market bubble

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pages: 297 words: 108,353

Boom and Bust: A Global History of Financial Bubbles by William Quinn, John D. Turner

accounting loophole / creative accounting, Alan Greenspan, algorithmic trading, AOL-Time Warner, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Big bang: deregulation of the City of London, bitcoin, blockchain, book value, Bretton Woods, business cycle, buy and hold, capital controls, Celtic Tiger, collapse of Lehman Brothers, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, debt deflation, deglobalization, Deng Xiaoping, different worldview, discounted cash flows, Donald Trump, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, fake news, financial deregulation, financial intermediation, Flash crash, Francis Fukuyama: the end of history, George Akerlof, government statistician, Greenspan put, high-speed rail, information asymmetry, initial coin offering, intangible asset, Irish property bubble, Isaac Newton, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, junk bonds, land bank, light touch regulation, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Network effects, new economy, Northern Rock, oil shock, Ponzi scheme, quantitative easing, quantitative trading / quantitative finance, railway mania, Right to Buy, Robert Shiller, Shenzhen special economic zone , short selling, short squeeze, Silicon Valley, smart contracts, South Sea Bubble, special economic zone, subprime mortgage crisis, technology bubble, the built environment, total factor productivity, transaction costs, tulip mania, urban planning

See speculation mortgage-backed securities (MBS) in relation to the Subprime Bubble, 176, 177–9, 185–6 in relation to the US housing boom of the 1920s, 117–18 Mosaic internet browser, 153 NASDAQ index, 156–7, 159–60 National Asset Management Agency, 180 National City Bank, 120, 126, 127 National Land Agency (Japan), 145 Netherlands in relation to the bubbles of 1720, 29–31, 36 Netscape, 153–5, 163, 164 new era narratives, 8, 218 in relation to the 1920s stock market bubble, 129–30 in relation to the Dot-Com Bubble, 163–4 New York Daily News, 123, 125 New York Investment News, 124 New York Times, The in relation to the 1920s stock market bubble, 122, 124–6, 129, in relation to the Chinese bubbles, 198 in relation to the Dot-Com Bubble, 154, 164 news media after the first emerging market bubble, 57 after the South Sea Bubble, 35–6 in relation to the 1920s stock market bubble, 122–3, 125–6 in relation to the Australian Land Boom, 81, 87–8 in relation to the British Bicycle Mania, 100–1, 103–5, 109 in relation to the Chinese bubbles, 198, 200, 203 in relation to the first emerging market bubble, 49–50 in relation to the Great Railway Mania, 63–5 in relation to the Mississippi Bubble, 20 in relation to the South Sea Bubble, 26–7 in relation to the Subprime Bubble, 185 role in past and future bubbles, 218–20 Northern Ireland housing bubble of the 2000s, 2, 175, 177, 182 Northern Rock, 178 Noyes, Alexander Dana, 122 Panic of 1907, the, 124 Peel, Robert, 65 penny-farthing, 99 People’s Daily, 200, 203 Plaza Accord, the, 136–7, 141 Ponzi, Charles, 119 Poyais.

Lu and Lu, ‘Unveiling China’s stock market bubble’, 148. 52. Financial Times, 11 April 2015, p. 9; Financial Times, 2 July 2015, p. 10. 53. Washington Post, 12 May 2015, 8 July 2015. 54. Washington Post, 22 August 2015 55. Financial Times, 10 July 2015, p. 10. 56. Washington Post, 7 October 2015. 57. Financial Times, 10 July 2015, p. 11. 58. Lu and Lu, ‘Unveiling China’s stock market bubble’, 149. 59. Financial Times, 31 January 2007, p. 14; Financial Times, 7 June 2007, p. 14. 254 NOTES TO PAGES 205–16 60. Financial Times, 31 January 2007, p. 17. 61. Lu and Lu, ‘Unveiling China’s stock market bubble’, 152–3. 62. China Daily, 11 November 2015. 63.

See American International Group (AIG) Shiller, Robert, 11, 157, 168, 170, 184, 218 short selling Chinese efforts to curtail, 202–4 definition of, 7 difficulty of, 221 in relation to the British Bicycle Mania, 109–10 in relation to the bubbles of 1720, 32 in relation to the Chinese bubbles, 208 in relation to the first emerging market bubble, 51–2 in relation to the Great Railway Mania, 70–1 in relation to the Subprime Bubble, 185–6 Smoot-Hawley tariff, the, 130 South Sea Company, the, 1, 23–6 South-East Asian booms of the 1990s, 14 spark description of the concept, 8–9 for the 1720 bubbles, 33 for the 1920s stock market bubble, 129–30 for the 2000s housing bubbles, 186–7 for the Australian Land Boom, 91 for the Bitcoin Bubble, 210 for the British Bicycle Mania, 99–9 for the Chinese bubbles, 196–8, 199–200 for the Dot-Com Bubble, 152–3, 163 for the first emerging market bubble, 53 for the Great Railway Mania, 71 for the Japanese bubbles, 145–6 predicting a, 213–14 speculation definition of, 7 in relation to the 1920s stock market bubble, 128–9 in relation to the Australian Land Boom, 90–1, 92–3 in relation to the British Bicycle Mania, 109–10 in relation to the bubbles of 1720, 32–4 in relation to the Chinese bubbles, 198, 207–8 in relation to the Dot-Com Bubble, 163 in relation to the Great Railway Mania, 69 in relation to the Japanese bubbles, 144–5 in relation to the Subprime Bubble, 183–4 in relation to the US housing boom of the 1920s, 118–19 state-owned enterprises, 195 287 INDEX stock market bubbles of the 1920s outside the United States, 126–7 Sumitomo Bank, 149 Table Talk, 87–8 technological innovation in modern financial markets, 214–15 in relation to the 1920s stock market bubble, 120, 129–30, 132 in relation to the British Bicycle Mania, 99–9, 113 in relation to the Dot-Com Bubble, 153, 163 in the fourth industrial revolution, 213 role in bubbles, 3, 8 unaccompanied by a bubble, 213 television rise of financial television in relation to the Dot-Com Bubble, 158 role in the Subprime Bubble, 184–5 Thai stock market bubble, 14 Time Warner, 157, 160 Times, The in relation to the first emerging market bubble, 40, 46, 48, 49–50, 51 in relation to the Great Railway Mania, 63, 64–5 tokkin funds, 140, 143–4 Tokyo City Bank, 148 TOPIX index, the, 141, 142 town- or village-owned enterprises, 195 transaction costs in relation to the 1920s stock market bubble, 128 in relation to the Dot-Com Bubble, 161 Tulipmania, 11, 13–14 underpricing in relation to the Dot-Com Bubble, 155 in relation to the Japanese bubbles, 142 unicorn bubble, the, 213 US housing boom of the 1920s, 117–19 useful bubbles, 3, 75, 213–14 the British Bicycle Mania as an example, 113–14 the Dot-Com Bubble as an example, 166–7 Visa, the, 22–3 volatility in relation to the 1920s stock market bubble, 123 Wall Street Crash, the, 123–5 cause of, 130 connection to the Great Depression, 130 Wall Street Journal, The, 122 War of the Spanish Succession, The, 17, 23 Wilks, John ‘Bubble’, 40, 46 Windhandel.


pages: 435 words: 127,403

Panderer to Power by Frederick Sheehan

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, book value, Bretton Woods, British Empire, business cycle, buy and hold, California energy crisis, call centre, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversification, financial deregulation, financial innovation, full employment, Glass-Steagall Act, Greenspan put, guns versus butter model, inflation targeting, interest rate swap, inventory management, Isaac Newton, John Meriwether, junk bonds, low interest rates, margin call, market bubble, Mary Meeker, McMansion, Menlo Park, Michael Milken, money market fund, mortgage debt, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, Norman Mailer, Northern Rock, oil shock, Paul Samuelson, place-making, Ponzi scheme, price stability, reserve currency, rising living standards, Robert Solow, rolodex, Ronald Reagan, Sand Hill Road, Savings and loan crisis, savings glut, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, stock buybacks, stocks for the long run, supply-chain management, supply-chain management software, The Great Moderation, too big to fail, transaction costs, trickle-down economics, VA Linux, Y2K, Yom Kippur War, zero-sum game

No one wants the blame for the crash.”14 Two days later, the Bank for International Settlements (the central bankers’ central bank) warned about the “prevailing euphoria” in global credit markets.15 At the September 24, 1996, FOMC meeting, Greenspan said: “I recognize that there is a stock market bubble problem at this point. . . . We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it. My concern is that I am not sure what else it will do.”16 Of course he couldn’t know what else it would do, but he had identified a stock market bubble and that he could burst it. He would later deny that he could do either. Splicing his statements from the September 24, 1996, meeting to the December 5, 1996, speech, the drama of how the Fed would respond to a bubble was over.

The act defined Neighborhood Reinvestment’s mission as “revitalizing older urban neighborhoods by mobilizing public, private and community resources at the neighborhood level.” 23 FOMC meeting transcript, July 2–3, 1996, p. 33. CHAIRMAN GREENSPAN. On that note, we all can go for coffee. Mr. Coffee escaped once again.26 Lindsey had summed up our future. His only error was timing. He did not—but who did?—predict that the stock market bubble would grow for 3½ more years. The stock market bubble forestalled a reckoning. That bubble concealed much that was wrong with a misaligned economy— specifically, the amount of borrowing required to boost the GDP. The gambler’s curse did not strike for another 10 years. First, the stock market cured all that plagued the “real” economy.

This was his ever-so-muted warning that the stock market might be overpriced: “how do we know when irrational exuberance has unduly escalated asset values?” Yet, he claimed he had popped a bubble in 1994. “I think we partially broke the back of an emerging speculation in equities. We pricked that bubble [in the bond market] as well.”5 He offered to pop the bubble at the September 1996 FOMC meeting: “I recognize that there is a stock market bubble problem at this point. . . . We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.” After his “irrational exuberance” speech, Greenspan gave a couple of warnings in early 1997.


pages: 442 words: 39,064

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

Alan Greenspan, Asian financial crisis, asset allocation, behavioural economics, Berlin Wall, Black Monday: stock market crash in 1987, Bretton Woods, Brownian motion, business cycle, buy and hold, buy the rumour, sell the news, capital asset pricing model, capital controls, continuous double auction, currency peg, Deng Xiaoping, discrete time, diversified portfolio, Elliott wave, Erdős number, experimental economics, financial engineering, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, global village, implied volatility, index fund, information asymmetry, intangible asset, invisible hand, John von Neumann, joint-stock company, law of one price, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market design, market fundamentalism, mental accounting, moral hazard, Network effects, new economy, oil shock, open economy, pattern recognition, Paul Erdős, Paul Samuelson, power law, quantitative trading / quantitative finance, random walk, risk/return, Ronald Reagan, Schrödinger's Cat, selection bias, short selling, Silicon Valley, South Sea Bubble, statistical model, stochastic process, stocks for the long run, Tacoma Narrows Bridge, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, Tobin tax, total factor productivity, transaction costs, tulip mania, VA Linux, Y2K, yield curve

A plausible interpretation is that these 1.0 ’Argentina II’ Best fit Second best fit Third best fit Best fit antibubble 24000 Index 22000 20000 18000 16000 14000 ’Argentina II: Bubble’ ’Argentina II: Anti-bubble’ 0.8 Spectral Power 26000 0.6 0.4 0.2 12000 10000 92 92.2 92.4 Date 92.6 92.8 0 0 1 2 3 4 5 Frequency 6 7 Fig. 8.8. Left panel: The Argentinian stock market bubble and antibubble of 1992. See Table 8.1. Right panel: Only the best fit is used in the Lomb periodograms. Reproduced from [218]. 8 291 b ubb les and cras h e s i n e m e r g e n t m a r k e t s 1.0 26000 ’Argentina III’ ’Argentina III’ Best fit Second best fit 0.8 Spectral Power 24000 Index 22000 20000 18000 16000 0.4 0.2 14000 12000 0.6 93.6 93.7 93.8 93.9 Date 94 0 94.1 0 1 2 3 4 5 Frequency 6 7 8 Fig. 8.9. Left panel: The Argentinian stock market bubble ending in 1994. See Table 8.1 for the main parameter values of the fit.

In Table 8.1, the main parameters of the fits are given as well as the beginning and ending dates of the bubble and the size of the 24000 1.0 ’Argentina IV’ ’Argentina IV’ Best fit 0.8 Spectral Power 26000 Index 22000 20000 18000 16000 0.4 0.2 14000 12000 0.6 95.5 96 96.5 Date 97 97.5 0 0 1 2 3 4 5 Frequency 6 7 Fig. 8.10. Left panel: The Argentinian stock market bubble ending in 1997. See Table 8.1 for the main parameter values of the fit. Right panel: Only the best fit is used in the Lomb periodogram. Reproduced from [218]. 8 292 chapter 8 1.0 14000 ’Brazil’ ’Brazil’ Best fit 0.8 Spectral Power Index 12000 10000 8000 0.6 0.4 0.2 6000 96.2 96.4 96.6 96.8 97 Date 0 97.2 97.4 0 1 2 3 4 5 Frequency 6 7 8 Fig. 8.11. Left panel: The Brazilian stock market bubble ending in 1997. See Table 8.1 for the main parameter values of the fit. Right panel: Only the best fit is used in the Lomb periodogram.

Reproduced from [218]. 300 chapter 8 1.0 6.6 ’Indonesia I’ Best fit ’Indonesia I’ 0.8 Spectral Power Log(Index) 6.4 6.2 6.0 0.4 0.2 5.8 5.6 0.6 93.2 93.4 93.6 93.8 Date 94 0 94.2 0 1 2 3 4 5 Frequency 6 7 8 Fig. 8.26. Left panel: Indonesian stock market bubble ending in January 1994 with log-periodic power law fit with parameters m2 = 044 tc = 199409, and = 156. Right panel: Lomb periodogram of the log-periodic oscillatory component of the price shown in the left panel. The abscissa is the log-frequency f defined as f = /2. Reproduced from [218]. 1.0 7.0 ’Indonesia II’ 0.8 Spectral Power Log(Index) 6.8 6.6 6.4 6.2 0.4 0.2 6.0 5.8 0.6 95.5 96 96.5 97 Date 97.5 98 0 0 1 2 3 4 5 Frequency 6 7 Fig. 8.27. Left panel: Indonesian stock market bubble ending in 1997 with logperiodic power law fit with parameters m2 = 023 tc = 199805, and = 101.


pages: 611 words: 130,419

Narrative Economics: How Stories Go Viral and Drive Major Economic Events by Robert J. Shiller

agricultural Revolution, Alan Greenspan, Albert Einstein, algorithmic trading, Andrei Shleifer, autism spectrum disorder, autonomous vehicles, bank run, banking crisis, basic income, behavioural economics, bitcoin, blockchain, business cycle, butterfly effect, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, central bank independence, collective bargaining, computerized trading, corporate raider, correlation does not imply causation, cryptocurrency, Daniel Kahneman / Amos Tversky, debt deflation, digital divide, disintermediation, Donald Trump, driverless car, Edmond Halley, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, fake news, financial engineering, Ford Model T, full employment, George Akerlof, germ theory of disease, German hyperinflation, Great Leap Forward, Gunnar Myrdal, Gödel, Escher, Bach, Hacker Ethic, implied volatility, income inequality, inflation targeting, initial coin offering, invention of radio, invention of the telegraph, Jean Tirole, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, litecoin, low interest rates, machine translation, market bubble, Modern Monetary Theory, money market fund, moral hazard, Northern Rock, nudge unit, Own Your Own Home, Paul Samuelson, Philip Mirowski, plutocrats, Ponzi scheme, public intellectual, publish or perish, random walk, Richard Thaler, Robert Shiller, Ronald Reagan, Rubik’s Cube, Satoshi Nakamoto, secular stagnation, shareholder value, Silicon Valley, speech recognition, Steve Jobs, Steven Pinker, stochastic process, stocks for the long run, superstar cities, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, traveling salesman, trickle-down economics, tulip mania, universal basic income, Watson beat the top human players on Jeopardy!, We are the 99%, yellow journalism, yield curve, Yom Kippur War

We shall see some similarities between the narratives, both contagious in the context of perceived grand opportunities for investors, both intertwined with stories of investor greed and foolishness. Chapter 16 Stock Market Bubbles Narratives about stock market bubbles are stories about excitement and risk taking, and about relatively wealthy people who buy and sell securities. Like the real estate narratives discussed in chapter 15, narratives about stock market bubbles are driven by social comparison. Because they are fueled by psychology, and because stock prices are related to general confidence, these narratives also relate to the confidence and panic narratives presented in chapter 10.1 But the stock market is different from the economy as a whole.

Louisville Courier-Journal, January 19, 1930, p. 87. 10. Terkel, 1970, p. 67. 11. Terkel, 1970, p. 376. 12. Terkel 1970, p. 164. 13. Kempton, 1998 [1955], prelude, location 118. 14. Jody Chudley, “JFK’s Father Used a Simple Trick to Spot Market Bubbles—and You Can Too,” Business Insider, October 12, 2017, http://www.businessinsider.com/how-to-spot-stock-market-bubbles-2017-10. 15. Baruch, 1957. 16. “Conservatives Begin to Realize Value of War Specialty Stocks,” Minneapolis Morning Tribune, July 26, 1915, p. 15. Chapter 17. Boycotts, Profiteers, and Evil Business 1. Charles C. Boycott, “The State of Ireland,” Times (London), October 18, 1880, 6. 2.

31 5  The Laffer Curve and Rubik’s Cube Go Viral  41 6  Diverse Evidence on the Virality of Economic Narratives  53 Part II   The Foundations of Narrative Economics 7  Causality and Constellations  71 8  Seven Propositions of Narrative Economics  87 Part III   Perennial Economic Narratives 9  Recurrence and Mutation  107 10  Panic versus Confidence  114 11  Frugality versus Conspicuous Consumption  136 12  The Gold Standard versus Bimetallism  156 13  Labor-Saving Machines Replace Many Jobs  174 14  Automation and Artificial Intelligence Replace Almost All Jobs  196 15  Real Estate Booms and Busts  212 16  Stock Market Bubbles  228 17  Boycotts, Profiteers, and Evil Business  239 18  The Wage-Price Spiral and Evil Labor Unions  258 Part IV   Advancing Narrative Economics 19  Future Narratives, Future Research  271 Appendix: Applying Epidemic Models to Economic Narratives  289 Notes  301 References  325 Index  351 Figures 2.1 Articles Containing the Word Narrative as a Percentage of All Articles in Academic Disciplines   13 3.1 Epidemic Curve Example, Number of Newly Reported Ebola Cases in Lofa County, Liberia, by week, June 8–November 1, 2014   19 3.2 Percentage of All Articles by Year Using the Word Bimetallism or Bitcoin in News and Newspapers, 1850–2019   22 3.3 Frequency of Appearance of Four Economic Theories, 1940–2008   27 5.1 Frequency of Appearance of the Laffer Curve   43 10.1 Frequency of Appearance of Financial Panic, Business Confidence, and Consumer Confidence in Books, 1800–2008   116 10.2 Frequency of Appearance of Financial Panic Narratives within a Constellation of Panic Narratives through Time, 1800–2000   118 10.3 Frequency of Appearance of Suggestibility, Autosuggestion, and Crowd Psychology in Books, 1800–2008   120 10.4 Frequency of Appearance of Great Depression in Books, 1900–2008, and News, 1900–2019   134 11.1 Frequency of Appearance of American Dream in Books, 1800–2008, and News, 1800–2016   152 12.1 Frequency of Appearance of Gold Standard in Books, 1850–2008, and News, 1850–2019   159 13.1 Frequency of Appearance of Labor-Saving Machinery and Technological Unemployment in Books, 1800–2008   175 14.1 Percentage of Articles Containing the Words Automation and Artificial Intelligence in News and Newspapers, 1900–2019   197 15.1 “Housing Bubble” Google Search Queries, 2004–19   226 16.1 Frequency of Appearance of Stock Market Crash in Books, 1900–2008, and News, 1900–2019   232 17.1 Frequency of Appearance of Profiteer in Books, 1900–2008, and News, 1900–2019   243 18.1 Frequency of Appearance of Wage-Price Spiral and Cost-Push Inflation in Books, 1900–2008   259 A.1 Theoretical Epidemic Paths   291 Preface: What Is Narrative Economics?


pages: 326 words: 106,053

The Wisdom of Crowds by James Surowiecki

Alan Greenspan, AltaVista, Andrei Shleifer, Apollo 13, asset allocation, behavioural economics, Cass Sunstein, classic study, congestion pricing, coronavirus, Daniel Kahneman / Amos Tversky, experimental economics, Frederick Winslow Taylor, George Akerlof, Great Leap Forward, Gregor Mendel, Howard Rheingold, I think there is a world market for maybe five computers, interchangeable parts, Jeff Bezos, John Bogle, John Meriwether, Joseph Schumpeter, knowledge economy, lone genius, Long Term Capital Management, market bubble, market clearing, market design, Monkeys Reject Unequal Pay, moral hazard, Myron Scholes, new economy, offshore financial centre, Picturephone, prediction markets, profit maximization, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, Robert Shiller, Ronald Coase, Ronald Reagan, seminal paper, shareholder value, short selling, Silicon Valley, South Sea Bubble, tacit knowledge, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Toyota Production System, transaction costs, ultimatum game, vertical integration, world market for maybe five computers, Yogi Berra, zero-sum game

In the chapter about corporations, for instance, the tension is between a system in which only a few people exercise power and a system in which many have a voice. The chapter about markets starts with the question of whether markets can be collectively intelligent, and ends with a look at the dynamics of a stock-market bubble. There are many stories in this book of groups making bad decisions, as well as groups making good ones. Why? Well, one reason is that this is the way the world works. The wisdom of crowds has a far more important and beneficial impact on our everyday lives than we recognize, and its implications for the future are immense.

While big groups are often good for solving certain kinds of problems, big groups can also be unmanageable and inefficient. Conversely, small groups have the virtue of being easy to run, but they risk having too little diversity of thought and too much consensus. Finally, Mackay was right about the extremes of collective behavior: there are times—think of a riot, or a stock-market bubble—when aggregating individual decisions produces a collective decision that is utterly irrational. The stories of these kinds of mistakes are negative proofs of this book’s argument, underscoring the importance to good decision making of diversity and independence by demonstrating what happens when they’re missing.

Soon, people outside the sect began to seek Quakers as trading partners, suppliers, and sellers. And as Quaker prosperity grew, people drew a connection between that prosperity and the sect’s reputation for reliability and trustworthiness. Honesty, it started to seem, paid. In the wake of the orgy of corruption in which American businesses indulged during the stock-market bubble of the late 1990s, the idea that trustworthiness and good business might go together sounds woefully naïve. Certainly one interpretation of these scandals is that they were not aberrations but the inevitable by-product of a system that plays to people’s worst impulses: greed, cynicism, and selfishness.


pages: 829 words: 187,394

The Price of Time: The Real Story of Interest by Edward Chancellor

"World Economic Forum" Davos, 3D printing, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, asset allocation, asset-backed security, assortative mating, autonomous vehicles, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, bitcoin, blockchain, bond market vigilante , bonus culture, book value, Bretton Woods, BRICs, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cashless society, cloud computing, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, commodity super cycle, computer age, coronavirus, corporate governance, COVID-19, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cryptocurrency, currency peg, currency risk, David Graeber, debt deflation, deglobalization, delayed gratification, Deng Xiaoping, Detroit bankruptcy, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, double entry bookkeeping, Elon Musk, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, everywhere but in the productivity statistics, Extinction Rebellion, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global reserve currency, global supply chain, Goodhart's law, Great Leap Forward, green new deal, Greenspan put, high net worth, high-speed rail, housing crisis, Hyman Minsky, implied volatility, income inequality, income per capita, inflation targeting, initial coin offering, intangible asset, Internet of things, inventory management, invisible hand, Japanese asset price bubble, Jean Tirole, Jeff Bezos, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, land bank, large denomination, Les Trente Glorieuses, liquidity trap, lockdown, Long Term Capital Management, low interest rates, Lyft, manufacturing employment, margin call, Mark Spitznagel, market bubble, market clearing, market fundamentalism, Martin Wolf, mega-rich, megaproject, meme stock, Michael Milken, Minsky moment, Modern Monetary Theory, Mohammed Bouazizi, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, Northern Rock, offshore financial centre, operational security, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, peer-to-peer lending, pensions crisis, Peter Thiel, Philip Mirowski, plutocrats, Ponzi scheme, price mechanism, price stability, quantitative easing, railway mania, reality distortion field, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk free rate, risk tolerance, risk/return, road to serfdom, Robert Gordon, Robinhood: mobile stock trading app, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, Second Machine Age, secular stagnation, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, stock buybacks, subprime mortgage crisis, Suez canal 1869, tech billionaire, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tim Haywood, time value of money, too big to fail, total factor productivity, trickle-down economics, tulip mania, Tyler Cowen, Uber and Lyft, Uber for X, uber lyft, Walter Mischel, WeWork, When a measure becomes a target, yield curve

Other telltale bubble indicators were visible: corporate leverage was extended, stock market bulls outnumbered bears by the highest ratio in decades, and margin debt was at an all-time high.15 In the words of one investment manager, this constituted ‘the broadest equity market bubble in history’.16 It was also the longest period of uninterrupted stock gains ever witnessed. By the tenth anniversary of Lehman’s bankruptcy, the US bull market had been running for 3,453 days.17 No wonder the bears headed for the woods. Yet the ascent of the stock market can’t simply be ascribed to irrational exuberance; shares still looked relatively good value when their yields were compared to the miserable coupons provided by US Treasuries.fn2 As long as long-term interest rates remained low, the great bull market had the wind behind it. Stock market bubbles often favour technology companies.

Easy money fuelled a bubble in equities and property. The real estate value of the imperial palace in Tokyo was famously estimated to have surpassed that of the entire state of California. Towards the end of the decade, inflation started to tick upwards. In 1989, the new Governor of the Bank of Japan, Yasushi Mieno, decided to prick the stock market bubble. The discount rate was raised on three occasions that year, in May, October and on Christmas Day, four days before the Nikkei index reached its all-time high.6 As property prices continued to rise in early 1990, the BOJ continued to raise the discount rate, which reached 6 per cent in August.7 When it became apparent that Japan’s economy was slowing, the central bank abruptly reversed course: between July 1991 and September 1995, the official discount rate was cut from 6 to 0.5 per cent. 6.

Both central banks directed their attention to price stability and initially ignored strong credit growth and the appearance of speculative bubbles. With domestic inflation under control, both the Fed and the BOJ tweaked domestic monetary policy for purposes of international co-operation. And towards the end of their respective booms, both central banks raised interest rates with the aim of bursting the stock market bubble. Like the Fed in the early 1930s, the BOJ allowed deflation to take hold after the Bubble Economy collapsed. Had the BOJ not attempted to burst the bubble, or had the central bank loosened policy more quickly after the bubble started to deflate, then the monetarists’ hypothesis, first elaborated by Fisher and disputed by Hayek – that price stability is a necessary prerequisite for economic and financial stability – might have been properly tested.


pages: 708 words: 196,859

Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed

Alan Greenspan, Albert Einstein, anti-communist, bank run, banking crisis, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, centre right, credit crunch, currency manipulation / currency intervention, Etonian, Ford Model T, full employment, gentleman farmer, German hyperinflation, Glass-Steagall Act, index card, invisible hand, Lao Tzu, large denomination, Long Term Capital Management, low interest rates, margin call, market bubble, Mexican peso crisis / tequila crisis, mobile money, money market fund, moral hazard, new economy, open economy, plutocrats, price stability, purchasing power parity, pushing on a string, rolodex, scientific management, the market place

Norman had acquired his reputation for economic and financial perspicacity because he had been so right on so many things. Ever since the end of the war, he had been a fervent opponent of exacting reparations from Germany. Throughout the 1920s, he had raised the alarm that the world was running short of gold reserves. From an early stage, he had warned about the dangers of the stock market bubble in the United States. But a few lonely voices insisted that it was he and the policies he espoused, especially his rigid, almost theological, belief in the benefits of the gold standard, that were to blame for the economic catastrophe that was overtaking the West. One of them was that of John Maynard Keynes.

Stock market crashes and banking panics had always been closely linked in the pre-Fed world and many of the country’s past financial crises had emerged from Wall Street: 1837, 1857, 1896, and 1907. In his early days as a stockbroker, he himself had been a witness firsthand to the crash of 1896, and had been an active participant in restoring order after the panic of 1907. But as an experienced Wall Street hand, he was quite aware of how difficult it was to identify a market bubble—to distinguish between an advance in stock prices warranted by higher profits and a rise driven purely by market psychology. Almost by definition, there were always people who believed that the market has gone too high—the stock market depended on a diversity of opinion and for every buyer dreaming of riches in 1925, there was a seller who thought the whole thing had gone too far.

Given so much uncertainty, he was convinced that the Federal Reserve should not try to make itself an arbiter of equity prices. Moreover, even if he was sure that the market had entered a speculative bubble, he was conscious that the Fed had many other objectives to worry about apart from the level of the market. He feared that if he added yet another goal—preventing stock market bubbles—to the list he would overload the system. Drawing a rather stretched analogy between the Federal Reserve and its various and conflicting objectives for the economy and a family burdened by many children, he ruminated, “Must we accept parenthood for every economic development in the country? That is a hard thing for us to do.


Trend Commandments: Trading for Exceptional Returns by Michael W. Covel

Alan Greenspan, Albert Einstein, Alvin Toffler, behavioural economics, Bernie Madoff, Black Swan, business cycle, buy and hold, commodity trading advisor, correlation coefficient, delayed gratification, disinformation, diversified portfolio, en.wikipedia.org, Eugene Fama: efficient market hypothesis, family office, full employment, global macro, Jim Simons, Lao Tzu, Long Term Capital Management, managed futures, market bubble, market microstructure, Market Wizards by Jack D. Schwager, Mikhail Gorbachev, moral hazard, Myron Scholes, Nick Leeson, oil shock, Ponzi scheme, prediction markets, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, Sharpe ratio, systematic trading, the scientific method, three-martini lunch, transaction costs, tulip mania, upwardly mobile, Y2K, zero-sum game

If the market advances from a low point to any significant degree upward, buy and hold feels comfortable again. It can feel like market bubbles are a thing of the past—especially when so many talking heads are preaching recovery. Buy and Hope 153 No one knows if there is a current bubble in stocks, but it is amazing that some people think they know. I had a conversation with a friend recently. He mentioned that real estate in Southern California was stabilizing (forget that debate for a moment), and then the conversation of bubbles came up. He quickly announced that we were not in a stock market bubble. I was amazed at his confidence. Has there ever been a time when the majority knew they were in the middle of a bubble?

Fed Funds rate 4.75 percent on November 17, 1998. Fed Funds rate 6.50 percent on May 16, 2000. Stock market bubble popped March 2000. The Fed then lowers 13 times. Fed Funds rate 3.00 percent on September 17, 2001. Fed Funds rate 1.25 percent on November 6, 2002. Stock market takes off. Real estate takes back off. Fed Funds rate 1.00 percent on June 25, 2003. P a r l i a m e n t o f W h o re s 183 The Fed then raises 17 times. Fed Funds rate 5.25 percent on August 17, 2007. The Fed then lowers 10 times. Stock market bubble popped October 2008. Fed Funds rate 0 percent on December 16, 2008. Stock market takes off.

In any event, it is my job to not only defend capital, but to achieve it is going.6 returns despite the recklessness that policy makers choose to pursue.”5 S y s t e m a t i c Tre n d F o l l o w i n g 43 Trend traders use an entirely different type of analysis not based on traditional reasoning. Trend followers do not have Hollywood narratives to explain market bubbles on top of bubbles. A trend follower does not have to know any of the things Hussman laments not knowing. Buy things that have gone up on the theory that they will continue to go up; short things that have gone down on the theory that they will continue to go down.7 Empty your mind. Be formless, shapeless, like water.


pages: 297 words: 91,141

Market Sense and Nonsense by Jack D. Schwager

3Com Palm IPO, asset allocation, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Brownian motion, buy and hold, collateralized debt obligation, commodity trading advisor, computerized trading, conceptual framework, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, fixed income, global macro, high net worth, implied volatility, index arbitrage, index fund, Jim Simons, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, managed futures, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, merger arbitrage, negative equity, pattern recognition, performance metric, pets.com, Ponzi scheme, proprietary trading, quantitative trading / quantitative finance, random walk, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, selection bias, Sharpe ratio, short selling, statistical arbitrage, statistical model, subprime mortgage crisis, survivorship bias, tail risk, transaction costs, two-sided market, value at risk, yield curve

Markets do not accurately discount all known fundamentals, but rather they overdiscount or underdiscount this information, depending on the market’s emotional environment, and indeed this is one of the sources of investing or trading opportunities. A much more realistic model of how markets actually work is that prices are determined by a combination of fundamentals and emotions. The same exact set of fundamentals can lead to different prices given different emotional environments. The long history of market bubbles and crashes provides overwhelming empirical evidence that the “madness of crowds”14 can take market prices far beyond any rational level based on value and fundamentals and that market panics can result in precipitous price declines completely removed from any contemporaneous changes in fundamentals.

The difficulty in gaining an edge in the markets is not because prices instantaneously discount all known information (although they sometimes do), but rather because the impact of emotion on prices varies greatly and is nearly impossible to gauge. Sometimes emotions will cause prices to wildly overshoot any reasonable definition of fair value—we call these periods market bubbles. At other times, emotions will cause prices to plunge far below any reasonable definition of fair value—we call these periods market panics. Finally, in perhaps the majority of the time, emotions will exert a limited distortive impact on prices—market environments in which the efficient market hypothesis provides a reasonable approximation.

Markets are traded by people, not robots, and people often react on emotion more than on information.17 The influence of emotion can cause irrational behavior and result in prices being much too high or low vis-à-vis an objective assessment of the fundamentals. 3. The arrival of new information is random. ASSUME TRUE 4. Changes in prices depend on new information. FALSE! Price moves often lag the information. Price moves often occur in the absence of new information (e.g., market bubbles and crashes where momentum feeds on itself). 5. Therefore you can’t beat the market. FALSE! Prices can be significantly out of line with reasonable valuations. Prices don’t move in tandem with information. Some people are more skilled in interpreting information. Why the Efficient Market Hypothesis Is Destined for the Dustbin of Economic Theory Supporters of the efficient market hypothesis are reluctant to give up the theory, despite mounting contradictory evidence, because it provides the foundation for a broad range of critical financial applications, including risk assessment, optimal portfolio allocation, and option pricing.


pages: 467 words: 154,960

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

Albert Einstein, Alvin Toffler, Atul Gawande, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, Black Swan, buy and hold, buy low sell high, California energy crisis, capital asset pricing model, Carl Icahn, Clayton Christensen, commodity trading advisor, computerized trading, correlation coefficient, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, diversification, diversified portfolio, Edward Thorp, Elliott wave, Emanuel Derman, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, fiat currency, fixed income, Future Shock, game design, global macro, hindsight bias, housing crisis, index fund, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John Nash: game theory, linear programming, Long Term Capital Management, managed futures, mandelbrot fractal, margin call, market bubble, market fundamentalism, market microstructure, Market Wizards by Jack D. Schwager, mental accounting, money market fund, Myron Scholes, Nash equilibrium, new economy, Nick Leeson, Ponzi scheme, prediction markets, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Feynman, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, shareholder value, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, survivorship bias, systematic trading, Teledyne, the scientific method, Thomas L Friedman, too big to fail, transaction costs, upwardly mobile, value at risk, Vanguard fund, William of Occam, zero-sum game

Part II 74 78 85 90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 3 Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Absolute Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Fear of Volatility and Confusion with Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Correlation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Zero Sum Nature of the Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 George Soros and Zero Sum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 4 Big Events, Crashes, and Panics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Event #1: 2008 Stock Market Bubble and Crash . . . . . . . . . . . . . . . . . . . . . . 126 Day-by-Day Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Event #2: 2000–2002 Stock Market Bubble . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Event #3: Long-Term Capital Management Collapse . . . . . . . . . . . . . . . . . . . 151 Event #4: Asian Contagion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Event #5: Barings Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 Event #6: Metallgesellschaft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Final Thoughts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 The Always “New” Coming Storm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 5 Baseball: Thinking Outside the Batter’s Box . . . . . . . . . . . . . . . . . . . . 181 The Home Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Moneyball and Billy Beane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 John W.

Since trend following has nothing to do with short-term trading, cutting edge technologies, or Wall Street Holy Grails, its appeal is always negligible during market bubbles. It’s not sexy. If investors can jump on the bandwagon of practically any “long only” mutual or hedge fund manager or turn a profit trading themselves by simply buying Internet, energy, or real estate stocks and holding on to them, what need would there ever be to adopt a strategy such as trend following? However, if we look at how much money trend followers have made since assorted stock market bubbles have popped, trend following becomes far more relevant to the bottom line. The following chart (Chart 1.1) shows a hypothetical index of three longtime trend following firms compared against the S&P stock index.

The performance histories of trend followers during the 2008 market crash, 2000–2002 stock market bubble, the 1998 LongTerm Capital Management (LTCM) crisis, the Asian contagion, the Barings Bank bust in 1995, and the German firm Metallgesellschaft’s collapse in 1993, answer that all important question: “Who won?” “Have you heard any rumors?” Killian, perplexed, said no. “I think we’re bust.” “Is this a crank call?” Killian asked. “There’s a really ugly story coming out that perhaps Nick Leeson has taken the company down.”9 126 Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets Event #1: 2008 Stock Market Bubble and Crash One reason for this paucity of early information is suggested by the following part of the term trend following.


pages: 471 words: 124,585

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

Admiral Zheng, Alan Greenspan, An Inconvenient Truth, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Bear Stearns, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, classic study, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, equity risk premium, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, Future Shock, German hyperinflation, Greenspan put, Herman Kahn, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, Nelson Mandela, Nick Bostrom, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, rolling blackouts, Ronald Reagan, Savings and loan crisis, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, subprime mortgage crisis, tail risk, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, transaction costs, two and twenty, undersea cable, value at risk, W. E. B. Du Bois, Washington Consensus, Yom Kippur War

The Dutch Republic prevailed over the Habsburg Empire because having the world’s first modern stock market was financially preferable to having the world’s biggest silver mine. The problems of the French monarchy could not be resolved without a revolution because a convicted Scots murderer had wrecked the French financial system by unleashing the first stock market bubble and bust. It was Nathan Rothschild as much as the Duke of Wellington who defeated Napoleon at Waterloo. It was financial folly, a self-destructive cycle of defaults and devaluations, that turned Argentina from the world’s sixth-richest country in the 1880s into the inflation-ridden basket case of the 1980s.

Chapter 4 tells the story of insurance; Chapter 5 the real estate market; and Chapter 6 the rise, fall and rise of international finance. Each chapter addresses a key historical question. When did money stop being metal and mutate into paper, before vanishing altogether? Is it true that, by setting long-term interest rates, the bond market rules the world? What is the role played by central banks in stock market bubbles and busts? Why is insurance not necessarily the best way to protect yourself from risk? Do people exaggerate the benefits of investing in real estate? And is the economic inter-dependence of China and America the key to global financial stability, or a mere chimera? In trying to cover the history of finance from ancient Mesopotamia to modern microfinance, I have set myself an impossible task, no doubt.

Distress: The insiders discern that expected profits cannot possibly justify the now exorbitant price of the shares and begin to take profits by selling. 5. Revulsion or discredit: As share prices fall, the outsiders all stampede for the exits, causing the bubble to burst altogether.3 Stock market bubbles have three other recurrent features. The first is the role of what is sometimes referred to as asymmetric information. Insiders - those concerned with the management of bubble companies - know much more than the outsiders, whom the insiders want to part from their money. Such asymmetries always exist in business, of course, but in a bubble the insiders exploit them fraudulently.4 The second theme is the role of cross-border capital flows.


pages: 289 words: 113,211

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation by Richard Bookstaber

affirmative action, Albert Einstein, asset allocation, backtesting, beat the dealer, behavioural economics, Black Swan, Black-Scholes formula, Bonfire of the Vanities, book value, butterfly effect, commoditize, commodity trading advisor, computer age, computerized trading, disintermediation, diversification, double entry bookkeeping, Edward Lorenz: Chaos theory, Edward Thorp, family office, financial engineering, financial innovation, fixed income, frictionless, frictionless market, Future Shock, George Akerlof, global macro, implied volatility, index arbitrage, intangible asset, Jeff Bezos, Jim Simons, John Meriwether, junk bonds, London Interbank Offered Rate, Long Term Capital Management, loose coupling, managed futures, margin call, market bubble, market design, Mary Meeker, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, oil shock, Paul Samuelson, Pierre-Simon Laplace, proprietary trading, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk tolerance, risk/return, Robert Shiller, Robert Solow, rolodex, Saturday Night Live, selection bias, shareholder value, short selling, Silicon Valley, statistical arbitrage, tail risk, The Market for Lemons, time value of money, too big to fail, transaction costs, tulip mania, uranium enrichment, UUNET, William Langewiesche, yield curve, zero-coupon bond, zero-sum game

Kennedy in 1963 or the bombing of Pearl Harbor in 1941. Given the scope of the tumult, the market reactions to each event amounted to little more than a hiccup. There is another troublesome facet to our modern market crises: They keep getting worse. Two of the great market bubbles of the past century occurred in the last two decades. First, the Japanese stock market bubble, in which the Nikkei index tripled in value from 1986 through early 1990 and then nearly halved in value during the next nine months. The second was our own Internet bubble that witnessed the NASDAQ rise fourfold in a little more than a year and then decline by a similar amount the following year, ultimately cascading some 75 percent.

In an age in which people are willing to invest money in virtual stocks, where by definition there are no prospects of earnings and where price appreciation is obtained through nothing short of an unsustainable bubble, it is not too hard to see how a real dot-com, with real prospects, no matter how dim, could attract investors. Market bubbles have been explained by the tendency of investors to follow trends and by the dynamics of crowd psychology—the need for people to be part of a successful herd. But neither trend-following strategies nor irrational crowd behavior is necessary to create market bubbles. Even if we assume as a starting point that the stock market is a random walk and 168 ccc_demon_165-206_ch09.qxd 7/13/07 2:44 PM Page 169 T H E B R AV E N E W W O R L D OF HEDGE FUNDS is governed by rational behavior, and even if we assert at the outset that all trades reflect the full consideration of the most up-to-date information, merely the fact that there are winners and losers will lead to booms and busts that have little to do with the rational application of information.1 The simplest market cycle is based on two psychological characteristics of investors.

If it is Internet stocks in the late 1990s, the pundits point out that the information age is based on a new paradigm of value that is not well captured by traditional methods of accounting and the related modes of fundamental analysis. What has really changed is not the basic information—a P/E ratio is a P/E ratio—but the implications derived from it. Taken in its most extreme form, when there is a story that can afford unbridled optimism and when the optimism is fueled by levered exposures, a market bubble is born. In the case of the Internet bubble, the cycle had an accomplice in the form of a restricted supply of stock, or float. The scarcity of Internet shares was such that the market impact of each buyer contributed more than usual toward inflating the bubble. The float of a stock is the number of shares actually in the market and available for trading.


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

addicted to oil, Alan Greenspan, asset allocation, backtesting, behavioural economics, Black-Scholes formula, book value, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, it's over 9,000, John Bogle, joint-stock company, Long Term Capital Management, loss aversion, machine readable, market bubble, mental accounting, Money creation, Myron Scholes, new economy, oil shock, passive investing, Paul Samuelson, popular capitalism, prediction markets, price anchoring, price stability, proprietary trading, purchasing power parity, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, stock buybacks, stocks for the long run, subprime mortgage crisis, survivorship bias, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, uptick rule, Vanguard fund, vertical integration

Capital 137 Conclusion 138 CONTENTS CONTENTS ix Chapter 9 Outperforming the Market: The Importance of Size, Dividend Yields, and Price-to-Earnings Ratios 139 Stocks That Outperform the Market 139 Small- and Large-Cap Stocks 141 Trends in Small-Cap Stock Returns 142 Valuation 144 Value Stocks Offer Higher Returns Than Growth Stocks 144 Dividend Yields 145 Other Dividend Yield Strategies 147 Price-to-Earnings (P-E) Ratios 149 Price-to-Book Ratios 150 Combining Size and Valuation Criteria 152 Initial Public Offerings: The Disappointing Overall Returns on New Small-Cap Growth Companies 154 The Nature of Growth and Value Stocks 157 Explanations of Size and Valuation Effects 157 The Noisy Market Hypothesis 158 Conclusion 159 Chapter 10 Global Investing and the Rise of China, India, and the Emerging Markets 161 The World’s Population, Production, and Equity Capital 162 Cycles in Foreign Markets 164 The Japanese Market Bubble 165 The Emerging Market Bubble 166 The New Millennium and the Technology Bubble 167 Diversification in World Markets 168 Principles of Diversification 168 “Efficient” Portfolios: Formal Analysis 168 Should You Hedge Foreign Exchange Risk? 173 Sector Diversification 173 Private and Public Capital 177 x The World in 2050 178 Conclusion 182 Appendix: The Largest Non-U.S.

., 324n Gervais, Simon, 326n Glassman, James, 88, 147 GlaxoSmithKline, 177 Glickstein, David, 290n Global Crossing, 64 Global Industrial Classification Standard (GICS), 52–53 372 Global investing, 161–184 cycles in foreign markets and, 164–167, 164i diversification in world markets and (see Diversification in world markets) emerging market bubble and, 166–167 future of, 178–182 Japanese market bubble and, 165 largest non-U.S.-based companies and, 182–184 population, production, and equity capital and, 162, 162i, 163i, 164 technology bubble and, 167 Global Marine, 63 Global stocks, 18–20, 19i Global Wealth Allocation, 356 Globex, 258–260 Goethe, Johann Wolfgang, 37q Goetzmann, William, 12n, 18n Gold: as backing for U.S. currency, 193–194 price of, 10 Gold standard: adherence to, 191 end of, 9–10, 10i, 187–189, 192–193 “Good Beta, Bad Beta” (Campbell), 158 Goodyear, 64 Google, 176i, 355 Gordon, William, 295 Government bonds, interest rate on, above dividend yield on common stocks, 95–97 Graham, Benjamin, 77q, 82–83, 95q, 100, 139q, 141, 145n, 150, 152, 289q, 304, 334, 341q Grant, Linda, 359n Grantham, Jeremy, 90 Great Britain, end of gold standard in, 192 Great Crash (see Stock market crash of 1929) Index Great Depression: interest rates during, 8 investors’ reaction to, 16 postcrash view of stock returns and, 83–85 Greenspan, Alan, 87, 113, 246 Grinblatt, Mark, 302n Gross, Bill, 89–90 Gross domestic product (GDP): market value relative to, 119–120, 119i, 120i world, 162, 163i, 164 Gross, Leroy, 329 Growth stocks: nature of, 157 value stocks versus, 144–145 Gruber, Martin J., 348 Gulf of Tonkin incident, 233 Gulf Oil, 55 Gulf War, 85, 233–234 H.

TABLE 10–1 Compound Annual Dollar Returns in World Stock Markets, 1970 through December 2006 (Standard Deviations in Parentheses) Country or Region World* EAFE† USA Europe Japan 19702006 19701979 19801989 19901999 20002006 10.81% 6.96% 19.92% 11.96% 4.65% (17.07) (18.09) (14.59) (13.94) (20.76) 11.57% 10.09% 22.77% 7.33% 7.08% (21.93) (22.77) (23.28) (16.93) (23.85) 10.84% 4.61% 17.13% 19.01% 2.45% (17.10) (19.01) (12.52) (14.39) (18.35) 12.27% 8.57% 18.49% 14.50% 7.34% (20.95) (20.97) (25.89) (12.71) (24.33) 11.47% 17.37% 28.66% -0.69% 4.28% (34.69) (45.41) (28.57) (28.90) (25.71) *World = Morgan Stanley Capital International (MSCI) Value-Weighted World Index. †EAFE is the MSCI index for Europe, Australasia, and the Far East. CHAPTER 10 Global Investing and the Rise of China, India, and the Emerging Markets 165 These differences in returns emphasize the importance of maintaining a well-diversified world portfolio. The Japanese Market Bubble The 1980 bull market in Japan stands as one of the most remarkable bubbles in world stock market history. In the 1970s and 1980s, Japanese stock returns averaged more than 10 percentage points per year above U.S. returns and surpassed those from every other country. The bull market in Japan was so dramatic that by the end of 1989, for the first time since the early 1900s, the market value of the American stock market was no longer the world’s largest.


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

"Friedman doctrine" OR "shareholder theory", Abraham Wald, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, AOL-Time Warner, asset allocation, asset-backed security, bank run, beat the dealer, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Carl Icahn, Cass Sunstein, collateralized debt obligation, compensation consultant, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, democratizing finance, Dennis Tito, discovery of the americas, diversification, diversified portfolio, Dr. Strangelove, Edward Glaeser, Edward Thorp, endowment effect, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Glass-Steagall Act, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Bogle, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, market design, Michael Milken, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, power law, prediction markets, proprietary trading, prudent man rule, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, seminal paper, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Skinner box, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, tech worker, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, Two Sigma, Tyler Cowen, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

And since a mid-1970s stint as chairman of Gerald Ford’s Council of Economic Advisers, he had become adept at sensing the winds of political Washington. Put all that together, and what emerged in the late 1990s was the world’s most prominent advocate for the idea that financial markets got things right. Greenspan was willing to accept that stock market bubbles could happen, but he also thought deregulation, globalization, and technological innovation were bringing about advances in economic productivity that the stock market might be sniffing out before the government’s economists had. After his brief dalliance with “irrational exuberance,” Greenspan went on to cite this putative productivity boom repeatedly in his speeches and congressional testimony.

Economic data later showed that there was a sustained boom in labor productivity (that is, workers produced more per hour worked) beginning in 1995. In the decade following Shiller’s 1996 forecast of stock market returns of “just about nothing,” actual returns were slightly under historical averages but decidedly positive.16 FORECASTING THE MARKET IS HARD, and stock market bubbles tend to have some basis in economic reality. But that doesn’t mean they aren’t bubbles, and can’t cause damage when they burst, which was really all that Shiller was trying to say. Orthodox finance scholars often seemed to bend over backward to miss this point. In 1991, professor and money manager Richard Roll—whose research in the 1980s had backed up Shiller’s claim that markets were excessively volatile—followed up a Shiller presentation on market swings with a response that is still cited by efficient market stalwarts: I really wish Bob were right about markets being inefficient.

/Bad news, when the markets are on fire,/Gonna make me some money, can’t call me a liar/Sweet Emotion/Sweet Emotion.) After all the singing was done, the two knocked each other out. “With no clear winner tonight, the debate rages on,” the fight announcer declared.1 Yes, even after the deflating of the 1990s stock market bubble, even in the face of reams of new evidence and theory on the craziness of financial markets, students at Chicago still saw the debate over market rationality as a stalemate. On the other hand, at least they knew there was a debate. And they could take classes with Dick Thaler. BY THE TIME THALER MOVED to Chicago from Cornell in 1995, he was well known among economists.


pages: 333 words: 76,990

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

Alan Greenspan, asset allocation, banking crisis, banks create money, barriers to entry, behavioural economics, benefit corporation, Berlin Wall, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, book value, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, data science, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, equity risk premium, Fall of the Berlin Wall, financial engineering, financial innovation, fixed income, Flash crash, foreign exchange controls, forward guidance, Francis Fukuyama: the end of history, general purpose technology, gentrification, geopolitical risk, George Akerlof, Glass-Steagall Act, household responsibility system, housing crisis, index fund, invention of the printing press, inverted yield curve, Isaac Newton, James Watt: steam engine, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, Kickstarter, Kondratiev cycle, liberal capitalism, light touch regulation, liquidity trap, Live Aid, low interest rates, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, Nixon triggered the end of the Bretton Woods system, oil shock, open economy, Phillips curve, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Shenzhen special economic zone , Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, tail risk, Tax Reform Act of 1986, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve

US 10y BY (10-year rolling annualised) = ex post ERP SOURCE: Goldman Sachs Global Investment Research. Whatever the risk premium is, however, it does seem to vary over different periods, the duration of which seems to be largely dependent on the valuation at the starting point. The annualised excess returns in equities compared with government bonds were very negative after the equity market bubble burst in the late 1920s, but they were extraordinarily high in the post-war years of the 1950s and 1960s (coming from low valuations post-war and supported by strong economic growth), as exhibit 2.6 illustrates. The technology bubble of the 1990s created a valuation-led collapse in stock prices, which resulted in a negative ex post (or achieved) ERP for several years.

Thirteen major large cap stocks all increased in value by over 1,000% and another seven large cap stocks each rose by over 900%.11 The Nasdaq index increased fivefold between 1995 and 2000, eventually reaching a P/E valuation of 200 times, significantly higher than even the 70 times P/E ratio of the Nikkei during the Japanese stock market bubble (Hayes 2019). By April 2000, just 1 month after peaking, the Nasdaq had lost 34% of its value, and over the next year and a half hundreds of companies saw the value of their stock drop by 80% or more. Priceline, for example, fell 94%. Eventually, by the time it troughed in October 2009, the Nasdaq itself had fallen nearly 80% (see McCullough 2018).

The year in the markets; 1999: Extraordinary winners and more losers. New York Times [online]. Available at https://www.nytimes.com/2000/01/03/business/the-year-in-the-markets-1999-extraordinary-winners-and-more-losers.html 12 See Sorescu, A., Sorescu, S. M., Armstrong, W. J., and Devoldere, B. (2018). Two centuries of innovations and stock market bubbles. Marketing Science Journal, 37(4), 507–684. 13 See Frehen, R. G. P., Goetzmann, W. N., and Rouwenhorst, K. G. (2013). New evidence on the first financial bubble. Journal of Financial Economics, 108(3), 585–607. 14 Odlyzko, A. (2010). Collective hallucinations and inefficient markets: The British railway mania of the 1840s.


pages: 364 words: 101,286

The Misbehavior of Markets: A Fractal View of Financial Turbulence by Benoit Mandelbrot, Richard L. Hudson

Alan Greenspan, Albert Einstein, asset allocation, Augustin-Louis Cauchy, behavioural economics, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Black-Scholes formula, British Empire, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, carbon-based life, discounted cash flows, diversification, double helix, Edward Lorenz: Chaos theory, electricity market, Elliott wave, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, Fellow of the Royal Society, financial engineering, full employment, Georg Cantor, Henri Poincaré, implied volatility, index fund, informal economy, invisible hand, John Meriwether, John von Neumann, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market microstructure, Myron Scholes, new economy, paper trading, passive investing, Paul Lévy, Paul Samuelson, plutocrats, power law, price mechanism, quantitative trading / quantitative finance, Ralph Nelson Elliott, RAND corporation, random walk, risk free rate, risk tolerance, Robert Shiller, short selling, statistical arbitrage, statistical model, Steve Ballmer, stochastic volatility, transfer pricing, value at risk, Vilfredo Pareto, volatility smile

The Persistence of Error PART TWO - The New Way CHAPTER VI - Turbulent Markets: A Preview Turbulent Trading Looney ’Toons for Brown-Bachelier Preview of More Close-Fitting Cartoons CHAPTER VII - Studies in Roughness: A Fractal Primer The Rules of Roughness A Dimension to Measure Roughness Pictorial Essay: A Fractal Gallery CHAPTER VIII - The Mystery of Cotton Clue No. 1: A Power Law Out of the Blue Clue No. 2: Early Power Laws in Economics Clue No. 3: The Laws of Exceptional Chance The Cotton Case: Basically Closed The Dénouement The Meaning of Cotton Coda: Looney ’Toons, Reprised for Long Tails CHAPTER IX - Long Memory, from the Nile to the Marketplace Abu Nil Father Time A Random Run The Selling of H Coda: Looney ’Toons of Long Dependence CHAPTER X - Noah, Joseph, and Market Bubbles An Alien Plays the Market Two Dual Forms of Wild Variability A Good Reason for “Bubbles” CHAPTER XI - The Multifractal Nature of Trading Time Looney ’Toons for the Last Time Multifractal Time Beyond Cartoons: The Multifractal Model with No Grids Putting the Model to Work PART THREE - The Way Ahead CHAPTER XII - Ten Heresies of Finance 1.

To me, all the power and wealth of the New York Stock Exchange or a London currency-dealing room are abstract; they are analogous to physical systems of turbulence in a sunspot or eddies in a river. They can be analyzed with the tools science already has, and new tools I keep adding to the old ones as need and ability allow. With these tools, I have analyzed how income gets distributed in a society, how stock-market bubbles form and pop, how company size and industrial concentration vary, and how financial prices move—cotton prices, wheat prices, railroad and Blue Chip stocks, dollar-yen exchange rates. I see a pattern in these price movements—not a pattern, to be sure, that will make anybody rich; I agree with the orthodox economists that stock prices are probably not predictable in any useful sense of the term.

Thinking in terms of prices, a long sequence of periods of growth with brief downswings—or the opposite. A value of H smaller than one half, shown on the top panel, has strong “anti-persistence”: Successive changes tend to cancel each other out. Again, the power of fractals shows a strange connection among seemingly unrelated phenomena. CHAPTER X Noah, Joseph, and Market Bubbles I will cause it to rain upon the earth forty days and forty nights; and every living substance that I have made will I destroy from off the face of the earth. Genesis 7: 4. What God is about to do he showeth unto Pharaoh. Behold, there come seven years of great plenty throughout all the land of Egypt: and there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt; and the famine shall consume the land.


The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, behavioural economics, Bernie Madoff, biodiversity loss, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, electricity market, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Glass-Steagall Act, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low interest rates, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, military-industrial complex, minimum wage unemployment, moral hazard, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, price elasticity of demand, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, search costs, shareholder value, sugar pill, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

The financial institutions that issued the credit default swaps faced a catas­ trophic liability. It was this which led to Lehman Brothers going bankrupt on 261 Postscript depended on keeping the stock market bubble going.’ The bubble Stiglitz is referring to is the stock market bubble of the late 1990s – the one that burst in August 2000. But the same set of incentives was at work in generating the real estate and stock market bubble that burst seven years later. 3 September 2008. The fact that they couldn’t pay up jeopardized every financial institution that had insured against credit default with them. The resulting panic convinced the US authorities not to allow AIG – another huge player in these markets – to similarly collapse.

Price S2 S1 P2 P1 D2 figure 3.8 Self-fulfilling prophecies D1 Quantity Question for your professor: Changes in expectations about future prices shift both the demand and supply curves. But then what’s efficient about prices being at whatever level we expect them to be? 68 3  |  How markets work © Andy Singer Destabilizing speculation and bubbles We’ve had the Japanese property and stock market bubble (which burst in 1990), the technology stock bubble (which burst in 2001), the Chinese stock market bubble (which burst in 2008) and housing price bubbles in numerous countries which precipitated the financial collapses that began in 2008. Imperfect information is an understatement when it comes to thinking about the future. Yet the textbooks scarcely mention ­issues of time and uncertainty, the role of speculators or the possibility of price ­bubbles (i.e. unsustainable price increases driven by expectations that end in a price collapse).

For example, in the 2008/09 crisis banks became so suspicious of each other that they refused to lend to each other – exacerbating the credit crunch. This is often referred to as a ‘systemic externality’ since problems at one bank have implications for the banking system as a whole. Limited rationality Real estate and stock market bubbles are driven by investor overconfidence. Akerlof and Shiller (2009) argue that this overconfidence is fed by ‘stories’ that gain such widespread acceptance that they seem undeniably true. For ex­ample, in the 1990s it was commonly believed that real estate was the single best investment anyone could make, because land is limited while the population (and hence the demand for land) is constantly growing.


pages: 278 words: 82,069

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

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

He could have raised the market’s margin requirements, thereby reducing how much stock people could buy with borrowed money. Krugman reminds us that at the September 1996 meeting of the Federal Open Market Committee (F.O.M.C.), Greenspan told his colleagues, “I recognize that there is a stock market bubble problem at this point” and that it could be solved by “increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.” But he didn’t do it. Nor did he lobby behind the scenes against the huge capital gains tax cut of 1997, which fed the market with another torrent of investor money.

But since we’re saving nothing these days—the personal savings rate went negative in 2005 for the first time since the Great Depression—the cash had to come from abroad. Since 2001 U.S. foreign debt has increased by a stunning $2 trillion. One thing can be said for the housing mania: It’s kept the economy afloat since the bursting of the stock market bubble in 2000. (Wall Street economists estimate that 40 to 50 percent of the growth in GDP and employment over the last several years has been driven by the housing boom.) When the dot-coms went up in smoke, Alan Greenspan’s Federal Reserve drove interest rates down to 1 percent to contain the economic fallout.

Rubin defends his thesis by blaming the rising trade deficit on inflexible currency exchange with China and other Asian nations. Correct that and everything will be fine, he says. Further, he explains that the capital deficits in the Clinton years were actually a good thing because the high-tech investment boom was drawing in more foreign investors. He neglects to mention that the boom included the high-tech stock-market “bubble” that collapsed a year later on George W. Bush’s watch, with $6 trillion in losses for investors. In any case, Rubin sees nothing in the trading system itself that needs fixing. “Maybe I’m missing something,” he says, “but I don’t think there’s anything in the design of the system we would have done differently.”


pages: 422 words: 113,830

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

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

In a related vein, over five years the housing sector was calculated to have provided nearly 40 percent of the increase in U.S. GDP and employment. The further benefit was that rising home prices offset much of the nationwide loss of wealth—some $7 trillion—occasioned by the 2000- 2002 collapse of the stock market bubble, most notably the implosion of the tech-laden Nasdaq Index (see pp. 11-13, 62). In California, for example, the price of homes essentially tripled between 1995 and 2006, as you can see in Figure 4.4 on p. 114. Wealth-wise, this increase was gangbusters. It was also a powerful tool of financial expansion, mortgage finance being one of the sector’s weightiest pillars.

Figure 2.5 measures the trot, canter, and gallop of the 1969- 2006 advance of financial debt, which left all other private debt expansion in the dust. The Flow of Funds Review & Analysis, published by the Virginia-based Financial Markets Center, offered one of the few explanatory backdrops as financial debt hit a crescendo in the year before the stock market bubble popped in 2000:FIGURE 2.5 The Triumph of Leverage Source: Federal Reserve System, Flow of Funds Accounts of the United States. These figures are the latest manifestation of a remarkable rise in financial sector indebtedness that dates to the late 1960s, when U.S. banks began borrowing Eurodollars in huge volumes from their offshore branches. . . .

Perhaps half of the money pumped into energy and communications debt vanished through bankruptcies and bear market clawings. The partially burst debt and credit bubbles of 2000-2002 had more than a little in common with the burst bubbles of 1969-70 and 1989-92. The floodtides of financial and nonfinancial corporate debt always leave a mess when the waters recede. Indeed, the high-tech and stock market bubble had popped while the Clinton administration was still in office. In its initial months, with a recession already at hand, the administration of George W. Bush was dogged by his family’s and political associates’ closeness to Enron. Thereafter it was plagued well into 2002 by the Texas firm’s failure and apparent criminal culpability.


pages: 695 words: 194,693

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, book value, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, Cass Sunstein, classic study, collective bargaining, colonial exploitation, compound rate of return, conceptual framework, Cornelius Vanderbilt, 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, equity risk premium, financial engineering, 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, land bank, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, means of production, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, new economy, passive investing, Paul Lévy, Ponzi scheme, price stability, principal–agent problem, profit maximization, profit motive, public intellectual, quantitative trading / quantitative finance, random walk, Richard Thaler, Robert Shiller, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, spice trade, stochastic process, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, time value of money, tontine, too big to fail, trade liberalization, trade route, transatlantic slave trade, tulip mania, wage slave

In the twentieth century, capital markets democratized investing and stimulated novel solutions to major social problems: social security, sovereign funds, and personal savings accounts are all mechanisms intended to reduce household economic risk. They have deep roots in the history of finance. Along with these important contributions to humankind, finance has also created problems: debt, market bubbles, devastating crises and crashes, exploitative corporations, imperialism, income inequality—to name only a few. The story of finance is the story of a technology: a way of doing things. Like other technologies, it developed through innovations that improved efficiency. It is not intrinsically good or bad.

The fragmented political economy of Europe fostered the development of investment markets; the reinvention of the corporation; extra-governmental banking institutions; complex insurance contracts on lives, property, and trading ventures; and a sophisticated tradition of financial mathematics, reasoning, and analysis. These innovations, in turn, changed human behavior. I argue that they altered attitudes toward risk and chance, leading on the one hand to probabilistic thought and calculation and on the other hand to unbridled speculation that fueled the world’s first stock market bubbles. Europeans ultimately turned themselves and the rest of the world into investors. The key stages in Europe’s development are first, the emergence of financial institutions; second, the development of securities markets; third, the emergence of companies; fourth, the sudden explosion of stock markets; fifth, the quantification of risk; and finally, the spillover of this system to the rest of the world.

He proposed the creation of GDP-indexed products to hedge against unemployment. These products were met with mild interest in the boom years of the US economy, but, like other projectors before him, Bob Shiller may only have been ahead of his time. One of his ideas instantly caught the public’s imagination, however. He became famous for his study of stock market bubbles and his forecast of the bursting of the Internet craze. A scholar with a gentle, inquiring demeanor, Bob Shiller has always had an interest in the psychology of the stock market. We came to know each other over years of talking about everything from econometrics to the puzzle of investor behavior.


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

Alan Greenspan, Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, Bletchley Park, business cycle, California gold rush, Charles Babbage, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Dr. Strangelove, Dutch auction, Edward Lloyd's coffeehouse, electricity market, equity premium, equity risk premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, Fairchild Semiconductor, financial innovation, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, George Akerlof, George Gilder, Goodhart's law, Great Leap Forward, greed is good, Gunnar Myrdal, haute couture, Helicobacter pylori, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, junk bonds, Kenneth Arrow, Kevin Kelly, knowledge economy, Larry Ellison, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Michael Milken, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, Phillips curve, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, proprietary trading, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, Stuart Kauffman, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, work culture , yield curve, yield management

Even if the company makes no distributions, it has earnings and assets, and this gives value to the shares even if none of that value is in practice passed to shareholders. You may not find that argument entirely persuasive, nor do I; but so long as enough people believe it, you and I can expect to be able to sell our Microsoft shares to them. After the bursting of the stock market bubble in 2000, however, fewer people believed it than before. In 2003, Microsoft announced that it would pay its first dividend. Valuing Securities ••••••••••••••••••••••••••••••••••••• People who claim to predict share-price movements may be fundamental or technical analysts. Fundamental analysis looks at expec- Culture and Prosperity {171} tations of future earnings and dividends.

Why are people who know more about this venture and have more influence over its outcome than I do offering a share of its potential profits to me? Why should I buy when they Culture and Prosperity { 243} want to sell? 19 Many people would be better off today if they had asked that question during the stock market bubble. The good reason for relinquishing a share of a potentially profitable investment is that the risk is too large for one individual or institution. Antonio could handle the loss of one ship, but not of three. Marine insurance would have enabled him to diversify the risk of storm at sea, but the risks associated with his own business judgment remained.

He claims that market speculation is necessarily stabilizing. Speculators make money only if they buy cheap and sell dear; only speculators who make money will stay in the market for long. So prices will fluctuate less in a market with active speculation than without. 21 Yet speculation in the stock market bubble was obviously destabilizing, driving prices to fantastic levels from which they subsequently collapsed. If all traders were perfectly rational (consistent, Culture and Prosperity { 245} self-interested, profit-maximizing, well-informed), there would be no room for speculation, profitable or unprofitable.


pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

"World Economic Forum" Davos, Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, commodity super cycle, corporate governance, creative destruction, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, driverless car, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, financial engineering, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, global macro, Goodhart's law, guns versus butter model, hiring and firing, hype cycle, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Japanese asset price bubble, Jeff Bezos, job automation, John Markoff, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, Larry Ellison, lateral thinking, liberal capitalism, low interest rates, Malacca Straits, Mark Zuckerberg, market bubble, Mary Meeker, mass immigration, megacity, megaproject, Mexican peso crisis / tequila crisis, middle-income trap, military-industrial complex, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, open immigration, pattern recognition, Paul Samuelson, Peter Thiel, pets.com, plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, tacit knowledge, tech billionaire, The Future of Employment, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, work culture , working-age population

When a recession follows a bubble that is not fueled by debt, five years later the economy will be 1 to 1.5 percent smaller than it would have been, if the bubble had never occurred. However, if the bubble is debt driven, the losses are worse. In the case of a stock market bubble fueled by debt—meaning investors were borrowing heavily to buy stock—the economy five years later will be 4 percent below its previous trend. A debt-fueled housing market bubble will have an even uglier endgame, with the economy shrinking as much as 9 percent compared with where it otherwise would have been, five years on. The need to keep an eye on asset price inflation is particularly important in 2015, when many economists are warning that the world faced the opposite concern: Japan-style deflation.

Often a crash in prices of houses or stocks will depress the economy, because when those asset prices fall sharply, the result is a real decline in wealth. When people feel less wealthy, they spend less, resulting in lower demand and a fall in consumer prices as well. In other words, asset price crashes can trigger bouts of bad consumer price deflation. This is what happened in Japan, where the real estate and stock market bubbles of the 1980s collapsed in 1990 and led to the long fall in both asset and consumer prices. It is also what happened in the United States during the Roaring Twenties, when the runaway optimism of the age drove up stock prices by 250 percent between 1920 and the peak in 1929. Then the market crashed and was followed by consumer price deflation in the early years of the Great Depression.

This link has tightened dramatically since World War II, with forty out of sixty-two recessions—nearly two-thirds—following on the heels of a collapse in the housing or the stock market. The paper offered a number of benchmarks for understanding the likely fallout from these bubbles. In general, housing bubbles took longer to reach a peak than stock market bubbles, largely because stock prices are more volatile than home prices. Housing bubbles were much less common than stock price bubbles, but when they did occur, they were much more likely to be followed by a recession. And once prices for either houses or stocks rise sharply * above their long-term trend, a subsequent drop in prices of 15 percent or more signals that the economy is due to face significant pain.


pages: 519 words: 104,396

Priceless: The Myth of Fair Value (And How to Take Advantage of It) by William Poundstone

availability heuristic, behavioural economics, book value, Cass Sunstein, collective bargaining, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, Dr. Strangelove, 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, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, Linda problem, loss aversion, market bubble, McDonald's hot coffee lawsuit, mental accounting, meta-analysis, Nash equilibrium, new economy, no-fly zone, Paul Samuelson, payday loans, Philip Mirowski, Potemkin village, power law, price anchoring, price discrimination, psychological pricing, Ralph Waldo Emerson, RAND corporation, random walk, RFID, Richard Thaler, risk tolerance, Robert Shiller, rolodex, social intelligence, starchitect, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, three-martini lunch, ultimatum game, working poor

Market shows up every day quoting sky-high prices that only seem to go up. Most investors find it impossible to ignore the siren song. How could Mr. Market be so very wrong, day after day? As early as 1982, Stanford economist Kenneth Arrow identified Tversky and Kahneman’s work as a plausible explanation for stock market bubbles. Lawrence Summers took up this theme in a 1986 paper, “Does the Stock Market Rationally Reflect Fundamental Values?” Summers (now head of the National Economic Council for the Obama administration) was the first to make an extended case for what might now be called the coherent arbitrariness of stock prices.

“Explorations in Anchoring: The Effects of Prior Range, Anchor Extremity, and Suggestive Hints.” Unpublished manuscript, Stanford University, Stanford, Calif. Cited in Jacowitz and Kahneman 1995. Reinhardt, Uwe E. (2009). “Jack Welch and the Lone Ranger Theory.” The New York Times, Feb. 20, 2009. Reyburn, Scott, and Katya Kazakina (2008). “How Monet, Freud, Hirst Records Led Art-Market Bubble to Burst.” Bloomberg.com, Dec. 29, 2008. Riding, Alan (2007). “Alas, Poor Art Market: A Multimillion-Dollar Head Case.” The New York Times, June 13, 2007. Ritov, Ilana (1996). “Anchoring in Simulated Competitive Market Negotiation.” Organizational Behavior and Human Decision Processes 67, 16–25.

Crew clothing company, 190, 203, 205 Jensen, Keith, 123–24 Jensen, Marlene, 232 JetBlue Airlines, 182, 183 Jews: Israeli, 81–82; mobsters, 49; Nazi persecution of, 83–84 Jobs, Steve, 184, 257 Johns Hopkins University, 52 Johnson, Eric, 280–82 Johnson & Johnson, 6 Jopling, Jay, 267 Journal of Business, 110 Journal of Consumer Research, 153, 280 Journal of Experimental Psychology, The, 65 juries, 197; damages awarded by, 3–4, 17–21, 276–79 Kahn, Irah, 84 Kahneman, Daniel, 16, 83–87, 105, 133, 146, 147, 188, 196, 236; on altruism, 117; on anchoring, 144, 207; economists’ hostility to, 77; fairness research of, 106–107, 110, 112–14; heuristics of, 88–89, 125–28, 197; on jury awards, 19, 276–77, 279; at Oregon Research Institute, 28, 87–88; on priming, 92, 94, 286; prospect theory of, 97–99, 101–102, 104, 132; and stock market bubbles, 261; on ultimatum game, 113, 115; United Nations experiment of, 10–12, 90 Kalmar, Tepper, 160, 161 Kelley Blue Book, 75 Kelly, Walt, 76 Kennedy, Edward, 257 Kenya, 122 Klein, Calvin, 246 Knetsch, Jack, 105, 107, 110, 113–14, 117 Kohl, Helmut, 271 Koolhaas, Rem, 158 Kouri, Elena, 250 Kozlowski, Dennis, 234–36 Kozlowski, Karen, 234 Krueger, Alan, 165–66 Kucher, Eckhard, 148–49 Lacayo, Richard, 267 Lagavulin whiskey, 219 laissez-faire capitalism, 108 Lamelera people, 123 “Landlord’s Game, The,” 284 La Rue, Diane, 167 Las Vegas Review Journal, 71 Laube, Jim, 160 laundry detergent, 180 Lauren, Ralph, 155 lawsuits, jury awards in, 3–4, 17–21, 276–79 Leaves of Grass (Whitman), 194 Lee, Bob, 144 Leeds, University of, 219 Leeuwenhoek, Anton von, 208 Lehman Brothers, 268 Leipzig, University of, 30 Lichtenstein, Donald, 204–206 Lichtenstein, Sarah, 10, 28, 53, 62–77, 79, 81, 82, 87, 90, 220 Liebeck v.


pages: 287 words: 81,970

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments by Charles Goyette

Alan Greenspan, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Madoff, Bretton Woods, British Empire, Buckminster Fuller, business cycle, buy and hold, California gold rush, currency manipulation / currency intervention, Deng Xiaoping, diversified portfolio, Elliott wave, fiat currency, fixed income, Fractional reserve banking, housing crisis, If something cannot go on forever, it will stop - Herbert Stein's Law, index fund, junk bonds, Lao Tzu, low interest rates, margin call, market bubble, McMansion, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, National Debt Clock, oil shock, peak oil, pushing on a string, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Saturday Night Live, short selling, Silicon Valley, transaction costs

How the extension of more credit would ameliorate a crisis created by excess credit wasn’t explained. Also missing from the authorities’ explanations were examples of financial bubbles, once having popped, being successfully reinflated. No amount of intervention-ism has been able to reinflate the Japanese real estate and stock market bubbles that burst twenty years ago. Nor was there any clarity offered to explain why financial institutions that were incapable of sound operations should be preserved. The benefits to stimulus recipients were clear, but a holistic approach demands examination of not just benefits, but costs as well.

Driving rates to 3 percent by the time he was finished, Greenspan fundamentally altered the investment outlook and risk-taking proclivities of retired people and baby boomers alike, as they sought to make up in the stock market for the certificate of deposit and fixed income returns that had disappeared. Ultimately Americans lost $6 trillion in that Greenspan stock market bubble. But while the profits of the banks from market distortions are privatized, banking system losses, as we are wit nessing, are socialized. More alarming is the role of the central bank in funding wars not popular enough to be sustained by direct taxation. This function has been on display since the Federal Reserve Act of 1913 was first passed.

One need only remember the fabled Goldilocks economy of previous Federal Reserve chairman Alan Greenspan, the Maestro: “It was not too hot and not too cold, but just right!” Of course, Greenspan also admits he didn’t “get it” about the housing bubble until very late, in 2005 and 2006, despite home mortgage debt growing from $1.8 trillion to $8 trillion during his tenure. Nor did he foresee the stock market bubble before it popped in 2000. And he somehow missed the recession of the early 1990s. Greenspan’s successor, Ben Bernanke, didn’t get it either. As chairman of the President’s Council of Economic Advisers in October 2005, he told Congress that he wasn’t concerned about a housing bubble. A year and a half later, in March 2006, deep into the mortgage meltdown, he testified as Fed chairman that problems in the subprime market were “contained.”


pages: 554 words: 158,687

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

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

First, there has been a clear upward trend across the four countries, signalling increasing penetration of the non-financial sector by financial relations. Second, both the Japanese bubble of the late 1980s and the wider stock market bubble of the late 1990s were driven by the acquisition of financial assets by the non-financial sector. This is far from unusual for stock market bubbles, which typically involve late purchases of financial assets by small investors that eventually result in capital losses. Third, in sharp contrast, the bubble of the 2000s in the US and the UK was not accompanied by significant increases in the holdings of financial assets by households and enterprises.

The point is that, if prices fell, the financial profits made by the last seller would come entirely out of the loanable capital (or idle money) of the last buyer. This would be a zero sum game, a pure redistribution of loanable capital (and idle money) among different sections of economy and society. This is far from a rare event in financial markets. Stock market bubbles, for instance, typically attract small shareholders who are caught in the euphoria of the boom and buy financial assets on exaggerated expectations of future returns. When the crash comes, they register net losses, which correspond to profits made by previous sellers of financial assets (and by the same token of the financial institutions which mediated the transactions).

By the end of the 2000s and after the crisis of 2007 had fully emerged, it transpired that there had not been much of a ‘productivity miracle’ in the US, or anywhere else. The strong productivity gains of the late 1990s were associated with the investment boom in new technology that partly led to the stock market bubble of 1999–2000. In the second half of the 2000s productivity growth in the US and in the other three countries showed no exceptional vitality. Whatever gains have been registered in the latter half of the 2000s appear to have been related to reductions in employment and other ‘efficiency’ measures, rather than to technological progress.


pages: 261 words: 57,595

China's Future by David Shambaugh

Berlin Wall, capital controls, demographic dividend, demographic transition, Deng Xiaoping, facts on the ground, financial intermediation, financial repression, Gini coefficient, Great Leap Forward, guns versus butter model, high net worth, high-speed rail, Kickstarter, knowledge economy, low skilled workers, market bubble, megacity, middle-income trap, Mikhail Gorbachev, military-industrial complex, New Urbanism, offshore financial centre, open economy, Pearl River Delta, rent-seeking, secular stagnation, short selling, South China Sea, special drawing rights, too big to fail, urban planning, Washington Consensus, working-age population, young professional

China’s economy is already burdened by an estimated 282 percent of total debt as a percentage of gross domestic product (GDP). This is unsustainable in the eyes of many economists, despite China’s huge liquidity reserves. As for asset bubbles, 2014–2015 witnessed the bursting of urban property bubbles in several major cities, as well as the bursting of the stock market bubble on the Shanghai and Shenzhen exchanges. Excess manufacturing capacity and inventories are also problems. Another growing concern is the relative decline in foreign inbound investment, which is related to the increased costs and difficulties of operation for foreign multinationals in China. What other time bombs lurk waiting to burst in China’s opaque economy?

Figure 2.3 China’s Alternative GDP Projections Once again, we saw that the Visible Hand of the Chinese economy is the state. Every time the government intervenes to stem a temporary economic crisis it only exacerbates and deepens existing dependency on the state while further postponing much-needed reforms that would permit the economy to respond to real and transparent market signals. The property market bubble has also peaked and declined precipitously in several major cities (due to oversupply and inflated prices for both residential and commercial units) while land sales are declining nationwide. The overheated market began to fall in mid-2012 and has continued a decline since, despite government intervention to prop it up.

Massive “ghost cities” stand eerily empty across the country.21 While it was a necessary self-correction, many ordinary Chinese who had bought homes for the first time are left with depleted equity; it will take a very long time to recover their initial investments. For China’s middle class and ordinary first-time investors, the twin “scissors effect” of the stock market and property market bubbles bursting has hit them hard. It is made worse by the fact that many of these eager citizens borrowed from secondary “shadow banking” entities to buy stock or a flat, and are now left with crippling debt. Chinese officials have only themselves to blame as they openly encouraged the rise in share prices in 2014 and 2015, precisely because it suited their strategy of trying to reduce the economy’s dependence on credit: a buoyant stock market would give companies a way of funding themselves that did not put more debt on their balance sheets.


pages: 348 words: 99,383

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope by John A. Allison

Affordable Care Act / Obamacare, Alan Greenspan, American ideology, bank run, banking crisis, Bear Stearns, Bernie Madoff, business cycle, 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, Greenspan put, high net worth, housing crisis, inverted yield curve, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, money market fund, moral hazard, negative equity, obamacare, open immigration, Paul Samuelson, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, subprime mortgage crisis, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, Tyler Cowen, yield curve, zero-sum game

Contents Introduction 1 Fundamental Themes 2 What Happened? 3 Government Monetary Policy: The Fed as the Primary Cause 4 FDIC Insurance: The Background Cause 5 Government Housing Policy: The Proximate Cause 6 The Essential Role of Banks in a Complex Economy: The Liquidity Challenge 7 The Residential Real-Estate-Market Bubble and Financial-Market Stress 8 Failure of the Rating Agencies: The Subprime Mortgage Market and Its Impact on Capital Markets 9 Pick-a-Payment Mortgages: A Toxic Product of FDIC Insurance Coverage 10 How Freddie and Fannie Grew to Dominate the Home Mortgage Lending Business 11 Fair-Value Accounting and Wealth Destruction 12 Derivatives and Shadow Banking: A Misunderstanding 13 The Myth that “Deregulation” Caused the Financial Crisis 14 How the SEC Made Matters Worse 15 Market Corrections Are Necessary, but Panics Are Destructive and Avoidable 16 TARP (Troubled Asset Relief Program) 17 What We Could Have—and Should Have—Done 18 The Cure for the Banking Industry: Systematically Move Toward Pure Capitalism 19 Some Political Cures: Government Policy 20 Our Short-Term Path and How to End Unemployment 21 The Deepest Cause Is Philosophical 22 The Cure Is Also Philosophical 23 How the United States Could Go Broke 24 The Need for Principled Action 25 Conclusion Notes Index Acknowledgments Introduction THE PURPOSE OF THIS BOOK IS TO PROVIDE AN INTEGRATED INSID-er’s perspective on the recent financial crisis, the related Great Recession, and why a meaningful economic recovery has not occurred.

They ignore the fact that the very existence of the Fed creates extremely powerful incentives (human nature) for bank managements to increase risk in good times. Instead of being countercyclical, as its proponents argue, the Fed is pro-cyclical because of its effect on human behavior through the financial and psychological incentives that it creates. 7 The Residential Real-Estate-Market Bubble and Financial-Market Stress AS WE HAVE DISCUSSED, THE “BURSTING” OF THE BUBBLE (MISIN-Vestment) in the residential real estate markets led to the deterioration of the capital markets and to the Great Recession. In reality, it was the actions that led to the misinvestment (bubble) in the first place that were destructive.

The FDIC’s mission is to protect the safety and soundness of the banking system. If covering uninsured depositors is necessary, it can do so, but it should let the losses fall on the insurance fund, not on innocent bondholders. Violating the rule of law has consequences. The bursting of the real estate–market bubble turned into an international financial crisis for several reasons. First, foreign financial institutions had invested heavily in the U.S. housing market. They suffered capital losses and the resulting reductions in liquidity (lending capacity), as previously described for U.S. institutions, and these reductions were then transmitted to their home economies.


pages: 756 words: 120,818

The Levelling: What’s Next After Globalization by Michael O’sullivan

"World Economic Forum" Davos, 3D printing, Airbnb, Alan Greenspan, algorithmic trading, Alvin Toffler, bank run, banking crisis, barriers to entry, Bernie Sanders, Big Tech, bitcoin, Black Swan, blockchain, bond market vigilante , Boris Johnson, Branko Milanovic, Bretton Woods, Brexit referendum, British Empire, business cycle, business process, capital controls, carbon tax, Celtic Tiger, central bank independence, classic study, cloud computing, continuation of politics by other means, corporate governance, credit crunch, CRISPR, cryptocurrency, data science, deglobalization, deindustrialization, disinformation, disruptive innovation, distributed ledger, Donald Trump, driverless car, eurozone crisis, fake news, financial engineering, financial innovation, first-past-the-post, fixed income, gentrification, Geoffrey West, Santa Fe Institute, Gini coefficient, Glass-Steagall Act, global value chain, housing crisis, impact investing, income inequality, Intergovernmental Panel on Climate Change (IPCC), It's morning again in America, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", junk bonds, knowledge economy, liberal world order, Long Term Capital Management, longitudinal study, low interest rates, market bubble, minimum wage unemployment, new economy, Northern Rock, offshore financial centre, open economy, opioid epidemic / opioid crisis, Paris climate accords, pattern recognition, Peace of Westphalia, performance metric, Phillips curve, private military company, quantitative easing, race to the bottom, reserve currency, Robert Gordon, Robert Shiller, Robert Solow, Ronald Reagan, Scramble for Africa, secular stagnation, Silicon Valley, Sinatra Doctrine, South China Sea, South Sea Bubble, special drawing rights, Steve Bannon, Suez canal 1869, supply-chain management, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, total factor productivity, trade liberalization, tulip mania, Valery Gerasimov, Washington Consensus

One policy question that arose in the 1920s is how central bankers should react to bubbles in asset prices: should they act early to halt exuberance, or should they accept that this is neither the responsibility nor within the capability of central banks? Financial market bubbles are usually evident with the benefit of hindsight,12 though often the behavior of people involved in a financial market bubble is a good indication of its existence. Charles Kindleberger and Robert Aliber’s book Manias, Panics, and Crashes is perhaps the best text on the topic, though Charles MacKay’s Extraordinary Popular Delusions and the Madness of Crowds, published in 1841, is a reminder that investors and perhaps policy makers do not learn from history.

Seen It All Before There are many parallels between the first wave of globalization and the current one, the most important being the rise in trade, the growth of financial systems, and the rapid diminution in the cost of doing business as transportation and communication costs dropped. It is also interesting to note that stock market bubbles arose during both periods of globalization, driven by the advent of new technologies. In the early twentieth century it was primarily the railway, telephone, and radio stocks that led the rise in share prices. In 1900, over 60 percent of the market capitalization of the US stock market and 50 percent of the UK market was made up of railway stocks, which have all but disappeared today.

In this respect, the blame for the financial crisis lies at the feet of the banking and financial services industry. Equally, much of the recent work of central bankers has been directed at undoing and calming the damage done by the financial crisis. We should at the very least bear this in mind when criticizing the extremes to which central bankers have gone in their attempts to revive growth. Financial market bubbles are an unfortunate and recurring part of central banks’ relationship with financial markets and economies. The response to the emerging-market crisis in the late 1990s, a series of emergency interest rate cuts led by the Federal Reserve, helped create the dot-com bubble of the next decade, and, arguably, the policy response to the global financial crisis (over seven hundred interest rate cuts internationally by 2018) is creating extreme risks in economic and market behavior today.


pages: 840 words: 202,245

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

Abraham Maslow, accounting loophole / creative accounting, Alan Greenspan, AOL-Time Warner, Asian financial crisis, bank run, Bear Stearns, book value, Bretton Woods, business cycle, capital controls, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Glass-Steagall Act, Greenspan put, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Bogle, John Meriwether, junk bonds, Kitchen Debate, laissez-faire capitalism, locking in a profit, Long Term Capital Management, low interest rates, market bubble, Mary Meeker, Michael Milken, minimum wage unemployment, MITM: man-in-the-middle, Money creation, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, North Sea oil, Northern Rock, oil shock, Paul Samuelson, Philip Mirowski, Phillips curve, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Bork, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, scientific management, shareholder value, short selling, Silicon Valley, Simon Kuznets, tail risk, Tax Reform Act of 1986, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

It is the interest rate on funds banks lend to each other to meet requirements for the reserves against bank loans required by the Fed. The Fed raised it from roughly 6 percent to 9 percent that year. Once the Fed started raising rates, the previously soaring stock market cracked almost immediately. As a consequence of the higher rates and the burst market bubble, GDP contracted toward the end of 1969 after nearly ten years of expansion, and the rate of unemployment began to rise. The stock market continued to plummet in the first half of 1970, and the economy officially slid into recession as the unemployment rate rose above 6 percent. Until this point, economists believed the New Economics had largely solved the problem of serious economic recession.

In a speech in December 1996, Greenspan suggested that the stock market might have reached a stage of “irrational exuberance.” It was a Sunday, but markets then open in Australia and New Zealand immediately fell, leading to a cascade of falling prices around the world. Would the Greenspan Fed now raise interest rates to burst the stock market bubble? The Dow Jones Industrials fell sharply the next day, and Greenspan was chastened by the market response. The Fed did not raise rates and calm quickly returned. Despite rapid economic growth at an annual rate of 4 percent or more, inflation fell below 3 percent in 1997 and below 2 percent in 1998.

In June, the Fed raised the federal funds rates by .25 percent, the first increase since early 1997, followed by five more increases, the last a major hike of .5 percent. In total the federal funds target was raised from 4.75 percent in early 1999 to 6.5 percent in May 2000. The rate hikes took their toll. The stock market bubble burst in midyear. By the end of 2000, the Nasdaq index had fallen from a high of 5,000 to 3,500 on its way down to nearly 1,000 in 2003. By early 2001, the Dow Jones Industrials lost 1,000 points from its high above 11,000, revived slightly, and then headed to below 8,000 two years later. The long period of growth, overspeculation, and overinvestment in high technology and telecommunications was coming to an end, and lower stock prices and rising interest rates brought on a serious recession as George W.


pages: 545 words: 137,789

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

Abraham Wald, Alan Greenspan, Albert Einstein, An Inconvenient Truth, Andrei Shleifer, anti-communist, AOL-Time Warner, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black-Scholes formula, Blythe Masters, book value, Bretton Woods, British Empire, business cycle, capital asset pricing model, carbon tax, Carl Icahn, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Garrett Hardin, George Akerlof, Glass-Steagall Act, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Nixon triggered the end of the Bretton Woods system, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, Ponzi scheme, precautionary principle, price discrimination, price stability, principal–agent problem, profit maximization, proprietary trading, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Tax Reform Act of 1986, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, Two Sigma, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

When an initial disturbance occurs, price changes set in force offsetting movements, which restore equilibrium. (The opposite of negative feedback is positive feedback, which amplifies initial disturbances. Positive feedback helps to cause nuclear explosions, rapid population growth, and stock market bubbles.) It should be noted that none of these adjustments is imposed from above: in the language of systems analysis, they are all “emergent” properties, which result from a multiplicity of individual interactions. Each businessman “intends only his own gain,” Smith wrote, “and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention . . .

There are no monopolists, such as Microsoft, and no oligopolists, such as Exxon Mobil and Chevron, Citigroup and Goldman Sachs. Financial markets exist, but only in a very abstract form. People are assumed to plan ahead for every possible state of the world and make contingency plans for each of them. There is no place for stock market bubbles, banking crises, or lending crunches. The typical ups and downs of a modern credit-driven economy are nowhere to be seen. When I interviewed Lucas in 1996, he was engagingly modest about his achievements, perhaps because he could afford to be. (The preceding year, he had visited Stockholm to pick up his Nobel.)

The third-generation rational expectations models can be useful for exploring the old question of how central banks should set interest rates to achieve a low and stable rate of inflation, but they have virtually nothing to say about what policymakers should do to maintain financial stability. As in the original Lucas models, there is no role in them for stock market bubbles, credit crunches, or a drying up of liquidity. Indeed, recognizable financial markets don’t really exist. The illusions of harmony, stability, and predictability are maintained, and Hayek’s information processing machine does its job perfectly: at all times, prices reflect economic fundamentals and send the right signals to economic decision-makers.


pages: 337 words: 89,075

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

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

That said, looking at data since the late 1980s, it follows that value stocks outperformed as the economy went into a recession and there was uncertainty regarding the tax code. Growth stocks next outperformed during the gridlock period, when moves to higher taxes and regulation were arrested by a divided government. Add to that low and steady inflation and there was little uncertainty during the mid- and late 1990s. When the corporate scandals broke, and the stock market bubble popped, uncertainty crept back in and value stocks reigned once again. The Location Cycles Before I get into location cycles, I need to make some assumptions about exchange rates. In the long run (by this, I mean the economy will approach its equilibrium in the long run), purchasing power parity (PPP) will be restored.

After that, the tax policies of Presidents Bush and Clinton brought about a cycle in which capital gains’ advantage over dividends steadily increased. Not surprisingly, returns in the 1990s were generated mostly in the form of capital gains as the corporate structure changed to take advantage of the tax laws. Ultimately, corporate behavior also adjusted, with some companies going over the line. All this of course changed when the stock market bubble burst in the late 1990s, subsequently reducing the dividend tax rate. At the present moment, the advantage of capital gains over dividends has been completely eliminated. Now let’s focus again on cycles, beginning with high-yield Treasury bonds (Tbonds). The first round of Reagan tax-rate cuts (The Economic Recovery Tax Act of 1981) represented a major inflection point in the relative rankings of the costs of the return-delivery vehicles.

On the other hand, price declines induced by demand shifts are quite bearish (see Figure 11.3d). A lack of demand induces a doubly negative effect on profits. Not only do producers collect less money per unit sold, they also sell fewer units. The quintessential example of this is Japan during its deflation years—a stock market bubble that burst in the early 1990s reduced the net worth of individuals and corporations alike. In turn, the credit worthiness of companies was reduced, forcing banks to curtail their loans. The decline in asset prices also reduced the net capital and capital adequacy of the banks, forcing them to further curtail their loan operations.


pages: 1,242 words: 317,903

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

airline deregulation, airport security, Alan Greenspan, Alvin Toffler, Andrei Shleifer, anti-communist, Asian financial crisis, balance sheet recession, bank run, barriers to entry, Bear Stearns, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, bond market vigilante , book value, Bretton Woods, business cycle, central bank independence, centralized clearinghouse, classic study, collateralized debt obligation, conceptual framework, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Dr. Strangelove, energy security, equity premium, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, forward guidance, full employment, Future Shock, Glass-Steagall Act, Greenspan put, Hyman Minsky, inflation targeting, information asymmetry, interest rate swap, inventory management, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", junk bonds, Kenneth Rogoff, Kickstarter, Kitchen Debate, laissez-faire capitalism, Lewis Mumford, Long Term Capital Management, low interest rates, low skilled workers, market bubble, market clearing, Martin Wolf, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, Neil Armstrong, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, Northern Rock, paper trading, paradox of thrift, Paul Samuelson, Phillips curve, plutocrats, popular capitalism, price stability, RAND corporation, Reminiscences of a Stock Operator, rent-seeking, Robert Shiller, Robert Solow, rolodex, Ronald Reagan, Saturday Night Live, Savings and loan crisis, savings glut, secular stagnation, short selling, stock buybacks, subprime mortgage crisis, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tipper Gore, too big to fail, trade liberalization, unorthodox policies, upwardly mobile, We are all Keynesians now, WikiLeaks, women in the workforce, Y2K, yield curve, zero-sum game

Even if the central bank’s mission was to deliver stable growth, and even if bubbles could destabilize growth just as surely as inflation, the Fed had decided to target inflation, mainly because the disinflationary forces in the world were making this the easy option. Following Lindsey’s advice, in contrast, would be hard. “We have very great difficulty in monetary policy when we confront stock market bubbles,” Greenspan declared to his colleagues. “To the extent that we are successful in keeping product price inflation down, history tells us that price-earnings ratios [and hence stock prices] under those conditions go through the roof. What is really needed to keep stock market bubbles from occurring is a lot of product price inflation. . . . There is a clear tradeoff. If monetary policy succeeds in one, it fails in the other.” In the last years of his tenure, and into retirement, Greenspan attempted to rewrite this phase of his history.

But the truth, as revealed in Greenspan’s 1959 paper, is that he had been thinking about balance-sheet recessions for decades—in fact, he had been aware of them for longer than many of his critics had been breathing. The fact that he nonetheless allowed bubbles to inflate on his watch demands an explanation that goes deeper than his purported ignorance. Greenspan’s attack on the 1920s Fed involved one further argument. The Fed’s mistake in the 1920s was not merely to rationalize the stock market bubble by embracing the talk of a new era of stability, akin to the “Great Moderation” that economists unwisely celebrated in the 1990s and 2000s. Rather, the Fed’s key error was to underestimate its own contribution to the stock bubble. The rise in the market had set off a rise in investment and consumer spending, which in turn had boosted profits and stoked animal spirits, triggering a further rise in the stock market.

A large section of this masterwork was devoted to arguing that the Fed had made the Depression worse than it need have been, allowing the money supply to collapse in the 1930s and so suffocating businesses. The implication was that discretionary monetary policy had failed disastrously, not once but twice—the Fed had helped to bring on the Depression by fueling the stock market bubble of 1929, as Greenspan had argued in his 1959 article; and it had also rendered the aftermath unnecessarily painful. It is likely that Greenspan’s disapproving attitude toward central-banking orthodoxy was fortified by Friedman’s thesis. The year after the Monetary History appeared, he built on his client letters with an academic version of his critique, which appeared in the Journal of Finance.42 But by late 1963, Greenspan’s mind was turning to a more ambitious project.


pages: 566 words: 155,428

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

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

Sure, the Colombians were doing much better at managing their economy, and I claimed no special expertise about the country. But a mere 100 basis points over Treasuries, which implied a 1 percent expected loss rate per annum, seemed wildly optimistic. So when I came to the part of my speech about the bond-market bubble and put a picture of Wile E. Coyote on the screen, I had Colombian debt on my mind. When I asked who among the assembled brokers thought that 100 basis points was a reasonable spread over U.S. Treasuries, not a single hand went up. Then I broke the news: The market does, because that’s what Colombian bonds sell for today.

Seems like a no-brainer, right? And if default risk really is negligible, it is. But, of course, the risk wasn’t negligible. Investors should never have extrapolated the amazingly favorable default experience of 2004–2006 into the indefinite future. But they did. It was the kind of thinking that led to the bond-market bubble. As investors shifted out of Treasuries into riskier fixed-income securities—whether Columbian government bonds or MBS backed by subprime mortgages—those riskier securities were bid up in price, and hence down in yield. You had to pay more to buy the same stream of interest payments. So what was once, say, a 150-basis-point reward for bearing more risk became a 100-basis-point reward, or maybe just a 50-basis-point reward.

Can we prevent asset-price bubbles in the future? Here, unfortunately, the answer is mostly no. Speculative markets have succumbed to occasional bubbles for as long as there have been speculative markets. Indeed, one of the first common stocks ever issued, in the South Sea Company in England, was hyped into the first stock-market bubble—the famed South Sea Bubble of 1720—which devastated, among others, a pretty smart fellow named Isaac Newton. And the Dutch had managed to grow a gigantic bubble in—of all things—tulip bulbs almost a century earlier. No, while we may be lucky enough to nip a few bubbles in the bud, we will never stamp them out.


pages: 524 words: 143,993

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

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

What made the challenge far more difficult is that the sector of the domestic economy best equipped to spend more than its income or, more precisely, invest more than its savings, is the corporate sector. It did just that at the peak of the stock-market bubble in the late 1990s: indeed its financial deficit, thus defined, reached 4 per cent of GDP. But from 2000 to the crisis of 2008, the business sector was in rough balance, despite the easy monetary policy (see Figure 33).33 This is largely because gross business investment peaked at 13.6 per cent of GDP in the second quarter of 2000, as the stock-market bubble burst. It then fell to 10.1 per cent of GDP in the second quarter of 2003, before rising modestly to 11.8 per cent in the second quarter of 2007, as the economy recovered, just before the global financial crisis.

We can only understand the challenges for US policymakers after 1997, particularly for the Federal Reserve, in the light of what was happening elsewhere. Their job, mandated in law, was (and is) to stabilize inflation and keep unemployment low in the US. We may define this combination as internal balance. Between 1997 and 2000, the stock-market bubble did a good job of sustaining demand without any need for heroic monetary policy (see Figure 29). But the bubble then burst. The Fed found itself confronting a much weaker economy. It slashed interest rates. Then came another shock – the terrorist attack of 11 September 2001. The recovery was weak.

Anybody who argues for such a policy is, in essence, arguing for a different monetary regime. The final question is how far it is possible to live with a financial system capable of imploding in response to what was no more than a modest policy mistake, given the obvious reasons for loose monetary policy after the implosion of the stock-market bubble in 2000 and the terrorist attacks on the US of 11 September 2001. That is perhaps the biggest question of all, to which I will turn in Part III. For all these reasons, the argument that what was needed was a tighter monetary policy does not get us far. The question is how much tighter and with what consequences.


pages: 416 words: 118,592

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

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, book value, BRICs, butter production in bangladesh, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial engineering, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Japanese asset price bubble, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, margin call, market bubble, Mary Meeker, money market fund, mortgage tax deduction, new economy, Own Your Own Home, PalmPilot, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stock buybacks, stocks for the long run, sugar pill, survivorship bias, The Myth of the Rational Market, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

By mid-August 1992, the index had declined to 14,309, a drop of about 63 percent. In contrast, the Dow Jones Industrial Average fell 66 percent from December 1929 to its low in the summer of 1932 (although the decline was over 80 percent from the September 1929 level). The chart The Japanese Stock-Market Bubble: Japanese Stock Prices Relative to Book Values, 1980–2000 shows quite dramatically that the rise in stock prices during the mid-and late 1980s represented a change in valuation relationships. The fall in stock prices from 1990 on simply reflected a return to the price-to-book-value relationships that were typical in the early 1980s.

Various measures of land prices and property values indicate a decline roughly as severe as that of the stock market. The bursting of the bubble destroyed the myth that Japan was different and that its asset prices would always rise. The financial laws of gravity know no geographic boundaries. THE JAPANESE STOCK-MARKET BUBBLE JAPANESE STOCK PRICES RELATIVE TO BOOK VALUES, 1980–2000 Source: Morgan Stanley Research and author’s estimates. THE EXPLOSIVE BUBBLES OF THE EARLY 2000s If you can keep your head when all about you are losing theirs… Yours is the Earth and everything that’s in it… —Rudyard Kipling, If— FINANCIALLY DEVASTATING AS the bubbles of the last decades of the twentieth century were, they cannot compare with those of the first decade of the twenty-first century.

The ability to avoid such horrendous mistakes is probably the most important factor in preserving one’s capital and allowing it to grow. The lesson is so obvious and yet so easy to ignore. THE U.S. HOUSING BUBBLE AND CRASH OF THE EARLY 2000s Although the Internet bubble may have been the biggest stock-market bubble in the United States, the bubble in single-family home prices that inflated during the early years of the new millennium was undoubtedly the biggest U.S. real estate bubble of all time. Moreover, the boom and later collapse in house prices had far greater significance for the average American than any gyrations in the stock market.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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

But crucially important in explaining why the financial crisis turned into such a severe economic crisis was that the collapse of housing prices also undermined workers’ main source of wealth, leading to a dramatic fall in US consumer spending. The bursting of the housing bubble thus had much greater effects than had the earlier bursting of the stock-market bubble at the turn of the century, and much greater implications for global capitalism in terms of the role the US played as “consumer of last resort.” In true imperial fashion, the US fully shared its problems with the rest of the world. Given the role of US financial assets and consumer spending in global capitalism, illusions that other regions might be able avoid the crisis were quickly dispelled.

After 1926 the Federal Reserve kept US interest rates low, in order to support sterling following Britain’s return to the gold standard; yet the main effect of low interest rates was to shift funds from bonds to further speculation in already overheated US stock and real-estate markets. Then, when in 1928 the Fed undertook a relatively modest interest-rate increase to dampen this down, it triggered a massive diversion of funds away from foreign loans, with immediate deflationary effects abroad. Finally the sudden bursting of the stock and real-estate market bubbles in October 1929 more or less completely cut off the flow of US credit that had kept the rickety international financial system going through the 1920s.34 On the eve of the 1929 New York stock market crash, the American economy accounted for no less than 42 percent of global industrial production—far more than Britain’s share even at its peak in 1870.35 That said, the development of the US domestic economy was itself highly uneven.

The Plaza Accord only finally ended what Japan’s own finance minister admitted was the American state’s long-standing toleration of an exchange rate that had amounted to a “subsidy to Japan’s exports to the United States and an import surcharge on US exports to Japan.”71 Japanese banks briefly came to dominate the standard rankings of the world’s largest financial institutions as they provided easy credit for Japan’s historically unprecedented purchase of assets abroad, and became conduits for a real estate and stock-market bubble inside Japan. But their vastly expanded assets concealed highly questionable lending and corporate reporting practices, as well as a technological backwardness that belied their size and prominence (in the late 1980s check-clearing in Tokyo was still done by hand rather than computer, and there were as yet no twenty-four-hour ATMs).72 Even before Plaza, Japanese banks were already implicated in the collapse of Continental Illinois, and after Plaza they were even more implicated in the US stock market crash of 1987.73 At the same time, the Ministry of Finance and the Bank of Japan not only had increasingly less effective control over what was happening in their domestic financial system, but also demonstrated little interest in seeing the yen displace the dollar as the world’s reserve currency—much less in assuming the responsibilities of global financial leadership.


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

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

Treasuries produced risk-adjusted returns significantly higher than those realized by holders of the PCA9.625s. Holders of PCA stock faced a tough set of circumstances. In contrast to the strong market enjoyed by bondholders, equity owners faced a dismal market environment. From the date of PCA’s IPO, which took place near the peak of one of the greatest stock market bubbles ever, to the bond-tender offer date, the S&P 500 declined a cumulative 24.3 percent. Bucking a decidedly adverse market trend, PCA’s equity rose from the initial offering price of $12.00 in January 2000 to $18.05 on July 21, 2003, representing a holding-period gain of 50.4 percent. Even in the worst of worlds for equity holders and the best of worlds for bondholders, the equity owners of PCA eked out a victory.

Amid one of the greatest bull markets of all time, mutual-fund investors held cash-heavy, equity-light portfolios. INVESTOR REACTION TO THE INTERNET BUBBLE Investors receive similarly poor marks for their asset allocation of mutual funds during the inflation and deflation of the 1990s stock market bubble. Throughout the bull market, mutual-fund investors consistently increased stock holdings at the expense of bond and money-market allocations. Consider the period from 1993 to 2000. Investors registered equity-allocation readings in the 30 percent range in 1993 and 1994, in the 40 percent range from 1995 through 1997, in the 50 percent range in 1998 and 1999, and in excess of 60 percent at the market peak in 2000.

Under normal market conditions, rebalancers occupy a mildly contrarian space, seen as slightly out of step with conventional wisdom. In times of severe market stress, rebalancing takes on a decidedly dramatic cast. Market collapses require substantial purchases in an environment pervaded by bearish sentiment. Market bubbles require substantial sales in an environment suffused with bullish enthusiasm. Under extraordinary market conditions, rebalancers must demonstrate unusual determination and fortitude. In spite of the central importance of rebalancing to effective portfolio management, investors appear largely indifferent to the process.


pages: 416 words: 124,469

The Lords of Easy Money: How the Federal Reserve Broke the American Economy by Christopher Leonard

2021 United States Capitol attack, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, collateralized debt obligation, coronavirus, corporate governance, COVID-19, Donald Trump, Dutch auction, financial engineering, financial innovation, fixed income, Ford Model T, forensic accounting, forward guidance, full employment, glass ceiling, Glass-Steagall Act, global reserve currency, Greenspan put, hydraulic fracturing, income inequality, inflation targeting, Internet Archive, inverted yield curve, junk bonds, lockdown, long and variable lags, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, Money creation, mortgage debt, new economy, obamacare, pets.com, power law, proprietary trading, quantitative easing, reserve currency, risk tolerance, Robinhood: mobile stock trading app, Ronald Reagan, Silicon Valley, stock buybacks, too big to fail, yield curve

Between 1995 and 1998, rates were held at about 5 percent. Hoenig sat on the FOMC during this entire period, serving as a voting member every third year. In 1998, he was a voting member again. This timing happened to coincide with one of Alan Greenspan’s more aggressive actions, a series of rate cuts in the late 1990s that fueled a stock market bubble. The rate cuts illustrated that while using the Fed’s power might not generate any natural enemies, it did come with very high costs for the American people. * * * Behind the cloud of Fedspeak, there were, in fact, serious political disputes unfolding inside the FOMC during the 1990s. One of the most important policy decisions, in retrospect, had to do with inflation.

It was a pivotal moment for the Fed: By cutting rates, it had made money cheaper and encouraged more lending and stock purchases. The Fed could now wait and see how the stimulus worked its way through the system, or it could accelerate the money flow even further, potentially inflating the stock market bubble. Hoenig had to decide if he would cast his second dissenting vote if Greenspan pushed for another rate cut. Fed chairmen usually downplay the impact of low interest rates on the stock market, but Greenspan was blunt about the connection during the November meeting. He acknowledged that the stock market might be a bubble, which made him hesitate about cutting rates even more.

This was the signal that the self-reinforcing logic of ever-rising asset values was over, and it was over because the Fed was raising rates. Pets.com declared bankruptcy in November. The stock market crash of 2000 wiped out $1.76 trillion of value in 280 Internet stocks between March and November. The Federal Reserve had played a decisive role in creating, and then destroying, the multitrillion-dollar stock market bubble. But when the market crashed, bankers, traders, and politicians turned to the Fed for help. The disaster only seemed to enhance Greenspan’s reputation as a financial rescue artist. Only the Fed was believed to hold the power to recalibrate markets and avert a larger disaster. This fact revealed a third pillar of Greenspan’s policy framework as Fed chairman.


pages: 517 words: 139,477

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies by Jeremy Siegel

Alan Greenspan, AOL-Time Warner, Asian financial crisis, asset allocation, backtesting, banking crisis, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, break the buck, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, carried interest, central bank independence, cognitive dissonance, compound rate of return, computer age, computerized trading, corporate governance, correlation coefficient, Credit Default Swap, currency risk, Daniel Kahneman / Amos Tversky, Deng Xiaoping, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Financial Instability Hypothesis, fixed income, Flash crash, forward guidance, fundamental attribution error, Glass-Steagall Act, housing crisis, Hyman Minsky, implied volatility, income inequality, index arbitrage, index fund, indoor plumbing, inflation targeting, invention of the printing press, Isaac Newton, it's over 9,000, John Bogle, joint-stock company, London Interbank Offered Rate, Long Term Capital Management, loss aversion, machine readable, market bubble, mental accounting, Minsky moment, Money creation, money market fund, mortgage debt, Myron Scholes, new economy, Northern Rock, oil shock, passive investing, Paul Samuelson, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price stability, proprietary trading, purchasing power parity, quantitative easing, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Gordon, Robert Shiller, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, stocks for the long run, survivorship bias, technology bubble, The Great Moderation, the payments system, The Wisdom of Crowds, transaction costs, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, uptick rule, Vanguard fund

Small- and Large-Cap Stocks Trends in Small-Cap Stock Returns Valuation: “Value” Stocks Offer Higher Returns Than “Growth” Stocks Dividend Yields Other Dividend-Yield Strategies Price/Earnings Ratios Price/Book Ratios Combining Size and Valuation Criteria Initial Public Offerings: The Disappointing Overall Returns on New Small-Cap Growth Companies The Nature of Growth and Value Stocks Explanations of Size and Valuation Effects The Noisy Market Hypothesis Liquidity Investing Conclusion Chapter 13 Global Investing Foreign Investing and Economic Growth Diversification in World Markets International Stock Returns The Japanese Market Bubble Stock Risks Should You Hedge Foreign Exchange Risk? Diversification: Sector or Country? Sector Allocation Around the World Private and Public Capital Conclusion PART III HOW THE ECONOMIC ENVIRONMENT IMPACTS STOCKS Chapter 14 Gold, Monetary Policy, and Inflation Money and Prices The Gold Standard The Establishment of the Federal Reserve The Fall of the Gold Standard Postdevaluation Monetary Policy Postgold Monetary Policy The Federal Reserve and Money Creation How the Fed’s Actions Affect Interest Rates Stock Prices and Central Bank Policy Stocks as Hedges Against Inflation Why Stocks Fail as a Short-Term Inflation Hedge Higher Interest Rates Nonneutral Inflation: Supply-Side Effects Taxes on Corporate Earnings Inflationary Biases in Interest Costs Capital Gains Taxes Conclusion Chapter 15 Stocks and the Business Cycle Who Calls the Business Cycle?

The emerging market returned 12.73 percent per year over that period, nearly 3 percentage points higher than the return to U.S. stocks, and U.S. stock returns were less correlated with emerging market stock returns than with EAFE returns. It should be noted that since 1988, EAFE returns have trailed U.S. returns, almost entirely because Japan had negative returns from 1988 through 2012. The Japanese Market Bubble The Japanese stock market in the last quarter of the twentieth century stands as one of the most remarkable bubbles in world history. In the 1970s and 1980s, Japanese stock returns averaged more than 10 percentage points per year above U.S. returns and surpassed those from every other country.

See also Outperforming the market capitalization-weighted indexes in, 368–371 costs vs. returns in, 366–367 of equity mutual funds, 358–363 fundamentally weighted indexes in, 369–372 informed trading and, 366 insufficient information in, 364–365 introduction to, 357 money managers for, 363–364 passive investing in, 367–368 underperformance of managed money in, 363–365 Fundamental analysts, 311 “Fundamental Indexation,” 371 Fundamentally weighted indexes, 369–372, 376 Fundamentals of economics, defined, 159 Future of stock market valuation, 169–172 Futures contracts, defined, 276 Futures, defined, 276 Futures market, 294–296 GAAP (Generally accepted accounting principles), 150–156 Gaps, 295 Gas producers, 129 GDP (gross domestic product) in 1980–2035, 67 after 2008 financial crisis, 39–42 future of, 64–65 globally, 197 in stock market valuation, 166 General Electric, 106, 115–116, 205 General Food, 129 General Motors (GM), 54–55, 125–126, 182 The General Theory , 309, 377 Generally accepted accounting principles (GAAP), 150–156 GICS (Global Industrial Classification Standard), 120, 203–205 Given before-tax returns, 139 Glass-Steagall Act, 52–53 Glassman, James, 16, 181 Global Industrial Classification Standard (GICS), 120, 203–205 Global investing conclusions about, 206 countries in, 202–203 diversification in, 198–205 economic growth and, 196–198 foreign exchange risk and, 201–202 GDP and, 40–42 international incorporations in, 203 international stock returns in, 199 introduction to, 195–196 as investment strategy, 375–376 market bubbles and, 199–200 private vs. public capital in, 206 sector allocation in, 202–205 September effect and, 330–333 stock risks in, 201–206 Global Wealth Allocation, 371 Globex, 279–280 GM (General Motors), 54–55, 125–126, 182 Goethe, Johann Wolfgang, 105 Goetzmann, Bill, 76 Gold after 2008 financial crisis, 48, 51–52 backing by.


pages: 272 words: 19,172

Hedge Fund Market Wizards by Jack D. Schwager

asset-backed security, backtesting, banking crisis, barriers to entry, Bear Stearns, beat the dealer, Bernie Madoff, Black-Scholes formula, book value, British Empire, business cycle, buy and hold, buy the rumour, sell the news, Claude Shannon: information theory, clean tech, cloud computing, collateralized debt obligation, commodity trading advisor, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, diversification, diversified portfolio, do what you love, Edward Thorp, family office, financial independence, fixed income, Flash crash, global macro, hindsight bias, implied volatility, index fund, intangible asset, James Dyson, Jones Act, legacy carrier, Long Term Capital Management, managed futures, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, merger arbitrage, Michael Milken, money market fund, oil shock, pattern recognition, pets.com, Ponzi scheme, private sector deleveraging, proprietary trading, quantitative easing, quantitative trading / quantitative finance, Reminiscences of a Stock Operator, Right to Buy, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Rubik’s Cube, Savings and loan crisis, Sharpe ratio, short selling, statistical arbitrage, Steve Jobs, systematic trading, technology bubble, transaction costs, value at risk, yield curve

Therefore, whereas Apple seemed adequately priced based on current earnings (a forward prospective P/E of 16 at the time of the interview), it was screamingly cheap based on Taylor’s estimate of earnings three years forward (a P/E under 5). Investors often make the mistake of equating manager performance in a given year with manager skill. In some instances, more skilled managers will underperform because they refuse to participate in market bubbles. In fact, during market bubbles, the best performers are often the most imprudent rather than the most skilled managers. Taylor underperformed in 1999 because he thought it was ridiculous to buy tech stocks at their inflated price levels. This same investment decision, however, was one of the key reasons why he strongly outperformed in subsequent years when these stocks experienced an extended slide. 1The fund documents required Taylor to give investors a 12-month notice before terminating the fund. 2MSCI Emerging Europe index 1995–2002 and MSCI Global Emerging Markets index 2003–2011. 3“The city” is a small historic section in central London that is the heart of the financial district. 4It is an accounting tautology that the sum of the current account balance and the capital account balance is equal to the change in net reserves.

The popular perception of the successful global macro manager is a trader who has an ability to forecast major trends in world markets (FX, interest rates, equities, commodities) through skillful analysis and insight. O’Shea emphasizes that his edge is not forecasting what will happen, but rather recognizing what has happened. O’Shea believes that it is very difficult to pick a major turning point, such as where a market bubble will top, and that trying to do so is a losing strategy. Instead, he waits until events occur that confirm a trading hypothesis. For example, he thought that excessive risk-taking during 2005 to 2007 had inflated various markets beyond reasonable levels and left the financial markets vulnerable to a major selloff.

Staying with his original market expectation would have been disastrous, as both equity and commodity markets embarked on a multiyear rally. The flexibility to recognize that his premise was mistaken and to act on that awareness allowed O’Shea to experience a profitable year, even though his original market outlook was completely wrong. O’Shea believes that the best way to trade a market bubble is to participate on the long side to profit from the excessive euphoria, not to try to pick a top, which is nearly impossible and an approach vulnerable to large losses if one is early. The bubble cycle is easier to trade from the long side because the uptrend in a bubble is often relatively smooth, while the downtrend after the bubble bursts tends to be highly erratic.


pages: 1,088 words: 228,743

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, behavioural economics, Bernie Madoff, Black Swan, Bob Litterman, bond market vigilante , book value, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, carbon credits, Carmen Reinhart, central bank independence, classic study, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, global macro, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, inverted yield curve, invisible hand, John Bogle, junk bonds, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, pension time bomb, performance metric, Phillips curve, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, savings glut, search costs, selection bias, seminal paper, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stock buybacks, stocks for the long run, survivorship bias, systematic trading, tail risk, 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, zero-sum game

Most real-world “arbitrage” opportunities deserve quotation marks because they are only “good deals” that can move against the arbitrageur. With micro-inefficiencies where good substitutes (highly correlated assets) exist, arbitrageurs can put on relative value trades so that some of the risk in arbitrage is hedged. With macro-inefficiencies (say, a market bubble) without good asset substitutes, such hedging is not possible, so the arbitraging of market-level mispricing is risky and unattractive. Arbitrageurs face both the fundamental risk of adverse news and the “noise trader risk” of the possibility that sentiment will make mispricing worse. If arbitrageurs have longer horizons than noise traders, they can be more aggressive and can “ride out” temporary mispricings.

Shiller’s timing was only slightly off with the second edition which emphasized housing market overvaluation; it came out in 2005, two years before the U.S. real estate bubble burst. Since Shiller’s thinking on this topic is as insightful and influential as anyone’s, I describe his theory on bubbles before discussing some other analyses. Shiller argues that equity market bubbles have four elements:1. Precipitating factors. What gets the bubble started? In the late 1990s, the Internet boom was the most important factor, but other important factors included improving macro-fundamentals (lower inflation and real yields) and the tendency of middle-aged baby-boomers, with high savings rates, to allocate much of their buying to the stock market. 2.

Other research also confirms that fast credit growth and financial deregulation /innovation are common characteristics of major booms that end in tears. Bubbles have a long, infamous history since the Dutch tulip mania (1637) and the South Sea and Mississippi company bubbles (both about 1720). Wall Street in 1929, Japan in 1989, and global technology stocks in 1999 are the most famous equity market bubbles of the past century. Of course, there are alternative explanations for these high equity prices but the explanations involving purely rational stories, such as time-varying risk premia, are unsatisfactory. Credit and real estate bubbles may be even more detrimental to the real economy than equity bubbles, because the former reside closer to the heart of the financial system and may be harder to detect [4].


pages: 632 words: 159,454

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

accounting loophole / creative accounting, Alan Greenspan, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial engineering, financial innovation, fixed income, floating exchange rates, foreign exchange controls, Francisco Pizarro, full employment, German hyperinflation, Glass-Steagall Act, guns versus butter model, hiring and firing, income inequality, invisible hand, Isaac Newton, it's over 9,000, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, land bank, liberal capitalism, low interest rates, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, subprime mortgage crisis, Suez canal 1869, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

On 14 December, Pole & Co. stopped payment, which put forty of its correspondent county banks out of business.15 Pole & Co. had been put under pressure by an old-fashioned bank run, when depositors simply withdrew their money from the bank. The bank failures were only the last development of what had been a tumultuous year. The South American mining stocks also collapsed in dramatic fashion. One man caught up in the excitement of the stock market bubble was the young Benjamin Disraeli, a twenty-year-old Jewish adventurer, determined to make a name for himself in literature. The young Disraeli was a mere solicitor’s clerk who eagerly and cynically speculated in South American shares. After the South American republics, which were fighting wars of independence from Spain, had been recognized as sovereign states just after Christmas 1824, there was a huge boom in the shares.

Disraeli wrote a further two pamphlets, the last of which was entitled The Present State of Mexico. These works were largely fictional accounts of the immense resources which were said to underpin the mining securities. Disraeli fatally borrowed money ‘on margin’ to acquire the stocks, and was £7,000 in debt by June 1825 when the stock-market bubble burst. These debts would hang over his finances for decades.16 Despite the outward show of respectability, it must be remembered that Victorian finance was often a highly speculative affair. The era of the gold standard was also an era when prominent financiers could go bankrupt and, metaphorically at least, lose their shirts.

Indeed, in February 2009, Time magazine listed the former central banker at number three in their list of ‘25 People to Blame for the Financial Crisis’.5 Yet, even before the memorable events of 2008, some critics had already begun to blame him for overheating the economy. In its August 2005 article, the New York Times accused him of presiding over ‘a stock market bubble that burst’. His attempts to mitigate the collapse of stock prices had led, in turn, to the ‘housing boom’ and to the ‘potential bust’. The Times also pointed to the accumulation of ‘heavy foreign debt’. This had a simple cause: the Federal Reserve ‘drove interest rates so low that Americans borrowed more and saved less’.6 Greenspan’s belief in the efficacy of free markets had led him to a relaxed view of regulation, and to a scepticism about rigid control of economic variables.


pages: 542 words: 145,022

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest by Andrew W. Lo, Stephen R. Foerster

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, backtesting, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, Charles Babbage, Charles Lindbergh, compound rate of return, corporate governance, COVID-19, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, Edward Glaeser, equity premium, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, fake news, family office, fear index, fiat currency, financial engineering, financial innovation, financial intermediation, fixed income, hiring and firing, Hyman Minsky, implied volatility, index fund, interest rate swap, Internet Archive, invention of the wheel, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John von Neumann, joint-stock company, junk bonds, Kenneth Arrow, linear programming, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, new economy, New Journalism, Own Your Own Home, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, prediction markets, price stability, profit maximization, quantitative trading / quantitative finance, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, selection bias, seminal paper, shareholder value, Sharpe ratio, short selling, South Sea Bubble, stochastic process, stocks for the long run, survivorship bias, tail risk, Thales and the olive presses, Thales of Miletus, The Myth of the Rational Market, The Wisdom of Crowds, Thomas Bayes, time value of money, transaction costs, transfer pricing, tulip mania, Vanguard fund, yield curve, zero-coupon bond, zero-sum game

However, each “bubble” candidate is also associated with a recession. Fama thus concludes that large swings in prices are responses to large swings in real economic activity. Since stock prices reflect investor expectations, this evidence is consistent with what we would see in efficient markets. Fama observes that “bubble” rhetoric usually involves stock market bubbles bursting as the result of a correction of irrational price increases. But he notes that historical market price declines tend to be followed by rather quick price increases, wiping out most of the preceding decline, if not all of it. For example, despite Shiller’s 1996 warning to Alan Greenspan about bubbles that led to Greenspan’s famous “irrational exuberance” speech, stock market prices in March 2003, which most people would argue was after the crash of the supposed bubble, were still above those in December 1996.60 Besides these verbal sparring matches with Shiller, Fama has also had well-known debates with his Chicago colleague, the behavioral economist Richard Thaler, 2017 winner of the Nobel Prize in Economics whom Fama personally helped to hire.

Not only should you avoid investing in stocks in the industry in which you’re employed, since you could face a double whammy by losing your job exactly when your company’s stock is depressed, you might even consider a short position in your Perfect Portfolio to counterbalance that risk. Shiller is personally a market timer. But while his CAPE ratio can be an indicator of when markets may be undervalued or overvalued, he cautions about market timing yourself. It isn’t easy to call the top of a market bubble. Finally, be prepared to consider new financial instruments and products, such as Shiller’s trill idea, that may become available as part of your Perfect Portfolio. Ellis’s Perfect Portfolio As a highly informed spectator to the investment arena for over fifty years, Charley Ellis has witnessed many different players attempting to master the Perfect Portfolio.

., 256 Grantham, Jeremy, 348n46 Great Depression, investment theories and, 15–16 Greece, ancient, derivatives contracts in, 4–5 Greenspan, Alan: Black Monday and, 236–37; as chairman of Federal Reserve, 236–39; irrational exuberance speech of, 237–39 Greenwich Associates, 262–64 Griswold, Merrill, 114 growth traps, Siegel on, 298–300 Grundfest, Joe, 75 Gutfreund, John, 187, 354n56 Hamada, Robert, 157, 342n36 Hammond, Brett, endowment model and, 220–21 Hancock, Peter, 193 Hansen, Lars, 285 Harkness method of education, 256 hedging, Merton on, 182–83 Heller, Walter, 177 Hershey Company, 200 Hicks, John, 15 Hipkins, Josephine Lorraine, 114 Hirshleifer, Jack, 55 Homer, Sidney, 288; bond price volatility and, 211; bond swaps and, 211–12; collaboration with Leibowitz, 206, 208, 209–12; impact of bond return assessment and, 210–11; Leibowitz’s relationship with, 202–3 “In Honor of the Nobel Laureates Robert C. Merton and Myron S. Scholes: A Partial Differential Equation That Changed the World” (Jarrow), 190–91 housing market bubbles, 247, 248–51 housing price index of Shiller and Case, 247–51 Hume, David, influence on Markowitz, 19 Hunt-Lenox globe, 357n59 Hutzler, Morton, 203 Ibbotson, Roger, 46 IBM, growth trap and, 298–99 IBM 7090, first, 341n21 immunization, 213–15 “Index-Fund Investing” (Samuelson), 127 Index Fund of America, 347n46 index funds: attempts at forming, 347–48n46; Black-Scholes-Jensen collaboration and, 146; Bogle on, 128, 129–30, 312–13; correlation structure of, 170; disdain for, 124; Ellis on, 266, 274–76, 277, 279, 318; Fama’s advocacy of, 113; Friedman on, 347n46; introduced by Bogle, 113, 123–25; Malkiel’s advocacy of, 277; Scholes on, 314; Sharpe on, 77, 113, 311; testing of technical feasibility of, 127–28; traditional, exchange-traded funds vs., 136–37; Vanguard Group and (see Vanguard Group) The Index Revolution (Ellis), 274–75 individual investing, institutional investing vs., Leibowitz on, 223 Inside the Yield Book: New Tools for Bond Market Strategy (Leibowitz and Homer), 212 institutional investing, individual investing vs., Leibowitz on, 223 “Interest on Interest” (Leibowitz and Homer), 209–10 interest rates, Fama’s predictability study of, 105–7 intermarket spread swaps, 211 international stocks, Ellis on, 268 Introduction to Mathematical Probability (Uspensky), 25 investing: accessibility of, capital asset pricing model and, 68; dawn of, 1–4; in early 1950s, 23–24; science of, 15–17; speculation vs., Markowitz on, 33–34; time value of money and, 2 Investment Company Act of 1940, 115, 117 Investments (Sharpe), 73 investment theories: Great Depression and, 15–16; of 1930s, 16 investor archetypes, 326–31, 333 Irrational Exuberance (Shiller), 249, 301 irrational exuberance: Greenspan’s speech on, 237–39; origin of term, 239; Shiller on, 236, 249, 301 Ivest Fund, 121–22 James R.


pages: 248 words: 57,419

The New Depression: The Breakdown of the Paper Money Economy by Richard Duncan

Alan Greenspan, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Ben Bernanke: helicopter money, Bretton Woods, business cycle, currency manipulation / currency intervention, debt deflation, deindustrialization, diversification, diversified portfolio, fiat currency, financial innovation, Flash crash, Fractional reserve banking, Glass-Steagall Act, income inequality, inflation targeting, It's morning again in America, Joseph Schumpeter, laissez-faire capitalism, liquidity trap, low interest rates, market bubble, market fundamentalism, mass immigration, megaproject, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, Nixon triggered the end of the Bretton Woods system, private sector deleveraging, quantitative easing, reserve currency, risk free rate, Ronald Reagan, savings glut, special drawing rights, The Great Moderation, too big to fail, trade liberalization

—Fed Governor Ben Bernanke1 What a pity that Bernanke did not read Ludwig von Mises instead of Milton Friedman in graduate school! If he had, he would have known that credit creates the boom and that all booms bust. Instead, he was taught that the Great Depression occurred because the Fed made two mistakes: 1. It increased interest rates in late 1928 to slow down the stock market bubble. 2. It did not print money and bail out all the banks when the credit the banks had extended could not be repaid. By putting into practice those mistaken lessons drawn from the Great Depression, Bernanke and his colleagues at the Federal Reserve have brought upon the United States and the world the New Depression.

The elimination of those imbalances is inevitable, and it still lies ahead. Looking ahead, the rest of the world won’t buy more from the United States. It will buy less. When the United States buys less from other countries, other countries have fewer dollars and so will buy less from the United States. That was one of the lessons from 2001 when the stock market bubble popped and from 2008 when the housing bubble popped. External factors will exacerbate the depression in the United States during the years ahead, not ameliorate it. Vision and Leadership Are Still Lacking The adoption of fiat money permitted the abuse of Keynesian stimulus on a scale that would have horrified John Maynard Keynes, and it opened up possibilities for credit expansion that earlier generations of economists would not have dreamt possible.


pages: 354 words: 105,322

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

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, blockchain, Boeing 747, Bonfire of the Vanities, Bretton Woods, Brexit referendum, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, driverless car, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, Glass-Steagall Act, global macro, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, low interest rates, machine readable, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Minsky moment, Money creation, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, operational security, Paul Samuelson, Peace of Westphalia, Phillips curve, Pierre-Simon Laplace, plutocrats, prediction markets, price anchoring, price stability, proprietary trading, public intellectual, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk free rate, risk-adjusted returns, Robert Solow, Ronald Reagan, Savings and loan crisis, Silicon Valley, sovereign wealth fund, special drawing rights, stock buybacks, stocks for the long run, tech billionaire, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, We are all Keynesians now, Westphalian system

The Washington Post takes an extremely rigorous approach to guest op-eds. My contribution on complexity theory coming at the height of the crisis was published only after a series of conference calls with Vincent Reinhart, a former monetary economist for the Federal Open Market Committee and expert on market bubbles. Reinhart was acting as a referee for the Post’s editorial board. I discussed my theories with him from a hotel room in Budapest where I was traveling at the time. It was the middle of the night there. I was able to answer his technical queries, and after a few tweaks to words and phrases, the Post published my piece.

The idea that the Fed should not try to pop bubbles, but instead clean up the mess after they pop, has a long pedigree. Discussion of this approach goes back at least as far as the classic work of Friedman and Schwartz on the origins of the Great Depression. Friedman and Schwartz were critical of the Fed’s decision to raise interest rates in 1928 to cool off a stock market bubble. By raising rates at a time when inflation was not a threat, the Fed induced a recession in 1929, which was a proximate cause of the stock market crash in October of that year. That crash is frequently cited as marking the onset of the Great Depression. Both Alan Greenspan and Ben Bernanke support the Friedman and Schwartz critique.

If gold and five-year TIPS signal inflation, yields on ten-year Treasury notes should be rising, and prices falling. The opposite occurred. The yield on ten-year Treasury notes collapsed from 5.2 percent on July 6, 2007, to 1.3 percent on July 8, 2016, one of the greatest bond market rallies in history. Hedge funds and institutions lost billions shorting a presumed bond market bubble, while yields kept dropping and prices kept rising to new heights. This price action is a powerful sign of expected deflation and weak economic growth, even depression. Gold and TIPS prices presage inflation. Ten-year Treasuries signal deflation. Which is it? To an efficient-markets economist, markets are never wrong, yet how could these markets be right if they signal opposite outcomes?


pages: 383 words: 108,266

Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions by Dan Ariely

air freight, Al Roth, Alan Greenspan, Bear Stearns, behavioural economics, Bernie Madoff, Burning Man, butterfly effect, Cass Sunstein, collateralized debt obligation, compensation consultant, computer vision, corporate governance, credit crunch, Daniel Kahneman / Amos Tversky, David Brooks, delayed gratification, endowment effect, financial innovation, fudge factor, Gordon Gekko, greed is good, housing crisis, IKEA effect, invisible hand, John Perry Barlow, lake wobegon effect, late fees, loss aversion, market bubble, Murray Gell-Mann, payday loans, Pepsi Challenge, placebo effect, price anchoring, Richard Thaler, second-price auction, Silicon Valley, Skinner box, Skype, subprime mortgage crisis, The Wealth of Nations by Adam Smith, Upton Sinclair

But in the wake of a number of financial crises, from the dot-com implosion of 2000 to the subprime mortgage crisis of 2008 and the financial meltdown that followed, we were rudely awakened to the reality that psychology and irrational behavior play a much larger role in the economy’s functioning than rational economists (and the rest of us) had been willing to admit. It all started from questionable mortgage practices, augmented by collateralized debt obligations (CDOs are securities based mostly on mortgage payments). In turn, the CDO crisis accelerated the deflation of the housing market bubble, creating a reinforcing cycle of decreasing valuations. It also brought to light some questionable practices of various players in the financial services industry. In March 2008, JP Morgan Chase acquired Bear Stearns at two dollars per share, the low valuation resulting from the fact that Bear Stearns was under investigation for CDO-related fraud.

If such calculators had existed during the last 10 years, maybe much of the mortgage fiasco would have been avoided. Despite my belief in the desire of borrowers to make the right decisions (and to avoid the disastrous outcomes of making wrong decisions), I must admit that even if some of the banks had created better mortgage calculators, it is possible that in the delirium of the housing market bubble, zealous bankers and real estate brokers could still have pushed people to borrow more and more. This is where regulators could have stepped in. After all, regulation is a very useful tool to help us fight our own worst tendencies. In the 1970s, regulators placed strict limits on mortgages. They dictated the share of income that could be used to pay a mortgage, the amount of down payment required, and the proof that borrowers had to show to document their income.

procedures and, 62–63 mandatory checkups and, 118 patient compliance and, 260–64 placebo effect and, 173–94, 275–78; see also placebo effect price of medical treatments and, 176, 180–87, 190 public policy and spending on, 190 scientifically controlled trials and, 173–76 self-imposed deadlines and, 118–19 helping, thinking about money and, 74, 75 herding, 36–38 self-herding and, 37–38 Heyman, James, 69–71, 136, 336–37 HIV-AIDS, 90 Holy Roman emperors, placebo effect and, 188 Home Depot, 78 Honda, 120, 121 honesty, 195–230 contemplation of moral benchmarks and, 206–9, 213 dealing with cash and, 217–30 importance of, 214–15 as moral virtue, 203 oaths and, 208–9, 211–13, 215 reward centers in brain and, 203, 208 Smith’s explanation for, 202, 214 superego and, 203–4, 208 see also dishonesty Hong, James, 21 honor codes, 212–13 hormones, expectation and, 179 house sales: anchoring and, 30-31 relativity and, 8–9, 19 value in owner’s eyes and, 129, 135, 265–69 housing market: bubble in, 289–90 decreasing valuations and, 265–66, 279 I ice cream, FREE!, time spent on line for, 61 “Ikea effect,” 135 immediate gratification: e-mail and, 255–59 unpleasant medical treatments and, 261–64 imprinting, 25, 34, 43 see also anchoring indecision, 151–53 individualism, 68 thinking about money and, 74, 75 ingredients, exotic-sounding, 164–65 innovation, increased globalization and, 316–18 insurance fraud, 196, 223 insurance industry, 296 punitive finance practices of, 299-301 spreading cost of, 304 interest-only mortgages, 287–88 interferon, 260–64 internal mammary artery ligation, 173–74, 191 inventiveness, 68 IRA (Irish Republican Army), 156–57 Iran, lack of trust in, 214–15 irrational behaviors, xxix–xxx opportunities for improvement and, 240–44 systematic and predictable nature of, xxx, 239 see also specific topics IRS (Internal Revenue Service), 196 J Japan, savings rate in, 109 jealousy, comparisons and, 15–19 Jerome, Jerome K., 273–74 job performance. 320–24 public scrutiny and, 322 relationship between compensation and, 320–21, 322–24 Jobst suit, 192–94 Johnston, David Cay, 204 JP Morgan Chase, 280 judgment and decision making (JDM), xxviii see also behavioral economics “Just say no” campaign, 100, 101 K Kahneman, Daniel, 19, 129 Keeney, Ralph, 264 knee surgery, arthroscopic, 174–76 Knetsch, Jack, 129 Knight-McDowell, Victoria, 277 Koran, 215 L “Lake Wobegone Effect,” 268–69 Latin America, lack of trust in, 214 Lay, Kenneth, 219 learned helplessness, 312–16 experiments on, 312–14 in financial meltdown, 314–16 recovering from, 315–16 Leaves of Grass (Whitman), 40–41 Lee, Leonard, 21, 157–59, 161, 337 legal profession: attempts at improving ethics of, 213–14 decline of ethics and values in, 209–10 Lehman Brothers, 280, 310 leisure, blurring of partition between work and, 80, 81 Leland, John, 122–23 Leo III, Pope, 188 Leonardo da Vinci, 274 Levav, Jonathan, 231–37, 337 Levitt, Steven, xvi Li, Jian, 166–68 Lincoln, Abraham, 177 Linux, 81 List, John, xvi loans: punitive finance practices and, 300–301, 304 see also mortgages lobbyists, congressional restrictions on, 205 Loewenstein, George, 21, 26, 30–31, 39, 89,, 320–21, 337–38 Logic of Life, The (Harford), 291–92 Lorenz, Konrad, 25, 43 loss: aversion to, 134, 137, 138, 148–49 fear of, 54–55 Lost World, The (Crichton), 317–18 loyalty: in business-customer relations, 78–79 of employees to their companies, 80–84 M Macbeth (Shakespeare), 188 Madoff, Bernard, 291 Maier, Steve, 312-13 major, college students’ choice of, 141–42 manufacturer’s suggested retail price (MSRP), 30, 45 marketing: high price tag and, 24–25 hype of, related to satisfaction derived from product, 186–87, 190–91 relativity and, 1–6, 9–10 “trial” promotions and, 136–37 zero cost and, 49–50 market norms, 67–88 companies’ relations with their customers and, 78–80 companies’ relations with their employees and, 80–84, 252–54 doing away with, 86–88 education and, 85 mere mention of money and, 73–75 mixing signals of social norms and, 69, 73–74, 75–77, 79, 214, 250–52 reducing emphasis on, 88 social norms kept separate from, 67–69, 75–76, 77–78 willingness to risk life and, 84 working for gifts and, 72–74 working under social norms vs., 69–72 Maryland Judicial Task Force, 210 Mazar, Nina, 196–97, 206, 219–20, 224, 320–21, 338 McClure, Sam, 166–68 Mead, Nicole, 74–75 medical benefits, recent cuts in, 82 medical care, see health care medical profession: conflicts of interest and, 293, 295 decline of ethics and values in, 210 salaries of, as practicing physicians vs.


pages: 319 words: 106,772

Irrational Exuberance: With a New Preface by the Author by Robert J. Shiller

Alan Greenspan, Andrei Shleifer, asset allocation, banking crisis, benefit corporation, Benoit Mandelbrot, book value, business cycle, buy and hold, computer age, correlation does not imply causation, Daniel Kahneman / Amos Tversky, demographic transition, diversification, diversified portfolio, equity premium, Everybody Ought to Be Rich, experimental subject, hindsight bias, income per capita, index fund, Intergovernmental Panel on Climate Change (IPCC), Joseph Schumpeter, Long Term Capital Management, loss aversion, Mahbub ul Haq, mandelbrot fractal, market bubble, market design, market fundamentalism, Mexican peso crisis / tequila crisis, Milgram experiment, money market fund, moral hazard, new economy, open economy, pattern recognition, Phillips curve, Ponzi scheme, price anchoring, random walk, Richard Thaler, risk tolerance, Robert Shiller, Ronald Reagan, Small Order Execution System, spice trade, statistical model, stocks for the long run, Suez crisis 1956, survivorship bias, the market place, Tobin tax, transaction costs, tulip mania, uptick rule, urban decay, Y2K

If all of them had been able to pool their first impressions and discuss these as a group, they might have been able to deduce which restaurant was likely to be the better one. But in this scenario they cannot make use of each other’s information, since they do not reveal their own information to others when they merely follow them. The restaurant story, and the economic theory that underlies it, is not in itself a theory of stock market bubbles. However, it has clear relevance to stock market behavior, and it can provide a foundation for a theory about how rational investors may be led astray.6 According to such a theory, the popular notion that the level of market prices is the outcome of a sort of vote by all investors about the true value of the market is just plain wrong.

Both of these processes are the ant equivalent of word-of-mouth communication. Kirman shows that if there is randomness in the recruitment process, the experimentally observed phenomena can be explained in terms of a simple epidemic model. Although disease spread and ant behavior are of theoretical interest in our consideration of stock market bubbles, of greatest practical relevance is the fact that epidemic models have been applied by sociologists to predict the course of word-of-mouth transmission of ideas.15 The dynamics of such transmission may mimic that of disease. The formal mathematical theory of epidemics appears, however, to be less accurate for modeling social processes than for modeling disease spread or ant behavior, and it has yet to spawn an influential and successful literature by social scientists.

We must reform the Social Security system in the direction of making it more like a system that would seem just and humane were it to be implemented within a family—a system that shares risk and that does not leave anyone bearing an inordinate share of the economic burden.16 Monetary Policy and Speculative Bubbles There have been occasions on which tightened monetary policy was associated with the bursting of stock market bubbles. For example, S P E CUL ATIVE VO L ATIL ITY IN A FR EE SOC IETY 223 on February 14, 1929, the Federal Reserve raised the rediscount rate from 5% to 6% for the ostensible purpose of checking speculation. In the early 1930s, the Fed continued the tight monetary policy and saw the initial stock market downturn evolve into the deepest stock market decline ever, and a recession into the most serious U.S. depression ever.


pages: 350 words: 109,220

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

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

Greenspan cemented his status as a guru with unique foresight in the mid-1990s with an intellectually courageous call that the Internet-based New Economy was so fundamentally changing the U.S. economy that the Fed could permit the economy to grow faster than most inflation-fearing economists thought prudent. The result was lower unemployment without higher inflation — and a technology stock market bubble for which Greenspan got substantial blame. But even after that bubble burst, and a recession ensued, the Greenspan Fed managed to get the economy going again by aggressively cutting interest rates — and the United States avoided the misery that followed the bursting of a real estate and stock market bubble in Japan. Bush was right. Greenspan was a rock star — at least at that moment. He had steered the U.S. economy around the Asian financial crisis in 1998, two wars with Iraq, and the September 11 attacks.

Greenspan’s unwillingness to attack the housing bubble wasn’t only about misreading signs. It also reflected a philosophical view about central banks targeting rising asset prices. In an approach Bernanke backed at the time, Greenspan argued that central banks shouldn’t increase interest rates to attack possible market bubbles because they can’t always distinguish a transitory bubble from a sustainable rise in prices. Simply put, the Fed was as likely to aim at a false bubble and kill economic growth as it was to prevent one from inflating. Greenspan also argued that the central bankers’ other tool — talking investors out of their euphoria — was extremely limited.


Global Financial Crisis by Noah Berlatsky

"World Economic Forum" Davos, accounting loophole / creative accounting, Alan Greenspan, asset-backed security, banking crisis, Bear Stearns, Bretton Woods, capital controls, Celtic Tiger, centre right, circulation of elites, collapse of Lehman Brothers, collateralized debt obligation, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, Doha Development Round, energy security, eurozone crisis, financial innovation, Food sovereignty, George Akerlof, Glass-Steagall Act, God and Mammon, Gordon Gekko, housing crisis, illegal immigration, income inequality, low interest rates, market bubble, market fundamentalism, mass immigration, Money creation, moral hazard, new economy, Northern Rock, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Ronald Reagan, Savings and loan crisis, shareholder value, social contagion, South China Sea, structural adjustment programs, subprime mortgage crisis, too big to fail, trade liberalization, transfer pricing, working poor

Back in June 2005, the Economist published these prophetic words: “Never before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stock-market bubble burst in 2000. What if the housing boom now turns to bust?” These frothy property prices were fuelled by a combination of low interest rates, loosening lending standards, growing consumer appetite for debt and extensive use of securitisation [pooling and repackaging], which effectively allowed home buyers to access capital from all around the world. 87 The Global Financial Crisis It has been estimated that from 2004 to 2006, more than 20% of new US mortgages were taken out by “subprime” borrowers with poor credit histories and limited capacity to service their loans.

., 65, 66, 70–71, 144, 147 unrest, 19, 25, 108–120, 139– 140 Clearinghouse regulations, 49–50 Climate change policy, 26, 163 Collateralized debt obligations (CDOs), 50, 88 Colombia, 161–162, 180, 182, 183, 184 Common Cause, 205–206 Communist Party, China, 110, 114–116, 139–140 Comparative advantage, 192–193 Competitiveness, financial, 48–49 Congress business subsidies, 202, 203, 204, 205–206 hearings, 175 predatory lending, 206 protectionism and trade agreements, 181, 182, 184 Construction industry, 34, 130, 131, 133 Consumer confidence, 63, 91, 100, 208, 213, 216 Corporate welfare, 201, 202–206 See also Bailouts Cox, Pamela, 158–159 Credit default swaps (CDSs), 17, 28, 29, 50, 175–176, 215 Credit derivatives. See Derivatives Credit markets bubble/freezes, 34–35, 208, 211, 212 securitization’s effects, 56, 82, 89–90 Credit ratings, national, 94, 95, 100 Credit risks, 17, 28 See also Derivatives Currency instability, 59–64, 103, 106, 118 Czech Republic, 99 D Daremblum, Jaime, 180–185 Darling, Alistair, 113, 222 David Rockefeller Center for Latin American Studies, 158 Davos, Switzerland World Economic Forum, 2009, 22–26, 113 Debt relief, 193, 198–199 Defaults, mortgages, 34 Deflation Europe, 97–98, 99 Federal Reserve avoidance measures, 41 Japan, 209, 215 Dembele, Demba Moussa, 186– 200 Denmark, 95 Dennis, Felix, 60 251 The Global Financial Crisis Deposit insurance, 150, 154, 208– 209, 213, 214, 229 Deposit Insurance Corporation of Japan, 208–209, 210, 218 Deposits.


pages: 446 words: 117,660

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

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Andrei Shleifer, antiwork, Asian financial crisis, bank run, banking crisis, basic income, behavioural economics, benefit corporation, Berlin Wall, Bernie Madoff, bitcoin, blockchain, bond market vigilante , Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, carbon tax, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, fake news, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, green new deal, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, it is difficult to get a man to understand something, when his salary depends on his not understanding it, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, low interest rates, market bubble, market clearing, market fundamentalism, means of production, Modern Monetary Theory, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, plutocrats, Ponzi scheme, post-truth, price stability, public intellectual, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Ronald Reagan, secular stagnation, Seymour Hersh, stock buybacks, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, We are all Keynesians now, working-age population

The columns in this section describe the growing fear I and others felt that something was going terribly wrong, and the wall of misconception we had to climb when the things we feared might happen, did. The question then became what to do. But more about that in the next section. RUNNING OUT OF BUBBLES May 27, 2005 Remember the stock market bubble? With everything that’s happened since 2000, it feels like ancient history. But a few pessimists, notably Stephen Roach of Morgan Stanley, argue that we have not yet paid the price for our past excesses. I’ve never fully accepted that view. But looking at the housing market, I’m starting to reconsider.

Many home purchases are speculative; the National Association of Realtors estimates that 23 percent of the homes sold last year were bought for investment, not to live in. According to Business Week, 31 percent of new mortgages are interest only, a sign that people are stretching to their financial limits. The important point to remember is that the bursting of the stock market bubble hurt lots of people—not just those who bought stocks near their peak. By the summer of 2003, private-sector employment was three million below its 2001 peak. And the job losses would have been much worse if the stock bubble hadn’t been quickly replaced with a housing bubble. So what happens if the housing bubble bursts?

., 132, 134, 395 Schwartz, Anna, 133 SeaWorld, 352 secular stagnation, 206 Securities and Exchange Commission, 93 segregationists, 346 Seltzer, Marlene, 166 Senate, role of, 368 September 11, 2001, attacks, aftermath of, 13 Sessions, Pete, 59 Shapiro, Ben, 354, 355, 356, 357 Shiller, Robert, 84, 136, 141, 146 Shleifer, Andrei, 146 Sicko (movie), 44–45 silver and gold coins, 411, 412 “silver-loading,” 71 Simple Art of Murder, The (Chandler), 327 Simpson, Alan, 198, 199, 203, 218 Sinema, Kyrsten, 365 “Skewing of America, The” (Krugman), 259–60 “skills gap,” 159, 166–68, 290 Slemrod, Joel, 277 Smith, Adam, 132, 138, 411 Smith, Noah, 95 smoking, dangers of, 333, 334 Smoot-Hawley Tariff Act (1930), 247 snake oil, peddling, 357 Snow, John, 81 social democracy, 313–14, 317, 320–21, 323 social dysfunction, indicators of, 286 socialism, 219, 313–14, 316, 319–21, 322–24 social justice, 3 social media, see media Social Security: cuts in benefits, 17, 32 expansion of, 30, 32, 212, 240 financial condition of, 16–17, 20, 28–29 guaranteed benefits of, 24 historic success of, 21, 22, 24, 31–32 importance to voters, 14, 26, 31, 306 as independent entity, 20 “Life Expectancy for Social Security” (Web site), 26 percentage of revenues going to benefits, 22 politicization of, 25–27 privatization of, 14–15, 19–21, 22–24, 25–27, 28–29, 32, 35, 302, 306, 361, 377, 378 retirement age for, 199 supported by dedicated tax on payroll earnings, 19 threats to, 16–18, 198, 199, 200, 223, 224 Trump administration’s lies about, 225 trust fund of, 20 Social Security Act (1934), 26 Solow, Bob, 396, 405 Soros, George, 345, 346, 365 Soviet Union: central planning by, 323 economy of, 324 fall of, 177 Spain: anti-establishment forces in, 99 economy of, 178–80, 184 and euro, 177, 178–79, 181, 187, 188 housing bubble in, 181 internal devaluation in, 179 loans to, 182 public debt of, 179 unemployment in, 182, 184 speculation: destructive, 135 short-term, 133 stagflation (1970s), 124, 133 Stalin, Joseph, 239, 324 “State of Macro, The” (Blanchard), 130 statistics, uses and abuses of, 262 Stein, Herbert, 271 Stiglitz, Joseph E., 5, 396–98, 403 “Stimulus Arithmetic” (Krugman), 104, 113–14 stock market bubble, 83, 84, 86 Stokes, Leah, 305, 306 Stone Center for the Study of Socioeconomic Inequality (CUNY), 259 Stross, Charlie, 357 sugar, import quotas on, 250 Summers, Larry, 136, 145–46 “Sum of All Fears, The” (Krugman), 81 supply-side economics, 128, 275–76, 299 Supreme Court, U.S.: on Affordable Care Act, 65, 68, 77 Kavanaugh appointment to, 345, 346, 352 moral authority destroyed, 345, 360 partisanship in, 346 sustainable growth rate, 153–54, 204 Sweden, economy of, 239, 323 Switzerland, health care in, 37 system overhaul, 210, 212 tanning parlors, tax on, 211 tariffs, 244, 246–48, 251, 252–53, 254–56 taxes: carbon tax, 339 corporate, see corporate taxes cutting, 8, 16–17, 19, 20, 116–17, 199, 201, 215–17, 218–20, 224–26, 227–29, 230–33, 231–33, 232, 236–37, 306–7, 351, 361, 370, 371 and debt, 154, 222–23, 224–26 economic effects of, 7, 222–23, 224–26, 233, 236–37 incentive effects of, 154 and income inequality, 238–39 low, 315 on middle class, 221–23 and monopoly power, 236 narrow-gauge, 211 optimal top rates of, 234–35 on payroll, 212 political trade-offs in, 153 on pollution, 339 progressive taxation, 238–40, 323 raising, 185, 196, 199, 219, 229, 380 tariffs, 244, 246–48, 251, 252–53, 254–56 temporary breaks, 222 top marginal income tax rates, 236–37, 236 Trump’s frauds, 348–50 value-added, 154, 212 on the wealthy, see wealthy on working class, 20, 221–23 tax evasion, 349–50, 413, 414 tax liabilities, 414 tax loopholes, 93, 349 Tax Policy Center, 196, 202, 283 tax reform, 26, 198–99 Tea Party, 53–54, 303 technology, and income inequality, 260, 288–90 Tennessee, health care in, 68 tethering, 413–14 Thatcher, Margaret, 22, 23, 128 “That Eighties Show” (Klugman), 124 “Theoretical Framework for Monetary Analysis, A” (Friedman), 144 Thompson, Fred, 47, 52 tobacco companies, 333, 334 Toles, Tom, 333 torture, 300 totalitarianism, 324 trade theory, 399–400, 401, 403 trade war, 353, 361, 371–72 see also international trade transcription costs, 411–14 transportation, greenhouse gases from, 339–40 Treasury, U.S.: on income gains, 279–81 Office of Tax Analysis, 278 partisan functions of, 26 and Social Security, 16 Trichet, Jean-Claude, 161 “Triumph of Macroeconomics, The” (Krugman), 103–5 Trotsky, Leon, 324 trucking industry, 290 Trump, Donald: attacks on media by, 347 attitude toward truth, 364–66 belligerent ignorance of, 246, 307, 337, 345, 346–47, 352 campaigning, 309, 370 contempt for rule of law, 252, 256, 347 corruption of, 335–37, 338, 343, 349, 350, 368, 389 and cronyism, 256, 343 as deal-maker, 348–50 election of (2016), 13, 343, 372, 375, 387–89 family history of, 348–49 foreign dictators admired by, 346–47, 365, 371 humiliating others, 352–53 and inequality, 260, 291 and international trade, 245, 246, 247–48, 249, 252–53, 254–56, 353, 361 laziness of, 352 as liar, 348, 353, 364, 365 on manhood, 370, 371, 372 on neo-Nazis as “very fine people,” 365 and populism, 351–53 and racism, 246, 310, 360 and Republican Party, 335–37, 359, 372 scandals about, 388–89 and socialism, 322–23 State of the Union address (2019), 207–9, 322 supporters scammed by, 353, 372, 389 and taxes, 216, 221–23, 224–26, 227–29, 230–33, 306–7, 308, 350, 361, 371 tax returns of, 359 tough-guy posturing by, 334, 346–47, 370–72 and 2020 election, 227, 347, 361 and the wall, 370, 371 Trump, Fred (father), 348 Trump administration: anti-science views of, 332 as anti-worker, 351–53 appointments to, 352 bad faith of, 151, 332, 365 charlatans and cranks in, 149, 151, 329, 331, 333 climate change deniers in, 329–31, 332–34, 335–37 and collapse of freedom, 187 compared to that of G.


pages: 305 words: 69,216

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

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

Indeed that is probably the main cause of bubbles. A stock market bubble developed in the 1920s, powered by plausible optimism (the years 1924 to 1929 were ones of unprecedented economic growth) and enabled by the willingness of banks to lend on very generous terms to people who wanted to play the stock market. You had to put up only 10 percent of the purchase price of the stock; the bank would lend the rest. That was risky lending, since stock prices could and did decline by more than 10 percent, and explains why the bursting of the stock market bubble in 1929 precipitated widespread bank insolvencies.


Hedgehogging by Barton Biggs

activist fund / activist shareholder / activist investor, Alan Greenspan, asset allocation, backtesting, barriers to entry, Bear Stearns, Big Tech, book value, Bretton Woods, British Empire, business cycle, buy and hold, diversification, diversified portfolio, eat what you kill, Elliott wave, family office, financial engineering, financial independence, fixed income, full employment, global macro, hiring and firing, index fund, Isaac Newton, job satisfaction, junk bonds, low interest rates, margin call, market bubble, Mary Meeker, Mikhail Gorbachev, new economy, oil shale / tar sands, PalmPilot, paradox of thrift, Paul Samuelson, Ponzi scheme, proprietary trading, random walk, Reminiscences of a Stock Operator, risk free rate, Ronald Reagan, secular stagnation, Sharpe ratio, short selling, Silicon Valley, transaction costs, upwardly mobile, value at risk, Vanguard fund, We are all Keynesians now, zero-sum game, éminence grise

I also recall all too well the ag- ccc_biggs_ch09_119-132.qxd 11/29/05 7:02 AM Page 125 The Violence of Secular Market Cycles 125 onizing, extended hangover from the secular bear market of the early 1970s. The U.S. equity market wandered up and down in a relatively narrow range for years. What itches uncomfortably in the back of my mind is that the stock market bubble in the United States and the rest of the world in the 1990s had more pervasive excesses than most of the bubbles that preceded earlier busts. Nevertheless, so far we haven’t had anywhere near the distress of the late 1970s or the pain that Japan has experienced. Even after the rally in 2005, Japanese equities are still down 70% from their peak.

Look at Figure 9.2, a chart of price to book in Japan.The roaring bull market and then the craziness of the bubble took the price to book ratio to over five times; now almost 15 years later, it has fallen to 1.5 times, which is about where it started way back in 1975.At the peak in 2000, the United States also sold at almost five times book.Today it is about 2.9 times. BULL MARKETS AND BUBBLES IN JAPAN VERSUS THE UNITED STATES However, there are some important differences between the secular bull markets in the United States and Japan.The United States in 2000 was primarily a stock market bubble bursting, and it wiped out a lot of wealth and caused a recession.The Japanese bubble also involved commercial real estate as well as equities, and the U.S. bubble didn’t. Japanese real estate by 1990 had reached utterly ridiculous levels. For example the Imperial Palace grounds alone had a value in excess of all ccc_biggs_ch09_119-132.qxd 126 11/29/05 7:02 AM Page 126 HEDGEHOGGING FIGURE 9.2 Price-to-Book Japan Busted Bubbles Are Symmetrical MSCI Japan Price-to-Book Ratio: January 1975–May 2003 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 1975 1980 1985 1990 1995 2000 Source: Traxis Partners Quantitative Research, MSCI the real estate in the state of California.

In fact, the U.S. economy was the beneficiary of an unprecedented dose of fiscal and monetary stimulus, and there is no question that these moves averted a more serious recession—for now.Whether they averted or merely delayed the inevitable retribution remains to be seen. THE SECULAR BEAR MARKET OF 1969–1974 I am trying carefully to point out the differences between the experience of Japan and the United States. None of this is to argue that the United States didn’t have a stock market bubble, and that there wasn’t massive speculation and fraud. The United States definitely has had a secular bear market in equities with three down years in a row. What concerns me is that this bear market doesn’t seem as severe or its aftermath as extended as the secular bear market this country had from 1969 to 1974, which is why I wonder if this one may be incomplete.


Unknown Market Wizards by Jack D. Schwager

3D printing, algorithmic trading, automated trading system, backtesting, barriers to entry, Black Monday: stock market crash in 1987, Brexit referendum, buy and hold, commodity trading advisor, computerized trading, COVID-19, cryptocurrency, diversification, Donald Trump, eurozone crisis, family office, financial deregulation, fixed income, forward guidance, index fund, Jim Simons, litecoin, Long Term Capital Management, margin call, market bubble, Market Wizards by Jack D. Schwager, Nick Leeson, performance metric, placebo effect, proprietary trading, quantitative easing, Reminiscences of a Stock Operator, risk tolerance, risk-adjusted returns, Sharpe ratio, short squeeze, side project, systematic trading, tail risk, transaction costs

But before we discuss that, I want to go back to the CTA because I skipped over a pivotal part of the story. It was while I was running the CTA that I discovered the COT (Commitment of Traders) report. I was being a contrarian trying to short the stock market during the second half of 1999 because it had all the typical signs you see in a market bubble—the proverbial shoeshine-boy-giving-you-stock-tips euphoria. I knew it was a short, but the NASDAQ went up another 50% between August and January. I did a good job with risk management because, even though I was shorting stock futures, I didn’t lose any money since I was making money elsewhere, and I was cutting my losses quickly.

So now, when you analyze markets, how far back do you go? As far as I can. Which means what? At the moment, about 100 years—but, ideally, I would like to go back well beyond that. Reading is part of my research. One book that I read recently is Devil Take the Hindmost: A History of Financial Speculation by Edward Chancellor. That book talks about market bubbles going all the way back to tulipmania. Is that a good book? It’s fantastic. It’s a book that can help you develop the kind of broader historical perspective of markets and speculation that Dalio talks about. Were there any other insights that you got from your lunch with Dalio? It was valuable to understand how Dalio thought about expected value.

As soon as the five years were up, they were free to sell their home and buy a farm. They were very lucky. If the requirement had been six years instead of five, the story would have ended very differently. Your Black Monday was our Black Tuesday. The 1987 crash in the US was the event that popped the New Zealand stock market bubble. Within six months, the stock market was down 50%. It didn’t recover to the old highs for over 20 years. What percent profits did your parents make on their investment? I don’t know, but the New Zealand market went up sixfold, and they sold within a half-year of the high. So, I would guess they at least tripled their money.


Global Governance and Financial Crises by Meghnad Desai, Yahia Said

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

Thus, the overvalued currencies became attractive targets for speculative attacks, resulting in the futile, but costly defences of the Thai baht and Malaysian ringgit, and the rapid regional spread of herd panic termed contagion. The resulting precipitous asset price collapses – as the share and property market bubbles burst – undermined the East Asian four’s heavily exposed banking systems, for some (e.g. Malaysia), for the second time in little over a decade, undermining financial system liquidity, and causing economic recession. Undoubtedly, international financial liberalisation succeeded in temporarily generating massive net capital inflows into East Asia, unlike most other developing and transitional economies, some of which experienced net outflows.

Notes The percentages written in the graph are average annual rates of growth (the figure for Chile refers to 1975–80). 1, Chile; 2, Mexico; 3, Brazil and 4, Korea. 130 Gabriel Palma A similar argument can be advanced for Mexico; although economic reforms and NAFTA can, from the average investor’s point of view, justify some life in the Mexican stock market, a 15-fold surge belongs to a different story – one of a typical Kindlebergian ‘mania’. Again, the subsequent panic and crash are part of the same story.20 As mentioned previously, Malaysia and Thailand did follow ‘route 1’ countries in this respect, but their stock markets’ bubbles were small in comparison with those of Chile or Mexico even if one compares the change between the lowest quarterly point in these countries indices vis-à-vis the highest one – in Malaysia the increase is 6-fold (between the second quarter of 1988 and the fourth quarter of 1993), while in Thailand the corresponding jump is 5.4-fold (between the first quarter of 1988 and fourth quarter of 1993).


pages: 268 words: 74,724

Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank by John Tamny

Airbnb, Alan Greenspan, Apollo 13, bank run, Bear Stearns, Bernie Madoff, bitcoin, Bretton Woods, business logic, buy and hold, Carl Icahn, Carmen Reinhart, corporate raider, correlation does not imply causation, cotton gin, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Donald Trump, Downton Abbey, Fairchild Semiconductor, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, Glass-Steagall Act, Home mortgage interest deduction, Jeff Bezos, job automation, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kickstarter, Larry Ellison, liquidity trap, low interest rates, Mark Zuckerberg, market bubble, Michael Milken, Money creation, money market fund, moral hazard, mortgage tax deduction, NetJets, offshore financial centre, oil shock, peak oil, Peter Thiel, Phillips curve, price stability, profit motive, quantitative easing, race to the bottom, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Solyndra, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, Travis Kalanick, Uber for X, War on Poverty, yield curve

See federal government Corker, Bob, 43 credit and access to real resources, 2, 3, 47 already possessed by individuals, 22, 163 Ben Bernanke and “crony credit,” 41–47 coaching and recruiting of college athletes, 15–21 “credit circles,” 107 credit surges, 58 and division of labor, 66 and Donald Trump, 33–37 and excessive federal government spending, 51, 53–55, 59–63 failures as credit in Silicon Valley, 27–32 and the fracking boom, 66–67, 73–75 housing boom and “easy credit,” 113–22 inability of government to create, 81–82 and Keynesian economics, 78–82 lack of in Soviet Union, 76–78, 80 Lending Club, 107–8 and market “bubbles,” 56–60 oil price declines and rising cost of credit, 146–48 Paulson & Co., 44–45 personal “recessions” and access to credit, 25–26 produced by individuals in the real economy, 3 and supply-side economics, 48–55 See also banking; the Fed A Curious Mind (Grazer), 23 Da Sweet Blood of Jesus (film), 110 Dead Bank Walking (Smith), 164 “death of distance,” 58 Decade of Greed, 33 Dell computers, 109, 125 Dell, Michael, 60 demand as result of production and growth, 140–41, 149 Detroit, Michigan, 99, 140 devaluation, housing booms and value of the dollar, 116–22 Dierdorf, Dan, 16 Dobbs, Lou, 160 the dollar and bank cash reserve requirements, 100 FDR’s devaluation of, 142, 167–69 fluctuating value of, 167–72 gold standard and the price of oil, 68–70 housing booms and value of the dollar, 116–22 inflation and value of the dollar, 43 “money multipliers” and “fractional lending,” 87–90 money supply and value of the dollar, 144 Downey, Robert, Jr., 25–26 Drexel Burnham investment bank, 38–40 Economics in One Lesson (Hazlitt), 22, 64, 74, 113, 163, 176 economy Austrian School of economics, 79, 87, 88–89, 90, 91–95, 113–14, 141 as collection of individuals, 25, 128 economic growth as Cheap Revolution, 160–61 governmental barriers to economic growth and prosperity, 3, 155–56 Keynesian economics, 78–82, 88, 93–96, 140–41 market forces, 1–2, 59–60 production and money supply, 136–37 and quantitative easing (QE) program, 149–54 the real economy and government spending, 4 resource expansion resulting from surprise, 30 robots and job creation, 177–80 supply-side economics, 48–55, 79–80, 92–94, 141, 144 The Economy in Mind (Brookes), 49 Edison, Thomas, 29–30 electricity, Tennessee Valley Authority (TVA), 61 The Elephant and the Dragon (Meredith), 96 Ellison, Larry, 60 entrepreneurs and failure, 28 and innovation, 66 and price cutting, 73 ESPN, 109 Eton Park Capital, 45 Export-Import Bank (Ex-Im), 61 Facebook, 28–29, 143 FailCon, 27 failure as credit in Silicon Valley, 27–32 as feature of capitalism, 58, 89, 100, 125 and innovation, 57–58 Fairchild Semiconductor, 31 Fannie Mae, 119, 120, 173 federal budget deficits, 50 Federal Deposit Insurance Corporation (FDIC), 101–2 federal government excessive spending of, 51, 53–55, 59–63, 173–74 involvement with Wall Street, 129–31 and Keynesian economics, 78–82, 93–96, 147 money supply and value of the dollar, 144 size of, 50–51 the Fed (Federal Reserve Bank) and access to credit, 13–14, 31–32 as barrier to economic growth and prosperity, 5 and Ben Bernanke, 41–47 creation of, 105–6 and easy credit, 2–5, 36–37, 80, 146–48 and excessive power of central banks, 45–46 and high-yield “junk bonds,” 37, 39–40 housing boom and “easy credit,” 113–16, 121–22 inability to create credit, 1–5, 141 on inflation as source of economic growth, 156–61, 165–66 interbank lending rates, 114–16, 156–58 and the money supply myth, 138–45, 158 necessity of, 163–66 quantitative easing (QE) program, 149–54, 172 and the Roaring Twenties, 94–95 Troubled Asset Relief Program (tarp), 172–73 and 2008 financial crisis, 106, 110 Fergusson, Adam, 90–91, 121 film industry and credit extended to filmmakers, 22–26, 27–28 The Financial Crisis and the Free Market Cure (Allison), 119 Flamson, Dick, 35, 101 football players and coaches, 15–21, 78–79 Forbes, Steve, 69, 72 The Forgotten Man (Shlaes), 167–69 The Frackers (Zuckerman), 71 fracking boom, 66–67, 73–75 “fractional lending,” 87–90 Freddie Mac, 119, 120, 173 free markets, 2–3, 11–14 free trade and division of labor, 65–66 Friedman, Milton, 54, 135–36, 137, 138 Frum, David, 117–18 Garrett, Mike, 19 Gates, Bill, 30–31, 59 Geithner, Tim, 171 General Electric, 30 Get on Up (film), 25 Gilder, George, 30, 56, 57, 59, 68, 94, 118, 121, 135–36 Giuliani, Rudolph, 38 Glass-Steagall Act, 102–3, 119–20 Globe.com, 59, 60 gold and devaluation of the dollar, 142, 167–68 and the price of oil, 68–72 Gold (Lewis), 141, 171 Goldman Sachs, 41, 44, 45, 46, 127 Google, 143 Gorman, James, 123, 130 government.

., 34 Keynesian economics, 78–82, 88, 93–96, 140–41 Keynes, John Maynard, 78, 147 Kickstarter, 110 Kiffin, Lane, 20 Kinski, Nastassja, 24 Knowledge and Power (Gilder), 57 Kohli, Shweta, 107 Kohn, Donald, 156 Kornbluth, Walter, 22 labor as credit, 15–21 Laffer, Arthur, 55, 137, 157, 158 Laffer curves, 50, 54–55 Lawrence, Jennifer, 37–38 Lee, Spike, 109, 110 Lending Club, 107–8 Leubsdorf, Ben, 156 Levy, Eugene, 22 Lewis, Nathan, 72, 137, 141–42, 144 LewRockwell.com website, 94 Lisa computer, 30 Lombard Street (Bagehot), 46 Luck, Andrew, 16–17 McAdams, Hall, 89–90, 104 McConnell, Mitch, 51 Mack, John J., 123, 130 Madoff, Bernard, 163 Mann, Windsor, 78 Margolis, Eric, 94, 96 market “bubbles,” 56–63 market forces and government spending, 59–60 price of goods versus price of dollars, 1–2 von Mises on, 20, 152 market intervention and the Fed, 159–61 Mazursky, Paul, 24 Medicare, 53, 78, 174 Merrill Lynch, 120 Metro public transit, 10–11 Meyer, Urban, 17–18 Microsoft, 30–31, 125, 143, 155 Milken, Michael, 38–40, 114, 126 Mill, John Stuart, 76 Mindich, Eric, 45–46 Mission Asset Fund, 107 mobile phones, 53–54 monetarism, 135–36, 138 money and Chinese economy, 135–36, 137 and economic activity, 3, 136–37, 140, 143 and gold standard, 68 and the Great Depression, 141–43, 147, 168 market monetarism, 138–39 as measure of wealth, 67–68 monetarism, 135–36, 138 “money multipliers” and “fractional lending,” 87–90 private money supplies, 144–45 and stable currency, 137, 144 Money and Foreign Exchange After 1914 (Cassel), 119 Moore, Gordon, 31 Moore, Stephen, 50–51 Morgan, J.


pages: 280 words: 73,420

Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market Into a Casino by Jim McTague

Alan Greenspan, algorithmic trading, automated trading system, Bear Stearns, Bernie Madoff, Bernie Sanders, Black Monday: stock market crash in 1987, Bretton Woods, buttonwood tree, buy and hold, computerized trading, corporate raider, creative destruction, credit crunch, Credit Default Swap, financial innovation, fixed income, Flash crash, High speed trading, housing crisis, index arbitrage, junk bonds, locking in a profit, Long Term Capital Management, machine readable, margin call, market bubble, market fragmentation, market fundamentalism, Myron Scholes, naked short selling, Nixon triggered the end of the Bretton Woods system, pattern recognition, Ponzi scheme, proprietary trading, quantitative trading / quantitative finance, Renaissance Technologies, Ronald Reagan, Sergey Aleynikov, short selling, Small Order Execution System, statistical arbitrage, technology bubble, transaction costs, uptick rule, Vanguard fund, Y2K

The old Fred Schwed saw, Where Are the Customer’s Yachts?, resonated as loudly with investors in 2010 as it did when he first published his classic Wall Street book of the same title in 1940.1 The particular thrashing that engendered the sweeping market reforms of 2005 took place in 1969 and 1970 when a stock market bubble burst and the consequent bear market slashed into Wall Street’s brokerage profits, exposing the undercapitalized positions of more than 100 brokerage firms.2 This massive collapse of so-called “white shoe” firms marked the first significant catastrophe for Wall Street since the Great Depression, and it was a wakeup call for Congress that the New York Stock Exchange (NYSE) and its regulator, the Securities and Exchange Commission (SEC), were not on the ball.3 The capital crisis was part of a one-two punch.

, resonated as loudly with investors in 2010 as it did when he first published his classic Wall Street book of the same title in 1940.1 The particular thrashing that engendered the sweeping market reforms of 2005 took place in 1969 and 1970 when a stock market bubble burst and the consequent bear market slashed into Wall Street’s brokerage profits, exposing the undercapitalized positions of more than 100 brokerage firms.2 This massive collapse of so-called “white shoe” firms marked the first significant catastrophe for Wall Street since the Great Depression, and it was a wakeup call for Congress that the New York Stock Exchange (NYSE) and its regulator, the Securities and Exchange Commission (SEC), were not on the ball.3 The capital crisis was part of a one-two punch. The first punch was an embarrassing paperwork fiasco in 1968. Brokerage houses were overwhelmed by an unexpected influx of new customers at the zenith of a stock market bubble. The newcomers, expecting to get rich quickly, invested heavily in smaller, highly speculative stocks. The enthusiastic crowd drove trading volume to record highs, and the back rooms of the brokerage houses, where trades were settled manually, simply could not keep up with the flood of paperwork.


pages: 251 words: 76,128

Borrow: The American Way of Debt by Louis Hyman

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

Historians today do not believe that overextension of installment credit caused the Great Depression—they don’t even discuss it as a viable possibility—but to those who lived through the Great Depression, installment credit’s role was more certain.36 Installment credit, in this view, was akin to the speculative credit that had fed the stock market bubble. The “artifice” of installment credit attracted much blame. In 1932, for example, a Johns Hopkins economics professor identified credit among the three main causes of the Depression: “perversion of the stock exchanges,” “degradation of banking,” and “reckless installment selling.”37 He argued that by hampering savings, America’s installment credit “retard[ed] the growth of its productive capital” and “morally … it loosened the restraint upon recklessness in optional expenditures.”

By enabling the demand for goods that consumers could not otherwise afford—or worse, for which they could budget installment payments but refused to save—installment credit encouraged overinvestment in productive capacity, which could be made profitable only by what The New York Times called the “continuing and increasing doses of the [installment credit] stimulant.”38 Unearned and not quite real, this “artificial stimulus” smacked of excess. As in the stock market bubble, there was only a symbolic value, not a real one. The shocking experience of the crash emerged from the economy’s very unreality. As the undersecretary of the Treasury wrote in 1932, the “sweeping decline was … inevitable” because “the country was living too much on credit.”39 The director of the Federal Reserve Bank of St.


pages: 241 words: 81,805

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis by Tim Lee, Jamie Lee, Kevin Coldiron

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, backtesting, bank run, Bear Stearns, Bernie Madoff, Bretton Woods, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, currency risk, debt deflation, disinformation, distributed ledger, diversification, financial engineering, financial intermediation, Flash crash, global reserve currency, implied volatility, income inequality, inflation targeting, junk bonds, labor-force participation, Long Term Capital Management, low interest rates, Lyft, margin call, market bubble, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, negative equity, Network effects, Ponzi scheme, proprietary trading, public intellectual, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, rising living standards, risk free rate, risk/return, sharing economy, short selling, short squeeze, sovereign wealth fund, stock buybacks, tail risk, TikTok, Uber and Lyft, uber lyft, yield curve

We return to the example of Turkey again, in more detail, in the following chapter. The Turkish carry trade has been principally dollar funded. But the currency carry trade is not, and has not been, only about the dollar-funded carry trade. Japan, following its financial bust after the Japanese real estate and stock market bubble burst at the beginning of the 1990s, was the first country to experience ultra-low, or near-zero, interest rates. In the earlier years of the rise of the currency carry trade, it was very much the yen-funded carry trade that was dominant. The notion of a carry crash suggests collapsing values of high-yield bonds and currencies and soaring volatility.

The cumulative advantage of the most respected venture firms means that the companies they back gain favorable publicity and become more credible to potential employees, customers, and other investors—and thus have a major head start in the race to dominate their niche. Cumulative advantage is the best kind of skill. Cumulative Advantage Is What Perpetuates Itself Cumulative advantage is implicated in all forms of fads, fashions, crazes, trends—even market bubbles. As illustrated by the example of movie stardom, cumulative advantage is behind “superstar effects” across all cultural products: music, books, success as a “public intellectual,” and more. Cumulative advantage is likely behind the virulence of modern social media—Twitter mobs, disinformation, polarization—where visible numbers of likes, shares, and retweets show us collectively what is right (or safe) to say (or think), and thereby produce powerful feedback effects.


pages: 305 words: 75,697

Cogs and Monsters: What Economics Is, and What It Should Be by Diane Coyle

3D printing, additive manufacturing, Airbnb, Al Roth, Alan Greenspan, algorithmic management, Amazon Web Services, autonomous vehicles, banking crisis, barriers to entry, behavioural economics, Big bang: deregulation of the City of London, biodiversity loss, bitcoin, Black Lives Matter, Boston Dynamics, Bretton Woods, Brexit referendum, business cycle, call centre, Carmen Reinhart, central bank independence, choice architecture, Chuck Templeton: OpenTable:, cloud computing, complexity theory, computer age, conceptual framework, congestion charging, constrained optimization, coronavirus, COVID-19, creative destruction, credit crunch, data science, DeepMind, deglobalization, deindustrialization, Diane Coyle, discounted cash flows, disintermediation, Donald Trump, Edward Glaeser, en.wikipedia.org, endogenous growth, endowment effect, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, Evgeny Morozov, experimental subject, financial deregulation, financial innovation, financial intermediation, Flash crash, framing effect, general purpose technology, George Akerlof, global supply chain, Goodhart's law, Google bus, haute cuisine, High speed trading, hockey-stick growth, Ida Tarbell, information asymmetry, intangible asset, Internet of things, invisible hand, Jaron Lanier, Jean Tirole, job automation, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, knowledge worker, Les Trente Glorieuses, libertarian paternalism, linear programming, lockdown, Long Term Capital Management, loss aversion, low earth orbit, lump of labour, machine readable, market bubble, market design, Menlo Park, millennium bug, Modern Monetary Theory, Mont Pelerin Society, multi-sided market, Myron Scholes, Nash equilibrium, Nate Silver, Network effects, Occupy movement, Pareto efficiency, payday loans, payment for order flow, Phillips curve, post-industrial society, price mechanism, Productivity paradox, quantitative easing, randomized controlled trial, rent control, rent-seeking, ride hailing / ride sharing, road to serfdom, Robert Gordon, Robert Shiller, Robert Solow, Robinhood: mobile stock trading app, Ronald Coase, Ronald Reagan, San Francisco homelessness, savings glut, school vouchers, sharing economy, Silicon Valley, software is eating the world, spectrum auction, statistical model, Steven Pinker, tacit knowledge, The Chicago School, The Future of Employment, The Great Moderation, the map is not the territory, The Rise and Fall of American Growth, the scientific method, The Signal and the Noise by Nate Silver, the strength of weak ties, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, Uber for X, urban planning, winner-take-all economy, Winter of Discontent, women in the workforce, Y2K

The biggest—Alphabet (Google), Amazon, Apple, Facebook, Microsoft—became even more successful as the pandemic moved so much more activity online. The way digital is reshaping our economic and social lives has been my focus since the 1990s. In fact, it was an experience as a new reporter on The Independent newspaper in 1994 that triggered a lasting interest. The technology stock market bubble had not yet happened, so nobody more senior on the business desk was interested in covering the flotation through a stock market IPO of a small technology company from Cambridge called Unipalm. It was the UK’s first commercial internet service provider. I wasn’t sure what that was, but dutifully went along to the hotel suite the company’s PR firm had rented for the roadshow demonstration to investors and financial journalists.

., 49 Snower, Dennis, 159 socialist calculation debate, 182–88, 190, 209 social media, 52, 73, 82, 140–41, 149, 157, 163, 173, 176–77, 195 social security, 146 social welfare function (SWF), 122–23 software, 25, 140, 155, 171, 177–78, 186, 197, 200–201, 203 Solow, Robert, 169 Soulful Science, The: What Economists Really Do and Why It Matters (Coyle), 15, 17–18 special interest groups, 64–66 spectrum auctions, 60–61 spillovers, 127, 139–40, 180, 199, 201, 206–8 Spufford, Francis, 182–83, 190 Sputnik, 190 stagnation, 143, 194 Standard Oil, 42 Stanovich, Keith, 47 Stapleford, Thomas, 146 statistics: Annual Abstract of Statistics for the United Kingdom and, 150; causality and, 61, 95, 99, 102; computers and, 17, 52, 58, 144, 169; digital economy and, 113, 150, 164, 170, 172, 212; empirical work and, 17, 52, 61, 90, 95, 99; Goodhart’s Law and, 72; improved methods for, 99–103; inflation and, 113, 146, 148, 164; macroeconomics and, 101–2, 113, 131; microeconomics and, 58, 101; Office for National Statistics and, 171; probability and, 99, 200; progress and, 138, 142, 144–53, 158–59, 164; public responsibilities and, 17, 42, 51–52, 58, 61, 72, 90, 94–102, 113; randomised control trials (RCTs) and, 93–95, 105, 109–10; Sen-Stiglitz-Fitoussi Commission on the Measurement of Economic Performance and, 151; technology and, 169–72, 212; twenty-first-century policy and, 13, 184, 199 steel, 175, 186, 190, 200 Stern Review, 148 Stiglitz, Joseph, 130, 151, 209 stimulus plans, 73, 75 straw men arguments, 1–2, 5, 10, 15 strikes, 31, 68, 192 superstar features, 173–74 supply and demand, 44, 70–71, 174–75, 183 sustainability, 11, 20, 29, 41, 59, 79, 111, 148, 152, 165–67, 214 Sutton, John, 62 System of National Accounts, 151, 164 Tanner Lectures on Human Values, 18, 83 Tarbell, Ida, 42 taxes, 12, 65; behavioural effects of, 3; benefits and, 157; empirical work and, 3; funded health care and, 44; interventions and, 213; national boundaries and, 196; politics and, 132; sales, 105; Trump and, 213; twenty-first-century policy and, 196, 203; value added (VAT), 105 taxis, 59, 68–69, 139, 186, 203 technology: adoption rates of, 172–73; AI and, 28 (see also artificial intelligence [AI]); automation and, 139, 154, 165–66, 195; changing economies and, 13, 168–81; cloud computing and, 150, 170–72, 184, 197; communications, 25–26, 53, 60, 127, 139, 150, 168, 171, 177, 196, 198; computers and, 2 (see also computers); consumers and, 28, 102, 171–76, 181, 200, 213; declining price of, 170; digital economy and, 6 (see also digital economy); electricity and, 65 (see also electricity); Great Financial Crisis (GFC) and, 56, 181; growth and, 71, 132, 140, 202; innovation and, 169–70 (see also innovation); internet and, 46, 97, 133, 138–39, 168, 198; machine learning and, 12–13, 137, 141, 160–61, 187; materials, 127; Moore’s Law and, 170, 184; outsider context and, 103; production and, 12, 132, 140, 169, 176, 195–96, 202, 213; productivity and, 127, 142, 153, 169, 172–73, 192, 194, 202; progress and, 134, 137–42, 160, 164–65; public responsibilities and, 26–28, 35, 40, 71; regulation and, 27, 71, 134, 181; response time and, 26; servers and, 25–26, 141, 170; skill-biased technical change and, 132; smartphones and, 46, 138–39, 164, 171, 173, 177, 195, 198; social media and, 52, 73, 82, 140–41, 149, 157, 163, 173, 176–77, 195; software, 25, 140, 155, 171, 177–78, 186, 197, 200–201, 203; statistics and, 169–72, 212; stock market bubble of, 133; telephony and, 4, 31, 46, 98, 123, 138–39, 144, 156, 164, 171, 173–74, 177, 184, 195, 198; twenty-first-century policy and, 189–90, 195, 202, 205, 208; ultra-high frequency trading (HFT) and, 25–27; welfare and, 177, 181 telephony: communications and, 4, 31, 46, 98, 123, 138–39, 144, 156, 164, 171, 173–74, 177, 184, 195, 198; GSM standard and, 156; smartphones and, 46, 138–39, 164, 171, 173, 177, 195, 198 Tencent, 173 Thatcher, Margaret, 15, 30–31, 36, 124, 158, 192–94, 206–7 3G platforms, 60, 139, 173, 195 time allocation theory, 2 Tirole, Jean, 209 Tories, 148 “Toward a More Accurate Measure of the Cost of Living” (Boskin Commission), 146–47 transaction costs, 36, 38, 129, 168 Trump, Donald, 57, 131, 213 Tucker, Paul, 62 Tullock, Gordon, 33 Turner, Adair, 31–32 twenty-first-century policy: algorithms and, 184–85, 188, 195, 200; artificial intelligence (AI) and, 184, 186–87, 195; behavioural economics and, 186, 202, 207–8; bias and, 187, 209; capitalism and, 186, 190, 195; competition and, 182, 201–9; computers and, 183–84, 186, 188, 214; consumers and, 184, 198–206; digital economy and, 13, 185–88, 194–210; electricity and, 191–92, 200–201; forecasting and, 205; free market and, 182, 186, 191, 193, 195, 207; Great Financial Crisis (GFC) and, 194; Gross Domestic Product (GDP) and, 187; growth and, 187, 191–92, 194, 202, 207, 209; innovation and, 189, 194–95, 200, 204, 209; interventions and, 188, 191, 194, 206–8, 211; Keynes and, 191, 193; macroeconomics and, 191; models and, 185–86, 189, 191, 197, 209; network effects and, 185, 199–202, 205, 209; political economy and, 188–95, 206–7; production and, 183, 185, 194–97, 199, 202; productivity and, 192, 194, 199, 202, 207; rationality and, 194; regulation and, 193–94, 200, 206; returns to scale and, 185–88, 199, 202–3, 209; statistics and, 13, 184, 199; taxes and, 196, 203; technology and, 189–90, 195, 202, 205, 208; twentieth-century economics and, 180; welfare and, 191, 194, 201, 206, 208 Uber, 68, 133, 142, 173, 175, 197, 203 UK Competition Commission, 105 UK Treasury, 74, 126 ultra-high frequency trading (HFT), 25–27 unemployment, 12, 19, 80, 113, 153, 191–92 unions, 64, 68–69, 129, 132, 146, 192, 194 Unipalm, 133 Unto This Last (Ruskin), 20 Uritaxi, 69 “Use of Knowledge in Society, The” (Hayek), 42–43, 183 US Federal Communications Commission, 60 US Federal Reserve Board, 17, 101 utilitarianism, 10, 151 value added tax (VAT), 105 von Mises, L., 182 Wall Street, 19 Waze, 141 Wealth of Nations, The (Smith), 41 webcams, 133 welfare: consumer, 105, 206; digital economy and, 128, 134, 143, 206, 208, 212; Gross Domestic Product (GDP) and, 134; Hicks-Kaldor compensation and, 122; normative economics and, 114, 120, 134; outsider context and, 105–7, 114; Pareto criterion and, 129; positive economics and, 114, 120; progress and, 130, 143; public responsibilities and, 55, 60; separation protocol and, 120–27; social, 55, 106–7, 114, 120–23, 134, 177, 201, 208; technology and, 177, 181; twenty-first-century policy and, 191, 194, 201, 206, 208 What Money Can’t Buy: The Moral Limits of Markets (Sandel), 34 WhatsApp, 171 Whigs, 148 Williamson, Oliver, 63–64 Wilson, Harold, 208 Winter of Discontent, 158, 192 World War I, 2 World War II, 69, 151, 190, 213 World Wide Web, 133, 195 Wren-Lewis, Simon, 31, 75 Wu, Alice, 8 Y2K, 155


pages: 385 words: 128,358

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market by Steven Drobny

Abraham Maslow, Alan Greenspan, Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, business cycle, buy and hold, buy low sell high, capital controls, central bank independence, commoditize, commodity trading advisor, corporate governance, correlation coefficient, Credit Default Swap, currency risk, diversification, diversified portfolio, family office, financial engineering, fixed income, glass ceiling, Glass-Steagall Act, global macro, Greenspan put, high batting average, implied volatility, index fund, inflation targeting, interest rate derivative, inventory management, inverted yield curve, John Meriwether, junk bonds, land bank, Long Term Capital Management, low interest rates, managed futures, margin call, market bubble, Market Wizards by Jack D. Schwager, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, Nixon triggered the end of the Bretton Woods system, oil shale / tar sands, oil shock, out of africa, panic early, paper trading, Paul Samuelson, Peter Thiel, price anchoring, proprietary trading, purchasing power parity, Reminiscences of a Stock Operator, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, tail risk, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, Vision Fund, yield curve, zero-coupon bond, zero-sum game

—George Soros,April 2000 GLOBAL MACRO IS DEAD As 1999 rolled into 2000, many other global macro funds also closed down, prompting the popular press and Wall Street pundits to declare global macro “dead.”While 2000 may have marked the end of the $20 billion-plus global macro mega-funds, it was premature to cite the end of a strategy that profits from global misalignments and macroeconomic trends. When the stock market bubble finally did burst in March 2000, the Greenspan put was written once again as interest rates were reduced from 6.5 percent to 1 percent—levels not seen since the 1950s. It was in this new paradigm that the up-and-coming crop of global macro managers made their names. They caught not only the interest rate move, but also other parts of the classic macro view at the time: long bonds, short stocks, and eventually short the U.S. dollar.

On average, when there 46 INSIDE THE HOUSE OF MONEY is a bad event, volatility goes up because everybody gets nervous and pays up for insurance. One thing the September 11 attacks did for me was reconfirm that tail risk should not be allowed in your portfolio because things happen that you can’t imagine. I’ll give you an example that shows how serious I am about cutting off tail risk. After the stock market bubble burst in 2000 and the Fed started cutting rates, I thought there was a chance the United States could be headed toward a Japan-like deflation situation. I bought butterfly option structures on front-end interest rates whereby I bought one call struck at 2 percent yield and sold two times as many calls struck at 1 percent yield, such that we’d make money if interest rates went anywhere from 2 percent to zero.The option structure was very cheap and our biggest payout came if rates stopped at 1 percent.

years later at $18—when gold was trading at $258—making six times our money. (See Figure 4.4.) Another great trade over the years was betting on deflation by continuously buying interest rate options, which paid out when rates got low.We bought floors in the United States and Europe that paid off handsomely in 1998, and again after the stock market bubble burst post-2000, paying us multiples on our investment. Another decent-sized investment for us was buying Russian equities in 1999 after the 1998 wipeout. When Russian equity prices got back to 1992 levels, from a risk/reward perspective, we figured it was time to reinvest. (See Figure 4.5.) The absolute return category is there in order to leave us open to making this unsystematic money.


pages: 892 words: 91,000

Valuation: Measuring and Managing the Value of Companies by Tim Koller, McKinsey, Company Inc., Marc Goedhart, David Wessels, Barbara Schwimmer, Franziska Manoury

accelerated depreciation, activist fund / activist shareholder / activist investor, air freight, ASML, barriers to entry, Basel III, Black Monday: stock market crash in 1987, book value, BRICs, business climate, business cycle, business process, capital asset pricing model, capital controls, Chuck Templeton: OpenTable:, cloud computing, commoditize, compound rate of return, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, currency risk, discounted cash flows, distributed generation, diversified portfolio, Dutch auction, energy security, equity premium, equity risk premium, financial engineering, fixed income, index fund, intangible asset, iterative process, Long Term Capital Management, low interest rates, market bubble, market friction, Myron Scholes, negative equity, new economy, p-value, performance metric, Ponzi scheme, price anchoring, proprietary trading, purchasing power parity, quantitative easing, risk free rate, risk/return, Robert Shiller, Savings and loan crisis, shareholder value, six sigma, sovereign wealth fund, speech recognition, stocks for the long run, survivorship bias, technology bubble, time value of money, too big to fail, transaction costs, transfer pricing, two and twenty, value at risk, yield curve, zero-coupon bond

The median return on capital for so-called value companies was 15 percent, compared with 35 percent for the growth companies. So the companies classified as growth did not grow faster on average, but they did have higher returns on capital. That’s why a modestly growing company, like the tobacco company Philip Morris International, ends up on the growth-stock list. Similarly, market bubbles and crises have always captured public attention, fueling the belief that the stock market moves in chaotic ways, detached EXHIBIT 5.2 Distribution of Growth Rates for Growth and Value Stocks Growth stocks do not grow materially faster . . . . . . but do have higher ROICs Value median Growth median 8.7% 10.2% Value median Growth median 15% 35% 14 35 Growth 12 30 10 Value 8 6 % of companies % of companies Growth 25 20 15 4 10 2 5 Value 0 0 –3 1 5 9 13 17 21 3-year average sales growth, % 25 –5 5 15 25 35 45 50+ 3-year average ROIC excluding goodwill, % MARKETS AND FUNDAMENTALS: THE EVIDENCE 69 EXHIBIT 5.3 Stock Performance against Bonds in the Long Run, 1801–2013 $ 100,000,000 Stocks 10,000,000 1,000,000 Stocks (inflation-adjusted) 100,000 Bonds 10,000 Bills 1,000 100 10 CPI 1 0 1801 1816 1831 1846 1861 1876 1891 1906 1921 1936 1951 1966 1981 1996 2011 Source: Jeremy J.

Using more fre- quent return periods, such as daily and weekly returns, leads to systematic biases.22 r Company stock returns should be regressed against a value-weighted, well-diversified market portfolio, such as the MSCI World Index, bearing in mind that this portfolio’s value may be distorted if measured during a market bubble. In the CAPM, the market portfolio equals the portfolio of all assets, both traded (such as stocks and bonds) and untraded (such as private companies and human capital). Since the true market portfolio is unobservable, a proxy is necessary. For U.S. stocks, the most common proxy is the S&P 500, a valueweighted index of large U.S. companies.

Metrick, “Corporate Governance and Equity Prices,” Quarterly Journal of Economics 118, no. 1 (2003): 107–155. 22 J. Comprix and K. A. Muller III, “Asymmetric Treatment of Reported Pension Expense and Income Amounts in CEO Cash Compensation Calculations,” Journal of Accounting and Economics 42, no. 3 (December 2006): 385–416. 23 J. Coronado and S. Sharpe, “Did Pension Plan Accounting Contribute to a Stock Market Bubble?” (mimeo, Board of Governors of Federal Reserve System, 2003). CLOSING THOUGHTS 447 CLOSING THOUGHTS Following the financial crisis of 2007–2009, global accounting bodies have worked to close the distortions caused by off-balance-sheet obligations. Although they have made progress, inconsistencies still exist, and careful digging is still required.


pages: 499 words: 148,160

Market Wizards: Interviews With Top Traders by Jack D. Schwager

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alan Greenspan, Albert Einstein, asset allocation, backtesting, beat the dealer, Bretton Woods, business cycle, buy and hold, commodity trading advisor, computerized trading, conceptual framework, delta neutral, Edward Thorp, Elliott wave, fixed income, implied volatility, index card, junk bonds, locking in a profit, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Michael Milken, money market fund, Nixon triggered the end of the Bretton Woods system, pattern recognition, Paul Samuelson, Ralph Nelson Elliott, random walk, Reminiscences of a Stock Operator, short selling, Teledyne, transaction costs, uptick rule, yield curve, zero-sum game

The difficulty in gaining an edge in the markets is not because prices instantaneously discount all known information (although they sometimes do), but rather because the impact of emotion on prices varies greatly and is nearly impossible to gauge. Sometimes emotions will cause prices to wildly overshoot any reasonable definition of fair value—we call these periods market bubbles. At other times, emotions will cause prices to plunge far below any reasonable definition of fair value—we call these periods market panics. Finally, in perhaps the majority of the time, emotions will exert a limited distortional impact on prices—market environments in which the efficient market hypothesis provides a reasonable approximation.

Supporters of the efficient market hypothesis are reluctant to give up the theory, despite mounting contradictory evidence, because it provides the foundation for a broad range of critical financial applications, including risk assessment, optimal portfolio allocation, and option pricing. The unfortunate fact, however, is that these applications can lead to erroneous conclusions because the underlying assumptions are incorrect. Moreover, the errors will be most extreme in those periods when the cost of errors will be most severe (i.e., market bubbles and panics). In some sense, efficient market hypothesis proponents are like the proverbial man looking for dropped car keys in the parking lot under the lamppost because that is where the light is. The flaws of the efficient market hypothesis are both serious and numerous: If true, the impossible has happened—and many times.

Everyone having the same information does not imply that everyone will use information with equal efficiency. The efficient market hypothesis fails to incorporate the impact of human emotions on prices, thereby leaving out a key market price influence that throughout history has at times (e.g., market bubbles and crashes) dominated the influence of fundamental factors. The bad news is: The efficient market hypothesis would preclude the possibility of beating the market other than by chance. The good news is: The efficient market hypothesis appears to be deeply flawed on both theoretical and empirical grounds.


pages: 291 words: 91,783

Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America by Matt Taibbi

addicted to oil, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Bear Stearns, Bernie Sanders, Bretton Woods, buy and hold, carried interest, classic study, clean water, collateralized debt obligation, collective bargaining, computerized trading, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, desegregation, diversification, diversified portfolio, Donald Trump, financial innovation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Greenspan put, illegal immigration, interest rate swap, laissez-faire capitalism, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, medical malpractice, military-industrial complex, money market fund, moral hazard, mortgage debt, Nixon triggered the end of the Bretton Woods system, obamacare, passive investing, Ponzi scheme, prediction markets, proprietary trading, prudent man rule, quantitative easing, reserve currency, Ronald Reagan, Savings and loan crisis, Sergey Aleynikov, short selling, sovereign wealth fund, too big to fail, trickle-down economics, Y2K, Yom Kippur War

Within a few months after that, by July 1995, Greenspan was back to cutting rates, slashing the funds rate from 6 percent to 5.75 percent, flooding the economy with money at a time when the stock market was exploding. With easy credit everywhere and returns on savings and CDs at rock bottom, everyone and his brother rushed ass first into the tech-fueled stock market. “That’s the beginning of the biggest stock market bubble in U.S. history,” says Fleckenstein. But Greenspan’s biggest contribution to the bubble economy was psychological. As Fed chief he had enormous influence over the direction of the economy and could have dramatically altered history simply by stating out loud that the stock market was overvalued.

“The crucial issue … is to recognize that we have a Y2K problem,” he said at the century’s final FOMC meeting. “It is a problem about which we don’t want to become complacent.” Again, all of these rate cuts and injections—in response to LTCM, the emerging markets crash, and Y2K—were undertaken in the middle of a raging stock market bubble, making his crisis strategy somewhat like trying to put out a forest fire with napalm. By the turn of the century, the effect of Greenspan’s constant money printing was definite and contagious, as it was now widely understood that every fuckup would be bailed out by rivers of cheap cash. This was where the term “Greenspan put” first began to be used widely.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

activist fund / activist shareholder / activist investor, Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Black Swan, bond market vigilante , bonus culture, Bretton Woods, business climate, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial engineering, financial innovation, financial intermediation, Fractional reserve banking, full employment, Glass-Steagall Act, God and Mammon, Golden arches theory, Gordon Gekko, greed is good, Hyman Minsky, income inequality, industrial research laboratory, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, labour market flexibility, liberal capitalism, light touch regulation, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, mass immigration, means of production, Menlo Park, money market fund, moral hazard, moveable type in China, Myron Scholes, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Paul Samuelson, plutocrats, price stability, principal–agent problem, profit motive, proprietary trading, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, Veblen good, We are the 99%, Wolfgang Streeck, zero-sum game

These stock promotions were all too often accompanied by fraud, as the temptation to make off with other people’s money became overwhelming. Anyone who wishes to understand this phenomenon should turn not to economic historians but to Dickens and, more specifically, Nicholas Nickleby (of which more in Chapter Five). There, he describes the flotation of a company whose promoters lure outsiders into a stock market bubble and discreetly take their leave before the whole thing pops. While this nineteenth-century corporate party was already going with a swing, it enjoyed a further boost from generalised incorporation, which was introduced in English law along with limited liability under statute, in mid-century.

And in 1995 he clearly identified that the technology boom was turning into a bubble, telling the Fed’s main policymaking body, the Federal Open Market Committee, in May of that year, ‘The way I put it is that I am more nervous about the asset price bubble than I am about product prices.’ But he also worried that if the Fed pricked the bubble, it could ‘blow the economy out of the water’. At the September 1996 FOMC meeting, he said: ‘I recognise that there is a stock market bubble problem at this point … We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.’ Later that year he made a speech in which he famously referred to ‘irrational exuberance’ in the stock market.


pages: 357 words: 94,852

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

"Hurricane Katrina" Superdome, "World Economic Forum" Davos, Airbnb, antiwork, basic income, battle of ideas, Berlin Wall, Bernie Sanders, Black Lives Matter, Brewster Kahle, carbon tax, Carl Icahn, Celebration, Florida, clean water, collective bargaining, Corrections Corporation of America, data science, desegregation, Donald Trump, drone strike, Edward Snowden, Elon Musk, end-to-end encryption, energy transition, extractivism, fake news, financial deregulation, gentrification, Global Witness, greed is good, green transition, high net worth, high-speed rail, Howard Zinn, illegal immigration, impact investing, income inequality, Internet Archive, Kickstarter, late capitalism, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, megaproject, Mikhail Gorbachev, military-industrial complex, moral panic, Naomi Klein, Nate Silver, new economy, Occupy movement, ocean acidification, offshore financial centre, oil shale / tar sands, open borders, Paris climate accords, Patri Friedman, Peter Thiel, plutocrats, private military company, profit motive, race to the bottom, Ralph Nader, Ronald Reagan, Saturday Night Live, sexual politics, sharing economy, Silicon Valley, Steve Bannon, subprime mortgage crisis, tech billionaire, too big to fail, trade liberalization, transatlantic slave trade, Triangle Shirtwaist Factory, trickle-down economics, Upton Sinclair, urban decay, W. E. B. Du Bois, women in the workforce, working poor

The main pillars of Trump’s political and economic project are: the deconstruction of the regulatory state; a full-bore attack on the welfare state and social services (rationalized in part through bellicose racial fearmongering and attacks on women for exercising their rights); the unleashing of a domestic fossil fuel frenzy (which requires the sweeping aside of climate science and the gagging of large parts of the government bureaucracy); and a civilizational war against immigrants and “radical Islamic terrorism” (with ever-expanding domestic and foreign theaters). In addition to the obvious threats this entire project poses to those who are already most vulnerable, it’s also a vision that can be counted on to generate wave after wave of crises and shocks. Economic shocks, as market bubbles—inflated thanks to deregulation—burst; security shocks, as blowback from anti-Islamic policies and foreign aggression comes home; weather shocks, as our climate is further destabilized; and industrial shocks, as oil pipelines spill and rigs collapse, which they tend to do when the safety and environmental regulations that prevent chaos are slashed.

Trump has announced plans to dismantle Dodd–Frank, the most substantive piece of legislation introduced after the 2008 banking collapse. Dodd–Frank wasn’t tough enough, but its absence will liberate Wall Street to go wild blowing new bubbles, which will inevitably burst, creating new economic shocks. Trump’s team are not unaware of this, they are simply unconcerned—the profits from those market bubbles are too tantalizing. Besides, they know that since the banks were never broken up, they are still too big to fail, which means that if it all comes crashing down, they will be bailed out again, just like in 2008. (In fact, Trump issued an executive order calling for a review of the specific part of Dodd–Frank designed to prevent taxpayers from being stuck with the bill for another such bailout—an ominous sign, especially with so many former Goldman executives making White House policy.)


pages: 346 words: 102,625

Early Retirement Extreme by Jacob Lund Fisker

8-hour work day, active transport: walking or cycling, barriers to entry, book value, buy and hold, caloric restriction, caloric restriction, clean water, Community Supported Agriculture, delayed gratification, discounted cash flows, diversification, dogs of the Dow, don't be evil, dumpster diving, Easter island, fake it until you make it, financial engineering, financial independence, game design, index fund, invention of the steam engine, inventory management, junk bonds, lateral thinking, lifestyle creep, loose coupling, low interest rates, market bubble, McMansion, passive income, peak oil, place-making, planned obsolescence, Plato's cave, Ponzi scheme, power law, psychological pricing, retail therapy, risk free rate, sunk-cost fallacy, systems thinking, tacit knowledge, the scientific method, time value of money, Tragedy of the Commons, transaction costs, wage slave, working poor

The methods for doing so will be simple. I won't present any tips that haven't been seen before and which one can't find described in detail in hundreds of other books. Success won't depend on becoming famous on the Internet or getting a book deal, nor will it depend on a timely participation in a market bubble of junk bonds, internet companies, real estate, gold, or tulips. It also won't depend on successfully starting your own business. You won't need to develop a particular specialized skill such as real estate flipping. In fact, if you have a job, keep it. However, using the methods in a way that aligns your goals and side effects persistently and consistently to achieve financial or job-independence is not easy.

It's similar to how the insight that gravity is a two-body force and that the gravitational force between the sun and each individual planet is much stronger than the force between the individual planets makes it possible to compute planetary motion. In astrophysics, this always holds true. In economics and investing, it only holds in most cases. When it doesn't, we have market bubbles and crashes. These occur when a substantial number of market participants start behaving according to how the market is behaving--that is, how they themselves are behaving. Their behavior becomes self-referential without them realizing it! In particular the problem is now that the average of all investors is so well tracked that a large fraction of the market responds to the average--and as it very often happens, decisions are strongly influenced by what can be measured, rather than what should be measured.


pages: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

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

This unconventional lending approach was justified by the observation that that US national house prices had never fallen in the postwar period. Unsurprisingly, after this assumption proved incorrect and house prices did start to fall in 2006, the default rate on these loans rapidly escalated. The market collapsed along with its central dogma. Obviously, changes in rules on repo collateral was not the only driver of the US housing market bubble. Many other factors were involved, most importantly a massive failure of US consumer protection for subprime mortgage borrowers which allowed mortgage lenders to offer increasingly unsafe loans based on miniscule downpayments, low initial charges on the loan, and minimal documentation. This lax attitude largely reflected the Federal Reserve’s overinflated belief that risks taken by banks would be limited by market discipline from investors (the Federal Reserve was the main regulator of mortgage lending standards).

The innate desire not to be seen as disruptive discourages individuals from questioning the perceived wisdom of other investors, as underlined, for example, in the account of how a few outliers did resist such pressure in the book about the financial crisis, Michael Lewis’s The Big Short. More generally, Professor Robert Shiller of Yale, one of the few prominent economists who recognized that the US housing market was in a massive bubble before the crisis, has been one of several financial economists to suggest that financial market bubbles can be modeled as social waves in which ideas catch fire and become self-reinforcing before eventually deflating.7 Such social eruptions can be modeled using similar tools to those used to examine epidemics, involving the probability of passing on an infection from one person to the other and a rate at which people stop being infectious, which define the height and longevity of the craze.


pages: 339 words: 109,331

The Clash of the Cultures by John C. Bogle

Alan Greenspan, asset allocation, buy and hold, collateralized debt obligation, commoditize, compensation consultant, corporate governance, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, estate planning, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Glass-Steagall Act, Hyman Minsky, income inequality, index fund, interest rate swap, invention of the wheel, John Bogle, junk bonds, low interest rates, market bubble, market clearing, military-industrial complex, money market fund, mortgage debt, new economy, Occupy movement, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, Ponzi scheme, post-work, principal–agent problem, profit motive, proprietary trading, prudent man rule, random walk, rent-seeking, risk tolerance, risk-adjusted returns, Robert Shiller, seminal paper, shareholder value, short selling, South Sea Bubble, statistical arbitrage, stock buybacks, survivorship bias, The Wealth of Nations by Adam Smith, transaction costs, two and twenty, Vanguard fund, William of Occam, zero-sum game

Controversial votes may draw unwanted publicity. By their long forbearance and lassitude on corporate governance issues, mutual funds bear no small share of the responsibility for the failures in corporate governance and accounting oversight that were among the major forces creating the stock market bubble of the late 1990s, and the (50 percent) bear market that followed.6 If the owners of our corporations don’t care about governance, who else is there to assume that responsibility? The first step toward greater accountability is for mutual fund agents to disclose how they vote the shares they own on behalf of their shareholder principals.

For example, in the Go-Go Years of the late 1960s, some 350 new equity funds—largely highly volatile and risky “performance” funds—were formed, more than doubling the number of funds from 240 in 1965 to 535 in 1972. With the ensuing collapse of that bubble and the subsequent 50 percent decline in the overall stock market, only seven or eight new funds were formed during each year in the decade that followed. In the next marketing bubble—the rise of the Information Age, beginning in the late 1990s—funds focusing on Internet and high-tech stocks led the way. The fund industry responded just as one would expect a marketing business to respond. We created an astonishing total of 3,800(!) new equity funds, mostly aggressive growth funds focused on technology and the so-called new economy.


pages: 565 words: 122,605

The Human City: Urbanism for the Rest of Us by Joel Kotkin

"World Economic Forum" Davos, Alvin Toffler, autonomous vehicles, birth tourism , blue-collar work, British Empire, carbon footprint, Celebration, Florida, citizen journalism, colonial rule, crony capitalism, deindustrialization, demographic winter, Deng Xiaoping, Downton Abbey, edge city, Edward Glaeser, financial engineering, financial independence, Frank Gehry, gentrification, Gini coefficient, Google bus, housing crisis, illegal immigration, income inequality, informal economy, intentional community, Jane Jacobs, labor-force participation, land reform, Lewis Mumford, life extension, market bubble, mass immigration, McMansion, megacity, megaproject, microapartment, new economy, New Urbanism, Own Your Own Home, peak oil, pensions crisis, Peter Calthorpe, post-industrial society, RAND corporation, Richard Florida, rising living standards, Ronald Reagan, Salesforce, Seaside, Florida, self-driving car, Shenzhen was a fishing village, Silicon Valley, starchitect, Stewart Brand, streetcar suburb, Ted Nelson, the built environment, trade route, transit-oriented development, upwardly mobile, urban planning, urban renewal, urban sprawl, Victor Gruen, Whole Earth Catalog, women in the workforce, young professional

FLEW, Terry. (2011). “Right to the City, Desire for the Suburb?,” M/C Journal, vol. 14, no. 4, http://journal.media-culture.org.au/index.php/mcjournal/article/viewArticle/368. FLORCRUZ, Michelle. (2015, February 7). “China’s Housing Market Bubble: Home Ownership Elusive for Young Buyers and Renters,” International Business Times, http://www.ibtimes.com/chinas-housing-market-bubble-home-ownership-elusive-young-buyers-renters-1808472. FLORIDA, Richard. (2009, March). “How the Crash Will Reshape America,” The Atlantic, http://www.theatlantic.com/magazine/archive/2009/03/how-the-crash-will-reshape-america/307293/. ——— (2012, July 31).


pages: 430 words: 109,064

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

Alan Greenspan, American ideology, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Bonfire of the Vanities, bonus culture, book value, break the buck, business cycle, business logic, buy and hold, capital controls, Carmen Reinhart, central bank independence, Charles Lindbergh, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency risk, Edward Glaeser, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, George Akerlof, Glass-Steagall Act, Gordon Gekko, greed is good, Greenspan put, Home mortgage interest deduction, Hyman Minsky, income per capita, information asymmetry, interest rate derivative, interest rate swap, junk bonds, Kenneth Rogoff, laissez-faire capitalism, late fees, light touch regulation, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, Martin Wolf, Michael Milken, money market fund, moral hazard, mortgage tax deduction, Myron Scholes, Paul Samuelson, Ponzi scheme, price stability, profit maximization, proprietary trading, race to the bottom, regulatory arbitrage, rent-seeking, Robert Bork, Robert Shiller, Ronald Reagan, Saturday Night Live, Satyajit Das, Savings and loan crisis, sovereign wealth fund, Tax Reform Act of 1986, The Myth of the Rational Market, too big to fail, transaction costs, Tyler Cowen, value at risk, yield curve

Mellon’s message was clear: government should just get out of the way.78 Regulation of private business, as espoused by Brandeis and Wilson, slipped out of fashion.79 The antiregulatory policies of the 1920s helped make possible a period of rampant financial speculation, driven by investment banks and closely related firms that sold and traded securities in an unregulated free-for-all. Investor protection was minimal; small investors could be lured into complex financial vehicles they didn’t understand, and were offered large margin loans to leverage their positions.80 While the market rose, everyone benefited. But the result was a stock market bubble fueled by borrowing and psychological momentum.81 Low interest rates set by the Federal Reserve also fueled an economic boom for much of the decade and encouraged increased borrowing by companies and individuals.82 By 1929, financial assets were at all-time highs, sustained by high levels of leverage throughout the economy.

For their pains, the Rubin-Summers-Greenspan trio was featured on the cover of Time magazine as the “Committee to Save the World.”2 The second lesson was that while the U.S. economy was not completely immune to financial panics, any real damage could be contained through a few backroom deals. At the urging of the Federal Reserve, LTCM was essentially bought out and refinanced by a group of private sector banks, preventing a major crisis; a series of interest rate cuts by the Fed even kept the stock market bubble growing for another two years. The mature U.S. financial system, it seemed, could withstand any infection that might spread from the developing world, thanks to its sound financial system and macroeconomic management. Crises were for countries with immature economies, insufficiently developed financial systems, and weak political systems, which had not yet achieved long-term prosperity and stability—countries like Thailand, Indonesia, and South Korea.


pages: 366 words: 109,117

Higher: A Historic Race to the Sky and the Making of a City by Neal Bascomb

buttonwood tree, California gold rush, Charles Lindbergh, Everybody Ought to Be Rich, Ford Model T, hiring and firing, Lewis Mumford, low interest rates, margin call, market bubble, pneumatic tube, Ralph Waldo Emerson, transcontinental railway, Triangle Shirtwaist Factory, W. E. B. Du Bois, Works Progress Administration

“Wall Street was pandemonium,” said Philip Gibb of the downtown scene that fall. “The outside brokers—the curb men—were bidding against one another for stocks not quoted on the New York Exchange, and their hoarse cries mingled in a raucous chorus. I stood outside a madhouse staring at lunatics.” The stock market bubble—once tethered on a long, thin string to reality far below—had come loose. At the closing bell, the Dow Jones Industrial Average was 381, compared to 104 five years earlier. In the last three months alone, average values had risen twenty-five percent. For all the decade’s marvels and activity—the speed records, dancing contests, political ballyhoo, speakeasy raids, airplane crashes, and talking picture premieres—nothing captured the country’s attention like the market that day.

Like him, George Ohrstrom and Walter Chrysler went into the Depression facing a tough road ahead, but both managed to sustain themselves through the desperate times, although one had to give up ownership of his skyscraper. In the crash, the boy wonder of Wall Street forfeited most of the water companies he had assembled during the market bubble, leaving him in a precarious financial position, but his voyage to Europe in the wake of Black Tuesday was a success, helping him to maintain the support of his investors. Once again he began acquiring small industrial businesses within a larger holding company. The market implosion taught him not to leverage his companies against one another.


pages: 338 words: 104,684

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy by Stephanie Kelton

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Alan Greenspan, American Society of Civil Engineers: Report Card, Apollo 11, Asian financial crisis, bank run, Bernie Madoff, Bernie Sanders, blockchain, bond market vigilante , book value, Bretton Woods, business cycle, capital controls, carbon tax, central bank independence, collective bargaining, COVID-19, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, decarbonisation, deindustrialization, discrete time, Donald Trump, eurozone crisis, fiat currency, floating exchange rates, Food sovereignty, full employment, gentrification, Gini coefficient, global reserve currency, global supply chain, green new deal, high-speed rail, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, Jeff Bezos, liquidity trap, low interest rates, Mahatma Gandhi, manufacturing employment, market bubble, Mason jar, Modern Monetary Theory, mortgage debt, Naomi Klein, National Debt Clock, new economy, New Urbanism, Nixon shock, Nixon triggered the end of the Bretton Woods system, obamacare, open economy, Paul Samuelson, Phillips curve, Ponzi scheme, Post-Keynesian economics, price anchoring, price stability, pushing on a string, quantitative easing, race to the bottom, reserve currency, Richard Florida, Ronald Reagan, San Francisco homelessness, shareholder value, Silicon Valley, Tax Reform Act of 1986, trade liberalization, urban planning, working-age population, Works Progress Administration, yield curve, zero-sum game

Without Treasuries, the Fed would need to find some other way to set interest rates.50 In the end, the problem solved itself. By 2002, the surpluses were gone, and the US was no longer on track to pay down the national debt, much less retire the full amount. The federal budget moved back into deficit after 2001, when the stock market bubble—which had been supporting consumer spending—burst. A recession began in 2001. It was a fairly mild recession, but the damage had been done.51 As we’ll see in the next chapter, the Clinton surpluses had weakened private sector balance sheets, magnifying the damage caused by the arrival of the Great Recession, which began in 2007.

Kestenbaum, “What If We Paid Off the Debt?” Concern was that if the Fed had to buy other kinds of financial assets, it might look like it was picking winners and losers. 51. Before the recession hit, the US economy grew rapidly, pushing revenues up sharply. The boom was largely the result of a stock-market bubble, which fueled the growth that moved the budget into surplus. As the bubble began to collapse in January 2001, the economy moved into recession. The fiscal surpluses didn’t cause the recession, but they set the stage for the more severe recession that began in 2007. For more on this, see Wynne Godley, Seven Unsustainable Processes (Annandale-on-Hudson, NY: Jerome Levy Economics Institute, 1999), www.levyinstitute.org/pubs/sevenproc.pdf. 52.


pages: 782 words: 187,875

Big Debt Crises by Ray Dalio

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, break the buck, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital controls, central bank independence, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, declining real wages, equity risk premium, European colonialism, fiat currency, financial engineering, financial innovation, foreign exchange controls, German hyperinflation, global macro, housing crisis, implied volatility, intangible asset, it's over 9,000, junk bonds, Kickstarter, land bank, large denomination, low interest rates, manufacturing employment, margin call, market bubble, market fundamentalism, military-industrial complex, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, refrigerator car, reserve currency, risk free rate, Savings and loan crisis, short selling, short squeeze, sovereign wealth fund, subprime mortgage crisis, too big to fail, transaction costs, universal basic income, uptick rule, value at risk, yield curve

Since borrowing is simply a way of pulling spending forward, the person spending $60,000 per year and earning $50,000 per year has to cut his spending to $40,000 for as many years as he spent $60,000, all else being equal. Though a bit of an oversimplification, this is the essential dynamic that drives the inflating and deflating of a bubble. The Start of a Bubble: The Bull Market Bubbles usually start as over-extrapolations of justified bull markets. The bull markets are initially justified because lower interest rates make investment assets, such as stocks and real estate, more attractive so they go up, and economic conditions improve, which leads to economic growth and corporate profits, improved balance sheets, and the ability to take on more debt—all of which make the companies worth more.

., asset prices in local currency plus the currency appreciation) are very attractive. That plus that country’s hot economic activity encourage more foreign inflows and fewer domestic outflows. Over time, the country becomes the hot place to invest, and its assets become overbought so debt and stock-market bubbles emerge. Investors believe the country’s assets are a fabulous treasure to own and that anyone not in the country is missing out. Investors who were never involved with the market rush in. When the market gets fully long, leveraged, and overpriced, it becomes ripe for a reversal. In the bullets here and in the ones that follow, we show some key economic developments typically seen as the bubble inflates.

After dropping them as low as 10 percent the previous year, margin requirements at most brokers rose to 45 to 50 percent.30 The stock market peaked on September 3 when the Dow closed at 381—a level that it wouldn’t reach again for over 25 years. It’s important to remember that no specific event or shock caused the stock market bubble to burst. As is classic with bubbles, rising prices required buying on leverage to keep accelerating at an unsustainable rate, both because speculators and lenders were near or at their max positions and because tightening changes the economics of leveraging up. Stocks started to decline in September and early October as a series of bad news stories eroded investor confidence.


Small Change: Why Business Won't Save the World by Michael Edwards

"Friedman doctrine" OR "shareholder theory", Bernie Madoff, clean water, corporate governance, corporate social responsibility, different worldview, high net worth, invisible hand, knowledge economy, Larry Ellison, light touch regulation, Mahatma Gandhi, Mark Shuttleworth, market bubble, microcredit, Nelson Mandela, New Journalism, One Laptop per Child (OLPC), Ponzi scheme, profit motive, public intellectual, Robert Shiller, shareholder value, Silicon Valley, Silicon Valley startup, Social Responsibility of Business Is to Increase Its Profits, subprime mortgage crisis, The Fortune at the Bottom of the Pyramid, The Spirit Level, The Wealth of Nations by Adam Smith, transaction costs

They forget that their success may be due to luck, and that the non-profit sector may be far more complex than where they have come from,” says Mario Morino, head of Venture Philanthropy Partners, in a welcome dose of common sense.11 Shiller used the word irrational in the title of his famous book for a very good reason, since he knew that stock market bubbles and corrections are caused less by facts and fundamentals than by a popular consensus that becomes disconnected from what is happening on the ground. In similar fashion, the philanthrocapitalists have latched on to something potentially important — that business and the market can have more social impact — but have become so caught up in the buzz surrounding their ideas that they are ignoring the costs of what they are recommending and exaggerating the benefits. 6 small change The advance of capitalism brings many material and technological rewards, but it also dismantles the social ties and sense of common purpose that are essential to healthy and well-functioning societies; and in its present form, it promotes inequality and individual alienation.


pages: 145 words: 43,599

Hawai'I Becalmed: Economic Lessons of the 1990s by Christopher Grandy

Alan Greenspan, Bretton Woods, business climate, business cycle, dark matter, endogenous growth, inventory management, Jones Act, Long Term Capital Management, market bubble, Maui Hawaii, minimum wage unemployment, open economy, purchasing power parity, Silicon Valley, Telecommunications Act of 1996

Being open to the rest of the world means being vulnerable to events outside your control. The Gulf War was one of these events, a conflict on the other side of the world that had real and immediate effects on Hawai‘i’s economic fortunes. The slide of the mainland economy into recession, followed by the bursting of Japan’s stock and property market bubbles brought Hawai‘i’s economic growth to zero. Hawai‘i residents initially reacted to the stagnation with blame and denial. Perhaps that is a natural reaction to events that suggest the necessity to reevaluate long-cherished policies. The disappearance of accumulated balances in the state general fund signaled the severity of the downturn.


pages: 151 words: 39,757

Ten Arguments for Deleting Your Social Media Accounts Right Now by Jaron Lanier

4chan, Abraham Maslow, basic income, Big Tech, Black Lives Matter, Cambridge Analytica, cloud computing, context collapse, corporate governance, data science, disinformation, Donald Trump, en.wikipedia.org, fake news, Filter Bubble, gig economy, Internet of things, Jaron Lanier, life extension, Mark Zuckerberg, market bubble, Milgram experiment, move fast and break things, Network effects, peak TV, ransomware, Ray Kurzweil, recommendation engine, Silicon Valley, Skinner box, Snapchat, Stanford prison experiment, stem cell, Steve Jobs, Ted Nelson, theory of mind, WikiLeaks, you are the product, zero-sum game

Military units are the canonical example. Sometimes people must lose themselves to a hierarchical order because that’s the only way to survive. But a primary goal of civilization should be to make those times as rare as possible. Capitalism fails when the switch is set to Pack. The Pack setting causes market bubbles and other market failures. There are certainly noisy businesspeople who prefer military metaphors for business; you’re supposed to be tough and ruthless. But since the Pack setting also makes you partially blind, in the long run that personality style is not great for business, if we define business as being about reality beyond social competitions.


pages: 482 words: 121,672

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

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, beat the dealer, Bernie Madoff, bitcoin, book value, butter production in bangladesh, buttonwood tree, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Detroit bankruptcy, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial engineering, financial innovation, financial repression, fixed income, framing effect, George Santayana, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Japanese asset price bubble, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, margin call, market bubble, Mary Meeker, money market fund, mortgage tax deduction, new economy, Own Your Own Home, PalmPilot, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Salesforce, short selling, Silicon Valley, South Sea Bubble, stock buybacks, stocks for the long run, sugar pill, survivorship bias, Teledyne, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond, zero-sum game

The ability to avoid such horrendous mistakes is probably the most important factor in preserving one’s capital and allowing it to grow. The lesson is so obvious and yet so easy to ignore. THE U.S. HOUSING BUBBLE AND CRASH OF THE EARLY 2000s Although the Internet bubble may have been the biggest stock-market bubble in the United States, the bubble in single-family home prices that inflated during the early years of the new millennium was undoubtedly the biggest U.S. real estate bubble of all time. Moreover, the boom and later collapse in house prices had far greater significance for the average American than any gyrations in the stock market.

In addition, many of these patterns could self-destruct in the future, as many of them have already done. Indeed, this is the logical reason why one should be cautious not to overemphasize these anomalies and predictable patterns or to put too much reliance on “smart beta” portfolios to enhance investment performance. “Smart beta” portfolios will not protect you from market bubbles. I realize that some critics of the EMH and some managers of “smart beta” portfolios argue that the dot-com bubble was easy to identify as it was inflating. Robert Shiller published his book Irrational Exuberance in early 2000, just at the peak of the market. True, but the same models that identified a bubble in early 2000 also identified a vastly “overpriced” stock market in 1992, when low dividend yields and high price-earnings multiples suggested that long-run equity returns would be close to zero in the United States.


pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

affirmative action, Alan Greenspan, Albert Einstein, Andrei Shleifer, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Boeing 747, Bretton Woods, business cycle, buy and hold, capital controls, carbon tax, Cass Sunstein, central bank independence, classic study, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency risk, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, fixed income, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, Great Leap Forward, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, John Markoff, Joseph Schumpeter, junk bonds, Kenneth Rogoff, libertarian paternalism, low interest rates, low skilled workers, Malacca Straits, managed futures, market bubble, microcredit, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, school vouchers, seminal paper, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, tech worker, The Market for Lemons, the rule of 72, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional, zero-sum game

Simon Johnson, former chief economist for the International Monetary Fund, wrote an excellent postmortem of the financial crisis for The Atlantic in 2009. He notes, “Major commercial and investment banks—and the hedge funds that ran alongside them—were the big beneficiaries of the twin housing and equity-market bubbles of this decade, their profits fed by an ever-increasing volume of transactions founded on a relatively small base of actual physical assets. Each time a loan was sold, packaged, securitized, and resold, banks took their transaction fees, and the hedge funds buying those securities reaped ever-larger fees as their holdings grew.”12 Each transaction carries some embedded risk.

In the 1990s, as the American economy roared through its longest expansion in economic history, Mr. Greenspan was given credit for his “Goldilocks” approach to monetary policy—doing everything just right. That reputation has since come partially unraveled. Mr. Greenspan is now criticized for abetting the housing and stock market bubbles by keeping interest rates too low for too long. “Cheap money” didn’t cause inflation by sending everyone to buy PT Cruisers and Caribbean cruises. Instead we bought stocks and real estate, and those rising asset prices didn’t show up in the consumer price index. Add one new challenge to monetary policy: We were speeding even though the gauges we’re used to looking at said we weren’t.


pages: 453 words: 122,586

Samuelson Friedman: The Battle Over the Free Market by Nicholas Wapshott

2021 United States Capitol attack, Alan Greenspan, bank run, basic income, battle of ideas, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, California gold rush, collective bargaining, coronavirus, corporate governance, COVID-19, creative destruction, David Ricardo: comparative advantage, Donald Trump, double helix, en.wikipedia.org, fiat currency, financial engineering, fixed income, floating exchange rates, full employment, God and Mammon, greed is good, Gunnar Myrdal, income inequality, indoor plumbing, invisible hand, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, light touch regulation, liquidity trap, lockdown, low interest rates, Machinery of Freedom by David Friedman, market bubble, market clearing, mass immigration, military-industrial complex, Money creation, money market fund, Mont Pelerin Society, moral hazard, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, paradox of thrift, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, price stability, public intellectual, pushing on a string, quantitative easing, rent control, road to serfdom, Robert Bork, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, seminal paper, Simon Kuznets, social distancing, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, trickle-down economics, universal basic income, upwardly mobile, urban renewal, War on Poverty, We are all Keynesians now, Works Progress Administration, zero-sum game

It was around this time that Friedman, in collaboration with a colleague from the National Bureau of Economic Research, Anna Schwartz,35 set out on research into the role of money in the history of the U.S. economy. Their work together would become the central plank of Friedman’s lifelong interest in the subject. The resulting Monetary History of the United States, 1867–1960, published in 1960, turned on its head conventional wisdom about the reasons for the Great Depression, blaming not the stock market bubble and the overheated economy, which were suggested by Keynes, but the failure of the Federal Reserve to provide enough money to keep the economy moving. While the conventional view was that the federal government had rightly tightened the cost of borrowing to put an end to the rampant speculation in stocks that had led to the Crash of 1929, Friedman, by trawling through the monetary data, came to a different conclusion: had the Federal Reserve eased interest rates earlier, many of the businesses which had gone bust could have borrowed to remain open.

In 1960, Friedman and Anna Schwartz concluded their years of research into a century of American monetary data, A Monetary History of the United States, 1867–1960, which turned on its head the conventional wisdom about what caused the Great Depression. The traditional view suggested that too much money chasing too few goods—and too few stocks—had led to unsustainably high prices of both stocks and goods, ending in a stock market bubble that burst in the Crash of 1929. But a careful perusal of the contemporary financial data, Friedman and Schwartz argued, suggested a quite different cause: that the tightness of money in circulation—with interest rates kept deliberately high by the Federal Reserve—had led to the string of bank collapses that froze the financial system, spooked the stock market, and triggered the market collapse.


Magical Urbanism: Latinos Reinvent the US City by Mike Davis

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", affirmative action, Berlin Wall, business cycle, clean water, collective bargaining, company town, deindustrialization, desegregation, digital divide, edge city, illegal immigration, immigration reform, Internet Archive, invisible hand, job automation, longitudinal study, manufacturing employment, market bubble, mass immigration, new economy, occupational segregation, postnationalism / post nation state, Ronald Reagan, Silicon Valley, strikebreaker, The Turner Diaries, union organizing, upwardly mobile, urban renewal, War on Poverty, white flight, white picket fence, women in the workforce, working poor

have meet largest firms lacked even "It is pretty clear," says UC Santa Cruz's Manuel Pastor, "that there's ethnic and occupation segregation going on in Silicon Valley." Locked out of the "New Economy," it is not surprising that Latinos are also the least likely to profit individually or through group membership from the fin de siecle stock market bubble. According to a January 2000 Federal Reserve fifth ally study, the bottom of Americans, as a result of exploding household debt, actu- had fewer to real estate assets and than in 1995.^^° White median wealth, thanks Dow Jones, is Latinos: $45,700 versus $4700.)^^^ now almost ten times that of 10 THE PUERTO RICAN TRAGEDY In the worst-case scenario, many of today's Mexican, Central American and Dominican immigrants may recapitulate the bitter experience of the Puerto Rican diaspora.


pages: 515 words: 142,354

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

"there is no alternative" (TINA), "World Economic Forum" Davos, Alan Greenspan, bank run, banking crisis, barriers to entry, battle of ideas, behavioural economics, Berlin Wall, Bretton Woods, business cycle, buy and hold, capital controls, carbon tax, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Great Leap Forward, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low interest rates, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

The three main channels through which quantitative easing helped the economy were all weak: a slight weakening of the value of the dollar helped exports—but these effects were eventually countervailed by America’s trading partners; mortgage rates were reduced as long-term interest rates fell, but the monopolistic banks—and bank concentration after the crisis was greater than before—took much of the lower interest rates and simply enjoyed it as extra profits; and the stock market bubble led the very rich to consume a little more, especially of luxury goods, many of which were made abroad. What the economy really needed was more lending to businesses, but big businesses were already sitting on $2 trillion of cash and were essentially unaffected by QE. And because the Fed and the Obama administration had fixed their attention on the big New York banks and other international banks, the ability of the smaller regional and community banks to make loans remained impaired.43 The result was that years after the crisis such lending remained before its precrisis level.

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


pages: 432 words: 127,985

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

accounting loophole / creative accounting, affirmative action, Alan Greenspan, Andrei Shleifer, Black Monday: stock market crash in 1987, book value, business climate, cognitive dissonance, corporate governance, corporate raider, Donald Trump, fear of failure, financial deregulation, friendly fire, George Akerlof, hiring and firing, junk bonds, margin call, market bubble, Michael Milken, money market fund, moral hazard, offshore financial centre, Ponzi scheme, race to the bottom, Ronald Reagan, Savings and loan crisis, short selling, The Market for Lemons, transaction costs

The General Accounting Office (GAO) was assigned the task of identifying high-risk government activities. The SEC, for example, properly defines itself in its recent strategic plans as “a civil law enforcement agency” (SEC Annual Report for 2002, 1). The SEC’s annual reports during the 1990s, however, despite the record-setting, inflating stock market bubble, never defined a wave of control fraud as a central risk to the accomplishment of its mission. The SEC had grossly inadequate resources, did not see the wave of control frauds coming, and was overwhelmed. The GAO’s definition of high-risk functions includes fraud risk as a key factor. The GAO, however, limited its concept of fraud risk to situations in which someone was stealing from a public agency.

His successor, Danny Wall, would not have taken on the control frauds for reasons made clear later in this book. Indeed, he helped the most notorious control fraud escape regulatory control. Eventually, the expanding wave of control fraud would have caused such a massive bubble in real estate values that it would have collapsed. Since Japan’s real estate and stock market bubbles grew for a full decade during the 1980s without the growth advantages provided by deposit insurance, a U.S. bubble could have lasted for over a decade. Therefore, the wave of control fraud could have extended throughout the Reagan and Bush administrations had it not been for Gray’s desperate war against the control frauds.


pages: 537 words: 144,318

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny

Albert Einstein, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bear Stearns, Bernie Madoff, Black Swan, bond market vigilante , book value, Bretton Woods, BRICs, British Empire, business cycle, business process, buy and hold, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, commoditize, commodity super cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, equity risk premium, family office, fiat currency, fixed income, follow your passion, full employment, George Santayana, global macro, Greenspan put, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, inverted yield curve, invisible hand, junk bonds, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, market microstructure, Minsky moment, moral hazard, Myron Scholes, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, proprietary trading, purchasing power parity, quantitative easing, random walk, Reminiscences of a Stock Operator, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, SoftBank, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, stocks for the long run, stocks for the long term, survivorship bias, tail risk, The Great Moderation, Thomas Bayes, time value of money, too big to fail, Tragedy of the Commons, transaction costs, two and twenty, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game

The Dot-Com Crash As real money was becoming increasingly loaded up on equity risk in their 60-40 portfolios (stocks can be anywhere from 2 to 10 times riskier than bonds depending on what proxies are used), two decades of declining inflation and interest rates culminated in a technology-led stock market bubble that finally popped in March 2000. After the peak, global equity markets declined relentlessly year after year, finally bottoming in early 2003. Stocks generally lost half their value while in-vogue technology stocks dropped 75 percent from peak to trough (see Figure 1.6). Just as they had in the 1970s with bonds, real money managers became painfully aware of the equity concentration risk in their portfolios and began to look for a better, less risky approach.

See European Central Bank Economic crash (2008) banks, problems foresight Economic cycle, driver (location) Economic entity, presence Economic leverage, accounting leverage (contrast) Economy, double dip (hypothesis) Efficient frontier leverage, relationship Efficient markets, disbelief Electorate-adjusted El-Erian, Mohamed Emerging markets bearish markets bubble collapse corporate bonds, usage decoupling equities, selection Employee pension scheme, capital allocation End of the Line, The (Lynn) Endowment Model flaws invalidation orientation portfolio resemblance Endowments cash level Commodity Hedger process decrease in-house trading staff, absence problems Energy, usage Equities bubble/overvaluation performance risk, commodity risk (contrast) risk premium, faith risky assets Equity assets, U.S. public/private pension ownership Equity bubble, conditions Equity-centric portfolio, endorsement (Swensen) Equity concentration risk, awareness Equity index futures, usage Equity-like instruments, usage Equity multiples (1980-2000) Equity-oriented portfolios, decrease Equity returns, Harvard/Yale endowments (contrast) Equity Trader, The adaptability call blow-ups, avoidance business entry CalPERS operation core positions trading, indices/options (usage) discipline, lessons environment differentiation focus fundamentals, understanding future adaptability hedge fund operation, worries outlook interview investor meetings lessons manager, investor base (impact) market environment identification momentum trades, options (usage) performance, randomness P&L, trading portfolio construction positioning, understanding private deals, execution profit-taking process real money fund management research team, usage risk framework transition rules, discovery socialism, concern sovereign wealth fund operation stockholder understanding stocks, shorting/ownership (contrast) taxes, hedge traders competition hiring criteria trades ideas, origination quality risk/reward, change trading accounts, problems decisions, policy makers (impact) disaster preplanning sharpness style, implementation worldview Euro, two-year Euro interest rates European Central Bank (ECB) inflation targeting European Currency Unit (ECU) basket European Exchange Rate (ERM) European Monetary Unit (EMU) European Union, breakage (potential) Excess demand, control Excess return, valuation Exchange rate valuation, P/E multiples (relationship) Exchange-traded funds (ETFs) allowance usage Export land model Extreme scenarios, protection (purchase) Faber, Mark Family office manager Fat-tail events Favorite Trade concept format, Plasticine Macro Trader disapproval Federal Reserve Funds, target rate (2008) independence, cessation Feedback, impact Ferguson, Niall Fiat currencies, impact Fiat money, cessation Filipino Diaspora Finance, diversification (impact) Financial bubble, risk Financial instruments, usage Financials, future Financial stocks (2007-2008) Financing problems Firm-level risk management Fiscal policy easing role, impact underestimation Fiscal stimulus China impact Fixed income trading, focus Fixed income volatility trade Flexibility, value (example) Fordham Law School, support Forecast combinations, improvement Forecasting model parameters, estimation Foreign currency diversification, usage Foreign Direct Investment (FDI) Forward fixed income Forward price, spot price (contrast) Forward-starting volatility Friedman, Milton Front contracts, physical commodities Fundamental investing/research, time frames (matching) Fundamentals, understanding Fund management, skill Fund performance, indicator Future benefit obligations, earnings Future correlations, usage FX forwards G3/G7 liquid rate, arbitrage opportunity (absence) G7 demand G7 economies, problems G10 policy General Theory of Employment, Interest, and Money, The (Keynes) German Schatz contracts Global adjustment period Global dollar carry trade Global economy, weakness Global equities decrease markets, decline Global fund management industry Global governments, financial system (backstopping) Globalization, meaning Global macro approach Global macro funds, factors Global macro hedge fund managers Global warming, carbon dioxide (impact) Gold (1979-1980) (1999) (2000-2009) (2004-2009) pension fund base currency safety Good leverage, classification Government bonds bull market (1985-2009) leverage, change LIBOR positions, leverage safety Government debt, funding Government default risk Government stimulus, payment Grantham, Jeremy Great Britain, ERM absence Great Depression spending, decrease taxes, increase Great Macro Experiment.


End the Fed by Ron Paul

affirmative action, Alan Greenspan, Bear Stearns, Bernie Madoff, Bernie Sanders, Bretton Woods, business cycle, crony capitalism, currency manipulation / currency intervention, fiat currency, Fractional reserve banking, guns versus butter model, hiring and firing, housing crisis, illegal immigration, invisible hand, Khyber Pass, Long Term Capital Management, low interest rates, market bubble, means of production, military-industrial complex, Money creation, moral hazard, Ponzi scheme, price mechanism, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, Savings and loan crisis, too big to fail, tulip mania, We are all Keynesians now, Y2K

Bernanke closed his remarks by directly addressing Friedman: “You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” The fault indeed does lie with the Federal Reserve—but obviously for opposite reasons. It was the credit expansion of the 1920s causing the stock market bubble that was the real cause of the crash. The crash was then compounded by the necessary corrections being interfered with by both Hoover and FDR and the concurrent Congresses. Bernanke may be serious and believe he can prevent the consequences of the Fed’s mistakes of the past several decades. But he is wrong.


pages: 489 words: 148,885

Accelerando by Stross, Charles

book value, business cycle, call centre, carbon-based life, cellular automata, cognitive dissonance, commoditize, Conway's Game of Life, dark matter, disinformation, dumpster diving, Extropian, financial engineering, finite state, flag carrier, Flynn Effect, Future Shock, glass ceiling, gravity well, John von Neumann, junk bonds, Kickstarter, knapsack problem, Kuiper Belt, machine translation, Magellanic Cloud, mandelbrot fractal, market bubble, means of production, military-industrial complex, MITM: man-in-the-middle, Neal Stephenson, orbital mechanics / astrodynamics, packet switching, performance metric, phenotype, planetary scale, Pluto: dwarf planet, quantum entanglement, reversible computing, Richard Stallman, satellite internet, SETI@home, Silicon Valley, Singularitarianism, Skinner box, slashdot, South China Sea, stem cell, technological singularity, telepresence, The Chicago School, theory of mind, Turing complete, Turing machine, Turing test, upwardly mobile, Vernor Vinge, Von Neumann architecture, warehouse robotics, web of trust, Y2K, zero-sum game

. "– Give him sixty-four doubling times, hmm, add a delay factor for propagation across the system, call it six light-hours across, um, and I'd say … " she looks at Sirhan. "Oh dear." "What?" The orang-utan explains: "Economics 2.0 is more efficient than any human-designed resource allocation schema. Expect a market bubble and crash within twelve hours." "More than that," says Amber, idly kicking at a tussock of grass. She squints at Sirhan. "My mother is dead," she remarks quietly. Louder: "She never really asked what we found beyond the router. Neither did you, did you? The Matrioshka brains – it's a standard part of the stellar life cycle.

Manfred declines a refill, waiting for Gianni to drink. "Ah, the simple pleasures of the flesh! I've been corresponding with your daughter, Manny. She loaned me her experiential digest of the journey to Hyundai +4904/-56. I found it quite alarming. Nobody's casting aspersions on her observations, not after that self-propelled stock market bubble or 419 scam or whatever it was got loose in the Economics 2.0 sphere, but the implications – the Vile Offspring will eat the solar system, Manny. Then they'll slow down. But where does that leave us, I ask you? What is there for orthohumans like us to do?" Manfred nods thoughtfully. "You've heard the argument between the accelerationistas and the time-binder faction, I assume?"


The Volatility Smile by Emanuel Derman,Michael B.Miller

Albert Einstein, Asian financial crisis, Benoit Mandelbrot, Black Monday: stock market crash in 1987, book value, Brownian motion, capital asset pricing model, collateralized debt obligation, continuous integration, Credit Default Swap, credit default swaps / collateralized debt obligations, discrete time, diversified portfolio, dividend-yielding stocks, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, fixed income, implied volatility, incomplete markets, law of one price, London Whale, mandelbrot fractal, market bubble, market friction, Myron Scholes, prediction markets, quantitative trading / quantitative finance, risk tolerance, riskless arbitrage, Sharpe ratio, statistical arbitrage, stochastic process, stochastic volatility, transaction costs, volatility arbitrage, volatility smile, Wiener process, yield curve, zero-coupon bond

The only thing I could do was send him back an email, “I will not accept the Nuremberg excuse.” Comparing financial modelers to Nazi war criminals seems extreme, and indeed, since then, opinions about modelers’ responsibility for the financial meltdown have become more nuanced. Spain and Ireland developed housing market bubbles that, unlike those in the United States, were not inflated by complex financially engineered products. Paul Krugman has suggested that the root cause of the crisis lay in the West’s rapid withdrawal of capital from Asia after the currency crisis of 1998, leading Asian countries thereafter to concentrate on exporting, saving, and hoarding, which led them to provide cheap credit that fueled speculation.

See also Discrete hedging dynamic, 64, 204 dynamic replication for, 52, 53f error in, 110–114 frequency of, 99 as risk management strategy, 31–34 selection of volatility for, 203–204 and transaction costs, 118 of vanilla options, with smile models, 169–171 Hedging volatility, 105–110 Heston, Steven, 331 Heston model, 331, 369n.1 High-volatility down markets, 308 Hillel, 13 Hoggard, T., 125, 126 Housing market bubbles, 2 Hull, John, 325, 351, 352, 363 Hull-White stochastic volatility model, 325 Human behavior, 20–21, 417 Hysteresis, 19 Implied distribution, 175–183, 184f, 185–186 Breeden-Litzenberger formula in, 180–183, 184f, 185–186 and state-contingent securities, 175–180 Implied variables, 51–52 Implied variance, 279–280 505 Index Implied volatility: in Black-Scholes-Merton model, 80 constraints on, 158–159 and equity indexes, 146, 148 and hedged options, 94 hedged option strategies with, 101–103 in jump-diffusion models, 414 local vs., 257–262, 278–286 realized vs., 50–51, 115–116 in smile models, 164 up-and-out barrier calls with no, 295–296 and volatility smile, 131–133 Implied volatility function, 164–165 Implied volatility smile, 3–5 Incremental profit and loss, 95–96 Index options, and local volatility, 306–308 Indicator function, 190 Individual equities, and the smile, 148–149 Inequalities: Merton, for European option prices, 154–158 for smile slope of no-arbitrage bounds, 158–160 Instantaneous variance, 364, 380 Instantaneous volatility, 364 Integration by parts, 427–429 Interest rates: modeling of, 164 Vasiçek interest rate model, 334 volatility smile of, 151 Intuition, and financial models, 11 Irrational exuberance, 311 Itô integrals, backward, 92–93, 421–429 Itô’s lemma: changes in option values with, 347 hedged options, 86 instantaneous variance in, 364 for profit and loss, 97–98 in stochastic volatility models, 345 variance swaps, 74 Jarrow-Rudd convention, 231–232, 271 JPMorgan Chase & Co., 7 JPY (Japanese yen), 149, 150f Jump(s), 383–384 accounting for, in jump-diffusion models, 168 calibration and compensation for, 387–391 plus diffusion, 395–398 Poisson distribution of, 391–393 as random dividends, 396 skew arising from, 384–387 and variance swaps, 81–82 in volatility, due to market behavior, 326–327 Jump-diffusion models, 168, 383–416 calibration and compensation for jumps, 387–391 call valuation in, 401–404 jumps, 383–384 jumps plus diffusion, 395–398 mixing formula in, 404–408 Poisson distribution of jumps, 391–393 pure jump risk-neutral option pricing, 393–394 qualitative description of jump-diffusion smile, 408–410 skew arising from jumps, 384–387 with small probability of large single jump, 410–415 trinomial jump-diffusion and calibration, 398–401 Jump-diffusion smile, 408–410, 414–415 Kamal, Michael, 316 Kani, Iraj, 268 Keynes, John Maynard, 6, 20–21 Krugman, Paul, 2 Laws, theorems vs., 6 Law of one price, 14–15 and investment risk, 24–25 and Sharpe ratio, 29 Law of quantitative finance, 13–15 Leland, Hayne E., 127 Leverage, in portfolio management, 29 Leverage effect, 165–166 Limitations: of diversification, 32 of replication, 16–17 Linear average approximation, 261 Lo, Andrew, 13 Local variance, 279–280 Local volatility: extension of, with stochastic volatility models, 320 implied vs., 257–262, 278–286 Local volatility function, 164–165 506 Local volatility models, 164–167, 249–308 advantages of, 303–304 barrier options in, 292–296 binomial, 250–257 binomial derivation of Dupire’s equation, 270–275 binomial tree difficulties, 262–263 disadvantages of, 304–306 Dupire’s equation for, 265–270 extension of, with stochastic volatility models, 337–344 formal proof of Dupire’s equation, 275–277 hedge ratios in, 289–292, 379 index options in, 306–308 local vs. implied volatility, 257–262, 278–286 lookback call options in, 297–301 modeling stock with variable volatility, 249–250 and volatility change patterns, 314–315 Log contracts: in Black-Scholes-Merton world, 70–71 and realized future variance, 71–82 with vanilla options, 67–71 Log payoffs, 67–71 Long call, 39f Long call, short stock, 39f Long call, short stock, long zero coupon bond, 39f Long expirations: jumps effects on, 384f, 385–386 and mean-reverting volatility, 371 Lookback call options, 297–301 Loss, from time decay, 52.


pages: 196 words: 57,974

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

affirmative action, AOL-Time Warner, barriers to entry, Bear Stearns, Bonfire of the Vanities, book value, borderless world, business process, Carl Icahn, Charles Lindbergh, classic study, company town, Corn Laws, Cornelius Vanderbilt, corporate governance, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, double entry bookkeeping, Etonian, Fairchild Semiconductor, financial engineering, Great Leap Forward, hiring and firing, Ida Tarbell, industrial cluster, invisible hand, James Watt: steam engine, John Perry Barlow, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, junk bonds, knowledge economy, knowledge worker, laissez-faire capitalism, manufacturing employment, market bubble, Michael Milken, military-industrial complex, mittelstand, new economy, North Sea oil, pneumatic tube, race to the bottom, railway mania, Ronald Coase, scientific management, Silicon Valley, six sigma, South Sea Bubble, Steve Jobs, Steve Wozniak, strikebreaker, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, Triangle Shirtwaist Factory, tulip mania, wage slave, William Shockley: the traitorous eight

The American people were furious: 70 percent of them said that they did not trust what their brokers or corporations told them and 60 percent called corporate wrongdoing “a widespread problem.”32 Even bosses who had not been caught doing anything wrong, such as Hank Paulson of Goldman Sachs and Andy Grove of Intel, felt obliged to apologize to the public for the sorry state of American capitalism.33 Meanwhile, in continental Europe, the two bosses who had most obviously proclaimed themselves disciples of the American way—Thomas Middelhoff of Germany’s Bertelsmann and Jean-Marie Messier of France’s Vivendi—were both sacked. The general catalyst for this revolution was the bursting of America’s stock-market bubble. Between March 2000 and July 2002, this destroyed $7 trillion in wealth—a sum equivalent to a quarter of the financial assets owned by Americans (and an eighth of their total wealth). The spread of mutual funds and the change from defined-benefit to defined-contribution retirement plans meant that this was a truly democratic crash: most of the households in America lost money directly.


pages: 202 words: 58,823

Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bear Stearns, behavioural economics, Bernie Madoff, Brexit referendum, capital asset pricing model, cognitive bias, collapse of Lehman Brothers, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, delayed gratification, diversification, diversified portfolio, effective altruism, endowment effect, Eratosthenes, experimental subject, family office, George Akerlof, index fund, information asymmetry, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, loss aversion, market bubble, market clearing, money market fund, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, Philippa Foot, principal–agent problem, profit maximization, profit motive, Richard Thaler, search costs, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, trolley problem, ultimatum game

Smith and Raskob raised money while the stock market crashed, broke ground on Saint Patrick’s Day in March 1930, and opened on May 1, 1931 (Berman, Empire State Building, 11). FOUR Making Money in Financial Markets 1. Stalwart believers in efficient markets will even deny the existence of market “bubbles.” In at least some cases, they’re right. For instance, most people believe that seventeenth-century Dutch traders lost their minds, bidding up the price of tulips to incredible heights and causing an economic crisis when prices finally collapsed. According to Peter Garber’s 1989 article debunking tulipmania, modern references to the tulip craze are based on a brief description from 1852 that drew in turn on unreliable secondary sources.


pages: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, book value, Branko Milanovic, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, carbon tax, central bank independence, centre right, circulation of elites, 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, Future Shock, German hyperinflation, Gini coefficient, Great Leap Forward, 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, Kenneth Arrow, low interest rates, market bubble, means of production, meritocracy, Money creation, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, Paul Samuelson, pension reform, power law, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Robert Solow, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, Suez canal 1869, Suez crisis 1956, The Nature of the Firm, the payments system, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, twin studies, very high income, Vilfredo Pareto, We are the 99%, zero-sum game

During the 1980s, the value of private wealth shot up in Japan from slightly more than four years of national income at the beginning of the decade to nearly seven at the end. Clearly, this enormous and extremely rapid increase was partly artificial: the value of private capital fell sharply in the early 1990s before stabilizing at around six years of national income from the mid-1990s on. I will not rehearse the history of the numerous real estate and stock market bubbles that inflated and burst in the rich countries after 1970, nor will I attempt to predict future bubbles, which I am quite incapable of doing in any case. Note, however, the sharp correction in the Italian real estate market in 1994–1995 and the bursting of the Internet bubble in 2000–2001, which caused a particularly sharp drop in the capital/income ratio in the United States and Britain (though not as sharp as the drop in Japan ten years earlier).

If certain immaterial investments (such as expenditures to increase the value of a brand or for research and development) are not counted on the balance sheet, then it is logical for the market value to be structurally greater than the book value. This may explain the ratios slightly greater than 1 observed in the United States (100–120 percent) and especially Britain (120–140 percent) in the late 1990s and 2000s. But these ratios greater than 1 also reflect stock market bubbles in both countries: Tobin’s Q fell rapidly toward 1 when the Internet bubble burst in 2001–2002 and in the financial crisis of 2008–2009 (see Figure 5.6). Conversely, if the stockholders of a company do not have full control, say, because they have to compromise in a long-term relationship with other “stakeholders” (such as worker representatives, local or national governments, consumer groups, and so on), as we saw earlier is the case in “Rhenish capitalism,” then it is logical that the market value should be structurally less than the book value.

In short, it seems unreasonable to draw such an extreme contrast between Gates and Slim without so much as a glance at the facts.20 As for the Japanese billionaires (Yoshiaka Tsutsumi and Taikichiro Mori) who from 1987 to 1994 preceded Bill Gates at the top of the Forbes ranking, people in the Western world have all but forgotten their names. Perhaps there is a feeling that these men owe their fortunes entirely to the real estate and stock market bubbles that existed at the time in the Land of the Rising Sun, or else to some not very savory Asian wheeling and dealing. Yet Japanese growth from 1950 to 1990 was the greatest history had ever seen to that point, much greater than US growth in 1990–2010, and there is reason to believe that entrepreneurs played some role in this.


100 Baggers: Stocks That Return 100-To-1 and How to Find Them by Christopher W Mayer

Alan Greenspan, asset light, bank run, Bear Stearns, Bernie Madoff, book value, business cycle, buy and hold, Carl Icahn, cloud computing, disintermediation, Dissolution of the Soviet Union, dumpster diving, Edward Thorp, Henry Singleton, hindsight bias, housing crisis, index fund, Jeff Bezos, market bubble, Network effects, new economy, oil shock, passive investing, peak oil, Pershing Square Capital Management, shareholder value, Silicon Valley, SimCity, Stanford marshmallow experiment, Steve Jobs, stock buybacks, survivorship bias, Teledyne, The Great Moderation, The Wisdom of Crowds, tontine

Comcast would eventually grow sales more than six times from 2001, as it continued to expand and acquire companies. “Big acquisitions during this time include: AT&T Broadband, Adelphia (50–50 with TIME Warner Cable) and a 51 percent stake of NBCUniversal,” Alejandro writes. An investor would have had to sit through a nasty fall as the 2000 stock market bubble burst. Comcast shares would give up about half their value from the peak to the trough in 2002. But then it was off to the races once again. An investor who held on through 2014 would’ve had a 188-bagger. This is a short case study, but it serves to highlight again the power of sales growth and the ability to see something beyond the reported earnings. 66 100-BAGGERS Netting a 100-bagger takes vision and tenacity and, often, a conviction in an idea that may not yet be obvious in the financials.


pages: 261 words: 63,473

Warren Buffett Accounting Book: Reading Financial Statements for Value Investing (Warren Buffett's 3 Favorite Books) by Stig Brodersen, Preston Pysh

accelerated depreciation, book value, discounted cash flows, fixed income, intangible asset, low interest rates, market bubble, money market fund, principal–agent problem, profit maximization, risk tolerance, stock buybacks, time value of money

Now, there’s a huge debate about whether the Federal Reserve creates stability or instability for the economy by adjusting interest rates, but that’s not important. As an investor, the important thing to understand is that the FED purposely adjusts the interest rates to improve and slow the growth of the economy. Without controlling this rate, many argue the financial system(s) may collapse due to enormous market bubbles or lack of credit/cash in the system. Every time interest rates change, so does the disparity between price and value—therefore creating potential opportunities. As a stock investor, it is extremely important to keep an eye on the interest rate. You should act differently in the stock market when the interest is low compared to when it is high.


pages: 580 words: 168,476

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

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

International Trade in Goods and Services Highlights,” February 10, 2012, http://www.census.gov/indicator/www/ustrade.html (accessed March 6, 2012). 15. In the 1990s, we maintained a trade deficit and full employment, even with a government surplus; but the circumstances were unusual—an investment burst fueled by a stock market bubble (the tech bubble). And it was not sustainable. In chapter 8 we explained how one could stimulate the economy even within the confines of a limited budget deficit, but the politics of what is required (under current circumstances) may make even this unachievable. 16. Part of the reason for the trade imbalances is the role of the United States as a reserve currency.

., xxiv Halliburton Corporation, 101, 210, 272 Hammonds, Tim, 338 Harrison, John, 109 health care, 12, 44, 155, 222, 263 cost of, 10, 97, 109, 265, 273, 274, 276, 301, 317, 353, 378, 380 government assistance with, 14, 23, 31, 70, 74, 226, 276; see also Medicare inefficiency in, 176, 183, 228, 380, 395 Obama’s reform of, 14, 163, 276 racial discrimination in, 70, 303 health industry, 95, 97, 176 see also pharmaceutical industry Hemsley, Stephen, 42 Hewlett-Packard (HP), 203, 360 Hispanics: discrimination against, 68, 70, 328, 369 wealth of, 13, 329, 384 Holder, Eric, 199 homeownership, 76, 108, 152, 157, 161, 171, 223, 379 Hoover, Herbert, 231 House of Representatives, U.S., 93, 100, 134, 207 Financial Services Committee of, 136 see also Congress, U.S.; Senate, U.S. housing discrimination, 70–71, 308 housing market: bubble in, 54, 85, 88–89, 183, 191–93, 211, 232, 243, 262, 378, 388 collapse of, 3, 8, 13, 89, 91, 169, 198, 223, 285, 294, 296, 302, 311, 314, 363 recovery in, 284–85 see also foreclosures; mortgage restructuring; predatory lending; subprime crisis housing subsidies, 74 human rights, 59, 155 ideas: democracy and, 185 evolution of, 156–59, 160 immigration, 53, 227, 296 imprisonment, 15, 70, 303, 304–5 incentive pay, 78–79, 87, 107, 108–14, 153–54, 163, 173, 205, 342, 343, 347 income redistribution, 85, 211 criticisms of, xxii, 106 government’s role in, 30–31, 71–76, 155, 238, 279 political limitation of, 32, 77 India, 152–53, 196–97, 249 Industrial Revolution, 30, 105, 345 inequality: alternative models of, 81–82 consequences of, 83–117, 125, 133–35, 147, 148, 186, 187–206, 233 deficit reduction and, 221–24 determinants of, xii, 28, 30–31, 33–39, 79–82, 267, 271, 276 educational, xiv, 19, 20, 30–31, 68, 75, 94, 102, 108, 160, 307–8, 322 efficiency and, 106–16, 117 globalization’s effect on, 60, 63–64, 79, 80, 140, 142, 144, 145 government’s role in, 6, 28, 30–32, 52, 57–58, 74, 75–76, 77, 79, 81, 82, 147, 153, 172–73, 190, 207 historical, 29–30, 332 income, 2, 3, 4, 7–8, 9, 22, 24, 25, 26, 27, 29, 30, 52, 53, 54, 55, 56, 57, 71, 72, 77, 79–80, 81, 85, 86, 127, 153, 178, 183, 202, 233, 240, 241, 267, 294–95, 296, 297, 298, 299, 300, 311, 328, 332, 335; see also income redistribution and instability, 5, 84–92, 117, 240 justifications for, 27, 29, 30, 77–78, 81, 154, 156, 342 lifetime, 26, 106, 310, 311 macroeconomic factors in, 238–64 markets’ effect on, 52–82 perceptions of, 127, 147–48, 152–55, 159, 160, 179, 184 remedies for, 29, 107, 114–17, 213, 237, 268–85, 287 rent seeking and, 32, 38, 40, 77, 107, 173, 213 and social distance, 148, 160 societal effects of, xii, xvi–xvii, xx, xxii, 2, 18, 20, 27, 65, 76, 84, 90, 100, 104–6, 117, 326–27 societal factors in, 53, 64–71, 82, 84, 282 inflation, 219, 239, 240, 241, 242, 248–49, 255, 259–60, 261, 262, 263, 279, 365, 378, 383, 384, 385, 391, 392, 393 Informant, The, 320 infrastructure, 88, 92, 93, 102, 115, 117, 155, 216, 267, 283 innovation: in business, 35, 41, 46, 78, 96, 178–79, 314, 315 direction of, 58, 244, 270, 283–84 patent law and, 43, 202 scientific, 41, 78, 93, 100, 202 insurance industry, 176, 177, 228, 274, 276 intellectual property, 140, 202–3, 316, 323, 354, 375 see also patents interest rates, 3, 7, 49, 71, 80, 86, 88, 110, 177, 208, 209, 217, 234, 242, 243, 244, 245, 251, 259, 260, 261, 262, 283, 380, 382, 385, 386, 392 International Monetary Fund (IMF), 60, 61, 91–92, 138, 141, 181–82, 231, 316, 353 Internet, 41, 45, 87, 115, 174, 349, 358 interns, internships, 76, 332 intrinsic rewards, 111–12 investment: globalization and, 60, 73, 74 private, 6, 73, 74, 86, 87, 88, 92, 222, 225, 226, 230, 235, 243, 244, 283, 335, 382 public, 23, 40, 80, 84, 88, 92–94, 102, 114, 115, 155, 174, 216, 217, 218, 230, 232–33, 263, 267, 273, 279, 281, 282–83, 381 Iran, 22, 23 Iraq War, 101, 143, 176, 209, 210, 211, 340 Ireland, financial crisis in, 182, 210, 219, 220, 255, 256 irrigation, 122, 322 Israel, 14, 262 Italy, 18 financial crisis in, 138–39, 255, 389–90 Japan, 14, 19, 308 Jobs, Steve, 41, 315 JPMorgan Chase, 345, 374, 388 judges, 44, 200, 373 Justice Department, U.S., 199, 318 Kerry, John, 359 Kessler, David, 357 Keynes, John Maynard, 86, 105, 151, 267 King, Mervyn, 248 Korea, 16, 19 Krueger and Mas, 104 Krugman, Paul, 137 labor, 55, 152 bargaining power of, 61, 64, 277, 281; see also labor unions demand for, 38, 53–57, 61, 63 in developing world, 63, 64, 326, 397 discrimination in, 68–70, 71 fairness in, 103–4, 127 free mobility of, 59–60, 61–62 globalization’s effect on, 56, 59–60, 61, 63, 64, 80, 233, 277, 280, 281, 324, 325 Great Recession’s effect on, 29, 57, 65, 67, 91, 124–25, 231, 241–42, 250, 380 macroeconomic policies affecting, 80, 225, 279 motivation of, 102, 103 polarization of, 8–9, 56, 79, 80, 133, 277 public-sector, 57, 322 in recessions, 29, 67, 124 and social capital, 124–25 structural changes in, 53–54, 56, 232–33, 263, 280–81, 285 technology’s effect on, 53, 54–56, 63, 79, 80, 277, 280, 283, 334 women in, 14 work hours and, 9, 14, 26, 327 see also employment; unemployment; wages labor unions, 38, 57, 64–65, 66, 67, 79, 80, 281–82, 327 Latin America, 23, 40, 84, 231 Latvia, austerity in, 231 Lauder, Ronald, 72 lawyers, 42–43, 99–101, 190, 203, 339 Lay, Ken, 178 legal system, U.S., 187–206 alternative frameworks for, 188, 202 banks’ deception in, 198, 199, 200, 201, 373 burden of proof in, 199–200 contracts in, 197 corporate advantages in, 66, 132, 189–90, 191, 203, 272, 327, 374 costs in, 100, 189–90, 202 distributive consequences of, 190, 193, 271, 317, 370 economic bias in, 44 Federal Reserve accountability in, 252 financial crisis prosecution in, xv–xvi, 70, 119, 199, 372, 373 financial sector’s favoring in, 191–202, 203, 204–6 information asymmetries in, 271, 368 political influence in, 44, 190–91, 200 property rights in, 190, 194, 197, 198, 199 purpose of, 100, 188–91 reform of, 273 rent seeking in, 42, 43, 203, 273 and social responsibility, 121 unfairness in, 42, 43, 100, 189–90, 191–202, 203, 206, 368, 373, 375 Lehman Brothers, 253, 313, 390 Leme, Paulo, 353 Lenin, Vladimir, 354 Lessig, Lawrence, xxiv LG, 203 Lincoln, Abraham, 137 List, John, 347 lobbying, 48, 95, 101, 185, 196, 319, 324, 325, 338 Lockheed Martin, 210 London Interbank Offered Rate (Libor), 47 Longitude (Sobel), 109 Lula da Silva, Luiz Inácio, 5, 139, 353 Luxembourg, 183, 286 manufacturing: compensation shifts in, 65, 328 job losses in, 54, 56, 57, 232–33, 285, 321 societal impact of, 156 marginal productivity theory, 30, 33, 77, 267 marketing, 150–51, 160, 162, 357, 359 Marlboro Man, 151, 354 marriage, economic insecurity and, 15, 303 Marshall, Alfred, 102 Marx, Karl, 30, 292 Massachusetts, 200–201 McCarty, Nolan, xxiv McDonald’s, 381 media, 128–29, 134, 135, 136, 160, 163, 252, 272, 286, 335, 348, 349, 358 Medicaid, 14, 228, 277, 378 Medicare, 17, 48, 97, 147, 163, 176, 210, 228–29, 265, 320, 355, 364, 378, 380 Mexico, 16, 42, 64, 138, 176, 365 MF Global Holdings, 313 microcredit, 196–97 Microsoft, 42, 44, 45–46, 74, 203, 317, 318, 319 middle class, 54, 117, 137 assistance to, 29, 274 economic insecurity of, xvii, 12–14, 23, 26, 103, 265–66 globalization’s effect on, 63, 64 Great Recession’s effect on, 10 hollowing out of, 2, 9, 25, 38, 84, 133, 300 income of, 3, 4, 7, 8, 9, 14, 25, 54, 56, 57, 63, 72, 240, 297, 298, 300, 385 recovery of, 29, 225 tax deductions for, 222–24, 379 unfair policies toward, xv, xxii wealth sources of, 3, 8, 13–14, 91, 167 Middle East, 40 see also Arab Spring Mill, John Stuart, 368 monetarism, 257, 258–59 monetary policy, 85, 86, 88, 133, 177, 208, 234, 239–40, 248, 250, 251, 252, 254, 257–58, 259, 261, 262, 263–64, 380, 382, 385, 389, 392 distributive consequences of, 243–45, 264, 279 idea-shaping in, 256–63 monopolies 31, 32, 35, 39–47, 95, 97, 140, 213, 270–71, 274, 316, 318 moral hazard, 171, 229, 256, 362, 363 Mortgage Electronic Registry System (MERS), 198, 201, 374 mortgage fraud, 198, 201, 372, 373 mortgage restructuring, 169–72, 201–2, 284–85, 362, 363 mortgages, tax deductions for, 222, 223, 379 mortgage securities, 205 Mosaic, 318 motivation, 102, 103, 111–12 Motorola, 203 Mozilo, Angelo, 333 Mueller, Edward, 42 Mullainathan, Sendhil, 103 municipal bonds, 212, 378 National Academy of Sciences, 26 National Center for Supercomputing Applications, 318 National Commission on the Causes of the Financial and Economic Crisis in the United States, 357, 358 National Economic Council, 180 Netherlands, 19, 22 Netscape, 45–46, 318 New Deal, xiii, 88, 231 Newfoundland, 138 New York Times, 11, 119, 205 Nokia, 203 North American Free Trade Agreement, 141 Norway, 22, 23, 183, 220 NTP, Inc., 203 Obama, Barack, x, 352 deficit reduction by, 207 and ethanol subsidy, 51 Federal Reserve nominees of, 319 financial crisis response of, xv, 168, 169, 361 health care program of, 14, 163, 276 tax position of, 395 Obama administration, xiv, 67, 170, 171, 200, 250, 284, 362, 396 Occupy Wall Street, ix–xiv, xix–xxi, 102, 116, 118, 127, 134, 345 “Of the 1%, for the 1%, by the 1%” (Stiglitz), xi Olin Foundation, 44, 359 1 percent: definition of, xxii economic framework’s favoring of, xx, xxii, 31, 34, 62, 67, 91, 117, 131, 142, 173, 174, 189, 191, 204, 239, 244, 245–46, 264, 348, 354 economic security of, 18, 19, 25 globalization’s benefits to, 62, 64, 142 idea-shaping by, 129, 134, 137, 146–86, 211, 236, 256, 287 income of, 2, 4, 8, 25, 52, 72, 85, 215, 267, 294, 295, 297, 298, 299, 300, 315, 332, 335 legal framework’s favoring of, 188, 191, 202, 206, 273 media’s control by, 129, 134, 286 political power of, xix, 32, 67, 83, 86, 89, 101, 118, 119, 120–21, 129, 131–33, 134, 137, 138, 146, 191, 267, 285, 348, 351 public perception of, 20–21, 146, 154, 159, 358 reform aimed at, 29, 268–74 rent seeking by, 32, 38, 41–43, 77 saving by, 85, 88, 223, 275 small government preference of, 93 social contract violation by, xvi–xvii social contributions of, 27, 41, 77–78, 96, 266 social norms’ shaping by, 53 taxation of, 5, 38, 42–43, 62, 71–73, 74, 76, 77, 84, 86, 87–88, 114, 115, 116, 138, 142, 159, 167, 208, 209, 211, 212, 214–15, 218, 221, 223, 224, 225, 226, 256, 274, 275, 294, 312, 335, 344, 360, 383, 394 value change in, 288 wealth of, 2, 3, 8, 25, 32, 38, 56, 72, 73, 80, 84, 166–67, 295 see also corporations; financial sector Organization for Economic Cooperation and Development (OECD), 16, 185 Orshansky, Mollie, 305 Ostrom, Elinor, 322 overdrafts, 194, 370 Pager, Devah, 69 Papua New Guinea, 184 patents, 43, 202, 203, 316, 374, 375 see also intellectual property pension funds, 227–28 Personal Responsibility and Work Opportunity Reconciliation Act, 17 Pew Foundation, 20 pharmaceutical industry: government munificence toward, 40, 48, 97, 210, 211, 224, 228, 272, 276 research in, 97 see also health industry Pierson, Paul, xxiv Piketty, Thomas, xxiii, 114 Pinochet, Augusto, 258 polarization, 8–9 Polarized America (McCarty, Poole, and Rosenthal), xxiv police lineups, 149 police states, 125 politics, U.S.: cognitive capture in, 161–62 corporate influence in, 34, 37, 41, 47, 48, 50, 51, 61, 62, 95, 99, 101, 111, 131–32, 135, 136–37, 200, 202, 285, 286, 319, 324, 325, 338, 350 distributive consequences of, 31, 52, 58, 239, 277, 278, 322 economy’s linkage with, xi, xix–xx, xxiv, 34, 38–39, 47, 52–53, 59, 65, 66, 89, 118, 131, 135, 138, 151, 173, 266, 287, 288–89, 348 idea-shaping in, 129, 137, 148, 149, 151–52, 153–55, 159–62, 163, 166–72, 175, 180, 185, 186, 285 legal consequences of, 190–91 media’s role in, 129, 134, 135, 136, 160, 163, 286 reform of, 135–36, 267, 285–86 regulatory capture in, 47–48, 248, 249–50, 253, 264 societal factors in, 64 unfairness in, x, xi, xii, xviii–xx, 31–32, 39, 41, 83, 101, 114–15, 118, 119, 120–21, 127, 129, 131–33, 134, 135, 136–37, 138, 144, 146, 191, 196, 200, 202, 267, 285, 286, 319, 324, 325, 338, 348, 350, 351 voting in, 119–21, 129–31, 133, 134, 135, 137, 286, 288, 325, 345, 349, 350, 351, 355 see also democracy, U.S.; government, U.S.


pages: 526 words: 160,601

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

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

The Ant, the Grasshopper, and the Boomer What’s going on here? Private savings have been in decline since the Boomers entered their prime working years. Because very little cohort data exists, economists debate exactly why the savings rate has declined—questioning whether the wealth effect of stock market bubbles discouraged the rich from saving in the 1990s, the natural tendency of a modestly aging population to dissave, and so on. But during the period of steep savings decline, the Boomers had major influence on the savings rate and should have been aggressive savers, yet the inexorable direction was down, until the crash of 2008 forced people to save more.

Taken together with the complexity of the operations of the biggest, most critical banks, that means the system remains to this day at the mercy of sociopathic subjectivity. It did not help that the Boomers’ psychologically formative years came during a time of great prosperity and that their professional lives were characterized by a long and dubious stock market bubble, allowing critical faculties to wither. Boomer optimism allowed for variables in risk models and accounting statements to be adjusted to their most appealing settings, a parallel to the collective Boomer delusion that the stock and housing markets “only go up.” Equally unhelpful was the collision of attractive economic theories with an ugly sociological reality.


Alpha Trader by Brent Donnelly

Abraham Wald, algorithmic trading, Asian financial crisis, Atul Gawande, autonomous vehicles, backtesting, barriers to entry, beat the dealer, behavioural economics, bitcoin, Boeing 747, buy low sell high, Checklist Manifesto, commodity trading advisor, coronavirus, correlation does not imply causation, COVID-19, crowdsourcing, cryptocurrency, currency manipulation / currency intervention, currency risk, deep learning, diversification, Edward Thorp, Elliott wave, Elon Musk, endowment effect, eurozone crisis, fail fast, financial engineering, fixed income, Flash crash, full employment, global macro, global pandemic, Gordon Gekko, hedonic treadmill, helicopter parent, high net worth, hindsight bias, implied volatility, impulse control, Inbox Zero, index fund, inflation targeting, information asymmetry, invisible hand, iterative process, junk bonds, Kaizen: continuous improvement, law of one price, loss aversion, low interest rates, margin call, market bubble, market microstructure, Market Wizards by Jack D. Schwager, McMansion, Monty Hall problem, Network effects, nowcasting, PalmPilot, paper trading, pattern recognition, Peter Thiel, prediction markets, price anchoring, price discovery process, price stability, quantitative easing, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, reserve currency, risk tolerance, Robert Shiller, secular stagnation, Sharpe ratio, short selling, side project, Stanford marshmallow experiment, Stanford prison experiment, survivorship bias, tail risk, TED Talk, the scientific method, The Wisdom of Crowds, theory of mind, time dilation, too big to fail, transaction costs, value at risk, very high income, yield curve, you are the product, zero-sum game

Our studies show that people who are immune to commonly-known behavioral biases perform the best in experimental asset markets. This is the conclusion of many studies. RQ is more important than IQ30. You are either part of the unbiased, efficient markets or you are creating exploitable inefficiency with your biased, irrational actions. Research Paper 2 “Mental Capabilities, Trading Styles, and Asset Market Bubbles: Theory and Experiment” (2016) ANDREAS HEFTI, STEVE HEINKE AND FRÉDÉRIC SCHNEIDER These researchers first did a series of experiments to evaluate participants on two dimensions, analyzing and mentalizing31. Then, they ran a typical asset market / trading experiment to see how different individuals would behave and perform.

These moves are another sign of excess (especially relative to the HTZ and CHK bonds, which are priced around 35 cents and 6 cents, respectively). Here’s the thing about bubbles Ok, sure, it’s a bubble. Even if you agree with me, what do you do? First of all, let me clarify that I believe this is a retail bubble in a specific group of stories, not a broad market bubble. If you are a professional asset manager, you should know what stocks are being bid up by retail right now and think about your dream exit levels. Here’s the thing about bubbles. Just because you have identified one, that does not mean you should be short. Often the real money is made by identifying a bubble and jumping on for the bullish Wave 5 insanity.


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

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-border payments, currency peg, currency risk, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Glass-Steagall Act, Herman Kahn, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, Japanese asset price bubble, joint-stock company, junk bonds, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Mary Meeker, Michael Milken, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, Suez canal 1869, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War

It was as if the cash from the sale of securities to foreigners was the proverbial ‘hot potato’ that was rapidly passed from one group of investors to others at ever-increasing prices. Manias and credit and books The production of books on financial crises is counter-cyclical. A spate of books on the topic appeared in the 1930s following the US stock market bubble in the late 1920s and the subsequent crash and the Great Depression. Relatively few books on crises appeared during the several decades immediately after World War II. The first edition of this book was published in 1978, after US stock prices had declined by 50 percent in 1973 and 1974 following a fifteen-year bull market in stocks.

Clarence Hatry wanted to expand into the steel business, but was caught using fraudulent collateral in an attempt to borrow £8 million to buy United Steel; his failure led to tightening of the British money market, withdrawal of call loans from the New York market, and a topping out of the stock market. Bubbles and swindles Some bubbles are swindles, some are not. The Mississippi Bubble was not a swindle; the South Sea Bubble was. A bubble generally starts with an apparently legitimate or at least legal purpose. What became the Mississippi Bubble initially started as the Compagnie d’Occident, to which the Law system added the farming-out of national tax collections.


pages: 605 words: 169,366

The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations by Sebastian Mallaby

"World Economic Forum" Davos, Alan Greenspan, Alvin Toffler, Asian financial crisis, bank run, battle of ideas, Big bang: deregulation of the City of London, Bretton Woods, capital controls, clean water, Dr. Strangelove, Dutch auction, export processing zone, failed state, financial independence, Francis Fukuyama: the end of history, gentleman farmer, guns versus butter model, Hernando de Soto, Kenneth Rogoff, Kickstarter, land reform, land tenure, lateral thinking, low interest rates, market bubble, Martin Wolf, microcredit, oil shock, Oklahoma City bombing, old-boy network, Paul Samuelson, plutocrats, purchasing power parity, radical decentralization, rolodex, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the new new thing, trade liberalization, traveling salesman, War on Poverty, Westphalian system, Yom Kippur War

For one thing, the report commissioned by Preston exaggerated the Bank’s decline: it was a decline relative to expectations, which had risen sharply as project managers had been required to write more and more goals into their projects—environmental goals, gender-equality goals, and so on. For another, the sense that private firms were brilliantly managed was overblown: The stock market bubble that was inflating at the time created a parallel bubble in executive reputations. But in the mid-1990s, the superiority of the private sector was widely taken for granted. Newt Gingrich was citing the management theorists Peter Drucker and Alvin Toffler; Britain’s prime minister John Major was admitting that his government had spent some $500 million on management consultants; and even Princess Diana of Britain was consulting a business-motivation guru.3 Meanwhile Vice President Al Gore was busy “reinventing government,” and complaining that Americans endured “quill-pen government in the age of Word Perfect”;4 and William Bratton, who ran the New York Police Department from 1994 to 1996, was devolving power to precinct commanders and referring to New Yorkers as “clients.”

Wolfensohn formed an exaggerated view of the challenge partly because the demon inside him was blind to the accomplishments of those who came before, and partly because in the mid-to-late 1990s all public-sector institutions suffered from comparison with supposed private-sector excellence. To an extent that is clear perhaps only in hindsight, the stock market bubble of the times created a reputational bubble for corporate America as well, and Wolfensohn fell prey to it. He was right to look to the private sector for management ideas, but wrong to suppose that he could ever match the inflated managerial reputations of hot private-sector CEOs, many of whom were turfed out in disgrace when the bubble burst a few years later.


pages: 261 words: 70,584

Retirementology: Rethinking the American Dream in a New Economy by Gregory Brandon Salsbury

Alan Greenspan, Albert Einstein, asset allocation, Bear Stearns, behavioural economics, buy and hold, carried interest, Cass Sunstein, credit crunch, Daniel Kahneman / Amos Tversky, diversification, estate planning, financial independence, fixed income, full employment, hindsight bias, housing crisis, loss aversion, market bubble, market clearing, mass affluent, Maui Hawaii, mental accounting, mortgage debt, mortgage tax deduction, National Debt Clock, negative equity, new economy, RFID, Richard Thaler, risk tolerance, Robert Shiller, side project, Silicon Valley, Steve Jobs, the rule of 72, Yogi Berra

It was the ticket to a better life, it was new cars, college education, vacations, and so on—and it was expected to be the ticket to a better retirement.3 America’s Housing Boom From 1997–2005, overall homeownership grew in all geographic regions and for all age groups, racial groups, and income groups.4 The housing price boom cited in The Economist not only dwarfed all previous housing booms, but also it was larger than the stock market bubble of the late ’90s.5 • Real home prices for the United States as a whole increased 85% between 1997 and the peak of the housing bubble in 2006. Nationally, median home value rose from $78,500 in 1990 to $185,200 in 2006, a 136% increase.6 From 1995 to 2001, home values increased 68% in Boston, 71% in Denver, and a full 100% in San Francisco.7 • As a result of the federal government “streamlining” the regulatory requirements in the mid 1990s for loans, “...federal bank regulators required banks to make bad loans based on nonexistent credit standards.”8 “Under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people...the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.”9 • Cow pastures were converted into $500,000 homes.


pages: 223 words: 63,484

Making Ideas Happen: Overcoming the Obstacles Between Vision and Reality by Scott Belsky

centralized clearinghouse, index card, lone genius, market bubble, Merlin Mann, New Journalism, Results Only Work Environment, rolodex, side project, Silicon Valley, Steve Jobs, Steve Wozniak, supply-chain management, the long tail, Tim Cook: Apple, Tony Hsieh, young professional

Avoid the Trap of Visionary’s Narcissism During my time at Goldman Sachs, I had the opportunity to be a fly on the wall in a lot of meetings in the executive office during both the dot-com bubble and the dire period that followed it. I always found it interesting how every challenge was presented as an unusual one-off: “Never before have we had a market bubble, followed by such volatility in interest rates, interspersed with terrorist concerns.” The business leaders would nod their heads in affirmation. “This is an extraordinary time,” someone else would say. Based on all the times I have heard “This is the most unusual X, the greatest period of Y, the new era of Z,” you might think that had I not been born in the last thirty years I might have missed the most exciting years of business since the beginning of time!


pages: 253 words: 69,529

Britain's 100 Best Railway Stations by Simon Jenkins

Beeching cuts, British Empire, Crossrail, gentrification, joint-stock company, Khartoum Gordon, market bubble, railway mania, South Sea Bubble, starchitect, the market place, urban renewal, wikimedia commons

island platform station layout where a single platform is positioned between two tracks within a railway station, usually accessed by a footbridge. Italianate general term applied to ‘railway style’, echoing the classical architecture of the Regency. Popular to give a sense of dignity to early railway stations. the Mania term commonly applied to the stock market bubble of 1843–7. This fuelled the second railway-building boom and created the often chaotic pattern of lines and stations that survives to this day. modern movement architecture that emerged between the two world wars in vigorous reaction to the revivalism of the Victorian/Edwardian eras. Typically functional, rectilinear and stripped of adornment.


pages: 249 words: 66,383

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again by Atif Mian, Amir Sufi

Andrei Shleifer, asset-backed security, balance sheet recession, bank run, banking crisis, behavioural economics, Ben Bernanke: helicopter money, break the buck, business cycle, Carmen Reinhart, collapse of Lehman Brothers, creative destruction, debt deflation, Edward Glaeser, en.wikipedia.org, financial innovation, full employment, high net worth, Home mortgage interest deduction, housing crisis, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, liquidity trap, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, quantitative easing, Robert Shiller, Robert Solow, school choice, seminal paper, shareholder value, subprime mortgage crisis, the payments system, the scientific method, tulip mania, young professional, zero-sum game

Robert Shiller, “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?” American Economic Review 71 (1981): 421–36. 5. Jeffrey Pontiff, “Excess Volatility and Closed-End Funds,” American Economic Review 87 (1997): 155–69. 6. David Porter and Vernon Smith, “Stock Market Bubbles in the Laboratory,” Journal of Behavioral Finance 4 (2003): 7–20. 7. See the following studies for models describing this logic: Michael Harrison and David Kreps, “Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations,” Quarterly Journal of Economics 92 (1978): 323–36; Jose Scheinkman and Wei Xiong, “Overconfidence and Speculative Bubbles,” Journal of Political Economy 111 (2003): 1183–219; and Dilip Abreu and Markus Brunnermeier, “Bubbles and Crashes,” Econometrica 71 (2003): 173–204. 8.


pages: 239 words: 70,206

Data-Ism: The Revolution Transforming Decision Making, Consumer Behavior, and Almost Everything Else by Steve Lohr

"World Economic Forum" Davos, 23andMe, Abraham Maslow, Affordable Care Act / Obamacare, Albert Einstein, Alvin Toffler, Bear Stearns, behavioural economics, big data - Walmart - Pop Tarts, bioinformatics, business cycle, business intelligence, call centre, Carl Icahn, classic study, cloud computing, computer age, conceptual framework, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, Danny Hillis, data is the new oil, data science, David Brooks, driverless car, East Village, Edward Snowden, Emanuel Derman, Erik Brynjolfsson, everywhere but in the productivity statistics, financial engineering, Frederick Winslow Taylor, Future Shock, Google Glasses, Ida Tarbell, impulse control, income inequality, indoor plumbing, industrial robot, informal economy, Internet of things, invention of writing, Johannes Kepler, John Markoff, John von Neumann, lifelogging, machine translation, Mark Zuckerberg, market bubble, meta-analysis, money market fund, natural language processing, obamacare, pattern recognition, payday loans, personalized medicine, planned obsolescence, precision agriculture, pre–internet, Productivity paradox, RAND corporation, rising living standards, Robert Gordon, Robert Solow, Salesforce, scientific management, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley startup, SimCity, six sigma, skunkworks, speech recognition, statistical model, Steve Jobs, Steven Levy, The Design of Experiments, the scientific method, Thomas Kuhn: the structure of scientific revolutions, Tony Fadell, unbanked and underbanked, underbanked, Von Neumann architecture, Watson beat the top human players on Jeopardy!, yottabyte

Technical innovation is only one piece of a puzzle that includes affordability, acceptance in the marketplace, and changes in behavior. Recall that nearly all of the bold predictions made in the late 1990s about the disruptive impact of the Internet across industry really did come true—a decade later, long after the Internet stock-market bubble had burst. All successful technologies raise alarms and involve trade-offs and risks. In ancient times, fire could cook your food and keep you warm, but, out of control, could burn down your hut. Cars pollute the air and cause traffic deaths, but they have also increased personal mobility and freedom, and stimulated the development of regional and national markets for goods.


pages: 232 words: 70,835

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan by Ben Carlson

Albert Einstein, asset allocation, backtesting, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, book value, business cycle, buy and hold, buy low sell high, commodity super cycle, corporate governance, delayed gratification, discounted cash flows, diversification, diversified portfolio, do what you love, endowment effect, family office, financial independence, fixed income, Gordon Gekko, high net worth, index fund, John Bogle, junk bonds, loss aversion, market bubble, medical residency, Occam's razor, paper trading, passive investing, Ponzi scheme, price anchoring, Reminiscences of a Stock Operator, Richard Thaler, risk tolerance, Robert Shiller, robo advisor, South Sea Bubble, sovereign wealth fund, stocks for the long run, technology bubble, Ted Nelson, transaction costs, Vanguard fund, Vilfredo Pareto

Since the 1960s, you've experienced performance in excess of 20 percent per year in stocks, good enough to double your money every three and a half years. Why would you ever invest anywhere else? Take a look at the return comparison between U.S. stocks and those located in the Pacific region (mostly made up of Japanese companies) in the 1970s and 1980s: U.S. Stocks Pacific Stocks 1970–1989 9.5% 20.5% The Japanese property and stock market bubble was so great at the time that the property market in Japan was worth four times the entire U.S. real estate market by 1990, even though Japan is roughly the size of California. The stock market was trading near 100× earnings, when the long-term average for most markets is around 15×. Things got so out of hand in the Japanese bubble that there were more than 20 golf clubs that cost over $1 million to join.7 To call Japan a bubble is almost an understatement.


pages: 1,164 words: 309,327

Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris

active measures, Andrei Shleifer, AOL-Time Warner, asset allocation, automated trading system, barriers to entry, Bernie Madoff, Bob Litterman, book value, business cycle, buttonwood tree, buy and hold, compound rate of return, computerized trading, corporate governance, correlation coefficient, data acquisition, diversified portfolio, equity risk premium, fault tolerance, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, High speed trading, index arbitrage, index fund, information asymmetry, information retrieval, information security, interest rate swap, invention of the telegraph, job automation, junk bonds, law of one price, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, market clearing, market design, market fragmentation, market friction, market microstructure, money market fund, Myron Scholes, National best bid and offer, Nick Leeson, open economy, passive investing, pattern recognition, payment for order flow, Ponzi scheme, post-materialism, price discovery process, price discrimination, principal–agent problem, profit motive, proprietary trading, race to the bottom, random walk, Reminiscences of a Stock Operator, rent-seeking, risk free rate, risk tolerance, risk-adjusted returns, search costs, selection bias, shareholder value, short selling, short squeeze, Small Order Execution System, speech recognition, statistical arbitrage, statistical model, survivorship bias, the market place, transaction costs, two-sided market, vertical integration, winner-take-all economy, yield curve, zero-coupon bond, zero-sum game

Crashes occur when prices fall very quickly. Crashes often follow bubbles, but they also occur in other circumstances. Crashes sometimes are called market breaks because the price path breaks when prices fall very quickly. They also are called market meltdowns when they overload the order handling capacity of a market. Bubbles and crashes may affect an individual trading instrument or many instruments at once. Those which simultaneously affect many instruments are broad-based events or marketwide events. Very large price changes most commonly affect only an individual instrument. Broad-based bubbles and crashes are quite rare. 28.1.1 Typical Bubble and Crash Dynamics Bubbles start when buyers become overly optimistic about fundamental values.

Summers. 1989. When financial markets work too well: A cautious case for a securities transactions tax. Journal of Financial Services Research 3(2/3), 261–286. Treynor, Jack L. 1988. Portfolio insurance and market volatility. Financial Analysts Journal 44(6), 71–73. Treynor, Jack. 1998. Bulls, bears, and market bubbles. Financial Analysts Journal 54(2), 69–74. U.S. Securities and Exchange Commission. 1988. The October 1987 Market Break: A Report by the Division of Market Regulation, U.S. Securities and Exchange Commission (U.S. Government Printing Office, Washington DC). Warshawsky, Mark. 1989. The adequacy and consistency of margin requirements: The cash, futures, and options segments of the equity market.

See currency; foreign exchange money flow, 423 monopolies, 298 Morgan Stanley, 16, 17–18, 19 morning sessions, 92 mortgage-backed securities, 41 mortgage pools, 41 multifactor risk models, 450 multilateral trades, 91 municipal bonds, 54 mutual funds, 472, 491–92 naked positions, 183 narrow spread, 280, 315 NASD. See National Association of Securities Dealers Nasdaq Stock Market bubble, 569–70 demutualization, 35 as hybrid market, 96, 532 institutional stock trade, 19–20 levels of quotation, 105 Microsoft’s listing, 547 and October 1987 crash, 563 options market, 52 OTC Bulletin Board, 107, 108 as quote-driven market, 93 retail stock trade, 14–15 Small Order Execution System, 14–15, 106, 391, 532 stocks, 48, 49 trading hours, 92 and volatility, 511 volume figures, 48 National Association of Securities Dealers (NASD), 11, 64, 164 National Futures Association (NFA), 64, 164, 474 National Quotation Bureau, 107, 108 National Securities Clearing Corporation (NSCC), 28, 35, 36, 37, 522 natural hedgers, 183 NBBO (national best bid and offer), 70 negative externalities, 7 net buyers, 270 net price basis, 144, 281 net sellers, 270 net settlement, 36 network externality, 145, 535–36 new issues, 39 news traders, 194, 196, 228–30, 231, 235, 239, 243 New York Board of Trade (NYBOT), 55 New York Mercantile Exchange (NYMEX) contract volumes, 55 floor-based trading, 543 variation margin example, 42 New York Stock Exchange (NYSE) After-hours Trading Session I, 132, 133 as “Big Board,” 107 block trades, 323 bond market, 54 Exchange Stock Portfolio, 490 floor-based trading, 48, 543, 544 generally accepted accounting principles, 314 history of, 64 as hybrid market, 96, 532 institutional stock trade, 15–19 listed stocks, 48 market-not-held orders, 530 options market, 52 program trades, 489 quantitative listing standards for domestic companies, 46 retail stock trade, 11–14 Rule 80A, 577, 580–81 Rule 80B, 573, 578 specialists, 298, 494, 495, 496, 500, 510 SuperDot order-routing system, 13, 106, 489, 562 trading hours, 92 NFA.


Infotopia: How Many Minds Produce Knowledge by Cass R. Sunstein

affirmative action, Andrei Shleifer, availability heuristic, behavioural economics, Build a better mousetrap, c2.com, Cass Sunstein, cognitive bias, cuban missile crisis, Daniel Kahneman / Amos Tversky, Edward Glaeser, en.wikipedia.org, feminist movement, framing effect, Free Software Foundation, hindsight bias, information asymmetry, Isaac Newton, Jean Tirole, jimmy wales, market bubble, market design, minimum wage unemployment, prediction markets, profit motive, rent control, Richard Stallman, Richard Thaler, Robert Shiller, Ronald Reagan, Savings and loan crisis, slashdot, stem cell, systematic bias, Ted Sorensen, the Cathedral and the Bazaar, The Wisdom of Crowds, winner-take-all economy

When everyone is looking to someone else for an opinion—trying, for example, to pick the Democratic candidate they think everyone else will pick—it’s possible that whatever information other people might have gets lost, and instead we get a cascade of imitation that, like a stampeding herd, can start for no apparent reason and subsequently go in any direction with equal likelihood. Stock market bubbles and cultural fads are the examples that most people associate with cascades . . . but the same dynamics can show up even in the serious business of Democratic primaries. . . . We think of ourselves as autonomous individuals, each driven by [our] own internal abilities and desires and therefore solely responsible for our own behavior, particularly when it comes to voting.


pages: 238 words: 73,121

Does Capitalism Have a Future? by Immanuel Wallerstein, Randall Collins, Michael Mann, Georgi Derluguian, Craig Calhoun, Stephen Hoye, Audible Studios

affirmative action, blood diamond, Bretton Woods, BRICs, British Empire, business cycle, butterfly effect, company town, creative destruction, deindustrialization, demographic transition, Deng Xiaoping, discovery of the americas, distributed generation, Dr. Strangelove, eurozone crisis, fiat currency, financial engineering, full employment, gentrification, Gini coefficient, global village, hydraulic fracturing, income inequality, Isaac Newton, job automation, joint-stock company, Joseph Schumpeter, junk bonds, land tenure, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, loose coupling, low skilled workers, market bubble, market fundamentalism, mass immigration, means of production, mega-rich, Mikhail Gorbachev, military-industrial complex, mutually assured destruction, offshore financial centre, oil shale / tar sands, Ponzi scheme, postindustrial economy, reserve currency, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, Suez crisis 1956, too big to fail, transaction costs, vertical integration, Washington Consensus, WikiLeaks

Individual countries returned after the war to the gold standard in an ad hoc way, mostly at unrealistic levels driven by ideologies of national pride and honor more than by pragmatic economic analysis. Also contributing were geopolitical tensions between Germany and Austria, on the one hand, and France and Britain on the other. France and America hoarded gold. There was ideological attachment by old regimes to laissez-faire economics, a stock market bubble, and an uncompleted transition from old to new forms of manufacturing, all of which lowered the employment potential of the economy. In America, the eye of the storm, grave policy mistakes were also made by Congress and by the Federal Reserve Board rooted in the market fundamentalism of this period which reached its ghastly climax in what was called “liquidationism”–the pursuit of austerity measures in order to destroy inefficient firms, industries, investors, and workers.


pages: 267 words: 72,552

Reinventing Capitalism in the Age of Big Data by Viktor Mayer-Schönberger, Thomas Ramge

accounting loophole / creative accounting, Air France Flight 447, Airbnb, Alvin Roth, Apollo 11, Atul Gawande, augmented reality, banking crisis, basic income, Bayesian statistics, Bear Stearns, behavioural economics, bitcoin, blockchain, book value, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, Cass Sunstein, centralized clearinghouse, Checklist Manifesto, cloud computing, cognitive bias, cognitive load, conceptual framework, creative destruction, Daniel Kahneman / Amos Tversky, data science, Didi Chuxing, disruptive innovation, Donald Trump, double entry bookkeeping, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Evgeny Morozov, flying shuttle, Ford Model T, Ford paid five dollars a day, Frederick Winslow Taylor, fundamental attribution error, George Akerlof, gig economy, Google Glasses, Higgs boson, information asymmetry, interchangeable parts, invention of the telegraph, inventory management, invisible hand, James Watt: steam engine, Jeff Bezos, job automation, job satisfaction, joint-stock company, Joseph Schumpeter, Kickstarter, knowledge worker, labor-force participation, land reform, Large Hadron Collider, lone genius, low cost airline, low interest rates, Marc Andreessen, market bubble, market design, market fundamentalism, means of production, meta-analysis, Moneyball by Michael Lewis explains big data, multi-sided market, natural language processing, Neil Armstrong, Network effects, Nick Bostrom, Norbert Wiener, offshore financial centre, Parag Khanna, payday loans, peer-to-peer lending, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price mechanism, purchasing power parity, radical decentralization, random walk, recommendation engine, Richard Thaler, ride hailing / ride sharing, Robinhood: mobile stock trading app, Sam Altman, scientific management, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley startup, six sigma, smart grid, smart meter, Snapchat, statistical model, Steve Jobs, subprime mortgage crisis, Suez canal 1869, tacit knowledge, technoutopianism, The Future of Employment, The Market for Lemons, The Nature of the Firm, transaction costs, universal basic income, vertical integration, William Langewiesche, Y Combinator

A similar approach could improve food safety by using feedback data collected from farms and supermarkets. Feedback data from online learning platforms could help improve decision-making in the public-education sector, and decision-assistance data used for transaction matching could be reused in an early warning system that better predicts market bubbles. Together with the data-sharing mandate we propose, this would make data available to small firms, especially start-ups, so that they can compete against the big players. It may also be a good way to jump-start innovation. The data could also be used by government to improve its services. And it might be offered to nonprofits, researchers, and society at large so that everyone can benefit from the profits of superstar firms.


pages: 270 words: 75,803

Wall Street Meat by Andy Kessler

accounting loophole / creative accounting, Alan Greenspan, Andy Kessler, automated trading system, banking crisis, Bob Noyce, George Gilder, index fund, Jeff Bezos, John Bogle, junk bonds, market bubble, Mary Meeker, Menlo Park, Michael Milken, Pepto Bismol, pets.com, Robert Metcalfe, rolodex, Salesforce, Sand Hill Road, Silicon Valley, Small Order Execution System, Steve Jobs, technology bubble, undersea cable, Y2K

I have a bad feeling that Spitzer’s “settlement” will merely perpetuate the old way of doing business much longer than its natural life. The structural changes and return of tough filters will take longer and be more painful to fulfill. Is there some message to all this? Some note to future generations about how to avoid stock market bubbles, how to keep research honest, how to tame the cycles? Nah. They will learn 230 Spitzer Fixer it the hard way. Wall Street is a business. Analysts and salesmen and traders and bankers all make a living providing access to capital to businesses worldwide. For that task, the Street, as a group, gets to keep half of all the revenues they generate.


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

3D printing, Alan Greenspan, bank run, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Glass-Steagall Act, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, market bubble, market clearing, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, Phillips curve, Post-Keynesian economics, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, subprime mortgage crisis, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

But economics is not an exact science so I could not give the diplomat a precise date for when the boom would end; just the certainty that a turning point would come and it would be sooner than he thought. By mid-2007, two events had taken place, in quick succession, which indicated that the global economy was changing direction. The first occurred in the autumn of 2006 when the US housing market bubble burst; this was followed by the collapse on the Shanghai stock market in February 2007. These events were, at the time, viewed as isolated incidents, unconnected to the larger web of the global economy. During the Great Moderation, words like capitalism and business cycles were no longer a part of the vocabulary of modern economics used by self-respecting economics departments.


pages: 246 words: 74,341

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

accounting loophole / creative accounting, Alan Greenspan, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, business cycle, capital controls, central bank independence, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Brooks, diversification, financial deregulation, financial innovation, Greenspan put, helicopter parent, Home mortgage interest deduction, housing crisis, Howard Zinn, Hyman Minsky, Isaac Newton, Joseph Schumpeter, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, Mexican peso crisis / tequila crisis, millennium bug, money market fund, moral hazard, mortgage tax deduction, Naomi Klein, National Debt Clock, new economy, Northern Rock, Own Your Own Home, precautionary principle, price stability, Ronald Reagan, savings glut, short selling, Silicon Valley, South Sea Bubble, The Wealth of Nations by Adam Smith, too big to fail

To return to the trends they had followed in the 30 years before that, they would have to fall by around one-fifth. But the builders' associations and the banks' magazines explained soothingly that home prices never fall nationally. This did not impress James Grant, who noted that, since the Great Depression, the United States had experienced 29 market bubbles-strong rises in the prices of securities or other assets. Twentyseven of them had burst. The two exceptions were stock and realestate prices in June 2005. Not understanding why bubbles no. 28 and no. 29 should be exceptions, Grant gave his readers some good advice: Does your brother-in-law, the real estate broker, owe you money?


pages: 300 words: 78,475

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

Alan Greenspan, American Society of Civil Engineers: Report Card, Apollo 13, Bear Stearns, Bernie Madoff, Bernie Sanders, call centre, carried interest, citizen journalism, clean water, collateralized debt obligation, Cornelius Vanderbilt, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, do what you love, extreme commuting, Exxon Valdez, full employment, Glass-Steagall Act, greed is good, Greenspan put, guns versus butter model, high-speed rail, housing crisis, immigration reform, invisible hand, knowledge economy, laissez-faire capitalism, late fees, low interest rates, market bubble, market fundamentalism, Martin Wolf, medical bankruptcy, microcredit, military-industrial complex, Neil Armstrong, new economy, New Journalism, offshore financial centre, Ponzi scheme, post-work, proprietary trading, Report Card for America’s Infrastructure, Richard Florida, Ronald Reagan, Rosa Parks, Savings and loan crisis, single-payer health, smart grid, The Wealth of Nations by Adam Smith, Timothy McVeigh, too big to fail, transcontinental railway, trickle-down economics, winner-take-all economy, working poor, Works Progress Administration

Here are a few others: Between 2007 and 2008, more than 800,000 additional American households found themselves trying to make do on under $25,000 a year, bringing the total to nearly 29 million.24 In 2005, households in the bottom 20 percent had an average income of $10,655, while the top 20 percent made $159,583—a disparity of 1,500 percent, the highest gap ever recorded.25 In 2007, the top 10 percent pocketed almost half of all the money earned in America—the highest percentage recorded since 1917 (including, as Business Insider editor Henry Blodget noted, in 1928, the peak of the stock market bubble in the “roaring 1920s”).26 Between 2000 and 2008, the poverty rate in the suburbs of the largest metro areas in the United States grew by 25 percent—making the suburbs home to the country’s biggest and most rapidly expanding segment of the poor.27 Making matters even worse is the fact that while the classes are moving farther apart—with the middle class in real danger of disappearing entirely—mobility across the classes has declined.


The Handbook of Personal Wealth Management by Reuvid, Jonathan.

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

Recent months have seen unprecedented shifts in the economy and in the financial services sector in particular. After a decade or more of growth, came the nasty shock of the most dramatic financial collapse in living memory and nothing will look the same again. Within a few months, both housing and stock market bubbles have burst. In the process the entire global banking system almost came down with them. Those who have worked hard to build wealth and secure their future were left uncertain of where and how to find the right balance of risk and return. The game has changed, but no one is entirely sure of the new rules.


pages: 249 words: 77,342

The Behavioral Investor by Daniel Crosby

affirmative action, Asian financial crisis, asset allocation, availability heuristic, backtesting, bank run, behavioural economics, Black Monday: stock market crash in 1987, Black Swan, book value, buy and hold, cognitive dissonance, colonial rule, compound rate of return, correlation coefficient, correlation does not imply causation, Daniel Kahneman / Amos Tversky, disinformation, diversification, diversified portfolio, Donald Trump, Dunning–Kruger effect, endowment effect, equity risk premium, fake news, feminist movement, Flash crash, haute cuisine, hedonic treadmill, housing crisis, IKEA effect, impact investing, impulse control, index fund, Isaac Newton, Japanese asset price bubble, job automation, longitudinal study, loss aversion, market bubble, market fundamentalism, mental accounting, meta-analysis, Milgram experiment, moral panic, Murray Gell-Mann, Nate Silver, neurotypical, Nick Bostrom, passive investing, pattern recognition, Pepsi Challenge, Ponzi scheme, prediction markets, random walk, Reminiscences of a Stock Operator, Richard Feynman, Richard Thaler, risk tolerance, Robert Shiller, science of happiness, Shai Danziger, short selling, South Sea Bubble, Stanford prison experiment, Stephen Hawking, Steve Jobs, stocks for the long run, sunk-cost fallacy, systems thinking, TED Talk, Thales of Miletus, The Signal and the Noise by Nate Silver, Tragedy of the Commons, trolley problem, tulip mania, Vanguard fund, When a measure becomes a target

They are play money and will not generate hard cash.’ ” One generation after the kuxe bubble, the Dutch Golden Age gave rise to the Tulip Bubble, where a single bulb traded for as much as a townhome. But living through a bubble seems to do very little to inoculate the coming generation against similar folly. The International Monetary Fund reports that bubbles are now regarded as a “recurrent feature of modern economic history” and cites 23 instances of stock market bubbles in just the US and UK between 1800 and 1940. Bubbles have been and always will be with us and the investor that ignores these dramatic dislocations from fundamental value does so at her own peril. It makes sense that bubbles occur in financial markets fraught with uncertainty, but Vernon Smith and his co-authors actually found that bubbles seem to occur naturally, even in markets with well-defined prices and a finite time horizon.


pages: 267 words: 71,941

How to Predict the Unpredictable by William Poundstone

accounting loophole / creative accounting, Albert Einstein, Bernie Madoff, Brownian motion, business cycle, butter production in bangladesh, buy and hold, buy low sell high, call centre, centre right, Claude Shannon: information theory, computer age, crowdsourcing, Daniel Kahneman / Amos Tversky, Edward Thorp, Firefox, fixed income, forensic accounting, high net worth, index card, index fund, Jim Simons, John von Neumann, market bubble, money market fund, pattern recognition, Paul Samuelson, Ponzi scheme, power law, prediction markets, proprietary trading, random walk, Richard Thaler, risk-adjusted returns, Robert Shiller, Rubik’s Cube, statistical model, Steven Pinker, subprime mortgage crisis, transaction costs

He used earnings reports to reconstruct the ten-year PE back to January 1881. Here’s a chart of it. It is hard to explain the huge variations as reasonable changes in the outlook for future earnings. Look at the rises to the big peaks in 1929 and 2000, and the equally insistent drops afterward. These were famous stock market bubbles driven by hot hand beliefs. Shiller found that his backward-looking ten-year PEs have considerable power in predicting future returns. This is demonstrated in the chart below. Every dot represents a month, from January 1881 through January 1993. The dot’s position is determined by that month’s ten-year PE value (on the horizontal axis) and the return that an investor would have achieved had he invested a lump sum in the S&P 500 stocks that month and held that investment for twenty years (this return on the vertical axis).


pages: 283 words: 73,093

Social Democratic America by Lane Kenworthy

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, barriers to entry, basic income, benefit corporation, business cycle, carbon tax, Celtic Tiger, centre right, clean water, collective bargaining, corporate governance, David Brooks, desegregation, Edward Glaeser, endogenous growth, full employment, Gini coefficient, hiring and firing, Home mortgage interest deduction, illegal immigration, income inequality, invisible hand, Kenneth Arrow, labor-force participation, manufacturing employment, market bubble, minimum wage unemployment, new economy, off-the-grid, postindustrial economy, purchasing power parity, race to the bottom, rent-seeking, rising living standards, Robert Gordon, Robert Shiller, Ronald Reagan, school choice, shareholder value, sharing economy, Skype, Steve Jobs, too big to fail, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, universal basic income, War on Poverty, working poor, zero day

The next time our unemployment rate gets near 4 percent, the Federal Reserve is more likely to slam on the brakes by raising interest rates. In the late 1990s, Fed chair Alan Greenspan held interest rates low despite opposition from other Fed board members who worried about potential inflationary consequences of rapid growth, rising wages, and the Internet stock market bubble. Greenspan’s belief in the self-correcting nature of markets led him to worry less than others. Given the painful consequences of the 2000s housing bubble, the Fed is highly unlikely to repeat that approach. So for Americans in middle- and lower-paying jobs, prospects for rising wages going forward are slim.


pages: 232

Planet of Slums by Mike Davis

barriers to entry, Branko Milanovic, Bretton Woods, British Empire, Brownian motion, centre right, clean water, company town, conceptual framework, crony capitalism, declining real wages, deindustrialization, Deng Xiaoping, disinformation, Dr. Strangelove, edge city, European colonialism, failed state, gentrification, Gini coefficient, Hernando de Soto, housing crisis, illegal immigration, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), Internet Archive, jitney, jobless men, Kibera, labor-force participation, land reform, land tenure, Lewis Mumford, liberation theology, low-wage service sector, mandelbrot fractal, market bubble, megacity, microcredit, Nelson Mandela, New Urbanism, Pearl River Delta, Ponzi scheme, RAND corporation, rent control, structural adjustment programs, surplus humans, upwardly mobile, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor

It proposed raising the official figure from 14.7 million to at least 37.1 million, although it acknowledged that this revision still failed to include tens of millions of laid-off employees or the 100 million "floating workers" still counted as farmers.68 Urban poverty in India is more honestly acknowledged and publicly debated than in China, but local social scientists and social-justice activists trying to focus public attention on the underside of the recent economic growth have also had to swim against the current of celebratory official rhetoric As any reader of the business press knows, the drastic neoliberal restructuring of the Indian economy after 1991 produced a high-tech boom and stock-market bubble whose frenzied epicenters were a handful of Cinderella cities: Bangalore, Pune, Hyderabad, and Chennai. GDP grew at 6 percent during the 1990s, while the capitalization of the Bombay Stock Exchange doubled almost every year — and one result was one million new millionaires, many of them Indian engineers and computer scientists returned from Sunnyvale 67 Yatsko, New Shanghai, pp. 120-21. 68 People's Daily (English version), 30 October 2002; Athar Hussain, "Urban Poverty in China: Measurement, Patterns and Policies," ILO working paper, Geneva 2003.


pages: 300 words: 77,787

Investing Demystified: How to Invest Without Speculation and Sleepless Nights by Lars Kroijer

Andrei Shleifer, asset allocation, asset-backed security, Bernie Madoff, bitcoin, Black Swan, BRICs, Carmen Reinhart, clean tech, compound rate of return, credit crunch, currency risk, diversification, diversified portfolio, equity premium, equity risk premium, estate planning, fixed income, high net worth, implied volatility, index fund, intangible asset, invisible hand, John Bogle, Kenneth Rogoff, low interest rates, market bubble, money market fund, passive investing, pattern recognition, prediction markets, risk tolerance, risk/return, Robert Shiller, selection bias, sovereign wealth fund, too big to fail, transaction costs, Vanguard fund, yield curve, zero-coupon bond

The banks do this both in the form of residential property markets, but also by financing and investing in commercial property. Even in the cases where the banks only act as a facilitator and pass on the principal risks to other investors (as opposed to other cases where banks hold on to a property investment), they still have a huge interest in a positive property market. The bursting of the US sub-prime market bubble in 2007–08 and the subsequent default of many geared products connected to it was one of the primary drivers of the financial crisis. So even if the direct representation of property investment companies represents a fairly small portion of the overall stock market, we have indirect exposure to property through many other sectors of the stock markets.


pages: 183 words: 17,571

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

Alan Greenspan, banking crisis, banks create money, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, bond market vigilante , Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, compensation consultant, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency risk, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, Glass-Steagall Act, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, junk bonds, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, market bubble, market clearing, Martin Wolf, means of production, Michael Milken, mobile money, Money creation, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nixon triggered the end of the Bretton Woods system, Paul Volcker talking about ATMs, Ponzi scheme, profit motive, proprietary trading, prudent man rule, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, Savings and loan crisis, seigniorage, shareholder value, Silicon Valley, SoftBank, Solyndra, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

In fact, they became more frequent. However, the US Federal Reserve and Treasury were always quick to flood the market with money and slash interest rates in order to limit the damage to the financial 17 18 Chapter 1 | The Rise and Fall of the Finance-Driven Economy economy. Except for the collapse of the dot-com stock market bubble, largescale destruction of financialized wealth was a thing of the past. Another problem, of course, is that markets are reflections of human nature, balanced on a knife’s edge between fear and greed. To remove fear is to open the floodgates of greed. The problem with greed, whatever the Occupy Wall Street gang might think, is not that it is bad.


pages: 209 words: 80,086

The Global Auction: The Broken Promises of Education, Jobs, and Incomes by Phillip Brown, Hugh Lauder, David Ashton

active measures, affirmative action, An Inconvenient Truth, barriers to entry, Branko Milanovic, BRICs, business process, business process outsourcing, call centre, classic study, collective bargaining, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, deindustrialization, deskilling, disruptive innovation, Dutch auction, Ford Model T, Frederick Winslow Taylor, full employment, future of work, glass ceiling, global supply chain, Great Leap Forward, immigration reform, income inequality, industrial cluster, industrial robot, intangible asset, job automation, Jon Ronson, Joseph Schumpeter, knowledge economy, knowledge worker, low skilled workers, manufacturing employment, market bubble, market design, meritocracy, neoliberal agenda, new economy, Paul Samuelson, pensions crisis, post-industrial society, profit maximization, purchasing power parity, QWERTY keyboard, race to the bottom, Richard Florida, Ronald Reagan, shared worldview, shareholder value, Silicon Valley, sovereign wealth fund, stem cell, tacit knowledge, tech worker, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, transaction costs, trickle-down economics, vertical integration, winner-take-all economy, working poor, zero-sum game

Based on market income, including wages, bonuses, dividends, and pensions, Berkeley economist Emmanuel Saez calculated the changing fortunes of America’s top earners since 1917. He shows that the top 10 percent received almost half (49.7%) of national individual income in 2006, surpassing 1928, the peak of the stock market bubble in the Roaring ’20s.8 If the top 10 percent have done well over the last 25 years, it is those at the very top who struck gold. Saez’s evidence shows that the top 1 percent captured about half of the overall economic growth in America over the period 1993 to 2006. These were the working rich, including the CEOs of major corporations.


pages: 206 words: 9,776

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

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

It was partly global (with the collapse of the Bretton Woods agreem ents) , but it also origi­ nated within the credit institutions that had powered the property boom in the preceding decades. Th is crisis gathered momentum at the end of the 1 960s, until the whole capital ist system crashed into a m ajor global crisis, led by the bursting of the global property market bubble in 19 73, followed by the fiscal bankruptcy of New York City in 1 975. Th e d ark days of the 1 9 70s had arrive d, and the question then was how to rescue capitalism from its own contradictions. In this, if h istory was to b e any guide, the urban process was bound to play a significant role.


pages: 280 words: 76,638

Rebel Ideas: The Power of Diverse Thinking by Matthew Syed

adjacent possible, agricultural Revolution, Alfred Russel Wallace, algorithmic bias, behavioural economics, Bletchley Park, Boeing 747, call centre, Cass Sunstein, classic study, cognitive load, computer age, crowdsourcing, cuban missile crisis, deep learning, delayed gratification, drone strike, Elon Musk, Erik Brynjolfsson, Fairchild Semiconductor, fake news, Ferguson, Missouri, Filter Bubble, Firefox, invention of writing, James Dyson, Jeff Bezos, knowledge economy, lateral thinking, market bubble, mass immigration, microbiome, Mitch Kapor, persistent metabolic adaptation, Peter Thiel, post-truth, Richard Thaler, Ronald Reagan, Second Machine Age, self-driving car, seminal paper, Silicon Valley, social intelligence, Steve Jobs, Steve Wozniak, Stuart Kauffman, tech worker, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, traveling salesman, vertical integration

This is another example of an information cascade, and much of its force is explained by interpretation. When two or more people lean towards the same answer, it is easy to assume they arrived at it independently. This amplifies its persuasive power, causing others to lean towards it, too. This is where fads, stock-market bubbles and other bandwagon effects come from. Crowds are not always wise. They can become dangerously clone-like. These cascades can happen at a purely social level, too. Studies by the psychologist Solomon Asch have shown that people often lean towards the answers of others, not because they believe them to be correct, but because they don’t want to appear rude or disruptive by disagreeing.


pages: 245 words: 75,397

Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader by Colin Lancaster

"World Economic Forum" Davos, Adam Neumann (WeWork), Airbnb, Alan Greenspan, always be closing, asset-backed security, beat the dealer, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, Black Monday: stock market crash in 1987, bond market vigilante , Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, buy the rumour, sell the news, Carmen Reinhart, Chuck Templeton: OpenTable:, collateralized debt obligation, coronavirus, COVID-19, creative destruction, credit crunch, currency manipulation / currency intervention, deal flow, Donald Trump, Edward Thorp, family office, fear index, fiat currency, fixed income, Flash crash, George Floyd, global macro, global pandemic, global supply chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Growth in a Time of Debt, housing crisis, index arbitrage, inverted yield curve, Jeff Bezos, Jim Simons, junk bonds, Kenneth Rogoff, liquidity trap, lockdown, Long Term Capital Management, low interest rates, low skilled workers, margin call, market bubble, Masayoshi Son, Michael Milken, Mikhail Gorbachev, Minsky moment, Modern Monetary Theory, moral hazard, National Debt Clock, Nixon triggered the end of the Bretton Woods system, Northern Rock, oil shock, pets.com, Ponzi scheme, price stability, proprietary trading, quantitative easing, Reminiscences of a Stock Operator, reserve currency, Ronald Reagan, Ronald Reagan: Tear down this wall, Sharpe ratio, short selling, short squeeze, social distancing, SoftBank, statistical arbitrage, stock buybacks, The Great Moderation, TikTok, too big to fail, trickle-down economics, two and twenty, value at risk, Vision Fund, WeWork, yield curve, zero-sum game

Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader Colin Lancaster Contents Part 1: The Late Stages of a Bubble Chapter 1 Sushi, Sake and a Breakdown in the repo markets October 2019 Chapter 2 Viva Las Vegas November 2019 Chapter 3 The Star Tavern and Life in Knightsbridge December 2019 Part 2: The Crash Chapter 4 The Virus Spreads January 2020 Chapter 5 Risk Management and an Inflection Point February 2020 Chapter 6 Market Crash March 2020 Part 3: The Aftermath Chapter 7 QE Dreaming April 2020 Chapter 8 Economic Data Worse than the Great Depression May 2020 Chapter 9 Lessons from the Gilded Age; Back to Market Highs June 2020 About the author Acknowledgments Publishing Details For Tia, Victoria, Sophia, and Maria “We have always found, where a government has mortgaged all its revenues, that it necessarily sinks into a state of languor, inactivity, and impotence.” David Hume This book tells the story of a global macro trader working amidst the greatest market panic that we’ve seen since the Great Depression. As the COVID-19 pandemic spreads across the world, readers are taken through the late-stage decadence of an exuberant market bubble to the depths of the market crash and into the early innings of a recovery. It provides readers with a front row seat on trading activity, allowing them a view of the market’s heartbeat. It’s also about money and opportunity. It’s about the moral dilemma of a man who is struggling as he reaches his own peak.


pages: 439 words: 79,447

The Finance Book: Understand the Numbers Even if You're Not a Finance Professional by Stuart Warner, Si Hussain

AOL-Time Warner, book value, business intelligence, business process, cloud computing, conceptual framework, corporate governance, Costa Concordia, credit crunch, currency risk, discounted cash flows, double entry bookkeeping, forward guidance, intangible asset, Kickstarter, low interest rates, market bubble, Northern Rock, peer-to-peer lending, price discrimination, Ralph Waldo Emerson, shareholder value, supply-chain management, time value of money

In practice For a publicly listed company, maintaining a high share price is challenging, due to extrinsic factors largely beyond the control of directors, such as: competitors’ actions or reactions; analysts’ opinions; media stories and bid rumours; speculative behaviour; market sentiment, the economy and stock market bubbles. For a private business, valuation is more of an art than a science because value is a matter of opinion. It is sometimes said that ‘the value of a business is what it can be argued to be’. Therefore, the best approach to valuation is to: Use a variety of valuation techniques and see if they are relatively close.


pages: 1,336 words: 415,037

The Snowball: Warren Buffett and the Business of Life by Alice Schroeder

affirmative action, Alan Greenspan, Albert Einstein, anti-communist, AOL-Time Warner, Ayatollah Khomeini, barriers to entry, Bear Stearns, Black Monday: stock market crash in 1987, Bob Noyce, Bonfire of the Vanities, book value, Brownian motion, capital asset pricing model, card file, centralized clearinghouse, Charles Lindbergh, collateralized debt obligation, computerized trading, Cornelius Vanderbilt, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, do what you love, Donald Trump, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, Fairchild Semiconductor, Fillmore Auditorium, San Francisco, financial engineering, Ford Model T, Garrett Hardin, Glass-Steagall Act, global village, Golden Gate Park, Greenspan put, Haight Ashbury, haute cuisine, Honoré de Balzac, If something cannot go on forever, it will stop - Herbert Stein's Law, In Cold Blood by Truman Capote, index fund, indoor plumbing, intangible asset, interest rate swap, invisible hand, Isaac Newton, it's over 9,000, Jeff Bezos, John Bogle, John Meriwether, joint-stock company, joint-stock limited liability company, junk bonds, Larry Ellison, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, Marshall McLuhan, medical malpractice, merger arbitrage, Michael Milken, Mikhail Gorbachev, military-industrial complex, money market fund, moral hazard, NetJets, new economy, New Journalism, North Sea oil, paper trading, passive investing, Paul Samuelson, pets.com, Plato's cave, plutocrats, Ponzi scheme, proprietary trading, Ralph Nader, random walk, Ronald Reagan, Salesforce, Scientific racism, shareholder value, short selling, side project, Silicon Valley, Steve Ballmer, Steve Jobs, supply-chain management, telemarketer, The Predators' Ball, The Wealth of Nations by Adam Smith, Thomas Malthus, tontine, too big to fail, Tragedy of the Commons, transcontinental railway, two and twenty, Upton Sinclair, War on Poverty, Works Progress Administration, Y2K, yellow journalism, zero-coupon bond

But the upheaval was far from over, and the market remained in a nervous mood, partly due to uncertainty over the outcome of the United States and British invasion of Afghanistan a few weeks after 9/11. Then, in November, an energy trading company called Enron stuck a pin in the remains of the late 1990s stock-market bubble, which had shrunk but not burst. As the Justice Department moved in, Enron melted into bankruptcy in the heat of an accounting fraud. Enron was an extreme but not isolated situation. The excesses of the stock-market bubble and the opportunity for executives to pillage their companies led to a whole series of accounting-fraud and securities-violation cases: WorldCom, Adelphia Communications, Tyco, ImClone.

In another sense, the temporary boost of fame he had gotten from the Sun was a sidebar compared to something else. Buffett had recently exploded in investors’ minds for a different reason. Under the pen name Adam Smith, a writer named George Goodman had published Supermoney, a fire-and-brimstone critique of the 1960s stock-market bubble, which sold more than a million copies.53 It demonized the fund managers who had ascended to the stratosphere almost overnight and then crashed, in a parabola as dramatic as if their engines had suddenly run out of rocket fuel. They were featured as devil-horned, pitchfork-bearing tempters of the ordinary Joe Investor.

Those who bought an index of the market had just suffered through what the Wall Street Journal called a “lost decade” in which the S&P 500 index had gone exactly nowhere, falling below its level of April 1999.2 Buffett’s talk at Sun Valley was unfolding along the lines he had discussed; the period after the 1999 stock market bubble had burst was now the third-longest stretch in the past hundred years when the market made no progress. Buffett still said that stocks are the best long-time investment—as long as they were bought at the right price, and for a low fee. As of early 2008, he was buying stocks, but not with great enthusiasm.


pages: 829 words: 186,976

The Signal and the Noise: Why So Many Predictions Fail-But Some Don't by Nate Silver

airport security, Alan Greenspan, Alvin Toffler, An Inconvenient Truth, availability heuristic, Bayesian statistics, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, big-box store, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, book value, Broken windows theory, business cycle, buy and hold, Carmen Reinhart, Charles Babbage, classic study, Claude Shannon: information theory, Climategate, Climatic Research Unit, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, computer age, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, Daniel Kahneman / Amos Tversky, disinformation, diversification, Donald Trump, Edmond Halley, Edward Lorenz: Chaos theory, en.wikipedia.org, equity premium, Eugene Fama: efficient market hypothesis, everywhere but in the productivity statistics, fear of failure, Fellow of the Royal Society, Ford Model T, Freestyle chess, fudge factor, Future Shock, George Akerlof, global pandemic, Goodhart's law, haute cuisine, Henri Poincaré, high batting average, housing crisis, income per capita, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet Archive, invention of the printing press, invisible hand, Isaac Newton, James Watt: steam engine, Japanese asset price bubble, John Bogle, John Nash: game theory, John von Neumann, Kenneth Rogoff, knowledge economy, Laplace demon, locking in a profit, Loma Prieta earthquake, market bubble, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, Monroe Doctrine, mortgage debt, Nate Silver, negative equity, new economy, Norbert Wiener, Oklahoma City bombing, PageRank, pattern recognition, pets.com, Phillips curve, Pierre-Simon Laplace, Plato's cave, power law, prediction markets, Productivity paradox, proprietary trading, public intellectual, random walk, Richard Thaler, Robert Shiller, Robert Solow, Rodney Brooks, Ronald Reagan, Saturday Night Live, savings glut, security theater, short selling, SimCity, Skype, statistical model, Steven Pinker, The Great Moderation, The Market for Lemons, the scientific method, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, Timothy McVeigh, too big to fail, transaction costs, transfer pricing, University of East Anglia, Watson beat the top human players on Jeopardy!, Wayback Machine, wikimedia commons

Examples like the discrepancy in pricing between Palm and 3Com stock simply could not have arisen if the price were right. You had the same commodity (the value of an interest in Palm) trading at two different and wildly divergent prices: at least one of them must have been wrong. There are asymmetries in the market: bubbles are easier to detect than to burst. What this means is that the ultimatum we face in Bayesland—if you really think the market is going to crash, why aren’t you willing to bet on it?—does not necessarily hold in the real world, where there are constraints on trading and on capital. Noise in Financial Markets There is a kind of symbiosis between the irrational traders and the skilled ones—just as, in a poker game, good players need some fish at the table to make the game profitable to play in.

Google “Insights for Search” beta; “housing bubble” (United States). http://www.google.com/insights/search/#q=housing+bubble&cmpt=q&geo=US. 20. Newslibrary.com search; United States sources only. 21. The volume of discussion in the news media forms a parallel to that of the stock market bubble in the late 1990s, references to which increased tenfold in news accounts between 1994 and 1999, peaking just the year before markets crashed. 22. Janet Morrissey, “A Corporate Sleuth Tries the Credit Rating Field,” New York Times, February 26, 2011. http://www.nytimes.com/2011/02/27/business/27kroll.html?


pages: 348 words: 83,490

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) by Michael J. Mauboussin

Alan Greenspan, Albert Einstein, Andrei Shleifer, Atul Gawande, availability heuristic, beat the dealer, behavioural economics, Benoit Mandelbrot, Black Swan, Brownian motion, butter production in bangladesh, buy and hold, capital asset pricing model, Clayton Christensen, clockwork universe, complexity theory, corporate governance, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, dogs of the Dow, Drosophila, Edward Thorp, en.wikipedia.org, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fixed income, framing effect, functional fixedness, hindsight bias, hiring and firing, Howard Rheingold, index fund, information asymmetry, intangible asset, invisible hand, Isaac Newton, Jeff Bezos, John Bogle, Kenneth Arrow, Laplace demon, Long Term Capital Management, loss aversion, mandelbrot fractal, margin call, market bubble, Menlo Park, mental accounting, Milgram experiment, Murray Gell-Mann, Nash equilibrium, new economy, Paul Samuelson, Performance of Mutual Funds in the Period, Pierre-Simon Laplace, power law, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, Richard Florida, Richard Thaler, Robert Shiller, shareholder value, statistical model, Steven Pinker, stocks for the long run, Stuart Kauffman, survivorship bias, systems thinking, The Wisdom of Crowds, transaction costs, traveling salesman, value at risk, wealth creators, women in the workforce, zero-sum game

See also psychology of investing investment process investment profession investors: average holding period diversity of evolution of understanding of power laws Iowa Electronic Markets (IEM) janitor’s dream jellybean-jar experiment Johnson, Norman judgment Kahneman, Daniel; decision-making model Kaplan, Sarah Karceski, Jason Kasparov, Garry Kaufman, Peter Keynes, John Maynard Knight, Frank Krugman, Paul kurtosis lack of representation Lakonishok, Joseph Laplace, Pierre Simon Laplace’s demon leader/challenger dynamics LeDoux, Joseph Legg Mason Value Trust Leinweber, David Lev, Baruch Lewis, Michael life cycle: clockspeed of companies of fruit flies of industries liking limited-time offers linear models lions liquidity lollapalooza effects long term, management for strategies for winners strategy as simple rules Long Term Capital Management long-term investment, loss aversion and Lorie, James loss, risk and loss aversion equity-risk premium exhibits myopic portfolio turnover ratio of risk to reward utility lottery players Lowenstein, Roger luck MacGregor, Donald G. MacKay, Charles Malkiel, Burton Mandelbrot, Benoit B. market capitalization markets: bubbles and crashes collective decisions and decision effect of psychology on efficiency of innovation considered by interpreting new entrants and competitive strategy parallels with insect colonies market timing Mastering the Dynamics of Innovation (Utterback) mathematical expression, symbols for maze problem McKinsey Quarterly mean, reversion to mental-models approach Milgram, Stanley Miller, Bill Moneyball (Lewis) money managers scouting report and stresses on Moore, Geoffrey Moore’s Law Morningstar multidisciplinary perspective.


pages: 317 words: 87,566

The Happiness Industry: How the Government and Big Business Sold Us Well-Being by William Davies

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 1960s counterculture, Abraham Maslow, Airbnb, behavioural economics, business intelligence, business logic, corporate governance, data science, dematerialisation, experimental subject, Exxon Valdez, Frederick Winslow Taylor, Gini coefficient, income inequality, intangible asset, invisible hand, joint-stock company, Leo Hollis, lifelogging, market bubble, mental accounting, military-industrial complex, nudge unit, Panopticon Jeremy Bentham, Philip Mirowski, power law, profit maximization, randomized controlled trial, Richard Thaler, road to serfdom, Ronald Coase, Ronald Reagan, science of happiness, scientific management, selective serotonin reuptake inhibitor (SSRI), sentiment analysis, sharing economy, Slavoj Žižek, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, social contagion, social intelligence, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, TED Talk, The Chicago School, The Spirit Level, theory of mind, urban planning, Vilfredo Pareto, W. E. B. Du Bois, you are the product

See ‘Did Cocaine Use by Bankers Cause the Global Financial Crisis’, theguardian.com, 15 April 2013. 33Michelle Smith, ‘Joe Huber: Blame Your Lousy Portfolio on Your Brain’, moneynews.com, 17 June 2014. 34Alec Smith, Terry Lohrenz, Justin King, P. Read Montague and Colin Camerer, ‘Irrational Exuberance and Neural Crash Warning Signals During Endogenous Experimental Market Bubbles’, Proceedings of the National Academy of the Sciences 111: 29, 2014. 3 In the Mood to Buy 1Ruth Benschop, ‘What Is a Tachistoscope? Historical Explorations of an Instrument’, Science in Context 11: 1, 1998. 2Jonathan Haidt, The Righteous Mind: Why Good People Are Divided by Politics and Religion, New York: Pantheon Books, 2012. 3See Maren Martell, ‘The Race to Find the Brain’s “Buy-Me Button”’, welt.de, 20 January 2011, transl. worldcrunch.com, 2 July 2011. 4Robert Gehl, ‘A History of Like’, thenewinquiry.com, 27 March 2013. 5Lea Dunn and JoAndrea Hoegg, ‘The Impact of Fear on Emotional Brand Attachment’, Journal of Consumer Research 41: 1, 2014. 6Jeffrey Zaslow, ‘Happiness Inc.’, online.wsj.com, 18 March 2006. 7Keith Coulter, Pilsik Choi and Kent Monroe, ‘Comma N’ Cents in Pricing: The Effects of Auditory Representation Encoding on Price Magnitude Perceptions’, Journal of Consumer Psychology 22: 3, 2012. 8Drazen Prelec and George Loewenstein, ‘The Red and the Black: Mental Accounting of Savings and Debt’, Marketing Science 17: 1, 1998. 9Jonathan Crary, Suspensions of Perception: Attention, Spectacle, and Modern Culture, Cambridge, Mass.: MIT Press, 2001. 10Robert Rieber and David Robinson, eds., Wilhelm Wundt in History: The Making of a Scientific Psychology, Dordrecht: Kluwer Academic Publishers, 2001. 11See James Beniger, The Control Revolution: Technological and Economic Origins of the Information Society, Cambridge, MA: Harvard University Press, 1988. 12Robert Rieber, ed., Wilhelm Wundt and the Making of a Scientific Psychology, New York: Plenum Publishing Company Limited, 1980. 13Ibid. 14The American psychologist Edward Thorndike wrote in 1907: ‘Psychology supplies or should supply the fundamental principles upon which sociology, history, anthropology, linguistics and the other sciences dealing with human thought and action should be based … The facts and laws of psychology … should provide the general basis for the interpretation and explanation of the great events studied by history.’


pages: 261 words: 81,802

The Trouble With Billionaires by Linda McQuaig

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

As John Kenneth Galbraith observed: ‘[T]he rich were getting richer much faster than the ‌poor were getting less poor.’15 With the buying power of workers severely constrained, wealthy Americans happily turned their capital over to Wall Street for lucrative financial speculation. In 1926, Republican Treasury Secretary Andrew Mellon, the fifth richest man in the US, introduced an enormous tax cut for the rich. This provided the elite with a massive windfall that quickly flowed to Wall Street, inflating the stock market bubble. When that bubble burst in an orgy of unregulated financial speculation three years later, the resulting crash plunged the American economy into a deep depression with unemployment levels rivalling those in 1930s Britain. But, as in Britain, the harsh experience of the 1930s in America prompted a demand for significant changes that led to greater equality.


pages: 345 words: 86,394

Frequently Asked Questions in Quantitative Finance by Paul Wilmott

Abraham Wald, Albert Einstein, asset allocation, beat the dealer, Black-Scholes formula, Brownian motion, butterfly effect, buy and hold, capital asset pricing model, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, delta neutral, discrete time, diversified portfolio, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, fixed income, fudge factor, implied volatility, incomplete markets, interest rate derivative, interest rate swap, iterative process, lateral thinking, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, martingale, Myron Scholes, Norbert Wiener, Paul Samuelson, power law, quantitative trading / quantitative finance, random walk, regulatory arbitrage, risk free rate, risk/return, Sharpe ratio, statistical arbitrage, statistical model, stochastic process, stochastic volatility, transaction costs, urban planning, value at risk, volatility arbitrage, volatility smile, Wiener process, yield curve, zero-coupon bond

The validity of the EMH, whichever form, is of great importance because it determines whether anyone can outperform the market, or whether successful investing is all about luck. EMH does not require investors to behave rationally, only that in response to news or data there will be a sufficiently large random reaction that an excess profit cannot be made. Market bubbles, for example, do not invalidate EMH provided they cannot be exploited. There have been many studies of the EMH, and the validity of its different forms. Many early studies concluded in favour of the weak form. Bond markets and large-capitalization stocks are thought to be highly efficient, smaller stocks less so.


pages: 316 words: 87,486

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

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

They were “too big to fail” by then.32 Let us continue down the list of Democratic achievements of the 1990s. Telecom deregulation turned out to encourage monopoly building, not innovation; its main effects were the extinction of locally controlled radio stations and the bidding up of telecom shares in the great stock market bubble that burst during Clinton’s last year in office. Electricity deregulation, as it was implemented by the states, allowed Enron to engineer the California power shortage. The rage for stock options fed the epidemic of corporate fraud that came to light soon after Clinton left office, while the capital-gains tax cut was rocket fuel for inequality—“one of the most regressive tax cuts in America’s history,” according to Stiglitz’s recollections of his service in the Clinton administration.


pages: 320 words: 86,372

Mythology of Work: How Capitalism Persists Despite Itself by Peter Fleming

"Friedman doctrine" OR "shareholder theory", 1960s counterculture, anti-work, antiwork, call centre, capitalist realism, carbon tax, clockwatching, commoditize, corporate social responsibility, creative destruction, David Graeber, death from overwork, Etonian, future of work, G4S, Goldman Sachs: Vampire Squid, illegal immigration, Kitchen Debate, late capitalism, Mark Zuckerberg, market bubble, market fundamentalism, means of production, neoliberal agenda, Parkinson's law, post-industrial society, post-work, profit maximization, profit motive, quantitative easing, Results Only Work Environment, scientific management, shareholder value, social intelligence, stock buybacks, The Chicago School, transaction costs, wealth creators, working poor

Financialization and shareholder capitalism perhaps represents the apogee of rationalized capitalism. Here, the numerical monetary logic of pure accumulation truly creates an inversion of ends and means that is shocking. Whatever it takes to increase shareholder value – firing staff, plundering the natural environment, creating extremely volatile property-market bubbles – must be pursued in a single-minded fashion, even if it harms the organization in question. Like all forms of hyper-rationalization, shareholder capitalism fosters a mentality that is generally antisocial and sometimes diabolical when observed from an outside perspective. For example, a large funeral home corporation in the United Kingdom recently had to break some bad news to its shareholders.


pages: 317 words: 84,400

Automate This: How Algorithms Came to Rule Our World by Christopher Steiner

23andMe, Ada Lovelace, airport security, Al Roth, algorithmic trading, Apollo 13, backtesting, Bear Stearns, big-box store, Black Monday: stock market crash in 1987, Black-Scholes formula, call centre, Charles Babbage, cloud computing, collateralized debt obligation, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, Donald Trump, Douglas Hofstadter, dumpster diving, financial engineering, Flash crash, G4S, Gödel, Escher, Bach, Hacker News, High speed trading, Howard Rheingold, index fund, Isaac Newton, Jim Simons, John Markoff, John Maynard Keynes: technological unemployment, knowledge economy, late fees, machine translation, Marc Andreessen, Mark Zuckerberg, market bubble, Max Levchin, medical residency, money market fund, Myron Scholes, Narrative Science, PageRank, pattern recognition, Paul Graham, Pierre-Simon Laplace, prediction markets, proprietary trading, quantitative hedge fund, Renaissance Technologies, ride hailing / ride sharing, risk tolerance, Robert Mercer, Sergey Aleynikov, side project, Silicon Valley, Skype, speech recognition, Spread Networks laid a new fibre optics cable between New York and Chicago, transaction costs, upwardly mobile, Watson beat the top human players on Jeopardy!, Y Combinator

Nevertheless, Wall Street embraced Li’s formula as stone-solid fact. The copula should have been one arrow in the quiver of analysts and rating agencies who examined and stamped their approval on mortgage-backed securities. Instead, it became the only arrow. The resultant boom in collateralized debt obligations and the housing market bubble came straight from bankers’ misuse of what should have been a harmless algorithm. Gaussian copulas are useful tools and are utilized in a number of fields, but the one thing they do not do is model dependence between extreme events, something humans excel at precipitating.33 PASCAL, BERNOULLI, AND THE DICE GAME THAT CHANGED THE WORLD Much of modern finance, from annuities to insurance to algorithmic trading, has roots in probability theory—as do myriad other businesses from casinos to skyscraper construction to airplane manufacturing.


pages: 223 words: 10,010

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

"World Economic Forum" Davos, Adam Curtis, air traffic controllers' union, Alan Greenspan, AOL-Time Warner, banking crisis, Basel III, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Branko Milanovic, Bretton Woods, British Empire, business cycle, business process, call centre, capital controls, collective bargaining, corporate governance, corporate raider, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, Everybody Ought to Be Rich, falling living standards, financial deregulation, financial engineering, 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, job polarisation, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, Larry Ellison, light touch regulation, Londongrad, Long Term Capital Management, low interest rates, low skilled workers, manufacturing employment, market bubble, Martin Wolf, Mary Meeker, mittelstand, mobile money, Mont Pelerin Society, Myron Scholes, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, proprietary trading, Right to Buy, rising living standards, Robert Shiller, Robert Solow, 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, Tyler Cowen: Great Stagnation, Washington Consensus, Winter of Discontent, working-age population

The losses incurred by British and European banks, for example, arose initially largely from reckless investment in securities backed by US subprime mortgages. Despite the bubbles that were building across a number of markets, the regulatory authorities took no action. Yet there had been plenty of earlier examples of their destructive power. In the 1920s, it was the property followed by the stock market bubble that led to the 1929 Crash. In the early 1970s, Heath’s freeing up of the banks had provided a classic warning sign of the impact on property markets as house prices surged out of control. The bursting of the Japanese property bubble in 1989—which sent the nation into a decade-long spiral of deflation—was another.


pages: 366 words: 94,209

Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity by Douglas Rushkoff

activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, algorithmic trading, Amazon Mechanical Turk, Andrew Keen, bank run, banking crisis, barriers to entry, benefit corporation, bitcoin, blockchain, Burning Man, business process, buy and hold, buy low sell high, California gold rush, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, centralized clearinghouse, citizen journalism, clean water, cloud computing, collaborative economy, collective bargaining, colonial exploitation, Community Supported Agriculture, corporate personhood, corporate raider, creative destruction, crowdsourcing, cryptocurrency, data science, deep learning, disintermediation, diversified portfolio, Dutch auction, Elon Musk, Erik Brynjolfsson, Ethereum, ethereum blockchain, fiat currency, Firefox, Flash crash, full employment, future of work, gamification, Garrett Hardin, gentrification, gig economy, Gini coefficient, global supply chain, global village, Google bus, Howard Rheingold, IBM and the Holocaust, impulse control, income inequality, independent contractor, index fund, iterative process, Jaron Lanier, Jeff Bezos, jimmy wales, job automation, Joseph Schumpeter, Kickstarter, Large Hadron Collider, loss aversion, low interest rates, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, Marshall McLuhan, means of production, medical bankruptcy, minimum viable product, Mitch Kapor, Naomi Klein, Network effects, new economy, Norbert Wiener, Oculus Rift, passive investing, payday loans, peer-to-peer lending, Peter Thiel, post-industrial society, power law, profit motive, quantitative easing, race to the bottom, recommendation engine, reserve currency, RFID, Richard Stallman, ride hailing / ride sharing, Ronald Reagan, Russell Brand, Satoshi Nakamoto, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Snapchat, social graph, software patent, Steve Jobs, stock buybacks, TaskRabbit, the Cathedral and the Bazaar, The Future of Employment, the long tail, trade route, Tragedy of the Commons, transportation-network company, Turing test, Uber and Lyft, Uber for X, uber lyft, unpaid internship, Vitalik Buterin, warehouse robotics, Wayback Machine, Y Combinator, young professional, zero-sum game, Zipcar

That’s likely where we are today, with the absurd valuation of every remotely plausible new platform monopoly, as well as the joblessness and upset that the successful ones generate: cabdrivers protesting Uber, hotel workers complaining about Airbnb, and San Francisco residents throwing rocks at Google buses over inflated rent prices. Then the stock market bubble pops. Perez sees that as the turning point, when wealth disparity between the winners and losers reaches an extreme, civil unrest reaches a peak, and government is forced to act through regulation. For instance, the irruption and frenzy phases of automobiles and mass-produced appliances led to the Roaring Twenties and eventually the 1929 crash.


pages: 323 words: 92,135

Running Money by Andy Kessler

Alan Greenspan, Andy Kessler, Apple II, bioinformatics, Bob Noyce, British Empire, business intelligence, buy and hold, buy low sell high, call centre, Charles Babbage, Corn Laws, cotton gin, Douglas Engelbart, Fairchild Semiconductor, family office, flying shuttle, full employment, General Magic , George Gilder, happiness index / gross national happiness, interest rate swap, invisible hand, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, junk bonds, knowledge worker, Leonard Kleinrock, Long Term Capital Management, mail merge, Marc Andreessen, margin call, market bubble, Mary Meeker, Maui Hawaii, Menlo Park, Metcalfe’s law, Michael Milken, Mitch Kapor, Network effects, packet switching, pattern recognition, pets.com, railway mania, risk tolerance, Robert Metcalfe, Sand Hill Road, Silicon Valley, South China Sea, spinning jenny, Steve Jobs, Steve Wozniak, Suez canal 1869, Toyota Production System, TSMC, UUNET, zero-sum game

Their economies achieve full employment, sure, but these countries are not economic powerhouses. Not anymore. We were investing in companies with no more than 50–100 workers, most of them highly paid programmers and engineers, whose occupational hazard is coming down off a caffeine buzz and an occasional late night Nerf gun injury. Yet even after the market bubble burst in 2000, these companies would still be worth more than Ssangyong, a company a hundred or a thousand times their size. The stock market values small businesses with high margins over big businesses with low margins. Is that good or bad? Should I even care? Whenever I try to figure out why this is, I keep thinking back and visualizing Mr.


pages: 309 words: 95,495

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

Affordable Care Act / Obamacare, Air France Flight 447, air freight, airport security, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, behavioural economics, Boeing 747, book value, break the buck, Bretton Woods, business cycle, capital controls, central bank independence, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Daniel Kahneman / Amos Tversky, diversified portfolio, double helix, endowment effect, Exxon Valdez, Eyjafjallajökull, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, foreign exchange controls, full employment, global supply chain, hindsight bias, Hyman Minsky, Joseph Schumpeter, junk bonds, Kenneth Rogoff, lateral thinking, Lewis Mumford, London Whale, Long Term Capital Management, market bubble, Michael Milken, money market fund, moral hazard, Myron Scholes, Network effects, new economy, offshore financial centre, paradox of thrift, pets.com, Ponzi scheme, proprietary trading, quantitative easing, Ralph Nader, Richard Thaler, risk tolerance, Ronald Reagan, Sam Peltzman, savings glut, scientific management, subprime mortgage crisis, tail risk, technology bubble, TED Talk, The Great Moderation, too big to fail, transaction costs, union organizing, Unsafe at Any Speed, value at risk, William Langewiesche, zero-sum game

Low inflation reduces the payment and enables the buyer to afford a much larger mortgage and thus a pricier house. While it was true that high inflation was corrosive to financial stability, so, perversely, was low inflation: inflation was low and economic growth stable in the 1920s in America, and in 1980s-era Japan. In both cases, the result was a stock market bubble. Greenspan himself pointed this out in the aftermath of the dot-com bubble in 2002. As inflation had become tame, recessions had become less frequent, so investors and home buyers were willing to pay higher prices for assets, which exposed them to big losses if anything went wrong. “It seems ironic,” he said, “that a monetary policy that is successful in inducing stability may inadvertently be sowing the seeds of instability associated with asset bubbles.”


pages: 351 words: 93,982

Leading From the Emerging Future: From Ego-System to Eco-System Economies by Otto Scharmer, Katrin Kaufer

Affordable Care Act / Obamacare, agricultural Revolution, Albert Einstein, Asian financial crisis, Basel III, behavioural economics, Berlin Wall, Branko Milanovic, cloud computing, collaborative consumption, collapse of Lehman Brothers, colonial rule, Community Supported Agriculture, creative destruction, crowdsourcing, deep learning, dematerialisation, Deng Xiaoping, do what you love, en.wikipedia.org, European colonialism, Fractional reserve banking, Garrett Hardin, Glass-Steagall Act, global supply chain, happiness index / gross national happiness, high net worth, housing crisis, income inequality, income per capita, intentional community, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Johann Wolfgang von Goethe, Joseph Schumpeter, Kickstarter, market bubble, mass immigration, Mikhail Gorbachev, Mohammed Bouazizi, mutually assured destruction, Naomi Klein, new economy, offshore financial centre, Paradox of Choice, peak oil, ride hailing / ride sharing, Ronald Reagan, Silicon Valley, smart grid, Steve Jobs, systems thinking, technology bubble, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, Tragedy of the Commons, vertical integration, Washington Consensus, working poor, Zipcar

The great positive accomplishments of the laissez-faire free-market 2.0 economy and society are rapid growth and dynamism; the downside is that it has no means of dealing with the negative externalities that it produces. Examples include poor working conditions, prices of farm products that fall below the threshold of sustainability, and highly volatile currency exchange rates and stock market bubbles that destroy precious production capital.9 SOCIETY 3.0: ORGANIZING AROUND INTEREST GROUPS Measures to correct the problems of Society 2.0 include the introduction of labor rights, social security legislation, environmental protection, protectionist measures for farmers, and federal reserve banks that protect the national currency, all of which are designed to do the same thing: limit the unfettered market mechanism in areas where the negative externalities are dysfunctional and unacceptable.


pages: 346 words: 90,371

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

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

Households reduce their spending and increase their savings, this reduces firms’ profits, leading them to pull back from investment and pay off their debts, and banks contract their lending and rebuild their capital base. A range of studies show that such balance sheet recessions tend to last longer and be deeper than crises that do not involve credit bubbles (e.g. stock market bubbles); and within the universe of recessions caused by credit bubbles, land-related credit bubbles are consistently deeper and last longer (Buyukkarabacak and Valev, 2006; Schularick and Taylor, 2009; Borio et al., 2011; Bezemer and Zhang, 2014; Jordà et al., 2015). The clearest example of the long-term damage a land price credit bubble can do to an economy is Japan.


pages: 335 words: 94,657

The Bogleheads' Guide to Investing by Taylor Larimore, Michael Leboeuf, Mel Lindauer

asset allocation, behavioural economics, book value, buy and hold, buy low sell high, corporate governance, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, endowment effect, estate planning, financial engineering, financial independence, financial innovation, high net worth, index fund, John Bogle, junk bonds, late fees, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, margin call, market bubble, mental accounting, money market fund, passive investing, Paul Samuelson, random walk, risk tolerance, risk/return, Sharpe ratio, statistical model, stocks for the long run, survivorship bias, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

On October 12, at the market bottom, the Elves were bearish, when they should have been bullish, and remained bearish through November 1994 as a powerful advance began. It became so embarrassing that Rukeyser actually replaced five bearish Elves with five more bullish Elves. Unfortunately, the newly organized Elves were bullish all through the bear market plunge (21 percent) in July and August of 1998. A year later, as the stock market bubble was approaching its climax at the end of 1999, only one Elf, Gail Dudack, was correctly bearish. Rukeyser must have gotten tired of her bearishness and announced Dudack's dismissal on a November show. He replaced her with Alan Bond, another stock market bull (sentenced in 2003 to 12 years and 7 months in prison for defrauding investors).


pages: 333 words: 86,662

Zeitgeist by Bruce Sterling

anti-communist, Ayatollah Khomeini, Berlin Wall, bread and circuses, cotton gin, Frank Gehry, Grace Hopper, informal economy, invisible hand, Iridium satellite, jitney, market bubble, Maui Hawaii, new economy, offshore financial centre, PalmPilot, rolodex, sexual politics, shareholder value, Silicon Valley, Ted Kaczynski, the scientific method, undersea cable, upwardly mobile, urban decay, Y2K

“No; actually, you are insane, Viktor. Not that I hold that against you.” “No, Starlitz, you’re insane; you’ve lost all sense of proper proportion. Y2K is coming, and you’re at the end of your rope. You’ve lost all sense of restraint and decency. You’re going to pop and disappear, just like a stock-market bubble.” “Viktor, don’t tell me I’m insane, okay? I’ve got a child and a nice reputation in the industry. But you—you wouldn’t know an honest job if it carpet-bombed you. You’re a young guy, and you’re like a hundred-and-ten-percent shakedown problems.” “All right,” sniffed Viktor, “that does it! I knew that eventually you’d insult me unforgivably.


pages: 369 words: 94,588

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

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

This crisis gathered momentum at the end of the 1960s. The solution was becoming the problem. The Bretton Woods Agreement of 1944 came under stress. The US dollar was under mounting international pressure because of excessive borrowing. Then the whole capitalist system fell into a deep recession, led by the bursting of the global property market bubble in 1973. The dark days of the 1970s were upon us with all the consequences earlier outlined. Fitting, though, that it was the New York City fiscal crisis of 1975 that centred the storm. With one of the largest public budgets at that time in the capitalist world, New York City, surrounded by sprawling affluent suburbs, went broke.


pages: 420 words: 94,064

The Revolution That Wasn't: GameStop, Reddit, and the Fleecing of Small Investors by Spencer Jakab

4chan, activist fund / activist shareholder / activist investor, barriers to entry, behavioural economics, Bernie Madoff, Bernie Sanders, Big Tech, bitcoin, Black Swan, book value, buy and hold, classic study, cloud computing, coronavirus, COVID-19, crowdsourcing, cryptocurrency, data science, deal flow, democratizing finance, diversified portfolio, Dogecoin, Donald Trump, Elon Musk, Everybody Ought to Be Rich, fake news, family office, financial innovation, gamification, global macro, global pandemic, Google Glasses, Google Hangouts, Gordon Gekko, Hacker News, income inequality, index fund, invisible hand, Jeff Bezos, Jim Simons, John Bogle, lockdown, Long Term Capital Management, loss aversion, Marc Andreessen, margin call, Mark Zuckerberg, market bubble, Masayoshi Son, meme stock, Menlo Park, move fast and break things, Myron Scholes, PalmPilot, passive investing, payment for order flow, Pershing Square Capital Management, pets.com, plutocrats, profit maximization, profit motive, race to the bottom, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robinhood: mobile stock trading app, Saturday Night Live, short selling, short squeeze, Silicon Valley, Silicon Valley billionaire, SoftBank, Steve Jobs, TikTok, Tony Hsieh, trickle-down economics, Vanguard fund, Vision Fund, WeWork, zero-sum game

An influential, already-wealthy person who can point us in the direction of a shortcut will capture a lot of attention and get us to ignore what are, with the benefit of hindsight, obvious red flags. By suggesting that there were oodles of millionaires in America—which, even at the peak of the epic twenties stock market bubble, there weren’t—the opening paragraph of the interview gave readers the sense that they were late to the party. At the time, disposable income per person in the United States was a little over $6,000, and $1 million dollars was the equivalent of more than $15 million in today’s money. In any case, this was the most reckless advice possible given at the worst possible time.


The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

addicted to oil, air freight, airline deregulation, Alan Greenspan, Albert Einstein, asset-backed security, bank run, Berlin Wall, Black Monday: stock market crash in 1987, Bretton Woods, business cycle, business process, buy and hold, call centre, capital controls, carbon tax, central bank independence, collateralized debt obligation, collective bargaining, compensation consultant, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, cotton gin, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, currency risk, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Glass-Steagall Act, Hernando de Soto, income inequality, income per capita, information security, invisible hand, Joseph Schumpeter, junk bonds, labor-force participation, laissez-faire capitalism, land reform, Long Term Capital Management, low interest rates, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, new economy, North Sea oil, oil shock, open economy, open immigration, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, Reminiscences of a Stock Operator, reserve currency, Right to Buy, risk tolerance, Robert Solow, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, special economic zone, stock buybacks, stocks for the long run, Suez crisis 1956, the payments system, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tipper Gore, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, We are all Keynesians now, working-age population, Y2K, zero-sum game

I told the committee we might need an interest rate increase to try to rein in the bull. "We have to start thinking about some form of preemptive move," I said, "and how to communicate that." I was choosing my words very carefully because we were on the record and we were playing with political dynamite. The Fed has no explicit mandate under the law to try to contain a stock-market bubble. Indirectly we had the authority to do so, if we believed stock prices were creating inflationary pressures. But in this instance, that would have been a very hard case to make because the economy was performing so well. The Fed does not operate in a vacuum. If we raised rates and gave as a reason that we wanted to rein in the stock market, it would have provoked a political firestorm.

T H E AGE OF T U R B U L E N C E twelve months (the Dow rose 20 percent). Most people who'd invested in stocks were feeling flush, and with good reason. This presented the Fed with a fascinating puzzle: How do you draw the line between a healthy exciting economic boom and a wanton, speculative stock-market bubble driven by the less savory aspects of human nature? As I pointed out drily to the House Banking Committee, the question is all the more complicated because the two can coexist: "The interpretation that we are currently enjoying productivity acceleration does not ensure that equity prices are not overextended."


pages: 356 words: 103,944

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

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

Floating currencies became a source of instability for the international economic system rather than a safety valve. Economists and policy makers would endlessly debate during the eighties and nineties whether currency values reflected fundamental economic conditions or simply distortions in foreign currency markets: bubbles, irrationality, myopic expectations, or short-term trading strategies. What do all these men in their twenties and thirties—they are mostly men—sitting in front of huge computer screens, who move hundreds of millions of dollars across the globe at a keystroke and determine the fate of nations’ currencies, really do?


pages: 326 words: 103,170

The Seventh Sense: Power, Fortune, and Survival in the Age of Networks by Joshua Cooper Ramo

air gap, Airbnb, Alan Greenspan, Albert Einstein, algorithmic trading, barriers to entry, Berlin Wall, bitcoin, Bletchley Park, British Empire, cloud computing, Computing Machinery and Intelligence, crowdsourcing, Danny Hillis, data science, deep learning, defense in depth, Deng Xiaoping, drone strike, Edward Snowden, Fairchild Semiconductor, Fall of the Berlin Wall, financial engineering, Firefox, Google Chrome, growth hacking, Herman Kahn, income inequality, information security, Isaac Newton, Jeff Bezos, job automation, Joi Ito, Laura Poitras, machine translation, market bubble, Menlo Park, Metcalfe’s law, Mitch Kapor, Morris worm, natural language processing, Neal Stephenson, Network effects, Nick Bostrom, Norbert Wiener, Oculus Rift, off-the-grid, packet switching, paperclip maximiser, Paul Graham, power law, price stability, quantitative easing, RAND corporation, reality distortion field, Recombinant DNA, recommendation engine, Republic of Letters, Richard Feynman, road to serfdom, Robert Metcalfe, Sand Hill Road, secular stagnation, self-driving car, Silicon Valley, Skype, Snapchat, Snow Crash, social web, sovereign wealth fund, Steve Jobs, Steve Wozniak, Stewart Brand, Stuxnet, superintelligent machines, systems thinking, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, too big to fail, Vernor Vinge, zero day

Complicated systems are packed with parts, but they are predictable. It’s the complex ones that really change the rules. And once a mesh of complex connection is really flowing, it produces surprising interaction. Precisely because there is no central plan, the best of these linked systems create, in a sense. From computer crashes to market bubbles. Castells’s social protests emerged in this complex way, appearing like condensate in the jar of the post-2008 economic crisis. Researchers following in his wake studied the Spanish anti-austerity movement of 2011 and found that it was composed largely of new organizations that blossomed from connectivity.


pages: 342 words: 95,013

The Zenith Angle by Bruce Sterling

airport security, Burning Man, cuban missile crisis, digital map, Dr. Strangelove, glass ceiling, Grace Hopper, half of the world's population has never made a phone call, information security, Iridium satellite, Larry Ellison, market bubble, military-industrial complex, new economy, off-the-grid, packet switching, pirate software, profit motive, RFID, Richard Feynman, Richard Feynman: Challenger O-ring, Ronald Reagan, satellite internet, Silicon Valley, space junk, Steve Jobs, systems thinking, thinkpad, Y2K

Tony silently reached to pour himself more booze. The happy moment passed quickly. There was an anvil on Tony’s back. “What are you up to, Tony? You got plans to turn it around, right?” “Well,” said Tony, who was definitely not okay, “you mustn’t lose sight of the end goal, Van. After a stock market bubble, people are just as irrational as they were before. But now it’s all about the terror, instead of all about the greed. They are more irrational now, because they can’t see any future.” “You’ve got money troubles?” “It’s not that simple. By the way, I’m really sorry about your board of directors gig for DeFanti’s holding company.


pages: 334 words: 98,950

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

"there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Albert Einstein, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, business cycle, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, export processing zone, falling living standards, Fellow of the Royal Society, financial deregulation, financial engineering, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

The money game is in our genes – after all, paper money is a Chinese invention!’When it joined the organization in 2024, China revalued its currency, the renminbi, by four times and fully opened its capital market. For a while, the Chinese economy boomed as though the sky was the limit. But the resulting real estate and stock market bubbles burst in 2029, requiring the largest IMF rescue package in history. Soaring unemployment and IMF-imposed cuts to government food subsidies led to riots and eventually to the rise of the Yuan-Gongchandang (Real Communist) movement, fuelled by the seething resentment of the ‘losers’ in a society that had moved from the near-absolute equality of Maoist communism to Brazilian-style inequality in the space of less than two generations.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, bank run, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, deal flow, Deng Xiaoping, diversification, diversified portfolio, Dr. Strangelove, 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, Great Leap Forward, guns versus butter model, high net worth, income inequality, interest rate derivative, it's over 9,000, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, power law, price mechanism, price stability, private sector deleveraging, proprietary trading, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, short squeeze, sovereign wealth fund, special drawing rights, special economic zone, subprime mortgage crisis, 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, vertical integration, War on Poverty, Washington Consensus, zero-sum game

Emergent properties are seen in the recurring price patterns that technicians are so fond of. The peaks and valleys, “double tops,” “head and shoulders” and other technical chart patterns are examples of emergence from the complexity of the overall system. Phase transitions—rapid extreme changes—are present in the form of market bubbles and crashes. Much of the work on capital markets as complex systems is still theoretical. However, there is strong empirical evidence, first reported by Benoît Mandelbrot, that the magnitude and frequency of certain market prices plot out as a power-law degree distribution. Mandelbrot showed that a time series chart of these price moves exhibited what he called a “fractal dimension.”


pages: 463 words: 105,197

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

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

It especially appealed to a Silicon Valley mentality that grew from the counterculture of the 1960s.8 During the 1990s, venture capital poured in to commercialize the booming Internet before online services had established how they would monetize their offerings. Internet companies relentlessly pursued users under the banner “usage, revenues later” (a “backronym” for “url”). While partly driven by the dot-com stock market bubble, this strategy was also influenced by the dominant position Microsoft had established by offering its operating system at relatively low cost and in a form compatible with many hardware platforms. The “network effects” created by this strategy were widely viewed as placing Microsoft in a position to reap enormous rewards.9 This encouraged many venture capitalists to fund services that rapidly enlarged their user base even if their business model was unclear.


pages: 261 words: 103,244

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

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

The most important factor for their remuneration and career prospects is their willingness and ability to tell retail customers a story that entices them to do business with their employer. For analysts who cover stocks that have been underwritten by their employer, their career outcome depends even more on that optimism than on the accuracy of earnings forecasts. In a hot stock market, the reward for optimism is highest. This implies that banks systematically amplify stock market bubbles by having their analysts cheer on the retail investor crowds (Kubik and Hong 2003). The incentives of the analysts and their employers are not a secret to the companies covered by their research: if analysts treat them well, these companies return the favor. The gift exchange between analyzed companies and analysts consists mostly of privileged access to information in exchange for favorable reports.


pages: 347 words: 99,317

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

"there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Albert Einstein, banking crisis, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, business cycle, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, export processing zone, falling living standards, Fellow of the Royal Society, financial deregulation, financial engineering, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

The money game is in our genes – after all, paper money is a Chinese invention!’ When it joined the organization in 2024, China revalued its currency, the renminbi, by four times and fully opened its capital market. For a while, the Chinese economy boomed as though the sky was the limit. But the resulting real estate and stock market bubbles burst in 2029, requiring the largest IMF rescue package in history. Soaring unemployment and IMF-imposed cuts to government food subsidies led to riots and eventually to the rise of the Yuan-Gongchandang (Real Communist) movement, fuelled by the seething resentment of the ‘losers’ in a society that had moved from the near-absolute equality of Maoist communism to Brazilian-style inequality in the space of less than two generations.


pages: 471 words: 97,152

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

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

But in all of this debate no one has offered any real evidence to think that the volatility is rational.6 The price changes appear instead to be correlated with social changes of various kinds. Andrei Shleifer and Sendhil Mullainathan have observed the changes in Merrill Lynch advertisements. Prior to the stock market bubble, in the early 1990s, Merrill Lynch was running advertisements showing a grandfather fishing with his grandson. The ad was captioned: “Maybe you should plan to grow rich slowly.” By the time the market had peaked around 2000, when investors were obviously very pleased with recent results, Merrill’s ads had changed dramatically.


pages: 414 words: 101,285

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

air freight, air traffic controllers' union, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, biodiversity loss, Bretton Woods, BRICs, business cycle, butterfly effect, carbon tax, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, digital divide, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, Eyjafjallajökull, failed state, Fairchild Semiconductor, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, Glass-Steagall Act, global pandemic, global supply chain, global value chain, global village, high-speed rail, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, precautionary principle, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, risk free rate, Robert Solow, scientific management, Silicon Valley, six sigma, social contagion, social distancing, Stuxnet, supply-chain management, systems thinking, tail risk, TED Talk, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, Tragedy of the Commons, transaction costs, uranium enrichment, vertical integration

In our view, it is not only regulators that need to become aware that growing complexity cannot be fought with ever more complex rules but also managers and others, who should allow themselves to rely more on basic ethics and intuition. For example, when bonuses spiral beyond all historical precedents, remuneration committees should not need to be forced to show restraint. Similarly, when low-paid or even unemployed individuals are buying second homes on credit and housing markets bubble, it should be obvious even outside the banking sector that there is an unsustainable boom. Acting on intuition becomes even more important when there are increasing risks of being paralyzed by analysis using ever more complex data. 3 Supply Chain Risks We have argued that globalization has contributed to economic integration, efficiency gains, and growth but also to the hidden systemic risks that materialized in the 2007/2008 financial crisis.


pages: 328 words: 96,678

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them by Nouriel Roubini

"World Economic Forum" Davos, 2021 United States Capitol attack, 3D printing, 9 dash line, AI winter, AlphaGo, artificial general intelligence, asset allocation, assortative mating, autonomous vehicles, bank run, banking crisis, basic income, Bear Stearns, Big Tech, bitcoin, Bletchley Park, blockchain, Boston Dynamics, Bretton Woods, British Empire, business cycle, business process, call centre, carbon tax, Carmen Reinhart, cashless society, central bank independence, collateralized debt obligation, Computing Machinery and Intelligence, coronavirus, COVID-19, creative destruction, credit crunch, crony capitalism, cryptocurrency, currency manipulation / currency intervention, currency peg, data is the new oil, David Ricardo: comparative advantage, debt deflation, decarbonisation, deep learning, DeepMind, deglobalization, Demis Hassabis, democratizing finance, Deng Xiaoping, disintermediation, Dogecoin, Donald Trump, Elon Musk, en.wikipedia.org, energy security, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, eurozone crisis, failed state, fake news, family office, fiat currency, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, future of work, game design, geopolitical risk, George Santayana, Gini coefficient, global pandemic, global reserve currency, global supply chain, GPS: selective availability, green transition, Greensill Capital, Greenspan put, Herbert Marcuse, high-speed rail, Hyman Minsky, income inequality, inflation targeting, initial coin offering, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of movable type, Isaac Newton, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, knowledge worker, Long Term Capital Management, low interest rates, low skilled workers, low-wage service sector, M-Pesa, margin call, market bubble, Martin Wolf, mass immigration, means of production, meme stock, Michael Milken, middle-income trap, Mikhail Gorbachev, Minsky moment, Modern Monetary Theory, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Mustafa Suleyman, Nash equilibrium, natural language processing, negative equity, Nick Bostrom, non-fungible token, non-tariff barriers, ocean acidification, oil shale / tar sands, oil shock, paradox of thrift, pets.com, Phillips curve, planetary scale, Ponzi scheme, precariat, price mechanism, price stability, public intellectual, purchasing power parity, quantitative easing, race to the bottom, Ralph Waldo Emerson, ransomware, Ray Kurzweil, regulatory arbitrage, reserve currency, reshoring, Robert Shiller, Ronald Reagan, Salesforce, Satoshi Nakamoto, Savings and loan crisis, Second Machine Age, short selling, Silicon Valley, smart contracts, South China Sea, sovereign wealth fund, Stephen Hawking, TED Talk, The Great Moderation, the payments system, Thomas L Friedman, TikTok, too big to fail, Turing test, universal basic income, War on Poverty, warehouse robotics, Washington Consensus, Watson beat the top human players on Jeopardy!, working-age population, Yogi Berra, Yom Kippur War, zero-sum game, zoonotic diseases

The next act in this economic drama will not resemble others. No one can predict what exactly will trigger the next shock even if the bear market in many equity markets in the first half of 2022 signaled that the latest asset bubble was nearing an end. There are plenty of candidates: a massive market bubble bursting as in 1929; a surge in inflation forcing central banks to tighten monetary policy in a draconian way, leading to an unsustainable rise in interest rates; pandemics worse than COVID-19 as zoonotic diseases transmitted from animals to humans become more frequent and virulent; a corporate debt crisis stemming from a credit crunch as interest rates rise; a new housing bubble and then bust clobbering homeowners and lenders; a geopolitical shock like the war between Russia and Ukraine in 2022 escalating and becoming more severe, leading to further spikes in commodity prices and inflation; other geopolitical risks; and the rising risk of another global recession triggered by the confluence of the above risks.


Growth: From Microorganisms to Megacities by Vaclav Smil

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, agricultural Revolution, air freight, Alan Greenspan, American Society of Civil Engineers: Report Card, Anthropocene, Apollo 11, Apollo Guidance Computer, autonomous vehicles, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Boeing 747, Bretton Woods, British Empire, business cycle, caloric restriction, caloric restriction, carbon tax, circular economy, colonial rule, complexity theory, coronavirus, decarbonisation, degrowth, deindustrialization, dematerialisation, demographic dividend, demographic transition, Deng Xiaoping, disruptive innovation, Dissolution of the Soviet Union, Easter island, endogenous growth, energy transition, epigenetics, Fairchild Semiconductor, Ford Model T, general purpose technology, Gregor Mendel, happiness index / gross national happiness, Helicobacter pylori, high-speed rail, hydraulic fracturing, hydrogen economy, Hyperloop, illegal immigration, income inequality, income per capita, industrial robot, Intergovernmental Panel on Climate Change (IPCC), invention of movable type, Isaac Newton, James Watt: steam engine, knowledge economy, Kondratiev cycle, labor-force participation, Law of Accelerating Returns, longitudinal study, low interest rates, mandelbrot fractal, market bubble, mass immigration, McMansion, megacity, megaproject, megastructure, meta-analysis, microbiome, microplastics / micro fibres, moral hazard, Network effects, new economy, New Urbanism, old age dependency ratio, optical character recognition, out of africa, peak oil, Pearl River Delta, phenotype, Pierre-Simon Laplace, planetary scale, Ponzi scheme, power law, Productivity paradox, profit motive, purchasing power parity, random walk, Ray Kurzweil, Report Card for America’s Infrastructure, Republic of Letters, rolodex, Silicon Valley, Simon Kuznets, social distancing, South China Sea, synthetic biology, techno-determinism, technoutopianism, the market place, The Rise and Fall of American Growth, three-masted sailing ship, total factor productivity, trade liberalization, trade route, urban sprawl, Vilfredo Pareto, yield curve

These trajectories include erratic advances with no easily discernible patterns (often seen in stock market valuations); simple linear gains (an hourglass adds the same amount of falling sand to the bottom pile every second); growth that is, temporarily, exponential (commonly exhibited by such diverse phenomena as organisms in their infancy, the most intensive phases in the adoption of technical innovation, and the creation of stock market bubbles); and gains that conform to assorted confined (restrained) growth curves (as do body sizes of all organisms) whose shape can be captured by mathematical functions. Most growth processes—be they of organisms, artifacts, or complex systems—follow closely one of these S-shaped (sigmoid) growth curves conforming to the logistic (Verhulst) function (Verhulst 1838, 1845, 1847), to its precursor (Gompertz 1825), or to one of their derivatives, most commonly those formulated by von Bertalanffy (1938, 1957), Richards (1959), Blumberg (1968), and Turner et al. (1976).

But the final, inescapable power of this reality may seem inapplicable in those cases where exponential growth has been underway for an extended period of time and when it keeps setting new record levels. More than a few normally rational people have been able to convince themselves—by repeating the mantra “this time it is different”—that performances will keep on multiplying for a long time to come. The best examples of these, often collective, delusions come from the history of stock market bubbles and I will describe in some detail just two most notable recent events, Japan’s pre-1990 rise and America’s New Economy of the 1990s. Japan’s economic rise during the 1980s provides one of the best examples of people who should know better getting carried away by the power of exponential growth.


Capital Ideas Evolving by Peter L. Bernstein

Albert Einstein, algorithmic trading, Andrei Shleifer, asset allocation, behavioural economics, Black Monday: stock market crash in 1987, Bob Litterman, book value, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, computerized trading, creative destruction, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, diversification, diversified portfolio, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, high net worth, hiring and firing, index fund, invisible hand, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, mental accounting, money market fund, Myron Scholes, paper trading, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, price anchoring, price stability, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, seminal paper, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, statistical model, survivorship bias, systematic trading, tail risk, technology bubble, The Wealth of Nations by Adam Smith, transaction costs, yield curve, Yogi Berra, zero-sum game

It has become the centerpiece of sophisticated institutional portfolio management. Some practitioners even dare to claim CAPM has blasted the Efficient Market Hypothesis into smithereens. The motivation for this revolutionary development was more than a new perspective on what CAPM could do for investors. After the stock market bubble of the 1990s burst between the end of 2000 and the middle of 2003, many investors were convinced the expected real return on equities in the years ahead would be below the long-term average of around 7 percent. This view was fortified by long-term interest rates on Treasury securities lingering well below the average of 7.1 percent from 1959 to 1999 or 6.5 percent during the bubble years of 1995–1999.


The Permanent Portfolio by Craig Rowland, J. M. Lawson

Alan Greenspan, Andrei Shleifer, asset allocation, automated trading system, backtesting, bank run, banking crisis, Bear Stearns, Bernie Madoff, buy and hold, capital controls, correlation does not imply causation, Credit Default Swap, currency risk, diversification, diversified portfolio, en.wikipedia.org, fixed income, Flash crash, high net worth, High speed trading, index fund, inflation targeting, junk bonds, low interest rates, margin call, market bubble, money market fund, new economy, passive investing, Ponzi scheme, prediction markets, risk tolerance, stocks for the long run, survivorship bias, technology bubble, transaction costs, Vanguard fund

Offshore, the Krona slumped as much as 80 percent against the euro, while capital restrictions this year have failed to prevent an 8.1 percent decline, making the Krona the second-worst performer of the 26 emerging-market currencies tracked by Bloomberg.2 In Iceland, an analysis of the event showed that a Permanent Portfolio being run in that country would have offered significant protection over a conventional stock and bond only portfolio. Gold in Icelandic krona was up +259 percent in value while their stock market sank −88 percent in value.3 But even more impressive is that as the Icelandic stock market bubble grew, a Permanent Portfolio investor there would have been moving profits out of stocks and into assets like gold before the bust. When the bust happened, they were automatically in a position to be protected without having to do any market timing. A good portion of their life savings would have been spared during the disaster.


pages: 416 words: 106,532

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond by Chris Burniske, Jack Tatar

Airbnb, Alan Greenspan, altcoin, Alvin Toffler, asset allocation, asset-backed security, autonomous vehicles, Bear Stearns, bitcoin, Bitcoin Ponzi scheme, blockchain, Blythe Masters, book value, business cycle, business process, buy and hold, capital controls, carbon tax, Carmen Reinhart, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, commoditize, correlation coefficient, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, disintermediation, distributed ledger, diversification, diversified portfolio, Dogecoin, Donald Trump, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, fiat currency, financial engineering, financial innovation, fixed income, Future Shock, general purpose technology, George Gilder, Google Hangouts, high net worth, hype cycle, information security, initial coin offering, it's over 9,000, Jeff Bezos, Kenneth Rogoff, Kickstarter, Leonard Kleinrock, litecoin, low interest rates, Marc Andreessen, Mark Zuckerberg, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, packet switching, passive investing, peer-to-peer, peer-to-peer lending, Peter Thiel, pets.com, Ponzi scheme, prediction markets, quantitative easing, quantum cryptography, RAND corporation, random walk, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ross Ulbricht, Salesforce, Satoshi Nakamoto, seminal paper, Sharpe ratio, Silicon Valley, Simon Singh, Skype, smart contracts, social web, South Sea Bubble, Steve Jobs, transaction costs, tulip mania, Turing complete, two and twenty, Uber for X, Vanguard fund, Vitalik Buterin, WikiLeaks, Y2K

In times like these (as in Tulipmania), many subscribe to the “greater idiot” ideal: people can make money so long as they are able to sell the asset at a higher price to an idiot greater than them. A key indicator of the unsustainability of mass speculation is when new and inexperienced entrants stream into the markets. Bubbles are typically worsened by cheap credit, as financial institutions provide speculators the means to take out loans so they can buy more of the asset than they could with cash on hand. In this sense, the financial institutions buy into the speculative bubble as they see the opportunity to make money, just as the institutions around them are making money off loans to frenzied speculators.


pages: 389 words: 109,207

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street by William Poundstone

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Albert Einstein, anti-communist, asset allocation, Bear Stearns, beat the dealer, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bletchley Park, Brownian motion, buy and hold, buy low sell high, capital asset pricing model, Claude Shannon: information theory, computer age, correlation coefficient, diversified portfolio, Edward Thorp, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, Henry Singleton, high net worth, index fund, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, John Meriwether, John von Neumann, junk bonds, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Michael Milken, Myron Scholes, New Journalism, Norbert Wiener, offshore financial centre, Paul Samuelson, publish or perish, quantitative trading / quantitative finance, random walk, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ronald Reagan, Rubik’s Cube, short selling, speech recognition, statistical arbitrage, Teledyne, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, traveling salesman, value at risk, zero-coupon bond, zero-sum game

Woods takes a perverse pride in saying that he has not watched a horse race in person in the past eighteen years. He does not find horse races that interesting. Results arrive as instant messages from his agents at the track, punctuated by the appropriate smiling or frowning emoticons. Near the top of the late 1990s stock market bubble, Woods sold short the NASDAQ index. It was an outright gamble that the bubble would burst, and the timing was wrong. Woods says he lost $100 million. “When you look at how much money I have consistently made from the horses, from 1987 onward, compared to what I’ve done in the market,” he said, “horses would seem to be a far safer investment than stocks.”


pages: 274 words: 93,758

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

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

See also Congress house purchases: closing costs of, 64, 65, 183n21, 200n16; down payments on, 65, 200n14; phishing in, 64–66; real estate fees for, 64–65, 200n13, 200n15; stories of, 64; transaction costs of, xiii, 64–65, 183n21. See also mortgages housing: developers of, 121; duration of stays in, 64, 199–200n11; eviction rates, 18–19, 189n11; homeownership rates, 64, 154 housing markets: bubbles in, 33–34; savings and loan crisis and, 119 Houston real estate market, 121 “How Much Is That Doggie in the Window,” 20–21, 46, 195n5 HRT. See hormone replacement therapy Huffman, David, 188n7 Humboldt University, 100 Icahn, Carl, 128 identity economics, 194–95n3 income distribution, 133, 150, 163, 164 incomes: growth of, 19–20, 21; from Social Security, 154 IndyMac Bank, 29 inflation, 118–19 information: informed vs. uninformed traders, 8, 168; informed vs. uninformed voters, xvi, 74–77; misleading, xi, 7–8; phishing, xi, 75, 137 innovation: economic growth and, 96–99; free markets and, x, xi–xii; predictions of, x; slot machines, viii institutional investors, 29–30, 127, 143 interest rates: on credit cards, 17, 69, 71; Federal Reserve policy on, 118–19; on mortgages, 119; on savings deposits, 120, 220n14 Internal Revenue Service (IRS), 82 International Monetary Fund, xv Internet: addiction to, 150, 227n1; advertising on, 54, 195–96n7; Facebook, 99–100, 150; phishing on, x–xi, 150 Interstate Commerce Commission, 144 investment banks: borrowing by, 24–25; changes in industry of, 26, 28–30; overnight financing by, 28–29, 35, 36; relations with ratings agencies, 30–31, 32–34, 37, 192nn26–27; reputation mining by, 31–33; reputations of, 27; syndicates of, 27; trustworthiness of, 26–28, 30.


pages: 358 words: 106,729

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

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

In order to sterilize without making huge losses, the PBOC fixes the economywide interest rate at a lower level than the dollar interest rate, both by forcing banks to pay households a low rate on their deposits and by paying a low rate on its own borrowing. A direct effect of such a policy is that China mirrors the United States’ monetary policy. If interest rates in the United States are very low, China also has to keep interest rates low. Doing so risks creating credit, housing, and stock market bubbles in China, much as in the United States. With little freedom to use interest rates to counteract such trends, the Chinese authorities have to use blunt tools: for example, when credit starts growing strongly, the word goes out from the Chinese bank regulator that the banks should cut back on issuing credit.


pages: 471 words: 109,267

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

Alan Greenspan, An Inconvenient Truth, banking crisis, Big bang: deregulation of the City of London, blood diamond, Bob Geldof, Boris Johnson, call centre, central bank independence, congestion charging, Corn Laws, Credit Default Swap, Crossrail, 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, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, labour market flexibility, market bubble, mass immigration, military-industrial complex, millennium bug, moral panic, North Sea oil, Northern Rock, offshore financial centre, pension reform, plutocrats, Ponzi scheme, profit maximization, purchasing power parity, Right to Buy, shareholder value, Skype, smart meter, social distancing, stem cell, The Spirit Level, too big to fail, University of East Anglia, working-age population, Y2K

This, however, was not overspending; it was under-taxing. That did not necessarily mean higher income tax. With courage, Labour might have grappled with wider gaps in the British fiscal system, notably our failure fairly to tax property and wealth. Labour missed a cure: taxes on above-average value properties might have prevented the housing market bubbling into excess. Labour turned away from proper taxation of inheritance, even as a device to pay for the growing cost of social care for older people. The Cameron government attacks Labour for spending the nation into deficit, but a fairer charge is that fiscal cowardice disrupted the sustainability of very necessary spending.


pages: 411 words: 108,119

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

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

But in all of this debate no one has offered any real evidence to think that the volatility is rational.6 The price changes appear instead to be correlated with social changes of various kinds. Andrei Shleifer and Sendhil Mullainathan have observed the changes in Merrill Lynch advertisements. Prior to the stock market bubble, in the early 1990s, Merrill Lynch was running advertisements showing a grandfather fishing with his grandson. The ad was captioned: “Maybe you should plan to grow rich slowly.” By the time the market had peaked around 2000, when investors were obviously very pleased with recent results, Merrill’s ads had changed dramatically.


pages: 382 words: 105,819

Zucked: Waking Up to the Facebook Catastrophe by Roger McNamee

"Susan Fowler" uber, "World Economic Forum" Davos, 4chan, Albert Einstein, algorithmic trading, AltaVista, Amazon Web Services, Andy Rubin, barriers to entry, Bernie Sanders, Big Tech, Bill Atkinson, Black Lives Matter, Boycotts of Israel, Brexit referendum, Cambridge Analytica, carbon credits, Cass Sunstein, cloud computing, computer age, cross-subsidies, dark pattern, data is the new oil, data science, disinformation, Donald Trump, Douglas Engelbart, Douglas Engelbart, driverless car, Electric Kool-Aid Acid Test, Elon Musk, fake news, false flag, Filter Bubble, game design, growth hacking, Ian Bogost, income inequality, information security, Internet of things, It's morning again in America, Jaron Lanier, Jeff Bezos, John Markoff, laissez-faire capitalism, Lean Startup, light touch regulation, Lyft, machine readable, Marc Andreessen, Marc Benioff, Mark Zuckerberg, market bubble, Max Levchin, Menlo Park, messenger bag, Metcalfe’s law, minimum viable product, Mother of all demos, move fast and break things, Network effects, One Laptop per Child (OLPC), PalmPilot, paypal mafia, Peter Thiel, pets.com, post-work, profit maximization, profit motive, race to the bottom, recommendation engine, Robert Mercer, Ronald Reagan, Russian election interference, Sand Hill Road, self-driving car, Sheryl Sandberg, Silicon Valley, Silicon Valley startup, Skype, Snapchat, social graph, software is eating the world, Stephen Hawking, Steve Bannon, Steve Jobs, Steven Levy, Stewart Brand, subscription business, TED Talk, The Chicago School, The future is already here, Tim Cook: Apple, two-sided market, Uber and Lyft, Uber for X, uber lyft, Upton Sinclair, vertical integration, WikiLeaks, Yom Kippur War

The World Wide Web took off in 1994, driven by the Mosaic/Netscape browser and sites like Amazon, Yahoo, and eBay. Businesses embraced the web, recognizing its potential as a better way to communicate with other businesses and consumers. This change made the World Wide Web geometrically more valuable, just as Metcalfe’s Law predicted. The web dominated culture in the late nineties, enabling a stock market bubble and ensuring near-universal adoption. The dot-com crash that began in early 2000 left deep scars, but the web continued to grow. In this second phase of the web, Google emerged as the most important player, organizing and displaying what appeared to be all the world’s information. Apple broke the code on tech style—their products were a personal statement—and rode the consumer wave to a second life.


pages: 571 words: 106,255

The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous

"World Economic Forum" Davos, Airbnb, Alan Greenspan, altcoin, bank run, banks create money, bitcoin, Black Swan, blockchain, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, Charles Babbage, conceptual framework, creative destruction, cryptocurrency, currency manipulation / currency intervention, currency peg, delayed gratification, disintermediation, distributed ledger, Elisha Otis, Ethereum, ethereum blockchain, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, George Gilder, Glass-Steagall Act, global reserve currency, high net worth, initial coin offering, invention of the telegraph, Isaac Newton, iterative process, jimmy wales, Joseph Schumpeter, low interest rates, market bubble, market clearing, means of production, military-industrial complex, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Paul Samuelson, peer-to-peer, Peter Thiel, price mechanism, price stability, profit motive, QR code, quantum cryptography, ransomware, reserve currency, Richard Feynman, risk tolerance, Satoshi Nakamoto, scientific management, secular stagnation, smart contracts, special drawing rights, Stanford marshmallow experiment, The Nature of the Firm, the payments system, too big to fail, transaction costs, Walter Mischel, We are all Keynesians now, zero-sum game

As the revenue to the producers of the good increases, they can then invest in increasing their production, bringing the price crashing down again, robbing the savers of their wealth. The net effect of this entire episode is the transfer of the wealth of the misguided savers to the producers of the commodity they purchased. This is the anatomy of a market bubble: increased demand causes a sharp rise in prices, which drives further demand, raising prices further, incentivizing increased production and increased supply, which inevitably brings prices down, punishing everyone who bought at a price higher than the usual market price. Investors in the bubble are fleeced while producers of the asset benefit.


pages: 362 words: 108,359

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street by Jonathan A. Knee

AOL-Time Warner, barriers to entry, Bear Stearns, book value, Boycotts of Israel, business logic, call centre, cognitive dissonance, commoditize, corporate governance, Corrections Corporation of America, deal flow, discounted cash flows, fear of failure, fixed income, Glass-Steagall Act, greed is good, if you build it, they will come, iterative process, junk bonds, low interest rates, market bubble, market clearing, Mary Meeker, Menlo Park, Michael Milken, new economy, Ponzi scheme, pre–internet, proprietary trading, risk/return, Ronald Reagan, shareholder value, Silicon Valley, SoftBank, technology bubble, young professional, éminence grise

Rather they, and corresponding changes at all the major investment banks, were driven by the unprecedented economic boom and bust that placed extraordinary pressures on the values that had once prevailed at these institutions. Much has already been written about the various economic “bubbles” of the late 1990s—the Internet bubble, the telecom bubble, the technology bubble and the stock market bubble. Much has also been written about the role of investment banks in fueling these ephemeral bubbles. Much less has been written, however, about the investment banks’ own bubble. While the investment banks in some ways made possible all the other bubbles—by, for example, legitimizing hundreds of speculative start-up companies for public market investors and opining as to the “fairness” of incredible values placed on these businesses—these institutions themselves were fundamentally transformed by the unprecedented number of deals the forces they unleashed created.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Alan Greenspan, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, bond market vigilante , Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, Goodhart's law, Greenspan put, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, junk bonds, Kenneth Rogoff, Kickstarter, labour market flexibility, Les Trente Glorieuses, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, market clearing, Martin Wolf, Minsky moment, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, Suez crisis 1956, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

But a country that gives into the devaluation option too often under floating rates eventually suffers from higher inflation and interest rates. Creditors extort their revenge over the long term. The Europeans sought to escape this problem by clubbing together in a single currency, but eventually the strains had to show. 7 Blowing Bubbles ‘Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.’ George Soros, hedge fund manager Where did all the money go? My father-in-law asked that question in the aftermath of the credit crunch of 2007 and 2008, when house prices, share prices and corporate bond prices all tumbled.


pages: 350 words: 103,270

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

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

Usi had essentially built a big red ejector-seat button for Barclays’ trading desk, and while he might have insisted to colleagues that pressing the button was “amoral,” others sitting in his seat later on did not feel the same way. Sue the Asshole In early 2001, Usi’s securitization pipeline was on track to issue $15 billion of CDOs by the end of that year. But there were some troubling headwinds. With the bursting of the dot-com equity market bubble, investors were growing skittish. But Usi was becoming more dependent than ever on Barclays’ weak sales force to sell his Roman androids in order to lock in his profits. Meanwhile, Barclays’ infrastructure had failed to keep up with the rising complexity of Usi’s deals. Agreements by the sales force with shady brokers like A.B.


pages: 422 words: 104,457

Dragnet Nation: A Quest for Privacy, Security, and Freedom in a World of Relentless Surveillance by Julia Angwin

AltaVista, Ayatollah Khomeini, barriers to entry, bitcoin, Chelsea Manning, Chuck Templeton: OpenTable:, clean water, crowdsourcing, cuban missile crisis, data is the new oil, David Graeber, Debian, disinformation, Edward Snowden, Filter Bubble, Firefox, Free Software Foundation, Garrett Hardin, GnuPG, Google Chrome, Google Glasses, Ida Tarbell, incognito mode, informal economy, Jacob Appelbaum, John Gilmore, John Markoff, Julian Assange, Laura Poitras, Marc Andreessen, market bubble, market design, medical residency, meta-analysis, mutually assured destruction, operational security, Panopticon Jeremy Bentham, prediction markets, price discrimination, randomized controlled trial, RFID, Robert Shiller, Ronald Reagan, security theater, Silicon Valley, Silicon Valley startup, Skype, smart meter, sparse data, Steven Levy, Tragedy of the Commons, Upton Sinclair, WikiLeaks, Y2K, zero-sum game, Zimmermann PGP

In the fall of 1999, Wetherell appeared on the cover of BusinessWeek under the headline “Internet Evangelist.” His conglomerate, CMGI, was a poster child for the dot-com boom, with a massive stock market value of $10 billion, despite the fact that it was losing $127 million a year on revenues of just $176 million. By 2001, the dot-com stock market bubble had burst. CMGI’s losses had reached $1 billion a quarter and its stock plummeted to less than $1. Dan quit the company, which eventually folded. But the idea of using cookies to track users survived. Meanwhile, Dan figured that privacy would be the next big thing. In 2001, he launched a privacy software company called Permissus.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"there is no alternative" (TINA), accounting loophole / creative accounting, Alan Greenspan, balance sheet recession, bank run, banking crisis, Bear Stearns, Black Swan, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Greenspan put, Growth in a Time of Debt, high-speed rail, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, low interest rates, market bubble, market clearing, Martin Wolf, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, Phillips curve, Post-Keynesian economics, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Solow, savings glut, short selling, structural adjustment programs, tail risk, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, Two Sigma, unorthodox policies, value at risk, Washington Consensus, zero-sum game

Indeed, given that the federal expenditures in 1929 were only “about 2.5 percent of gross national product” this was hardly surprising.18 Such policies also seemed increasingly redundant by 1929. Because of the stock-market boom, unemployment had fallen to a postwar low. Even though the state had limited its ambitions to balancing the budget and ensuring convertibility, because of the unexpected bursting of the stock market bubble, Hoover spent $1.5 billion on public works when he became president in 1929. By 1931, overall federal spending was up by a third from its 1929 level.19 Given how small state expenditures remained relative to GDP, however, the now-accelerating decline in private spending meant that tax “receipts dwindled by 50 percent and expenditure rose by almost 60 percent.”20 At this juncture Hoover saw austerity as the only way, and the right way, to restore “business confidence” and balance the budget.


pages: 363 words: 107,817

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

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

Because most of these bonds were initially a form of savings, it is likely that this money will be put back into the financial markets (i.e. people won’t suddenly start spending money they had allocted as saving). Using newly-created money to pay down the national debt will pump this money into the financial markets, where it may stay circulating, fuelling financial market bubbles and doing little or nothing to help the real economy. To avoid this, if it was thought desirable to reduce the nominal value of the debt, bonds should be removed from circulation over a period of time. Fund managers would be well aware that a portion of government bonds were being ‘phased out’, but would have around ten to fifteen years in which they could gradually shift their investments away from the bond market and into corporate bonds and the stock market.


pages: 401 words: 109,892

The Great Reversal: How America Gave Up on Free Markets by Thomas Philippon

airline deregulation, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, barriers to entry, Big Tech, bitcoin, blockchain, book value, business cycle, business process, buy and hold, Cambridge Analytica, carbon tax, Carmen Reinhart, carried interest, central bank independence, commoditize, crack epidemic, cross-subsidies, disruptive innovation, Donald Trump, driverless car, Erik Brynjolfsson, eurozone crisis, financial deregulation, financial innovation, financial intermediation, flag carrier, Ford Model T, gig economy, Glass-Steagall Act, income inequality, income per capita, index fund, intangible asset, inventory management, Jean Tirole, Jeff Bezos, Kenneth Rogoff, labor-force participation, law of one price, liquidity trap, low cost airline, manufacturing employment, Mark Zuckerberg, market bubble, minimum wage unemployment, money market fund, moral hazard, natural language processing, Network effects, new economy, offshore financial centre, opioid epidemic / opioid crisis, Pareto efficiency, patent troll, Paul Samuelson, price discrimination, profit maximization, purchasing power parity, QWERTY keyboard, rent-seeking, ride hailing / ride sharing, risk-adjusted returns, Robert Bork, Robert Gordon, robo advisor, Ronald Reagan, search costs, Second Machine Age, self-driving car, Silicon Valley, Snapchat, spinning jenny, statistical model, Steve Jobs, stock buybacks, supply-chain management, Telecommunications Act of 1996, The Chicago School, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, Travis Kalanick, vertical integration, Vilfredo Pareto, warehouse automation, zero-sum game

The inclusion of year fixed effects (Y = yes) means that the regression controls for any common shock that would move all the industries in the same direction in any given year. This is important because the US economy was not (and is not) static over this period: there are booms and busts, a stock market bubble, a terrorist attack, a housing bubble, and a financial crisis. We thus want to make sure that our results are driven by the comparison of industries within the US. Finally, the R2 measures the goodness of fit of the model: 0.07 means that it captures about 7 percent of the changes we see in the data.


pages: 374 words: 111,284

The AI Economy: Work, Wealth and Welfare in the Robot Age by Roger Bootle

"World Economic Forum" Davos, 3D printing, agricultural Revolution, AI winter, Albert Einstein, AlphaGo, Alvin Toffler, anti-work, antiwork, autonomous vehicles, basic income, Ben Bernanke: helicopter money, Bernie Sanders, Bletchley Park, blockchain, call centre, Cambridge Analytica, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, Chris Urmson, computer age, Computing Machinery and Intelligence, conceptual framework, corporate governance, correlation does not imply causation, creative destruction, David Ricardo: comparative advantage, deep learning, DeepMind, deindustrialization, Demis Hassabis, deskilling, Dr. Strangelove, driverless car, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, everywhere but in the productivity statistics, facts on the ground, fake news, financial intermediation, full employment, future of work, Future Shock, general purpose technology, Great Leap Forward, Hans Moravec, income inequality, income per capita, industrial robot, Internet of things, invention of the wheel, Isaac Newton, James Watt: steam engine, Jeff Bezos, Jeremy Corbyn, job automation, job satisfaction, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Joseph Schumpeter, Kevin Kelly, license plate recognition, low interest rates, machine translation, Marc Andreessen, Mark Zuckerberg, market bubble, mega-rich, natural language processing, Network effects, new economy, Nicholas Carr, Ocado, Paul Samuelson, Peter Thiel, Phillips curve, positional goods, quantitative easing, RAND corporation, Ray Kurzweil, Richard Florida, ride hailing / ride sharing, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Solow, Rutger Bregman, Second Machine Age, secular stagnation, self-driving car, seminal paper, Silicon Valley, Silicon Valley billionaire, Simon Kuznets, Skype, social intelligence, spinning jenny, Stanislav Petrov, Stephen Hawking, Steven Pinker, synthetic biology, technological singularity, The Future of Employment, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, universal basic income, US Airways Flight 1549, Vernor Vinge, warehouse automation, warehouse robotics, Watson beat the top human players on Jeopardy!, We wanted flying cars, instead we got 140 characters, wealth creators, winner-take-all economy, world market for maybe five computers, Y2K, Yogi Berra

This is reminiscent of the situation during the dot-com boom in the early 2000s. At that time it was thought that everything was going to migrate to the net; equally any madcap business idea was bound to make squillions for its originators if only the company name ended in .com. The madness of that time culminated in the bursting of the financial market bubble and the collapse of many businesses – as well as quite a few reputations. Yet the internet has changed the world. And some of the businesses that emerged in that frenzy of excitement and exaggeration have not only survived but have transformed the business landscape – Amazon and Google being preeminent examples.


pages: 446 words: 109,157

The Constitution of Knowledge: A Defense of Truth by Jonathan Rauch

2021 United States Capitol attack, 4chan, active measures, affirmative action, Albert Einstein, Ayatollah Khomeini, Black Lives Matter, centre right, classic study, Climategate, company town, coronavirus, COVID-19, critical race theory, deplatforming, disinformation, disintermediation, Donald Trump, experimental subject, facts on the ground, fake news, Filter Bubble, framing effect, hive mind, illegal immigration, information asymmetry, invention of movable type, Isaac Newton, jimmy wales, Jon Ronson, Louis Pasteur, market bubble, meta-analysis, microaggression, mirror neurons, Peace of Westphalia, peer-to-peer, post-truth, profit motive, QAnon, race to the bottom, RAND corporation, Russian election interference, social software, Steve Bannon, Steven Pinker, technoutopianism, TED Talk, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Tragedy of the Commons, yellow journalism, Yochai Benkler, zero-sum game

“Agents who learn from others in their social network can fail to form true beliefs about the world, even when more than adequate evidence is available,” O’Connor and Weatherall write. “In other words, individually rational agents can form groups that are not rational at all.” Confirmation loops, like market bubbles, can run far afield of reality before they finally break. The cycle is difficult to arrest, because for individuals in the group, group-think can be rational despite being wrong. We face powerful incentives to stay on good terms with our friends and community, and the personal costs of estrangement are high.


pages: 1,152 words: 266,246

Why the West Rules--For Now: The Patterns of History, and What They Reveal About the Future by Ian Morris

addicted to oil, Admiral Zheng, agricultural Revolution, Albert Einstein, anti-communist, Apollo 11, Arthur Eddington, Atahualpa, Berlin Wall, British Empire, classic study, Columbian Exchange, conceptual framework, cotton gin, cuban missile crisis, defense in depth, demographic transition, Deng Xiaoping, discovery of the americas, Doomsday Clock, Eddington experiment, en.wikipedia.org, falling living standards, Flynn Effect, Ford Model T, Francisco Pizarro, global village, God and Mammon, Great Leap Forward, hiring and firing, indoor plumbing, Intergovernmental Panel on Climate Change (IPCC), invention of agriculture, Isaac Newton, It's morning again in America, James Watt: steam engine, Kickstarter, Kitchen Debate, knowledge economy, market bubble, mass immigration, Medieval Warm Period, Menlo Park, Mikhail Gorbachev, military-industrial complex, mutually assured destruction, New Journalism, out of africa, Peter Thiel, phenotype, pink-collar, place-making, purchasing power parity, RAND corporation, Ray Kurzweil, Ronald Reagan, Scientific racism, sexual politics, Silicon Valley, Sinatra Doctrine, South China Sea, special economic zone, Steve Jobs, Steve Wozniak, Steven Pinker, strong AI, Suez canal 1869, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thomas Malthus, trade route, upwardly mobile, wage slave, washing machines reduced drudgery

The paradox of social development—the tendency for development to generate the very forces that undermine it—means that bigger cores create bigger problems for themselves. It is all too familiar in our own age. The rise of international finance in the nineteenth century (CE) tied together capitalist nations in Europe and America and helped push social development upward faster than ever before, but this also made it possible for an American stock market bubble in 1929 to drag all these countries down; and the staggering increase in financial sophistication that helped push social development up in the last fifty years also made it possible for a new American bubble in 2008 to shake virtually the whole world to its foundations. This is an alarming conclusion, but we can also derive a third, more optimistic, point from the troubled history of these early states.

Fleeing Europe’s contagious rivalries and wars, American politicians left the conductor’s podium empty, withdrawing into political isolation worthy of eighteenth-century China or Japan. While times were good the orchestra improvised and muddled through, but when they turned bad its music became cacophony. In October 1929 a little bungling, a lot of bad luck, and the absence of a conductor turned an American stock market bubble into an international financial disaster. Contagion raced through the capitalist world: banks folded, credit evaporated, and currencies collapsed. Few starved, but by Christmas 1932 one American worker in four was jobless. In Germany it was closer to one in two. Lines of the gray-faced unemployed stretched out, “gazing at their destiny with the same sort of dumb amazement as animals in a trap,” the English journalist George Orwell thought.


pages: 524 words: 120,182

Complexity: A Guided Tour by Melanie Mitchell

Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, Albert Michelson, Alfred Russel Wallace, algorithmic management, anti-communist, Arthur Eddington, Benoit Mandelbrot, bioinformatics, cellular automata, Claude Shannon: information theory, clockwork universe, complexity theory, computer age, conceptual framework, Conway's Game of Life, dark matter, discrete time, double helix, Douglas Hofstadter, Eddington experiment, en.wikipedia.org, epigenetics, From Mathematics to the Technologies of Life and Death, Garrett Hardin, Geoffrey West, Santa Fe Institute, Gregor Mendel, Gödel, Escher, Bach, Hacker News, Hans Moravec, Henri Poincaré, invisible hand, Isaac Newton, John Conway, John von Neumann, Long Term Capital Management, mandelbrot fractal, market bubble, Menlo Park, Murray Gell-Mann, Network effects, Norbert Wiener, Norman Macrae, Paul Erdős, peer-to-peer, phenotype, Pierre-Simon Laplace, power law, Ray Kurzweil, reversible computing, scientific worldview, stem cell, Stuart Kauffman, synthetic biology, The Wealth of Nations by Adam Smith, Thomas Malthus, Tragedy of the Commons, Turing machine

Economists are interested in how markets become efficient, and conversely, what makes efficiency fail, as it does in real-world markets. More recently, economists involved in the field of complex systems have tried to explain market behavior in terms similar to those used previously in the descriptions of other complex systems: dynamic hard-to-predict patterns in global behavior, such as patterns of market bubbles and crashes; processing of signals and information, such as the decision-making processes of individual buyers and sellers, and the resulting “information processing” ability of the market as a whole to “calculate” efficient prices; and adaptation and learning, such as individual sellers adjusting their production to adapt to changes in buyers’ needs, and the market as a whole adjusting global prices.


pages: 412 words: 113,782

Business Lessons From a Radical Industrialist by Ray C. Anderson

"Friedman doctrine" OR "shareholder theory", addicted to oil, Alan Greenspan, Albert Einstein, An Inconvenient Truth, banking crisis, Bear Stearns, biodiversity loss, business cycle, carbon credits, carbon footprint, carbon tax, centralized clearinghouse, clean tech, clean water, corporate social responsibility, Credit Default Swap, dematerialisation, distributed generation, do well by doing good, Easter island, energy security, Exxon Valdez, fear of failure, Gordon Gekko, greed is good, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), intermodal, invisible hand, junk bonds, late fees, Mahatma Gandhi, market bubble, music of the spheres, Negawatt, Neil Armstrong, new economy, off-the-grid, oil shale / tar sands, oil shock, old-boy network, peak oil, precautionary principle, renewable energy credits, retail therapy, shareholder value, Silicon Valley, six sigma, subprime mortgage crisis, supply-chain management, urban renewal, Y2K

Yet many of us also had a growing sense that the company I had founded back in 1973, and had reinvented in 1994, needed to be reinvented again to reach our Mission Zero goal. That was another tall order, and the timing was far from perfect. As I write, 2008 is shaping up to be a very challenging year on many, many fronts. We’ve seen a historic storm in energy costs, the bursting of the housing market bubble, a credit crisis, a liquidity freeze, and the federal takeover of financial institutions. Bankruptcies and foreclosures are in every direction you look. And the year has a quarter to go! What will the next months, next year, bring? Setting the stage for the Brasstown Valley meeting, our CEO since 2001, Dan Hendrix, observed, “Many are bracing for an economic slowdown.”


pages: 379 words: 113,656

Six Degrees: The Science of a Connected Age by Duncan J. Watts

AOL-Time Warner, Berlin Wall, Bretton Woods, business process, corporate governance, Drosophila, Erdős number, experimental subject, fixed income, Frank Gehry, Geoffrey West, Santa Fe Institute, independent contractor, industrial cluster, invisible hand, it's over 9,000, Long Term Capital Management, market bubble, Milgram experiment, MITM: man-in-the-middle, Murray Gell-Mann, Network effects, new economy, Norbert Wiener, PalmPilot, Paul Erdős, peer-to-peer, power law, public intellectual, rolodex, Ronald Coase, Savings and loan crisis, scientific worldview, Silicon Valley, social contagion, social distancing, Stuart Kauffman, supply-chain management, The Nature of the Firm, the strength of weak ties, The Wealth of Nations by Adam Smith, Toyota Production System, Tragedy of the Commons, transaction costs, transcontinental railway, vertical integration, Vilfredo Pareto, Y2K

We had done some work, as part of my Ph.D. research, on the evolution of cooperation in small-world networks and on a special case of what is called a voter model (similar to the spiral-of-silence problem studied by Noelle-Neumann). But at the time, we hadn’t thought of either of these problems as related to contagion. Now it seemed clear that contagion in a network was every bit as central to the outbreak of cooperation or the bursting of a market bubble as it was to an epidemic of disease. It just wasn’t the same kind of contagion. This point is particularly important because typically when we talk about social contagion problems, we use the language of disease. Thus, we speak of ideas as infectious, crime waves as epidemics, and market safeguards as building immunity against financial distress.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

"there is no alternative" (TINA), accounting loophole / creative accounting, air traffic controllers' union, Airbnb, Alan Greenspan, basic income, behavioural economics, Ben Bernanke: helicopter money, billion-dollar mistake, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, disruptive innovation, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal capitalism, low interest rates, market bubble, means of production, military-industrial complex, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, tacit knowledge, technological determinism, The Future of Employment, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

Unlike the Mediterranean states, the hard-currency countries are wary of both inflation and debt, even though their interest rates are relatively low. Their ability to survive without a loose monetary policy benefits their numerous savers, whose votes carry significant political weight; it also means they don’t need to take on the risk of market bubbles.23 INEQUALITY FROM DIVERSITY It is important to stress that no one version of the interface between capitalism and society is intrinsically morally superior to the others. Every embedding of capitalism in society, every attempt to fit its logic into that of a social order will be ‘rough and ready’, improvised, compromised and never entirely satisfactory for any party.


pages: 492 words: 118,882

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

"World Economic Forum" Davos, accounting loophole / creative accounting, Ada Lovelace, Adam Curtis, Airbnb, Alan Greenspan, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, behavioural economics, Ben Bernanke: helicopter money, bitcoin, Bletchley Park, blockchain, Bretton Woods, Brexit referendum, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Charles Babbage, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, crowdsourcing, cryptocurrency, data science, David Graeber, deep learning, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial engineering, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, Glass-Steagall Act, Higgs boson, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, Large Hadron Collider, Lewis Mumford, liquidity trap, London Whale, low interest rates, low skilled workers, M-Pesa, machine readable, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, Michael Milken, MITM: man-in-the-middle, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, power law, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, robo advisor, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, seigniorage, seminal paper, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, Stuart Kauffman, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Vitalik Buterin, Von Neumann architecture, Washington Consensus

Shadow Banking and Systemic Risk In 2005, Alan Greenspan gave a speech titled “Economic Flexibility ” at the Federal Reserve Board in which he stated, “These increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago. After the bursting of the stock market bubble in 2000, unlike previous periods following large financial shocks, no major financial institution defaulted, and the economy held up far better than many had anticipated.” 17 The financial instruments that he was referring to were the entities and instruments created by commercial banks ,18 to form complex credit intermediation chains involving multiple layers of securitization ,19 multiple leveraged parties, and an opaque distribution of risk (Dobbs et al, 2015).


pages: 459 words: 118,959

Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff by Christine S. Richard

activist fund / activist shareholder / activist investor, Alan Greenspan, Asian financial crisis, asset-backed security, banking crisis, Bear Stearns, Bernie Madoff, Blythe Masters, book value, buy and hold, Carl Icahn, cognitive dissonance, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, electricity market, family office, financial innovation, fixed income, forensic accounting, glass ceiling, Greenspan put, Long Term Capital Management, market bubble, money market fund, moral hazard, old-boy network, Pershing Square Capital Management, Ponzi scheme, profit motive, Savings and loan crisis, short selling, short squeeze, statistical model, stock buybacks, subprime mortgage crisis, white flight, zero-sum game

These models estimated that MBIA faced just a 1-in-10,000 chance of confronting a scenario that would leave it unable to meet all its claims. Yet historical data-based models considered the 1987 stock market crash an event so improbable that it would be expected to happen only once in a trillion years, Ackman explained. “The recent stock market bubble and its collapse are good reminders that the ‘unthinkable’ and the ‘unpredictable’ occur more often than expected,” Ackman wrote. Ackman also pointed out that MBIA was dangerously reliant on its own triple-A credit rating. Without the top rating, MBIA wouldn’t be able to write new business, Ackman said.


pages: 401 words: 115,959

Philanthrocapitalism by Matthew Bishop, Michael Green, Bill Clinton

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, Abraham Maslow, Albert Einstein, An Inconvenient Truth, anti-communist, AOL-Time Warner, barriers to entry, battle of ideas, Bernie Madoff, Big Tech, Bob Geldof, Bonfire of the Vanities, business process, business process outsourcing, Charles Lindbergh, clean tech, clean water, corporate governance, corporate social responsibility, Dava Sobel, David Ricardo: comparative advantage, digital divide, do well by doing good, don't be evil, family office, financial innovation, full employment, global pandemic, global village, Global Witness, God and Mammon, Hernando de Soto, high net worth, Ida Tarbell, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Dyson, John Elkington, John Harrison: Longitude, joint-stock company, junk bonds, knowledge economy, knowledge worker, Larry Ellison, Live Aid, lone genius, Marc Andreessen, Marc Benioff, market bubble, mass affluent, Michael Milken, microcredit, Mikhail Gorbachev, Neil Armstrong, Nelson Mandela, new economy, offshore financial centre, old-boy network, PalmPilot, peer-to-peer lending, performance metric, Peter Singer: altruism, plutocrats, profit maximization, profit motive, Richard Feynman, risk tolerance, risk-adjusted returns, Ronald Coase, Ronald Reagan, Salesforce, scientific management, seminal paper, shareholder value, Silicon Valley, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, SpaceShipOne, stem cell, Steve Jobs, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade liberalization, transaction costs, trickle-down economics, Tyler Cowen, wealth creators, winner-take-all economy, working poor, World Values Survey, X Prize

The first was the era of the “robber barons” in the nineteenth century: a period when industrial magnates exerted enormous political influence through their firms, described by American historian Arthur Schlesinger Sr. as a “government of the corporations, by the corporations and for the corporations.” The second was in the 1920s, as Republican tax cuts after 1921, designed to keep the economy going after the wartime boom, fueled the stock market bubble that burst spectacularly in 1929. A populist target during this period was Andrew Mellon, then one of the three wealthiest men in America. Having built his fortune in banking, Mellon was U.S. Treasury secretary throughout the 1920s, pushing down the rate of income tax and estate tax. He was vilified by Franklin D.


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, low-wage service sector, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

In the year following the crash, the US money supply fell by a relatively small 2.6 per cent as the Federal Reserve cut interest rates and lent heavily to the banking sector. Injecting a great deal of cash into banks gave them some much-needed liquidity and prevented the stock market collapse from precipitating an immediate banking crisis. However, the Fed believed that further loosening of monetary policy might pump up the stock market bubble and lead to inflation. Between 1930 and 1933 the US money supply contracted by over a third, coinciding with a raft of bank failures. Between October 1930 and March 1933 there were four major bank runs. Most of these occurred between August 1931 and January 1932, when there were 1,860 bank failures and the money supply fell at an annual rate of 31 per cent.


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

In the year following the crash, the US money supply fell by a relatively small 2.6 per cent as the Federal Reserve cut interest rates and lent heavily to the banking sector. Injecting a great deal of cash into banks gave them some much-needed liquidity and prevented the stock market collapse from precipitating an immediate banking crisis. However, the Fed believed that further loosening of monetary policy might pump up the stock market bubble and lead to inflation. Between 1930 and 1933 the US money supply contracted by over a third, coinciding with a raft of bank failures. Between October 1930 and March 1933 there were four major bank runs. Most of these occurred between August 1931 and January 1932, when there were 1,860 bank failures and the money supply fell at an annual rate of 31 per cent.


pages: 457 words: 125,329

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, bank run, banks create money, Basel III, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, carried interest, clean tech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, Evgeny Morozov, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Glass-Steagall Act, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, independent contractor, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, John Bogle, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, margin call, Mark Zuckerberg, market bubble, means of production, military-industrial complex, Minsky moment, Money creation, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, Post-Keynesian economics, profit maximization, proprietary trading, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Robert Solow, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, Solyndra, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two and twenty, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, you are the product, zero-sum game

Writing in the 1930s, one of the most influential critics of finance, John Maynard Keynes, was upfront about what financial speculation entailed. In his lifetime he observed how financial markets and public attitudes to financial trading were changing, becoming ends in themselves rather than facilitators of growth in the real economy. When speculation spread from a rich leisure class to the wider population, it drove the stock market bubble that ushered in the Wall Street Crash and 1930s depression; but as public spending helped to restore people's jobs and incomes, those with money again began to gamble it on stocks and shares. Wall Street was, he said, ‘regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield'.


pages: 523 words: 111,615

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

accounting loophole / creative accounting, affirmative action, Alan Greenspan, An Inconvenient Truth, bank run, banking crisis, behavioural economics, Berlin Wall, bonus culture, Branko Milanovic, BRICs, business cycle, call centre, carbon tax, Cass Sunstein, central bank independence, classic study, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, different worldview, disintermediation, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, general purpose technology, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Paradox of Choice, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Robert Solow, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, social contagion, South Sea Bubble, Steven Pinker, tacit knowledge, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, the strength of weak ties, Tragedy of the Commons, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, vertical integration, web application, web of trust, winner-take-all economy, World Values Survey, zero-sum game

This was a self-fulfilling process, as jobs elsewhere were only paying so much because those other businesses had hired the same pay consultants, who told every client company that they should pay their executives enough to attract the best people, and therefore set off an ever-upward ratchet. All sense of due restraint seemed to vanish from the upper reaches of business, as executives came to misinterpret the rise in share prices due to a stock-market bubble as the result of their own talent, and worse, came to feel that extraordinarily high pay was their due because they saw so many other people among their social contacts and peer group making so much. Many bankers are still in this mindset, although executive pay outside the financial markets is gradually deflating.


pages: 411 words: 114,717

Breakout Nations: In Pursuit of the Next Economic Miracles by Ruchir Sharma

"World Economic Forum" Davos, 3D printing, affirmative action, Alan Greenspan, Albert Einstein, American energy revolution, anti-communist, Asian financial crisis, banking crisis, Berlin Wall, book value, BRICs, British Empire, business climate, business cycle, business process, business process outsourcing, call centre, capital controls, Carmen Reinhart, central bank independence, centre right, cloud computing, collective bargaining, colonial rule, commodity super cycle, corporate governance, creative destruction, crony capitalism, deindustrialization, demographic dividend, Deng Xiaoping, eurozone crisis, financial engineering, Gini coefficient, global macro, global supply chain, Goodhart's law, high-speed rail, housing crisis, income inequality, indoor plumbing, inflation targeting, informal economy, junk bonds, Kenneth Rogoff, knowledge economy, labor-force participation, land reform, low interest rates, M-Pesa, Mahatma Gandhi, Marc Andreessen, market bubble, Masayoshi Son, mass immigration, megacity, Mexican peso crisis / tequila crisis, middle-income trap, Nelson Mandela, new economy, no-fly zone, oil shale / tar sands, oil shock, open economy, Peter Thiel, planetary scale, public intellectual, quantitative easing, reserve currency, Robert Gordon, rolling blackouts, Shenzhen was a fishing village, Silicon Valley, software is eating the world, sovereign wealth fund, The Great Moderation, Thomas L Friedman, trade liberalization, Tyler Cowen, Watson beat the top human players on Jeopardy!, working-age population, zero-sum game

Iraq, Iran, and Syria are still too closed to foreign investors to qualify even as frontier markets. The key frontier markets in the Middle East are the petro-monarchies of the Gulf region, and the largest of these by far, Saudi Arabia, is open only to investors from within the Gulf. That led to a spectacular stock market bubble in 2005, with Saudi Arabia’s stock market becoming the biggest in the developing world—larger than China’s or India’s—based solely on oil-rich locals and neighbors. It was a good deal crazier than the dotcom insanity that gripped the United States at the turn of the millennium, and it popped soon enough, but when a bubble pops in the Gulf it does not make a sound.


pages: 407 words: 114,478

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

Alan Greenspan, asset allocation, behavioural economics, book value, Bretton Woods, British Empire, business cycle, butter production in bangladesh, buy and hold, 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 engineering, financial independence, financial innovation, fixed income, George Santayana, German hyperinflation, Glass-Steagall Act, high net worth, hindsight bias, Hyman Minsky, index fund, invention of the telegraph, Isaac Newton, John Bogle, John Harrison: Longitude, junk bonds, Long Term Capital Management, loss aversion, low interest rates, market bubble, mental accounting, money market fund, mortgage debt, new economy, pattern recognition, Paul Samuelson, Performance of Mutual Funds in the Period, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Savings and loan crisis, South Sea Bubble, stock buybacks, stocks for the long run, stocks for the long term, survivorship bias, Teledyne, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

I don’t recommend this course of action to all but the hardiest and experienced of souls. If you decide to go this route, you should increase your stock allocation only by very small amounts—say by 5% after a fall of 25% in prices—so as to avoid running out of cash and risking complete demoralization in the event of a 1930s-style bear market. Bubbles and Busts: Summing Up In the last two chapters, I hope that I’ve accomplished four things. First, I hope I’ve told a good yarn. An appreciation of manias and crashes should be part of every educated person’s body of historical knowledge. It informs us, as almost no other subject can, about the psychology of peoples and nations.


pages: 479 words: 113,510

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America by Danielle Dimartino Booth

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, Bernie Sanders, Black Monday: stock market crash in 1987, break the buck, Bretton Woods, business cycle, central bank independence, collateralized debt obligation, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, forward guidance, full employment, George Akerlof, Glass-Steagall Act, greed is good, Greenspan put, high net worth, housing crisis, income inequality, index fund, inflation targeting, interest rate swap, invisible hand, John Meriwether, Joseph Schumpeter, junk bonds, liquidity trap, London Whale, Long Term Capital Management, low interest rates, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, moral hazard, Myron Scholes, natural language processing, Navinder Sarao, negative equity, new economy, Northern Rock, obamacare, Phillips curve, price stability, proprietary trading, pushing on a string, quantitative easing, regulatory arbitrage, Robert Shiller, Ronald Reagan, selection bias, short selling, side project, Silicon Valley, stock buybacks, tail risk, The Great Moderation, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, yield curve

., 140 Bernanke, Ben, 3, 6, 51, 66, 79–80, 83–84, 117, 171–72, 206, 223, 251–52 AIG bailout and, 138–39 Bear Stearns rescue and, 109–12, 114, 116 deflation, fighting, 150–51 on failure to save Lehman, 145–46 fed funds rate decisions and, 91, 102–3, 118, 119, 154, 157–59 hints at “additional stimulus” in speech, August 2010, 193–94 housing bubble and, 23, 74 inflation targeting and, 195, 196 Lehman collapse and, 135 money market fund’s breaking the buck and, 140–42 press conferences by, 213–14 QE2 and, 197, 198, 199 reappointment as Fed chairman of, 177–78, 184–85 stress tests and, 170–71 Time names “Person of the Year,” 2009, 182 unsanctioned signals to market by, 153–54 zero-interest-rate policy (ZIRP) and, 159, 160, 162, 163 Bianco, Jim, 207, 227–28 Black Monday, 64–65 blackout period, 152–53 Blankfein, Lloyd, 135, 143–44 Blinder, Alan, 48–50 “Blob That Ate Monetary Policy, The” (Fisher & Rosenblum), 180 Bloomberg, 217 BNP Paribas, 168 Board of Governors, 42–43, 48 bond-buying program, 173–74, 224, 227–30 Boockvar, Peter, 238 Booth, Danielle DiMartino (author) daily briefings of Fisher by, 100–101 at Dallas Morning News, 18 data sets tracked by, 56, 73–74, 183, 186 at Donaldson, Lufkin & Jenrette, 11–18 Duca’s attack on work of, 183, 202–3 early experiences working at Dallas Fed, 33–42, 46 Economic Letters coauthored by, 74–75, 99 experience with debt of, 24–25 hired by Rosenblum at Dallas Fed, 30–32 invited to Camp Kotok, 221–22 lunch with Fisher, 24 midcycle briefings of, 208 at pre-briefings for Fisher, 164–67 recommendations for Federal Reserve, 263–66 sources of, 56–57, 207 transfer to FIS, 203–4, 206–7 warns of housing market bubble, 23–28, 32–33 Born, Brooksley, 16 Boykin, Robert, 61 Brainard, Lael, 43 Brunner, Karl, 47 bubbles, 6, 21, 216–17. See also housing bubble Buffett, Warren, 21 Bullard, James B., 160, 212, 247 Bunning, Jim, 79, 114 Burns, Arthur F., 48, 60 Bush, George W., 86, 109, 142 Callan, Erin, 130–31 Carney, Mark, 260 “Cash for Clunkers” plan, 176 Cashin, Arthur, 200–201, 220, 251 Cassano, Joseph J., 137–38 Cayne, James E., 105–7, 112, 115 central banking, 260–61 Chase Manhattan, 14 China, 208, 261 Chomsky, Noam, 9 Chrysler Financial, 169 Citigroup, 53, 110, 121, 128, 166, 168 Cleveland Fed, 36 Clinton, Bill, 16, 86 Clinton, Hillary, 260 “Closing the Gap” (Boston Fed), 21–22 CNBC, 25–26, 107 collateral agents, 127 collateralized debt obligations (CDOs), 15–18, 27–28, 57, 124 Collins, Nancy, 68 Commercial Paper Funding Facility (CPFF), 167, 169 commercial paper market, 141–42 commodity bubble, 216 “From Complacency to Crisis” (Duca, Rosenblum, & DiMartino Booth), 74–75 core PCE inflation rate, 77–78, 83, 247 Corrigan, Gerry, 53 Corzine, Jon, 109 counterparty risk, 108 Countrywide, 100 Courage to Act, The (Bernanke), 251–52 Cox, Michael, 62, 63 creative destruction, 63 credit default swaps (CDSs), 94–95, 98, 105, 124 Credit Suisse, 15 crude oil, 247 Dallas Fed, 36–38, 62–65, 70–73, 82 Dallas Morning News, 18, 21, 31 Dealey, George Bannerman, 44 debt, 9–10, 24–25, 251 Decherd, Robert, 18 “Deflation: Making Sure ‘It’ Doesn’t Happen Here” (Bernanke), 150–51 derivatives, 14, 15–18, 51, 52, 126–29 AIGFP insurance policies for, 137–38 Born’s attempt to regulate, 16–17 CDOs, 15–18, 27–28, 57, 124 Deutsche Bank, 168 Diamond, Peter, 194–95 Dimon, Jamie, 29, 110–12, 114, 134, 135, 226 discount window, 118 District Banks, 36–38, 43–45, 67, 70–72.


pages: 381 words: 112,674

eBoys by Randall E. Stross

Apollo 11, barriers to entry, Benchmark Capital, business cycle, call centre, carried interest, cognitive dissonance, deal flow, digital rights, disintermediation, drop ship, edge city, Fairchild Semiconductor, General Magic , high net worth, hiring and firing, Jeff Bezos, Jeff Hawkins, job-hopping, knowledge worker, late capitalism, market bubble, Mary Meeker, megaproject, Menlo Park, new economy, old-boy network, PalmPilot, passive investing, performance metric, pez dispenser, railway mania, rolodex, Salesforce, Sand Hill Road, shareholder value, Silicon Valley, Silicon Valley startup, SoftBank, Steve Ballmer, Steve Jobs, Steve Jurvetson, vertical integration, warehouse automation, Y2K

“We are, to some degree.” One argument in Priceline’s favor, Harvey suggested, was that even at an astronomical price, “we’re in an environment where the company doesn’t have to be successful for us to make money.” Kagle recoiled at the thought of backing a company that could exist only atop a stock-market bubble. “I’m never going to sign up for that program. You’re betting too much on things that are out of your control.” Dunlevie had another proposal for Beirne. Benchmark would put $10 million in at the asking price, and Beirne would take on hiring the CEO but not go on the board. It would be a way of playing a more active role in the company’s growth without having to use up a board slot on an investment in which the equity stake was small.


Common Stocks and Uncommon Profits and Other Writings by Philip A. Fisher

book value, business climate, business cycle, buy and hold, data science, El Camino Real, estate planning, fixed income, index fund, low interest rates, market bubble, market fundamentalism, profit motive, RAND corporation, Salesforce, the market place, transaction costs, vertical integration

In addition to learning that a low price-earnings ratio was just as aptto be a sign that a stock was an investment trap as that it was a bargain, acute awareness of my miserable investment performances during the Great Bear Market made me vividly aware of something of possibly even greater importance. I had been spectacularly right in my timing of when the bull market bubble was about to burst, and almost right in judging the full force of what was to happen. Yet except for a possible small boost in my reputation among a very small circle of people, this had done me no good whatsoever. From then on, I was to realize that all the correct reasoning about an investment policy or about the desirability or purchase or sale of any particular stock did not have the least bit of value until it was translated into action through the completion ofspecific transactions.


pages: 358 words: 119,272

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms by Russell Napier

Alan Greenspan, Albert Einstein, asset allocation, banking crisis, Bear Stearns, behavioural economics, book value, Bretton Woods, business cycle, buy and hold, collective bargaining, Columbine, cuban missile crisis, desegregation, diversified portfolio, fake news, financial engineering, floating exchange rates, Fractional reserve banking, full employment, Glass-Steagall Act, global macro, hindsight bias, Kickstarter, Long Term Capital Management, low interest rates, market bubble, Michael Milken, military-industrial complex, Money creation, mortgage tax deduction, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, price stability, reserve currency, risk free rate, Robert Gordon, Robert Shiller, Ronald Reagan, short selling, stocks for the long run, yield curve, Yogi Berra

The events of 1995 to 2002 indicate that some synthesis of old Wall Street thinking and new Wall Street ideas could create a more relevant and useful approach for financial practitioners. And that brings us back to the value of financial history. The recent expansion and busting of yet another stock market bubble may be a good enough reason to suggest there is more in heaven and earth than is dreamed of in the philosophy of efficiency. There is also another reason. In 2002, the behavioural psychologist Daniel Kahneman, along with Vernon I. Smith, was awarded the Nobel Prize in economics for ‘having integrated insights from psychological research into economic science, especially concerning human judgement and decision-making under uncertainty’


pages: 385 words: 112,842

Arriving Today: From Factory to Front Door -- Why Everything Has Changed About How and What We Buy by Christopher Mims

air freight, Airbnb, Amazon Robotics, Amazon Web Services, Apollo 11, augmented reality, autonomous vehicles, big-box store, blue-collar work, Boeing 747, book scanning, business logic, business process, call centre, cloud computing, company town, coronavirus, cotton gin, COVID-19, creative destruction, data science, Dava Sobel, deep learning, dematerialisation, deskilling, digital twin, Donald Trump, easy for humans, difficult for computers, electronic logging device, Elon Musk, Frederick Winslow Taylor, fulfillment center, gentrification, gig economy, global pandemic, global supply chain, guest worker program, Hans Moravec, heat death of the universe, hive mind, Hyperloop, immigration reform, income inequality, independent contractor, industrial robot, interchangeable parts, intermodal, inventory management, Jacquard loom, Jeff Bezos, Jessica Bruder, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kaizen: continuous improvement, Kanban, Kiva Systems, level 1 cache, Lewis Mumford, lockdown, lone genius, Lyft, machine readable, Malacca Straits, Mark Zuckerberg, market bubble, minimum wage unemployment, Nomadland, Ocado, operation paperclip, Panamax, Pearl River Delta, planetary scale, pneumatic tube, polynesian navigation, post-Panamax, random stow, ride hailing / ride sharing, robot derives from the Czech word robota Czech, meaning slave, Rodney Brooks, rubber-tired gantry crane, scientific management, self-driving car, sensor fusion, Shenzhen special economic zone , Shoshana Zuboff, Silicon Valley, six sigma, skunkworks, social distancing, South China Sea, special economic zone, spinning jenny, standardized shipping container, Steve Jobs, supply-chain management, surveillance capitalism, TED Talk, the scientific method, Tim Cook: Apple, Toyota Production System, traveling salesman, Turing test, two-sided market, Uber and Lyft, Uber for X, uber lyft, Upton Sinclair, vertical integration, warehouse automation, warehouse robotics, workplace surveillance

People who were sentient during the first dot-com bubble of the late 1990s remember the delivery service Kozmo, because you could order literally anything: a can of Coke, a pack of gum, a CD. (Recall that the first iPod wasn’t released until 2001.) Whatever it was, Kozmo had to deliver it within thirty minutes. With the benefit of hindsight, it’s clear the whole enterprise epitomized a stock market bubble so inflated, an era of optimism so wild-eyed, it was as if investors, especially the ones who were supposed to know better, had truly lost their minds. Webvan, slightly more sane than Kozmo and therefore only a tenth as famous, just delivered groceries, and only in a limited area. In 1999, at the absolute height of the dot-com madness, Mick was hired onto the “business process team” at Webvan.


pages: 398 words: 112,350

Truevine: Two Brothers, a Kidnapping, and a Mother's Quest: A True Story of the Jim Crow South by Beth Macy

affirmative action, Charles Lindbergh, company town, desegregation, fixed income, Glass-Steagall Act, independent contractor, indoor plumbing, market bubble, mass incarceration, Maui Hawaii, New Journalism, strikebreaker, TED Talk, transatlantic slave trade, transcontinental railway, union organizing, urban renewal, W. E. B. Du Bois, white flight

To a person, blue-collar African Americans in Roanoke aspiring to join the middle class in the late 1920s “walked to work. Didn’t nobody have a car,” Holland recalled. “I mean, Dr. Pinkard and Dr. Claytor and maybe the lawyer had a car.” Holland didn’t recall what brand Cabell’s car was (nor did anyone in the family), just that “it was real nice.” Buick models introduced in 1928, at the peak of the stock market bubble, ranged from $1,195 to $1,850, around the average American’s annual salary. Back then, the speed limit outside city limits was forty-five miles per hour. A trip from Roanoke to Charlottesville that now takes two hours by way of the four-lane interstate then took eleven. Roads were twisty and riddled with potholes.


pages: 370 words: 112,809

The Equality Machine: Harnessing Digital Technology for a Brighter, More Inclusive Future by Orly Lobel

2021 United States Capitol attack, 23andMe, Ada Lovelace, affirmative action, Airbnb, airport security, Albert Einstein, algorithmic bias, Amazon Mechanical Turk, augmented reality, barriers to entry, basic income, Big Tech, bioinformatics, Black Lives Matter, Boston Dynamics, Charles Babbage, choice architecture, computer vision, Computing Machinery and Intelligence, contact tracing, coronavirus, corporate social responsibility, correlation does not imply causation, COVID-19, crowdsourcing, data science, David Attenborough, David Heinemeier Hansson, deep learning, deepfake, digital divide, digital map, Elon Musk, emotional labour, equal pay for equal work, feminist movement, Filter Bubble, game design, gender pay gap, George Floyd, gig economy, glass ceiling, global pandemic, Google Chrome, Grace Hopper, income inequality, index fund, information asymmetry, Internet of things, invisible hand, it's over 9,000, iterative process, job automation, Lao Tzu, large language model, lockdown, machine readable, machine translation, Mark Zuckerberg, market bubble, microaggression, Moneyball by Michael Lewis explains big data, natural language processing, Netflix Prize, Network effects, Northpointe / Correctional Offender Management Profiling for Alternative Sanctions, occupational segregation, old-boy network, OpenAI, openstreetmap, paperclip maximiser, pattern recognition, performance metric, personalized medicine, price discrimination, publish or perish, QR code, randomized controlled trial, remote working, risk tolerance, robot derives from the Czech word robota Czech, meaning slave, Ronald Coase, Salesforce, self-driving car, sharing economy, Sheryl Sandberg, Silicon Valley, social distancing, social intelligence, speech recognition, statistical model, stem cell, Stephen Hawking, Steve Jobs, Steve Wozniak, surveillance capitalism, tech worker, TechCrunch disrupt, The Future of Employment, TikTok, Turing test, universal basic income, Wall-E, warehouse automation, women in the workforce, work culture , you are the product

Indeed, data is power, and there will always be powerful people who will want to cover their tracks, maintain secrecy, and try to block data mining that exposes inequality. We need to make sure that people are empowered to use data—and have the power to mine it—to expose inequality. Opaque Algorithms, Validation, and Policy Competition among for-profit firms in providing automated—and diversity-enhancing—hiring services has the market bubbling, but competition also means keeping data secret. Companies are notoriously tight-lipped about their internal statistics and processes, and they often try to shield such information behind labels like “proprietary,” “confidential,” and “trade secrets.” Such secrecy makes it more difficult to check claims about the effectiveness of new screening processes.


pages: 288 words: 16,556

Finance and the Good Society by Robert J. Shiller

Alan Greenspan, Alvin Roth, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, benefit corporation, Bernie Madoff, buy and hold, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, cognitive dissonance, collateralized debt obligation, collective bargaining, computer age, corporate governance, Daniel Kahneman / Amos Tversky, democratizing finance, Deng Xiaoping, diversification, diversified portfolio, Donald Trump, Edward Glaeser, eurozone crisis, experimental economics, financial engineering, financial innovation, financial thriller, fixed income, full employment, fundamental attribution error, George Akerlof, Great Leap Forward, Ida Tarbell, income inequality, information asymmetry, invisible hand, John Bogle, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, loss aversion, Louis Bachelier, Mahatma Gandhi, Mark Zuckerberg, market bubble, market design, means of production, microcredit, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, Occupy movement, passive investing, Ponzi scheme, prediction markets, profit maximization, quantitative easing, random walk, regulatory arbitrage, Richard Thaler, Right to Buy, road to serfdom, Robert Shiller, Ronald Reagan, selection bias, self-driving car, shareholder value, Sharpe ratio, short selling, Simon Kuznets, Skype, social contagion, Steven Pinker, tail risk, telemarketer, Thales and the olive presses, Thales of Miletus, The Market for Lemons, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, Vanguard fund, young professional, zero-sum game, Zipcar

See bubbles Spielberg, Steven, 188–89 Sprenkle, Case, 79 Squam Lake Group, 22–23, 218 Standard & Poor’s / Case-Shiller national home price index, xv Statman, Myer, 78, 80 status. See inequality; social status; wealth stewardship, 17, 43, 231; and accountants, 101; and educators, 103 Stigler, George A, 95 Stiglitz, Joseph, 30 stockbrokers. See brokers stock markets: bubbles, 47, 185, 186; crashes, 60, 171, 184; excess volatility, 170–72, 185; high-frequency trading, 60–61; history, 46–47; importance, 46; investment banks and, 45–46; regulation of, 46; responses to new information, 59–60; specialists, 57; traders, 57; trading in, 46, 48. See also New York Stock Exchange stock options: as incentives, 21, 22, 23, 24, 48–49; pricing, 132; trading, 78–80 stocks: dilution, 49; dividends, 171, 185; employee ownership, 215–16; history, 46–48, 144; as incentives, 48–49; initial public offerings, 45, 47; inside information, 23, 29–30; issuing, 45, 46, 47, 48–49; prices, 20–21, 133, 171–72, 185–86 Stokey, Nancy, 29–30, 77 storytelling, 180, 181 structured investment vehicles (SIVs), 43 subprime crisis, xv–xvi, 50, 51, 52, 53, 62, 157, 220 sumptuary laws and taxes, 191, 192 swaps, 75 Sweden, mutual fund managers, 28 Swensen, David, 31 Switzerland, homeownership, 213 symmetry, beauty and, 131–32, 133 tail risk, 35 Tarbell, Ida M., 164 tariffs, xvii, 92 Tauzin, Billy, 88 taxes: cheating on, 101; consumption, 192, 253n14 (Chapter 27); estate, 192–93, 253n15 (Chapter 27); fiscal policy, 114–16, 117, 133; gift, 204–5; progressive, 116, 192, 193–94, 217–18, 235; sumptuary, 191, 192.


pages: 353 words: 355

The Long Boom: A Vision for the Coming Age of Prosperity by Peter Schwartz, Peter Leyden, Joel Hyatt

"World Economic Forum" Davos, Alan Greenspan, Alvin Toffler, American ideology, Asian financial crisis, Berlin Wall, business cycle, centre right, classic study, clean water, complexity theory, computer age, crony capitalism, cross-subsidies, Danny Hillis, dark matter, dematerialisation, Deng Xiaoping, Dissolution of the Soviet Union, double helix, edge city, Electric Kool-Aid Acid Test, European colonialism, Fall of the Berlin Wall, financial innovation, George Gilder, glass ceiling, global village, Gregor Mendel, Herman Kahn, hydrogen economy, industrial cluster, informal economy, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, It's morning again in America, junk bonds, Just-in-time delivery, Kevin Kelly, knowledge economy, knowledge worker, life extension, market bubble, mass immigration, megacity, Mikhail Gorbachev, Neal Stephenson, Nelson Mandela, new economy, oil shock, open borders, out of africa, Productivity paradox, QR code, Richard Feynman, Ronald Reagan, Search for Extraterrestrial Intelligence, shareholder value, Silicon Valley, stem cell, Steve Jobs, Stewart Brand, The Hackers Conference, the scientific method, Thomas L Friedman, upwardly mobile, Washington Consensus, We are as Gods, Whole Earth Catalog, women in the workforce, Y2K, zero-sum game

And Gore is much more knowledgeable about global warming and environmental issues, which we think will emerge as a bona fide crisis in the next decade and pose one of the greatest challenges ever faced by the global community. Al Gore could rise to that challenge. Whatever the outcome of this election, though, the Long Boom could carry on. The Long Boom is bigger than any one person, or one party, or one country. The Long Boom can and will absorb setbacks—electoral disasters, regional economic downturns, stock market bubbles and crashes. The Long Boom will not be ended easily. There have been too many positive developments in the last twenty years that are providing momentum that will help carry us through the next twenty. There are too many positive trends in motion today and too many people already out there creating a more positive future.


pages: 460 words: 122,556

The End of Wall Street by Roger Lowenstein

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, benefit corporation, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, break the buck, 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, financial engineering, fixed income, geopolitical risk, Glass-Steagall Act, Greenspan put, high net worth, Hyman Minsky, interest rate derivative, invisible hand, junk bonds, Ken Thompson, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Martin Wolf, Michael Milken, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, Ponzi scheme, profit motive, race to the bottom, risk tolerance, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, savings glut, short selling, sovereign wealth fund, statistical model, the payments system, too big to fail, tulip mania, Y2K

Specifically, he would not be buying obligations of the federal government of longer than one year, because he did not have faith in what Washington—and in particular Greenspan—was doing. “We have never seen the magnitude of liquidity that is being thrown at the system,” he wrote. “We believe that this is a bond market bubble”—one similar in scale to the dot-com bubble.4 Since announcing his strike, Rodriguez had continued to invest in the obligations of Fannie and Freddie, which had been created by the government but operated (mostly) as private concerns. However, the mortgage market was looking ever more frothy.


Multicultural Cities: Toronto, New York, and Los Angeles by Mohammed Abdul Qadeer

affirmative action, business cycle, call centre, David Brooks, deindustrialization, desegregation, edge city, en.wikipedia.org, Frank Gehry, game design, gentrification, ghettoisation, global village, immigration reform, industrial cluster, Jane Jacobs, knowledge economy, market bubble, McMansion, megaproject, new economy, New Urbanism, place-making, Richard Florida, risk tolerance, Silicon Valley, Skype, telemarketer, the built environment, The Chicago School, The Death and Life of Great American Cities, the scientific method, urban planning, urban renewal, working-age population, young professional

New York’s Department of City Planning observes that “immigrants’ concentration in many neighbourhoods 68 Multicultural Cities Map 4.2 New York’s neighbourhoods by ethnic concentrations, 2010 The Social Geography of Multicultural Cities 69 Photo 4.2 Little Italy, New York (courtesy Milagros Dorregaray) have resulted in ethnic enclaves, where an immigrant group leaves its social, economic and cultural imprint on a neighbourhood.”21 New York residential geography changes relatively more quickly owing to the city’s periodic property-market bubbles and mobility of residents. In the 2000s, Manhattan has become largely racially White. Even Harlem, the historic bastion of the Black community, is being gentrified and becoming mixed. The ethnic dynamics of New York is fluid, leading to the reconstruction of racial boundaries. Nancy Foner points out that New York is a place of “hybrid and fluid exchanges across group boundaries” that represents a new kind of multiculturalism.22 Like the enclaves in Toronto, New York’s enclaves have also dispersed among them people of other ethno-racial backgrounds.


pages: 413 words: 128,093

On the Grand Trunk Road: A Journey Into South Asia by Steve Coll

affirmative action, airport security, anti-communist, Ayatollah Khomeini, back-to-the-land, Berlin Wall, British Empire, colonial rule, disinformation, Fall of the Berlin Wall, foreign exchange controls, full employment, global village, income inequality, income per capita, Indoor air pollution, Khyber Pass, land reform, Mahatma Gandhi, market bubble, mass immigration, Mikhail Gorbachev, New Urbanism, Ponzi scheme, Ronald Reagan, upwardly mobile, urban sprawl, yellow journalism

In India, the difficulty became obvious in the spring of 1992 when an ambitious Bombay insurance clerk named Harshad Mehta, attempting to forge a rise modeled on the Ambanis’, brought the entire stock market crashing down through a series of speculative manipulations involving state-owned and foreign banks. As Mehta inflated a speculative market bubble and drove prices up, up, up with his manipulations, India’s new shareholding class cheered, astonished at the promised magic of capitalism. Nobody, it seemed, was prepared to question Mehta’s highly dubious genius because to do so would be to undermine the fragile consensus around the new order.


pages: 419 words: 130,627

Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase by Duff McDonald

"World Economic Forum" Davos, Alan Greenspan, AOL-Time Warner, bank run, Bear Stearns, Blythe Masters, Bonfire of the Vanities, book value, business logic, centralized clearinghouse, collateralized debt obligation, conceptual framework, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Exxon Valdez, financial innovation, fixed income, G4S, Glass-Steagall Act, Greenspan put, housing crisis, interest rate swap, Jeff Bezos, John Meriwether, junk bonds, Kickstarter, laissez-faire capitalism, Long Term Capital Management, margin call, market bubble, Michael Milken, money market fund, moral hazard, negative equity, Nelson Mandela, Northern Rock, profit motive, proprietary trading, Renaissance Technologies, risk/return, Rod Stewart played at Stephen Schwarzman birthday party, Saturday Night Live, sovereign wealth fund, statistical model, Steve Ballmer, Steve Jobs, technology bubble, The Chicago School, too big to fail, Vanguard fund, zero-coupon bond, zero-sum game

Some executives at the company had proposed that the bank actually begin investing in subprime product, and while the decision was working its way through the appropriate channels, a unit of the bank went ahead and purchased a $2 billion subprime CDO. The proposal was ultimately rejected, but the CDO stayed on the books. Winters refers to the episode as “an outright control lapse” and “the biggest single mistake we’ve made in a long time.” • • • The International Monetary Fund estimates that stock market bubbles happen about every 13 years, and that housing bubbles occur every two decades. That’s what makes it so amazing that the majority of Wall Street firms were caught unawares by the credit debacle. Dimon’s daughter Laura called him in the fall of 2007 and asked, “Dad, what’s a financial crisis?” Without intending to be funny, he replied, “It’s something that happens every five to 10 years.”


pages: 474 words: 130,575

Surveillance Valley: The Rise of the Military-Digital Complex by Yasha Levine

23andMe, activist fund / activist shareholder / activist investor, Adam Curtis, Airbnb, AltaVista, Amazon Web Services, Anne Wojcicki, anti-communist, AOL-Time Warner, Apple's 1984 Super Bowl advert, bitcoin, Black Lives Matter, borderless world, Boston Dynamics, British Empire, Californian Ideology, call centre, Charles Babbage, Chelsea Manning, cloud computing, collaborative editing, colonial rule, company town, computer age, computerized markets, corporate governance, crowdsourcing, cryptocurrency, data science, digital map, disinformation, don't be evil, Donald Trump, Douglas Engelbart, Douglas Engelbart, Dr. Strangelove, drone strike, dual-use technology, Edward Snowden, El Camino Real, Electric Kool-Aid Acid Test, Elon Musk, end-to-end encryption, fake news, fault tolerance, gentrification, George Gilder, ghettoisation, global village, Google Chrome, Google Earth, Google Hangouts, Greyball, Hacker Conference 1984, Howard Zinn, hypertext link, IBM and the Holocaust, index card, Jacob Appelbaum, Jeff Bezos, jimmy wales, John Gilmore, John Markoff, John Perry Barlow, John von Neumann, Julian Assange, Kevin Kelly, Kickstarter, Laura Poitras, life extension, Lyft, machine readable, Mark Zuckerberg, market bubble, Menlo Park, military-industrial complex, Mitch Kapor, natural language processing, Neal Stephenson, Network effects, new economy, Norbert Wiener, off-the-grid, One Laptop per Child (OLPC), packet switching, PageRank, Paul Buchheit, peer-to-peer, Peter Thiel, Philip Mirowski, plutocrats, private military company, RAND corporation, Ronald Reagan, Ross Ulbricht, Satoshi Nakamoto, self-driving car, sentiment analysis, shareholder value, Sheryl Sandberg, side project, Silicon Valley, Silicon Valley startup, Skype, slashdot, Snapchat, Snow Crash, SoftBank, speech recognition, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, Susan Wojcicki, Telecommunications Act of 1996, telepresence, telepresence robot, The Bell Curve by Richard Herrnstein and Charles Murray, The Hackers Conference, Tony Fadell, uber lyft, vertical integration, Whole Earth Catalog, Whole Earth Review, WikiLeaks

Mitch Kapor, “Where Is the Digital Highway Really Heading?” Wired, March 1, 1993. 104. Joshua Quittner, “The Merry Pranksters Go to Washington,” Wired, June 1, 1994. 105. “Thanks in part to a confluence of extraordinary economic, technological, and political currents, its technocentric optimism became a central feature of the biggest stock market bubble in American history. Its faith that the Internet constituted a revolution in human affairs legitimated calls for telecommunications deregulation and the dismantling of government entitlement programs elsewhere as well,” remarks Fred Turner in From Counterculture to Cyberculture while examining Wired’s place in the deregulatory and privatization frenzy of the 1990s. 106.


pages: 624 words: 127,987

The Personal MBA: A World-Class Business Education in a Single Volume by Josh Kaufman

Albert Einstein, Alvin Toffler, Atul Gawande, Black Swan, Blue Ocean Strategy, business cycle, 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 Heinemeier Hansson, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, discounted cash flows, Donald Knuth, double entry bookkeeping, Douglas Hofstadter, Dunning–Kruger effect, en.wikipedia.org, Frederick Winslow Taylor, George Santayana, Gödel, Escher, Bach, high net worth, hindsight bias, index card, inventory management, iterative process, job satisfaction, Johann Wolfgang von Goethe, Kaizen: continuous improvement, Kevin Kelly, Kickstarter, Lao Tzu, lateral thinking, loose coupling, loss aversion, Marc Andreessen, market bubble, Network effects, Parkinson's law, Paul Buchheit, Paul Graham, place-making, premature optimization, Ralph Waldo Emerson, rent control, scientific management, side project, statistical model, stealth mode startup, Steve Jobs, Steve Wozniak, subscription business, systems thinking, telemarketer, the scientific method, time value of money, Toyota Production System, tulip mania, Upton Sinclair, Vilfredo Pareto, Walter Mischel, Y Combinator, Yogi Berra

If you don’t know how to act in Rome, doing what the Romans do is a pretty safe bet. Social Proof can take on a life of its own. Fads often form when one person takes an action, others perceive it as a Social Signal, then act the same way, creating a social Feedback Loop (discussed later). Pet rocks, yellow Lance Armstrong “Live Strong” bracelets, viral videos, and stock market bubbles all gain power via social proof—if so many other people are doing it, it’s easy to come to the conclusion that you should probably do it too. Testimonials are an effective form of Social Proof often used in business to close more sales. There’s a reason why Amazon.com and other online retailers prominently feature user reviews: stories about people who have been pleased with a purchase send a clear signal that an item is safe to buy, so more people purchase.


Adam Smith: Father of Economics by Jesse Norman

active measures, Alan Greenspan, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Cornelius Vanderbilt, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, electricity market, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial engineering, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Glass-Steagall Act, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, low interest rates, market bubble, market fundamentalism, Martin Wolf, means of production, mirror neurons, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, public intellectual, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Solow, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

According to the Efficient Market Hypothesis, financial asset prices are always right. It follows from this that there can be no such thing as an asset price bubble or market overshoot: since asset prices always reflect fundamental value, rapidly inflating asset prices can only reflect rising expectations of future returns. Because there can be no market bubbles, moreover, there can be no role for central banks to prick or deflate them; indeed some economists—including Milton Friedman—have suggested that central banks should be abolished altogether. But the Efficient Market Hypothesis goes further. It means, in effect, that markets are memoryless. If past events played any role in predicting price movements, then a sufficiently savvy investor could in principle game the market and make a riskless profit.


pages: 497 words: 143,175

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies by Judith Stein

1960s counterculture, accelerated depreciation, activist lawyer, affirmative action, airline deregulation, Alan Greenspan, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, business cycle, capital controls, centre right, collective bargaining, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, desegregation, do well by doing good, Dr. Strangelove, energy security, Fall of the Berlin Wall, falling living standards, feminist movement, financial deregulation, floating exchange rates, full employment, Glass-Steagall Act, Gunnar Myrdal, guns versus butter model, Ida Tarbell, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, Les Trente Glorieuses, liberal capitalism, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, Martin Wolf, new economy, Nixon triggered the end of the Bretton Woods system, oil shale / tar sands, oil shock, open economy, Paul Samuelson, payday loans, post-industrial society, post-oil, price mechanism, price stability, Ralph Nader, RAND corporation, reserve currency, Robert Gordon, Robert Solow, Ronald Reagan, Savings and loan crisis, Simon Kuznets, strikebreaker, three-martini lunch, trade liberalization, union organizing, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor, Yom Kippur War

Wages rose, poverty rates fell sharply, but CEO earnings skyrocketed. In 1980 CEOs at large companies earned forty-five times as much as ordinary workers. By 1995 the ratio rose to 160 times as much. In 1997 it reached 305, and by 2000 it rose to 458.100 The stock market boom was also a stock market bubble. The ratio of price to earnings had traditionally been 14.5. In 2000, the ratio reached 30, as investors imagined that, despite current earnings, each tech corporation was a future Microsoft. Then the overinvestment in telecommunications led to a collapse, which erased $2 trillion in value and threw half a million people out of work in 2002.101 Global Crossing consumed $12 billion from 1997 until 2002, when it went bankrupt.102 WorldCom lost even more after it went under shortly afterward.


pages: 466 words: 127,728

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, BRICs, business climate, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Dr. Strangelove, Edward Snowden, eurozone crisis, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global macro, global reserve currency, global supply chain, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Herman Kahn, high-speed rail, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, junk bonds, Kenneth Rogoff, labor-force participation, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market design, megaproject, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shale / tar sands, open economy, operational security, plutocrats, Ponzi scheme, power law, price stability, public intellectual, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, Solyndra, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, undersea cable, uranium enrichment, Washington Consensus, working-age population, yield curve

., 96, 244 Gulf Cooperation Council (GCC), 12, 150, 152–57 monetary integration process and, 153–57 as quasi-currency union, 153 Hague Congress, 116 Hall, Robert, 86–87 Hamilton, Alexander, 120–21 Han Dynasty, 90 Hanke, Steve, 80 Haydn, Michael, 37 Hayek, Friedrich, 70–71, 72, 87 hedge fund covert operations, 47–51 Hemingway, Ernest, 256 Herzegovina, 136 Himes, James, 284 Holocaust, 115 Holy Roman Empire, 114, 115 Hong Ziuquan, 91 Hoover, Herbert, 85 housing market bubbles in, 75, 76–77, 248 collapse of, 2007, 248, 296 rise in, since 2009, 291 wealth effect and, 72, 73 HSBC, 227 Hu Jintao, 151–52, 202 Hunt, Lacy H., 74, 79 Hunt brothers, 217 Hyundai, 82 ImClone Systems, 25 income inequality, in China, 106 India, 12, 139, 151.


pages: 349 words: 134,041

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

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, Asian financial crisis, asset-backed security, Bear Stearns, beat the dealer, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business logic, business process, buy and hold, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, commoditize, complexity theory, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, currency risk, disinformation, disintermediation, diversification, diversified portfolio, Edward Thorp, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, financial engineering, financial innovation, fixed income, Glass-Steagall Act, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, John Bogle, John Meriwether, junk bonds, locking in a profit, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, mega-rich, merger arbitrage, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mutually assured destruction, Myron Scholes, new economy, New Journalism, Nick Leeson, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, proprietary trading, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, Right to Buy, risk free rate, risk-adjusted returns, risk/return, Salesforce, Satyajit Das, shareholder value, short selling, short squeeze, South Sea Bubble, statistical model, technology bubble, the medium is the message, the new new thing, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

He seemed keen on an index. A group of known unknowns or unknown unknowns was better than a single one of the same kind. Dealers love sophisticated investors. They are easy pickings. On the platform In the late 1990s, the world caught technology fever. The pandemic was the worst since the last financial market bubble that was only a few years before. New terms were in vogue – TMT (Technology, Media, Internet); TIME (Technology, Internet, Media). Investment banks and dealers cashed in on the infatuation with all things technological. They underwrote IPOs, issued shares, traded securities, arranged mergers and acquisitions, and pro- 05_CH04.QXD 17/2/06 128 4:22 pm Page 128 Tr a d e r s , G u n s & M o n e y vided advice.


pages: 422 words: 131,666

Life Inc.: How the World Became a Corporation and How to Take It Back by Douglas Rushkoff

Abraham Maslow, Adam Curtis, addicted to oil, affirmative action, Alan Greenspan, Amazon Mechanical Turk, An Inconvenient Truth, anti-globalists, AOL-Time Warner, banks create money, Bear Stearns, benefit corporation, big-box store, Bretton Woods, car-free, Charles Lindbergh, colonial exploitation, Community Supported Agriculture, complexity theory, computer age, congestion pricing, corporate governance, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, death of newspapers, digital divide, don't be evil, Donald Trump, double entry bookkeeping, easy for humans, difficult for computers, financial innovation, Firefox, full employment, General Motors Futurama, gentrification, Glass-Steagall Act, global village, Google Earth, greed is good, Herbert Marcuse, Howard Rheingold, income per capita, invention of the printing press, invisible hand, Jane Jacobs, John Nash: game theory, joint-stock company, Kevin Kelly, Kickstarter, laissez-faire capitalism, loss aversion, market bubble, market design, Marshall McLuhan, Milgram experiment, military-industrial complex, moral hazard, multilevel marketing, mutually assured destruction, Naomi Klein, negative equity, new economy, New Urbanism, Norbert Wiener, peak oil, peer-to-peer, place-making, placebo effect, planned obsolescence, Ponzi scheme, price mechanism, price stability, principal–agent problem, private military company, profit maximization, profit motive, prosperity theology / prosperity gospel / gospel of success, public intellectual, race to the bottom, RAND corporation, rent-seeking, RFID, road to serfdom, Ronald Reagan, scientific management, short selling, Silicon Valley, Simon Kuznets, social software, Steve Jobs, Telecommunications Act of 1996, telemarketer, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trade route, trickle-down economics, union organizing, urban decay, urban planning, urban renewal, Vannevar Bush, vertical integration, Victor Gruen, white flight, working poor, Works Progress Administration, Y2K, young professional, zero-sum game

No, the land would be at the very bottom of the pyramid. Instead, they invested in mortgages other people took out to buy land. As Alan Greenspan eventually explained it to Newsweek magazine, “This particular problem was an accident waiting to happen. The euphoria that existed in the expansion of the housing-market bubble induced investors around the world who’d had a huge buildup in liquidity—largely because of the lower real long-term interest rates that occurred as a consequence of the end of the cold war—to invest in something with a higher rate of return. And, lo and behold, the sub-prime mortgage market provided it.”


pages: 607 words: 133,452

Against Intellectual Monopoly by Michele Boldrin, David K. Levine

accounting loophole / creative accounting, agricultural Revolution, barriers to entry, business cycle, classic study, cognitive bias, cotton gin, creative destruction, David Ricardo: comparative advantage, Dean Kamen, Donald Trump, double entry bookkeeping, en.wikipedia.org, endogenous growth, Ernest Rutherford, experimental economics, financial innovation, Great Leap Forward, Gregor Mendel, Helicobacter pylori, independent contractor, informal economy, interchangeable parts, invention of radio, invention of the printing press, invisible hand, James Watt: steam engine, Jean Tirole, John Harrison: Longitude, Joseph Schumpeter, Kenneth Arrow, linear programming, market bubble, market design, mutually assured destruction, Nash equilibrium, new economy, open economy, PalmPilot, peer-to-peer, pirate software, placebo effect, price discrimination, profit maximization, rent-seeking, Richard Stallman, Robert Solow, seminal paper, Silicon Valley, Skype, slashdot, software patent, the market place, total factor productivity, trade liberalization, Tragedy of the Commons, transaction costs, Y2K

Both theoretical and, to a lesser extent, empirical research suggest this possibility.”17 P1: PDX head margin: 1/2 gutter margin: 7/8 CUUS245-08 cuus245 978 0 521 87928 6 April 29, 2008 15:42 194 Against Intellectual Monopoly Several of these studies examine or are influenced by the upswing in patenting that occurred in the United States in the mid-1980s. That upswing followed the establishment of a special patent court in the United States in 1982; it turned into an explosion in the roaring 1990s, paralleling the dot-com stock market bubble, but it did not stop after that bubble burst. In 1983 in the United States, 59,715 patents were issued against 105,704 applications; by 2003, 189,597 patents were issued against 355,418 applications. In twenty years, the flow of patents roughly tripled. Kortum and Lerner focus specifically on the surge in U.S. patents, and make no claim as to whether this means more or less productivity growth.


pages: 428 words: 138,235

The Billionaire and the Mechanic: How Larry Ellison and a Car Mechanic Teamed Up to Win Sailing's Greatest Race, the Americas Cup, Twice by Julian Guthrie

AOL-Time Warner, Apple's 1984 Super Bowl advert, Benchmark Capital, Boeing 747, cloud computing, Cornelius Vanderbilt, fear of failure, Ford paid five dollars a day, independent contractor, Kaizen: continuous improvement, Larry Ellison, Loma Prieta earthquake, Marc Benioff, market bubble, Maui Hawaii, new economy, pets.com, Ronald Reagan, Salesforce, side project, Silicon Valley, Silicon Valley billionaire, software as a service, South of Market, San Francisco, Steve Jobs, warehouse automation, white picket fence, Yogi Berra

With the second campaign, he was involved at the beginning during the regattas in San Francisco and Newport, but then lost control after the team moved to Europe. Larry had come to realize that it was important for him to get to know the team, and for the team to know him. “I detached from the first campaign because of 9/11 and the Internet stock market bubble bursting,” he said to Russell. “But there’s no excuse for the second campaign. I thought we had the right formula when we won in San Francisco and Newport with Chris Dickson as tactician and Gavin Brady driving. But then Chris decided to drive, Gavin left the team, and the die was cast. Everything depended on Chris, who was at the helm of the team and the boat.


pages: 495 words: 136,714

Money for Nothing by Thomas Levenson

Albert Einstein, asset-backed security, bank run, British Empire, carried interest, clockwork universe, credit crunch, do well by doing good, Edmond Halley, Edward Lloyd's coffeehouse, experimental subject, failed state, fake news, Fellow of the Royal Society, fiat currency, financial engineering, financial innovation, Fractional reserve banking, income inequality, Isaac Newton, joint-stock company, land bank, market bubble, Money creation, open economy, price mechanism, quantitative easing, Republic of Letters, risk/return, side project, South Sea Bubble, The Wealth of Nations by Adam Smith, tontine

But as the date for the deal to go live approached, that gentle trot became a gallop. The Company’s shares stood at £198 on March 29, £220 on the thirtieth, £255 on April 1, £275 on the second, when the House of Commons approved the South Sea Act—and then, stunningly, £350 on the fourth. That was a price too far for the moment, the market bubbling over the rim of sense, and the stock settled into a range between £310 and £320 up to April fourteenth. That seemingly reckless ascent was what led those critics Defoe had mocked to suggest that South Sea shares had become “exorbitant.” At almost triple the price of three months earlier, Company stock represented an explosion of paper wealth that seemed wholly divorced from any material cause in the real world: a successful voyage, a new mill, acres to be brought under the plow.


pages: 909 words: 130,170

Work: A History of How We Spend Our Time by James Suzman

agricultural Revolution, AlphaGo, Anthropocene, basic income, biodiversity loss, carbon footprint, clean water, coronavirus, corporate social responsibility, cyber-physical system, David Graeber, death from overwork, deepfake, do-ocracy, double entry bookkeeping, double helix, fake news, financial deregulation, Ford Model T, founder crops, Frederick Winslow Taylor, gentrification, Great Leap Forward, interchangeable parts, invention of agriculture, invention of writing, invisible hand, Isaac Newton, James Watt: steam engine, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, karōshi / gwarosa / guolaosi, Kibera, Kickstarter, late capitalism, lateral thinking, market bubble, New Urbanism, Occupy movement, ocean acidification, Parkinson's law, Peter Singer: altruism, post-industrial society, post-work, public intellectual, Rubik’s Cube, Schrödinger's Cat, scientific management, sharing economy, social intelligence, spinning jenny, The Future of Employment, the scientific method, The Wealth of Nations by Adam Smith, theory of mind, trickle-down economics, universal basic income, upwardly mobile, urban planning, work culture , zoonotic diseases

Nor did it mention immigration, or that in the ever more globalised marketplace for senior executives, talent could be sourced from almost anywhere regardless of local demographic trends. To future historians, the ‘war for talent’ may appear to be one of the most elaborate corporate conspiracies of all time. Future economists might simply regard this as a market bubble as irrational and inevitable as any that came before or since. But others, who recognise that most of the rest of us are also suckers for flattery, may view it more sympathetically. After all, those who benefited from the surge in remuneration greatly appreciated the reassurance that they were worth every penny they were paid.


pages: 491 words: 131,769

Crisis Economics: A Crash Course in the Future of Finance by Nouriel Roubini, Stephen Mihm

Alan Greenspan, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, dark matter, David Ricardo: comparative advantage, debt deflation, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, Glass-Steagall Act, global pandemic, global reserve currency, Gordon Gekko, Greenspan put, Growth in a Time of Debt, housing crisis, Hyman Minsky, information asymmetry, interest rate swap, invisible hand, Joseph Schumpeter, junk bonds, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, means of production, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, Northern Rock, offshore financial centre, oil shock, Paradox of Choice, paradox of thrift, Paul Samuelson, Ponzi scheme, price stability, principal–agent problem, private sector deleveraging, proprietary trading, pushing on a string, quantitative easing, quantitative trading / quantitative finance, race to the bottom, random walk, regulatory arbitrage, reserve currency, risk tolerance, Robert Shiller, Satyajit Das, Savings and loan crisis, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, subprime mortgage crisis, Suez crisis 1956, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, too big to fail, tulip mania, Tyler Cowen, unorthodox policies, value at risk, We are all Keynesians now, Works Progress Administration, yield curve, Yom Kippur War

That said, he was not alone in sounding the alarm; a host of other well-placed observers predicted various elements of the financial crisis, and their insights helped Roubini connect the dots and lay out a vision that incorporated their prescient insights. Roubini’s former colleague at Yale University, Robert Shiller, was far ahead of almost everyone in warning of the dangers of a stock market bubble in advance of the tech bust; more recently, he was one of the first economists to sound the alarm about the housing bubble. Shiller was but one of the economists and market watchers whose views influenced Roubini. In 2005 University of Chicago finance professor Raghuram Rajan told a crowd of high-profile economists and policy makers in Jackson Hole, Wyoming, that the ways bankers and traders were being compensated would encourage them to take on too much risk and leverage, making the global financial system vulnerable to a severe crisis.


pages: 601 words: 135,202

Limitless: The Federal Reserve Takes on a New Age of Crisis by Jeanna Smialek

Alan Greenspan, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Sanders, bitcoin, Black Lives Matter, blockchain, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, Colonization of Mars, coronavirus, COVID-19, crowdsourcing, cryptocurrency, decarbonisation, distributed ledger, Donald Trump, Fall of the Berlin Wall, fiat currency, financial engineering, financial innovation, financial intermediation, Fractional reserve banking, full employment, George Akerlof, George Floyd, Glass-Steagall Act, global pandemic, Henri Poincaré, housing crisis, income inequality, inflation targeting, junk bonds, laissez-faire capitalism, light touch regulation, lockdown, low interest rates, margin call, market bubble, market clearing, meme stock, Modern Monetary Theory, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Nixon shock, offshore financial centre, paradox of thrift, price stability, quantitative easing, race to the bottom, risk tolerance, Robinhood: mobile stock trading app, Ronald Reagan, secular stagnation, short squeeze, social distancing, sovereign wealth fund, The Great Moderation, too big to fail, trade route, Tragedy of the Commons, working-age population, yield curve

During the late 1990s, for instance, he resisted the idea of preemptive interest rate hikes because he suspected that a burst in productivity from new technologies, like computers and software, might allow for lower unemployment without a corresponding increase in inflation.[31] He was right. The shock that eventually brought that expansion to its knees was not runaway price gains but a stock market bubble centered on internet and technology companies. Even as Greenspan’s careful judgment shored up his status, and interest in the central bank’s decisions abounded on Wall Street, the Fed continued to operate in the shadows. The Fed had in the 1980s shifted away from Volcker’s practice of targeting a rate of growth in the nation’s money supply and back to focusing on interest rates—specifically, the federal funds rate, which commercial banks charge one another to borrow reserves overnight.[32] But that transition went unannounced, and the Fed remained silent about when it actually made policy rate adjustments.[33] Wall Street typically figured out whether there had been a rate change by watching market movements as the New York Fed’s markets desk bought and sold securities.


pages: 1,009 words: 329,520

The Last Tycoons: The Secret History of Lazard Frères & Co. by William D. Cohan

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", activist fund / activist shareholder / activist investor, Alan Greenspan, AOL-Time Warner, bank run, Bear Stearns, book value, Carl Icahn, carried interest, cognitive dissonance, commoditize, computer age, corporate governance, corporate raider, creative destruction, credit crunch, deal flow, diversification, Donald Trump, East Village, fear of failure, financial engineering, fixed income, G4S, Glass-Steagall Act, hiring and firing, interest rate swap, intermodal, Joseph Schumpeter, junk bonds, land bank, late fees, Long Term Capital Management, Marc Andreessen, market bubble, Michael Milken, offshore financial centre, Ponzi scheme, proprietary trading, Ralph Nader, Ralph Waldo Emerson, rolodex, Ronald Reagan, shareholder value, short squeeze, SoftBank, stock buybacks, The Nature of the Firm, the new new thing, Yogi Berra

He never ran for office." Such an extraordinary comparison of an investment banker to a man of great political and economic accomplishment is simply not conceivable today (with the possible, ironic exception of Bob Rubin). Felix alone compares favorably. The aftereffects of the collapsing stock market bubble and the plethora of corporate scandals have left many observers believing that bankers are self-interested and greedy rather than purveyors of independent advice. "Investment bankers, as a class, are the Ernest Hemingways of bullshit," explained one well-known private-equity investor. Felix had few peers in the days when offering CEOs strategic wisdom was the metier of a select handful; he has none now that it is the medium of the many.

By setting up his own $1 billion fund, Steve--by then one of the Democratic Party's biggest fund-raisers--had taken himself out of the running to be in Gore's cabinet, should the vice president have won the presidency in 2000. With their shocking departure, all four partners' Class A percentage interests were thrown back into the pool for future reallocation. The bursting of the market bubble on March 10, 2000, when the Nasdaq peaked intraday at 5,132, had a grave impact on Wall Street. Tens of thousands of investment bankers lost their jobs, and the compensation for those who remained was much diminished. Eliot Spitzer, the ambitious New York state attorney general (now governor), orchestrated the $1.4 billion Wall Street research settlement, and prosecutors began the steady stream of indictments of corporate executives from, among others, Enron, WorldCom, Adelphia, and HealthSouth.


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

Abraham Maslow, Albert Einstein, banks create money, big-box store, Bretton Woods, British Empire, business cycle, clean water, colonial rule, Community Supported Agriculture, death of newspapers, declining real wages, different worldview, digital divide, European colonialism, Francisco Pizarro, full employment, George Gilder, global supply chain, global village, God and Mammon, Hernando de Soto, Howard Zinn, informal economy, intentional community, Intergovernmental Panel on Climate Change (IPCC), invisible hand, joint-stock company, land reform, market bubble, market fundamentalism, Monroe Doctrine, Naomi Klein, neoliberal agenda, new economy, peak oil, planetary scale, plutocrats, Project for a New American Century, Ronald Reagan, Rosa Parks, sexual politics, shared worldview, social intelligence, source of truth, South Sea Bubble, stem cell, structural adjustment programs, The Chicago School, trade route, Washington Consensus, wealth creators, World Values Survey

Rising poverty and unemployment, inequality, violent crime, broken families, and environmental deterioration all contributed to a growing fear of what the future might hold. Now it turns out that those were the good days. The financial shock that subsequently swept through Asia, Russia, and Latin America in the late 1990s, the bursting of the stock market bubble in the opening days of the twenty-first century, and a continuing wave of corporate financial scandals have drawn attention to a corruption of the institutions of the global economy well beyond what I documented in 1995. Pundits continue to speak optimistically about economic growth, gains in jobs, and a rising stock market, yet working families, even with two incomes, find it increasingly difficult to make ends meet and fall ever deeper into debt as health care and housing costs soar out of reach.


pages: 636 words: 140,406

The Case Against Education: Why the Education System Is a Waste of Time and Money by Bryan Caplan

affirmative action, Affordable Care Act / Obamacare, assortative mating, behavioural economics, conceptual framework, correlation does not imply causation, deliberate practice, deskilling, disruptive innovation, do what you love, driverless car, en.wikipedia.org, endogenous growth, experimental subject, fear of failure, Flynn Effect, future of work, George Akerlof, ghettoisation, hive mind, job satisfaction, Kenneth Arrow, Khan Academy, labor-force participation, longitudinal study, low interest rates, low skilled workers, market bubble, mass incarceration, meta-analysis, Peter Thiel, price discrimination, profit maximization, publication bias, risk tolerance, Robert Gordon, Ronald Coase, school choice, selection bias, Silicon Valley, statistical model, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, the scientific method, The Wisdom of Crowds, trickle-down economics, twin studies, Tyler Cowen, unpaid internship, upwardly mobile, women in the workforce, yield curve, zero-sum game

Taxing education doesn’t just butt against conventional presumptions in favor of education and the status quo. It runs afoul of the libertarian presumption in favor of leaving people alone. Since the proposal is untried, its effects remain speculative—and we shouldn’t try it unless we know it works wonders. The False Savior of Online Education We lived through the stock market bubble and the housing bubble. Investments paid off for years, then collapsed. Will education share the same fate? Plenty of parents and pundits suspect so. For a rising generation of technophiles, however, the debate is over. They’re convinced our education bubble is ready to burst, starting with higher education.46 Why now?


pages: 487 words: 147,891

McMafia: A Journey Through the Global Criminal Underworld by Misha Glenny

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "World Economic Forum" Davos, anti-communist, Anton Chekhov, Berlin Wall, blood diamond, BRICs, colonial rule, crony capitalism, Deng Xiaoping, Doha Development Round, failed state, Fall of the Berlin Wall, financial deregulation, Firefox, forensic accounting, friendly fire, glass ceiling, Global Witness, Great Leap Forward, illegal immigration, joint-stock company, low interest rates, market bubble, Mikhail Gorbachev, Nelson Mandela, Nick Leeson, no-fly zone, offshore financial centre, Oklahoma City bombing, Pearl River Delta, place-making, rising living standards, Ronald Reagan, Shenzhen special economic zone , Skype, special economic zone, Stephen Hawking, trade liberalization, trade route, Transnistria, unemployed young men, upwardly mobile

In retrospect, it appears that by year-end 1988 the Japanese stock market was in the midst of a full-fledged bubble.” It was not long before the extraordinary speculation on the Nikkei stock exchange found its way into the property market. Financial corporations and banks wanted to transfer the notional money of the stock market bubble into hard assets, and property was the best bet. It did not take long for the vortex of speculation to consume the existing housing stock, and so the banks and big corporations started looking for new land to develop. But the postwar construction mania had ensured there were no empty spaces on which to build.


pages: 790 words: 150,875

Civilization: The West and the Rest by Niall Ferguson

Admiral Zheng, agricultural Revolution, Albert Einstein, Andrei Shleifer, Atahualpa, Ayatollah Khomeini, Berlin Wall, BRICs, British Empire, business cycle, clean water, collective bargaining, colonial rule, conceptual framework, Copley Medal, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, Deng Xiaoping, discovery of the americas, Dissolution of the Soviet Union, Easter island, European colonialism, Fall of the Berlin Wall, financial engineering, Francisco Pizarro, full employment, Great Leap Forward, Gregor Mendel, guns versus butter model, Hans Lippershey, haute couture, Hernando de Soto, income inequality, invention of movable type, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Joseph Schumpeter, Kickstarter, Kitchen Debate, land reform, land tenure, liberal capitalism, Louis Pasteur, Mahatma Gandhi, market bubble, Martin Wolf, mass immigration, means of production, megacity, Mikhail Gorbachev, new economy, Pearl River Delta, Pierre-Simon Laplace, power law, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, purchasing power parity, quantitative easing, rent-seeking, reserve currency, retail therapy, road to serfdom, Ronald Reagan, savings glut, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special economic zone, spice trade, spinning jenny, Steve Jobs, Steven Pinker, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, The Great Moderation, the market place, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, total factor productivity, trade route, transaction costs, transatlantic slave trade, undersea cable, upwardly mobile, uranium enrichment, wage slave, Washington Consensus, women in the workforce, work culture , World Values Survey

The first is that similar projections of inexorable ascent used to be made for Japan. It too was supposed to overtake the United States and to become the number one global economic superpower. So, the argument goes, China could one day suffer the fate of Japan after 1989. Precisely because the economic and political systems are not truly competitive, a real-estate or stock-market bubble and bust could saddle the country with zombie banks, flat growth and deflation – the plight of Japan for the better part of two decades now. The counter-argument is that an archipelago off the east coast of Eurasia was never likely to match a continental power like the United States. It was credible to predict even a century ago that Japan would catch up with the United Kingdom, its Western analogue – as it duly did – but not that it would overhaul the United States.


pages: 586 words: 159,901

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

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

Pri--vate debt flows, mainly bonds rather than bank loans, grew 337%, and direct investment — taking a position in existing real enterprise or the establishment of a new one — rose 203%. As a result, the official share of long-term finance fell from over half in 1989 to a third in 1994. Mexico was the poster country of the emerging markets bubble. The wave of privatization, deregulation, and capital market opening led to a rush of capital — $68 billion in portfolio capital between 1991 and the first half of 1994, compared to a net outflow of $3.6 billion from 1988 through 1990. Mexican financial markets, a fraction of the size of the U.S. market, boomed.


pages: 585 words: 151,239

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

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, Alan Greenspan, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Bear Stearns, Berlin Wall, Blitzscaling, Bonfire of the Vanities, book value, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, Cornelius Vanderbilt, corporate governance, corporate raider, cotton gin, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, driverless car, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fairchild Semiconductor, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, full employment, general purpose technology, George Gilder, germ theory of disease, Glass-Steagall Act, global supply chain, Great Leap Forward, guns versus butter model, hiring and firing, Ida Tarbell, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, land bank, Lewis Mumford, Louis Pasteur, low interest rates, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, McDonald's hot coffee lawsuit, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Michael Milken, military-industrial complex, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, Phillips curve, plutocrats, pneumatic tube, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, public intellectual, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Robert Solow, Ronald Reagan, Sand Hill Road, savings glut, scientific management, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, vertical integration, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

Hoover was not one of them—indeed he lambasted Mellon’s presumed liquidationist ideas in his memoirs and claimed credit for ignoring them. He believed firmly that modern capitalist economies needed the guidance of an activist government. Hoover met with the Federal Reserve to discuss the stock-market bubble just two days after his inauguration and he periodically backed several different ways of dealing with it, from raising interest rates to discouraging buying on margin. The first president to have a telephone on his desk, he often started the day by ringing up Thomas Lamont at J. P. Morgan to keep track of the market.22 He reacted swiftly to the slowing of the economy by proposing a mixture of tax cuts and investment in infrastructure.


pages: 339 words: 57,031

From Counterculture to Cyberculture: Stewart Brand, the Whole Earth Network, and the Rise of Digital Utopianism by Fred Turner

"World Economic Forum" Davos, 1960s counterculture, A Declaration of the Independence of Cyberspace, Alan Greenspan, Alvin Toffler, Apple's 1984 Super Bowl advert, back-to-the-land, Bill Atkinson, bioinformatics, Biosphere 2, book value, Buckminster Fuller, business cycle, Californian Ideology, classic study, Claude Shannon: information theory, complexity theory, computer age, Computer Lib, conceptual framework, Danny Hillis, dematerialisation, distributed generation, Douglas Engelbart, Douglas Engelbart, Dr. Strangelove, Dynabook, Electric Kool-Aid Acid Test, Fairchild Semiconductor, Ford Model T, From Mathematics to the Technologies of Life and Death, future of work, Future Shock, game design, George Gilder, global village, Golden Gate Park, Hacker Conference 1984, Hacker Ethic, Haight Ashbury, Herbert Marcuse, Herman Kahn, hive mind, Howard Rheingold, informal economy, intentional community, invisible hand, Ivan Sutherland, Jaron Lanier, John Gilmore, John Markoff, John Perry Barlow, John von Neumann, Kevin Kelly, knowledge economy, knowledge worker, Lewis Mumford, market bubble, Marshall McLuhan, mass immigration, means of production, Menlo Park, military-industrial complex, Mitch Kapor, Mondo 2000, Mother of all demos, new economy, Norbert Wiener, peer-to-peer, post-industrial society, postindustrial economy, Productivity paradox, QWERTY keyboard, Ralph Waldo Emerson, RAND corporation, reality distortion field, Richard Stallman, Robert Shiller, Ronald Reagan, Shoshana Zuboff, Silicon Valley, Silicon Valley ideology, South of Market, San Francisco, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, systems thinking, technoutopianism, Ted Nelson, Telecommunications Act of 1996, The Hackers Conference, the strength of weak ties, theory of mind, urban renewal, Vannevar Bush, We are as Gods, Whole Earth Catalog, Whole Earth Review, Yom Kippur War

It won two National Magazine Awards, saw its readership grow to more than three hundred thousand a month, developed a book publisher (HardWired) and a variety of online ventures (HotWired, Suck), and helped spawn a clutch of magazines focused on the Internet and the New Economy, including Fast Company, Business 2.0, the Industry Standard, and Red [ 207 ] [ 208 ] Chapter 7 Herring. Thanks in part to a confluence of extraordinary economic, technological, and political currents, its technocentric optimism became a central feature of the biggest stock market bubble in American history. Its faith that the Internet constituted a revolution in human affairs legitimated calls for telecommunications deregulation and the dismantling of government entitlement programs elsewhere as well. And each month, its Technicolor pages of gadgets and gurus cataloged the delights awaiting information professionals in the New Economy.


pages: 486 words: 150,849

Evil Geniuses: The Unmaking of America: A Recent History by Kurt Andersen

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, affirmative action, Affordable Care Act / Obamacare, air traffic controllers' union, airline deregulation, airport security, Alan Greenspan, always be closing, American ideology, American Legislative Exchange Council, An Inconvenient Truth, anti-communist, Apple's 1984 Super Bowl advert, artificial general intelligence, autonomous vehicles, basic income, Bear Stearns, Bernie Sanders, blue-collar work, Bonfire of the Vanities, bonus culture, Burning Man, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Cass Sunstein, centre right, computer age, contact tracing, coronavirus, corporate governance, corporate raider, cotton gin, COVID-19, creative destruction, Credit Default Swap, cryptocurrency, deep learning, DeepMind, deindustrialization, Donald Trump, Dr. Strangelove, Elon Musk, ending welfare as we know it, Erik Brynjolfsson, feminist movement, financial deregulation, financial innovation, Francis Fukuyama: the end of history, future of work, Future Shock, game design, General Motors Futurama, George Floyd, George Gilder, Gordon Gekko, greed is good, Herbert Marcuse, Herman Kahn, High speed trading, hive mind, income inequality, industrial robot, interchangeable parts, invisible hand, Isaac Newton, It's morning again in America, James Watt: steam engine, Jane Jacobs, Jaron Lanier, Jeff Bezos, jitney, Joan Didion, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, junk bonds, Kevin Roose, knowledge worker, lockdown, low skilled workers, Lyft, Mark Zuckerberg, market bubble, mass immigration, mass incarceration, Menlo Park, Naomi Klein, new economy, Norbert Wiener, Norman Mailer, obamacare, Overton Window, Peter Thiel, Picturephone, plutocrats, post-industrial society, Powell Memorandum, pre–internet, public intellectual, Ralph Nader, Right to Buy, road to serfdom, Robert Bork, Robert Gordon, Robert Mercer, Ronald Reagan, Saturday Night Live, Seaside, Florida, Second Machine Age, shareholder value, Silicon Valley, social distancing, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Stewart Brand, stock buybacks, strikebreaker, tech billionaire, The Death and Life of Great American Cities, The Future of Employment, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, trickle-down economics, Tyler Cowen, Tyler Cowen: Great Stagnation, Uber and Lyft, uber lyft, union organizing, universal basic income, Unsafe at Any Speed, urban planning, urban renewal, very high income, wage slave, Wall-E, War on Poverty, We are all Keynesians now, Whole Earth Catalog, winner-take-all economy, women in the workforce, working poor, young professional, éminence grise

But if you sincerely think the market is undervaluing your stock because investors just don’t get your amazing company, then why not buy all of your shares back and go private? Essentially every CEO now does buybacks because everyone else does them. Their stock-price-based performances will be judged this quarter and this year against all those other CEOs, so it’s a mad recursive loop. How is the result not a stock market bubble—an extremely long-lasting bubble but a bubble nevertheless? It’s unsustainable: you can take 10 percent of your company’s shares out of circulation, then 20 percent, then 30 percent or even (as IBM has done over the last two decades) 60 percent, but you can’t keep doing that forever. For a decade, since before she was in the Senate, Elizabeth Warren has been saying that stock buybacks provide only a “sugar high for companies in the short term.”


pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

Airbus A320, Alan Greenspan, Albert Einstein, Albert Michelson, algorithmic trading, anti-fragile, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Bear Stearns, behavioural economics, Benoit Mandelbrot, bitcoin, Black Swan, Boeing 737 MAX, Bonfire of the Vanities, Brexit referendum, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, DeepMind, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, Dutch auction, easy for humans, difficult for computers, eat what you kill, Eddington experiment, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Goodhart's law, Hans Rosling, Helicobacter pylori, high-speed rail, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Jim Simons, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Kōnosuke Matsushita, Linda problem, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, military-industrial complex, Money creation, Moneyball by Michael Lewis explains big data, Monty Hall problem, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, nudge theory, oil shock, PalmPilot, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Phillips curve, Pierre-Simon Laplace, popular electronics, power law, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, reality distortion field, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Solow, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Suez crisis 1956, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, world market for maybe five computers, World Values Survey, Yom Kippur War, zero-sum game

rather than tweak processes which have acquired their own seemingly irresistible momentum! More narratives of finance In chapter 12 we described how Robert Shiller has argued that swings in sentiment are important in understanding why large and disruptive changes in economic behaviour occur – whether stock market bubbles and crashes or sharp collapses in output during a depression. 11 But Shiller’s focus on narratives is rather one-sided. He uses the concept to explain behaviour which others have called ‘fads and fashions’. In other words, he sees narratives as a departure from ‘rational’ optimising behaviour and therefore as irrational and emotional, despite their importance in explaining behaviour.


pages: 511 words: 151,359

The Asian Financial Crisis 1995–98: Birth of the Age of Debt by Russell Napier

Alan Greenspan, Asian financial crisis, asset allocation, bank run, banking crisis, banks create money, Berlin Wall, book value, Bretton Woods, business cycle, Buy land – they’re not making it any more, capital controls, central bank independence, colonial rule, corporate governance, COVID-19, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, Deng Xiaoping, desegregation, discounted cash flows, diversification, Donald Trump, equity risk premium, financial engineering, financial innovation, floating exchange rates, Fractional reserve banking, full employment, Glass-Steagall Act, hindsight bias, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, if you build it, they will come, impact investing, inflation targeting, interest rate swap, invisible hand, Japanese asset price bubble, Jeff Bezos, junk bonds, Kickstarter, laissez-faire capitalism, lateral thinking, Long Term Capital Management, low interest rates, market bubble, mass immigration, means of production, megaproject, Mexican peso crisis / tequila crisis, Michael Milken, Money creation, moral hazard, Myron Scholes, negative equity, offshore financial centre, open borders, open economy, Pearl River Delta, price mechanism, profit motive, quantitative easing, Ralph Waldo Emerson, regulatory arbitrage, rent-seeking, reserve currency, risk free rate, risk-adjusted returns, Ronald Reagan, Savings and loan crisis, savings glut, Scramble for Africa, short selling, social distancing, South China Sea, The Wealth of Nations by Adam Smith, too big to fail, yield curve

Macro factors and financial market pricing For all but the exceptional investor, some consideration of macro factors proved to be essential in assessing the future returns from financial assets. In the Asian financial crisis one learned quickly which macro factors counted and which didn’t. Too late for many, the focus shifted from the ‘miracle’ of high economic growth to the instability of how it had been financed. Having witnessed the stock market bubbles inflate and burst in Japan and Taiwan, I was predisposed to believe that there was more to assessing the outlook for asset returns than the so-called fundamentals scrutinised by micro investors. One day in a bookshop in the City of London, I stumbled upon a book that purported to be able to explain, at least in part, the relationship between macro factors and financial market pricing.


Animal Spirits by Jackson Lears

1960s counterculture, Alan Greenspan, bank run, banking crisis, behavioural economics, business cycle, buy and hold, California gold rush, clockwork universe, conceptual framework, Cornelius Vanderbilt, creative destruction, cuban missile crisis, dark matter, Doomsday Clock, double entry bookkeeping, epigenetics, escalation ladder, feminist movement, financial innovation, Frederick Winslow Taylor, George Akerlof, George Santayana, heat death of the universe, Herbert Marcuse, Herman Kahn, Ida Tarbell, invisible hand, Isaac Newton, joint-stock company, Joseph Schumpeter, Lewis Mumford, lifelogging, market bubble, market fundamentalism, Mikhail Gorbachev, moral hazard, Norman Mailer, plutocrats, prosperity theology / prosperity gospel / gospel of success, Ralph Waldo Emerson, RAND corporation, Robert Shiller, Ronald Reagan, scientific management, Scientific racism, short selling, Shoshana Zuboff, Silicon Valley, source of truth, South Sea Bubble, Stanislav Petrov, Steven Pinker, Stewart Brand, Strategic Defense Initiative, surveillance capitalism, the market place, the scientific method, The Soul of a New Machine, The Wealth of Nations by Adam Smith, transcontinental railway, W. E. B. Du Bois, Whole Earth Catalog, zero-sum game

The encompassing name for this power was animal magnetism, which merged in the vernacular with the practice of mesmerism and the awareness of electricity. As these ideas and practices multiplied, a ferment of vital force enveloped religious and financial affairs, sparking eruptions of emotional energy in evangelical revivals as well as stock market bubbles and panics. Revivalistic religion provided a burgeoning new arena for frenzied entrancement. By the early 1700s, Protestant Dissenters had rejected ritual and declared the only legitimate prayer to be spontaneous; in subsequent decades, evangelical revivalists on both sides of the Atlantic upped the emotional ante.


pages: 559 words: 169,094

The Unwinding: An Inner History of the New America by George Packer

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Apple's 1984 Super Bowl advert, bank run, Bear Stearns, big-box store, citizen journalism, clean tech, collateralized debt obligation, collective bargaining, company town, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, DeepMind, deindustrialization, diversified portfolio, East Village, El Camino Real, electricity market, Elon Musk, Fairchild Semiconductor, family office, financial engineering, financial independence, financial innovation, fixed income, Flash crash, food desert, gentrification, Glass-Steagall Act, global macro, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, high-speed rail, housing crisis, income inequality, independent contractor, informal economy, intentional community, Jane Jacobs, Larry Ellison, life extension, Long Term Capital Management, low skilled workers, Marc Andreessen, margin call, Mark Zuckerberg, market bubble, market fundamentalism, Maui Hawaii, Max Levchin, Menlo Park, military-industrial complex, Neal Stephenson, Neil Kinnock, new economy, New Journalism, obamacare, Occupy movement, off-the-grid, oil shock, PalmPilot, Patri Friedman, paypal mafia, peak oil, Peter Thiel, Ponzi scheme, proprietary trading, public intellectual, Richard Florida, Robert Bork, Ronald Reagan, Ronald Reagan: Tear down this wall, Savings and loan crisis, shareholder value, side project, Silicon Valley, Silicon Valley billionaire, Silicon Valley startup, single-payer health, smart grid, Snow Crash, Steve Jobs, strikebreaker, tech worker, The Death and Life of Great American Cities, the scientific method, too big to fail, union organizing, uptick rule, urban planning, vertical integration, We are the 99%, We wanted flying cars, instead we got 140 characters, white flight, white picket fence, zero-sum game

In effect, those middle decades were a kind of Indian summer following the seventies, and it lasted such a long time—about a quarter century, if you started with the end of the Reagan recession in 1982 and ended with the housing collapse in 2007—that it would be almost impossible to go back to where things stood before it all began and try to reset. Throughout the Indian summer, the same key institutions continued to erode, with a lot of recession years and financial panics along the way. One way to see the Indian summer was as a series of bubbles: the bond bubble, the tech bubble, the stock bubble, the emerging markets bubble, the housing bubble … One by one they had all burst, and their bursting showed that they had been temporary solutions to long-term problems, maybe evasions of those problems, distractions. With so many bubbles—so many people chasing such ephemera, all at the same time—it was clear that things were fundamentally not working.


pages: 543 words: 157,991

All the Devils Are Here by Bethany McLean

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, Bear Stearns, behavioural economics, Black-Scholes formula, Blythe Masters, break the buck, buy and hold, call centre, Carl Icahn, collateralized debt obligation, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, diversification, Dr. Strangelove, Exxon Valdez, fear of failure, financial innovation, fixed income, Glass-Steagall Act, high net worth, Home mortgage interest deduction, interest rate swap, junk bonds, Ken Thompson, laissez-faire capitalism, Long Term Capital Management, low interest rates, margin call, market bubble, market fundamentalism, Maui Hawaii, Michael Milken, money market fund, moral hazard, mortgage debt, Northern Rock, Own Your Own Home, Ponzi scheme, proprietary trading, quantitative trading / quantitative finance, race to the bottom, risk/return, Ronald Reagan, Rosa Parks, Savings and loan crisis, shareholder value, short selling, South Sea Bubble, statistical model, stock buybacks, tail risk, Tax Reform Act of 1986, telemarketer, the long tail, too big to fail, value at risk, zero-sum game

Not long after the Fed chairman’s speech, Orkin wrote in his monthly letter to investors, “Since the first shot was fired across the credit bow in February 2007, investors have been force-fed a constant diet of half-truths and whole lies regarding the nature and status of the mammoth mortgage-based derivative machine and the housing market bubble it inflated... The fact that the credit crisis has now turned into a confidence crisis should serve as a wake-up call to Wall Street, the Treasury and the Fed.” In late November 2007, a senior vice president in structured finance at Lehman Brothers, Deepali Advani, who had previously worked at Moody’s, forwarded an e-mail from one of the firm’s traders to a handful of his contacts.


pages: 597 words: 172,130

The Alchemists: Three Central Bankers and a World on Fire by Neil Irwin

"World Economic Forum" Davos, Alan Greenspan, Ayatollah Khomeini, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Sanders, break the buck, Bretton Woods, business climate, business cycle, capital controls, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency peg, eurozone crisis, financial engineering, financial innovation, Flash crash, foreign exchange controls, George Akerlof, German hyperinflation, Google Earth, hiring and firing, inflation targeting, Isaac Newton, Julian Assange, low cost airline, low interest rates, market bubble, market design, middle-income trap, Money creation, money market fund, moral hazard, mortgage debt, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, Paul Samuelson, price stability, public intellectual, quantitative easing, rent control, reserve currency, Robert Shiller, Robert Solow, rolodex, Ronald Reagan, Savings and loan crisis, savings glut, Socratic dialogue, sovereign wealth fund, The Great Moderation, too big to fail, union organizing, WikiLeaks, yield curve, Yom Kippur War

Investors had learned a lesson from the Great Moderation: that central bankers had mastered the economy. Inflation, in all the advanced nations and a growing number of emerging ones, had been conquered. Central banks could contain the impact of any adverse event that might come along, whether a financial crisis in fast-growing Asian economies or a popped stock market bubble in the United States, and prevent any widespread losses. In a seemingly riskless world, investors were willing to take all the more risk. Greenspan, who held more power over the financial future than any other individual on the planet, understood these interconnections, if not the degree to which the world economy was in peril.


pages: 1,202 words: 424,886

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

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

However, we can’t ignore the many other markets in which some dealers are active because how well or poorly dealers fare in these markets can and has affected their money market activities; for example, traders at firms that were affected by the events surrounding Russia’s default on its debt in 1998, as well as other events such as the bursting of the stock 1 Ellen Harshman, Fred C. Yeager, and Timothy J. Yeager, “The Door Is Open, but Banks Are Slow to Enter Insurance and Investment Arenas,” The Regional Economist, Federal Reserve Bank of St. Louis, October 2005. market bubble in 2000, were in no mood or position to be active market makers and position takers in Treasuries, money markets, or mortgage-backed securities. Agent and Principal Roles In dealing in money market paper, dealers may wear one of two hats, agent or principal. If a dealer acts as an agent, it gets a fee from an issuer for showing and selling the issuer’s paper to investors.

More recent examples show that the possibility continues to exist for sharp changes in the yield spread. For example, during the Asian financial crisis of 1998 and following Russia’s default, the spread between 3-month CDs and 3-month bills widened to 153 basis points. The spread was also as wide as 100 basis points in 2000 when the stock market bubble was bursting. FDIC Coverage The FDIC insures deposits in banks via the Bank Insurance Fund (BIF), and it insures deposits kept in savings and loan institutions via the Savings Association Insurance Fund (SAIF). Legislation was passed in 2003 by both the U.S. House of Representatives and the U.S.


pages: 584 words: 187,436

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

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, automated trading system, bank run, barriers to entry, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency peg, deal flow, do well by doing good, Elliott wave, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, full employment, German hyperinflation, High speed trading, index fund, Jim Simons, John Bogle, John Meriwether, junk bonds, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, machine translation, margin call, market bubble, market clearing, market fundamentalism, Market Wizards by Jack D. Schwager, Mary Meeker, merger arbitrage, Michael Milken, money market fund, moral hazard, Myron Scholes, natural language processing, Network effects, new economy, Nikolai Kondratiev, operational security, pattern recognition, Paul Samuelson, pre–internet, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Mercer, rolodex, Savings and loan crisis, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, survivorship bias, tail risk, technology bubble, The Great Moderation, The Myth of the Rational Market, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule

Paul Tudor Jones, internal Tudor e-mail, June 28, 2008. 14. “I just thought even though one was a weekly and one was a daily, the chart patterns were so similar and the backdrops were so similar—two huge credit bubbles with enormous overcommitment to a variety of asset markets, real estate and stock market bubbles happening simultaneously.” Paul Tudor Jones, interview with the author, April 15, 2009. 15. Ibid. 16. After the fact, policy makers argued that they let Lehman fail because they lacked the legal authority to do otherwise. But policy makers had successfully stretched the legal bounds of their authority in other cases, and they acted aggressively again in the following days with respect to AIG, and then with respect to Goldman Sachs and Morgan Stanley, which were hurriedly granted full access to the Fed’s emergency loans.


pages: 741 words: 179,454

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

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Alan Greenspan, Albert Einstein, algorithmic trading, Andy Kessler, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, BRICs, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, carbon credits, Carl Icahn, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, deal flow, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Dr. Strangelove, Dutch auction, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial engineering, financial independence, financial innovation, financial thriller, fixed income, foreign exchange controls, full employment, Glass-Steagall Act, global reserve currency, Goldman Sachs: Vampire Squid, Goodhart's law, Gordon Gekko, greed is good, Greenspan put, happiness index / gross national happiness, haute cuisine, Herman Kahn, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", job automation, Johann Wolfgang von Goethe, John Bogle, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Michael Milken, Mikhail Gorbachev, Milgram experiment, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Phillips curve, planned obsolescence, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, Reminiscences of a Stock Operator, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk free rate, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, stock buybacks, survivorship bias, tail risk, Teledyne, 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 new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

China was not alone, as other countries such as Germany, Japan, South Korea, and Taiwan used similar strategies to boost growth. Chinese funds helped keep American interest rates low, encouraging increasing levels of borrowing, especially among consumers. The increased debt fueled further consumption, housing, and stock market bubbles, enabling consumers to decrease savings as the paper value of investments rose. The consumption fed increased imports from China, creating further outflows of dollars via the growing trade deficit. The overvalued dollar and an undervalued renminbi exacerbated U.S. demand for imported goods. Low U.S. interest rates also drove American pension funds and investors to seek out more risky investments.


The Big Score by Michael S. Malone

Apple II, Bob Noyce, bread and circuses, Buckminster Fuller, Byte Shop, Charles Babbage, Claude Shannon: information theory, computer age, creative destruction, Donner party, Douglas Engelbart, Douglas Engelbart, El Camino Real, Fairchild Semiconductor, fear of failure, financial independence, game design, Isaac Newton, job-hopping, lone genius, market bubble, Menlo Park, military-industrial complex, packet switching, plutocrats, RAND corporation, ROLM, Ronald Reagan, Salesforce, Sand Hill Road, Silicon Valley, Silicon Valley startup, speech recognition, Steve Jobs, Steve Wozniak, tech worker, Teledyne, The Home Computer Revolution, transcontinental railway, Turing machine, union organizing, Upton Sinclair, upwardly mobile, William Shockley: the traitorous eight, Yom Kippur War

Fifteen years later, the same home, its slab heating and all-electric kitchen about to go on the fritz, went on the market at $200,000. Not only that, but during the intervening decade and a half that house may have gone through four upwardly mobile owners, each dutifully paying a commission to his or her real estate agent. This housing boom combined with the inflationary seventies to create a market bubble, with speculators racing around buying up every house in sight and young buyers betting on the permanence of inflation with balloon payments. Real estate agents had a field day. By this time every important national real estate firm (Century 21, Red Carpet, Coldwell Banker) had set up shop in the Valley, providing employment for legions of housewives looking to liberate themselves and, just as important, a refuge for victims of the nasty aerospace layoffs at Lockheed in the beginning of the decade.


pages: 593 words: 183,240

An Economic History of the Twentieth Century by J. Bradford Delong

affirmative action, Alan Greenspan, Andrei Shleifer, ASML, asset-backed security, Ayatollah Khomeini, banking crisis, Bear Stearns, Bretton Woods, British Empire, business cycle, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, collapse of Lehman Brothers, collective bargaining, colonial rule, coronavirus, cotton gin, COVID-19, creative destruction, crowdsourcing, cryptocurrency, cuban missile crisis, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, en.wikipedia.org, ending welfare as we know it, endogenous growth, Fairchild Semiconductor, fake news, financial deregulation, financial engineering, financial repression, flying shuttle, Ford Model T, Ford paid five dollars a day, Francis Fukuyama: the end of history, full employment, general purpose technology, George Gilder, German hyperinflation, global value chain, Great Leap Forward, Gunnar Myrdal, Haber-Bosch Process, Hans Rosling, hedonic treadmill, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, housing crisis, Hyman Minsky, income inequality, income per capita, industrial research laboratory, interchangeable parts, Internet Archive, invention of agriculture, invention of the steam engine, It's morning again in America, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, land reform, late capitalism, Les Trente Glorieuses, liberal capitalism, liquidity trap, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, means of production, megacity, Menlo Park, Mikhail Gorbachev, mortgage debt, mutually assured destruction, Neal Stephenson, occupational segregation, oil shock, open borders, open economy, Paul Samuelson, Pearl River Delta, Phillips curve, plutocrats, price stability, Productivity paradox, profit maximization, public intellectual, quantitative easing, Ralph Waldo Emerson, restrictive zoning, rising living standards, road to serfdom, Robert Gordon, Robert Solow, rolodex, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, Simon Kuznets, social intelligence, Stanislav Petrov, strikebreaker, structural adjustment programs, Suez canal 1869, surveillance capitalism, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Great Moderation, The Nature of the Firm, The Rise and Fall of American Growth, too big to fail, transaction costs, transatlantic slave trade, transcontinental railway, TSMC, union organizing, vertical integration, W. E. B. Du Bois, Wayback Machine, Yom Kippur War

The Federal Reserve feared that continued stock speculation would produce a huge number of overleveraged financial institutions that would go bankrupt at the slightest touch of an asset price drop. Such a wave of bankruptcies would then produce an enormous increase in fear, a huge flight to cash, and the excess demand for cash that is the flip side of a “general glut.” The Federal Reserve decided that it needed to curb the stock market bubble to prevent such speculation. And so it came to pass that its attempt to head off a depression in the future brought one on in the present.9 Previous depressions had been—and future depressions would be—far smaller than the Great Depression. In the United States, the most recent economic downturns had inflicted significantly less damage: in 1894, the unemployment rate had peaked at 12 percent; in 1908, at 6 percent; and in 1921, at 11 percent.


pages: 670 words: 194,502

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

3Com Palm IPO, accounting loophole / creative accounting, air freight, Alan Greenspan, Andrei Shleifer, AOL-Time Warner, asset allocation, book value, business cycle, buy and hold, buy low sell high, capital asset pricing model, corporate governance, corporate raider, Daniel Kahneman / Amos Tversky, diversified portfolio, dogs of the Dow, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, George Santayana, hiring and firing, index fund, intangible asset, Isaac Newton, John Bogle, junk bonds, Long Term Capital Management, low interest rates, market bubble, merger arbitrage, Michael Milken, money market fund, new economy, passive investing, price stability, Ralph Waldo Emerson, Richard Thaler, risk tolerance, Robert Shiller, Ronald Reagan, shareholder value, sharing economy, short selling, Silicon Valley, South Sea Bubble, Steve Jobs, stock buybacks, stocks for the long run, survivorship bias, the market place, the rule of 72, transaction costs, tulip mania, VA Linux, Vanguard fund, Y2K, Yogi Berra

* The first four sentences of Graham’s paragraph could read as the official epitaph of the Internet and telecommunications bubble that burst in early 2000. Just as the Surgeon General’s warning on the side of a cigarette pack does not stop everyone from lighting up, no regulatory reform will ever prevent investors from overdosing on their own greed. (Not even Communism can outlaw market bubbles; the Chinese stock market shot up 101.7% in the first half of 1999, then crashed.) Nor can investment banks ever be entirely cleansed of their own compulsion to sell any stock at any price the market will bear. The circle can only be broken one investor, and one financial adviser, at a time. Mastering Graham’s principles (see especially Chapters 1, 8, and 20) is the best way to start. 1 This document, like all the financial reports cited in this chapter, is readily available to the public through the EDGAR Database at www.sec.gov. 2 The demise of the Chromatis acquisition is discussed in The Financial Times, August 29, 2001, p. 1, and September 1/September 2, 2001, p.


The Code: Silicon Valley and the Remaking of America by Margaret O'Mara

A Declaration of the Independence of Cyberspace, accounting loophole / creative accounting, affirmative action, Airbnb, Alan Greenspan, AltaVista, Alvin Toffler, Amazon Web Services, An Inconvenient Truth, AOL-Time Warner, Apple II, Apple's 1984 Super Bowl advert, autonomous vehicles, back-to-the-land, barriers to entry, Ben Horowitz, Berlin Wall, Big Tech, Black Lives Matter, Bob Noyce, Buckminster Fuller, Burning Man, business climate, Byte Shop, California gold rush, Californian Ideology, carried interest, clean tech, clean water, cloud computing, cognitive dissonance, commoditize, company town, Compatible Time-Sharing System, computer age, Computer Lib, continuous integration, cuban missile crisis, Danny Hillis, DARPA: Urban Challenge, deindustrialization, different worldview, digital divide, Do you want to sell sugared water for the rest of your life?, don't be evil, Donald Trump, Doomsday Clock, Douglas Engelbart, driverless car, Dynabook, Edward Snowden, El Camino Real, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Fairchild Semiconductor, Frank Gehry, Future Shock, Gary Kildall, General Magic , George Gilder, gig economy, Googley, Hacker Ethic, Hacker News, high net worth, hockey-stick growth, Hush-A-Phone, immigration reform, income inequality, industrial research laboratory, informal economy, information retrieval, invention of movable type, invisible hand, Isaac Newton, It's morning again in America, Jeff Bezos, Joan Didion, job automation, job-hopping, John Gilmore, John Markoff, John Perry Barlow, Julian Assange, Kitchen Debate, knowledge economy, knowledge worker, Larry Ellison, Laura Poitras, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, Mary Meeker, mass immigration, means of production, mega-rich, Menlo Park, Mikhail Gorbachev, military-industrial complex, millennium bug, Mitch Kapor, Mother of all demos, move fast and break things, mutually assured destruction, Neil Armstrong, new economy, Norbert Wiener, old-boy network, Palm Treo, pattern recognition, Paul Graham, Paul Terrell, paypal mafia, Peter Thiel, pets.com, pirate software, popular electronics, pre–internet, prudent man rule, Ralph Nader, RAND corporation, Richard Florida, ride hailing / ride sharing, risk tolerance, Robert Metcalfe, ROLM, Ronald Reagan, Salesforce, Sand Hill Road, Second Machine Age, self-driving car, shareholder value, Sheryl Sandberg, side hustle, side project, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, skunkworks, Snapchat, social graph, software is eating the world, Solyndra, speech recognition, Steve Ballmer, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, Strategic Defense Initiative, supercomputer in your pocket, Susan Wojcicki, tacit knowledge, tech billionaire, tech worker, technoutopianism, Ted Nelson, TED Talk, the Cathedral and the Bazaar, the market place, the new new thing, The Soul of a New Machine, There's no reason for any individual to have a computer in his home - Ken Olsen, Thomas L Friedman, Tim Cook: Apple, Timothy McVeigh, transcontinental railway, Twitter Arab Spring, Uber and Lyft, uber lyft, Unsafe at Any Speed, upwardly mobile, Vannevar Bush, War on Poverty, Wargames Reagan, WarGames: Global Thermonuclear War, We wanted flying cars, instead we got 140 characters, Whole Earth Catalog, WikiLeaks, William Shockley: the traitorous eight, work culture , Y Combinator, Y2K

And new talent kept coming to town—hungry young people like Chamath Palihapitiya, who sensed that the worlds of tech and finance and media were now intertwined so tightly that no bear market could untangle them.5 If you looked a little closer in those twilight days of 2001, past the armies of résumé-wielding MBAs and the acres of empty cubicles, you could see a next generation of Valley companies confidently gaining their footing—and the pop of the market bubble was the best thing that could have happened to them. Silicon Valley not only didn’t die, it became wealthier and more influential than ever in the first two decades of the twenty-first century, propelled on overlapping waves of software-powered businesses: search, social, mobile, and cloud computing.


pages: 935 words: 197,338

The Power Law: Venture Capital and the Making of the New Future by Sebastian Mallaby

"Susan Fowler" uber, 23andMe, 90 percent rule, Adam Neumann (WeWork), adjacent possible, Airbnb, Apple II, barriers to entry, Ben Horowitz, Benchmark Capital, Big Tech, bike sharing, Black Lives Matter, Blitzscaling, Bob Noyce, book value, business process, charter city, Chuck Templeton: OpenTable:, Clayton Christensen, clean tech, cloud computing, cognitive bias, collapse of Lehman Brothers, Colonization of Mars, computer vision, coronavirus, corporate governance, COVID-19, cryptocurrency, deal flow, Didi Chuxing, digital map, discounted cash flows, disruptive innovation, Donald Trump, Douglas Engelbart, driverless car, Dutch auction, Dynabook, Elon Musk, Fairchild Semiconductor, fake news, family office, financial engineering, future of work, game design, George Gilder, Greyball, guns versus butter model, Hacker Ethic, Henry Singleton, hiring and firing, Hyperloop, income inequality, industrial cluster, intangible asset, iterative process, Jeff Bezos, John Markoff, junk bonds, Kickstarter, knowledge economy, lateral thinking, liberal capitalism, Louis Pasteur, low interest rates, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, Marshall McLuhan, Mary Meeker, Masayoshi Son, Max Levchin, Metcalfe’s law, Michael Milken, microdosing, military-industrial complex, Mitch Kapor, mortgage debt, move fast and break things, Network effects, oil shock, PalmPilot, pattern recognition, Paul Graham, paypal mafia, Peter Thiel, plant based meat, plutocrats, power law, pre–internet, price mechanism, price stability, proprietary trading, prudent man rule, quantitative easing, radical decentralization, Recombinant DNA, remote working, ride hailing / ride sharing, risk tolerance, risk/return, Robert Metcalfe, ROLM, rolodex, Ronald Coase, Salesforce, Sam Altman, Sand Hill Road, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley startup, Skype, smart grid, SoftBank, software is eating the world, sovereign wealth fund, Startup school, Steve Jobs, Steve Wozniak, Steven Levy, super pumped, superconnector, survivorship bias, tech worker, Teledyne, the long tail, the new new thing, the strength of weak ties, TikTok, Travis Kalanick, two and twenty, Uber and Lyft, Uber for X, uber lyft, urban decay, UUNET, vertical integration, Vilfredo Pareto, Vision Fund, wealth creators, WeWork, William Shockley: the traitorous eight, Y Combinator, Zenefits

BACK TO NOTE REFERENCE 59 Moritz also felt that the dual share structure contradicted the ideal that Google embodied: that information should be spread widely so that decisions could emerge from open debate rather than from entrenched bosses. Moritz, author interviews. BACK TO NOTE REFERENCE 60 Those who claim that stock market investors under-appreciate future company profits are by definition arguing that overvaluation of stocks will not occur. Given the history of market bubbles, this claim is unconvincing. BACK TO NOTE REFERENCE 61 Google IPO Prospectus, Aug. 18, 2004, www.sec.gov/Archives/edgar/data/1288776/000119312504143377/d424b4.htm. Again, it should be noted that public tech companies including Netflix, Amazon, Salesforce, and Tesla made similar pronouncements and were rewarded with buoyant share prices.


pages: 823 words: 220,581

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

accounting loophole / creative accounting, Alan Greenspan, banking crisis, banks create money, barriers to entry, behavioural economics, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, book value, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, Greenspan put, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, Money creation, money market fund, open economy, Pareto efficiency, Paul Samuelson, Phillips curve, place-making, Ponzi scheme, Post-Keynesian economics, power law, profit maximization, quantitative easing, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Shiller, Robert Solow, Ronald Coase, Savings and loan crisis, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

This is a far less complex structure than Lorenz’s model, but it has one thing in common with it: the model does not converge to its equilibrium (which lies in the center of the loop), but orbits around it indefinitely. 9.7 A closed loop in employment and wages share of output It is also easily extended to capture more aspects of the real world, and when this is done, dynamic patterns as rich as those in Lorenz’s model appear – as I detail in Chapters 13 and 14. Real-world phenomena therefore simply cannot be modeled using ‘comparative statics’ or equilibrium – unless we are willing to believe that cyclones are caused by something ‘exogenous’ to the weather, and stock market bubbles are caused by something outside the economy. Complexity theory has established that such phenomena can be modeled dynamically, so that abandoning static equilibrium analysis does not mean abandoning the ability to say meaningful things about the economy. Instead, what has to be abandoned is the economic obsession with achieving some socially optimal outcome.


pages: 678 words: 216,204

The Wealth of Networks: How Social Production Transforms Markets and Freedom by Yochai Benkler

affirmative action, AOL-Time Warner, barriers to entry, bioinformatics, Brownian motion, business logic, call centre, Cass Sunstein, centre right, clean water, commoditize, commons-based peer production, dark matter, desegregation, digital divide, East Village, Eben Moglen, fear of failure, Firefox, Free Software Foundation, game design, George Gilder, hiring and firing, Howard Rheingold, informal economy, information asymmetry, information security, invention of radio, Isaac Newton, iterative process, Jean Tirole, jimmy wales, John Markoff, John Perry Barlow, Kenneth Arrow, Lewis Mumford, longitudinal study, machine readable, Mahbub ul Haq, market bubble, market clearing, Marshall McLuhan, Mitch Kapor, New Journalism, optical character recognition, pattern recognition, peer-to-peer, power law, precautionary principle, pre–internet, price discrimination, profit maximization, profit motive, public intellectual, radical decentralization, random walk, Recombinant DNA, recommendation engine, regulatory arbitrage, rent-seeking, RFID, Richard Stallman, Ronald Coase, scientific management, search costs, Search for Extraterrestrial Intelligence, SETI@home, shareholder value, Silicon Valley, Skype, slashdot, social software, software patent, spectrum auction, subscription business, tacit knowledge, technological determinism, technoutopianism, The Fortune at the Bottom of the Pyramid, the long tail, The Nature of the Firm, the strength of weak ties, Timothy McVeigh, transaction costs, vertical integration, Vilfredo Pareto, work culture , Yochai Benkler

Access to underlying documents and statements, and to [pg 233] the direct expression of the opinions of others, becomes a central part of the medium. 415 Figure 7.3a: Diebold Internal E-mails Discovery and Distribution 416 Critiques of the Claims That the Internet Has Democratizing Effects 417 It is common today to think of the 1990s, out of which came the Supreme Court's opinion in Reno v. ACLU, as a time of naïve optimism about the Internet, expressing in political optimism the same enthusiasm that drove the stock market bubble, with the same degree of justifiability. An ideal liberal public sphere did not, in fact, burst into being from the Internet, fully grown like Athena from the forehead of Zeus. The detailed criticisms of the early claims about the democratizing effects of the Internet can be characterized as variants of five basic claims: 418 Figure 7.3b: Internal E-mails Translated to Political and Judicial Action 419 1.


pages: 767 words: 208,933

Liberalism at Large: The World According to the Economist by Alex Zevin

"there is no alternative" (TINA), activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, anti-communist, Asian financial crisis, bank run, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, business cycle, capital controls, carbon tax, centre right, Chelsea Manning, collective bargaining, Columbine, Corn Laws, corporate governance, corporate social responsibility, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, desegregation, disinformation, disruptive innovation, do well by doing good, Donald Trump, driverless car, Edward Snowden, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, Gini coefficient, Glass-Steagall Act, global supply chain, guns versus butter model, hiring and firing, imperial preference, income inequality, interest rate derivative, invisible hand, It's morning again in America, Jeremy Corbyn, John von Neumann, Joseph Schumpeter, Julian Assange, junk bonds, Khartoum Gordon, land reform, liberal capitalism, liberal world order, light touch regulation, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, means of production, Michael Milken, Mikhail Gorbachev, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, new economy, New Journalism, Nixon triggered the end of the Bretton Woods system, no-fly zone, Norman Macrae, Northern Rock, Occupy movement, Philip Mirowski, plutocrats, post-war consensus, price stability, quantitative easing, race to the bottom, railway mania, rent control, rent-seeking, road to serfdom, Ronald Reagan, Rosa Parks, Seymour Hersh, Snapchat, Socratic dialogue, Steve Bannon, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade liberalization, trade route, unbanked and underbanked, underbanked, unorthodox policies, upwardly mobile, War on Poverty, WikiLeaks, Winter of Discontent, Yom Kippur War, young professional

But that was somewhat misleading, for it was precisely the unshackling of finance that had led to the crisis which Emmott had celebrated as the harbinger of renewal and modernity. ‘The idea of Japan as a superpower is based primarily on the country’s huge exports of capital and on its sudden emergence as the world’s largest net creditor.’18 And when a rising yen threatened to staunch this flow after 1985, the stock market bubble that pumped it back up bedazzled him. From 1986 to 1989, residential and commercial property prices doubled. Foreign exchange and government bond futures markets – back in 1980 ‘long on exotic names and bewildering regulations and short on business volume, innovation and freely flowing cash’ – leapt ahead of those in Western countries.


Principles of Corporate Finance by Richard A. Brealey, Stewart C. Myers, Franklin Allen

3Com Palm IPO, accelerated depreciation, accounting loophole / creative accounting, Airbus A320, Alan Greenspan, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, banking crisis, Bear Stearns, Bernie Madoff, big-box store, Black Monday: stock market crash in 1987, Black-Scholes formula, Boeing 747, book value, break the buck, Brownian motion, business cycle, buy and hold, buy low sell high, California energy crisis, capital asset pricing model, capital controls, Carl Icahn, Carmen Reinhart, carried interest, collateralized debt obligation, compound rate of return, computerized trading, conceptual framework, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, cross-subsidies, currency risk, discounted cash flows, disintermediation, diversified portfolio, Dutch auction, equity premium, equity risk premium, eurozone crisis, fear index, financial engineering, financial innovation, financial intermediation, fixed income, frictionless, fudge factor, German hyperinflation, implied volatility, index fund, information asymmetry, intangible asset, interest rate swap, inventory management, Iridium satellite, James Webb Space Telescope, junk bonds, Kenneth Rogoff, Larry Ellison, law of one price, linear programming, Livingstone, I presume, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, market bubble, market friction, money market fund, moral hazard, Myron Scholes, new economy, Nick Leeson, Northern Rock, offshore financial centre, PalmPilot, Ponzi scheme, prediction markets, price discrimination, principal–agent problem, profit maximization, purchasing power parity, QR code, quantitative trading / quantitative finance, random walk, Real Time Gross Settlement, risk free rate, risk tolerance, risk/return, Robert Shiller, Scaled Composites, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, Skype, SpaceShipOne, Steve Jobs, subprime mortgage crisis, sunk-cost fallacy, systematic bias, Tax Reform Act of 1986, The Nature of the Firm, the payments system, the rule of 72, time value of money, too big to fail, transaction costs, University of East Anglia, urban renewal, VA Linux, value at risk, Vanguard fund, vertical integration, yield curve, zero-coupon bond, zero-sum game, Zipcar

Sections 13-2 through 13-4 review the evidence for and against efficient markets. The evidence “for” is considerable, but over the years a number of puzzling anomalies have accumulated. Advocates for rational and efficient markets also have a hard time explaining bubbles. Every decade seems to find its own bubble: the 1980s real estate and stock market bubble in Japan, the 1990s technology stock bubble, and the recent real estate bubble that triggered the subprime crisis. Part of the blame for bubbles goes to the incentive and agency problems that can plague even the most rational people, particularly when they are investing other people’s money. But bubbles may also reflect patterns of irrational behavior that have been well documented by behavioral psychologists.

But in 2005 The Economist surveyed the widespread increase in property prices and warned: [T]he total value of the residential property in developed economies rose by more than $30 trillion over the past five years to over $70 trillion, an increase equivalent to 100% of those countries’ combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stock market bubble in the late 1920s (55% of GDP). In other words it looks like the biggest bubble in history.26 Shortly afterward the bubble burst. By March 2009, U.S. house prices had fallen by nearly a third from their peak in 2006.27 How could such a boom and crash arise? In part because banks, credit rating agencies, and other financial institutions all had distorted incentives.


pages: 825 words: 228,141

MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins

"World Economic Forum" Davos, 3D printing, active measures, activist fund / activist shareholder / activist investor, addicted to oil, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, backtesting, Bear Stearns, behavioural economics, bitcoin, Black Monday: stock market crash in 1987, buy and hold, Carl Icahn, clean water, cloud computing, corporate governance, corporate raider, correlation does not imply causation, Credit Default Swap, currency risk, Dean Kamen, declining real wages, diversification, diversified portfolio, Donald Trump, estate planning, fear of failure, fiat currency, financial independence, fixed income, forensic accounting, high net worth, index fund, Internet of things, invention of the wheel, it is difficult to get a man to understand something, when his salary depends on his not understanding it, Jeff Bezos, John Bogle, junk bonds, Kenneth Rogoff, lake wobegon effect, Lao Tzu, London Interbank Offered Rate, low interest rates, Marc Benioff, market bubble, Michael Milken, money market fund, mortgage debt, Neil Armstrong, new economy, obamacare, offshore financial centre, oil shock, optical character recognition, Own Your Own Home, passive investing, profit motive, Ralph Waldo Emerson, random walk, Ray Kurzweil, Richard Thaler, risk free rate, risk tolerance, riskless arbitrage, Robert Shiller, Salesforce, San Francisco homelessness, self-driving car, shareholder value, Silicon Valley, Skype, Snapchat, sovereign wealth fund, stem cell, Steve Jobs, subscription business, survivorship bias, tail risk, TED Talk, telerobotics, The 4% rule, The future is already here, the rule of 72, thinkpad, tontine, transaction costs, Upton Sinclair, Vanguard fund, World Values Survey, X Prize, Yogi Berra, young professional, zero-sum game

It will explode once we get the kind of policies I think will eventually get back in. Because there’s no way you’re gonna take the growth component out of America. The innovation going on in this country is profound. I mean, I live in the San Francisco area, where it’s just going, busting at the seams wherever you walk. It’s there. TR: Are we in a market bubble with the Fed controlling rates the way they are? Where you would have to take significant risk to see rewards? The market seems to be the only place for the money to go. How long does that last? CS: Well, I’m not a great fan of the present policy of the Federal Reserve. I think manipulating rates, as long as they have, is really not the right decision.


pages: 351 words: 102,379

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

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Andy Kessler, Asian financial crisis, Bear Stearns, Berlin Wall, book value, break the buck, BRICs, business cycle, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deal flow, Dr. Strangelove, Emanuel Derman, Fall of the Berlin Wall, fear of failure, financial engineering, fixed income, Glass-Steagall Act, Goldman Sachs: Vampire Squid, housing crisis, indoor plumbing, invisible hand, junk bonds, Ken Thompson, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Michael Milken, Mikhail Gorbachev, money market fund, moral hazard, naked short selling, NetJets, Northern Rock, oil shock, paper trading, proprietary trading, risk tolerance, Robert Shiller, rolodex, Ronald Reagan, Savings and loan crisis, savings glut, shareholder value, short selling, sovereign wealth fund, supply-chain management, too big to fail, uptick rule, value at risk, éminence grise

Richard Bernstein, the respected chief investment strategist for Merrill Lynch, had sent out an alarming note to clients that morning: “Bear Stearns’s demise should probably be viewed as the first of many,” he wrote, tactfully not mentioning Lehman. “Sentiment is just beginning to catch on as to how broad and deep the credit market bubble has been.” By midmorning Fuld was getting calls from everybody—clients, trading partners, rival CEOs—all wanting to know what was going on. Some demanded reassurance; others offered it. “Are you all right?” asked John Mack, the CEO of Morgan Stanley and an old friend. “What’s going on over there?”


The Rough Guide to New York City by Martin Dunford

Anton Chekhov, Berlin Wall, Bonfire of the Vanities, Buckminster Fuller, buttonwood tree, car-free, Charles Lindbergh, Chuck Templeton: OpenTable:, clean water, colonial exploitation, colonial rule, congestion pricing, Cornelius Vanderbilt, David Sedaris, desegregation, Donald Trump, East Village, Edward Thorp, Elisha Otis, Exxon Valdez, Frank Gehry, General Motors Futurama, gentrification, glass ceiling, haute cuisine, illegal immigration, Jane Jacobs, Lewis Mumford, machine readable, market bubble, Michael Milken, Multics, Norman Mailer, paper trading, post-work, rent stabilization, retail therapy, Saturday Night Live, subprime mortgage crisis, sustainable-tourism, The Death and Life of Great American Cities, the High Line, transcontinental railway, Triangle Shirtwaist Factory, upwardly mobile, urban decay, urban planning, urban renewal, white flight, Yogi Berra, young professional

In 1971, art dealers Leo Castelli, André Emmerich, and John Weber, along with Castelli’s ex-wife Ileana Sonnabend, moved here from their offices uptown. Perhaps the most over-the-top exhibition occurred in 1991 in Sonnabend’s gallery, when Jeff Koons debuted his Made in Heaven collection, a series of graphic photos and sculptures featuring his porn-star wife, La Cicciolina. The art-market bubble burst a year later, and Castelli died in 1999, at the age of 91; Sonnabend now operates from West Chelsea and today the building is occupied by a DKNY store and residential apartments. At 393 West Broadway, about a block south, you can find Broken Kilometer, another installation by Walter de Maria (Wed–Sun noon–3pm & 3.30–6pm; free; W www.brokenkilometer.org).


The River Cottage Fish Book: The Definitive Guide to Sourcing and Cooking Sustainable Fish and Shellfish by Hugh Fearnley-Whittingstall

air gap, California gold rush, clean water, deindustrialization, delayed gratification, haute cuisine, Hugh Fearnley-Whittingstall, Kickstarter, market bubble, means of production, sensible shoes

(Some Korean men swear by them as a performance-enhancing “love food”—but we reckon it’s just the beer talking.) For a while, the Far East market for whelks boomed, and many British crab and lobster fishermen switched to laying whelk pots, in order to ride the gravy train. But like so many fish market bubbles, it soon burst. First foreign buyers found cheaper sources, squeezing the British fishermen ever harder on price. Then, in the late 1990s, the South Korean economy took a dive. The whelk price halved in a matter of months and orders for British whelks rapidly shrivelled up. Even in the boom times, whelk fishing was never a glamorous occupation.


pages: 918 words: 257,605

The Age of Surveillance Capitalism by Shoshana Zuboff

"World Economic Forum" Davos, algorithmic bias, Amazon Web Services, Andrew Keen, augmented reality, autonomous vehicles, barriers to entry, Bartolomé de las Casas, behavioural economics, Berlin Wall, Big Tech, bitcoin, blockchain, blue-collar work, book scanning, Broken windows theory, California gold rush, call centre, Cambridge Analytica, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, citizen journalism, Citizen Lab, classic study, cloud computing, collective bargaining, Computer Numeric Control, computer vision, connected car, context collapse, corporate governance, corporate personhood, creative destruction, cryptocurrency, data science, deep learning, digital capitalism, disinformation, dogs of the Dow, don't be evil, Donald Trump, Dr. Strangelove, driverless car, Easter island, Edward Snowden, en.wikipedia.org, Erik Brynjolfsson, Evgeny Morozov, facts on the ground, fake news, Ford Model T, Ford paid five dollars a day, future of work, game design, gamification, Google Earth, Google Glasses, Google X / Alphabet X, Herman Kahn, hive mind, Ian Bogost, impulse control, income inequality, information security, Internet of things, invention of the printing press, invisible hand, Jean Tirole, job automation, Johann Wolfgang von Goethe, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Kevin Roose, knowledge economy, Lewis Mumford, linked data, longitudinal study, low skilled workers, Mark Zuckerberg, market bubble, means of production, multi-sided market, Naomi Klein, natural language processing, Network effects, new economy, Occupy movement, off grid, off-the-grid, PageRank, Panopticon Jeremy Bentham, pattern recognition, Paul Buchheit, performance metric, Philip Mirowski, precision agriculture, price mechanism, profit maximization, profit motive, public intellectual, recommendation engine, refrigerator car, RFID, Richard Thaler, ride hailing / ride sharing, Robert Bork, Robert Mercer, Salesforce, Second Machine Age, self-driving car, sentiment analysis, shareholder value, Sheryl Sandberg, Shoshana Zuboff, Sidewalk Labs, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, slashdot, smart cities, Snapchat, social contagion, social distancing, social graph, social web, software as a service, speech recognition, statistical model, Steve Bannon, Steve Jobs, Steven Levy, structural adjustment programs, surveillance capitalism, technological determinism, TED Talk, The Future of Employment, The Wealth of Nations by Adam Smith, Tim Cook: Apple, two-sided market, union organizing, vertical integration, Watson beat the top human players on Jeopardy!, winner-take-all economy, Wolfgang Streeck, work culture , Yochai Benkler, you are the product

Alex Berenson and Patrick McGeehan, “Amid the Stock Market’s Losses, a Sense the Game Has Changed,” New York Times, April 16, 2000, http://www.nytimes.com/2000/04/16/business/amid-the-stock-market-s-losses-a-sense-the-game-has-changed.html; Laura Holson and Saul Hansell, “The Maniac Markets: The Making of a Market Bubble,” New York Times, April 23, 2000. 25. Ken Auletta, Googled: The End of the World as We Know It (New York: Penguin, 2010). 26. Levy, In the Plex, 83. 27. Michel Ferrary and Mark Granovetter, “The Role of Venture Capital Firms in Silicon Valley’s Complex Innovation Network,” Economy and Society 38, no. 2 (2009): 347–48, https://doi.org/10.1080/03085140902786827. 28.


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

"Friedman doctrine" OR "shareholder theory", "RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alan Greenspan, asset-backed security, Bear Stearns, Bernie Madoff, Bob Litterman, book value, business cycle, buttonwood tree, buy and hold, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, diversified portfolio, do well by doing good, fear of failure, financial engineering, financial innovation, fixed income, Ford paid five dollars a day, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, high net worth, hiring and firing, hive mind, Hyman Minsky, interest rate swap, John Meriwether, junk bonds, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, managed futures, margin call, market bubble, mega-rich, merger arbitrage, Michael Milken, moral hazard, mortgage debt, Myron Scholes, paper trading, passive investing, Paul Samuelson, Ponzi scheme, price stability, profit maximization, proprietary trading, risk tolerance, Ronald Reagan, Saturday Night Live, short squeeze, South Sea Bubble, tail risk, time value of money, too big to fail, traveling salesman, two and twenty, value at risk, work culture , yield curve, Yogi Berra, zero-sum game

This was their way of making sure hot deals stayed hot. If we didn’t buy in the aftermarket, we wouldn’t get any shares in the next IPO.” In a July 2002 article in the Washington Times, Maier was quoted as saying about Goldman and laddering: “Goldman from what I witnessed, they were the worst perpetrator. They totally fueled the [market] bubble. And it’s specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation[, then] manipulated [the stock] up, and ultimately, it really was the small person who ended up buying in” and losing money. He added, “Goldman created the convincing appearance of a winner, and the trick worked so well that they seduced further interest from other speculators hoping to participate in the gold rush.