war analogies within 1 whistle blowers within 1, 2, 3 women in, men’s attitudes towards 1 Financial Services Authority 1 Financial Times 1, 2 F9 model monkeys 1 Fool’s Gold (Tett) 1 Freud, Sigmund 1 Fukushima 1 FX scandal 1 GDP (gross domestic product) 1 Geithner, Timothy 1 Gekko, Gordon (film character) 1, 2 global financial crisis, see financial crash Goldman Sachs 1, 2, 3 as exception to short-termism 1 Geithner’s and Clinton’s lucrative speeches to 1 London trading floor of, a ‘toxic and destructive environment’ 1 as ‘pure’ investment bank 1 banking licence subsequently acquired by 1 Smith’s book on 1 Smith’s NYT piece on 1, 2 Goodfellas 1 greed 1, 2, 3, 4, 5, 6 gross domestic product (GDP) 1 Gross Misconduct: My Year of Excess in the City (Thompson) 1 Guardian: distrust of 1 finance blog of: first interviews posted on 1 ‘Going native …’ subtitle of 1 readers’ comments posted on 1, 2, 3, 4, 5, 6, 7, 8 responses to interviews on 1, 2 traditional banking said to be under-represented on 1 guardiannews.com/jlbankingblog, see under Guardian Haldane, Andrew 1 Halliburton 1 Hancock, Matthew 1 Harrington, William J 1 hedge funds 1, 2, 3 and ‘unorthodox’ investment strategies 1 high-frequency trading 1, 2, 3, 4 high-net-worth individuals 1 house prices 1 How I Caused the Credit Crunch: A Vivid and Personal Account of Banking Excess (Ishikawa) 1 HSBC 1 annual results announcement of 1, 2 and drugs money 1, 2 mixed investment–commercial nature of 1 human resources (HR) (see also recruitment), and redundancy 1, 2 Iksil, Bruno (‘London Whale’) 1, 2 incentives: and accountancy firms 1 ‘perverse’ 1, 2, 3, 4, 5 need to remove 1 short-termism encouraged by 1 Initial Public Offering (IPO) 1, 2 insurance: banking’s overlap with 1 enormous reach of 1 investment banks (see also banks): ‘animal’ types within 1 books about 1 as ‘casinos’ 1, 2, 3 and ‘castes’ 1 vs commercial 1, 2 commercial banks begin to take over 1 culpability of, in global financial crash 1 daily routine of 1, 2, 3 definition of, clarified 1 and dot-com bubble 1, 2, 3 job titles within 1, 2, 3 radically changed ownership structure of 1 and risk and compliance 1, 2, 3, 4, 5, 6 (see also regulators) risk-taker–risk-bearer dichotomy in 1 and ‘rock’n’roll trader’ 1 speculation by 1 subcultures engendered by 1 Iraq 1 Ishikawa, Tetsuya 1 IT 1, 2 jlbankingblog, see under Guardian job titles, in investment banks 1, 2, 3 JP Morgan 1 Blair’s role in 1, 2, 3 rogue trader at 1, 2 Kerviel, Jérôme 1 KPMG 1 Krugman, Paul 1 Lagarde, Christine 1 Large Hadron Collider 1 Leeson, Nick 1 Lehman Brothers: capital buffers of 1 collapse of 1, 2, 3, 4, 5 inadequate buffers of 1 as ‘pure’ investment bank 1 Lewis, Michael 1 Liar’s Poker (Lewis) 1, 2 LIBOR scandal 1, 2, 3 Lloyds, annual results announcement of 1, 2 London riots 1 London Stock Exchange, and ‘my word is my bond’ 1, 2 London Whale, see Iksil, Bruno Master of the Universe 1, 2, 3 Masters of Nothing: How the Crash Will Happen Again Unless We Understand Human Nature (Hancock, Zahawi) 1 Masters of the Universe 1 passim, 1, 2 (see also banker types) cold fish’s scorn for 1 criticism of sector resented by 1 sector readily defended by 1 megabanks 1 (see also banks) mergers and acquisitions 1, 2, 3, 4 countries’ legal systems affected by 1 Merrill Lynch 1 middle office 1, 2, 3, 4, 5 more power and status in, post-crash 1 Monkey Business: Swinging through the Wall Street Jungle (Rolfe, Troob) 1 Moody’s 1, 2 Morgan Grenfell 1 My Life as a Quant (Derman) 1 ‘my word is my bond’ 1, 2 neutrals 1, 2, 3, 4, 5, 6, 7 (see also banker types) in political parties 1 New York Times 1, 2, 3, 4 9, 5 trader exploits 1 Nissen, George 1 Occupy London 1 operational risk 1 The Origin of Financial Crises (Cooper) 1 ‘other people’s money’ mentality 1 Oxfam 1 Paulson, Hank 1 Permanent Subcommittee on Investigations (US) 1 politicians: as best chance to wrest power from financial sector 1 identification of, with financial sector 1 justified cynicism about 1 neutrals among 1 powerlessness of, in face of global finance 1 private schools formerly attended by 1 teeth grinders among 1 project finance 1, 2 prop trading 1, 2, 3, 4 Prudential Regulation Authority 1 PwC 1 quants (quantitative analysts) 1, 2, 3, 4 ‘animal’ types among 1 with Asperger’s 1, 2 geeks among 1 rating agencies 1, 2, 3, 4, 5 and CDOs 1 Moody’s 1, 2 ‘oligopoly’ of 1 paid by banks 1 RBS, annual results announcement of 1, 2 recruitment 1, 2 (see also redundancy) and short-termism 1 redundancy 1, 2, 3, 4, 5, 6 (see also recruitment) as ‘enhanced severance’ 1 as rite of passage 1 termed ‘the cull’ 1 in UK vs US 1, 2 and work-related visas 1 regulators 1 fighting symptoms rather than cause 1 and Financial Services Authority, Financial Conduct Authority, Prudential Regulation Authority 1 identification of, with financial sector 1 ‘idiots’ description applied to 1, 2 ‘losing people at all levels’ post-crash 1 numbers working for 1 and self-declaration 1 religion 1 remuneration 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 bonuses 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and leisure-time spending 1 restructuring 1 riots, in London 1 risk: ability to weigh 1 and departmental specialisations 1 managers, salaries of 1 operational 1 sovereign 1 takers of vs bearers of 1 risk and compliance 1, 2, 3, 4, 5, 6 (see also regulators) disparaged 1 and self-declaration 1 ‘rock’n’roll trader’ 1 rogue traders 1 at Barings 1, 2 at JP Morgan 1 at Société Générale 1 at UBS 1, 2 Rosenbaum, Ron 1 Rubin, Robert 1 Rusbridger, Alan 1 Saddam Hussein 1 Salomon Brothers 1 Samuel Montagu 1 Sants, Hector 1 scandals 1, 2, 3 (see also rogue traders) Barings 1 FX 1, 2 HSBC 1, 2 JP Morgan 1, 2 LIBOR 1, 2, 3 London Whale, see Iksil, Bruno Société Générale 1 UBS 1 school system, UK 1 Schroders 1 Schumer, Charles E 1 short-termism 1, 2 Sid (trader, broker) 1 passim, 1, 2 Smith Brothers 1 Smith, Greg 1, 2, 3, 4 social Darwinism 1 Société Générale 1 mixed investment–commercial nature of 1 Sorkin, Andrew Ross 1 sovereign risk 1 Sports Illustrated 1 Square Mile, see City Stcherbatcheff, Barbara 1 Stock Exchange, former 1 Summer, Lawrence 1 ‘tax optimisation’ 1 technical analysis 1 teeth grinders 1, 2, 3, 4 (see also banker types) in political parties 1 Tett, Gillian 1 ‘too big to fail’ 1, 2, 3, 4 and ability to blackmail 1 ‘too big to manage’ 1 Traders, Guns and Money (Das) 1 Twin Towers: terrorist attacks on 1, 2 trader exploits 1 UBS 1 rogue trader at 1 van Ees, Peter 1 Van Rompuy, Herman 1 venture capitalists 1 Verey, Michael 1 volatility 1 Voss, Rainer 1, 2, 3 Wall Street 1, 2, 3 Watergate 1 Wawoe, Kilian 1, 2 Weber, Axel 1 Weiser, Stanley 1 whistle blowers 1, 2, 3 ‘Why I Am Leaving Goldman Sachs’ (Smith) 1, 2 Why I Left Goldman Sachs (Smith) 1 The Wolf of Wall Street 1 Wolfe, Tom 1 working hours 1, 2, 3 World Trade Center: terrorist attacks on 1, 2 trader exploits 1 Zahawi, Nadhim 1 About the Author Joris Luyendijk was born in Amsterdam.
accounting loophole / creative accounting, Albert Einstein, Asian financial crisis, asset-backed security, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business process, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, disintermediation, diversification, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, locking in a profit, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, mutually assured destruction, new economy, New Journalism, Nick Leeson, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, purchasing power parity, quantitative trading / quantitative ﬁnance, random walk, regulatory arbitrage, risk-adjusted returns, risk/return, shareholder value, short selling, South Sea Bubble, statistical model, technology bubble, the medium is the message, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond
There were esoteric debates about what was now ‘structured’ or DAS_C08.QXP 8/7/06 4:49 PM Page 237 7 N G a m e s w i t h o u t f ro n t i e r s 237 ‘exotic’. The profitability of the business declined as price became the primary basis of competition amongst all the dealers. Smarter investors cunningly played them off to get better deals. Dealers began to seek new ways to improve profitability and started to market structured products directly to retail customers, the widows and orphans of legend. Retail customers were now HNWI (high net worth individuals); there was the ‘mass affluent’, surely an oxymoron. Structured product marketers set out into suburbia and strip malls. The logic was compelling – you had less sophisticated clients, the margins would be richer. In short, you could rip them off blind. In Europe individuals, when not dodging tax, were worrying about reduced investment returns. The creation of the euro brought new opportunities.
Pre-risk transfer Bank credit exposure to specified entities totalling US$1,000 million Post-risk transfer Risk US$950 million senior notes Investors (100 firms × $10 million each) US$30 million mezzanine notes US$20 million equity Sponsor bank Figure 9.4 Fully funded CDO capital structure The bank generally puts in all or most of the equity in the CDO. The mezzanine and senior notes are sold to investors. Insurance companies, fund managers and high net worth individuals buy these notes. For some obscure reason retirees and wealthy individuals in Australia and New Zealand are especially attracted to CDO mezzanine investments. The senior note holders get paid first. If there are losses then equity takes the first losses. If the losses are greater than the equity amount then the mezzanine investors get hit. Senior note holders take a smack only if the DAS_C10.QXD 5/3/07 7:59 PM Page 287 9 C re d i t w h e re c re d i t i s d u e – f u n w i t h C D S a n d C D O 287 losses on the underlying loans are above the equity and mezzanine amounts.
However, the text is different. 6 ‘What Worries Warren’ (3 March 2003) Fortune. 13_INDEX.QXD 17/2/06 4:44 pm Page 325 Index accounting rules 139, 221, 228, 257 Accounting Standards Board 33 accrual accounting 139 active fund management 111 actuaries 107–10, 205, 289 Advance Corporation Tax 242 agency business 123–4, 129 agency theory 117 airline profits 140–1 Alaska 319 Allen, Woody 20 Allied Irish Bank 143 Allied Lyons 98 alternative investment strategies 112, 308 American Express 291 analysts, role of 62–4 anchor effect 136 Anderson, Rolf 92–4 annuities 204–5 ANZ Bank 277 Aquinas, Thomas 137 arbitrage 33, 38–40, 99, 114, 137–8, 171–2, 245–8, 253–5, 290, 293–6 arbitration 307 Argentina 45 arithmophobia 177 ‘armpit theory’ 303 Armstrong World Industries 274 arrears assets 225 Ashanti Goldfields 97–8, 114 Asian financial crisis (1997) 4, 9, 44–5, 115, 144, 166, 172, 207, 235, 245, 252, 310, 319 asset consultants 115–17, 281 ‘asset growth’ strategy 255 asset swaps 230–2 assets under management (AUM) 113–4, 117 assignment of loans 267–8 AT&T 275 attribution of earnings 148 auditors 144 Australia 222–4, 254–5, 261–2 back office functions 65–6 back-to-back loans 35, 40 backwardation 96 Banca Popolare di Intra 298 Bank of America 298, 303 Bank of International Settlements 50–1, 281 Bank of Japan 220 Bankers’ Trust (BT) 59, 72, 101–2, 149, 217–18, 232, 268–71, 298, 301, 319 banking regulations 155, 159, 162, 164, 281, 286, 288 banking services 34; see also commercial banks; investment banks bankruptcy 276–7 Banque Paribas 37–8, 232 Barclays Bank 121–2, 297–8 13_INDEX.QXD 17/2/06 326 4:44 pm Page 326 Index Baring, Peter 151 Baring Brothers 51, 143, 151–2, 155 ‘Basel 2’ proposal 159 basis risk 28, 42, 274 Bear Stearns 173 bearer eurodollar collateralized securities (BECS) 231–3 ‘behavioural finance’ 136 Berkshire Hathaway 19 Bermudan options 205, 227 Bernstein, Peter 167 binomial option pricing model 196 Bismarck, Otto von 108 Black, Fischer 22, 42, 160, 185, 189–90, 193, 195, 197, 209, 215 Black–Scholes formula for option pricing 22, 185, 194–5 Black–Scholes–Merton model 160, 189–93, 196–7 ‘black swan’ hypothesis 130 Blair, Tony 223 Bogle, John 116 Bohr, Niels 122 Bond, Sir John 148 ‘bond floor’ concept 251–4 bonding 75–6, 168, 181 bonuses 146–51, 244, 262, 284–5 Brady Commission 203 brand awareness and brand equity 124, 236 Brazil 302 Bretton Woods system 33 bribery 80, 303 British Sky Broadcasting (BSB) 247–8 Brittain, Alfred 72 broad index secured trust offerings (BISTROs) 284–5 brokers 69, 309 Brown, Robert 161 bubbles 210, 310, 319 Buconero 299 Buffet, Warren 12, 19–20, 50, 110–11, 136, 173, 246, 316 business process reorganization 72 business risk 159 Business Week 130 buy-backs 249 ‘call’ options 25, 90, 99, 101, 131, 190, 196 callable bonds 227–9, 256 capital asset pricing model (CAPM) 111 capital flow 30 capital guarantees 257–8 capital structure arbitrage 296 Capote, Truman 87 carbon trading 320 ‘carry cost’ model 188 ‘carry’ trades 131–3, 171 cash accounting 139 catastrophe bonds 212, 320 caveat emptor principle 27, 272 Cayman Islands 233–4 Cazenove (company) 152 CDO2 292 Cemex 249–50 chaos theory 209, 312 Chase Manhattan Bank 143, 299 Chicago Board Options Exchange 195 Chicago Board of Trade (CBOT) 25–6, 34 chief risk officers 177 China 23–5, 276, 302–4 China Club, Hong Kong 318 Chinese walls 249, 261, 280 chrematophobia 177 Citibank and Citigroup 37–8, 43, 71, 79, 94, 134–5, 149, 174, 238–9 Citron, Robert 124–5, 212–17 client relationships 58–9 Clinton, Bill 223 Coats, Craig 168–9 collateral requirements 215–16 collateralized bond obligations (CBOs) 282 collateralized debt obligations (CDOs) 45, 282–99 13_INDEX.QXD 17/2/06 4:44 pm Page 327 Index collateralized fund obligations (CFOs) 292 collateralized loan obligations (CLOs) 283–5, 288 commercial banks 265–7 commoditization 236 commodity collateralized obligations (CCOs) 292 commodity prices 304 Commonwealth Bank of Australia 255 compliance officers 65 computer systems 54, 155, 197–8 concentration risk 271, 287 conferences with clients 59 confidence levels 164 confidentiality 226 Conseco 279–80 contagion crises 291 contango 96 contingent conversion convertibles (co-cos) 257 contingent payment convertibles (co-pays) 257 Continental Illinois 34 ‘convergence’ trading 170 convertible bonds 250–60 correlations 163–6, 294–5; see also default correlations corruption 303 CORVUS 297 Cox, John 196–7 credit cycle 291 credit default swaps (CDSs) 271–84, 293, 299 credit derivatives 129, 150, 265–72, 282, 295, 299–300 Credit Derivatives Market Practices Committee 273, 275, 280–1 credit models 294, 296 credit ratings 256–7, 270, 287–8, 297–8, 304 credit reserves 140 credit risk 158, 265–74, 281–95, 299 327 credit spreads 114, 172–5, 296 Credit Suisse 70, 106, 167 credit trading 293–5 CRH Capital 309 critical events 164–6 Croesus 137 cross-ruffing 142 cubic splines 189 currency options 98, 218, 319 custom repackaged asset vehicles (CRAVEs) 233 daily earning at risk (DEAR) concept 160 Daiwa Bank 142 Daiwa Europe 277 Danish Oil and Natural Gas 296 data scrubbing 142 dealers, work of 87–8, 124–8, 133, 167, 206, 229–37, 262, 295–6; see also traders ‘death swap’ strategy 110 decentralization 72 decision-making, scientific 182 default correlations 270–1 defaults 277–9, 287, 291, 293, 296, 299 DEFCON scale 156–7 ‘Delta 1’ options 243 delta hedging 42, 200 Deming, W.E. 98, 101 Denmark 38 deregulation, financial 34 derivatives trading 5–6, 12–14, 18–72, 79, 88–9, 99–115, 123–31, 139–41, 150, 153, 155, 175, 184–9, 206–8, 211–14, 217–19, 230, 233, 257, 262–3, 307, 316, 319–20; see also equity derivatives Derman, Emmanuel 185, 198–9 Deutsche Bank 70, 104, 150, 247–8, 274, 277 devaluations 80–1, 89, 203–4, 319 13_INDEX.QXD 17/2/06 4:44 pm Page 328 328 Index dilution of share capital 241 DINKs 313 Disney Corporation 91–8 diversification 72, 110–11, 166, 299 dividend yield 243 ‘Dr Evil’ trade 135 dollar premium 35 downsizing 73 Drexel Burnham Lambert (DBL) 282 dual currency bonds 220–3; see also reverse dual currency bonds earthquakes, bonds linked to 212 efficient markets hypothesis 22, 31, 111, 203 electronic trading 126–30, 134 ‘embeddos’ 218 emerging markets 3–4, 44, 115, 132–3, 142, 212, 226, 297 Enron 54, 142, 250, 298 enterprise risk management (ERM) 176 equity capital management 249 equity collateralized obligations (ECOs) 292 equity derivatives 241–2, 246–9, 257–62 equity index 137–8 equity investment, retail market in 258–9 equity investors’ risk 286–8 equity options 253–4 equity swaps 247–8 euro currency 171, 206, 237 European Bank for Reconstruction and Development 297 European currency units 93 European Union 247–8 Exchange Rate Mechanism, European 204 exchangeable bonds 260 expatriate postings 81–2 expert witnesses 310–12 extrapolation 189, 205 extreme value theory 166 fads of management science 72–4 ‘fairway bonds’ 225 Fama, Eugene 22, 111, 194 ‘fat tail’ events 163–4 Federal Accounting Standards Board 266 Federal Home Loans Bank 213 Federal National Mortgage Association 213 Federal Reserve Bank 20, 173 Federal Reserve Board 132 ‘Ferraris’ 232 financial engineering 228, 230, 233, 249–50, 262, 269 Financial Services Authority (FSA), Japan 106, 238 Financial Services Authority (FSA), UK 15, 135 firewalls 235–6 firing of staff 84–5 First Interstate Ltd 34–5 ‘flat’ organizations 72 ‘flat’ positions 159 floaters 231–2; see also inverse floaters ‘flow’ trading 60–1, 129 Ford Motors 282, 296 forecasting 135–6, 190 forward contracts 24–33, 90, 97, 124, 131, 188 fugu fish 239 fund management 109–17, 286, 300 futures see forward contracts Galbraith, John Kenneth 121 gamma risk 200–2, 294 Gauss, Carl Friedrich 160–2 General Motors 279, 296 General Reinsurance 20 geometric Brownian motion (GBM) 161 Ghana 98 Gibson Greeting Cards 44 Glass-Steagall Act 34 gold borrowings 132 13_INDEX.QXD 17/2/06 4:44 pm Page 329 Index gold sales 97, 137 Goldman Sachs 34, 71, 93, 150, 173, 185 ‘golfing holiday bonds’ 224 Greenspan, Alan 6, 9, 19–21, 29, 43, 47, 50, 53, 62, 132, 159, 170, 215, 223, 308 Greenwich NatWest 298 Gross, Bill 19 Guangdong International Trust and Investment Corporation (GITIC) 276–7 guaranteed annuity option (GAO) contracts 204–5 Gutenfreund, John 168–9 gyosei shido 106 Haghani, Victor 168 Hamanaka, Yasuo 142 Hamburgische Landesbank 297 Hammersmith and Fulham, London Borough of 66–7 ‘hara-kiri’ swaps 39 Hartley, L.P. 163 Hawkins, Greg 168 ‘heaven and hell’ bonds 218 hedge funds 44, 88–9, 113–14, 167, 170–5, 200–2, 206, 253–4, 262–3, 282, 292, 296, 300, 308–9 hedge ratio 264 hedging 24–8, 31, 38–42, 60, 87–100, 184, 195–200, 205–7, 214, 221, 229, 252, 269, 281, 293–4, 310 Heisenberg, Werner 122 ‘hell bonds’ 218 Herman, Clement (‘Crem’) 45–9, 77, 84, 309 Herodotus 137, 178 high net worth individuals (HNWIs) 237–8, 286 Hilibrand, Lawrence 168 Hill Samuel 231–2 329 The Hitchhiker’s Guide to the Galaxy 189 Homer, Sidney 184 Hong Kong 9, 303–4 ‘hot tubbing’ 311–12 HSBC Bank 148 HSH Nordbank 297–8 Hudson, Kevin 102 Hufschmid, Hans 77–8 IBM 36, 218, 260 ICI 34 Iguchi, Toshihude 142 incubators 309 independent valuation 142 indexed currency option notes (ICONs) 218 India 302 Indonesia 5, 9, 19, 26, 55, 80–2, 105, 146, 219–20, 252, 305 initial public offerings 33, 64, 261 inside information and insider trading 133, 241, 248–9 insurance companies 107–10, 117, 119, 150, 192–3, 204–5, 221, 223, 282, 286, 300; see also reinsurance companies insurance law 272 Intel 260 intellectual property in financial products 226 Intercontinental Hotels Group (IHG) 285–6 International Accounting Standards 33 International Securities Market Association 106 International Swap Dealers Association (ISDA) 273, 275, 279, 281 Internet stock and the Internet boom 64, 112, 259, 261, 310, 319 interpolation of interest rates 141–2, 189 inverse floaters 46–51, 213–16, 225, 232–3 13_INDEX.QXD 17/2/06 4:44 pm Page 330 330 Index investment banks 34–8, 62, 64, 67, 71, 127–8, 172, 198, 206, 216–17, 234, 265–7, 298, 309 investment managers 43–4 investment styles 111–14 irrational decisions 136 Italy 106–7 Ito’s Lemma 194 Japan 39, 43, 82–3, 92, 94, 98–9, 101, 106, 132, 142, 145–6, 157, 212, 217–25, 228, 269–70 Jensen, Michael 117 Jett, Joseph 143 JP Morgan (company) 72, 150, 152, 160, 162, 249–50, 268–9, 284–5, 299; see also Morgan Guaranty junk bonds 231, 279, 282, 291, 296–7 JWM Associates 175 Kahneman, Daniel 136 Kaplanis, Costas 174 Kassouf, Sheen 253 Kaufman, Henry 62 Kerkorian, Kirk 296 Keynes, J.M. 167, 175, 198 Keynesianism 5 Kidder Peabody 143 Kleinwort Benson 40 Korea 9, 226, 278 Kozeny, Viktor 121 Krasker, William 168 Kreiger, Andy 319 Kyoto Protocol 320 Lavin, Jack 102 law of large numbers 192 Leeson, Nick 51, 131, 143, 151 legal opinions 47, 219–20, 235, 273–4 Leibowitz, Martin 184 Leland, Hayne 42, 202 Lend Lease Corporation 261–2 leptokurtic conditions 163 leverage 31–2, 48–50, 54, 99, 102–3, 114, 131–2, 171–5, 213–14, 247, 270–3, 291, 295, 305, 308 Lewis, Kenneth 303 Lewis, Michael 77–8 life insurance 204–5 Lintner, John 111 liquidity options 175 liquidity risk 158, 173 litigation 297–8 Ljunggren, Bernt 38–40 London Inter-Bank Offered Rate (LIBOR) 6, 37 ‘long first coupon’ strategy 39 Long Term Capital Management (LTCM) 44, 51, 62, 77–8, 84, 114, 166–75, 187, 206, 210, 215–18, 263–4, 309–10 Long Term Credit Bank of Japan 94 LOR (company) 202 Louisiana Purchase 319 low exercise price options (LEPOs) 261 Maastricht Treaty and criteria 106–7 McLuhan, Marshall 134 McNamara, Robert 182 macro-economic indicators, derivatives linked to 319 Mahathir Mohammed 31 Malaysia 9 management consultants 72–3 Manchester United 152 mandatory convertibles 255 Marakanond, Rerngchai 302 margin calls 97–8, 175 ‘market neutral’ investment strategy 114 market risk 158, 173, 265 marketable eurodollar collateralized securities (MECS) 232 Markowitz, Harry 110 mark-to-market accounting 10, 100, 139–41, 145, 150, 174, 215–16, 228, 244, 266, 292, 295, 298 Marx, Groucho 24, 57, 67, 117, 308 13_INDEX.QXD 17/2/06 4:44 pm Page 331 Index mathematics applied to financial instruments 209–10; see also ‘quants’ matrix structures 72 Meckling, Herbert 117 Melamed, Leo 34, 211 merchant banks 38 Meriwether, John 167–9, 172–5 Merrill Lynch 124, 150, 217, 232 Merton, Robert 22, 42, 168–70, 175, 185, 189–90, 193–7, 210 Messier, Marie 247 Metallgesellschaft 95–7 Mexico 44 mezzanine finance 285–8, 291–7 MG Refining and Marketing 95–8, 114 Microsoft 53 Mill, Stuart 130 Miller, Merton 22, 101, 194 Milliken, Michael 282 Ministry of Finance, Japan 222 misogyny 75–7 mis-selling 238, 297–8 Mitchell, Edison 70 Mitchell & Butler 275–6 models financial 42–3, 141–2, 163–4, 173–5, 181–4, 189, 198–9, 205–10 of business processes 73–5 see also credit models Modest, David 168 momentum investment 111 monetization 260–1 monopolies in financial trading 124 moral hazard 151, 280, 291 Morgan Guaranty 37–8, 221, 232 Morgan Stanley 76, 150 mortgage-backed securities (MBSs) 282–3 Moscow, City of 277 moves of staff between firms 150, 244 Mozer, Paul 169 Mullins, David 168–70 multi-skilling 73 331 Mumbai 3 Murdoch, Rupert 247 Nabisco 220 Napoleon 113 NASDAQ index 64, 112 Nash, Ogden 306 National Australia Bank 144, 178 National Rifle Association 29 NatWest Bank 144–5, 198 Niederhoffer, Victor 130 ‘Nero’ 7, 31, 45–9, 60, 77, 82–3, 88–9, 110, 118–19, 125, 128, 292 NERVA 297 New Zealand 319 Newman, Frank 104 news, financial 133–4 News Corporation 247 Newton, Isaac 162, 210 Nippon Credit Bank 106, 271 Nixon, Richard 33 Nomura Securities 218 normal distribution 160–3, 193, 199 Northern Electric 248 O’Brien, John 202 Occam, William 188 off-balance sheet transactions 32–3, 99, 234, 273, 282 ‘offsites’ 74–5 oil prices 30, 33, 89–90, 95–7 ‘omitted variable’ bias 209–10 operational risk 158, 176 opinion shopping 47 options 9, 21–2, 25–6, 32, 42, 90, 98, 124, 197, 229 pricing 185, 189–98, 202 Orange County 16, 44, 50, 124–57, 212–17, 232–3 orphan subsidiaries 234 over-the-counter (OTC) market 26, 34, 53, 95, 124, 126 overvaluation 64 13_INDEX.QXD 17/2/06 4:44 pm Page 332 332 Index ‘overwhelming force’ strategy 134–5 Owen, Martin 145 ownership, ‘legal’ and ‘economic’ 247 parallel loans 35 pari-mutuel auction system 319 Parkinson’s Law 136 Parmalat 250, 298–9 Partnoy, Frank 87 pension funds 43, 108–10, 115, 204–5, 255 People’s Bank of China (PBOC) 276–7 Peters’ Principle 71 petrodollars 71 Pétrus (restaurant) 121 Philippines, the 9 phobophobia 177 Piga, Gustavo 106 PIMCO 19 Plaza Accord 38, 94, 99, 220 plutophobia 177 pollution quotas 320 ‘portable alpha’ strategy 115 portfolio insurance 112, 202–3, 294 power reverse dual currency (PRDC) bonds 226–30 PowerPoint 75 preferred exchangeable resettable listed shares (PERLS) 255 presentations of business models 75 to clients 57, 185 prime brokerage 309 Prince, Charles 238 privatization 205 privity of contract 273 Proctor & Gamble (P&G) 44, 101–4, 155, 298, 301 product disclosure statements (PDSs) 48–9 profit smoothing 140 ‘programme’ issuers 234–5 proprietary (‘prop’) trading 60, 62, 64, 130, 174, 254 publicly available information (PAI) 277 ‘puff’ effect 148 purchasing power parity theory 92 ‘put’ options 90, 131, 256 ‘quants’ 183–9, 198, 208, 294 Raabe, Matthew 217 Ramsay, Gordon 121 range notes 225 real estate 91, 219 regulatory arbitrage 33 reinsurance companies 288–9 ‘relative value’ trading 131, 170–1, 310 Reliance Insurance 91–2 repackaging (‘repack’) business 230–6, 282, 290 replication in option pricing 195–9, 202 dynamic 200 research provided to clients 58, 62–4, 184 reserves, use of 140 reset preference shares 254–7 restructuring of loans 279–81 retail equity products 258–9 reverse convertibles 258–9 reverse dual currency bonds 223–30 ‘revolver’ loans 284–5 risk, financial, types of 158 risk adjusted return on capital (RAROC) 268, 290 risk conservation principle 229–30 risk management 65, 153–79, 184, 187, 201, 267 risk models 163–4, 173–5 riskless portfolios 196–7 RJ Reynolds (company) 220–1 rogue traders 176, 313–16 Rosenfield, Eric 168 Ross, Stephen 196–7, 202 Roth, Don 38 Rothschild, Mayer Amshel 267 Royal Bank of Scotland 298 Rubinstein, Mark 42, 196–7 13_INDEX.QXD 17/2/06 4:44 pm Page 333 Index Rumsfeld, Donald 12, 134, 306 Rusnak, John 143 Russia 45, 80, 166, 172–3, 274, 302 sales staff 55–60, 64–5, 125, 129, 217 Salomon Brothers 20, 36, 54, 62, 167–9, 174, 184 Sandor, Richard 34 Sanford, Charles 72, 269 Sanford, Eugene 269 Schieffelin, Allison 76 Scholes, Myron 22, 42, 168–71, 175, 185, 189–90, 193–7, 263–4 Seagram Group 247 Securities and Exchange Commission, US 64, 304 Securities and Futures Authority, UK 249 securitization 282–90 ‘security design’ 254–7 self-regulation 155 sex discrimination 76 share options 250–1 Sharpe, William 111 short selling 30–1, 114 Singapore 9 single-tranche CDOs 293–4, 299 ‘Sisters of Perpetual Ecstasy’ 234 SITCOMs 313 Six Continents (6C) 275–6 ‘smile’ effect 145 ‘snake’ currency system 203 ‘softing’ arrangements 117 Solon 137 Soros, George 44, 130, 253, 318–19 South Sea Bubble 210 special purpose asset repackaging companies (SPARCs) 233 special purpose vehicles (SPVs) 231–4, 282–6, 290, 293 speculation 29–31, 42, 67, 87, 108, 130 ‘spinning’ 64 333 Spitzer, Eliot 64 spread 41, 103; see also credit spreads stack hedges 96 Stamenson, Michael 124–5 standard deviation 161, 193, 195, 199 Steinberg, Sol 91 stock market booms 258, 260 stock market crashes 42–3, 168, 203, 257, 259, 319 straddles or strangles 131 strategy in banking 70 stress testing 164–6 stripping of convertible bonds 253–4 structured investment products 44, 112, 115, 118, 128, 211–39, 298 structured note asset packages (SNAPs) 233 Stuart SC 18, 307, 316–18 Styblo Bleder, Tanya 153 Suharto, Thojib 81–2 Sumitomo Corporation 100, 142 Sun Tzu 61 Svensk Exportkredit (SEK) 38–9 swaps 5–10, 26, 35–40, 107, 188, 211; see also equity swaps ‘swaptions’ 205–6 Swiss Bank Corporation (SBC) 248–9 Swiss banks 108, 305 ‘Swiss cheese theory’ 176 synthetic securitization 284–5, 288–90 systemic risk 151 Takeover Panel 248–9 Taleb, Nassim 130, 136, 167 target redemption notes 225–6 tax and tax credits 171, 242–7, 260–3 Taylor, Frederick 98, 101 team-building exercises 76 team moves 149 technical analysis 60–1, 135 television programmes about money 53, 62–3 Thailand 9, 80, 302–5 13_INDEX.QXD 17/2/06 4:44 pm Page 334 334 Index Thatcher, Margaret 205 Thorp, Edward 253 tobashi trades 105–7 Tokyo Disneyland 92, 212 top managers 72–3 total return swaps 246–8, 269 tracking error 138 traders in financial products 59–65, 129–31, 135–6, 140, 148, 151, 168, 185–6, 198; see also dealers trading limits 42, 157, 201 trading rooms 53–4, 64, 68, 75–7, 184–7, 208 Trafalgar House 248 tranching 286–9, 292, 296 transparency 26, 117, 126, 129–30, 310 Treynor, Jack 111 trust investment enhanced return securities (TIERS) 216, 233 trust obligation participating securities (TOPS) 232 TXU Europe 279 UBS Global Asset Management 110, 150, 263–4, 274 uncertainty principle 122–3 unique selling propositions 118 unit trusts 109 university education 187 unspecified fund obligations (UFOs) 292 ‘upfronting’ of income 139, 151 Valéry, Paul 163 valuation 64, 142–6 value at risk (VAR) concept 160–7, 173 value investing 111 Vanguard 116 vanity bonds 230 variance 161 Vietnam War 182, 195 Virgin Islands 233–4 Vivendi 247–8 volatility of bond prices 197 of interest rates 144–5 of share prices 161–8, 172–5, 192–3, 199 Volcker, Paul 20, 33 ‘warehouses’ 40–2, 139 warrants arbitrage 99–101 weather, bonds linked to 212, 320 Weatherstone, Dennis 72, 268 Weil, Gotscal & Manges 298 Weill, Sandy 174 Westdeutsche Genosenschafts Zentralbank 143 Westminster Group 34–5 Westpac 261–2 Wheat, Allen 70, 72, 106, 167 Wojniflower, Albert 62 World Bank 4, 36, 38 World Food Programme 320 Worldcom 250, 298 Wriston, Walter 71 WTI (West Texas Intermediate) contracts 28–30 yield curves 103, 188–9, 213, 215 yield enhancement 112, 213, 269 ‘yield hogs’ 43 zaiteku 98–101, 104–5 zero coupon bonds 221–2, 257–8
A Game as Old as Empire: The Secret World of Economic Hit Men and the Web of Global Corruption by Steven Hiatt; John Perkins
airline deregulation, Andrei Shleifer, Asian financial crisis, Berlin Wall, big-box store, Bretton Woods, British Empire, capital controls, centre right, clean water, colonial rule, corporate governance, corporate personhood, deglobalization, deindustrialization, Doha Development Round, energy security, European colonialism, financial deregulation, financial independence, full employment, global village, high net worth, land reform, large denomination, Long Term Capital Management, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, Naomi Klein, new economy, North Sea oil, offshore financial centre, oil shock, Ponzi scheme, race to the bottom, reserve currency, Ronald Reagan, Scramble for Africa, statistical model, structural adjustment programs, too big to fail, trade liberalization, transatlantic slave trade, transfer pricing, union organizing, Washington Consensus, working-age population, Yom Kippur War
He has also been associated with drug trafficking, illicit arms sales, and other forms of corruption. In 2005, Augusto Pinochet and several close family members were placed under investigation for tax evasion and fraud. Sea, Sand, and Secrecy Jersey in the mid-1980s was enjoying an extraordinary economic boom. In the previous decade dozens of major banks from around the world had set up offshore subsidiaries to handle the rapid growth of private banking services for their high-net-worth clients. Law firms and major accounting businesses had also set up offshore subsidiaries to provide administration and trust services for their business and private clients. Just a forty-five-minute flight from London, Jersey is well situated to provide offshore services to the City of London, itself a major offshore tax haven. As early as the 1960s, local law firms, keen to follow the examples set by Bermuda and the Cayman Islands, promoted a series of regulatory and statutory changes to Jersey’s government that cumulatively created what the business community likes to call “an attractive offshore investment environment.”
The multinational accounting and consulting firm KPMG epitomizes this arrogant and subversive attitude. The corporate culture within its tax department was exposed when a U.S. Senate investigating committee revealed internal memos, e-mails, and other correspondence obtained from the accounting business in 2003. In one e-mail, Gregg Ritchie, a senior KPMG tax adviser, alerted Jeff Stein, head of KPMG’s tax practice, that, even if regulators took action against the firm’s tax strategies for high-net-worth clients, the potential profit from these deals exceeded any possible court penalties. “Our average deal,” Ritchie noted, “would result in KPMG fees of $360,000 with a maximum exposure of only $31,000.” Another internal document contained a warning that, if the company were to comply with the legal requirements of the IRS relating to the registration of tax shelters, KPMG would “not be able to compete in the tax-advantaged products market.”
In a short article entitled “The Department of You Can’t Make It Up,” British satirical magazine Private Eye reported that the Shin Corporation sale was routed via a British Virgin Islands company, suitably called Ample Rich Investments, to avoid paying tax.16 Or what about Britain’s Labour Party, which has held power since 1997 and receives one donation after another from prominent supporters with offshore accounts? This culture of corruption has become the norm. Her Majesty’s Loyal Tax Avoiders It might seem to casual observers that the offshore world in which I and my colleagues were working is remote from the economy of the “real” world, but in fact offshore banking lies at the core of a globalized financial system that enables businesses and the superrich, known within banking circles as high-net-worth individuals (HNWIs, or “hen-wees”), to operate beyond the reach of onshore public or legal authority. The offshore economy began to emerge as a significant feature in the 1960s when huge volumes of petrodollars started to accumulate in Europe. The globalization of the financial system was catalyzed by a variety of factors, most notably liberalization of financial transactions through the removal of international exchange controls, the demise of the fixed-rate exchange mechanisms conceived at Bretton Woods in 1944, the extensive deregulation of financial markets during the 1980s, and the emergence of new communication technologies that put money transfers into effect at the click of a mouse.
The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja, Myron Scholes, Mohamed El-Erian
Asian financial crisis, asset allocation, asset-backed security, backtesting, Bernie Madoff, Bretton Woods, business process, call centre, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, en.wikipedia.org, family office, fixed income, high net worth, interest rate derivative, Isaac Newton, Long Term Capital Management, Mark Zuckerberg, merger arbitrage, NetJets, oil shock, pattern recognition, Ponzi scheme, quantitative easing, quantitative trading / quantitative ﬁnance, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, systematic trading
Investors appreciate that level of focus on the portfolio, which is part of the reason Avenue has been able to continue to raise new funds over the years. The firm’s investor base has undergone a dramatic evolution from its start in 1995, when its capital came from friends and family. At the end of 2011, public and corporate pension fund capital comprised over 50 percent of the firm’s assets. Foundations, endowments, family offices, and insurance companies made up much of the remainder, with less than one percent drawn from high-net-worth individuals. Charles Spiller, Director of the Pennsylvania Public School Employees Retirement System, started investing with Avenue after an introduction from New York Life in late 2000 and has seen a 10-year track record in their private equity portfolio of between 15 percent and 17 percent. “Beyond being impressed with their track record, I was attracted to their very conservative utilization of debt—they really didn’t lever their portfolio,” Spiller says.
Like most investors, Loeb suffered during the financial crisis and the turbulence that immediately preceded it. In July 2007, amid great optimism, Loeb launched a public vehicle, Third Point Offshore Investors Limited, which was the first permanent capital vehicle for a U.S.-domiciled fund in Europe, and also the first float of an event-driven fund anywhere. Although staked at inception with investments from several large funds of hedge funds and high-net-worth investors, and with long holdings that included the New York Stock Exchange, DaimlerChrysler, and Phillips Electronics, it sailed into the first fears of market meltdown and struggled to meet its capital target. The initial public offering (IPO) managed to raise $525 million from listing a fund in London after a 24-hour delay, below its $690 million target but not a bad outcome given the uncertainty facing the markets at that time.
asset allocation, Bernie Madoff, Cass Sunstein, Credit Default Swap, David Brooks, delayed gratification, diversification, diversified portfolio, Donald Trump, Elliott wave, en.wikipedia.org, estate planning, financial innovation, Flash crash, game design, greed is good, high net worth, impulse control, income inequality, index fund, London Whale, Mark Zuckerberg, mortgage debt, oil shock, payday loans, pension reform, Ponzi scheme, quantitative easing, Ralph Nader, RAND corporation, random walk, Richard Thaler, Ronald Reagan, Saturday Night Live, too big to fail, transaction costs, Unsafe at Any Speed, upwardly mobile, Vanguard fund, wage slave, women in the workforce, working poor, éminence grise
Porter would, over a period of years, develop the genre of personal finance out of this fulcrum, and can be fairly labeled the mother of the personal finance industrial complex, embracing the can-do practical spirit of the self-help movement, while eschewing its magical-thinking aspects. “I write for a faceless image of myself,” she told Time magazine. “I figure if I’m interested in a subject, other people will be too.” In these days of around-the-clock financial news and investment advice available everywhere from the Web to television, it is easy to forget how revolutionary all this was. Prior to Porter, the vast majority of financial guidance was aimed at high-net-worth readers of newspapers like the Wall Street Journal. Porter was among the first financial writers to understand that people without megabucks needed help managing their money, too. Through her conversational and straightforward writing style, she explained how broad financial trends impacted one’s pocketbook and then told people how to handle the money contained therein. Her recipe for success combined explaining economics with simple, easy to understand advice, while holding government officials’ feet to the fire when necessary.
Prudential, for example, found that more than half the women they interviewed felt “‘very’ comfortable letting another take the ‘lead’ to do planning, research and analysis” to determine what financial products would be best for them. Many others over the years have come to similar conclusions. Ameriprise found 46 percent of women had sought help with retirement planning from a financial services professional. Men? Thirty-eight percent. This differential is seen in even high-net-worth individuals. When the Spectrem Group, a marketing group that studies the affluent and retirement markets, looked at the investment habits of those worth more than $5 million, 46 percent of women felt they had needed the advice of financial professionals, versus 34 percent of men. As a result, taking care of the ladies is increasingly viewed as a good business model, a way to establish a profitable outpost in the money management business as women are “a loyal and lucrative niche,” in the words of the Christian Science Monitor.
All About Asset Allocation, Second Edition by Richard Ferri
asset allocation, asset-backed security, barriers to entry, Bernie Madoff, capital controls, commodity trading advisor, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, equity premium, estate planning, financial independence, fixed income, full employment, high net worth, Home mortgage interest deduction, implied volatility, index fund, Long Term Capital Management, Mason jar, mortgage tax deduction, passive income, pattern recognition, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sharpe ratio, too big to fail, transaction costs, Vanguard fund, yield curve
Hedge funds are pooled investment vehicles that are privately organized and administered by professional investment managers. What makes a hedge fund uniquely different is the manager’s freedom to invest capital. A hedge fund may hold a large, concentrated stock position; employ a liberal use of leverage; use futures, options, swaps, and other derivatives; or sell investments short. Investors became obsessed with the mystique of hedge funds from 2000 to 2008 as stock returns waned. This is especially true in the high-net-worth marketplace, where investors clamor for access to some hedge fund opportunities. Hedge funds are very expensive. If the fund makes a gain, much of that gain goes to the hedge fund manager as a bonus in addition to his or her regular management fee. The funds are also illiquid, with many funds requiring months or even years before you are allowed to withdraw money. Finally, truly skilled hedge fund managers are not interested in managing your messy little pot of money, and you will not gain access to their fund unless you have many millions to put in.
On the negative side, hedge funds are very expensive. The average management fee for a single fund is 1.5 percent per year, plus there is a profit incentive averaging 20 percent. In addition, hedge fund performance is notoriously inconsistent. Good performance by a fund one year does not ensure or even predict good performance the next. Finally, there are high barriers to entry. Hedge funds are available only to high-net-worth investors. The minimum investment of some funds is $1 million or more. There are three broad categories of hedge funds and several subcategories: ● Arbitrage strategies. Arbitrage is the practice of exploiting price inefficiencies in the marketplace. Pure arbitrage has no risk. The trades guarantee a return. Consider this very simple example. Assume XYZ stock is trading for $42 per share on the New York Stock Exchange and $41.90 on the London Stock Exchange.
They’re dressed just like me, in bargain suits and ties. I take the empty chair and look up at Stephanie. The smile I remember from my interview is gone. She looks stern, almost angry. She allows the silence to settle in the air. It cues the two other guys to sit up a little straighter and focus on our boss. “Welcome to Private Client Services,” she says. My uncle told me PCS is as close to the trading desk as I can get. These brokers manage high-net-worth individuals’ money instead of institutions. They are retail brokers, but their client lists aren’t your mom-and-pops down the street. They only manage money for people with ten, twenty, thirty million plus. “I know a few of you have already been at Morgan Stanley for a couple of weeks now and some of you”—she looks directly at me—“are starting today.” She begins to walk around the room. “It’s my job to train and develop you into the best sales assistants on the planet.”
On my way to the Garden before tip-off I had my driver stop by my apartment on Park Avenue to pick up my floor seats,” he might say. Josh is olive-skinned and wears similar glasses. He’s almost too nice for Wall Street. Andy takes advantage of Josh’s gentle demeanor. But together, they’re the golden boys of the firm. They get the hottest leads, the best allocations, and all the resources they need. “We’d like to offer Turney a position with our team,” Andy tells Stephanie. Sometime in the mid-1990s, high-net-worth departments, like Morgan Stanley’s Private Client Services, underwent a seminal shift in their approach. It used to be that these brokers primarily helped their clients trade. Brokers were instructed to generate revenue by commission trades. The new model is to gather “assets under management,” using the heft of $10, $20, even $100 million parcels in investments and charge a fee to manage the money.
Digital Bank: Strategies for Launching or Becoming a Digital Bank by Chris Skinner
algorithmic trading, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, augmented reality, bank run, Basel III, bitcoin, business intelligence, business process, business process outsourcing, call centre, cashless society, clean water, cloud computing, corporate social responsibility, credit crunch, crowdsourcing, cryptocurrency, demand response, disintermediation, don't be evil, en.wikipedia.org, fault tolerance, fiat currency, financial innovation, Google Glasses, high net worth, informal economy, Infrastructure as a Service, Internet of things, Jeff Bezos, Kevin Kelly, Kickstarter, M-Pesa, margin call, mass affluent, mobile money, Mohammed Bouazizi, new economy, Northern Rock, Occupy movement, platform as a service, Ponzi scheme, prediction markets, pre–internet, quantitative easing, ransomware, reserve currency, RFID, Satoshi Nakamoto, Silicon Valley, smart cities, software as a service, Steve Jobs, strong AI, Stuxnet, trade route, unbanked and underbanked, underbanked, upwardly mobile, We are the 99%, web application, Y2K
My point is purely to say that the bank architects of the last few decades used branches as those foundations but today would use IP infrastructures. This does not mean that branches or people are irrelevant. The branch and face-to-face discussion is more to do with what type of house you want to build. In other words, it’s the design, the vision, the interior decoration, the furniture and the other bits. The designers may say: “I want to build a high net worth house, with sales advisory centres for people who want face-to-face engagements”. In this case, you build your bank house with IP foundations and lots of snazzy advisory centres, or branches, in the physical world. Others may say: “I want to build a low-cost high volume processing house, with minimal physical contact” in which case you build your bank house with IP foundations and hardly any branches in the physical world.
Therefore, if their call centre operator takes five minutes more than their competitor’s to answer a call and resolve a problem ... it’s ok. Because their competitor has $25 per minute in extra costs to cover wasted branch space. What about the future? Well, as mentioned, the bank is going through a technology platform refresh and will continue to be focused upon gaining and retaining their core high net worth, higher educated client. Whilst HSBC will be focused upon how to combine the wonders of remote servicing without scripts through a human approach to a global operation that can live in harmony with branch services, as branches close. An interview with Paul Say, Chief Marketing Officer at First Direct, September 2010. According to Paul Volker the last great innovation in banking was the ATM, but do you think being a bank without branches is innovative?
accounting loophole / creative accounting, algorithmic trading, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Big bang: deregulation of the City of London, capital asset pricing model, central bank independence, corporate governance, Credit Default Swap, dematerialisation, discounted cash flows, diversified portfolio, double entry bookkeeping, Edward Lloyd's coffeehouse, Elliott wave, Exxon Valdez, forensic accounting, global reserve currency, high net worth, index fund, inflation targeting, interest rate derivative, interest rate swap, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Nick Leeson, North Sea oil, Northern Rock, pension reform, Piper Alpha, price stability, purchasing power parity, Real Time Gross Settlement, reserve currency, shareholder value, short selling, The Wealth of Nations by Adam Smith, transaction costs, value at risk, yield curve, zero-coupon bond
Government bonds Bonds are short to long-term debt vehicles. As an asset class, they are more stable than equities, although they show much lower long-term gains. Pension funds and insurance companies (see Chapter 18) are the largest traditional investors because bonds can help to match their liabilities more precisely than equities or other instruments. Rates on annuities (see Chapter 31) are linked to bond returns. Mutual funds, central banks and high net-worth individuals favour bonds. In September 2006, the outstanding value of bonds from UK issuers was £1,854 billion, up 10 per cent on the end-2005 total, and more than three times the amount 10 years earlier, according to the May 2007 edition of International Financial Markets in the UK, published by International Financial Services, London (IFSL). In the UK, there has been a movement away from government into nongovernment bonds, the IFSL report said.
The VCT plans an exit from its investments through a stock market listing or a takeover. If the company achieves a London Stock Exchange (LSE) listing, it may remain a VCT investment for ﬁve years. Should the VCT be taken over, its investors will be entitled to a cut of the payment. VCTs may be bought directly, or though a stockbroker or ﬁnancial adviser. The range of buyers has broadened beyond high net-worth investors, sophisticated investors and corporates. There are specialist VCTs and generalist VCTs, involving listed and unlisted companies. Independent ﬁnancial advisers may be keen to sell VCTs because of the high commission structure, typically 5 to 7 per cent, and have been known to highlight the tax break. The FSA has in the past expressed concerns that the risks are not being explained adequately. _______________________________________ POOLED INVESTMENTS 169 Real estate investment trusts A real estate investment trust (REIT) is a quoted company that conducts a property rental business.
How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester
asset allocation, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamonds, Bretton Woods, BRICs, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, financial innovation, Flash crash, forward guidance, Gini coefficient, global reserve currency, high net worth, High speed trading, hindsight bias, income inequality, inflation targeting, interest rate swap, Isaac Newton, Jaron Lanier, joint-stock company, joint-stock limited liability company, Kodak vs Instagram, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Plutocrats, plutocrats, Ponzi scheme, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, South Sea Bubble, sovereign wealth fund, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trickle-down economics, Washington Consensus, working poor, yield curve
But the causes of the flash crash are still not really understood. That, right there, is really alarming.44 HNWI High net worth individual, a reference to a rich person as defined by the financial services industry. The definition is fixed: it means he or she has more than a million dollars in financial assets—meaning assets other than their “residences, collectables, consumer durables and consumables.” Globally, there are 11 million people in that category, with a total worth of $42 trillion. This way of defining a rich person is of use to people in the money business, who are on the lookout for individuals to advise—hence the emphasis on financial assets. You can have a house worth $10 million but not be an HNWI. An UNHWI is an ultra-high net worth individual, meaning more than $30 million in financial assets. According to the World Wealth Report, the USA has 3.44 million HNWI.45 holes in the balance sheet A strange metaphor, evoking the annoying ripped bit where your big toe accidentally went through the top sheet, whereas what it actually means is that some of the stuff listed on a bank’s books as its assets are worth less than the balance sheet says they are.
The Panama Papers: Breaking the Story of How the Rich and Powerful Hide Their Money by Frederik Obermaier
banking crisis, blood diamonds, credit crunch, crony capitalism, Deng Xiaoping, Edward Snowden, family office, high net worth, income inequality, liquidationism / Banker’s doctrine / the Treasury view, Mikhail Gorbachev, mortgage debt, offshore financial centre, optical character recognition, out of africa, race to the bottom, We are the 99%, WikiLeaks
And on top of that, sometimes it’s difficult to get the money there, and a roundabout approach is required. That’s how Mossfon sees it too: a Mossfon employee writes to an interested party from Germany, telling him that ‘the vast majority’ of its clients are ‘so-called high-net-worth individuals’, who may have assets ‘of more than $500,000’. The Mossfon employee alerts the individual to the fact that ‘structures that require the highest degree of confidentiality and professionalism can often cost many thousands of dollars each year’. Not a problem for the super-rich. And there are richer people still: in the world of asset managers, ‘ultra-high-net-worth individuals’ are those who can generally be expected to invest at least $30 million. There are currently around 103,000 people who fall into this category, and the number is increasing year on year. This group certainly includes a large number of sheikhs from the Middle East, who own companies managed by Mossfon.
Antifragile: Things That Gain From Disorder by Nassim Nicholas Taleb
Air France Flight 447, Andrei Shleifer, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discrete time, double entry bookkeeping, Emanuel Derman, epigenetics, financial independence, Flash crash, Gary Taubes, Gini coefficient, Henri Poincaré, high net worth, Ignaz Semmelweis: hand washing, informal economy, invention of the wheel, invisible hand, Isaac Newton, James Hargreaves, Jane Jacobs, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, Lao Tzu, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, meta analysis, meta-analysis, microbiome, moral hazard, mouse model, Norbert Wiener, pattern recognition, placebo effect, Ponzi scheme, principal–agent problem, purchasing power parity, quantitative trading / quantitative ﬁnance, Ralph Nader, random walk, Ray Kurzweil, rent control, Republic of Letters, Ronald Reagan, Rory Sutherland, Silicon Valley, six sigma, spinning jenny, statistical model, Steve Jobs, Steven Pinker, Stewart Brand, stochastic process, stochastic volatility, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, transaction costs, urban planning, Yogi Berra, Zipf's Law
As I was depleting the topics of conversation with the (Polish) driver, I wondered whether Haussmann was not right, and whether London would be better off if it had its Haussmann razing neighborhoods and plowing wide arteries to facilitate circulation. Until it hit me that, in fact, if there was so much traffic in London, as compared to other cities, it was because people wanted to be there, and being there for them exceeded the costs. More than a third of the residents in London are foreign-born, and, in addition to immigrants, most high net worth individuals on the planet get their starter pied-à-terre in Central London. It could be that the absence of these large avenues and absence of a dominating state is part of its appeal. Nobody would buy a pied-à-terre in Brasilia, the perfectly top-down city built from scratch on a map. I also checked and saw that the most expensive neighborhoods in Paris today (such as the Sixth Arrondissement or Île Saint-Louis) were the ones that had been left alone by the nineteenth-century renovators.
(As I said, if you see fraud …) Let us call it the Alan Blinder problem. The story is as follows. At Davos, during a private coffee conversation that I thought aimed at saving the world from, among other things, moral hazard and agency problems, I was interrupted by Alan Blinder, a former vice chairman of the Federal Reserve Bank of the United States, who tried to sell me a peculiar investment product that aims at legally hoodwinking taxpayers. It allowed the high net worth investor to get around the regulations limiting deposit insurance (at the time, $100,000) and benefit from coverage for near-unlimited amounts. The investor would deposit funds in any amount and Prof. Blinder’s company would break it up into smaller accounts and invest in banks, thus escaping the limit; it would look like a single account but would be insured in full. In other words, it would allow the super-rich to scam taxpayers by getting free government-sponsored insurance.
Dalio: Bridgewater-Associates-Ray-Dalio-Principles. BOOK IV: Optionality, Technology, and the Intelligence of Antifragility The Teleological Aristotle and his influence: Rashed (2007), both an Arabist and a Hellenist. The nobility of failure: Morris (1975). Optionality Bricolage: Jacob (1977a, 1977b), Esnault (2001). Rich getting richer: On the total wealth for HNWI (High Net Worth Individuals) increasing, see Merrill Lynch data in “World’s wealthiest people now richer than before the credit crunch,” Jill Treanor, The Guardian, June 2012. The next graph shows why it has nothing to do with growth and total wealth formation. FIGURE 39. Luxury goods and optionality. On the vertical the probability, on the horizontal the integral of wealth. Antifragility city: the effect of change in inequality on the pool of very rich increases nonlinearly in the tails: the money of the superrich reacts to inequality rather than total wealth in the world.
Apple's 1984 Super Bowl advert, bank run, banking crisis, bonus culture, call centre, Captain Sullenberger Hudson, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, financial innovation, fixed income, glass ceiling, high net worth, Long Term Capital Management, mass affluent, Mexican peso crisis / tequila crisis, Plutocrats, plutocrats, Ronald Reagan, six sigma, sovereign wealth fund, technology bubble, too big to fail, yield curve
You can never say there’s no risk. We’re in a trading business. Trading businesses take risks. That’s okay. It’s making sure we really understand it.” Another question involved Merrill’s stake in BlackRock, and whether it would make sense for Merrill to sell it in order to raise more capital. “No,” Thain declared. “That’s a strategic stake and it’s important to us going forward. It fits very well with our high net worth business.” FROM A MERRILL LYNCH point of view, the interview was a success. Thain projected an image of authority in what amounted to “the trenches,” the place where Merrill had lost money under O’Neal and would now make money under Thain. The interview also showed that under Tutwiler, who had learned her craft in Washington, D.C., with the “A team” of Republican Party communications experts, public relations would be handled differently from the way it was handled at other Wall Street banks, where the focus tended to be on the institution first, then the CEO.
Fleming countered with the arguments he’d used before: Selling BlackRock would hurt Merrill’s earnings, jeopardize its credit rating, and, given the decline in BlackRock’s share price in recent weeks, result in much smaller gain than the stake was potentially worth. After another extended back-and-forth, Thain relented. Finally, Fleming suggested, it might be a good time to sell a stake in Financial Data Services, a processing business catering to high net worth individuals housed within Merrill’s wealth management unit. Todd Kaplan had brought FDS to Fleming’s attention in April, when the Merrill Lynch president was brainstorming for ideas on how to raise capital without selling more shares. Among other things, FDS marketed a software product that allowed big-ticket investors to retrieve historical prices of all kinds of stocks, making it easier to place a value on their portfolio.
Startup CEO: A Field Guide to Scaling Up Your Business, + Website by Matt Blumberg
airport security, Albert Einstein, bank run, Broken windows theory, crowdsourcing, deskilling, fear of failure, high batting average, high net worth, hiring and firing, Inbox Zero, James Hargreaves, Jeff Bezos, job satisfaction, Kickstarter, knowledge economy, knowledge worker, Lean Startup, Mark Zuckerberg, minimum viable product, pattern recognition, performance metric, pets.com, rolodex, shareholder value, Silicon Valley, Skype
With Series A and subsequent rounds, this is a risk you may have to take. This is a good reason to avoid VCs in angel rounds. Throwing $200,000 into an idea is extremely low-risk for a VC but they will only provide follow up investment for a handful of those deals. If yours isn’t one they follow up on, you could be sunk. Angel Investors Though there are institutional “angel” groups, angel investors are typically high-net-worth individuals who put personal money into a company. The Good: Angels are often your friends and family, so they don’t play hardball when negotiating terms. The Bad: Angels are typically your friends and family, so every dinner party you attend has the potential to morph into an ad hoc investor relations conference. You can blunt this by designating some social times as “work-free zones,” but it’s still there, lurking in the background.
Great investors never have a ready-made list of the ways they add value to companies—and they specifically never talk about the help they give in recruiting executives or making sales/biz dev introductions. 10. Great investors recognize when they have a conflict around a portfolio company and are clear to represent their points of view with proper context, recusing themselves from meetings or votes when appropriate. You owe it to yourself to have great investors backing you. Find ones who meet every criterion on this list. DEBT If you don’t have access to high-net-worth individuals—and you don’t have significant savings yourself—starting a company can be extremely difficult. There are a number of types of debt you can take on to finance your business. While debt typically makes more sense for mature business, there are times when debt can work for a startup. Convertible Debt Sometimes angel investors, or even early stage venture capitalists, will want to structure a deal as convertible debt instead of equity.
Why We Can't Afford the Rich by Andrew Sayer
accounting loophole / creative accounting, Albert Einstein, asset-backed security, banking crisis, banks create money, Bretton Woods, British Empire, call centre, capital controls, carbon footprint, collective bargaining, corporate social responsibility, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, high net worth, income inequality, investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, labour market flexibility, laissez-faire capitalism, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, means of production, moral hazard, mortgage debt, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Plutocrats, plutocrats, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, Winter of Discontent, working poor, Yom Kippur War
What right has anyone to say their consumption is excessive? Couldn’t the rich cut their carbon footprints by switching to low-carbon consumption? Wouldn’t the world miss their philanthropy and the ‘trickle-down effects’ of their spending? In fact, isn’t this book just an example of ‘the politics of envy’ – directed at those whom former UK Prime Minister Tony Blair used to call ‘the successful’? Shouldn’t we thank, rather than begrudge, these ‘high net worth individuals’? It’s the objections regarding the alleged role of the rich in wealth extraction, as opposed to wealth creation, that present the biggest challenge and occupy the bulk of this book, though I’ll attempt to answer other objections too. In the process it will become clear that this is not about the politics of envy – a cheap slur used by those who want to duck the arguments and evidence – but the politics of injustice.
, CRESC Discussion Paper, p 8. 121 Canada, US, Mexico, Peru, Chile, New Zealand, Australia, Brunei, Singapore, Malaysia, Vietnam and Japan. 122 Wikileaks (2013) ‘Secret Trans-Pacific Partnership agreement (TPP)’, https://wikileaks.org/tpp/pressrelease.html. 123 Wikileaks (2013). 124 Monbiot, G. (2013) ‘The lies behind this transatlantic trade deal’, Guardian, 2 December, http://www.theguardian.com/commentisfree/2013/dec/02/transatlantic-free-trade-deal-regulation-by-lawyers-eu-us. 125 Corporate Europe Observatory (2013) ‘A transatlantic corporate bill of rights’, 3 June, http://corporateeurope.org/trade/2013/06/transatlantic-corporate-bill-rights. 126 McDonagh, T. (2013) ‘Unfair, unsustainable and under the radar’, San Francisco: Democracy Center, http://democracyctr.org/new-report-unfair-unsustainable-and-under-the-radar/. Chapter Eighteen: What about philanthropy? 127 Blair, T. (2012) Speech to conference on philanthropy, China Philanthropy Forum, Beijing, 28 November. 128 Wikipedia Hélder Cámara, http://en.wikipedia.org/wiki/Hélder_Câmara 129 According to research by Barclays Bank, 97% of the world’s ‘high net worth individuals’ give annually to charity. But only one third of these give away over 1% of their net worth:Too Much (2013) ‘A Whistleblower for Philanthropy’, 5 August, http://toomuchonline.org/weeklies2013/aug052013.html. See also Brennan, P. and Saxton, J. (2007) ‘Who gives to charity?’, nfpSynergy report, and Rowlingson, K. and McKay, S. (2011) Wealth and the wealthy, Bristol: Policy Press, pp 136 ff. 130 Buffett, P. (2013) ‘The charitable-industrial complex’, New York Times, 27 July, http://www.nytimes.com/2013/07/27/opinion/the-charitable-industrial-complex.html?
Financial Independence by John J. Vento
Affordable Care Act / Obamacare, Albert Einstein, asset allocation, diversification, diversified portfolio, estate planning, financial independence, fixed income, high net worth, Home mortgage interest deduction, mortgage debt, mortgage tax deduction, oil shock, Own Your Own Home, passive income, risk tolerance, time value of money, transaction costs, young professional, zero day
c05.indd 127 26/02/13 11:09 AM 128 Financial Independence (Getting to Point X ) taxes will be due on both your estates, and they usually must be paid within nine months of the death of the second spouse. A secondto-die life insurance policy could theoretically be used to cover the payment of these estate taxes. If you have a substantial net worth and believe your estate will be subject to significant estate taxes, a permanent life insurance policy may then be the right choice for you. Although most people only need term insurance, high-net-worth individuals can take advantage of the significant tax savings a permanent insurance policy can offer. When combining a permanent life insurance policy with an irrevocable life insurance trust (ILIT), you can significantly preserve your family’s financial legacy. (Estate planning with life insurance is covered in more detail in Chapter 10, Preserving your Estate.) As you can see, having the right type of life insurance at different stages in your life is an essential part of any high-quality financial plan.
As a result, it is imperative that you keep complete and accurate records, and store them for at least three years, or to be on the safe side, for six years. bapp03.indd 339 26/02/13 3:06 PM About the Author J ohn J. Vento1 is the president of a New York City-based certified public accounting firm as well as the Certified Financial Planning® firm of Comprehensive Wealth Management Ltd., since 1987. His firm works with clients throughout the country and is focused on professional practices, high-net-worth individuals, and those committed to becoming financially independent. He has been the keynote speaker at various seminars and conferences throughout the United States, which focus on tax and financial strategies that create wealth. John has been ranked among the most successful advisors of a nationwide investment service firm and has held this distinction since 2008. John graduated from Pace University with a bachelor’s degree in business administration in public accounting, and continued on to earn an MBA in taxation from St.
Connectography: Mapping the Future of Global Civilization by Parag Khanna
1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, 9 dash line, additive manufacturing, Admiral Zheng, affirmative action, agricultural Revolution, Airbnb, Albert Einstein, amateurs talk tactics, professionals talk logistics, Amazon Mechanical Turk, Asian financial crisis, asset allocation, autonomous vehicles, banking crisis, Basel III, Berlin Wall, bitcoin, Black Swan, blockchain, borderless world, Boycotts of Israel, Branko Milanovic, BRICs, British Empire, business intelligence, call centre, capital controls, charter city, clean water, cloud computing, collateralized debt obligation, complexity theory, corporate governance, corporate social responsibility, credit crunch, crony capitalism, crowdsourcing, cryptocurrency, cuban missile crisis, data is the new oil, David Ricardo: comparative advantage, deglobalization, deindustrialization, dematerialisation, Deng Xiaoping, Detroit bankruptcy, diversification, Doha Development Round, edge city, Edward Snowden, Elon Musk, energy security, ethereum blockchain, European colonialism, eurozone crisis, failed state, Fall of the Berlin Wall, family office, Ferguson, Missouri, financial innovation, financial repression, forward guidance, global supply chain, global value chain, global village, Google Earth, Hernando de Soto, high net worth, Hyperloop, ice-free Arctic, if you build it, they will come, illegal immigration, income inequality, income per capita, industrial robot, informal economy, Infrastructure as a Service, interest rate swap, Internet of things, Isaac Newton, Jane Jacobs, Jaron Lanier, John von Neumann, Julian Assange, Just-in-time delivery, Kevin Kelly, Khyber Pass, Kibera, Kickstarter, labour market flexibility, labour mobility, LNG terminal, low cost carrier, manufacturing employment, mass affluent, megacity, Mercator projection, microcredit, mittelstand, Monroe Doctrine, mutually assured destruction, New Economic Geography, new economy, New Urbanism, offshore financial centre, oil rush, oil shale / tar sands, oil shock, openstreetmap, out of africa, Panamax, Peace of Westphalia, peak oil, Peter Thiel, Plutocrats, plutocrats, post-oil, post-Panamax, private military company, purchasing power parity, QWERTY keyboard, race to the bottom, Rana Plaza, rent-seeking, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scramble for Africa, Second Machine Age, sharing economy, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, six sigma, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, Stuxnet, supply-chain management, sustainable-tourism, TaskRabbit, telepresence, the built environment, Tim Cook: Apple, trade route, transaction costs, UNCLOS, uranium enrichment, urban planning, urban sprawl, WikiLeaks, young professional, zero day
Leveraging the tax-free status and location inside America’s security perimeter, Puerto Rico’s massive new Port of the Americas will subsume the entire southern city of Ponce and allow for efficient transshipment of smaller cargoes up and down the entire East Coast as well. Puerto Rico has also become a favored American tax haven, changing its laws in 2013 to eliminate capital gains taxes to attract the investment of ultra-high-net-worth hedge fund managers such as John Paulson, who calls it the “Singapore of the Caribbean.”8 Just as Tennessee and Michigan compete for automotive assembly, America’s onshore is now competing with America’s offshore in ports, shipping, and finance as well. Over the horizon, America’s southern ports may also be welcoming goods from what just a few years ago seemed the most unlikely of origins: Cuba.
Through the 1970s, the U.A.E.’s population quadrupled as throngs of South Asians came to work in the thriving oil sector and service industries. The gold and textile trade surged as well. Today Dubai’s population is 70 percent South Asian, and Asians label the Gulf region not “Middle East” but rather “West Asia.” Remittances from the U.A.E. to India amount to $30 billion per year, far larger than from any other part of the twenty-five-million-strong diaspora. When private bankers need to service their high-net-worth Indian clients, they usually head to Dubai. For both Pakistan’s Bhutto clan and its recently ousted military leader, Pervez Musharraf, Dubai is the exile of choice. As the world’s main interregional gateway, Dubai caters to all continents at the same time. As capital and demographic flows from south to south and south to north augment the traditional flows from north to south and west to east, Dubai is the conduit for entire new patterns of investment.
Brazillionaires: The Godfathers of Modern Brazil by Alex Cuadros
affirmative action, Asian financial crisis, big-box store, BRICs, cognitive dissonance, crony capitalism, Deng Xiaoping, Donald Trump, Elon Musk, facts on the ground, family office, high net worth, index fund, invisible hand, Jeff Bezos, Mark Zuckerberg, NetJets, offshore financial centre, profit motive, rent-seeking, risk/return, savings glut, short selling, Silicon Valley, sovereign wealth fund, stem cell, The Wealth of Nations by Adam Smith, too big to fail, transatlantic slave trade, transatlantic slave trade, We are the 99%
He dressed immaculately, in a well-tailored navy blue suit, crisp tie, and fashionable rimmed glasses. We drank espresso at a conference table overlooking Brickell Avenue’s shining new office buildings, vacant for years in the wake of the crash but now filling up again. Santiago runs a “multifamily office.” His job is to help UHNW families maintain their money from generation to generation—I had to learn acronyms like this: ultra-high-net-worth. His company created games to teach young heirs to deal with the burdens of wealth. For five-year-olds, he has a sectioned piggy bank with slots labeled SAVE, SPEND, DONATE, and INVEST. For ages eight and up, he has a Monopoly-like game called “Shirtsleeves to Shirtsleeves”—a reference to how fortunes built in the first generation tend to dissipate in the third. The board game’s cover asks How Long Will Your Money Last?
See also specific stations coronéis or “colonels” and, 90 Marinho’s monoply, 84, 89, 90 shaping of perception and, 89, 96, 97 telenovelas, 79–80, 81, 87–88, 97, 100–101, 299n97 Telles, Marcel, 30, 196, 197, 206–7, 209 Temer, Michel, 285TK Tesla, 277 Texaco, 290n39 Thatcher, Margaret, 198 3G Capital, 196, 197, 204, 210, 310n204 Time-Life, 84, 85, 86, 88 Tiririca (Grumpy), 33 Transamazônica, 68–69, 78, 139 transportation Amazon ferry service, 175, 177 public, 10, 30, 39, 53, 56, 231, 232, 237, 239, 313n239, noteTK railroads, 21, 61, 175–76, 279 railroad tycoons of the 1800s, 55, 244 roads, 21, 61, 68–69, 78, 139 World Cup 2014 and, 56, 237 Trump, Donald, 152, 277, 304n152 Tucuruí dam, 72, 295n72 Turkey, 236 TV Globo, 81, 84–89, 95, 97–98, 100, 122, 252, 299n97 Anos Rebeldes miniseries, 92 Avenida Brasil, 80, 81, 93, 97 crusade against Macedo, 120 Fantástico, 262 government ad buys, 88, 95, 297n88 government favors and, 90, 298n90 influence of, 96, 97, 131, 299n96 Jornal Nacional, 81, 86, 87, 88, 92, 95, 299n96 licensing, 84, 88, 297n84, 297n88 Lula debate editing and, 92, 95 protests of 2013 and, 233–34, 313n234 Que Rei Sou Eu?, 91 Salve Jorge, 100–101, 102–7, 131 TV Record, 108, 110, 115, 121–22, 123, 126, 300n110 Macedo’s takeover of, 119–22, 301n120 R7 news, 231 TV SBT, 256 TV Tupi, 84, 297n84 TVX, 153–54, 155–56, 170, 180, 187–88 UBS (Swiss bank), 28, 218 UHNW (ultra-high-net-worth), 23 Ulloa, Santiago, 22–23 Ultragaz, 40, 42, 291n41, 291n42 Ultrapar, 291n41 United Arab Emirates, 180, 181, 183, 184, 217–18, 253 United States billionaires, 24, 26 Brazilian investment in, 18, 19, 144 campaign financing, 286, 317n286 capitalism and bubbles, 244 CIA and Brazilian politics, 39 crony capitalism, 55 Federal Reserve and 2008 crisis, 181 Hoover’s “Buy American Act,” 184 interest rates, 18 prosperity gospel and, 109 shale gas extraction, 67 “too big to fail” banks, 274 Universal Church of the Kingdom of God, 108–18, 123–26 Congress of Winners, 116–17, 124–25 cures and liberation, 115–17 Fogueiras Santas campaigns, 118 Globo targeting of, 122 Love Therapy, 114, 115 number of churches, 108, 110, 300n109 number of followers, 109, 300n109 radio network, 301n118 revenues, 110, 112, 118–19, 300n110 São Paulo church, 111, 114, 301n114 solicitation, 118–19, 125, 301n119 Solomon’s Temple replica, 126, 301n114 suits against, 301n118, 301n119 tax fines against, 123, 302n123 in the U.S., 109–10 University of São Paulo, 11 Uruguay, 24, 177 Vale, 136, 137, 138, 140, 160, 168, 171, 214, 305n160, 306n167 Valor Econômico, 244–45 Vanguarda Agro, 59 Vargas, Getúlio, 83, 86, 96, 172 Veja, 44–45, 120, 164, 166 Vilardi, Celso, 228–29 Villela family, 290n39 Volkswagen, 290n39, 294n69 Voz da Comunidade, 101, 106–7, 208 “Wagner,” 178, 179, 180–81, 205 Waimiri-Atroari tribe, 69 Wallace, David Foster, 194 Wallach, Joe, 88 Walton, Sam, 197 Warby Parker, 213 Wealth of Nations, The (Smith), 176, 280 Welch, Jack, 197 White, Richard, 244 Wilson, Charlie, 293n56 Winkler, Matt, 96 Workers Party, 54, 55, 56, 67, 95, 96, 131, 183, 191, 239–40, 257, 275.
Your Money or Your Life: 9 Steps to Transforming Your Relationship With Money and Achieving Financial Independence: Revised and Updated for the 21st Century by Vicki Robin, Joe Dominguez, Monique Tilford
asset allocation, Buckminster Fuller, buy low sell high, credit crunch, disintermediation, diversification, diversified portfolio, fiat currency, financial independence, fudge factor, full employment, Gordon Gekko, high net worth, index card, index fund, job satisfaction, Menlo Park, Parkinson's law, passive income, passive investing, profit motive, Ralph Waldo Emerson, Richard Bolles, risk tolerance, Ronald Reagan, Silicon Valley, software patent, strikebreaker, Thorstein Veblen, Vanguard fund, zero-coupon bond
—and be accurate. Let it become a habit to record any and all movements of money, the exact amount and the reason for the exchange. Every time you spend or receive money, make it second nature to note it instantly. In The Millionaire Next Door the authors, Thomas J. Stanley and William D. Danko, note that people who have achieved a high net worth relative to income know how much they are spending on clothes, travel, housing, transportation, etc., and those who don’t achieve high net worth relative to income have no idea how much they spend. It’s a stark contrast. Figure 2-3 is a fictional example of two days’ entries. Note the degree of detail given for each expenditure. Notice how expenditures at work are specifically labeled as such. Observe the differentiation of the expenditures at the convenience store between snacks (“chips, dip, soda”) and batteries.
Eastern standard tribe by Cory Doctorow
Daylight savings time is a widowmaker: stay off the roads on Leap Forward day! Here is the second character in the morality play. She's the love interest. Was. We broke up, just before I got sent to the sanatorium. Our circadians weren't compatible. 4. April 3, 2022 was the day that Art nearly killed the first and only woman he ever really loved. It was her fault. Art's car was running low on lard after a week in the Benelux countries, where the residents were all high-net-worth cholesterol-conscious codgers who guarded their arteries from the depredations of the frytrap as jealously as they squirreled their money away from the taxman. He was, therefore, thrilled and delighted to be back on British soil, Greenwich+0, where grease ran like water and his runabout could be kept easily and cheaply fuelled and the vodka could run down his gullet instead of into his tank.
business climate, credit crunch, Deng Xiaoping, Donald Trump, facts on the ground, glass ceiling, high net worth, illegal immigration, income per capita, indoor plumbing, job-hopping, Maui Hawaii, price stability, quantitative easing, Silicon Valley, Skype, South China Sea, Steve Jobs, thinkpad, trade route, trickle-down economics, upwardly mobile, urban planning, women in the workforce, young professional
This leaves an opening for private enterprise to cater to consumer demands and move quickly to take market share away from lumbering, state-owned giants. For instance, according to our research, many state-owned banks like ICBC and Bank of China focus more on their business dealings with other state-owned enterprises, leaving private companies and retail consumers highly dissatisfied with their service. China Merchants Bank recognized this and concentrated heavily on delivering better service for high-net-worth individuals and credit card holders. The company has since become the dominant credit card player. Consumers give it one of the highest satisfaction levels of any Chinese company about which my firm has conducted surveys. Similarly, one of the last major sectors to undergo meaningful reform in China is the education and training sector. The government has not been able to reform the educational system swiftly enough to keep up with demands for more education in business skills.
The Automatic Customer: Creating a Subscription Business in Any Industry by John Warrillow
Airbnb, airport security, Amazon Web Services, asset allocation, barriers to entry, call centre, cloud computing, discounted cash flows, high net worth, Jeff Bezos, Network effects, passive income, rolodex, sharing economy, side project, Silicon Valley, Silicon Valley startup, software as a service, statistical model, Steve Jobs, Stewart Brand, subscription business, telemarketer, time value of money, Zipcar
To get into this private club, you need a minimum of $10 million in investable assets.2 TIGER 21 members meet monthly in small regional groups of about a dozen members each. Once the meeting starts, mobile phones are turned off, doors are closed to outsiders, and the members get down to business. At the center of every meeting is the Portfolio Defense—a one-hour presentation from a member who is asked to reveal the intimate details of his portfolio so that the other members can critique his investment approach. Asking high-net-worth investors, successful entrepreneurs, and captains of industry to reveal the intimate details of their financial lives is not easy, but it works for TIGER 21 because the Portfolio Defense is a requirement of all members. Further, because each member has crossed the threshold of wealth required for membership, there is mutual respect within the group. Subscribing for Status In some ways, the private club model sells social status—think of it as social climbing on subscription.
Albert Einstein, barriers to entry, Bernie Madoff, collapse of Lehman Brothers, corporate governance, corporate social responsibility, credit crunch, Grace Hopper, happiness index / gross national happiness, high net worth, James Dyson, Jarndyce and Jarndyce, Jarndyce and Jarndyce, mittelstand, Network effects, North Sea oil, Northern Rock, patent troll, Plutocrats, plutocrats, Ponzi scheme, profit motive, Ralph Waldo Emerson, Silicon Valley, software patent, stealth mode startup, Steve Jobs, Steve Wozniak, The Wealth of Nations by Adam Smith, traveling salesman, tulip mania
Too many entrepreneurs think formal venture capital is the place to look for start-up funding, when in reality venture capitalists tend to focus on making very large bets in industries like high technology and biotech. In short, VC money is probably not for you if you’re just starting out. Operations in mainstream sectors like retailing and restaurants almost invariably secure backing not from VCs but from angel investors, high-net-worth individuals or the founder’s savings. Funding start-ups and new technology is exceedingly risky, but it has enabled the development of many of the most important companies of the last fifty years, including DEC, Intel, FedEx, Cisco and Google. Most of them, of course, are US based. That is where most of the world’s true venture capital is managed. The failure rate is high, and the expertise needed in spotting and monitoring potential winners is immense.
Stuffocation by James Wallman
3D printing, Airbnb, back-to-the-land, Berlin Wall, big-box store, Black Swan, BRICs, carbon footprint, Cass Sunstein, clean water, collaborative consumption, crowdsourcing, David Brooks, Fall of the Berlin Wall, happiness index / gross national happiness, high net worth, income inequality, James Hargreaves, Joseph Schumpeter, Martin Wolf, McMansion, means of production, Nate Silver, Occupy movement, post-industrial society, Post-materialism, post-materialism, Richard Florida, Richard Thaler, sharing economy, Silicon Valley, Simon Kuznets, Skype, spinning jenny, The Signal and the Noise by Nate Silver, Thorstein Veblen, Tyler Cowen: Great Stagnation, World Values Survey, Zipcar
Graham: the Minimalist Who Loves Stuff See Graham Hill’s work at www.treehugger.com, his new company LifeEdited at www.lifeedited.com, and see www.ted.com for his talks. Follow Colin Wright at www.exilelifestyle.com. For an example of how people are still shopping in a time of too much stuff, consider Emily Sheffield, “How We Shop Now”, British Vogue, February 2013. Sheffield writes that “a fashion consultant called Anita Borzsyzkowska says: ‘So I am actually spending more per item, but there are fewer buys.’“ And Sheffield quotes a report from high-net worth consumer specialist Ledbury Research, which points to “consumers adopting a ‘less is more’ mentality. So they are focusing more on quality and good experiences than ‘look at me’ purchases.” The New ‘n’ Improved Features and Benefits of the Experience Economy This section – and much of the chapters about the experience economy – is inspired and informed by B. Joseph Pine II and James H Gilmore, The Experience Economy (Boston: Harvard Business School Press, 1999) and B Joseph Pine II and James H Gilmore, The Experience Economy Updated Edition (Boston: Harvard Business School Press, 2011).
airport security, blood diamonds, colonial rule, credit crunch, fixed income, Goldman Sachs: Vampire Squid, high net worth, income inequality, jitney, market clearing, Occupy movement, the market place
We’d get friends or clients asking us to help them out with internships or analyst positions for their kids or relatives, and we’d simply pass them on to New York with a kind word and a nudge for special consideration that we knew would typically go ignored. New York didn’t give a shit at all. They didn’t want or need to do us, or our clients, any favors; Asia was still a rounding error in terms of revenue for most of the larger global banks. But by 2006, everything had changed. We started recruiting many of the new analysts for Asia from the pool of résumés that were sent in to the private bank by their ultra-high-net-worth clients looking for favors. JPMorgan, Goldman Sachs, HSBC, UBS, Morgan Stanley, and most other firms would do the same thing through their respective private wealth management divisions. It became the running joke any time one of our counterparts at another bank brought a new analyst to a meeting or roadshow luncheon. “So, who is his [or her] father?” was the first question, unless she was hot, then it was “Is she single?”
Ayatollah Khomeini, banking crisis, Bernie Madoff, Clive Stafford Smith, collateralized debt obligation, 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, nuremberg principles, Ponzi scheme, rolodex, Ronald Reagan, too big to fail, Washington Consensus, WikiLeaks
Hurlbert’s explanation for not charging Erzinger with any felonies was blunt: “Felony convictions have some pretty serious job implications for someone in Mr. Erzinger’s profession.” In other words, Erzinger engages in such vital activity that charging him with a felony would be wrong because it might seriously disrupt his work: managing the money of multimillionaires and billionaires. According to Worth magazine, Erzinger “oversees over $1 billion in assets for ultra high net worth individuals, their families and foundations.” If he were charged with a felony, he would be required to report that fact to licensing agencies; a felony conviction could result in his fund manager license being rescinded. Apparently, as far as the district attorney was concerned, it would be terribly unfair to subject someone like Erzinger to the risk of damaging his career, though presumably someone with less to lose could—and would—be charged as a felon without any such worries.
Andrei Shleifer, asset allocation, asset-backed security, Bernie Madoff, bitcoin, Black Swan, BRICs, Carmen Reinhart, cleantech, compound rate of return, credit crunch, diversification, diversified portfolio, equity premium, estate planning, fixed income, high net worth, implied volatility, index fund, invisible hand, Kenneth Rogoff, market bubble, passive investing, pattern recognition, prediction markets, risk tolerance, risk/return, Robert Shiller, Robert Shiller, sovereign wealth fund, too big to fail, transaction costs, Vanguard fund, yield curve, zero-coupon bond
In short, I felt at a competitive disadvantage to others who had looked at but passed on the investment, and I did the same as a result. There was no edge. There is unfortunately not a great amount of good and reliable data on private investments (outside the more institutional methods like venture capital, etc.). Many involved with private investments are notoriously bad at sharing performance data with the wider world. This is probably because many high-net-worth investors are reluctant to share information about their private portfolios, although exposure to the tax authorities may also play a role. Poor information non-withstanding, according to a recent survey of studies on angel investing6 the average annual return to angel investors was 27.3%, which is obviously phenomenal. I would, however, suggest that there is an extremely heavy selection bias (only good results get reported, or people start reporting only after getting good results), and that if you had blindly invested in all angel deals the returns would have been substantially lower and perhaps fairly unimpressive.
The Haves and the Have-Nots by Branko Milanovic
Berlin Wall, Branko Milanovic, colonial rule, crony capitalism, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, 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, Plutocrats, plutocrats, purchasing power parity, Simon Kuznets, very high income, Washington Consensus
People began to live by accumulating ever-rising debts on their credit cards, taking on more car debts or higher mortgages. President George W. Bush famously promised that every American family, regardless of its income, would be able to own a home. Thus was born the great American consumption binge that saw the household debt increase from 48 percent of GDP in the early 1980s to 100 percent of GDP before the crisis. The interests of several large groups of people became closely aligned. High-net-worth individuals and the financial sector were, as we have seen, keen to find new lending opportunities. Politicians were eager to “solve” the irritable problem of middle-class income stagnation. The middle class and those poorer than them were happy to see their tight budget constraints removed as if by a magic wand, consume all the fine things purchased by the rich, and partake in the longest U.S. economic expansion since World War II.
How to Run the World: Charting a Course to the Next Renaissance by Parag Khanna
Albert Einstein, Asian financial crisis, back-to-the-land, bank run, blood diamonds, borderless world, BRICs, British Empire, call centre, carbon footprint, charter city, clean water, cleantech, cloud computing, corporate governance, corporate social responsibility, Deng Xiaoping, Doha Development Round, don't be evil, double entry bookkeeping, energy security, European colonialism, facts on the ground, failed state, friendly fire, global village, Google Earth, high net worth, index fund, informal economy, invisible hand, labour mobility, laissez-faire capitalism, Masdar, megacity, microcredit, mutually assured destruction, Naomi Klein, New Urbanism, offshore financial centre, oil shock, open economy, out of africa, private military company, Productivity paradox, race to the bottom, RAND corporation, reserve currency, Silicon Valley, smart grid, South China Sea, sovereign wealth fund, special economic zone, sustainable-tourism, The Fortune at the Bottom of the Pyramid, The Wisdom of Crowds, too big to fail, trade liberalization, trickle-down economics, UNCLOS, uranium enrichment, Washington Consensus, X Prize
Bill Gates, Bill Clinton, Warren Buffett, George Soros, Richard Branson, and foundations including Ashoka, Schwab, Skoll, and the Omidyar Network (the latter two named for eBay’s founders) all provide a steady flow of capital to ventures that aim to level the economic playing field. Led by Gates and Buffett, forty billionaires have pledged half their net wealth to charity during their lifetimes. Synergos, the Global Philanthropy Forum, and other groups turn high-net-worth individuals and dot-com billionaires into social entrepreneurs with portfolios of progressive activities. Today’s students of the Skoll Center for Social Entrepreneurship at Oxford’s Saïd Business School learn to be social intrapreneurs as well: going inside large corporations and changing their psychology and mission from within. The best thing these new social investors can do is—like celebrity actors—inspire their counterparts in other parts of the world.
Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das
affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, financial independence, financial innovation, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kevin Kelly, labour market flexibility, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, merger arbitrage, Mikhail Gorbachev, Milgram experiment, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Naomi Klein, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, pets.com, Plutocrats, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative ﬁnance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, Richard Thaler, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond
In an adjustable rate bond, the interest rate is reset periodically by reference to market rates. Between 2002 and 2004, Jefferson County issued more than $3 billion of adjustable rate bonds, predominantly auction rate securities (ARSs), bonds with a long maturity where the rate is regularly reset through a Dutch auction6 typically held every 7, 28, or 35 days. ARSs provided borrowers with low cost, adjustable rate debt. Institutional investors and high-net-worth individuals received a higher interest for short-term investments because of the assurance of liquidity through the auction process. The investor’s risk was low, as highly rated bond or monoline insurers guaranteed repayment. Jefferson County entered into interest rate swaps, with JP Morgan, Bank of America, and Lehman Brothers, to hedge its exposure to fluctuating interest rates. Under the swaps, the County paid a pre-agreed fixed rate in return for receiving floating rate payments.
In 2007 Gary Gorton wrote that “while financial intermediaries have changed in many ways, at root their problems remain the same. Indeed, the old problem of banking panics can reappear in new guises.”29 Now, AIG simply did not have the cash. FP dealt with a “global swath” of sovereigns, supranationals (like the World Bank), municipalities, banks, investment banks, insurance companies, pension funds, endowments, hedge funds, fund managers, and high-net-worth individuals. All major market participants were linked to each other by a complex network of contracts that few fully understood. In October 2008, Gorton wrote: You have this very, very complicated chain of...risk, which made it very opaque about where the risk finally resided...the whole infrastructure of the financial market became kind of infected, because nobody knew exactly where the risk was.30 If AIG failed, then the institutions that relied on it to insure its risk would have a problem, and then the institutions that relied on those institutions, and so on.
Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen
Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, Bretton Woods, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, New Journalism, oil shock, p-value, passive investing, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative ﬁnance, random walk, reserve currency, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, systematic trading, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond
Antti Ilmanen Bad Homburg, November 2010 Abbreviations and acronyms AM Arithmetic Mean ATM At The Money (option) AUM Assets Under Management BEI Break-Even Inflation BF Behavioral Finance B/P Book/Price, book-to-market ratio BRP Bond Risk Premium, term premium B-S Black–Scholes C-P BRP Cochrane–Piazzesi Bond Risk Premium CAPM Capital Asset Pricing Model CAY Consumption wealth ratio CB Central Bank CCW Covered Call Writing CDO Collateralized Debt Obligation CDS Credit Default Swap CF Cash Flow CFNAI Chicago Fed National Activity Index CFO Chief Financial Officer CMD Commodity (futures) CPIyoy Consumer Price Inflation year on year CRB Commodity Research Bureau CRP Credit Risk Premium (over Treasury bond) CRRA Constant Relative Risk Aversion CTA Commodity Trading Advisor DDM Dividend Discount Model DJ CS Dow Jones Credit Suisse DMS Dimson–Marsh–Staunton D/P Dividend/Price (ratio), dividend yield DR Diversification Return E( ) Expected (conditional expectation) EMH Efficient Markets Hypothesis E/P Earnings/Price ratio, earnings yield EPS Earnings Per Share ERP Equity Risk Premium ERPB Equity Risk Premium over Bond (Treasury) ERPC Equity Risk Premium over Cash (Treasury bill) F Forward price or futures price FF Fama–French FI Fixed Income FoF Fund of Funds FX Foreign eXchange G Growth rate GARCH Generalized AutoRegressive Conditional Heteroskedasticity GC General Collateral repo rate (money market interest rate) GDP Gross Domestic Product GM Geometric Mean, also compound annual return GP General Partner GSCI Goldman Sachs Commodity Index H Holding-period return HF Hedge Fund HFR Hedge Fund Research HML High Minus Low, a value measure, also VMG HNWI High Net Worth Individual HPA House Price Appreciation (rate) HY High Yield, speculative-rated debt IG Investment Grade (rated debt) ILLIQ Measure of a stock’s illiquidity: average absolute daily return over a month divided by dollar volume IPO Initial Public Offering IR Information Ratio IRP Inflation Risk Premium ISM Business confidence index ITM In The Money (option) JGB Japanese Government Bond K-W BRP Kim–Wright Bond Risk Premium LIBOR London InterBank Offered Rate, a popular bank deposit rate LP Limited Partner LSV Lakonishok–Shleifer–Vishny LtA Limits to Arbitrage LTCM Long-Term Capital Management MA Moving Average MBS (fixed rate, residential) Mortgage-Backed Securities MIT-CRE MIT Center for Real Estate MOM Equity MOMentum proxy MSCI Morgan Stanley Capital International MU Marginal Utility NBER National Bureau of Economic Research NCREIF National Council of Real Estate Investment Fiduciaries OAS Option-Adjusted (credit) Spread OTM Out of The Money (option) P Price P/B Price/Book (valuation ratio) P/E Price/Earnings (valuation ratio) PE Private Equity PEH Pure Expectations Hypothesis PT Prospect Theory r Excess return R Real (rate) RE Real Estate REITs Real Estate Investment Trusts RWH Random Walk Hypothesis S Spot price, spot rate SBRP Survey-based Bond Risk Premium SDF Stochastic Discount Factor SMB Small Minus Big, size premium proxy SR Sharpe Ratio SWF Sovereign Wealth Fund TED Treasury–Eurodollar (deposit) rate spread in money markets TIPS Treasury Inflation-Protected Securities, real bonds UIP Uncovered Interest Parity (hypothesis) VaR Value at Risk VC Venture Capital VIX A popular measure of the implied volatility of S&P 500 index options VMG Value Minus Growth, equity value premium proxy WDRA Wealth-Dependent Risk Aversion X Cash flow Y Yield YC Yield Curve (steepness), term spread YTM Yield To Maturity YTW Yield To Worst Disclaimer Antti Ilmanen is a Senior Portfolio Manager at Brevan Howard, one of Europe’s largest hedge fund managers.
For equity investors it is important to understand that existing investors of listed shares only benefit from growth in current firms; historically, this includes less than half of aggregate real earnings growth (see Sections 8.4.3 and 16.4.1). • Some wealth classifications add up management vehicles instead of assets: pension assets, insurance assets, mutual fund assets, private equity, and hedge funds. How do SWFs (sovereign wealth funds) and HNWIs (high-net-worth individuals) fit these classifications? And should we treat PE, HF, and structured products as wealth classes or management vehicles; the former choice may imply double-counting? Without being pedantic about definitions, I quote here some interesting classifications and quantifications. A.1 GLOBAL TOTAL • McKinsey Global Institute (2009) reports the size of global financial assets at $178 trillion ($194 trillion) at end-2008 (end-2007).
Currency Wars: The Making of the Next Gobal Crisis by James Rickards
Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, Kenneth Rogoff, labour mobility, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money: store of value / unit of account / medium of exchange, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, open economy, paradox of thrift, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus
By using quantitative easing to generate inflation abroad, the United States was increasing the cost structure of almost every major exporting nation and fast-growing emerging economy in the world all at once. Quantitative easing in its simplest form is just printing money. To create money from thin air, the Federal Reserve buys Treasury debt securities from a select group of banks called primary dealers. The primary dealers have a global base of customers, ranging from sovereign wealth funds, other central banks, pension funds and institutional investors to high-net-worth individuals. The dealers act as intermediaries between the Fed and the marketplace by underwriting Treasury auctions of new debt and making a market in existing debt. When the Fed wants to reduce the money supply, they sell securities to the primary dealers. The securities go to the dealers and the money paid to the Fed simply disappears. Conversely, when the Fed wants to increase the money supply, they buy securities from the dealers.
The Verdict: Did Labour Change Britain? by Polly Toynbee, David Walker
banking crisis, Big bang: deregulation of the City of London, call centre, central bank independence, congestion charging, Corn Laws, Credit Default Swap, decarbonisation, deglobalization, deindustrialization, Etonian, failed state, first-past-the-post, Frank Gehry, gender pay gap, Gini coefficient, high net worth, hiring and firing, illegal immigration, income inequality, knowledge economy, labour market flexibility, market bubble, millennium bug, North Sea oil, Northern Rock, offshore financial centre, pension reform, Plutocrats, plutocrats, Ponzi scheme, profit maximization, purchasing power parity, shareholder value, Skype, smart meter, stem cell, The Spirit Level, too big to fail, University of East Anglia, working-age population, Y2K
New disclosure rules in 2004 allowed the tax authorities to take swifter action on loopholes; court rulings gave them access to 400,000 offshore bank accounts held by UK residents, 100,000 of which were not declaring income or interest. After the crash, in a stable-doors exercise, rescued banks had to list where they sheltered their money – one had 500 tax-haven subsidiaries. In April 2009 HMRC set up a High Net Worth Unit, looking at complex share and property dealings. The Germans had shown the power of shame when in 2008 they started buying stolen computer discs containing Swiss and Liechtenstein bank records. At last, as a result of the recession, the UK cut subsidies for the Isle of Man, forcing its toy-town government to put up taxes. Spending on public services (excluding pensions and cash benefits) amounted to a fifth of national income when Labour took power.
What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale
affirmative action, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Bretton Woods, capital controls, Cass Sunstein, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial innovation, floating exchange rates, full employment, Gini coefficient, global reserve currency, global village, high net worth, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, invisible hand, Just-in-time delivery, Kenneth Rogoff, labour market flexibility, labour mobility, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, sovereign wealth fund, special drawing rights, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Washington Consensus, women in the workforce, yield curve
She has written four legal treatises: Corporate Compliance Practice Guide, eDiscovery for Corporate Counsel, Corporate Legal Departments, and International Corporate Practice. THIERRY MALLERET IJ Partners Thierry Malleret is Senior Partner, Head of Research and Networks at IJ Partners. Prior to that, he was managing partner of Rainbow Insight, an advisory boutique that provided tailor-made intelligence to global chief executives and ultra-high-net-worth individuals. Until March 2007, Dr. Mallevet headed the Global Risk Network at the World Economic Forum, a network that brings together top-end opinion and policymakers, CEOs, and academics to look at how global issues affect business and society in the short, medium, and long term. He has organized Davos and spoken at global, industry, and regional events for several consecutive years. Prior to that, he worked in investment banking (as a Chief Economist and Strategist of a major Russian investment bank), think tanks, and academia (both in New York and Oxford), and in government (with a three-year spell in the Prime Minister’s office in Paris).
Confessions of a Microfinance Heretic by Hugh Sinclair
accounting loophole / creative accounting, Bernie Madoff, colonial exploitation, en.wikipedia.org, financial innovation, financial intermediation, Gini coefficient, high net worth, illegal immigration, inventory management, microcredit, Northern Rock, peer-to-peer lending, pirate software, Ponzi scheme, principal–agent problem, profit motive
A third company, called NOTS (Not One The Same—whatever that means), also wanted to start yet another microfinance fund, and Mark and Eelco came up with the cunning plan of setting up a separate, for-profit, private limited company to manage all these funds under one roof. They would have the same capital under management but could reap the benefits of private shareholdings. It was essentially a privatization. Oxfam Novib’s money came predominantly from the Dutch government, ASN Bank’s funds from pensioners and savers, and NOTS’ capital mainly from high-net-worth individuals. The funds were then channeled through a private company, Triple Jump. DOEN is an investment fund that obtains its funding from the Dutch Postcode Lottery and has been active in some of the most original and cutting-edge investments in the broad field of development for decades. It was an early investor in microfinance, via the Triodos-DOEN fund—a fund managed by the genuinely decent bank and microfinance fund manager Triodos Bank.
The Cost of Inequality: Why Economic Equality Is Essential for Recovery by Stewart Lansley
banking crisis, Basel III, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Branko Milanovic, Bretton Woods, British Empire, business process, call centre, capital controls, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, Goldman Sachs: Vampire Squid, high net worth, hiring and firing, Hyman Minsky, income inequality, James Dyson, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, Long Term Capital Management, low skilled workers, manufacturing employment, market bubble, Martin Wolf, mittelstand, mobile money, Mont Pelerin Society, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, Tyler Cowen: Great Stagnation, Washington Consensus, Winter of Discontent, working-age population
This was in part because the super-rich demanded racier and racier returns. In the US and the UK, wealth management teams operating inside investment and specialist banks enjoyed booming business. Many of these companies started to handle only clients offering substantial sums. In the UK, for example, the wealth management firms Fleming Family and Partners, JO Hambro and Sarasin only handle a group known in the industry as ‘ultra high net worth’: those with assets to spare of at least £10 million. Some of the money supported proprietary trading desks in investment banks. Yet using the banks’ own capital in this way loaded additional risk and potential conflict. ‘Not only do they risk putting their own interests before those of their clients’, as the Economist magazine argued in 2007, ‘they are also increasingly exposing themselves to the dangers of an abrupt turn in the credit cycle.
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, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population, World Values Survey
Investment banks’ key role is (or used to be) to facilitate the creation and the trading of shares and bonds Investment banks are so called because they help companies raise money from investors – at least that was their original purpose. They arrange the issuance of shares and corporate bonds by their client companies and sell them on their behalf. When they sell shares and bonds for their client companies, investment banks do not deal with ‘retail’ investors, namely, small individual investors who only buy small quantities. They only deal with large investors, such as extremely rich individuals (‘high net worth individuals’ is the jargon) or institutional investors, that is, large funds created by individual investors pooling their money. The most important types of funds include: pension funds, investing money that individuals save for their pensions; sovereign wealth funds, which manage state-owned assets of a country (Government Pension Fund of Norway and Abu Dhabi Investment Council are two of the biggest examples); mutual funds or unit trusts, which manage money pooled by small individual investors that buy into them in the open market; hedge funds, which invest actively in high-risk, high-return assets, using a pool of large sums given to them by very rich individuals or other, more ‘conservative’, funds (e.g., pension funds); private equity funds, which are like hedge funds, but make money solely out of buying up companies, restructuring them and selling at a profit.
4chan, Ada Lovelace, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Bertrand Russell: In Praise of Idleness, carbon footprint, cellular automata, Claude Shannon: information theory, cognitive dissonance, complexity theory, crowdsourcing, Donald Trump, Douglas Hofstadter, George Akerlof, Gödel, Escher, Bach, high net worth, Isaac Newton, Jacques de Vaucanson, Jaron Lanier, job automation, l'esprit de l'escalier, Loebner Prize, Menlo Park, Ray Kurzweil, RFID, Richard Feynman, Richard Feynman, Ronald Reagan, Skype, statistical model, Stephen Hawking, Steve Jobs, Steven Pinker, theory of mind, Turing machine, Turing test, Von Neumann architecture, Watson beat the top human players on Jeopardy!
So after a while I just started giving fake answers, just making stuff up, like. Just to keep it interesting, you know?” The strangeness he experienced, and the kinds of “bullet points” that speed dating can frequently devolve into, are so well-known as to have been lampooned by Sex and the City: “Hi, I’m Miranda Hobbes.” “Dwight Owens; private wealth group at Morgan Stanley; investment management for high-net-worth individuals and a couple pension plans; like my job; been there five years; divorced; no kids; not religious; I live in New Jersey; speak French and Portuguese; Wharton business school; any of this appealing to you?” The delivery certainly isn’t. People with elaborate checklists of qualities their ideal mate must have frequently put entirely the wrong types of things. This height. This salary.
airport security, British Empire, call centre, clean water, corporate social responsibility, Deng Xiaoping, Donald Trump, fear of failure, glass ceiling, high net worth, income per capita, Jeff Bezos, Johann Wolfgang von Goethe, microcredit, Own Your Own Home, random walk, rolodex, shareholder value, Silicon Valley, Skype, Steve Ballmer
It started gradually, when Chicago raised $75,000 in an evening, and the New York chapter vowed to beat them. They did, upping the ante to $82,000. A few weeks later, in November of 2004, the San Francisco team planted their flag by generating over $90,000 at a “Reading Room” event with facsimiles of four libraries (from Nepal, Cambodia, Vietnam, and India), one in each corner of the room. Within weeks, the London chapter hosted a private dinner for high-net-worth individuals who collectively pledged over $100,000. It was all done in a spirit of friendly competition, and it was fun to watch the mails fly around the world as the bar continued to be raised. The Hong Kong chapter treated the British record as though it were made to be broken. Our chapter leaders jokingly told me, “The Brits take forever to make decisions. Here in Hong Kong, we move quickly.
The Fear Index by Robert Harris
algorithmic trading, backtesting, banking crisis, dark matter, family office, Fellow of the Royal Society, fixed income, Flash crash, high net worth, implied volatility, mutually assured destruction, Renaissance Technologies, speech recognition
‘Should we take precautions on your behalf as well?’ Quarry laughed. ‘The only thing that keeps me awake at night is the thought of a paternity suit.’ ‘RIGHT,’ SAID QUARRY, when Genoud had gone, ‘let’s talk about this presentation – if you’re still sure you’re up for it?’ ‘I’m up for it.’ ‘Okay, thank God for that. Nine investors – all existing clients as agreed. Four institutions, three ultra-high net worths, two family offices, and a partridge in a pear tree.’ ‘A partridge?’ ‘Okay, not a partridge. There is no partridge, I concede that.’ Quarry was in great high spirits. If he was three parts gambler he was also one part salesman, and it was a while since that crucial part of him had been allowed its head. ‘Ground rules are: first, they have to sign a non-disclosure agreement regarding our proprietary software, and second, they’re each permitted to bring in one designated professional adviser.
2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Airbnb, American Society of Civil Engineers: Report Card, asset-backed security, Bakken shale, banking crisis, BRICs, British Empire, business process, business process outsourcing, call centre, Carmen Reinhart, clean water, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, demand response, Donald Trump, Frederick Winslow Taylor, high net worth, housing crisis, hydraulic fracturing, If something cannot go on forever, it will stop, illegal immigration, index fund, intermodal, inventory management, Kenneth Rogoff, labor-force participation, LNG terminal, low skilled workers, Mark Zuckerberg, Martin Wolf, Maui Hawaii, McMansion, mortgage debt, Network effects, new economy, obamacare, oil shale / tar sands, oil shock, peak oil, Plutocrats, plutocrats, price stability, quantitative easing, race to the bottom, reserve currency, reshoring, Richard Florida, rising living standards, risk tolerance, risk/return, Silicon Valley, Silicon Valley startup, six sigma, Skype, sovereign wealth fund, Steve Jobs, superstar cities, the High Line, transit-oriented development, Wall-E, Yogi Berra, Zipcar
But when I met with Sunil Godhwani, chief executive officer of Religare Enterprises, an Indian financial services company, in the lobby of the Morosani Posthotel in Davos, Switzerland, in January 2011, he wanted to talk about his U.S. strategy. With 2,200 offices in six hundred cities and $15 billion in assets under management, Religare is perfectly situated to cash in on the rising tide in India, where the population of high-net-worth individuals (those with over $1 million in assets) rose 80 percent between 2008 and 2010. Why would anyone want to go elsewhere? Well, in February 2010 Religare paid $200 million for a majority stake in Northgate Capital, a private equity firm based in San Francisco. In December 2010, just weeks before we met, Godhwani had bought a 55 percent stake in Landmark Partners, a fund of funds based in Simsbury, Connecticut, for $171 million.
Messy: The Power of Disorder to Transform Our Lives by Tim Harford
affirmative action, Air France Flight 447, Airbnb, airport security, Albert Einstein, Amazon Mechanical Turk, Amazon Web Services, Atul Gawande, autonomous vehicles, banking crisis, Barry Marshall: ulcers, Basel III, Berlin Wall, British Empire, Broken windows theory, call centre, Cass Sunstein, Chris Urmson, cloud computing, collateralized debt obligation, crowdsourcing, deindustrialization, Donald Trump, Erdős number, experimental subject, Ferguson, Missouri, Filter Bubble, Frank Gehry, game design, global supply chain, Googley, Guggenheim Bilbao, high net worth, Inbox Zero, income inequality, Internet of things, Jane Jacobs, Jeff Bezos, Loebner Prize, Louis Pasteur, Mark Zuckerberg, Menlo Park, Merlin Mann, microbiome, out of africa, Paul Erdős, Richard Thaler, Rosa Parks, self-driving car, side project, Silicon Valley, Silicon Valley startup, Skype, Steve Jobs, Steven Levy, Stewart Brand, telemarketer, the built environment, The Death and Life of Great American Cities, Turing test, urban decay
It is surprising how many of our conversations take this ritualistic format, even when we are desperate to make a human connection. It is easy to mock the pickup artists with their “openers” and their willingness to “eject” from an interaction that isn’t going well. But do the rest of us really do any better? Is this line, transcribed from a first date, delivered by a human or a computer? “Dwight Owens. Private wealth group at Morgan Stanley. Investment management for high-net-worth individuals and a couple pension plans. Like my job, been there five years, divorced, no kids, not religious. I live in New Jersey, speak French and Portuguese. Wharton business school. Any of this appealing to you?” It’s a trick question: these words actually come from the TV comedy Sex and the City. Still: it’s close to home. Even without the manipulative tactics of the pickup artist, first dates are often highly formal exchanges of useless biographical information because nobody wants to take the risk of saying something interesting.
Market Sense and Nonsense by Jack D. Schwager
asset allocation, Bernie Madoff, Brownian motion, collateralized debt obligation, commodity trading advisor, conceptual framework, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, fixed income, high net worth, implied volatility, index arbitrage, index fund, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, market fundamentalism, merger arbitrage, pattern recognition, performance metric, pets.com, Ponzi scheme, quantitative trading / quantitative ﬁnance, random walk, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sharpe ratio, short selling, statistical arbitrage, statistical model, transaction costs, two-sided market, value at risk, yield curve
The risk alluded to is one that can arise because of a lack of diversification, rather than one that is intrinsic to the investment. The idiosyncratic risk in hedge funds, which raises the specter of a total or near-total loss, can easily be eliminated by confining hedge fund investments to diversified, professionally managed funds of funds, as opposed to single hedge fund investments. Investment Misconception 35: Hedge fund investment is appropriate only for high-net-worth, sophisticated investors. Reality: An analytical, rather than emotional, evaluation of portfolio alternatives would indicate that hedge funds are a desirable investment even for unsophisticated, lower-net-worth individuals—that is, via a fund of funds vehicle, which provides both professional management and diversification. In fact, it could be argued that these are the investors who most need to include a diversified hedge fund investment in their portfolios, as they can least afford the risk implicit in investing all their money in a typical traditional portfolio, which is inherently poorly diversified.
Albert Einstein, anti-communist, asset allocation, Benoit Mandelbrot, Black-Scholes formula, Brownian motion, buy low sell high, capital asset pricing model, Claude Shannon: information theory, computer age, correlation coefficient, diversified portfolio, en.wikipedia.org, Eugene Fama: efficient market hypothesis, high net worth, index fund, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, John von Neumann, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, New Journalism, Norbert Wiener, offshore financial centre, publish or perish, quantitative trading / quantitative ﬁnance, random walk, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, short selling, speech recognition, statistical arbitrage, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, traveling salesman, value at risk, zero-coupon bond
Koonmen meanwhile went to Amber Arbitrage’s investors and claimed credit for the fund’s recent performance. He persuaded many of them to roll their money over into a new fund that Koonmen was starting, Eifuku Master Trust. One of the first things Koonmen had to explain to his investors was how to pronounce “Eifuku.” It was ay-foo-koo. Eifuku means “eternal luck.” Soros invested in Eifuku. So did several high-net-worth Kuwaitis and UBS, a Swiss bank still smarting from the distinction of having been Long-Term Capital Management’s largest investor. Like Meriwether, Koonmen believed that his management was worth a 25 percent cut of the profits. He also intended to rake in 2 percent of the fund’s assets each year, profitable or not. Koonmen installed his LTCM pool table in Eifuku’s offices on the eleventh floor of the Kamiyacho MT Building.
What Got You Here Won't Get You There: How Successful People Become Even More Successful by Marshall Goldsmith, Mark Reiter
She was developing people who shared her vision for the magazine. She was building a solid team that could operate seamlessly. Sharon thought she was encouraging the staff to grow and eventually emulate her success. The staffers outside her inner circle thought she was encouraging sucking up. Sharon is guilty of Habit #14: Playing favorites. Case 3. Martin is a financial consultant for a prominent New York City firm. He manages money for high-net-worth individuals. The minimum starting account is $5 million. Martin is very good at what he does. He takes home a seven-figure salary. That’s a lot less than most of his clients make in a year. But Martin doesn’t envy or resent his clients. He lives and breathes investments. And he loves providing a valued service for his well-heeled clients, many of them CEOs, some of them self-made entrepreneurs, some of them entertainment stars, and the rest of them beneficiaries of inherited wealth.
Priceless: The Myth of Fair Value (And How to Take Advantage of It) by William Poundstone
availability heuristic, Cass Sunstein, collective bargaining, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, East Village, en.wikipedia.org, endowment effect, equal pay for equal work, experimental economics, experimental subject, feminist movement, game design, German hyperinflation, Henri Poincaré, high net worth, index card, invisible hand, John von Neumann, laissez-faire capitalism, loss aversion, market bubble, mental accounting, meta analysis, meta-analysis, Nash equilibrium, new economy, payday loans, Potemkin village, price anchoring, price discrimination, psychological pricing, Ralph Waldo Emerson, RAND corporation, random walk, RFID, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, rolodex, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, ultimatum game, working poor
The anchors known as trial balloons are often broached over drinks, and occasionally the outline of a deal is sketched on a cocktail napkin. The IRS allows businesses and individuals to write off alcoholic “entertainment” as long as it is “ordinary and necessary.” Nobody seems to doubt that it’s both. When the economy goes south, alcohol-lubricated deal making is one of the last things to be cut. As the New York real estate market tanked in 2008, Prudential Douglas Elliman was offering high-net-worth customers condo tours awash in free Talisker and Lagavulin whiskey—which sell for $60 and $77 a bottle. “A little bourbon” could be good for sales, suggested one broker, who sounded confident that the liquor budget would be recouped and then some. Real estate journalist Christine Haughney wrote, “Just as a few drinks may coax timid traders onto a dance floor, it could help them muster the courage to buy multimillion-dollar apartments.”
The New New Thing: A Silicon Valley Story by Michael Lewis
Albert Einstein, Andy Kessler, business climate, Chance favours the prepared mind, data acquisition, family office, high net worth, invention of the steam engine, invisible hand, Jeff Bezos, Menlo Park, pre–internet, risk tolerance, Sand Hill Road, Silicon Valley, Silicon Valley startup, Thorstein Veblen, Y2K
He presented to reporters a distorted, slimmed-down version of his ambition. The idea was to get the word out to the accountants he wanted to hire and to create a buzz about the company, without alerting the competition. Once again, he was fairly clear in his mind who the competition was. "I want to avoid waving a red flag to Microsoft," he explained to me, "so instead of 'the wealthy masses' I've been saying 'high net worth individuals,' and instead of laying out the whole idea I just say we'll be doing tax planning." Sure enough, not long after Clark leaked his new story to the press, the accountants began to call. In just a few weeks several hundred people Clark had never heard of came looking to be a part of the new enterprise. The sheer volume of the calls suggested that the accountants at the big accounting firms were spreading the word among themselves.
The Big Short: Inside the Doomsday Machine by Michael Lewis
Asperger Syndrome, asset-backed security, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, facts on the ground, financial innovation, fixed income, forensic accounting, Gordon Gekko, high net worth, housing crisis, illegal immigration, income inequality, index fund, interest rate swap, London Interbank Offered Rate, Long Term Capital Management, medical residency, moral hazard, mortgage debt, pets.com, Ponzi scheme, Potemkin village, quantitative trading / quantitative ﬁnance, short selling, Silicon Valley, too big to fail, value at risk, Vanguard fund
They were the same agreements, dreamed up by the International Swaps and Derivatives Association, that Mike Burry secured before he bought his first credit default swaps. If you got your ISDA, you could in theory trade with the big Wall Street firms, if not as an equal then at least as a grown-up. The trouble was that, despite their success running money, they still didn't have much of it. Worse, what they had was their own. Inside Wall Street they were classified, at best, as "high net worth individuals." Rich people. Rich people received a better class of service from Wall Street than middle-class people, but they were still second-class citizens compared to institutional money managers. More to the point, rich people were typically not invited to buy and sell esoteric securities, such as credit default swaps, not traded on open exchanges. Securities that were, increasingly, the beating heart of Wall Street.
A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Lawrence G. Mcdonald, Patrick Robinson
asset-backed security, bank run, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, diversification, fixed income, high net worth, hiring and firing, if you build it, they will come, London Interbank Offered Rate, Long Term Capital Management, margin call, moral hazard, mortgage debt, naked short selling, new economy, Ronald Reagan, short selling, sovereign wealth fund, value at risk
It was, after all, the only time in living memory I’d entered a brokerage house without telling a grandiose white lie to one of the front office staff or hiding behind a couple of empty white pizza boxes—sausage and extra cheese for Mr. Begnaud. In a briefcase I’d borrowed from Rick Schnall, one of my Wharton roommates, I had my new set of weapons, my salesman’s attack blueprint: local maps, business directories, and lists of country clubs, golf clubs, and big-city men’s clubs, anywhere I was likely to find people who fit Merrill Lynch’s favorite marketing phrase, “persons of high net worth.” They were my targets, and by nine o’clock I was putting together a power list and trying to convert key phrases from the meat-selling business to fit the much more complex task of selling stocks and bonds. I was using every ounce of creativity I possessed. For instance, one of the prime ways a reluctant potential client gets out of making a commitment to invest is to say “I’m sorry Mr. McDonald, I need to run this by my wife.”
With a Little Help by Cory Doctorow
autonomous vehicles, big-box store, Burning Man, call centre, carbon footprint, death of newspapers, don't be evil, game design, Google Earth, high net worth, margin call, offshore financial centre, packet switching, Ponzi scheme, rolodex, Sand Hill Road, sensible shoes, skunkworks, Skype, traffic fines, traveling salesman, Turing test, urban planning, Y2K
But you haven't even got the shadow of the picture yet, buddy. It took decades of relationship-building for Ate to sell its first product to a vat-person." 2060 *And we haven't sold anything else since,* Leon thought, but he didn't say it. No one would say it at Ate. The agency pitched itself as a powerhouse, a success in a field full of successes. It was the go-to agency for servicing the "ultra-high-net-worth individual," and yet... 2061 One sale. 2062 "And we haven't sold anything since." Brautigan said it without a hint of shame. "And yet, this entire building, this entire agency, the salaries and the designers and the consultants: all of it paid for by clipping the toenails of that fortune. Which means that one more sale --" 2063 He gestured around. The offices were sumptuous, designed to impress the functionaries of the fortunes in the vats.
The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein
asset allocation, Bretton Woods, British Empire, buy low sell high, carried interest, corporate governance, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dava Sobel, diversification, diversified portfolio, Edmond Halley, equity premium, estate planning, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, German hyperinflation, high net worth, hindsight bias, Hyman Minsky, index fund, invention of the telegraph, Isaac Newton, John Harrison: Longitude, Long Term Capital Management, loss aversion, market bubble, mental accounting, mortgage debt, new economy, pattern recognition, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, South Sea Bubble, transaction costs, Vanguard fund, yield curve
My experience is that the wealthier the client, the more likely he is to be badly abused. Brokerage customers are judged by their ability to generate revenues for the firm. Small clients are naturally not accorded the time and effort given to larger ones (or “whales,” as the biggest are known in the brokerage business). This actually works in the small client’s favor, as he or she is likely to be put into a load fund or a few stocks and forgotten about. On the other hand, the high-net-worth client is the ultimate brokerage firm cash cow and is likely to be traded in and out of an expensive array of annuities, private managers, and limited partnerships. The wealthy are different than you and I: they have many more ways of having their wealth stripped away. Summing It Up In the words of Walt Kelly, “We have met the enemy, and he is us.” I’ve described the major behavioral mistakes made by investors—the herd mentality, overconfidence, recency, the need to be entertained, myopic risk aversion, the great company/great stock illusion, pattern hallucination, mental accounting, and the country club syndrome.
Women Leaders at Work: Untold Tales of Women Achieving Their Ambitions by Elizabeth Ghaffari
Albert Einstein, AltaVista, business process, cloud computing, Columbine, corporate governance, corporate social responsibility, dark matter, family office, Fellow of the Royal Society, financial independence, follow your passion, glass ceiling, Grace Hopper, high net worth, knowledge worker, Long Term Capital Management, performance metric, pink-collar, profit maximization, profit motive, recommendation engine, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, thinkpad, trickle-down economics, urban planning, women in the workforce, young professional
Laura Roden Founder and Managing Director, VC Privé, LLC Born in Los Angeles, California. Laura Roden is founder and managing director of VC Privé, LLC, a boutique investment bank that, since its establishment in January 2007, has raised money for high-quality, alternative asset funds such as venture capital funds, hedge funds, and distressed debt funds. Her firm specializes in marketing funds to private investors, including high-net-worth individuals, family offices, foundations, endowments, and independent financial advisors. Ms. Roden holds Series 7, 66, and 79 licenses to sell securities and provide investment advisory services. Previously, Ms. Roden was managing director of The Angels’ Forum, a leading association of individual and corporate early-stage investors, and was president and CEO of the Silicon Valley Association of Startup Entrepreneurs (SVASE), the largest nonprofit in Northern California dedicated to helping technology entrepreneurs.
The Ascent of Money: A Financial History of the World by Niall Ferguson
Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, Corn Laws, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, German hyperinflation, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, interest rate swap, Isaac Newton, iterative process, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour mobility, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Naomi Klein, Nick Leeson, Northern Rock, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, structural adjustment programs, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, value at risk, Washington Consensus, Yom Kippur War
In 1990, according to Hedge Fund Research, there were just over 600 hedge funds managing some $39 billion in assets. By 2000 there were 3,873 funds with $490 billion in assets. The latest figures (for the first quarter of 2008) put the total at 7,601 funds with $1.9 trillion in assets. Since 1998 there has been a veritable stampede to invest in hedge funds (and in the ‘funds of funds’ that aggregate the performance of multiple firms). Where once they were the preserve of ‘high net worth’ individuals and investment banks, hedge funds are now attracting growing numbers of pension funds and university endowments.102 This trend is all the more striking given that the attrition rate remains high; only a quarter of the 600 funds reporting in 1996 still existed at the end of 2004. In 2006, 717 ceased to trade; in the first nine months of 2007, 409.103 It is not widely recognized that large numbers of hedge funds simply fizzle out, having failed to meet investors’ expectations.
The End of Wall Street by Roger Lowenstein
Asian financial crisis, asset-backed security, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Brownian motion, Carmen Reinhart, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fear of failure, financial deregulation, fixed income, high net worth, Hyman Minsky, interest rate derivative, invisible hand, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, Martin Wolf, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, profit motive, race to the bottom, risk tolerance, Ronald Reagan, savings glut, short selling, sovereign wealth fund, statistical model, the payments system, too big to fail, tulip mania, Y2K
Now “people are treating their homes as investment assets.”16 Homeowners who owed more than their homes were worth were indeed abandoning them. And due to inflated appraisals and, in some cases, fraudulent applications, this was becoming common. As Moody’s was undergoing a crash course in the new mortgage math, the subprime crisis claimed its first serious casualty on Wall Street. In 2004, Bear Stearns had set up a hedge fund to appeal to high-net-worth types who wanted, as such types often do, higher-than-market returns. The fund invested in CDOs, procuring much of its portfolio from Christopher Ricciardi at Merrill Lynch. For the next two years, the fund prospered. Results were so good that in August of 2006—the very peak of the housing market—Bear launched a second fund. Combined, the two funds purchased some $20 billion in investments.17 What distinguished the Bear funds was, first, they invested almost exclusively in mortgage securities and, second, they did so on margin.
All the Devils Are Here by Bethany McLean
Asian financial crisis, asset-backed security, bank run, Black-Scholes formula, call centre, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Exxon Valdez, fear of failure, financial innovation, fixed income, high net worth, Home mortgage interest deduction, interest rate swap, laissez-faire capitalism, Long Term Capital Management, margin call, market bubble, market fundamentalism, Maui Hawaii, moral hazard, mortgage debt, Northern Rock, Own Your Own Home, Ponzi scheme, quantitative trading / quantitative ﬁnance, race to the bottom, risk/return, Ronald Reagan, Rosa Parks, shareholder value, short selling, South Sea Bubble, statistical model, telemarketer, too big to fail, value at risk
As his pay rapidly climbed from meager (just $66,000 in 2000) to respectable, at least by Wall Street standards ($2.5 million in 2006), Tannin never forgot to whom he owed his good fortune. “I want to thank you again from the bottom of my heart for all you have done for me,” he wrote to Cioffi in early 2007. “I will be eternally grateful.” The High Grade fund started small. Some of its investors were high-net-worth customers of Bear Stearns, one of whom would later say that he thought he was getting in on a special “club.” In truth, though, High Grade wasn’t all that selective. Eventually, the three biggest investors were so-called funds of hedge funds, meaning they pooled investors’ money and doled it out to hedge funds. Such funds often had a reputation for being “hot money,” meaning they had no loyalty to any hedge fund.
What Should I Do With My Life? by Po Bronson
back-to-the-land, Berlin Wall, clean water, double entry bookkeeping, Exxon Valdez, financial independence, high net worth, job satisfaction, Menlo Park, microcredit, new economy, Silicon Valley, South of Market, San Francisco, special economic zone, telemarketer, traffic fines, young professional
It had an egalitarian ethic; titles meant nothing and management was thin to none. The gig paid about 35K. I should have bargained for more—they probably wanted me to counter—but I would have hung out on that sales floor for less. I thrived in that environment. It was so loose, so unpoliced, that I felt incredibly free to be myself. After a year, the firm brought in a distinguished elderly Chinese gentleman, Mr. Bob Chang, to cover the pipeline of high net worth investors moving to the states from Hong Kong. The firm warned me to rein in my eccentricity around Mr. Chang, be a little more proper. But in two weeks I had Mr. Chang standing on an imaginary pitching mound in the middle of the sales floor, throwing fastballs of wadded paper down the aisle into my catcher’s glove. During peak trading hours. Nobody said a word to me about it. As long as Mr.
The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order by Paul Vigna, Michael J. Casey
3D printing, Airbnb, altcoin, bank run, banking crisis, bitcoin, blockchain, Bretton Woods, California gold rush, capital controls, carbon footprint, clean water, collaborative economy, collapse of Lehman Brothers, Columbine, Credit Default Swap, cryptocurrency, David Graeber, disintermediation, Edward Snowden, Elon Musk, ethereum blockchain, fiat currency, financial innovation, Firefox, Flash crash, Fractional reserve banking, hacker house, Hernando de Soto, high net worth, informal economy, Internet of things, inventory management, Julian Assange, Kickstarter, Kuwabatake Sanjuro: assassination market, litecoin, Long Term Capital Management, Lyft, M-Pesa, Mark Zuckerberg, McMansion, means of production, Menlo Park, mobile money, money: store of value / unit of account / medium of exchange, Network effects, new economy, new new economy, Nixon shock, offshore financial centre, payday loans, peer-to-peer lending, pets.com, Ponzi scheme, prediction markets, price stability, profit motive, RAND corporation, regulatory arbitrage, rent-seeking, reserve currency, Robert Shiller, Robert Shiller, Satoshi Nakamoto, seigniorage, shareholder value, sharing economy, short selling, Silicon Valley, Silicon Valley startup, Skype, smart contracts, special drawing rights, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, supply-chain management, Ted Nelson, The Great Moderation, the market place, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, Turing complete, Tyler Cowen: Great Stagnation, Uber and Lyft, underbanked, WikiLeaks, Y Combinator, Y2K, Zimmermann PGP
“We took thirty meetings in two weeks, talking about linking bitcoin and M-Pesa, and we saw eyes light up,” she said. Investors understood this was a simple and potentially powerful way to undercut and take market share from a handful of companies, the Western Unions of the world that had a stranglehold on a huge global business. After the company was profiled in a Bloomberg article in November 2013, before it had launched a single product, Rossiello started getting calls from “high-net-worth” subscribers to Bloomberg’s financial-information platform and firms in California wanting a piece of the action. But she wasn’t prepared to give control of the company away. “I said no to a lot of big guys,” she said. Rossiello hadn’t even heard of bitcoin until Goldie-Scot mentioned it to her. But she quickly caught on to the possibilities and now has ambitions for BitPesa that go beyond bitcoin, or digital currencies.
All the Money in the World by Peter W. Bernstein
Albert Einstein, anti-communist, Berlin Wall, Bill Gates: Altair 8800, call centre, corporate governance, currency peg, David Brooks, Donald Trump, estate planning, family office, financial innovation, George Gilder, high net worth, invisible hand, Jeff Bezos, job automation, job-hopping, Long Term Capital Management, Martin Wolf, Maui Hawaii, means of production, Menlo Park, Mikhail Gorbachev, new economy, PageRank, Peter Singer: altruism, pez dispenser, popular electronics, Renaissance Technologies, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Sand Hill Road, school vouchers, Search for Extraterrestrial Intelligence, shareholder value, Silicon Valley, Silicon Valley startup, stem cell, Stephen Hawking, Steve Ballmer, Steve Jobs, Steve Wozniak, Thorstein Veblen, too big to fail, traveling salesman, urban planning, William Shockley: the traitorous eight, women in the workforce
And, more important, is the dollar-to-impact ratio of those donations making a difference in society? Those are the key questions; the answers, as one might imagine, are as complex as the donors themselves. To begin with, motivations for giving among the Forbes 400 vary widely. “They range from narcissism to altruism to a passionate need from their heart and souls to make a difference,” says Joan DiFuria, a principal in the Money, Meaning & Choices Institute, which advises high-net-worth families. Certainly, as French novelist Gustave Flaubert aptly put it, “Every good deed is more than three parts pride.” But many philanthropy experts say that desire to improve the lives of the less fortunate is really what drives many to give. “They place their values at the heart of their giving,” says Joe Breiteneicher, president of the Philanthropy Initiative, a nonprofit group that advises donors.
Planet Ponzi by Mitch Feierstein
Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Bernie Madoff, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, disintermediation, diversification, Donald Trump, energy security, eurozone crisis, financial innovation, financial intermediation, Flash crash, floating exchange rates, frictionless, frictionless market, high net worth, High speed trading, illegal immigration, income inequality, interest rate swap, invention of agriculture, Long Term Capital Management, moral hazard, mortgage debt, Northern Rock, obamacare, offshore financial centre, oil shock, pensions crisis, Plutocrats, plutocrats, Ponzi scheme, price anchoring, price stability, purchasing power parity, quantitative easing, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, too big to fail, trickle-down economics, value at risk, yield curve
We insiders have a duty to speak up, to attract attention, to solicit change. That’s the preamble. Now for the problems. The market Any market has two halves: buyers and sellers. On Wall Street, the sellers are typically large firms—Goldman Sachs, Morgan Stanley, JP Morgan, Barclays, Deutsche and so on. They’re selling securities to investors (the buy-side), a group which includes pension funds, hedge funds, insurance companies, high net worth individuals, and plenty of others besides. Naturally, because sell-side firms are also traders, they often buy securities as well as selling them. Nevertheless, it’s conceptually useful to look at the specific incentives faced by sell-side salespeople and traders, because those incentives lay the foundation for much of what’s wrong with the system. Before we look at the sell-side, however, it’s worth starting with the basics: the kill-or-be-killed nature of the market itself.
Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market by Daniel Reingold, Jennifer Reingold
barriers to entry, Berlin Wall, corporate governance, estate planning, Fall of the Berlin Wall, George Gilder, high net worth, informal economy, margin call, new economy, pets.com, rolodex, Saturday Night Live, shareholder value, short selling, Silicon Valley, stem cell, Telecommunications Act of 1996, thinkpad, traveling salesman
My team and I were excited to be at a firm serving institutional clients only. In contrast to life at Merrill, we no longer needed to simplify our writing or presentations for consumption by thousands of retail investors. And we no longer had to worry that every word we wrote or spoke might be misunderstood. In a lot of ways, I felt as if I had been released from retail jail. That’s because CSFB had no retail brokers, other than some salespeople who served very high net worth individuals who were generally quite sophisticated businesspeople and corporate executives. CSFB’s institutional sales force, about 150 strong throughout the world at the time, comprised MBAs and others with substantial experience in the markets. The only challenge was that I had to convert my recommendations to CSFB’s unique rating scheme. While Merrill’s scheme of intermediate versus long-term ratings and various risk and dividend ratings was confusing in its endless categories and criteria, CSFB’s had terminology that didn’t match up well with that used by the rest of the Street.
algorithmic trading, Berlin Wall, bonus culture, BRICs, business process, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, diversification, Emanuel Derman, financial innovation, fixed income, friendly fire, Goldman Sachs: Vampire Squid, high net worth, housing crisis, London Whale, Long Term Capital Management, merger arbitrage, new economy, passive investing, performance metric, risk tolerance, Ronald Reagan, Saturday Night Live, shareholder value, short selling, sovereign wealth fund, The Nature of the Firm, too big to fail, value at risk
The ensuing debacle and damage to Goldman’s reputation, leadership, and clients caused Goldman to stay away from the asset management business. This attitude changed in the late 1980s, when, lured by the consistent profits its competitors were earning in asset management, Goldman established Goldman Sachs Asset Management (GSAM) to serve institutional and individual investors worldwide.22 Goldman struggled to determine whether it should manage money for high-net-worth individuals or institutions, in the end doing both. According to the interviews, there was strong sentiment from many partners that Goldman should not be perceived as competing with clients, but one of the key rationales was that Goldman’s competitors were doing it. Beginning in the mid-1990s, GSAM experienced explosive growth, and Goldman now points out that it is one of the largest asset managers in the world, and yet many of the largest asset managers are still Goldman’s clients.
Vertical: The City From Satellites to Bunkers by Stephen Graham
1960s counterculture, Berlin Wall, Buckminster Fuller, Chelsea Manning, Commodity Super-Cycle, deindustrialization, Edward Glaeser, Edward Snowden, energy security, Frank Gehry, ghettoisation, Google Earth, high net worth, housing crisis, Howard Zinn, illegal immigration, Indoor air pollution, Jane Jacobs, late capitalism, means of production, megacity, megastructure, mutually assured destruction, new economy, New Urbanism, nuclear winter, oil shale / tar sands, planetary scale, Plutocrats, plutocrats, post-industrial society, Project Plowshare, rent control, Richard Florida, Ronald Reagan, Skype, South China Sea, the built environment, The Death and Life of Great American Cities, trickle-down economics, urban decay, urban planning, urban renewal, urban sprawl, white flight, WikiLeaks
As the municipality only limits the ratio of floor area to plot size and has no limits on height, the tower can effectively go as high as developers want once they purchase ‘air rights’ – the legal right to occupy high-up space – from adjacent occupiers. The only official permission required to build so high was that of the Federal Aviation Administration.64 Dead Windows: Planning as Social Cleansing in London Given London’s status as the site of the largest concentration for ‘ultra-high net worth individuals’ on the planet,65 it is no surprise that developers there are similarly focusing overwhelmingly on building super-high-end, and increasingly super-tall, £2 million-plus properties for the global überwealthy. As in Manhattan, many of them are holding properties for large investments, and these sites will rarely, if ever, be inhabited by people at all. Such properties, the Observer’s Alex Preston argues, ‘have become lavishly upholstered safety deposit boxes’66 – buildings that consume iconic views for largely absentee owners while appreciating vast speculative profits.
Trade Your Way to Financial Freedom by van K. Tharp
asset allocation, commodity trading advisor, compound rate of return, computer age, Elliott wave, high net worth, margin call, market fundamentalism, pattern recognition, prediction markets, random walk, risk tolerance, short selling, statistical model, transaction costs
My objective here is to remain one of the top lOOfirms by size, so we’ll trike the kinds of clients who’ll get us there. We have both retail and institutional clients. In some ways they are different and in other ways they are the same, but both types arefine with us. Our capacity is about $2 to $2 billion. We expect to achieve it by our current policy of marketing to banks, large pool operators, and high-net-worth individuals. When we reach it, we’ll simply turn away new money. As we grow, our trading needs to be continually consolidated at fewer trading desks. What are your clients like? What are their goals? What kind of service do you provide for them? For example, by putting their money with you, are they attempting a special type of diversification? What’s the worst thing that can happen in terms of your client relationship?
Albert Einstein, Atul Gawande, Black Swan, business process, buy low sell high, capital asset pricing model, Checklist Manifesto, cognitive bias, correlation does not imply causation, Credit Default Swap, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, discounted cash flows, double entry bookkeeping, Douglas Hofstadter, en.wikipedia.org, Frederick Winslow Taylor, Gödel, Escher, Bach, high net worth, hindsight bias, index card, inventory management, iterative process, job satisfaction, Johann Wolfgang von Goethe, Kevin Kelly, Lao Tzu, loose coupling, loss aversion, market bubble, Network effects, Parkinson's law, Paul Buchheit, Paul Graham, place-making, premature optimization, Ralph Waldo Emerson, rent control, side project, statistical model, stealth mode startup, Steve Jobs, Steve Wozniak, subscription business, telemarketer, the scientific method, time value of money, Toyota Production System, tulip mania, Upton Sinclair, Walter Mischel, Y Combinator, Yogi Berra
—WILL ROGERS, AMERICAN COWBOY AND COMEDIAN The average household net worth of a person who reads the Wall Street Journal is $1.7 million. Seems that WSJ readers are extremely well off, right? Yes, but less than you might think. Bill Gates and Warren Buffett read the Wall Street Journal, and their wealth is measured in the billions—significantly more than even the top 0.01 percent of business professionals. Simply by existing, high-net-worth executives like Gates and Buffett skew the average much higher than it would be otherwise. If you’re relying on the average to tell you how much the typical Wall Street Journal reader is worth, you’re making a mistake. A Mean (or average) is calculated by adding the quantities of all data points, then dividing by the total number of data points available. Averages are simple to calculate but are prone to Gates and Buffett Syndrome: the presence of outliers that skew the average too high or low to be representative.
23andMe, 3D printing, additive manufacturing, Affordable Care Act / Obamacare, Airbnb, airport security, Albert Einstein, algorithmic trading, artificial general intelligence, augmented reality, autonomous vehicles, Baxter: Rethink Robotics, Bill Joy: nanobots, bitcoin, Black Swan, blockchain, borderless world, Brian Krebs, business process, butterfly effect, call centre, Chelsea Manning, cloud computing, cognitive dissonance, computer vision, connected car, corporate governance, crowdsourcing, cryptocurrency, data acquisition, data is the new oil, Dean Kamen, disintermediation, don't be evil, double helix, Downton Abbey, Edward Snowden, Elon Musk, Erik Brynjolfsson, Filter Bubble, Firefox, Flash crash, future of work, game design, Google Chrome, Google Earth, Google Glasses, Gordon Gekko, high net worth, High speed trading, hive mind, Howard Rheingold, hypertext link, illegal immigration, impulse control, industrial robot, Internet of things, Jaron Lanier, Jeff Bezos, job automation, John Harrison: Longitude, Jony Ive, Julian Assange, Kevin Kelly, Khan Academy, Kickstarter, knowledge worker, Kuwabatake Sanjuro: assassination market, Law of Accelerating Returns, Lean Startup, license plate recognition, litecoin, M-Pesa, Mark Zuckerberg, Marshall McLuhan, Menlo Park, mobile money, more computing power than Apollo, move fast and break things, Nate Silver, national security letter, natural language processing, obamacare, Occupy movement, Oculus Rift, offshore financial centre, optical character recognition, pattern recognition, personalized medicine, Peter H. Diamandis: Planetary Resources, Peter Thiel, pre–internet, RAND corporation, ransomware, Ray Kurzweil, refrigerator car, RFID, ride hailing / ride sharing, Rodney Brooks, Satoshi Nakamoto, Second Machine Age, security theater, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, Skype, smart cities, smart grid, smart meter, Snapchat, social graph, software as a service, speech recognition, stealth mode startup, Stephen Hawking, Steve Jobs, Steve Wozniak, strong AI, Stuxnet, supply-chain management, technological singularity, telepresence, telepresence robot, Tesla Model S, The Wisdom of Crowds, Tim Cook: Apple, trade route, uranium enrichment, Wall-E, Watson beat the top human players on Jeopardy!, Wave and Pay, We are Anonymous. We are Legion, web application, WikiLeaks, Y Combinator, zero day
Exploit tool kits like Blackhole and SpyEye commit crime “automagically” by minimizing the need for human labor, thereby dramatically reducing costs to Crime, Inc. They also allow hackers to pursue the “long tail” of opportunity, committing millions of thefts in small amounts so that victims don’t report them and law enforcement has no way to track them. While particular high-value targets (companies, nations, celebrities, high-net-worth individuals, or objects of affection or scorn) are specifically and individually targeted, the way the majority of the public is hacked is by automated scripted computer malware—one large digital fishing net that scoops up anything and everything online with a vulnerability that can be exploited. Given these obvious advantages, as of 2011 an estimated 61 percent of all online attacks were launched by fully automated crime tool kits, returning phenomenal profits for the Dark Web overlords who expertly orchestrated them.
affirmative action, anti-communist, banking crisis, battle of ideas, Boycotts of Israel, Bretton Woods, British Empire, capital controls, central bank independence, Chelsea Manning, colonial exploitation, colonial rule, corporate social responsibility, credit crunch, cuban missile crisis, Deng Xiaoping, Edward Snowden, energy security, energy transition, European colonialism, eurozone crisis, experimental subject, F. W. de Klerk, facts on the ground, failed state, financial innovation, Food sovereignty, Francis Fukuyama: the end of history, full employment, future of journalism, high net worth, invisible hand, Julian Assange, Mikhail Gorbachev, millennium bug, Mohammed Bouazizi, Monroe Doctrine, Naomi Klein, Northern Rock, RAND corporation, Ronald Reagan, Silicon Valley, South China Sea, statistical model, structural adjustment programs, too big to fail, trade liberalization, trade route, UNCLOS, UNCLOS, uranium enrichment, Washington Consensus, WikiLeaks, éminence grise
It felt compelled to try to shut down WikiLeaks entirely, suing both the organization and its online domain registrar. It initially gained an injunction but, after a furious public backlash and a series of counter-actions filed by WikiLeaks supporters, was forced to back down. The negative publicity was even more damaging for the company when a former employee who had supplied the incriminating information came forward in 2011 with thousands more documents pertaining to high-net-worth clients, which he said would shed more light on the company’s practices7 and on the wealthy individuals avoiding tax. Among the other corporate targets of WikiLeaks over the years have been Kaupthing Bank, Peruvian oil dealers, Northern Rock, and Barclays Bank. WikiLeaks was also passed information on Bank of America and British Petroleum that it was unable to publish, partly because it lacked the resources to carry out a thorough fact-check.
Money Changes Everything: How Finance Made Civilization Possible by William N. Goetzmann
Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, banking crisis, Benoit Mandelbrot, Black Swan, Black-Scholes formula, Bretton Woods, Brownian motion, capital asset pricing model, Cass Sunstein, collective bargaining, colonial exploitation, compound rate of return, conceptual framework, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, delayed gratification, Detroit bankruptcy, disintermediation, diversified portfolio, double entry bookkeeping, Edmond Halley, en.wikipedia.org, equity premium, financial independence, financial innovation, financial intermediation, fixed income, frictionless, frictionless market, full employment, high net worth, income inequality, index fund, invention of the steam engine, invention of writing, invisible hand, James Watt: steam engine, joint-stock company, joint-stock limited liability company, laissez-faire capitalism, Louis Bachelier, mandelbrot fractal, market bubble, means of production, money: store of value / unit of account / medium of exchange, moral hazard, new economy, passive investing, Paul Lévy, Ponzi scheme, price stability, principal–agent problem, profit maximization, profit motive, quantitative trading / quantitative ﬁnance, random walk, Richard Thaler, Robert Shiller, Robert Shiller, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, spice trade, stochastic process, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, time value of money, too big to fail, trade liberalization, trade route, transatlantic slave trade, transatlantic slave trade, tulip mania, wage slave
Economic historians Peter Temin and Joachim Voth found a treasure trove of data about institutional speculation on South Sea shares during the bubble. It turned up right where you might expect it: in the records of one of the banks that managed money at the time. Hoare’s bank is a handsome building at 37 Fleet Street in London, about 200 yards from Temple Church, under the sign of the golden bottle, where it has been since 1690. It is a private bank that manages money for high net worth individuals. Hoare’s was founded by Richard Hoare (1648–1714), who was one of the original directors of the South Sea Company. In 1720, it was headed by his son Henry Hoare, who, among other things, built the most magnificent of all English gardens, Stourhead. Hoare’s opened its archives from the bubble period to Temin and Voth, who were able to trace the pattern of trades by one of the most well-connected institutions in the city at the time.
The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal by Ludwig B. Chincarini
affirmative action, asset-backed security, automated trading system, bank run, banking crisis, Basel III, Bernie Madoff, Black-Scholes formula, buttonwood tree, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, discounted cash flows, diversification, diversified portfolio, family office, financial innovation, financial intermediation, fixed income, Flash crash, full employment, Gini coefficient, high net worth, hindsight bias, housing crisis, implied volatility, income inequality, interest rate derivative, interest rate swap, labour mobility, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low skilled workers, margin call, market design, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Northern Rock, Occupy movement, oil shock, price stability, quantitative easing, quantitative hedge fund, quantitative trading / quantitative ﬁnance, Ralph Waldo Emerson, regulatory arbitrage, Renaissance Technologies, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, short selling, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, systematic trading, The Great Moderation, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond
Client Services Private Client Services (Private Wealth Management) Private client services is an area within many investment banks, including Lehman. Some banks call it private wealth management. This group focused on the investment needs of very wealthy individuals and small to mid-sized institutions worldwide. Private client service groups perform all kinds of functions, designing special investment vehicles for high-net-worth investors and managing clients’ money to achieve their goals. As an example, suppose a small company’s CEO had a concentrated stock position in that company—an undiversified and risky investment. Lehman (and other investment banks) worked to diversify the CEO’s portfolio, trading company returns for returns on a more diversified index. Lehman could offset this risk through other customers with different goals, or use the portfolio as a natural hedge against the bank’s broad holdings and obligations.
Money and Power: How Goldman Sachs Came to Rule the World by William D. Cohan
asset-backed security, Bernie Madoff, buttonwood tree, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, fear of failure, financial innovation, fixed income, Ford paid five dollars a day, Goldman Sachs: Vampire Squid, Gordon Gekko, high net worth, hiring and firing, hive mind, Hyman Minsky, interest rate swap, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, merger arbitrage, moral hazard, mortgage debt, paper trading, passive investing, Ponzi scheme, price stability, profit maximization, risk tolerance, Ronald Reagan, Saturday Night Live, South Sea Bubble, time value of money, too big to fail, traveling salesman, value at risk, yield curve, Yogi Berra
., a director of Ford Motor Company and Thornton’s friend from Hotchkiss, received four hundred thousand shares of Goldman’s IPO; Ford had paid Goldman $87 million in banking fees since 1996. “There is no equity in the equity markets,” Representative Oxley proclaimed in releasing his report. Naturally, Goldman found Representative Oxley’s report to be outrageous. Lucas van Praag, Goldman’s spokesman, said that Goldman had simply made IPO stock available to its high-net-worth clients—of which there were seventeen thousand with investable funds of more than $25 million—and the CEOs Oxley singled out just happened to be among them. In addition, the information he was basing his claim on had been given to Congress by Goldman. “Their conclusion is not based on anything in fact,” he said. “We provided the information they asked for and they never asked us a single question about anything we gave them.”
Capital in the Twenty-First Century by Thomas Piketty
accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, Branko Milanovic, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation coefficient, David Ricardo: comparative advantage, demographic transition, distributed generation, diversification, diversified portfolio, European colonialism, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, German hyperinflation, Gini coefficient, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, market bubble, means of production, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, pension reform, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, The Nature of the Firm, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, very high income, We are the 99%
For some years now, a number of international financial institutions have attempted to respond to growing social demand for information on these issues by trying to extend the magazine rankings and publishing “global wealth reports” that include more than just billionaires. In particular, since 2010, Crédit Suisse, one of the leading Swiss banks, has published an ambitious annual report on the global distribution of wealth covering the entire population of the planet.8 Other banks, brokerages, and insurance companies (Merrill Lynch, Allianz, etc.) have specialized in the study of the world’s millionaires (the famous HNWI, or “high net worth individuals”). Every institution wants its own report, preferably on glossy paper. It is of course ironic to see institutions that make much of their money by managing fortunes filling the role of government statistical agencies by seeking to produce objective information about the global distribution of wealth. It is also important to note that these reports must often rely on heroic hypotheses and approximations, not all of them convincing, in order to arrive at anything like a “global” view of wealth.
3D printing, Affordable Care Act / Obamacare, airline deregulation, airport security, Apple II, barriers to entry, big-box store, blue-collar work, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, deindustrialization, Detroit bankruptcy, discovery of penicillin, Donner party, Downton Abbey, Edward Glaeser, en.wikipedia.org, Erik Brynjolfsson, everywhere but in the productivity statistics, feminist movement, financial innovation, full employment, George Akerlof, germ theory of disease, glass ceiling, high net worth, housing crisis, immigration reform, impulse control, income inequality, income per capita, indoor plumbing, industrial robot, inflight wifi, interchangeable parts, invention of agriculture, invention of air conditioning, invention of the telegraph, invention of the telephone, inventory management, James Watt: steam engine, Jeff Bezos, jitney, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, labor-force participation, Loma Prieta earthquake, Louis Daguerre, Louis Pasteur, low skilled workers, manufacturing employment, Mark Zuckerberg, market fragmentation, Mason jar, McMansion, Menlo Park, minimum wage unemployment, mortgage debt, mortgage tax deduction, new economy, Norbert Wiener, obamacare, occupational segregation, oil shale / tar sands, oil shock, payday loans, Peter Thiel, pink-collar, Productivity paradox, Ralph Nader, Ralph Waldo Emerson, refrigerator car, rent control, Robert X Cringely, Ronald Coase, school choice, Second Machine Age, secular stagnation, Skype, stem cell, Steve Jobs, Steve Wozniak, Steven Pinker, The Market for Lemons, Thomas Malthus, total factor productivity, transaction costs, transcontinental railway, traveling salesman, Triangle Shirtwaist Factory, Unsafe at Any Speed, Upton Sinclair, upwardly mobile, urban decay, urban planning, urban sprawl, washing machines reduced drudgery, Washington Consensus, Watson beat the top human players on Jeopardy!, We wanted flying cars, instead we got 140 characters, working poor, working-age population, Works Progress Administration, yield management
New software allows consumer lending officers to “know borrowers as never before, and more accurately predict whether they will repay.”59 Vanguard and Charles Schwab have begun to compete with high-priced human financial advisers by offering “robo-advisers,” online services that offer automated investment management via software. They use computer algorithms to choose assets consistent with the client’s desired allocation at a cost that is a mere fraction of the fees of traditional human advisers. Thus far, robo-advisers mainly appeal to young people who have not yet built up much wealth; this application of artificial intelligence has not yet made much of a dent in advising high-net-worth individuals. It has been estimated recently that the combined assets under management by robo-advisers still amounts to less than $20 billion, against $17 trillion for traditional human advisers.60 Another use of artificial intelligence is now almost two decades old: the ability to use modern search tools to find with blinding speed valuable nuggets of existing information. The demand for legal associates has declined in part because of the ability of computerized search tools to carry out the process of discovery and search for precedents.
The system of the world by Neal Stephenson
bank run, British Empire, cellular automata, Edmond Halley, Fellow of the Royal Society, high net worth, Isaac Newton, James Watt: steam engine, joint-stock company, large denomination, place-making, the market place, trade route, transatlantic slave trade
In English we say ‘bulge.’ ” “Those who did, would thereby show a grievous want of Real Estate Acumen!” Daniel returned, “for of the Three Desiderata: location, location, and location, this ruin has all! The tide of London’s expansion is lapping at its foundations!” “Are you the land-lord, Dr. Waterhouse?” inquired Mr. Threader, suddenly interested. “I am looking after the property on behalf of a High Net Worth Individual,” returned Daniel, “who is keen to make this vale into a world-renowned center of Technologickal Arts.” “How did this individual become aware of the ruin’s existence?” “I told him, sir,” Daniel said, “and to anticipate your next question, I learnt of it from a fellow of my acquaintance, a very, very old chap, who had knowledge from a Knight Templar.” “Then he must indeed be very old, as the Templars were wiped out four hundred years ago,” said Mr.
Power at Ground Zero: Politics, Money, and the Remaking of Lower Manhattan by Lynne B. Sagalyn
affirmative action, airport security, Bonfire of the Vanities, clean water, conceptual framework, corporate governance, deindustrialization, Donald Trump, Edward Glaeser, estate planning, Frank Gehry, Guggenheim Bilbao, high net worth, informal economy, intermodal, iterative process, Jane Jacobs, mortgage debt, New Urbanism, place-making, rent control, Rosa Parks, Silicon Valley, sovereign wealth fund, the built environment, the High Line, time value of money, too big to fail, Torches of Freedom, urban decay, urban planning, urban renewal, white flight, young professional
Market and occupancy risk—operating deficits during tenant lease-up and sufficiency of operating cash flow to service the debt, as well as ongoing capital costs to maintain tenant occupancy. The structure of the Liberty Bond offering, including the critical credit support from the three public entities, had to insulate the bondholders from all those risks. The buyers of these bonds would be retail buyers, high-net-worth individuals who seek tax-exempt income. The development risks being covered by the deal’s credit-support agreements are typically those a developer or equity investor would take in the normal course of development. But at Ground Zero, a developer and equity investor would never willingly take on these risks because they would not have the control over the project as in a conventional development situation.53 There was nothing conventional, however, about the financial-support agreements of the East Side Site Development Plan—it was breaking new ground, even in the sophisticated Wall Street world of credit enhancement.