sovereign wealth fund

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pages: 264 words: 115,489

Take the Money and Run: Sovereign Wealth Funds and the Demise of American Prosperity by Eric C. Anderson

asset allocation, banking crisis, Bretton Woods, business continuity plan, business process, buy and hold, collective bargaining, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, diversified portfolio, fixed income, floating exchange rates, housing crisis, index fund, Kenneth Rogoff, open economy, passive investing, profit maximization, profit motive, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, sovereign wealth fund, the market place, The Wealth of Nations by Adam Smith, too big to fail, Vanguard fund

Does the sovereign wealth fund provide at least an annual report on its activities and results? 24. Does the sovereign wealth fund provide quarterly reports? • Audits 25. Is the sovereign wealth fund subjected to a regular annual audit? 26. Is the audit published promptly? 27. Is the audit independent? – Behavior 28. Does the sovereign wealth fund indicate the nature and speed of adjustment in its portfolio? 29. Does the sovereign wealth fund have limits on the size of its stakes? 30. Does the sovereign wealth fund not take controlling stakes? 31. Does the sovereign wealth fund have a policy on the use of leverage? 32. Does the sovereign wealth fund have a policy on the use of derivatives? 33. Are derivatives used primarily for hedging? Having thus established the criteria for evaluating sovereign wealth funds, Truman sets about providing a scoreboard for 46 of the government investment vehicles.

On 21 March 2008, this news from Abu Dhabi was trumped by the release of a joint statement on the “Policy Principles for Sovereign Wealth Funds and Countries Receiving Sovereign Wealth Fund Investment.” Signed by Abu Dhabi, Singapore, and the United States, the joint statement was said to be “aimed at contributing to the work of the IMF and OECD in developing voluntary best practices for sovereign wealth funds and . . . countries receiving investments.”14 In the joint statement, the three parties outlined five policy principles for sovereign wealth funds and four policy principles for countries receiving 100 Take the Money and Run sovereign wealth fund investment. The five policy principles for sovereign wealth funds stated: 1. Sovereign wealth fund investment decisions should be based solely on commercial grounds, rather than to advance, directly or indirectly, the geopolitical goals of the controlling government 2.

Are the holders of investment mandates identified? Evaluating Sovereign Wealth Funds 107 Table 4.1 (Continued) • Investment Activities 18. Do regular reports on the investments by the sovereign wealth fund include the size of the fund? 19. Do regular reports on the investments by the sovereign wealth fund include information on its returns? 20. Do regular reports on the investments by the sovereign wealth fund include information on the geographic location of investments? 21. Do regular reports on the investments by the sovereign wealth fund include information on the specific investments? 22. Do regular reports on the investments by the sovereign wealth fund include information on the currency composition of investments? • Reports 23. Does the sovereign wealth fund provide at least an annual report on its activities and results?


pages: 247 words: 68,918

The End of the Free Market: Who Wins the War Between States and Corporations? by Ian Bremmer

affirmative action, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, centre right, collective bargaining, corporate governance, creative destruction, credit crunch, Credit Default Swap, cuban missile crisis, Deng Xiaoping, diversified portfolio, Doha Development Round, Exxon Valdez, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, global reserve currency, global supply chain, invisible hand, joint-stock company, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, low skilled workers, mass immigration, means of production, megacity, Mikhail Gorbachev, mutually assured destruction, Naomi Klein, Nelson Mandela, new economy, offshore financial centre, open economy, race to the bottom, reserve currency, risk tolerance, shareholder value, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, trade route, tulip mania, uranium enrichment, Washington Consensus, Yom Kippur War, zero-sum game

The Organisation for Economic Co-operation and Development (OECD) Nuclear Energy Agency and the International Atomic Energy Agency estimated in 2007 that, given known reserves and forecast consumption rates, the global supply of uranium should last for another century, significantly longer than most credible estimates for oil and gas. 24 Credit for coining the term sovereign wealth fund goes to Andrew Rozanov of State Street Global Advisors in his article “Who Controls the Wealth of Nations?” Central Banking Journal 15, no. 4 (Nov. 2005), 52-57. 25 “Fund Rankings,” Sovereign Wealth Fund Institute, http://www.swfinstitute.org/funds.php. 26 The major SWF transparency index seems to bear this out. The Sovereign Wealth Fund Institute ranks SWFs according to the Linaberg-Maduell Transparency Index. Other evidence of the link between government and SWF transparency (or lack thereof) is in Edwin M. Truman’s Sovereign Wealth Funds: The Need for Greater Transparency and Accountability, a policy brief for the Peterson Institute of International Economics, Washington, D.C., Aug. 2007. 27 According to the Sovereign Wealth Fund Institute and International Financial Services London, which follow the SWF world on a detailed and daily basis. 28 Emily Thornton and Stanley Reed, “Inside the Abu Dhabi Investment Authority,” BusinessWeek, June 6, 2008, http://www.businessweek.com/globalbiz/content/jun2008/gb2008065_742165.htm. 29 ADIA bought 10 percent of Apollo Management and 20 percent of Ares Management in mid-2007.

Here again, it’s not the tool that matters but the way it’s used. Sovereign wealth funds draw their capital from three main sources. First, there is foreign currency earned from the export of natural resources, mostly oil and natural gas, a major source of income for Russia, Arab states of the Persian Gulf, and several North African countries. Second, there is the extra cash left over from a positive balance of trade. For example, China finances sovereign wealth funds with the foreign currency it earns by exporting huge volumes of manufactured goods to the United States, Europe, and Japan. The money can also come from the profits produced by state-owned enterprises, the proceeds from privatizations, taxes collected by governments that spend less than they save, or via transfers from government-run pension plans. Third, sovereign wealth funds are occasionally bankrolled via direct one-off transfers from a federal budget or foreign-exchange reserves.

But several independent sources have constructed estimates based on available evidence, and we do know that some funds took heavy losses by providing international banks with tens of billions of dollars in capital before the extent of the banking crisis became clear.31 The table on page 76 provides a snapshot of the relative size of the largest sovereign wealth funds in March 2009. The numbers are based mainly on figures gathered by the Sovereign Wealth Fund Institute, Sovereign Wealth Funds News (sovereignwealthfundsnews. com), and International Financial Services London Research. For SWFs valued at more than $100 billion, the lower range reflects relatively skeptical estimates from Deutsche Bank, Morgan Stanley, the Council on Foreign Relations, the Peter G. Peterson Institute for International Economics, and others.


Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Berlin Wall, Bernie Madoff, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Ponzi scheme, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, underbanked, Vanguard fund, working poor, yield curve

The remaining 10 percent comes from community foundations, which are charities that draw funds from a wide array of different donors.23 While the sources of foundation assets often originate from single wealthy donors, families, or corporations, their capital deployment strategies have contributed to the overall trend of democratization. Sovereign Wealth Funds The amount of attention sovereign wealth funds have received from the public in recent years is remarkable. Despite their size, sovereign wealth funds as a class of investment tended to fly below the radar of the public until 2007. Indeed, the term sovereign wealth fund was not even in modern parlance until about 2005, when Andrew Rozanov first used it in his article “Who Holds the Wealth of Nations?”24 Sovereign wealth funds are another class of capital pool central to the modern investment scene, managing a total of $6.4 trillion as of March 2014.25 Similar to endowments and foundations, sovereign wealth funds manage money for the benefit of the organization to which they are connected, the main difference being that the funds of a sovereign wealth fund belong to a nation or state rather than an institution.

New Clients and New Investments 129 There is some disagreement about which pool of capital was actually the first sovereign wealth fund. Some observers point to CalPERS, the California Public Employees Retirement System, established in 1932.26 It was set up to manage funds for the benefit of the employees of the state of California. However, while it meets the IMF’s definition of a sovereign wealth fund, it is unusual in several respects. For one, CalPERS has individual beneficiaries, whereas the beneficiary of a sovereign wealth fund is the state. Furthermore, a sovereign wealth fund does not generally have explicit liabilities as a retirement fund does; indeed, to the extent that sovereign wealth funds have genuine liabilities, they tend to simply be to another part of government.27 In light of this, most observers agree that the first true sovereign wealth fund was the Kuwait Investment Authority, which was created in 1953.28 Today, one of the largest sovereign wealth funds with around $548 billion, the Kuwait Investment Authority is in charge of investing the assets of two funds: the Reserve Fund for Future Generations (into which a percentage of annual oil revenues is directed) and the General Reserve Fund (the general fund of the government that receives revenue and disburses expenditures).29 This fund has fulfilled its mission of helping the nation weather difficult times.

Non-Profits,” accessed 2015, http://foundationcenter.org/gainknowledge/research/keyfacts2014 /foundation-focus.html. Gokhan Afyonoglu et al., “The Brave New World of Sovereign Wealth Funds,” Lauder Institute of Management & International Studies, University of Pennsylvania, 2010, http://d1c25a6gwz7q5e .cloudfront.net/papers/download/052810_Lauder_Sovereign_Wealth _Fund_report_2010.pdf, 1n2. Sovereign Wealth Fund Institute, “Sovereign Wealth Funds Make Up More than 25% of U.S. Retirement Assets,” March 27, 2014, http:// www.swfinstitute.org/swf-article/sovereign-wealth-funds-make -up-more-than-25-of-u-s-retirement-assets. Afyonoglu et al., “Brave New World,” 10. Ashby H. B. Monk, “Is CalPERS a Sovereign Wealth Fund?” (working paper 8-21, Center for Retirement Research, Boston College, Boston, MA, 4. New Clients and New Investments 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 355 December 2008), http://crr.bc.edu/wp-content/uploads/2008/12 /IB_8-21.pdf, 4.


pages: 354 words: 110,570

Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World by Tom Wright, Bradley Hope

Asian financial crisis, Bernie Madoff, collapse of Lehman Brothers, colonial rule, corporate social responsibility, Credit Default Swap, Donald Trump, failed state, family office, forensic accounting, Frank Gehry, high net worth, Nick Leeson, offshore financial centre, Ponzi scheme, Right to Buy, risk tolerance, Snapchat, South China Sea, sovereign wealth fund

Mubadala was part of a trend in which rich states were playing a greater role in the global economy. Sovereign wealth funds had been around since the 1950s, when Saudi Arabia and Kuwait set up entities to find ways to invest their oil wealth with a long-term outlook. Other examples followed, from Norway’s Government Pension Fund to the Abu Dhabi Investment Authority, the emirate’s main wealth fund. By Low’s visit, sovereign wealth funds controlled $3.5 trillion in assets, larger than the annual GDP of most Western nations. But Mubadala was novel: Rather than simply invest oil profits, securing them for future generations, the fund was borrowing from global markets and actively trying to move the economy in new directions. What Low saw in Abu Dhabi planted a seed in his mind. Malaysia had a sovereign wealth fund, Khazanah Nasional, but nothing like Mubadala.

Low was becoming adept at obtaining meetings with powerful figures, putting himself in the room even though he had no track record. Later that year, he heard Khazanah, Malaysia’s powerful sovereign wealth fund, was looking for partners to develop a gigantic construction project in the southern state of Johor, near the border with Singapore, to be known as the Iskandar Development Region. The project was an ambitious effort to create a financial and lifestyle center to rival wealthier Singapore, Southeast Asia’s financial and commercial hub. Here was Low’s chance. In Abu Dhabi, Low had observed firsthand the huge amounts of money that sovereign wealth funds control, and he saw an opportunity to broker a deal. Since Low’s Middle East tour, Khaldoon Al Mubarak, the chief executive of Mubadala, had grown in prestige. Buoyed by sky-high oil prices, Mubadala had taken sizable minority stakes in firms like Ferrari and Advanced Micro Devices, and Al Mubarak controlled a multi-billion-dollar empire.

He’d built a quick reputation in Malaysia as a deal maker, but, as always, Low was keenly aware of how his success stacked up on a global stage. Low had observed the power and status of Khaldoon Al Mubarak of Mubadala, who ran the emirati soverign wealth fund. A fund like that had billions of dollars in investments, not mere millions. Why, Jho Low wondered, couldn’t he put together a sovereign wealth fund of his own—one based in Malaysia? But where could he find the initial funds? Traditional sovereign wealth funds invest oil profits, and so Low honed in on the Malaysian state of Terengganu, which was rich in offshore oil and gas fields. Malaysia’s nine hereditary Malay royal families, each ruling a different state, coexisted with the nation’s elected officials. These sultans had wide-ranging political powers, in some cases including control of local state revenues, creating ample opportunity for corruption.


pages: 504 words: 126,835

The Innovation Illusion: How So Little Is Created by So Many Working So Hard by Fredrik Erixon, Bjorn Weigel

"Robert Solow", Airbnb, Albert Einstein, American ideology, asset allocation, autonomous vehicles, barriers to entry, Basel III, Bernie Madoff, bitcoin, Black Swan, blockchain, BRICs, Burning Man, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, Clayton Christensen, Colonization of Mars, commoditize, corporate governance, corporate social responsibility, creative destruction, crony capitalism, dark matter, David Graeber, David Ricardo: comparative advantage, discounted cash flows, distributed ledger, Donald Trump, Elon Musk, Erik Brynjolfsson, fear of failure, first square of the chessboard / second half of the chessboard, Francis Fukuyama: the end of history, George Gilder, global supply chain, global value chain, Google Glasses, Google X / Alphabet X, Gordon Gekko, high net worth, hiring and firing, Hyman Minsky, income inequality, income per capita, index fund, industrial robot, Internet of things, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kevin Kelly, knowledge economy, laissez-faire capitalism, Lyft, manufacturing employment, Mark Zuckerberg, market design, Martin Wolf, mass affluent, means of production, Mont Pelerin Society, Network effects, new economy, offshore financial centre, pensions crisis, Peter Thiel, Potemkin village, price mechanism, principal–agent problem, Productivity paradox, QWERTY keyboard, RAND corporation, Ray Kurzweil, rent-seeking, risk tolerance, risk/return, Robert Gordon, Ronald Coase, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, Steve Ballmer, Steve Jobs, Steve Wozniak, technological singularity, telemarketer, The Chicago School, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, transportation-network company, tulip mania, Tyler Cowen: Great Stagnation, uber lyft, University of East Anglia, unpaid internship, Vanguard fund, Yogi Berra

A similar logic seems to operate in firms with no sizable but many intermediary owners: they seek to extract rents from the current asset base – and take capital out of the companies. Firms cannot retain a large part of their earnings and use them for long-term investment but are at the mercy of an external capital market that has shrunk its interest in long-term value generation and stays eager to make sure that the firms play the numbers game. Sovereign wealth funds and the socialization of private companies A new kid on the corporate block is the sovereign wealth fund (SWF). Clearly, such funds are the first choice for some governments when allocating excess earnings, such as revenues from oil and other natural resources, and they have grown to be influential actors in the modern corporate world. Their influence is actually now so large that the SWFs constitute the greatest socialization of corporate assets in the West since that of Central and Eastern European economies after World War II.

Norway is no exception, even if it is an open and transparent country. Almost twice the size of the country’s GDP, Norway’s SWF has become the subject of heavy politicization. When its Chief Executive Officer, Yngve Slyngstad, was ranked number four in the top 100 “most significant and impactful public investor executives of 2014” by the Sovereign Wealth Fund Institute, the reason given was that, “faced with pressure from NGOs, politicians and think thanks, the sovereign wealth fund has tried its best to take a logical approach to investing”.27 The domestic connection between politics and SWFs is strong: there is a symbiotic relation between them in the ownership and management of hydrocarbon reserves. Take Norway again. Its SWF is but one player in the system. The Norwegian government exercises control over the exploitation of energy reserves through Statoil, co-ownership of energy transport infrastructure, and through its role as regulator of transport prices, licenses, resource exhaustion, and more.

., and Luigi Zingales, “Investment-Cash Flow Sensitivities Are Not Valid Measures of Financing Constraints.” NBER Working Paper No. 7659. National Bureau of Economic Research, Apr. 2000. Karabarbounis, Loukas, and Brent Neiman, “The Global Decline of the Labor Share.” NBER Working Paper No. 19136. National Bureau of Economic Research, June 2013. Karaian, Jason, “Norway’s Gargantuan Sovereign Wealth Fund, by the Numbers.” Quartz, Aug. 21, 2014. At http://qz.com/252753/norways-gargantuan-sovereign-wealth-fund-by-the-numbers/. Kay, John, “Miracles of Productivity Hidden in the Modern Home.” Financial Times, Aug. 11, 2015. At http://www.ft.com/intl/cms/s/0/a44d0a56-4009-11e5-b98b-87c7270955cf.html?siteedition=intl#axzz3ode29Nn5. Kay, John A., Other People’s Money: The Real Business of Finance. Public Affairs, 2015. Kay, John, “The Kay Review of UK Equity Markets and Long-Term Decision Making.”


pages: 443 words: 98,113

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

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

Wages will fall drastically unless a countervailing strategy is implemented. BUILD DEMOCRATIC SOVEREIGN WEALTH FUNDS Now we come to the first of two pillars for a new distribution system that would also help achieve the ‘euthanasia of the rentier’. This is the sovereign wealth fund, a national fund built up from the proceeds of economic activity, which is ideal for pooling and redistributing rental income. Such funds have a long pedigree, although most have been captured and distorted by elites, so far. By 2016, there were nearly eighty state capital funds, with assets totalling $7.2 trillion, more than is managed by all the world’s hedge funds and private equity funds combined. Although the majority of sovereign wealth funds have drawn on profits from oil resources, they can be fed from any source a government chooses.

Instead of taking a temporary stake in failing banks and then selling them once profitable, governments could have enabled a sovereign wealth fund to take permanent stakes, with the returns going to the fund for the benefit of the public. If any institution is deemed too big to fail, the implicit moral hazards justify a substantial public stake. Tony Atkinson has advocated a sovereign wealth fund that would increase the net worth of the state by taking stakes in companies and property. This would not amount to nationalisation, but would derive a public benefit from minority shareholdings in high-tech, financial and resource-intensive sectors. In addition, most subsidies covered in Chapter 3 should be ended, with some of the money freed up going into the sovereign wealth fund. Another source of funding should come via monetary policy. Quantitative easing channelled billions into financial markets, to relatively little positive effect.

Quantitative easing channelled billions into financial markets, to relatively little positive effect. Had the money been directed into sovereign wealth funds, they could have been effective vehicles for redistributive and growth purposes. There is one vital extra dimension. Fund governance should be transparent and democratic, with an independent board and clear terms of reference. The Norwegian Fund has rules that are relatively democratic, as does France’s Strategic Investment Fund, set up in 2008. But most current sovereign wealth funds remain opaque and secretive. Sovereign wealth funds are by no stretch some wild socialist enterprise. Most have conservative roots. Back in the 1860s, the Texas Permanent School Fund took control of about half of the state’s land and the mineral rights that were still in the public domain.12 In 1953, the fund added coastal ‘submerged lands’ after they were relinquished by the federal government.


pages: 561 words: 87,892

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

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

The case for restriction, then, rests not on transparency, nor on government involvement, but on the fact that the developed world doesn’t trust leaderships in emerging economies. The lack of trust extends far beyond any specific issues with regard to sovereign wealth funds. If sovereign wealth funds merely hold non-controlling shares in a range of developed-world companies, it’s difficult to know why anyone should be overly worried. Moreover, to the extent that all companies have to abide by the laws and regulations of the land, ownership alone is not enough to provide a threat to national security. At the extreme, the assets of a sovereign wealth fund that decided to flex its financial muscles in an undesirable way from the host country’s perspective could always be seized. Sovereign wealth funds have to tread carefully. FULL OF ENERGY: THE RISE OF RUSSIAN POWER POLITICS In the high-stakes world of energy, raw materials and logistics, it’s a different matter.

One of the more visible signs of state capitalism is the emergence of sovereign wealth funds, a response to the large imbalances that have arisen in the global economy since the 1980s. Countries running balance of payments current-account surpluses have built up huge holdings of foreign assets that need to be invested somewhere. As we saw in Chapter 4, some of these assets are held in the form of foreign-exchange reserves, typically invested in a very narrow range of government and quasi-government paper. As these reserves have multiplied, however, the desire to diversify into a wider range of assets has increased enormously. To diversify in this way, more and more nations have resorted to the creation of sovereign wealth funds.1 While sovereign wealth funds have undoubtedly received the lion’s share of media attention, the rise in state capitalism is not just a question of the ownership of assets, whether through sovereign wealth funds or other investment vehicles.

TRANSPARENCY, OPACITY AND HYPOCRISY: THE RISE OF SOVEREIGN WEALTH FUNDS Markets supposedly work best when those involved are driven purely by ‘commercial’ considerations. Assets are purchased and sold for commercial profit, not for political influence. For Adam Smith, the invisible hand is represented by the market, not shady deals struck in smoke-filled rooms. Yet, as the emerging economies have increased their savings and, therefore, increased their purchasing power over Western assets, so non-market outcomes become more likely. This is not just an issue regarding the activities of sometimes shady billionaires: governments are also flexing their muscles in ways that threaten to upset the laws of the commercial jungle. Sovereign wealth funds have been around for decades. The first, in Kuwait, was founded in 1953 and called the Reserve Fund for Future Generations.


pages: 381 words: 101,559

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

Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, 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, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game

X-ray scanners, metal detectors, multiple security perimeters and armed guards are routine. Once inside, you are truly in the bubble of the military-intelligence complex. At the September meeting, there were about forty attendees in total, including a number of distinguished academics, think tank experts, intelligence officials and uniformed military. I was one of five asked to give a formal presentation that day, and my topic was sovereign wealth funds, or SWFs. Sovereign wealth funds are huge investment pools established by governments to invest their excess reserves, many with assets in the hundred-billion-dollar range or higher. The reserves are basically hard currency surpluses, mostly dollars, which governments have earned by exporting natural resources or manufactured goods. The largest reserves are held by oil-producing countries such as Norway or Arab states and by manufacturing export powerhouses such as China or Taiwan.

Central banks were not well equipped to do this because they lacked the investment staff and portfolio managers needed to select stocks, commodities, private equity, real estate and hedge funds, which were the key to higher returns. So the sovereign wealth funds began to emerge to better manage these investments; the earliest SWFs were created some decades ago, but most have come into being in the past ten years, with their government sponsors giving them enormous allocations from their central bank reserves with a mandate to build diversified portfolios of investments from around the world. In their basic form, sovereign wealth funds do make economic sense. Most assets are invested professionally and contain no hidden political agenda, but this is not always the case. Some purchases are vanity projects, such as Middle Eastern investments in the McLaren, Aston Martin and Ferrari Formula 1 racing teams, while other investments are far more politically and economically consequential.

Some purchases are vanity projects, such as Middle Eastern investments in the McLaren, Aston Martin and Ferrari Formula 1 racing teams, while other investments are far more politically and economically consequential. During the first part of the depression that began in 2007, sovereign wealth funds were the primary source of bailout money. In late 2007 and early 2008, SWFs invested over $58 billion to prop up Citigroup, Merrill Lynch, UBS and Morgan Stanley. China was considering an additional $1 billion investment in Bear Stearns in early 2008 that was abandoned only when Bear Stearns neared collapse in March of that year. When these investments were decimated in the Panic of 2008 the U.S. government had to step in with taxpayer money to continue the bailouts. The sovereign wealth funds lost vast fortunes on these early investments, yet the stock positions and the influence that came with them remained. My presentation focused on the dark side of SWF investments, how they could operate through what intelligence analysts call cutouts, or front companies, such as trusts, managed accounts, private Swiss banks and hedge funds.


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, Asian financial crisis, asset-backed security, backtesting, bank run, 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, debt deflation, distributed ledger, diversification, financial intermediation, Flash crash, global reserve currency, implied volatility, income inequality, inflation targeting, labor-force participation, Long Term Capital Management, Lyft, margin call, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, negative equity, Network effects, Ponzi scheme, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, rising living standards, risk/return, sharing economy, short selling, sovereign wealth fund, Uber and Lyft, uber lyft, yield curve

Given structural incentives to be long carry, it is no surprise that the last two decades have also seen a similar increase in the scale and impact of carry on global markets. Sovereign Wealth Funds Are Natural Candidates for Carry Strategies Another type of institution that has experienced significant growth in scale and influence over the last two decades is sovereign wealth funds. According to the Sovereign Wealth Fund Institute, sovereign wealth funds have AUM of approximately US$7.5 trillion, as of the end of 2018, up from only US$508 billion at the end of 1996. How likely is it that their growth has contributed to the increase in carry? In terms of liabilities, sovereign wealth funds are ideal vehicles for carry. They take many forms, but they typically share a feature of having ultralongduration liabilities. For example, Norway’s Government Pension Fund Global is the fund established to invest the country’s oil revenues.

On the other hand, since they do not have outside shareholders and in many cases offer little or no disclosure on results (Norway being an exception), there is no pressure to pursue strategies that regularly generate positive returns. Nor are they compensated with profit shares in the manner of hedge funds. On this criterion sovereign wealth funds do not have incentive to pursue carry trades. On balance it is likely that many sovereign wealth funds exploit their liability structure and ability to use leverage to employ carry. One could even argue that they are natural providers of insurance to the market and, because of their strong balance sheets, are much safer vehicles for carry to reside in than hedge funds. Most endowments and foundations share with sovereign wealth funds a long-duration liability profile. They typically consider themselves to be permanent institutions and operate with a view toward spending only a limited portion of their fund’s capital each year.

See quantitative easing QE3, 101, 103 quantitative easing (QE), 101, 105, 127, 136, 196, 209, 219 BOJ and, 31 real economic activity, measures of, 56 real estate booms, currency carry trades contributing to, 13 228 realized volatility, 90, 164, 167–168 anti-carry regime and, 172 implied volatility relationship to, 158 recessions, carry and consequences of, 6 recipient currencies, 10–11, 13, 65 crashes in, 23 volatility in, 215 regulatory capture, 176 rent-seeking carry as, 175–177 defining, 175 reporting horizons, 70–71 reserve balances, 109–110 resource allocation, carry regime and, 114–115 return, risk and, 99 risk carry trade profit explanations and, 48 of carry trades, 3, 5 of CDOs, 36–37 currency, 12 exchange rate, 12–13 market, 99 mispricing of, 21, 35–37, 132, 134–140, 142 return and, 99 ruin, 65, 72 selling optionality and, 153 socialization of, 136 spreading, 35 risk controls, 65 risk premium, 148, 152 portfolio volatility and, 159 roll yield, 91 rubisco, 189 ruin risk, 65, 72 sawtooth patterns, 96–97, 97f shadow banks, 137 Shin, Hyun Song, 22, 80–81 short squeezes on liquidity, 165 short-term reporting horizons, 70–71 social hierarchies, 187 social networks, 187 social realities, 184 socialization of risk, 136 South Africa, 55n6 sovereign bonds, 162 equity indexes correlation to, 161 Sovereign Wealth Fund Institute, 75 INDEX sovereign wealth funds, 75–76 growth of, 83 S&P 500, 53–55, 55n6, 56, 95 carry regime importance of, 86–87, 87f as carry trade, 160–162 equity risk trade correlation with, 99 gamma for, 154, 154f liquidity premiums for, 161 market corrections and, 79 mean reversion of, 154f, 155 quantitative easing and, 103 selling volatility on, 98 volatility of, as global volatility risk factor, 99 volatility selling in, 89–92 volatility trading on, 85, 86 S&P 500 front e-mini future, 159 stagflation, 217 stochastic discount factor, 99 stock buybacks, 82, 83f stock market crashes, of 1987, 155 stock markets carry and structures of, 7 emerging currency stability compared with, 55 performance of, 1 recessions and crashes in, 6 volatility bets in, 89 stocks, put options against, 34 stopped out, 94 structured finance, 135 subprime mortgages, 36 superstar effects, 186 Swiss franc, 29, 31, 33, 34 taxi licensing, 175 Thai baht, 25 Thailand, balance of payments current account deficit, 25 Theron, Charlize, 185 trading frequency, 74 tulip bulbs, 133 Turkey, 19, 20, 23, 39, 202 balance of payments, 45 carry bubble and bust, 42–46 consumer price index, 44 credit and claims data for, 43, 43f GDP growth, 45 interest rates, 12–13 INDEX Turkish lira, 11, 13, 20, 21, 23, 44, 55n6 carry crash of 2018 in, 45, 65 Twitter, 186 uncovered interest rate parity (UIP), 47, 48 United States capital flows into, 18 carry trade funding and, 17–20 current account deficit, 17 personal net worth in, 137, 138f savings rates, 18, 19 US Federal Reserve, 14, 26 balance sheet of, 101–102 carry crashes limited by, 127 carry regimes and, 107, 208 carry trades by, 103 creation of, 218 interest rates and, 14, 137, 208 liquidity swaps by, 104–105, 196–198 quantitative easing and, 101, 105 US household financial assets, 117–120, 117f–120f valuation metrics, 204 vanishing point, 116, 195, 209–210 variance, 94 VIX, 85, 95, 99 forward curve average, 92, 92f money value and, 100, 122 shorting, 96 spikes in, 98 VIX futures, 90–92 selling volatility using, 156, 158 shorting, 148, 157 VIX futures rolldown, 59, 96 VIX index, 53n5 volatility, 3 currency, 62 currency carry trade collapse signs from, 215 direct bets on, 89 equilibrium structure of premiums for, 156–160, 157f equity, 59 financial crises and spikes in, 52 in funding currencies, 215 global, 99, 101 implied, 57, 90 market making as premium for, 158–159 229 negatively priced liquidity and, 166 optionality and, 93–95 options and, 146–148 portfolio, 159 realized, 90 in recipient currencies, 215 selling, as short position, 156 selling, by receiving implied and paying realized, 148–150 selling, by receiving realized and paying realized, 151–156 short, 4 signs of carry regime ending and, 214–218 spikes in, 98 time horizons of, 152, 153f, 154, 154f value of money and, 98–101, 122 of volatility, 90 volatility carry, 86 volatility selling, 86, 96 central banks and, 101–105 in S&P 500, 89–92 volatility shock, 161 volatility-selling trades, 33–35, 57, 69 Volcker Rule, 77 Volmageddon, 98, 161 VXO index, 53, 53n5, 54, 55n6, 90n2 VXX, 92 wealth distribution, carry and, 2 wealth inequality, central bank stabilization actions and, 6 “What Explains the Persistence of Global Imbalances?”


pages: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

"Robert Solow", accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, Branko Milanovic, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, 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, German hyperinflation, Gini coefficient, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Arrow, market bubble, means of production, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, Paul Samuelson, pension reform, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, The Nature of the Firm, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, twin studies, very high income, Vilfredo Pareto, We are the 99%, zero-sum game

But it is important to realize that inflation is today an extremely blunt instrument, and often a counterproductive one, if the goal is to avoid a return to a society of rentiers and, more generally, to reduce inequalities of wealth. A progressive tax on capital is a much more appropriate policy in terms of both democratic transparency and real efficacy. The Return on Sovereign Wealth Funds: Capital and Politics Consider now the case of sovereign wealth funds, which have grown substantially in recent years, particularly in the petroleum exporting countries. Unfortunately, there is much less publicly available data concerning the investment strategies and returns obtained by sovereign wealth funds than there is for university endowments, and this is all the more unfortunate in that the financial stakes are much, much larger. The Norwegian sovereign wealth fund, which alone was worth more than 700 billion euros in 2013 (twice as much as all US university endowments combined), publishes the most detailed financial reports.

This was already the case in the colonial era, when the great powers of the day, Britain and France foremost among them, were quick to roll out the cannon to protect their investments. Clearly, the same will be true in the twenty-first century, in a tense new global political configuration whose contours are difficult to predict in advance. Will Sovereign Wealth Funds Own the World? How much richer can the sovereign wealth funds become in the decades ahead? According to available (and notoriously imperfect) estimates, sovereign wealth funds in 2013 had total investments worth a little over $5.3 trillion, of which about $3.2 trillion belongs to the funds of petroleum exporting states (including, in addition to those mentioned above, the smaller funds of Dubai, Libya, Kazakhstan, Algeria, Iran, Azerbaijan, Brunei, Oman, and many others), and approximately $2.1 trillion to funds of nonpetroleum states (primarily China, Hong Kong, Singapore, and many smaller funds).41 For reference, note that this is almost exactly the same total wealth as that represented by the Forbes billionaires (around $5.4 trillion in 2013).

The annual rent derived from the exploitation of natural resources, defined as the difference between receipts from sales and the cost of production, has been about 5 percent of global GDP since the mid-2000s (half of which is petroleum rent and the rest rent on other natural resources, mainly gas, coal, minerals, and wood), compared with about 2 percent in the 1990s and less than 1 percent in the early 1970s.44 According to some forecasting models, the price of petroleum, currently around $100 a barrel (compared with $25 in the early 2000s) could rise as high as $200 a barrel by 2020–2030. If a sufficiently large fraction of the corresponding rent is invested in sovereign wealth funds every year (a fraction that should be considerably larger than it is today), one can imagine a scenario in which the sovereign wealth funds would own 10–20 percent or more of global capital by 2030–2040. No law of economics rules this out. Everything depends on supply and demand, on whether or not new oil deposits and/or sources of energy are discovered, and on how rapidly people learn to live without petroleum. In any event, it is almost inevitable that the sovereign wealth funds of the petroleum exporting countries will continue to grow and that their share of global assets in 2030–2040 will be at least two to three times greater than it is today—a significant increase.


pages: 422 words: 113,830

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

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

But during the last decade, they also accumulated huge quantities of dollars—some held as central bank reserves, others banked day to day as oil revenues, and still others flexing their muscles in so-called sovereign wealth funds. The latter, now much in global headlines, are the investment units—think of them as government-owned hedge fund equivalents, but bigger—deployed by countries that hold large reserves of currency (China, Saudi Arabia, Kuwait, Singapore, Abu Dhabi, and others). Their task is to pursue profit-maximizing financial strategies and undertake foreign direct investment and share-holding beyond the proper function of central banks. Many of these dollar holdings can be modified or redeployed quickly. Central banks in Beijing, Dubai, and Damascus can decide to further diversify their reserves, selling off a percentage of dollars in order to reinvest in euros, yen, or a basket of currencies. Sovereign wealth funds, some given wide discretion by their governments, can buy exotic securities, bid to purchase foreign companies, or speculate for or against foreign currencies.

A fourth problem lay with so-called monetary mercantilism—the tendency among top oil producers or stalwart manufacturing nations to amass huge foreign-currency holdings far beyond any central bank reserve logic. Redeployment of these excess reserves, in turn, spotlighted the dollar’s fifth weakness—vulnerability to the institutional firepower (over $2 trillion in late 2007) of the sovereign wealth funds being put into commission from Qatar to Russia to China. In order to understand potential dollar vulnerability, some further measurement of the way wealth was being realigned to Asia was in order. Of the more than $5 trillion worth of foreign-currency reserves in the world, up fivefold in ten years, roughly two-thirds had accumulated in Asia. Of the seven sovereign wealth funds with assets of over $100 billion, six (all save Norway’s) flew Asian flags. Figure 5.3 displays both power rolls. As of 2007, the entirety of sovereign funds, some three dozen, had assets in the $2.2 trillion to $2.5 trillion range, up from $500 billion in 1990.

Because the Chinese stock market boom in 2007 exaggerated the top-tier global rank of four large Chinese banks and the country’s two principal brokerage firms, it may be wise to emphasize other yardsticks of Asian financial prowess. Standouts include the burgeoning investment in foreign financial institutions by major sovereign wealth funds, and small, tentative indicators of a rising Asian monetary policy coordination that might hint at a continental economic union or common currency.18 Indeed, by the end of the year, investments by Asian sovereign wealth funds started playing such a prominent role in bailing out shaky or troubled U.S. banks and investment firms—Citigroup, Bear Stearns, and Morgan Stanley—that a new wisecrack made the rounds of Manhattan trading floors: “The joke is: Shanghai, Dubai, Mumbai or goodbye.”19 The last thing that wobbly, negligent U.S. capitalism needs is that wobbly negligence facilitating the rapid emergence of a rival continent.


pages: 289 words: 77,532

The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders by Kate Kelly

Bakken shale, bank run, business cycle, Credit Default Swap, diversification, fixed income, Gordon Gekko, index fund, light touch regulation, locking in a profit, London Interbank Offered Rate, Long Term Capital Management, margin call, paper trading, peak oil, Ponzi scheme, risk tolerance, Ronald Reagan, side project, Silicon Valley, Sloane Ranger, sovereign wealth fund, supply-chain management, the market place

But it was a meaningful portion, considering that a 16 percent no-vote had the power to scuttle the whole merger (the 34 percent Glencore owned couldn’t be voted, and neither could additional shares in Xstrata management’s hands). Meanwhile, behind the scenes, another powerful player was joining their number: Qatar Holding, the investment subsidiary of the Qatar Investment Authority, the sovereign-wealth fund that was run by Ahmad al-Sayed, the young lawyer Glasenberg had met—and disappointed—while marketing the Glencore IPO. Noting the relatively cheap price and rumors of a potential combination with Glencore, Qatar Holding had been buying shares of Xstrata for several months, amassing a 3.6 percent stake by the middle of March. Separately, the sovereign-wealth fund was talking to executives at Morgan Stanley about purchasing a minority stake in the bank’s commodities unit, which was by then a far less robust facsimile of the place where Jennifer Fan and Jean Bourlot had once traded.

“Xstrata should be under no delusions”: Helia Ebrahimi and James Quinn, “Chiefs at Risk in Xstrata Merger,” Telegraph, February 4, 2012, http://www.telegraph.co.uk/finance/newsbysector/industry/mining/9061755/Chiefs-at-risk-in-Xstrata-merger-talks.html. A press release was soon to be issued: Qatar Holding, “Qatar Holding Seeks Improved Terms in Proposed Merger of Glencore with Xstrata,” news release, June 26, 2012. 10 percent at last check: Chris Wright, “Sovereign Wealth Funds: Qatar Seals Its Kingmaker Role in Xstrata Deal,” Euromoney, December 2012, http://www.euromoney.com/Article/3123638/Sovereign-wealth-funds-Qatar-seals-its-kingmaker-role-in-Xstrata-deal.html. had fallen 42 percent: Half-Yearly Report 2012, Xstrata, http://www.glencorexstrata.com/assets/Uploads/xta-ir2012-en.pdf. “end of the world”: Josephine Moulds, “Glencore’s Merger with Xstrata Close to Collapse,” Guardian, August 21, 2012, http://www.theguardian.com/business/2012/aug/21/glencore-merger-xstrata-close-collapse.

Isabelle Ealet, who had befriended Gary Cohn in the early 1990s and given young Andurand his break in commodities in 2000, was by then cohead of the firm’s entire securities division, the only woman to have ever won the title. By 2012, aware of the angst over failed physical-commodity purchases, she allowed two of her employees to explore selling Goldman’s physical assets—Metro, its network of coal mines, and a few smaller investments. Morgan Stanley was already in talks to sell its commodity division to a sovereign-wealth fund; perhaps there was another market opening at the time. When word got back to Cohn, he called Ealet on it. “You’re wasting your time,” he told her. Despite the limitations, commodities was an important focus for Goldman, he added. The business wasn’t going anywhere. September 2013 was the five-year anniversary of the financial crisis, and the major commodity players on Wall Street were still enjoying a unique set of regulatory advantages.


pages: 339 words: 103,546

Blood and Oil: Mohammed Bin Salman's Ruthless Quest for Global Power by Bradley Hope, Justin Scheck

augmented reality, Ayatollah Khomeini, clean water, coronavirus, distributed generation, Donald Trump, Downton Abbey, Elon Musk, Exxon Valdez, Google Earth, high net worth, Jeff Bezos, Marc Andreessen, Mark Zuckerberg, MITM: man-in-the-middle, new economy, Peter Thiel, ride hailing / ride sharing, Sand Hill Road, Silicon Valley, South of Market, San Francisco, sovereign wealth fund, starchitect, Steve Jobs, Tim Cook: Apple, trade route, Travis Kalanick, Uber for X, urban planning, women in the workforce, young professional, zero day

He slimmed down his ministers’ portfolios so they could focus on top priorities and told them that they would be evaluated based on how quickly and efficiently they could implement the prince’s orders. If they succeeded, there would be huge rewards. If they failed, they’d be removed. At a party around that time, Turki Al Sheikh, by then appointed head of the General Sports Authority, put his arm around sovereign wealth fund chief Yasir al-Rumayyan and told a group of friends, “We could get fired any time.” If new ministers got caught trying to enrich themselves, they faced much harsher treatment. Fakeih seemed an unlikely man to meet such a fate. He was appointed to the board of the sovereign wealth fund and contributed to Vision 2030. He struck Western diplomats, consultants, and businessmen as an integral part of the prince’s changes. They were shocked when news emerged that Fakeih had been swept up in the Ritz arrests, and the Royal Court never said what he’d been detained for, though he remains locked up.

Even when paying an informal visit to the Riyadh palaces of his sister or brother, Turki would wear a tan or black bisht, a cloak embroidered with gold thread, the Saudi equivalent of a formal suit. Believing himself a victim of his father’s relatively miserly ways, Turki was also obsessed with money. And it had gotten him embroiled in scandals, including a distant but important role in the roiling 1Malaysia Development Berhad sovereign wealth fund debacle that was just coming to light in late 2015. He received tens of millions of dollars from 1MDB allegedly for his role in part of the scheme where his business advisor used his connections and name to make it look like Malaysia was entering a joint venture with the government of Saudi Arabia. The maneuver is said to have allowed the conspirators to pocket hundreds of millions of dollars.

Once the announcement was made, Mohammed knew he needed to show progress quickly. In the ensuing weeks he grilled Saudi officials and foreign consultants alike on how they could show their ideas were working. He’d lose patience with, say, the finance minister and turn instead to the Ministry of Economy and Planning for an urgent task. “The principles changed every week. The wheel gets reinvented every few days,” a person working for BCG complained. The sovereign wealth fund debut showed the world Mohammed was planning to spend. A month later he hosted US secretary of state John Kerry on his yacht the Serene. But he still needed a splashy deal to introduce the Public Investment Fund (PIF) as the new investor on the block. Not long before, Mohammed had been introduced to Travis Kalanick, founder of the then-hot start-up Uber. The men developed a rapport—the prince would later call the entrepreneur a friend—and Mohammed saw Uber as an attractive investment.


pages: 304 words: 99,836

Why I Left Goldman Sachs: A Wall Street Story by Greg Smith

always be closing, asset allocation, Black Swan, bonus culture, break the buck, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, East Village, fixed income, Flash crash, glass ceiling, Goldman Sachs: Vampire Squid, high net worth, information asymmetry, London Interbank Offered Rate, mega-rich, money market fund, new economy, Nick Leeson, quantitative hedge fund, Renaissance Technologies, short selling, Silicon Valley, Skype, sovereign wealth fund, Stanford marshmallow experiment, statistical model, technology bubble, too big to fail

It was a decision you needed to make in the first two or three weeks of the summer, and the answer wasn’t instantly apparent. When you walked onto the trading floor, you couldn’t tell who was who. There were just rows and rows of people. Over the first few weeks, I began to understand who chose one specialty and who chose the other, and why. The salesperson, of course, dealt with clients. And whether the client was a mutual fund in Boston, a macro hedge fund in New York, or a sovereign wealth fund in the Middle East, these clients managed hundreds of billions of dollars in assets, executed trades with the firm frequently, and paid Goldman commissions ranging from thousands of dollars per year to the double-digit millions. Salespeople called their client contacts every day, gave them advice, listened to their problems, tried to think of investment ideas for them. It was important to build a relationship of trust with the client, because that was what you were going to be measured on: how much business the client did with the firm.

Swing by my office.” I headed down to forty-nine. “I need your help,” he said as I walked in. He began his spiel by talking about Laura Mehta, a woman he had hired recently from Morgan Stanley to be an MD in Derivatives sales and his effective number two. A number of clients had urged Daffey to try to hire her—she was a brilliant Princeton grad, and highly regarded by some of the biggest sovereign wealth funds, hedge funds, and asset managers on the Street. My initial perception of her was that she was a class act. In addition, she exuded a quality that was rare on trading floors: she was genuinely pleasant. When she arrived, Daffey had needed to pair her with someone, and he had assigned Tim Connors as her counterpart VP. I had known Connors—as with Daffey, no one ever called him by his first name—in passing since the summer of 2000, when we were interns together: I at the undergrad level, he at the MBA.

Laura was too senior to get into the weeds; she was often in management meetings. Daffey needed someone by Connors’s side to help build the business. Would I do it? I was immediately excited. When the partner in charge of Derivatives Sales offers you an opportunity like this, I thought, you jump on it. I jumped on it. The new job was an opportunity to learn a broader set of derivatives products and diversify my client base into sovereign wealth funds, quantitative hedge funds, and state pension plans. Also, I thought it would be fun. And it worked out. The markets turned around in 2005, and our little Derivatives Sales team—Laura, Connors, and me—began to fire on all cylinders. The fanatical attention to detail that Corey had taught me helped our desk consolidate our gains. Connors and I made a great team. I did the heavy lifting, saw to the nuts and bolts, and did some schmoozing.


The New Map: Energy, Climate, and the Clash of Nations by Daniel Yergin

3D printing, 9 dash line, activist fund / activist shareholder / activist investor, addicted to oil, Admiral Zheng, Albert Einstein, American energy revolution, Asian financial crisis, autonomous vehicles, Ayatollah Khomeini, Bakken shale, Bernie Sanders, BRICs, British Empire, coronavirus, COVID-19, Covid-19, decarbonisation, Deng Xiaoping, disruptive innovation, distributed generation, Donald Trump, Edward Snowden, Elon Musk, energy security, energy transition, failed state, gig economy, global pandemic, global supply chain, hydraulic fracturing, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), inventory management, James Watt: steam engine, Kickstarter, LNG terminal, Lyft, Malacca Straits, Malcom McLean invented shipping containers, Masdar, mass incarceration, megacity, Mikhail Gorbachev, mutually assured destruction, new economy, off grid, oil rush, oil shale / tar sands, oil shock, open economy, paypal mafia, peak oil, pension reform, price mechanism, purchasing power parity, RAND corporation, rent-seeking, ride hailing / ride sharing, Ronald Reagan, self-driving car, Silicon Valley, smart cities, South China Sea, sovereign wealth fund, supply-chain management, trade route, Travis Kalanick, Uber and Lyft, uber lyft, ubercab, UNCLOS, UNCLOS, uranium enrichment, women in the workforce

The proceeds of the IPO were slated to go into the Public Investment Fund (PIF), the sovereign wealth fund. And that, in turn, was part of a larger strategy—to turn the PIF into the world’s largest sovereign wealth fund. Riyadh could look next door to the sovereign wealth funds of Abu Dhabi. Or at Norway’s sovereign wealth fund, with over a trillion dollars in assets. But Saudi Arabia usually produces about three times as much oil as Abu Dhabi and more than five times as much as Norway. And thus, said the crown prince, Saudi Arabia should have a sovereign wealth fund “larger than the largest fund on earth.” In turn, the money in the PIF would help launch Vision 2030, and remake Saudi Arabia. MBS wanted to build a sovereign wealth fund that would be, he said, “a global investment powerhouse.” The PIF can certainly provide the kingdom with significant non-oil revenue streams.

The closing of international capital markets put Russian financial institutions and companies that had borrowed in dollars or euros in the precarious position of not being able to meet their debt payments. The Kremlin stepped in with an “anti-crisis” program that provided subsidies and funding. To do so, it drew down its sovereign wealth funds. Those funds had been built up over several years by Alexei Kudrin, finance minister from 2000 to 2011. He had been seared by the 1998 crisis when the Russian economy went into free fall and the government ran out of money. Kudrin had long been criticized for socking away some of Russia’s large oil earnings into sovereign wealth funds and paying off its foreign debt, instead of spending the money right away. But now the wisdom of the “rainy day” funds was being proved. A visitor remarked to Kudrin that people must be thanking him for his prescience—and insistence.

Sheikh Zayed al Nahyan, who had ruled Abu Dhabi beginning in 1966 and was the founder of the United Arab Emirates in 1971, would warn that the emirate could not always depend on oil. With that in mind, he had established ADIA—the Abu Dhabi Investment Authority—considered today the second largest sovereign wealth fund in the world, with assets publicly estimated at over $800 billion. His son, Mohammed bin Zayed, became crown prince in 2004. He catalyzed the drive to broaden the economy. “In 50 years, when we might have the last barrel of oil,” he said, “when it is shipped abroad, will we be sad? If we are investing today in the right sectors, I can tell you we will celebrate.” One initiative was Mubadala, a second sovereign wealth fund, with about $230 billion under management, which tilts toward building and investing in companies both in Abu Dhabi and internationally. One of its companies, Strata, makes high-end components for Boeing and Airbus in Abu Dhabi.


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, Bernie Sanders, Bretton Woods, buy and hold, carried interest, 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, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, illegal immigration, interest rate swap, laissez-faire capitalism, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, medical malpractice, money market fund, moral hazard, mortgage debt, obamacare, passive investing, Ponzi scheme, prediction markets, quantitative easing, reserve currency, Ronald Reagan, Sergey Aleynikov, short selling, sovereign wealth fund, too big to fail, trickle-down economics, Y2K, Yom Kippur War

The price of oil pushes above forty dollars a barrel that year and begins a steep ascent. It’s also around then that the phenomenon of the sovereign wealth fund began to evolve rapidly. According to the Sovereign Wealth Fund Institute: Since 2005, at least 17 sovereign wealth funds have been created. As other countries grow their currency reserves, they will seek greater returns. Their growth has also been skyrocketed by rising commodity prices, especially oil and gas, especially between the years 2003–2008. Dr. Gal Luft, director of a think tank called the Institute for the Analysis of Global Security, would later testify before the House Foreign Affairs Committee about the rise of the SWFs. This is what he told the committee on May 21, 2008: The rise of sovereign wealth funds (SWF) as new power brokers in the world economy should not be looked at as a singular phenomenon but rather as part of what can be defined a new economic world order.

What these clowns did with all that cash they siphoned from you and what they did to take advantage of your newfound desperation is the other end of the story. 5 The Outsourced Highway Wealth Funds IN THE SUMMER of 2009 I got a call from an acquaintance who worked in the Middle East. He was a young American who worked for something called a sovereign wealth fund, a giant state-owned pile of money that swims around the world in search of things to buy. Sovereign wealth funds, or SWFs, are huge in the Middle East. Most of the bigger oil-producing states have massive SWFs that act as cash repositories (with holdings often kept in dollars) for the revenues generated by, for instance, state-owned oil companies. Unlike the central banks of most Western countries, whose main function is to accumulate reserves in an attempt to stabilize the domestic currency, most SWFs have a mission to invest aggressively and generate huge long-term returns.

“I am doubting that result because I think it would be easy for an SWF to set up another company, say in Switzerland, or work through a broker or fund of funds and therefore not have a swap on directly with a bank but through an intermediary,” he says. “I think that the banks in complying with the CFTC request followed the letter of the law and not the spirit of the law.” He goes on: “So if a sovereign wealth fund has an investment in a hedge fund—which they have a bunch—and that hedge fund was then invested in commodities, I expect that a bank would report that as a hedge fund to the CFTC and not a sovereign wealth fund. And their argument would be, ‘How can we know who the hedge fund’s investors are?’—even if they know darn well. “I think that this is very much a national security issue because the Arab states might be pumping up oil prices and siphoning off huge amounts of money from our economy,” he adds.


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The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything by Jason Kelly

activist fund / activist shareholder / activist investor, barriers to entry, Berlin Wall, call centre, carried interest, collective bargaining, corporate governance, corporate raider, Credit Default Swap, diversification, Fall of the Berlin Wall, family office, fixed income, Goldman Sachs: Vampire Squid, Gordon Gekko, housing crisis, income inequality, late capitalism, margin call, Menlo Park, Occupy movement, place-making, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Rubik’s Cube, Sand Hill Road, shareholder value, side project, Silicon Valley, sovereign wealth fund

Yet Dubai’s troubles and the so-far missed, or elusive, opportunities in terms of investments can’t overshadow the enormous role the sovereign wealth funds continue to play in the world of private equity. By most accounts, they will become the biggest source of capital for private-equity funds within the next decade, a shift that stands to have profound implications on the form and strategy of the industry. The sovereign wealth landscape is increasingly influenced by Asia, and especially China. As in many other aspects of the global economy, China has emerged as both an ally and potential threat to private equity. China Investment Corp., a sovereign wealth fund, bought a stake in Blackstone around the time of its IPO in 2007. Schwarzman and his biggest competitors have pursued deals in China.

See Service Employees International Union (SEIU) Senior debt September Service Employees International Union (SEIU) Shearson Lehman Holding Company Simon, William E. Simpson Thacher Slavkin, Heather Smith, Al Smith, Tripp Smith dinner Solotar, Joan Sonneborn, William Sorkin, Andrew Ross Sovereign wealth fund (SWF) Spitzer, Eliot “Staple financing” Staples Sterba, George Stern, Andy Stewart, James B. Stop and Shop Stromberg, Per Stuart, Scott Studzinski, John (Studz) Summit Properties SunGard Data Systems Super Return Middle East SWF. See Sovereign wealth fund (SWF) T. Rowe Taibbi, Matt TCW Teachers’ Retirement System of Texas Tehle, David Texas Instruments Texas Pacific Group. See TPG Texas Teachers The Texas Way “The Birthday Party” “The triumph of Blackstone on Wall Street” (Fortune) Thomas H. Lee Partners Three Ocean Partners Tigard Times Toronto-Dominion Toronto Maple Leafs Toys “R” Us TPG.

A group of investors in private-equity funds who conceived a set of guidelines to encourage more transparency and lower fees. Usually pronounced as “ILL-puh,” it began as a supper club in the early 1990s and evolved into an influential trade association. KKR: The firm founded by Jerome Kohlberg, Henry Kravis, and George Roberts in 1976. Headquartered in New York. Trades as KKR on the New York Stock Exchange. Limited partner: Abbreviated as LP, these are the pensions, endowments, and sovereign wealth funds that commit the money that comprises private-equity funds. Public pensions in California and Washington are examples of LPs. 9 West: The iconic sloping building on West 57th Street in Manhattan that houses KKR, among other private-equity firms, and offers sweeping views of Central Park. TPG: Created by David Bonderman, James Coulter, and William Price in 1992 and originally called Texas Pacific Group.


Financing Basic Income: Addressing the Cost Objection by Richard Pereira

banks create money, basic income, income inequality, job automation, Lyft, new economy, offshore financial centre, Paul Buchheit, quantitative easing, sovereign wealth fund, Tobin tax, transfer pricing, uber lyft, universal basic income, unpaid internship, Wall-E

In the two-year period during which this book was being written and edited, we have seen the pursuit of policies of austerity deepen worldwide, while simultaneously the issue of tax evasion and avoidance through offshore tax havens has continually gained more exposure in the popular press. In the United States, the growing gap between rich and poor was a central feature of a very long presidential campaign, particularly before the Democratic Party finalized its choice of candidate for the White House. In some countries sovereign wealth funds (SWFs) have continued to amass wealth for public goods, while other countries have allowed the value of public and natural resources to be squandered. It is clear that there is vast v vi PREFACE wealth in societies throughout the world, but that it increasingly is consolidated in fewer hands, fewer large multinational corporations and in offshore tax havens that are an affront to the proper functioning of society and management of its public finances.

New York: Palgrave Macmillan. Widerquist, K., and M. Howard (Eds.) (2012b) Exporting the Alaska Model. New York: Palgrave Macmillan. Gary Flomenhoft is an International Postgraduate Research Scholar (IPRS) and University of Queensland Centennial Scholar and PhD candidate at the Centre for Social Responsibility in Mining (CSRM). His research area is the economic value of common wealth and governance of Sovereign Wealth Funds. Prior to enrolling at Sustainable Minerals Institute (SMI), Gary was a faculty member for 11 years in Community and International Development and Natural Resources at the 100 G. FLOMENHOFT University of Vermont (UVM), serving as a Lecturer in Applied Economics, Renewable Energy, International Development, and Public Policy. He conducted many development projects in The Commonwealth of Dominica, St.

He directed the grant-funded Green Tax and Common Assets project at the Gund Institute for seven years, where he originated the Vermont Common Assets Trust Fund (VCAT) bill, which was submitted to the legislature twice. His chapter on Vermont Common Assets appeared in the book Exporting the Alaska Model, which promotes the Alaska Permanent Fund and Dividend as a model for basic income around the world using Sovereign Wealth Funds. CHAPTER 5 Conclusion Richard Pereira Abstract A review of the three basic income (BI) models and accompanying frameworks for creating a decent BI are presented in this chapter. A differentiation between positive and counterproductive BI proposals is made, particularly regarding the manner in which social services are treated in contrasting proposals. A wholesale approach to cutting public programmes is rejected as a financing model.


pages: 471 words: 124,585

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

Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, 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, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, German hyperinflation, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, negative equity, Nelson Mandela, 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, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, undersea cable, value at risk, Washington Consensus, Yom Kippur War

Even more important was the growth of sovereign wealth funds, entities created by countries running large trade surpluses to manage their accumulating wealth. By the end of 2007 sovereign wealth funds had around $2.6 trillion under management, more than all the world’s hedge funds, and not far behind government pension funds and central bank reserves. According to a forecast by Morgan Stanley, within fifteen years they could end up with assets of $27 trillion - just over 9 per cent of total global financial assets. Already in 2007, Asian and Middle Eastern sovereign wealth funds had moved to invest in Western financial companies, including Barclays, Bear Stearns, Citigroup, Merrill Lynch, Morgan Stanley, UBS and the private equity firms Blackstone and Carlyle. For a time it seemed as if the sovereign wealth funds might orchestrate a global bail-out of Western finance; the ultimate role reversal in financial history.

SIVs see structured investment vehicles Skilling, Jeffrey K. 169 slavery: and home ownership 267 Rothschilds and 93 slave trading 25 Sloan, Alfred 160 Slovenia 2 Smith, Adam 53 socialists: and bond markets 89-90 and liberalization 312 and welfare state 200-202 Socialist Standard 17-18 Song Hongbing 86 Soros, George 314-19 income 2 on ‘market fundamentalism’ 337 Sourrouille, Juan 112 South America 18-26 gas pipelines 119 property law 274-6 see also Latin America Southern Rhodesia 295 South Korea 233 South Sea Bubble see bubbles sovereign wealth funds 9 Soviet-style economics 213 Soviet Union see Russia/USSR Spain 36 declining empire 26 and gold and silver 1 property price boom 10 royal funding 52 Spanish Succession, War of the 156 special-purpose entitities (SPEs) 172-3 speciation 53 speculators 122. see also futures contracts Spencer, Herbert 351 spices 127 spreads 241 squatters 276-7 squirrel skins 25 Sri Lanka 134 stagflation 211 Standard and Poor’s (S&P) 268 Standard and Poor’s 500: 124n. Stanford 320 State Farm insurance company 181-2 state-owned enterprises see privatization; sovereign wealth funds State Savings and Loan 255 statistics 188-9 sterling see pound sterling Stevenson, George 60 Stewart, Jimmy 247-8 Stiglitz, Joseph 310-13 stockbrokers 153-4 Stockholm 48-9 stock markets and exchanges: benefits of 341 bubbles 121-4 Chile 218 closure of 300 compared with bond markets 124-5 compared with property market 261-3 crashes 121-2 as discipline on companies 120 foreign stock exchanges 293 forward/futures markets 132 fraud 121-2 history of 3 indices 164-5 and inflation 123 insurance companies and 196-8 international comparisons 125 mechanical selling 165 and pensions see pension funds speculators 122 stock exchanges 3 and supply of credit 132 total capitalization of the world’s 4 volatility and risks 6 war and 125 and First World War 297 stocks see shares Stowe House 236-40 Strong, Benjamin 161 ‘structural adjustment’ 309 structured investment vehicles (SIVs) 5 Styal 94 subprime lending 8-9 and black and Latino borrowers 266-7 responsibility for 266-8 sugar 285 Sunbelt 255 Sun Insurance Office 187 swaps 4 Sweden 48-9 Swift, Jonathan 157 Swiss National Bank 57 Switzerland 57 Sword Blade Company 157 Syria 2 tail risk 227 Taiwan 339 Tanzania 276 tariffs: protectionist 303 rising 287 taxes: bond markets and 68 British 210-11 collection 76 in debtor countries 309 excise 72 Florentine 45 land 230 and mortgage payments 252 and property law reform 275 savings discouraged by 211 Taylor, Gene 181 Teamsters Union 255 technological innovation: evolutionary 350 history of 8 and inflation 116 transferability 287 weaponry 285 technology companies 124 Temasek 337n.

Yet, at the time of writing (May 2008), the rates at which banks could borrow money, whether by issuing commercial paper, selling bonds or borrowing from each other, remained substantially above the official Federal funds target rate, the minimum lending rate in the US economy. Loans that were originally intended to finance purchases of corporations by private equity partnerships were also only saleable at significant discounts. Having suffered enormous losses, many of the best-known American and European banks had to turn not only to Western central banks for short-term assistance to rebuild their reserves but also to Asian and Middle Eastern sovereign wealth funds for equity injections in order to rebuild their capital bases. All of this may seem arcane to some readers. Yet the ratio of a bank’s capital to its assets, technical though it may sound, is of more than merely academic interest. After all, a ‘great contraction’ in the US banking system has convincingly been blamed for the outbreak and course of the Great Depression between 1929 and 1933, the worst economic disaster of modern history.7 If US banks have lost significantly more than the $255 billion to which they have so far admitted as a result of the subprime mortgage crisis and credit crunch, there is a real danger that a much larger - perhaps tenfold larger - contraction in credit may be necessary to shrink the banks’ balance sheets in proportion to the decline in their capital.


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

Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, 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, family office, fiat currency, fixed income, follow your passion, full employment, George Santayana, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, 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, purchasing power parity, quantitative easing, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, stocks for the long run, stocks for the long term, survivorship bias, The Great Moderation, Thomas Bayes, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game

I would argue that the risk management function either has to be shared or be independent of the CIO so that it is strictly enforced, preventing the manager from blowing up. If you were running a new sovereign wealth fund, where several hundred billion dollars in cash was deposited in a new account, how would you approach asset allocation? The first step would be currency diversification. Most of the large sovereign wealth funds are in business now because they are running large current account surpluses that are largely dollar based. I would first focus on how that U.S. dollar risk can be mitigated through a currency or commodity strategy. Next, it would be important to define the goals of this particular sovereign wealth fund. Is the goal long-term capital appreciation, strategic acquisition of foreign interests, or protection of a nation’s savings? Regardless, considering our belief in debasement of fiat currency, we believe hard assets will outperform many other financial assets over the coming years.

We are far from such a scenario right now. If you were asked to run a new sovereign wealth fund, how would you approach it? Sovereign wealth funds are a little bit trickier because I am not sure that they have a returns focused mandate. Much of what they are looking at concerns the strategic interests of a given country. If you are managing the country’s money, you should think about the country’s interests, beyond just earning a percentage return on capital. So if you are running China’s fund and crude drops 80 percent, I can see how putting on a big crude position would make sense. Beyond the strategic investments, I do think they have too much money in long-only strategies. Investments in the financial space (banks, fund management companies, etc.) by some sovereign wealth funds in the Middle East and China have been ones where there is a strategic benefit to furthering their knowledge and expertise in a particular industry.

Markets around the world, from real estate to equities to commodities to credit, posted huge declines, taking down with them some of the world’s most venerable financial institutions, a wide variety of alternative asset managers (hedge funds, private equity, venture capital, and real asset managers), and a host of real money accounts (pension funds, insurance companies, endowments, foundations, family offices, and sovereign wealth funds). Almost everyone lost money in 2008, and in many cases more than anyone imagined possible. Anger and confusion linger in the aftermath of the crisis, but are by no means limited to market players. Main Street is reeling as homes and jobs have been lost, savings have evaporated, and many assumptions governing the stability of modern society have been challenged. Governments around the world have responded with all sorts of innovative monetary and fiscal stimulus, generating even more uncertainty about the future.


pages: 475 words: 155,554

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

Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, British Empire, capital controls, carbon footprint, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, G4S, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, light touch regulation, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, WikiLeaks, working-age population, zero-sum game

The UK government argues, even in a market rigged by the Bank of England, that the very large increase in foreign holdings of UK gilts is a testament to the credibility of its austerity plan. In September 2010, Lord Sassoon, the commercial secretary to the Treasury, led a sales mission to Saudi Arabia, Kuwait, Abu Dhabi and Dubai. The centrepiece of the roadshow was Robert Stheeman of the Debt Management Office, whose role it was to sell British gilts to the region’s oil-fuelled sovereign wealth funds and central banks. Britain, also an oil nation, had mysteriously misplaced its own sovereign wealth fund, squandering its North Sea windfall on current spending and tax cuts. Still, the Gulf nations could be relied on after being reassured about the solidity of gilt investments. A British minister had never gone on a roadshow like it before. The strategy was to see the ‘customers’ for Britain’s gilts, as soon as possible, at the highest possible level.

This journey across the line, from Europe’s gas control room in Moscow to Singapore’s parking lot of cargo ships, from New York trading floors to Newport market traders, from booming amateur landlords to impoverished young people, and from rebellious Greek tax inspectors to booming German forklift truck manufacturers, is one I have made in a decade of reporting global economics. Almost all of the story I have witnessed at first hand, a frankly incredible tale of winners and losers, or power changing hands, and a new breed of powerless. It is summed up in the existence of one man: the supervisory chairman of China’s national piggy bank, its sovereign wealth fund. He sits on $400 billion of reserves and he knows this weapon is so potent that he denies it is a weapon at all. Instead he happily meets with the Western governments, banks and companies desperate for this source of stable capital. And then he quotes Shakespeare at them. That piggy bank in China was connected to the 125 per cent mortgage which indebted and nearly upended Esther, a young single mum from Surrey whom I interviewed in late 2008.

When CDS contracts were first written on Kaupthing, its bankers celebrated. They had arrived. But the celebrations didn’t last long. Norway’s $455 billion state-backed oil fund had made a commercial decision to bet on the misfortune of Iceland’s banking sector. Merrill Lynch, Denmark’s Danske Bank and, ironically, RBS joined in with critical reports about Iceland’s opaque banking system. Iceland was furious that Norway’s sovereign wealth fund had started what seemed to be a speculative market attack on its banks. Norway’s giant national piggy bank was filled with the proceeds of oil money, but run on strict market principles. The investment decisions of such state-owned funds were beginning to have a diplomatic impact. The Norwegians retreated. Yet a small band of Scandinavian economists and bankers, as well as British hedge funds, remained utterly unconvinced by the stability of Iceland’s banks.


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No Ordinary Disruption: The Four Global Forces Breaking All the Trends by Richard Dobbs, James Manyika

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, access to a mobile phone, additive manufacturing, Airbnb, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, autonomous vehicles, Bakken shale, barriers to entry, business cycle, business intelligence, Carmen Reinhart, central bank independence, cloud computing, corporate governance, creative destruction, crowdsourcing, demographic dividend, deskilling, disintermediation, disruptive innovation, distributed generation, Erik Brynjolfsson, financial innovation, first square of the chessboard, first square of the chessboard / second half of the chessboard, Gini coefficient, global supply chain, global village, hydraulic fracturing, illegal immigration, income inequality, index fund, industrial robot, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, inventory management, job automation, Just-in-time delivery, Kenneth Rogoff, Kickstarter, knowledge worker, labor-force participation, low skilled workers, Lyft, M-Pesa, mass immigration, megacity, mobile money, Mohammed Bouazizi, Network effects, new economy, New Urbanism, oil shale / tar sands, oil shock, old age dependency ratio, openstreetmap, peer-to-peer lending, pension reform, private sector deleveraging, purchasing power parity, quantitative easing, recommendation engine, Report Card for America’s Infrastructure, RFID, ride hailing / ride sharing, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart cities, Snapchat, sovereign wealth fund, spinning jenny, stem cell, Steve Jobs, supply-chain management, TaskRabbit, The Great Moderation, trade route, transaction costs, Travis Kalanick, uber lyft, urban sprawl, Watson beat the top human players on Jeopardy!, working-age population, Zipcar

Traditionally, getting access to capital meant having a good credit rating and nurturing relationships with major financial institutions in financial hubs such as London, Tokyo, and New York. Now, however, it means tapping into other large pools of capital, such as sovereign wealth funds (SWFs) and pension funds, and using digital platforms for peer-to-peer lending and funding crowd sourcing. Given that the bulk of the increased demand for capital will be for long-term project financing in sectors such as infrastructure and real estate, executives and leaders will increasingly need to seek out pools of patient capital. Investors, such as pensions and sovereign wealth funds, could supply such capital. In doing so, they could capture higher profits than they could investing in government bonds, while maintaining hedges against inflation. Across all investor classes, SWFs have shown the fastest increase, with 10 percent annual growth and assets under management estimated at $3 trillion to $5 trillion in 2013.55 The pension funds landscape is much larger, with roughly $32 trillion in assets under management in 2013, and more mature as well.56 The growth outlook remains strong, driven by emerging economies and expected rises in interest rates.

Abdullah Al-Hassan, Michael Papaioannou, Martin Skancke, and Cheng Chih Sung, Sovereign wealth funds: Aspects of governance structures and investment management, IMF working paper no. 13/231, November 2013, www.imf.org/external/pubs/ft/wp/2013/wp13231.pdf. 56. “Global pension fund assets hit record high in 2013” (press release), Towers Watson, February 5, 2014, www.towerswatson.com/en-GB/Press/2014/02/Global-pension-fund-assets-hit-record-high-in-2013. 57. “Oil-fuelled caution,” The Economist, May 22, 2014, www.economist.com/news/finance-and-economics/21602731-kingdom-does-not-splash-cash-other-gulf-states-oil-fuelled-caution. 58. Hugh Schofield, “PSG’s dramatic rise to European giants,” BBC.com, May 7, 2014, www.bbc.com/news/world-europe-27314338. 59. Sarfraz Thind, “Oil prices push sovereign wealth funds toward alternative investments,” Institutional Investor, February 20, 2014, www.institutionalinvestor.com/Article/3311509/Investors-Sovereign-Wealth-Funds/Oil-Prices-Push-Sovereign-Wealth-Funds-Toward-Alternative-Investments.html#.vaoepcjdxpo. 60.

Sarfraz Thind, “Oil prices push sovereign wealth funds toward alternative investments,” Institutional Investor, February 20, 2014, www.institutionalinvestor.com/Article/3311509/Investors-Sovereign-Wealth-Funds/Oil-Prices-Push-Sovereign-Wealth-Funds-Toward-Alternative-Investments.html#.vaoepcjdxpo. 60. Gus Delaporte, “Norway takes Manhattan,” Commercial Observer, October 8, 2013; Gus Delaporte, “Norway’s wealth fund to acquire stake in Times Square Tower for $684M,” Commercial Observer, September 9, 2013. 61. Jeremy Grant, “Temasek’s dealmaking reflects big bets on rise of the consumer,” Financial Times (London), April 14, 2014, www.ft.com/cms/s/0/79d9824e-bb9a-11e3-8d4a-00144feabdc0.html#axzz36evevz5a. 62. www.kiva.org/about. 63. “Stats,” Kickstarter, www.kickstarter.com/help/stats?Ref=footer. 64. Rob Thomas, “The Veronica Mars movie project,” Kickstarter, March 13, 2013, et seq., www.kickstarter.com/projects/559914737/the-veronica-mars-movie-project. 65.


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A Pelican Introduction: Basic Income by Guy Standing

bank run, basic income, Bernie Sanders, Bertrand Russell: In Praise of Idleness, Black Swan, Boris Johnson, British Empire, centre right, collective bargaining, cryptocurrency, David Graeber, declining real wages, deindustrialization, Donald Trump, Elon Musk, Fellow of the Royal Society, financial intermediation, full employment, future of work, gig economy, Gunnar Myrdal, housing crisis, hydraulic fracturing, income inequality, intangible asset, job automation, job satisfaction, Joi Ito, labour market flexibility, land value tax, libertarian paternalism, low skilled workers, lump of labour, Mark Zuckerberg, Martin Wolf, mass immigration, mass incarceration, moral hazard, Nelson Mandela, offshore financial centre, open economy, Panopticon Jeremy Bentham, Paul Samuelson, plutocrats, Plutocrats, precariat, quantitative easing, randomized controlled trial, rent control, rent-seeking, Sam Altman, self-driving car, shareholder value, sharing economy, Silicon Valley, sovereign wealth fund, Stephen Hawking, The Future of Employment, universal basic income, Wolfgang Streeck, women in the workforce, working poor, Y Combinator, Zipcar

A third method of funding is through the sovereign wealth fund, social dividend route mentioned in Chapter 7. This is eminently suited to developing countries rich in oil and other minerals, or valuable commodities such as timber, the revenues from which go mainly to rent-seeking elites. Many have already set up sovereign wealth funds, but these have been used mainly as investment vehicles to help stabilize future government finances. In Goa, India, the Goenchi Mati Movement is pressing for the proceeds of iron ore mining to go into a permanent fund, similar to Alaska’s Permanent Fund, which would be used to finance a citizen’s dividend. Bolivia, Zambia and Mongolia are already using taxes on natural resources to pay for social benefits. Sovereign wealth funds do not need to be financed by natural resources, however.

The local council would offer to pay part of employee wages as a basic income (which would also be paid to those without jobs) if firms agree to a profit-sharing deal with the council. This would boost profits (because the firm would pay out less in wages), which (through the profit-sharing arrangement) would generate funds for the council to finance the basic income. It is a complex scheme, but is illustrative of the ingenuity that could shape a new system. Sovereign Wealth Funds and Social Dividends The financing option favoured by this writer would be to fund a basic income from the construction of sovereign wealth funds, along the lines of the Alaska Permanent Fund or the Norwegian Pension Fund. This option, which draws on the work of Nobel Prize winner James Meade in his book Agathatopia, would allow a country to build up the fund over the years and raise the amount paid out as basic income, or social dividend, as the fund developed.32 Viewed as a rightful share of income flowing from our collective wealth, the social dividend approach is politically attractive since it would not require either dismantling existing welfare systems or raising taxes on earned income.

Meanwhile, the vast majority in the bottom two deciles of the income distribution would gain, and there would be modest reductions in income inequality. That said, if basic income could be financed in part from reductions in non-welfare spending programmes, including cuts in regressive subsidies and selective tax breaks, tax rates might not need to rise by much, if at all. And this does not take account of possible new sources of finance, such as a sovereign wealth fund, a carbon tax or a financial transactions tax. Housing Costs Most basic income calculations for the UK envisage needs-based supplements for disability, but have reluctantly concluded that housing costs would have to be treated separately, as the existing social security system does now. In his 1942 blueprint for the welfare state, Sir William Beveridge confessed himself unable to solve ‘the problem of rent’ in setting contributory benefit levels; paying a flat-rate allowance for housing would leave people in expensive areas unable to pay the rent while people in cheap areas would have money left over.


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Green and Prosperous Land: A Blueprint for Rescuing the British Countryside by Dieter Helm

3D printing, Airbnb, barriers to entry, British Empire, clean water, conceptual framework, corporate social responsibility, decarbonisation, deindustrialization, demographic transition, Diane Coyle, digital map, facts on the ground, food miles, Haber-Bosch Process, illegal immigration, Internet of things, Kickstarter, land reform, mass immigration, New Urbanism, North Sea oil, precision agriculture, quantitative easing, smart meter, sovereign wealth fund, the built environment, urban planning, urban sprawl

The positive margin is the precautionary principle in action. Money is currently spent in silos, notably the agricultural subsidies. Winning the prize, and making sure we hang on to it, requires cementing the money into a comprehensive and integrated framework. Chapter 10 sets out how to do this within a Nature Fund. This acts a bit like sovereign wealth funds do for oil- and gas-producing countries. It should include the economic rents from these non-renewable activities like North Sea oil and gas production, mirroring other sovereign wealth funds, but it can also bring together the monies from pollution taxes and charges, from subsidies directed towards public goods and the net gain payments. Crucially it would be for nature, not general public spending. The net gain principle set alongside the polluter-pays principle together ensure that there is enough money to pay for an enhanced natural environment.

In national taxing and spending, this is the Treasury and the national budget.4 At the environmental level, the best way to entrench and manage the separation is in the creation of a Nature Fund. Looking after the future The helpful analogy here is with the sovereign wealth funds that many countries that are depleting non-renewable resources have set up. The poster example is Norway. It has abundant oil and gas that it is extracting now. These resources will run out, or if we decarbonise effectively, the market for them will fall away.5 It would be unfair for the current generation to reap all the benefits of the oil and gas production and for the next generation to get the global warming that results. It is a non-renewable resource. It can be used only once. So the Norwegians put the surplus economic rents into their sovereign wealth fund for the benefit of future generations. Norway spends about 3 per cent of the fund each year, which it argues is the return that its investments can be expected to make.

Designing a Nature Fund A national Nature Fund requires: a credible institutional structure and governance arrangements that can withstand short-term pressures to raid it; a short- and medium-term budgeting framework; and a mechanism for deciding how to spend the money. The most difficult bits are its statutory status and its governance. It is where almost all sovereign wealth funds fall down, for the simple reason that in adversity it is politically almost always expedient to plunder it. The Saudi Arabian oil fund has already been depleted by around half since the oil prices fell in 2014, and the Russian fund has been similarly depleted for short-term purposes. Indeed, Norway is probably the only example of a sovereign wealth fund that has avoided being raided for short-term expediency, and it is a special case in that there are only around 4 to 5 million Norwegians, and 3 per cent per annum provides for a lot of government general expenditure relative to this small population.


Mastering Private Equity by Zeisberger, Claudia,Prahl, Michael,White, Bowen, Michael Prahl, Bowen White

asset allocation, backtesting, barriers to entry, Basel III, business process, buy low sell high, capital controls, carried interest, commoditize, corporate governance, corporate raider, correlation coefficient, creative destruction, discounted cash flows, disintermediation, disruptive innovation, distributed generation, diversification, diversified portfolio, family office, fixed income, high net worth, information asymmetry, intangible asset, Lean Startup, market clearing, passive investing, pattern recognition, performance metric, price mechanism, profit maximization, risk tolerance, risk-adjusted returns, risk/return, shareholder value, Sharpe ratio, Silicon Valley, sovereign wealth fund, statistical arbitrage, time value of money, transaction costs

Some of the institutional investor holdouts—namely, Norway’s pension plan and Japan’s GPIF—recently announced policy changes that allow them to add PE to their investable universe, thereby joining other public and private pension plans and sovereign wealth funds in addition to family offices and high-net worth individuals in their desire to invest in funds backed by the best GPs. Pension plans will continue to be enthusiastic allocators to PE given that they face underfunding issues (by some estimates as high as $5 trillion4). Existing sovereign wealth funds added US$1 trillion in investable assets between 2013 and 2015 alone5 and new sovereign funds continue to be launched, mainly in the emerging markets. China’s insurers have also started to allocate to offshore funds and their contribution to the wave of new capital looking for investable assets will likely grow.

Exhibit 5.4 Real Assets Project Stage Mature real assets provide not only a steady dividend stream but also diversification benefits to any investment portfolio given their historically uncorrelated returns with other asset classes. This has made them an attractive target for large institutional investors with a long-term investment horizon and an appetite for cash distributions to offset regular funding demands from their investment programs. Real asset investments also provide an effective hedge against inflation, as the real asset pricing risk is effectively transferred to the consumer. Sovereign wealth funds and pension plans have also begun to invest directly6 in mature infrastructure and real estate projects, thereby competing with the general partners at PE firms. It is therefore little surprise that the assets under management in the alternative asset classes listed below have grown steadily in recent years.7 REAL ESTATE: Real estate funds employ three main strategies—core-plus, value-add and opportunistic—and invest across the four main subsectors of real estate: residential, office, retail and industrial properties.

Instead, many LPs are consolidating their GP exposures, thereby reducing their overall private market exposure to a handful of managers. More and more institutional investors are looking for GPs offering an integrated, global investment approach across primary, direct and secondary investments in order to more effectively mitigate the J-curve effect, reduce underlying fees, provide earlier distributions and enhance liquidity. More often than not, public and private pension funds, sovereign wealth funds or other institutional investors demand a customized mandate solution which can be implemented via comingled funds or via direct lines. Direct lines are allocations to a single investment through client-specific vehicles; they can cater for specific investment demands, such as: an accelerated private markets portfolio ramp-up to reach a desired target allocation, meeting specific responsible investment criteria, yield vs. capital-appreciation focused portfolios, or following a dynamic, and point-in-time specific relative value investment approach where the relative value may be characterized by region, type of investment, financing stage, and at a more granular level, identifying areas where assets benefit from transformative growth.


pages: 354 words: 105,322

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

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Swan, blockchain, Bonfire of the Vanities, Bretton Woods, 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, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, 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, 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, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, Paul Samuelson, Peace of Westphalia, Pierre-Simon Laplace, plutocrats, Plutocrats, prediction markets, price anchoring, price stability, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk-adjusted returns, Ronald Reagan, Silicon Valley, sovereign wealth fund, special drawing rights, stocks for the long run, 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, Westphalian system

Paulson quietly arranged for a backdoor bank bailout using sovereign wealth funds and foreign banks as fresh capital sources. On November 26, 2007, Citigroup announced the sale of 4.9 percent of its equity for $7.5 billion to the Abu Dhabi Investment Authority. On December 19, 2007, Morgan Stanley announced the sale of $5 billion of equity to the China Investment Corporation. On December 25, 2007, Temasek, a sovereign wealth fund of Singapore, announced it was buying $4.4 billion of stock in Merrill Lynch with an option to buy more. This deal flurry and other similar deals were designed to put on a brave face and convince investors that all was well in the U.S. banking sector. In fact, U.S. banks were rotten to the core, and sovereign wealth funds were played for suckers by Paulson and the bankers.

Now it looked like governments were anticipating the next panic by preparing the second approach. In the next panic, government will say, in effect, “No, you can’t have your money. The system is closed. Let us sort things out, and we’ll get back to you.” Money locked down at BlackRock is not their money, it’s their clients’. BlackRock manages funds for the largest institutions in the world such as CIC, the Chinese sovereign wealth fund, and CALPERS, the pension fund for government employees in California. A freeze on BlackRock means you are freezing sales by China, California, and other jurisdictions around the world. The U.S. government has no authority to tell China not to sell securities. But because China entrusts assets to BlackRock, the government would use its power over BlackRock to freeze the Chinese. The Chinese would be the last to know.

The warnings were not for investors, most of whom are unfamiliar with the agencies involved and the technical jargon used. These warnings were intended for the small number of elite experts who read them. Elites were not warning everyday citizens; they were warning one another. The BIS, IMF, G20, and other international monetary agencies were issuing warnings to a small group of finance ministers, sovereign wealth funds, banks, and private funds such as BlackRock and Bridgewater. They were given time to adjust their portfolios and avoid losses that would overtake the small investor. The elites were also laying a foundation so when crisis struck they could credibly say, “I warned you.” This despite the fact that most investors scarcely knew of the warnings when they were sounded. This foundation makes it easier to enforce the ice-nine solution.


pages: 251 words: 76,868

How to Run the World: Charting a Course to the Next Renaissance by Parag Khanna

Albert Einstein, Asian financial crisis, back-to-the-land, bank run, blood diamonds, Bob Geldof, borderless world, BRICs, British Empire, call centre, carbon footprint, charter city, clean water, cleantech, cloud computing, commoditize, continuation of politics by other means, corporate governance, corporate social responsibility, Deng Xiaoping, Doha Development Round, don't be evil, double entry bookkeeping, energy security, European colonialism, facts on the ground, failed state, friendly fire, global village, Google Earth, high net worth, index fund, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Kickstarter, laissez-faire capitalism, Live Aid, Masdar, mass immigration, megacity, microcredit, mutually assured destruction, Naomi Klein, Nelson Mandela, New Urbanism, off grid, offshore financial centre, oil shock, open economy, out of africa, Parag Khanna, private military company, Productivity paradox, race to the bottom, RAND corporation, reserve currency, Silicon Valley, smart grid, South China Sea, sovereign wealth fund, special economic zone, sustainable-tourism, The Fortune at the Bottom of the Pyramid, The Wisdom of Crowds, too big to fail, trade liberalization, trickle-down economics, UNCLOS, uranium enrichment, Washington Consensus, X Prize

Together with the emirate’s Mubadala sovereign wealth fund, it has announced venture funds of a combined $40 billion to invest in pursuing renewable energy in Africa and Asia and has signed an agreement with China’s National Development and Reform Commission to advance renewable energy in two hundred second-tier Chinese cities. Between Wal-Mart and GE, the private sector is doing more to elevate China’s environmental policies and standards than any vague treaty could. What remains is to ensure that more efficient and accessible technologies emerge for rich and poor nations alike. American and European venture capital funds pour $6 billion per year into clean technology, and institutional investors such as pension funds, endowments, and sovereign wealth funds represent by far the largest pool of capital taking an interest in clean energy.

There is nothing natural about “the state”; some will survive while others will give way to new modes of organizing people through technology, resources, ideology, and money. Undoubtedly, we witnessed a strong “return of the state” in the aftermath of the 2008 financial crisis, with leading governments pumping out $3 trillion of economic stimulus—about 5 percent of global gross domestic product (GDP). Some states are also flexing their muscles in creative ways: Chinese state-owned companies are buying up natural resources across Africa; Arab sovereign wealth funds determine which countries and companies to bail out and what assets they want in return; and Russian oil czars and Saudi Aramco dictate oil prices and pipeline routes. But even strong states act in multiple, distinct ways. Saudi Arabia has two foreign policies: that of the House of Saud and that of the radical Wahhabi clerics and Islamist charities. California (itself one of the world’s ten largest economies) effectively has its own immigration, climate, and energy policies, while most Indian and Chinese provinces now have their own export promotion offices overseas.

The migrant underclass lives not in chaos and “shadow economies” but often in functional, self-organizing ecosystems, the typical physical stratification of medieval cities. Whether rich or poor, cities, more than nations, are the building blocks of global activity today. Our world is more a network of villages than it is one global village. Alliances of these agile cities, like the medieval Hanseatic League of the Baltic Sea, are forming. They will use their sovereign wealth funds to acquire the latest technology from the West, buy up tracts of agricultural land in Africa to grow their food, and protect their investments through private armies and intelligence services. Hamburg and Dubai have forged a partnership to boost shipping links and life sciences research, while Abu Dhabi and Singapore have developed into a new commercial axis as well. No one is waiting for permission from Washington to make deals with whomever one wants.


pages: 466 words: 127,728

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

Affordable Care Act / Obamacare, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Ben Bernanke: helicopter money, bitcoin, Black Swan, 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, Edward Snowden, eurozone crisis, fiat currency, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global reserve currency, global supply chain, Growth in a Time of Debt, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, Kenneth Rogoff, labor-force participation, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market design, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, obamacare, offshore financial centre, oil shale / tar sands, open economy, plutocrats, Plutocrats, Ponzi scheme, price stability, 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, 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

In fact, he is the principal architect of the main U.S. battle plan for war with China in the western Pacific. This classified plan, called “Air-Sea Battle,” involves blinding China’s surveillance capabilities and precision missiles, followed up with massive air power and naval attacks. On this occasion, Marshall was not being briefed on kinetic weapons or air-sea tactics. He was hearing about sovereign wealth funds, stealth gold acquisition, and potential threats to national security caused by U.S. Federal Reserve policy. China has over $3 trillion of investments denominated in U.S. dollars, and every 10 percent devaluation in the dollar engineered by the Fed represents a $300 billion real wealth transfer from China to the United States. It is not clear how long China will tolerate this raid on its accumulated wealth.

The Times noted that in 2010 Britain had emerged as the world’s largest purchaser of Treasury securities, and it inferred that China had “shifted purchases to accounts managed by British money managers.” In effect, China was using London bankers as a front operation to continue buying U.S. Treasury notes while Beijing officially reported that it was selling. Another technique China uses to disguise its market intelligence operations was reported on May 20, 2007, in The New York Times when Andrew Ross Sorkin disclosed that the China Investment Corporation (CIC), another sovereign wealth fund, had agreed to purchase $3 billion of stock in Blackstone Group, the powerful and secretive U.S.-based private equity firm. Blackstone Group was cofounded by former Nixon administration senior official Peter G. Peterson, later chairman of both the Council on Foreign Relations and the Federal Reserve Bank of New York. The other Blackstone cofounder, Stephen A. Schwarzman, is a multibillionaire who became notorious for his sixtieth birthday party held at the New York Park Avenue Armory on February 13, 2007, just a few months before Blackstone’s sale.

This was revealed in an IMF study released in January 2011, consisting of a multiyear, multistep plan to position the SDR as the leading global reserve asset. The study recommends increasing the SDR supply to make them liquid and more attractive to potential private-sector market participants such as Goldman Sachs and Citigroup. Importantly, the study recognizes the need for natural sellers of SDR-denominated bonds such as Volkswagen and IBM. Sovereign wealth funds are recommended as the most likely SDR bond buyers for currency diversification reasons. The IMF study recommends that the SDR bond market replicate the infrastructure of the U.S. Treasury market, with hedging, financing, settlement, and clearance mechanisms substantially similar to those used to support trading in Treasury securities today. Beyond the SDR bond market creation, the IMF blueprint goes on to suggest that the IMF could change the SDR basket composition to reduce the weight given to the U.S. dollar and increase the weights of other currencies such as the Chinese yuan.


Super Continent: The Logic of Eurasian Integration by Kent E. Calder

3D printing, air freight, Asian financial crisis, Berlin Wall, blockchain, Bretton Woods, business intelligence, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, colonial rule, Credit Default Swap, cuban missile crisis, deindustrialization, demographic transition, Deng Xiaoping, disruptive innovation, Doha Development Round, Donald Trump, energy transition, European colonialism, failed state, Fall of the Berlin Wall, Gini coefficient, housing crisis, income inequality, industrial cluster, industrial robot, interest rate swap, intermodal, Internet of things, invention of movable type, inventory management, John Markoff, liberal world order, Malacca Straits, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, new economy, oil shale / tar sands, oil shock, purchasing power parity, quantitative easing, reserve currency, Ronald Reagan, seigniorage, smart cities, smart grid, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, supply-chain management, Thomas L Friedman, trade liberalization, trade route, transcontinental railway, UNCLOS, UNCLOS, union organizing, Washington Consensus, working-age population, zero-sum game

See, for example, Kyle Ferrier, “How a Northeast Asian Development Bank Could Succeed,” Korea Economic Institute of America, http://​keia​.org/​how​-northeast​ -asian​-development​-bank​-could​-succeed; as well as Lee-Jay Cho and S. Stanley Katz, “A Northeast Asian Development Bank?” NIRA Review (Winter 2001): 41. 72. China Investment Corporation, the second largest sovereign wealth fund in the world, possessed $941 billion in assets as of August 2018, and SAFE Investment Company (seventh largest) had $441 billion in assets. See Sovereign Wealth Fund Institute, “Sovereign Wealth Fund Rankings,” updated August 2018, https://​www​.swfinstitute​.org/​ sovereign​-wealth​-fund​-rankings/. 73. See “Boao Forum for Asia Annual Conference 2009 Opens: Wen Jiabao Attends the Conference and Delivers a Keynote Speech,” Ministry of Foreign Affairs of the People’s Republic of China, April 18, 2009, http://​www​.fmprc​.gov​.cn/​mfa​_eng/​wjdt​_665385/​zyjh​ _665391/​t558306​.shtml. 74.

There have The Logic of Integration 95 been attempts, such as the 1991 Northeast Asian Development Bank proposal of former Korean prime minister Nam Duck Woo, informally backed for years by the Korean government, to supplement this “Washington Consensus” structure.71 Yet these revisionist proposals for many years invariably failed due to quiet opposition— or at least lack of enthusiasm—from traditionally dominant institutions, who pointed to potential dangers of moral hazard. It is in this connection that the proposals by China (the Asian Infrastructure Investment Bank, AIIB) and the BRICS countries (the New Development Bank, NDB) are so interesting. These initiatives are grounded in the massive foreign-exchange reserves of China, totaling over $3 trillion when the proposals were formally made and supported by over $1.3 trillion in Chinese sovereign wealth funds and informal reserves.72 Yet they also involve substantial cooperation from outside China, which will be crucial to the ultimate success of the BRI, given the ambitiousness of its developmental goals. Questions remain about the transparency of the new institutions and their lack of working-level expertise. Their headquarters locations, in cities like Beijing and Shanghai as opposed to Hong Kong or other established global financial centers, may not be ideal in terms of market-oriented syndications, which could also ultimately be important in raising the huge sums that BRI in principle involves.

One of the key institutions for explicitly furthering interdependence is the China Development Bank (CDB, founded 1994), which now has provenance of a quarter century. CDB, with total assets close to RMB 16 trillion (around $2.3 trillion), is now the largest development lender in the entire world, substantially exceeding the World Bank.15 China’s major government and semigovernmental banks, as well as sovereign wealth funds, have strongly supported these new investment vehicles. Indeed, the CDB alone has loaned more than $110 billion to BRI countries.16 And the Big Four state-owned commercial banks have lent at least $150 billion more.17 In addition, the China Securities Regulatory Commission has approved applications from seven domestic and foreign companies to issue a combined 50 billion yuan of “Belt and Road” bonds through the Shanghai and Shenzhen stock exchanges.18 Since the advent of the BRI, there has also been a further rapid proliferation of new institutions to support connectivity, including the Silk Road Fund (SRF, 2014) and the Asian Infrastructure Investment Bank (AIIB, 2016).


pages: 526 words: 158,913

Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America by Greg Farrell

Airbus A320, Apple's 1984 Super Bowl advert, bank run, banking crisis, bonus culture, call centre, Captain Sullenberger Hudson, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, financial innovation, fixed income, glass ceiling, high net worth, Long Term Capital Management, mass affluent, Mexican peso crisis / tequila crisis, Nelson Mandela, plutocrats, Plutocrats, Ronald Reagan, six sigma, sovereign wealth fund, technology bubble, too big to fail, US Airways Flight 1549, yield curve

He told Orcel and Wetzel to buy lots of shirts and underwear, because they were going to be camped out in New York for some time. Fleming described the firm’s capital position, which had been dented by the losses reported in October. Obviously, Merrill Lynch would need to raise new capital, and the men brainstormed to come up with potential investors. Wetzel knew that Temasek, the sovereign wealth fund of Singapore, was always looking for big investment opportunities in U.S. finance. He also knew that Mizuho, a Japanese bank, would be a good candidate to invest in Merrill Lynch. Orcel thought some of the sovereign wealth funds of the Middle East would be interested, along with some major European banks. The men began seeding the ground with the potential investors, letting them know that the arrival of the next chief executive at Merrill Lynch would create a terrific opportunity for a select group of large players to buy in to the firm at a relatively low price.

Cribiore, who was Thain’s biggest booster on the board of directors, convinced his newly minted CEO to scale back Tutwiler’s title to “senior vice president.” WHEN THAIN ARRIVED AT the office on Monday, December 3—his first official day on the job—Wetzel, one of the investment bankers called to New York by Fleming, presented him with several fundraising options, including the sale of Merrill’s 20 percent stake in Bloomberg, and its 49 percent stake in BlackRock. Wetzel said he had already started conversations with Temasek, the sovereign wealth fund of Singapore, and Mizuho, the Japanese bank, about equity investments in Merrill Lynch. “Great, let’s go with those,” Thain said, indicating he wanted to raise capital from outside investors, not sell off the stakes in Bloomberg or BlackRock. A few days later, Thain had breakfast with Bob McCann, the head of Merrill Lynch’s financial advisors, the business which set the firm apart from its competitors.

THE LOSSES GROWING ON the balance sheet of Merrill Lynch every month meant the firm needed fresh capital to fill the hole in its capital base. In the longer term, Thain had a choice to make: sell the CDO positions at a loss or hold them for a while until the market rebounded. One problem was that Merrill Lynch didn’t even know what its CDO holdings were worth, which is why Jeff Kronthal had been brought back as a consultant. Over the first few weeks of December, a team of bankers from Temasek, the sovereign wealth fund of Singapore, studied Merrill’s financials and consulted frequently with Thain and Wetzel. Wetzel, who didn’t want the parade of outside investors to be seen by scores of Merrill’s own employees, designated the boardroom on the thirty-third floor as the place for sensitive fundraising meetings. During these meetings, Thain articulated his vision of the new Merrill Lynch. Thain told the foreign investors about how he would reorganize Merrill’s internal reporting lines so that the people in charge of risk management, who had been shut out of the decision to load up on CDOs between August 2006 and April 2007, would have direct access to him, the CEO.


pages: 269 words: 70,543

Tech Titans of China: How China's Tech Sector Is Challenging the World by Innovating Faster, Working Harder, and Going Global by Rebecca Fannin

Airbnb, augmented reality, autonomous vehicles, blockchain, call centre, cashless society, Chuck Templeton: OpenTable:, cloud computing, computer vision, connected car, corporate governance, cryptocurrency, data is the new oil, Deng Xiaoping, digital map, disruptive innovation, Donald Trump, El Camino Real, Elon Musk, family office, fear of failure, glass ceiling, global supply chain, income inequality, industrial robot, Internet of things, invention of movable type, Jeff Bezos, Kickstarter, knowledge worker, Lyft, Mark Zuckerberg, megacity, Menlo Park, money market fund, Network effects, new economy, peer-to-peer lending, personalized medicine, Peter Thiel, QR code, RFID, ride hailing / ride sharing, Sand Hill Road, self-driving car, sharing economy, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Skype, smart cities, smart transportation, Snapchat, social graph, software as a service, South China Sea, sovereign wealth fund, speech recognition, stealth mode startup, Steve Jobs, supply-chain management, Tim Cook: Apple, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, urban planning, winner-take-all economy, Y Combinator, young professional

The fund’s assets have since downsized to $168 billion following pressure by Chinese regulators and concerns of systemic liquidity risks to the entire banking market.10 Ant Financial made big news again when it hauled in the largest-ever single fund-raising by a private company: an eye-popping $14 billion investment in 2018 at a valuation of about $150 billion from US private equity firms Carlyle Group, Silver Lake Partners, Warburg Pincus, and General Atlantic, as well as Singaporean sovereign wealth fund GIC. In a sign of the intense competition in China and the power of Alibaba, investors in that round for its fintech affiliate had to commit to not making further investments in rival companies controlled by Chinese tech leaders Tencent, JD.com, and Meituan.11 Ant Financial could go public soon, and, if so, this ant will be riding on the coattails of Alibaba’s record $230 billion valuation in its IPO on the NYSE.

Competitors are chasing big growth potential as coffee drinkers upgrade from instant coffee packets and China’s $3.2 billion coffee retail market grows at a double-digit rate, projected to reach $11.5 billion in 2022.3 Drinking coffee still isn’t a daily habit in China4—on average, only four to five cups per year compared with one coffee per day in the United States. Finger Luckin’ Coffee Luckin Coffee is waking up the Chinese coffee market. From opening its first store in January 2018, Luckin, as it’s known, has expanded to 2,000 locations in 30 cities, aiming to surpass Starbucks. Luckin is flush with cash from raising $400 million in 2018 at a unicorn valuation from Singapore sovereign wealth fund GIC, investment banking firm China International Capital Corp., and Joy Capital. The startup recently went public, but there are a lot of questions, particularly about its cash-burning strategy to beat Starbucks. “What we want at the moment is scale and speed,” Luckin’s chief marketing officer Yang Fei said at a Beijing press conference.5 “There’s no point in talking about profit.” The business model for Luckin is remarkably similar to Uber’s on-demand service, except it’s for coffee, not car rides.

New independent shops have spun out from Silicon Valley firms: China Creation Ventures from Kleiner Perkins, Long Hill Capital from NEA, and 1955 Capital from Khosla Ventures. “We believe the era of large-scale profitability of Chinese startups has just begun.” Wei Zhou Founder and managing partner, China Creation Ventures More capital is flowing to proven Chinese venture firms from large US pensions such as CalPERS (California Public Employees’ Retirement System) and CalSTRS (California State Teachers Retirement System); sovereign wealth funds, including Singapore’s Temasek and GIC; rich serial entrepreneurs; family offices; fund of funds; and university endowments, including Yale, Princeton, Northwestern, and Duke. Money also has flowed from Chinese government–backed investor groups into Chinese currency RMB funds that can invest directly in Chinese startups and take them public in China, such as the Nasdaq-style ChiNext in Shenzhen and16,17 the new Shanghai Science & Technology Innovation Board for China’s emerging companies to list.


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

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

Stock investing has morphed into a national political strategy as opposed to an individual portfolio choice. The really important issue for Norway is not whether the global investment markets are efficient at the margin but whether transforming geological assets into financial assets makes sense. A NEW ARCHITECTURE Sovereign wealth funds represent a striking new financial innovation that might well realign world economy and diplomacy. Perhaps this is why other countries are getting into the act. Although the trend has been led by the petroleum-producing states, other countries have lately decided to create sovereign wealth funds. Singapore, Korea, China, and Russia have multibillion-dollar funds. Although some of the money for these funds comes from sales of natural resources and taxation, some of it comes from US dollar reserves traditionally held by nations to pay their bills.

Professors Utpal Bhattacharya and Neal Galpin conducted a study in 2011 to track the prevalence of value-weighted investment portfolios around the world. They found that over the past thirty years, the trend toward the theoretical ideal has been pronounced—particularly in developed countries.4 Remember Keynes’s prediction that a state investment fund would eventually supplant the individual investor? In some countries, this prediction is becoming a reality through the vehicle of sovereign wealth funds. Sovereign funds started in natural-resource-rich countries that generated government revenue from oil extraction. The Gulf states like Kuwait and Dubai needed vehicles for turning their oil into financial wealth, planning for a time when the oil would run out. A second wave of sovereign funds emerged in countries seeking to profitably invest their central bank reserves. Was Keynes right?

How do you feel about the IRS withholding payroll taxes? Would you rather be given the option of setting aside your taxes each week from your salary and then writing a check for the total tax balance due on April 15? In the future, the balance between individual investment freedom and responsibility on the one hand and government-mandated or influenced savings behavior on the other will become central to personal finance. Perhaps sovereign wealth funds will replace personal savings, and the government will use them to fund post-retirement income. It might be the future of Social Security. WHO WILL OWN COMPANIES? A striking fact about sovereign funds is that as they grow, they will inevitably become the largest shareholders of every single publicly traded company in the world. Even at the current scale, Norway itself owns something like 2% of every corporation in Europe.


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, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, 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, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, 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, 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, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy, zero-sum game

Aliber, Manias, Panics and Crashes: A History of Financial Crises, 6th edn (London: Palgrave Macmillan, 2011). 7. See Carmen M. Reinhart and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton and Oxford: Princeton University Press, 2009), pp. 231–2. 8. International Monetary Fund, ‘Currency Composition of Official Foreign Currency Reserves (COFER)’, 30 December 2013, http://www.imf.org/External/np/sta/cofer/eng/index.htm, and Sovereign Wealth Fund Institute, ‘Sovereign Wealth Fund Rankings’, http://www.swfinstitute.org/fund-rankings/. 9. The role of the global imbalances in the crisis was the theme of Martin Wolf, Fixing Global Finance (Baltimore and London: Johns Hopkins University Press, 2008 and 2010), especially ch. 8 of the revised edition. See also Òscar Jordà, Moritz Schularick and Alan M. Taylor, ‘Financial Crises, Credit Booms and External Imbalances’, National Bureau of Economic Research Working Paper 16567, December 2010, www.nber.org, and Alan M.

‘Stock Markets and Central Bankers – The Economic Consequences of Alan Greenspan’, World Economics, vol. 3, no. 1 (2002), pp. 101–24. Sorkin, Andrew Ross. Too Big to Fail: Inside the Battle to Save Wall Street (London: Penguin, 2010). Soros, George. The Alchemy of Finance: Reading the Mind of the Market (Hoboken: John Wiley, 2003). Soros, George. The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means (New York: PublicAffairs, 2008). Sovereign Wealth Fund Institute, ‘Sovereign Wealth Fund Rankings’. http://www.swfinstitute.org/fund-rankings. Stein, Herbert. ‘Herb Stein’s Unfamiliar Quotations: On Money, Madness, and Making Mistakes’, Slate, 16 May 1997. www.slate.com. Stiglitz, Joseph E. Freefall: Free Markets and the Sinking of the Global Economy (New York: W. W. Norton, 2010). Stiglitz, Joseph E. The Price of Inequality: How Today’s Divided Society Endangers our Future (New York and London: W.

Among the most important features of the pre-crisis global economy – indeed, one of the causes of the crisis itself – were huge net flows of capital from emerging economies into supposedly safe assets in high-income countries. The governments of emerging countries organized these flows, largely as a result of intervention in currency markets and the consequent accumulations of foreign-currency reserves, which reached $11.4tn at the end of September 2013, quite apart from over $6tn in sovereign wealth funds.8 The recycling of current-account surpluses and private-capital inflows into official capital outflows – described by some as a ‘savings glut’ and by others as a ‘money glut’ – was one of the causes of the crisis. These flows are certainly unsustainable, because high-income countries have proved demonstrably unable to use the money effectively. The crisis has, in this way, too, changed the world: what was destabilizing before the crisis became unsustainable after it.9 Furthermore, the globalization of finance is also under threat.


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

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

Instead, Nason told the group that Treasury had to concentrate its efforts on two fronts: obtaining the authority to put an investment bank through an organized bankruptcy, one that wouldn’t spook the markets, and more immediately, urging the banks to raise more money. In the previous six months, U.S. and European banks—including Citigroup, Merrill Lynch, and Morgan Stanley—had managed to bring in some $80 billion in new capital, often by selling their stakes to state-run investment funds—known as “sovereign wealth funds”—in China, Singapore, and the Persian Gulf. But it clearly wasn’t enough, and the banks had already been forced to tap the investors with the deepest pockets. With the Bear Stearns situation seemingly behind them, Paulson focused his attention this morning on what he thought would be the next trouble spot: Lehman Brothers. Investors may have been mesmerized by Erin Callan’s performance at the earnings conference call, but Paulson knew better.

His frame of reference was the end of Drexel Burnham Lambert, Michael Milken’s firm, which had filed for bankruptcy in 1990. “The demise of Drexel was really a liquidity problem,” he said at one of the firm’s Wednesday-morning risk-committee meetings, explaining how the firm didn’t have enough cash on hand. “Liquidity is the most important thing.” In December and January, Merrill raised $12.8 billion from the sovereign wealth funds Temasek Holdings of Singapore and the Kuwait Investment Authority, among other investors. At the same time, he went about dismantling the O’Neal empire. When he first arrived, he noticed that the security guards at Merrill’s headquarters just across from Ground Zero always kept an entire elevator bank open exclusively for him. Thain walked over to one of the other elevators, and the moment he entered, all the employees shuffled out.

He brought in Margaret Tutwiler, a former State Department spokeswoman in G. H. W. Bush’s administration, to run communications. Within the firm some thought he might be angling for the Treasury secretary post if John McCain, the Republican front-runner, was victorious. By that June 11, when Larry Fink made his enraged call about BlackRock, it had become clear that the capital that Merrill Lynch had raised from Temasek and KIA, the sovereign wealth funds, back in December, was still insufficient—and that those deals were proving to be much more expensive than they appeared at the time. Under their terms, the investors were entitled to additional payouts to compensate for any dilution in their holdings if Merrill issued new shares at a lower stock price. Merrill’s stock price, meanwhile, had slid steeply. To add $1 billion in new capital, the firm might actually have to raise an amount nearly three times that to compensate the 2007 investors.


pages: 1,088 words: 228,743

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

Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, 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, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stocks for the long run, survivorship bias, systematic trading, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

Banks, central banks, and corporations tend to have a short horizon, while customer deposits, FX reserves, and excess cash tend to be held for long periods. These institutions need to be prepared to satisfy sudden cash demands (such as are caused by a bank run, currency crisis, or various corporate expenses). Endowments, foundations, and sovereign wealth funds are closest to having permanent capital, but the first two have recurring spending needs each year, whereas the sovereign wealth funds of some commodity-rich countries can expect their net inflows to grow for another decade and net outflows to start only in the distant future. Time diversification Time diversification—the idea that stock market investing becomes less risky with a longer horizon—is a contentious issue. Jeremy Siegel, who wrote several editions of a book entitled Stocks for the Long Run, has studied over two centuries of U.S. equity market returns and publicized the empirical fact that, although short-term returns are nearly as likely to be down as up, the probability of losing money over a 20-year window has been negligible.

Dedicated to Rory Byrne, in memoriam Acknowledgments I have been a student of expected asset returns for over 20 years while wearing many different hats: buy-side bond portfolio manager in the Finnish central bank, Ph.D. scholar at the University of Chicago (UofC), bond research analyst at Salomon Brothers, sell-side strategist and prop trader at Salomon/Citigroup, and hedge fund trader and strategist at Brevan Howard. I have also advised various institutional investors on their long-term investment strategies—most regularly for Norway’s sovereign wealth fund in semiannual expert panel meetings. It is mainly this last experience that has inspired this book. OK, that was too mildly put. I confess: I have been obsessed with expected returns. The passion for the topic arose in as different places as the Bank of Finland in Helsinki and the UofC campus in Hyde Park. I earned my finance doctorate at the University of Chicago Business School (now the Booth School of Business) in the early 1990s, with Professors Eugene Fama and Kenneth French as my dissertation chairmen.

At Brevan Howard, the co-CEOs allowed me to take different roles, some outside the core hedge fund business, and recognized the value of this book for institutional investors. It helps that the book’s themes have little to do with Brevan Howard’s core approach of tactical rates trading based on fundamental macro-views with a focus on trade construction and risk management, so I will not be revealing any proprietary trade secrets. This book has been hugely influenced by my regular meetings in Oslo discussing the long-run investment strategy for Norway’s sovereign wealth fund. One outgrowth of those meetings has been even more inspirational—our trialogue with Knut Kjaer and Andrew Ang about diverse long-horizon investor topics. I have benefited from the thinking of fellow students, colleagues, customers, and research peers in academia and business. Some of the best sources I have yet to meet personally, but I am a voracious reader—to which this book’s lengthy reference list attests.


pages: 433 words: 125,031

Brazillionaires: The Godfathers of Modern Brazil by Alex Cuadros

affirmative action, Asian financial crisis, big-box store, BRICs, cognitive dissonance, creative destruction, crony capitalism, Deng Xiaoping, Donald Trump, Elon Musk, facts on the ground, family office, high net worth, index fund, invisible hand, Jeff Bezos, Mark Zuckerberg, NetJets, offshore financial centre, profit motive, rent-seeking, risk/return, Rubik’s Cube, savings glut, short selling, Silicon Valley, sovereign wealth fund, stem cell, The Wealth of Nations by Adam Smith, too big to fail, transatlantic slave trade, We are the 99%, William Langewiesche

Rather than invest in any single company, the Emirates, through one of their so-called sovereign wealth funds, were acquiring 5.63 percent of EBX as a whole (always with the sixty-three). It took a while for me to unravel it, but this meant they were buying into not just his public companies, but his even airier private ventures—and also into the ideas that had yet to fully hatch but merely rattled around Eike’s subconscious, waiting to enter the world. I got to speak to Eike again when he called me to celebrate the deal. He sounded a lot jollier than he had earlier in the month, when we parried over the exact size of his fortune. Already he was in talks to sell another stake in EBX to a different sovereign wealth fund. What was he going to do with the money? Just then he was hammering out a partnership with Foxconn, the Taiwanese manufacturer, to make iPhones in Brazil at “civilized prices” at the port of Açu.

On our daily ranking he leaped to eighth place, above the American Koch brothers. It was a new high for Eike. Wagner received me in a chilly little conference room. Typical of the men who formed Eike’s inner circle, he was a Rio native and spoke with flawless, nonchalant conviction. He had a strong hint of the malandro to him. He said things like “People are knocking down our doors to give us money.” He told me how the Emirates’ sovereign wealth fund, the Mubadala Development Company, had sent a hundred and fifty people to analyze EBX’s projects. “They spent a year going through our books, doing due diligence,” he said. “Really clever guys, young guys from Harvard and Yale.” From the windows I could see a view of afternoon Rio: thrusting mountains, dark blue sea, distant oil tankers. Wagner shut the blinds. He planned to make use of a whiteboard.

AS 2012 DRAGGED TO A CLOSE, Eike and Aziz, his new right-hand man, met with little success raising fresh cash in the Middle East. The sheikhs weren’t actually as bullish as Eike had claimed, nor as credulous as his skeptics imagined. At Bloomberg, after piecing together tips from bankers and ex-EBX men, we found out that the Emirates’ two-billion-dollar investment carried secret conditions. To protect their sovereign wealth fund from losses, Eike had put up his own shares in his companies as collateral. It was far from a straight-up equity investment and certainly not a gung-ho “seal of approval.” This meant that the deal never implied the frothy valuation we at Bloomberg gave him credit for. Realizing our mistake, we removed the premium we had applied to his net worth estimate, and his fortune fell below thirteen billion dollars.


pages: 340 words: 100,151

Secrets of Sand Hill Road: Venture Capital and How to Get It by Scott Kupor

activist fund / activist shareholder / activist investor, Airbnb, Amazon Web Services, asset allocation, barriers to entry, Ben Horowitz, carried interest, cloud computing, corporate governance, cryptocurrency, discounted cash flows, diversification, diversified portfolio, estate planning, family office, fixed income, high net worth, index fund, information asymmetry, Lean Startup, low cost airline, Lyft, Marc Andreessen, Myron Scholes, Network effects, Paul Graham, pets.com, price stability, ride hailing / ride sharing, rolodex, Sand Hill Road, shareholder value, Silicon Valley, software as a service, sovereign wealth fund, Startup school, Travis Kalanick, uber lyft, VA Linux, Y Combinator, zero-sum game

There are single-family offices (as the name suggests, they are managing the assets of a single family and its heirs) and multifamily offices (essentially, sophisticated money managers who aggregate the assets of multiple families and invest them across various asset classes). Sovereign wealth funds (e.g., Temasek, Korea Investment Corporation, Saudi Arabia’s PIF)—These are organizations that manage the economic reserves of a country (often resulting from things that we US citizens know nothing about—government surpluses) to benefit current or future generations of their citizens. In the specific case of many Middle Eastern countries, the sovereign wealth funds are taking profits from today’s oil business and reinvesting in other non-oil assets, to protect against long-term financial reliance on a finite asset. Insurance companies (e.g., MetLife, Nippon Life)—Insurance companies earn premiums from their policyholders and invest those premiums (known as “float”) for when they are required to pay out future benefits.

There Are Alternative Forms of Private Financing Out There We’ve of course been talking in this book all about venture funds as the primary funders of startup companies. And that is true. Over the last five years, though, as startups have been staying private longer, the landscape of private investors that now invest at the later stages of a private company’s development has increased to include public mutual funds, hedge funds, private equity buyout firms, sovereign wealth funds, family offices, and even traditional endowments and foundations. This availability of private capital, some argue, has supplanted the need for companies to go public. The phenomenon is real, but it doesn’t answer the question of cause and effect—that is, have public market investors entered the private markets because companies are choosing to stay private longer and delay entering the public markets?

First, many of the traditional venture capital firms have increased their fund sizes to be able not only to fund startups in the very early stages, but also to be a source of growth capital throughout their life cycles. Second, as companies have elected to stay private longer, more nontraditional sources of growth capital have entered the financing market. Whereas public mutual funds, hedge funds, sovereign wealth funds, family offices, and other strategic sources of capital had traditionally waited for startups to go public before they would invest growth capital, nearly all these players have now made the decision to invest directly in later-stage startups while they remain in the private markets. This is the most viable way for such institutional investors to capture the appreciation attendant to startups; that appreciation has essentially shifted from post-IPO to largely pre-IPO.


pages: 197 words: 49,296

The Future We Choose: Surviving the Climate Crisis by Christiana Figueres, Tom Rivett-Carnac

3D printing, Airbnb, autonomous vehicles, Berlin Wall, carbon footprint, clean water, David Attenborough, decarbonisation, dematerialisation, Donald Trump, en.wikipedia.org, F. W. de Klerk, Fall of the Berlin Wall, income inequality, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Jeff Bezos, job automation, Lyft, Mahatma Gandhi, Martin Wolf, mass immigration, Nelson Mandela, new economy, ride hailing / ride sharing, self-driving car, smart grid, sovereign wealth fund, the scientific method, trade route, uber lyft, urban planning, urban sprawl, Yogi Berra

These goals are: No Poverty; Zero Hunger; Good Health and Well-being; Quality Education; Gender Equality; Clean Water and Sanitation; Affordable and Clean Energy; Decent Work and Economic Growth; Industry, Innovation, and Infrastructure; Reduced Inequalities; Sustainable Cities and Communities; Responsible Consumption and Production; Climate Action; Life Below Water; Life on Land; Peace, Justice, and Strong Institutions; Partnerships for the Goals. 66. Dieter Holger, “Norway’s Sovereign-Wealth Fund Boosts Renewable Energy, Divests Fossil Fuels,” Wall Street Journal, June 12, 2019, https://www.wsj.com/​articles/​norways-sovereign-wealth-fund-boosts-renewable-energy-divests-fossil-fuels-11560357485. 67. 350.org, “350 Campaign Update: Divestment,” https://350.org/​350-campaign-update-divestment/. 68. Chris Mooney and Steven Mufson, “How Coal Titan Peabody, the World’s Largest, Fell into Bankruptcy,” Washington Post, April 13, 2016, https://www.washingtonpost.com/​news/​energy-environment/​wp/​2016/​04/​13/​coal-titan-peabody-energy-files-for-bankruptcy/. 69. 350.org, “Shell Annual Report Acknowledges Impact of Divestment Campaign,” press release, June 22, 2018, https://350.org/​press-release/​shell-report-impact-of-divestment/. 70.

Capital tends to flow toward investments that have worked in the past, as if the future will resemble the past in any meaningful way. The world’s capital is guarded by ranks of extremely cautious people who are looking to secure a good return, and their top priority is often to avoid risking a loss of value. This is technically right, of course, but it presents us with a problem. We’re not going to create the future we want without some risk. In June 2019, the Norwegian parliament voted into law new plans for its sovereign wealth fund (the world’s largest, managing $1 trillion in assets). It will divest more than $13 billion of investments in fossil fuels and invest up to $20 billion in renewables, beginning with wind and solar projects in developed markets.66 You can help precipitate similar seismic shifts in allocation of capital. In 2012, Bill McKibben and 350.org began a grassroots divestment campaign to encourage financial institutions to stop investing in projects and companies that perpetuate the causes of climate change.67 It has grown into one of the most successful campaigns in history.


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Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze

Affordable Care Act / Obamacare, Apple's 1984 Super Bowl advert, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, Boris Johnson, break the buck, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, dark matter, deindustrialization, desegregation, Detroit bankruptcy, Dissolution of the Soviet Union, diversification, Doha Development Round, Donald Trump, Edward Glaeser, Edward Snowden, en.wikipedia.org, energy security, eurozone crisis, Fall of the Berlin Wall, family office, financial intermediation, fixed income, Flash crash, forward guidance, friendly fire, full employment, global reserve currency, global supply chain, global value chain, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, housing crisis, Hyman Minsky, illegal immigration, immigration reform, income inequality, interest rate derivative, interest rate swap, Kenneth Rogoff, large denomination, light touch regulation, Long Term Capital Management, margin call, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, mittelstand, money market fund, moral hazard, mortgage debt, mutually assured destruction, negative equity, new economy, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shale / tar sands, old-boy network, open economy, paradox of thrift, Peter Thiel, Ponzi scheme, predatory finance, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, reserve currency, risk tolerance, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, structural adjustment programs, The Great Moderation, Tim Cook: Apple, too big to fail, trade liberalization, upwardly mobile, Washington Consensus, We are the 99%, white flight, WikiLeaks, women in the workforce, Works Progress Administration, yield curve, éminence grise

In the first three months of 2005 alone, the United States ran a current account deficit—an excess of outward payments on trade in goods and services and investment income—of almost $200 billion. For the year it came to $792 billion and was showing signs of further deterioration in 2006. For those on the surplus side of the “global imbalances,” so-called sovereign wealth funds (SWF) became huge repositories of capital. According to estimates by the Peterson Institute for International Economics in Washington, DC, by 2007 emerging market sovereign wealth funds held at least $2 trillion in assets, in addition to the trillions in reserves held by their central banks.29 The Saudi Arabian Monetary Authority was flush with cash, as were the SWF of Norway and Singapore. Some SWF made adventurous investments in equities. China’s State Administration of Foreign Exchange looked for safe and predictable returns.

But among those who worried about global macroeconomic imbalances, Europe was rarely mentioned. The EU current account surplus with the United States was modest compared with that of China. With the world as a whole, Europe’s current account was in modest deficit. The Europeans did not peg their currencies against the dollar. There was no agency in Brussels accumulating foreign assets as part of a currency stabilization effort, no German sovereign wealth funds. So how did European banks end up owning such a large slice of American mortgage debt? The answer is that European banks operated just like their adventurous American counterparts. They borrowed dollars to lend dollars. And the scale of this activity is revealed if we look not at the net flow of capital in and out of the United States (inflows minus outflows), which has its counterpart in the trade deficit or surplus, but at the gross flows, which record how many assets were bought and sold in each direction.

In the end, £15 billion in government funds were put into RBS (a 57.9 percent stake) and £13 billion into Lloyds TSB-HBOS (a 43.4 percent stake).86 Barclays and HSBC, Britain’s strongest banks, ostentatiously opted out of the schemes. They took neither the capital nor the guarantees. The UK government never mustered the authority or even made the attempt to impose recapitalization on either of them. HSBC, with its large base in Asia, was strong enough to raise funds through the markets. Barclays resorted to a highly irregular deal with a gulf sovereign wealth fund to which it lent the funds to recapitalize itself, a transaction for which it was later to pay a substantial fine and for which its senior management would face criminal charges.87 Against the backdrop of the TARP debacle and the shambles in Europe, Gordon Brown’s scheme looked like a breakthrough. From New York, Paul Krugman lavished praise on Britain’s Labour government. Britain’s Social Democrats had figured out how to rescue financial capitalism.88 It certainly helped that the Labour government was less averse to nationalization than Hank Paulson was.


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

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

The U.S. is still not willing to pool sovereignty, and still not coming to terms with new realities. Britain will pool sovereignty, but not to the degree that it will join the euro or become part of a European regulatory regime. Europeans, led by President Sarkozy, want an attack on laissez-faire finance, to restrict sovereign wealth fund activity and propose systemic regulation. China wants to contribute as little as possible while being free to rig its currency to promote its exports. OPEC countries and Russia want the freedom to invest their $2 trillion of sovereign wealth funds where they choose. Japan wants to stop the yen from becoming wildly uncompetitive. Less developed countries want more voice and more money, but accept no responsibility for managing the system. All have a different conception of how to do capitalism. All jockey for individual advantage.

Yet despite the fact that it would bring desperately needed trust back to the system, the capos of the Wall Street mob are unenthusiastic. Being forced to acknowledge losses on their books could toss a few more of them out of their jobs at a time when the supply of golden parachutes may be getting thin. Better to hunker down and whimper for more welfare from the Fed. Some are already getting direct bailouts from big government. But it’s not coming from the U.S. government. Foreign-government-owned “sovereign wealth funds” are now buying sizable equity shares to shore up battered firms. Citigroup, where the Saudis are already the chief stockholder, sold roughly $20 billion of itself to Abu Dhabi, Singapore and Kuwait. The Chinese just bought 10 percent of Morgan Stanley, and Merrill Lynch sold a 9 percent stake to Singapore. With oil above $100 a barrel, more of Wall Street is certain to wind up owned in the Middle East.

Treasury Secretary Paulson’s proposed massive bailout of Wall Street’s tarnished titans reminds people here of the billions the I.M.F. hustled up after ’97 in the name of assisting them—money that was used instead to rescue foreign investors. So Asian governments and financial players are skeptical about Washington’s talk of re-regulating the financial sector, and, although their central banks and sovereign wealth funds are flush with cash, they’re wary about being drawn into the Wall Street maelstrom. Among East Asian official funds, only Singapore’s Temasek and the China Investment Corporation have stepped up to the plate. Temasek pumped over $4 billion into Merrill Lynch a few months ago, but only after driving a hard bargain. CIC invested $5 billion in Morgan Stanley last December but refused the troubled investment bank’s recent desperate plea to increase its share of the firm.


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The Future Is Faster Than You Think: How Converging Technologies Are Transforming Business, Industries, and Our Lives by Peter H. Diamandis, Steven Kotler

Ada Lovelace, additive manufacturing, Airbnb, Albert Einstein, Amazon Mechanical Turk, augmented reality, autonomous vehicles, barriers to entry, bitcoin, blockchain, blood diamonds, Burning Man, call centre, cashless society, Charles Lindbergh, Clayton Christensen, clean water, cloud computing, Colonization of Mars, computer vision, creative destruction, crowdsourcing, cryptocurrency, Dean Kamen, delayed gratification, dematerialisation, digital twin, disruptive innovation, Edward Glaeser, Edward Lloyd's coffeehouse, Elon Musk, en.wikipedia.org, epigenetics, Erik Brynjolfsson, Ethereum, ethereum blockchain, experimental economics, food miles, game design, Geoffrey West, Santa Fe Institute, gig economy, Google X / Alphabet X, gravity well, hive mind, housing crisis, Hyperloop, indoor plumbing, industrial robot, informal economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of the telegraph, Isaac Newton, Jaron Lanier, Jeff Bezos, job automation, Joseph Schumpeter, Kevin Kelly, Kickstarter, late fees, Law of Accelerating Returns, life extension, lifelogging, loss aversion, Lyft, M-Pesa, Mary Lou Jepsen, mass immigration, megacity, meta analysis, meta-analysis, microbiome, mobile money, multiplanetary species, Narrative Science, natural language processing, Network effects, new economy, New Urbanism, Oculus Rift, out of africa, packet switching, peer-to-peer lending, Peter H. Diamandis: Planetary Resources, Peter Thiel, QR code, RAND corporation, Ray Kurzweil, RFID, Richard Feynman, Richard Florida, ride hailing / ride sharing, risk tolerance, Satoshi Nakamoto, Second Machine Age, self-driving car, Silicon Valley, Skype, smart cities, smart contracts, smart grid, Snapchat, sovereign wealth fund, special economic zone, stealth mode startup, stem cell, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, supercomputer in your pocket, supply-chain management, technoutopianism, Tesla Model S, Tim Cook: Apple, transaction costs, Uber and Lyft, uber lyft, unbanked and underbanked, underbanked, urban planning, Watson beat the top human players on Jeopardy!, We wanted flying cars, instead we got 140 characters, X Prize

$11.8 billion in 2017 to $14.4 billion in 2018: 3Q 2018 PitchBook-NVCA Venture Monitor Report, found here: https://files.pitchbook.com/website/files/pdf/3Q_2018_PitchBook_NVCA_Venture_Monitor.pdf. Filecoin: For this and all below references to biggest ICOs, please see Oscar Williams-Grut, “The 11 Biggest ICO Fundraises of 2017,” Business Insider, January 1, 2018. See: https://www.businessinsider.com/the-10-biggest-ico-fundraises-of-2017-2017-12. $8.5 trillion in assets: Data aggregated from this wikipedia article: https://en.wikipedia.org/wiki/Sovereign_wealth_fund, by way of the Sovereign Wealth Fund Institute database at https://www.swfinstitute.org. forty-two SWF deals valued at around $16.2 billion: Claire Milhench, “Sovereign Investors Hunt for ‘Unicorns’ in Silicon Valley,” Reuters, May 11, 2017. “I totally believe [in] this concept,”: Sam Shead, “The Japanese Tech Billionaire Behind Softbank Thinks the ‘Singularity’ Will Occur Within 30 Years,” Business Insider, February 27, 2017.

Then there’s the EOS token, one of the most popular cryptocurrencies trading today, which brought in a record-breaking $4 billion from its yearlong ICO. And these token trends are not slowing down. The number of ICOs per quarter has also ballooned, from roughly a dozen during the first quarter of 2017, to over a hundred by the last quarter of 2017, and there’s been even more activity since. Yet, forget ICOs for a moment. When it comes to the mother lode of deployable capital, the real heavyweight title belongs to sovereign wealth funds (SWFs). These investment behemoths hold an estimated $8.5 trillion in assets. That’s trillion, with a “T.” Traditionally, SWFs have invested money in public equities, infrastructure and natural resources, but as the economic promise of startups continues to climb, these funds are increasingly hunting outsized returns on entrepreneurial shores. In 2017, according to the Sovereign Wealth Lab research center at Madrid’s IE Business School, forty-two SWF deals valued at around $16.2 billion flowed in this direction.

For the same reason that Willie Sutton allegedly said he robbed banks—“Because that’s where they keep the money.” Since we’ve already covered insurance, we’ll shift focus to the changes in banking and finance, where exponential technologies are steamrolling both industries, completely altering this business of money. We got a peak at this transformation earlier, when we decoded the dollars pouring into crowdfunding, ICOs, venture capital, and sovereign wealth funds. To understand what else is coming, let’s start with a simple question: What, exactly, do we do with our money? We store it, of course. Mostly in banks. We also move it around, sometimes transferring cash between companies, other times borrowing or lending among individuals. Next, we invest it, trying to use our money to grow more money. Finally, since the time coins were conch shells, we trade it for the stuff we want.


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

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

Hank tried to ease the problem by arranging a “Super SIV,” a privately financed investment fund that would buy SIV assets in order to avoid destabilizing fire sales. But the big banks had too many of their own problems to finance it, and without government backing the effort fizzled. The Fed also forced Citi to start conserving capital by ordering the bank to reduce its dividend. And together we pressured other troubled institutions to raise new capital. Citi raised $20 billion over the next few months, mostly from sovereign wealth funds in the Middle East and Asia. Morgan Stanley and Merrill also brought in foreign investors, who got to watch their new stakes in prestigious Wall Street firms crater almost immediately. The E. coli effect was beginning to manifest itself, as investors and creditors began to shun entire classes of financial products whether they were contaminated with subprime or not, which depressed their prices and made them even more toxic.

Shortly after Bear collapsed, Hank had taken the CEOs to meet Senate Banking Committee chairman Christopher Dodd and ranking Republican Richard Shelby, who had reached an agreement to try to jump-start the House-passed reforms in the Senate, but the legislative process wasn’t moving as fast as the markets. By the summer, our top priority was stabilizing the two GSEs before they dragged down the entire system; trillions of dollars’ worth of their securities were coursing through the financial bloodstream, and we were afraid they could poison it. Their paper had been considered a safe investment around the world, and now we were fielding calls from nervous officials from sovereign wealth funds and foreign governments who wanted to make sure the GSEs themselves were safe. Some of them hadn’t even realized the U.S. government didn’t officially backstop Fannie Mae and Freddie Mac. So Hank decided to ask Congress for the authority to stabilize both mortgage giants, to make explicit the long-standing implicit guarantee that Washington would stand behind the two firms. As with Lehman, he was worried that merely asking for extraordinary powers could confirm how dire the situation was and accelerate the panic.

See also specific financial institutions Reserve Primary Fund, 76, 87, 157 retirement funds, 69 risk and risk management and acceleration of crisis, 20–25 and arsenal for dealing with future crises, 126–28 and Fannie Mae/Freddie Mac conservatorship, 56 migration of risk outside regulatory system, 150 and moral hazard, 8 and politics of crisis management, 127 and post-crisis reforms, 112–18 and shortcomings of U.S. regulatory regime, 26–27 and spark of crisis, 17 and TARP, 88 and vulnerability to panics, 14–16 runs on financial institutions and AIG rescue, 72–73 and expansion of crisis, 76 and increase in short-term liabilities, 151 and Lehman failure, 68, 70 and nature of financial crises, 15 and onset of financial crisis, 2 and policy responses to crisis, 161, 171, 172 and post-crisis reforms, 112, 117 “runnable” forms of debt, 12, 112 and TARP, 90, 91, 94 and vulnerability of financial system, 14 Russian default, 13 Sachs, Lee, 80–81 Santelli, Rick, 105 Sarkozy, Nicolas, 36 secondary mortgage market, 56 Securities and Exchange Commission (SEC), 23, 47, 49, 77 securitization boom, 18–19 self-correction, 36–37 Senate Banking Committee, 56, 57 Senior Preferred Stock Purchase Agreements (SPSPAs), 191, 217n shadow banking system and acceleration of crisis, 22, 25 and arsenal for dealing with future crises, 118 and post-crisis reforms, 112, 113–14 and shortcomings of U.S. regulatory regime, 26, 29 and Term Securities Lending Facility, 45 shareholders of financial institutions, 52, 67, 74 Shelby, Richard, 56 short sellers, 63, 77–78 short-term lending and debt and acceleration of crisis, 21–23 and causes of financial crisis, 3 and Countrywide sale, 39 and current state of financial system, 6–8 and expansion of crisis, 76 increase in short-term liabilities, 151 and Lehman failure, 63 and post-crisis reforms, 113 repo lending, 21, 39, 46–48, 50, 76, 113 and roots of financial crisis, 12 and shortcomings of U.S. regulatory regime, 26 and TARP, 88–89 Small Business Jobs Act, 187 “socialism” claims, 58, 80 sovereign debt crisis, 123 sovereign wealth funds, 41, 57 stagnation, 6 state budgets, 188 State Street, 175, 176, 181 Stimulus Act, 163 stimulus programs, 9, 43, 103–4 stock market, 40, 85, 110, 200, 216n stock prices, 52 stress tests and Bear Stearns rescue, 53 and phases of financial crisis, 153 and policy responses to crisis, 163, 174, 180, 181 and post-crisis reforms, 114, 115, 117 and shortcomings of U.S. regulatory regime, 26 and TARP, 92, 99–102 and Treasury investments in banks, 176 structured investment vehicles (SIVs), 41, 114 subprime mortgage sector Citigroup’s exposure to, 41 and Lehman failure, 63 and onset of financial crisis, 30, 31, 32, 43 and roots of financial crisis, 11, 12 and shortcomings of U.S. regulatory regime, 29 and spark of crisis, 17, 19–20 Summers, Larry, 98 Sun Tzu, 125 “super-senior CDOs,” 41 Supervisory Capital Assessment Program, 99.


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

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

Finally, the prime minister arrived, and we walked into the meeting room together. We had agreed to exchange brief opening statements, then dismiss the media and begin our meeting. But instead Putin launched into a soliloquy on the U.S. financial crisis. With oil prices at record highs, the Russians were feeling their oats. I spoke about the work we had been doing with Kudrin on sovereign wealth funds, and Putin responded, “We don’t have a sovereign wealth fund. But we are ready [to create one], especially if you want us to.” Frankly, this was too good a political opportunity for Putin to pass up. In 1998 it was a humiliating Russian default that started the global financial crisis. And now he was temporarily able to point to a reversal of fortunes. Our private session was much more productive, like all such Putin meetings: he was direct and a bit combative, which made it fun.

For all that, I also knew Bear as a scrappy firm that liked to do things its own way: alone on Wall Street it had refused to help rescue Long-Term Capital Management in 1998. Bear’s people were survivors. They had always seemed to find a way out of trouble. For months, Steel and I had been pushing Bear, and many other investment banks and commercial banks, to raise capital and to improve their liquidity positions. Some, including Merrill Lynch and Morgan Stanley, had raised billions from big investors such as foreign governments’ sovereign wealth funds. Bear had talked with several parties but had only managed to make an agreement with China’s Citic Securities under which each would invest $1 billion in the other. The deal was not the answer to Bear’s needs and in any case hadn’t yet closed. Investment banks were more vulnerable to market pressures than commercial banks. For most of this country’s history, there had been no practical differences between them.

Dick regularly discussed his problems with Ken, as well as the conversations he was having with investors about possible transactions. At the time, Lehman was talking with, among others, the state-owned Korea Development Bank (KDB) and China’s Citic Securities. (Later I would learn that Lehman’s CEO had approached a stunning range of possible partners, from Deutsche Bank and Morgan Stanley to British giant HSBC, Middle Eastern sovereign wealth funds, and AIG, which soon would find itself in desperate straits.) Unfortunately, word of Dick’s search for possible investors popped up in the press, lending Lehman an air of desperation and eroding confidence in the firm. Ken did his best to impart a need for pragmatism. But it was clear to Ken and me that Dick was looking for an unrealistic price. HERA failed to boost the market’s faith in Fannie and Freddie.


The Making of a World City: London 1991 to 2021 by Greg Clark

Basel III, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, British Empire, business climate, business cycle, capital controls, carbon footprint, congestion charging, corporate governance, cross-subsidies, deindustrialization, Dissolution of the Soviet Union, East Village, Fall of the Berlin Wall, financial innovation, financial intermediation, global value chain, haute cuisine, housing crisis, industrial cluster, intangible asset, Kickstarter, knowledge economy, knowledge worker, labour market flexibility, low skilled workers, manufacturing employment, Masdar, mass immigration, megacity, New Urbanism, offshore financial centre, Pearl River Delta, place-making, rent control, Robert Gordon, Silicon Valley, smart cities, sovereign wealth fund, trickle-down economics, urban planning, urban renewal, working poor

The transformative impact of foreign capital Overseas investment into the London property market has fundamentally changed Central London’s commercial landscape, and has contributed to the activation and completion of numerous projects that would have otherwise stalled or been cancelled. Prior to the early 1990s, investors from individual regions such as Scandinavia, the US and Japan were active for brief phases in the City, but gradually a much wider range of investors have become involved. New entrants to the market have been appearing year by year – German and Irish institutions; Norwegian, Abu Dhabi and Chinese sovereign wealth funds; Russian and Indian billionaires – and all have grown in sophistication (Table 7.2). Since the global financial crisis, almost two-thirds of office market purchases have been made by foreign investors, a significantly higher proportion than in New York (where the figure is closer to half), and investment values tend to be much higher than their British counterparts. Asian institutional and private investors have been very active in Central London since 2010 because of the City’s highly competitive income security, scale, liquidity and the range of trusted partners in the market.

The almost simultaneous arrival of Broadgate and Canary Wharf onto the market had momentous significance in illustrating the capacity for London to develop office niches in new centres, whether on the fringes of the City or in entirely new districts. Today, what were once pioneering developments on the fringes of Zone 1 are almost the norm, with King’s Cross, Paddington, and Earl’s Court now very viable propositions 94 The evolution of London, 1991 to 2015 Table 7.2: Prominent foreign investors in London’s commercial real estate market since the global financial crisis Sovereign Wealth Funds State Oil Fund (Sofaz) China Investment Corporation State Administration of Foreign Exchange Korea Investment Corporation Kuwait Investment Authority Azerbaijan China China 78 St James’s Street Canary Wharf, Winchester House Drapers Gardens, 12 Throgmarton Avenue Korea Kuwait 1 Bartholomew Square Willis Building, 5 Canada Square, 60 Threadneedle Street, 1 Bunhill Row Regent Street portfolio Norges Bank Investment Management Qatari Investment Authority (Qatari Diar, Qatar Holdings) Norway Government of Singapore Investment Corporation Singapore Pension Funds Canada Pension Plan Investment Board National Pension Service Employees Provident Fund (EPF) Swedish Cityhold (First and Second National Pension Funds) Qatar Canada Korea Malaysia Sweden Other Funds/Firms Brookfield Properties Oxford Properties Europe Gingko Tree Deka Samsung Asset Management Mitsubishi Estates Permodalan Nasional Berhad SEB Asset Management Olayan Group Blackstone Real Estate Canada Canada China Germany Japan Japan Malaysia Norway Saudi Arabia USA Carlyle EREP Hines JP Morgan Asset Management USA USA USA Wealthy Individuals (and their syndicates) Moise Yacoub Safra Brazil Undisclosed Russia Nathan Kirsh South Africa The Shard, Harrods, Canary Wharf, One Hyde Park, Grosvenor Square, East Village (Olympic Park), Shell Centre, Chelsea Barracks, One Cabot Square, Park House Bluewater Victoria Circle, 55 Bishopsgate, Westfield Stratford City 88 Wood Street, 40 Grosvenor Place Battersea Power Station, Whitefriars, One Sheldon Square, 40 Portman Square The Peak (5 Wilton Road), 1 Kingdom Street, 40 Holborn Viaduct 99 Bishopsgate, 125 Old Broad St. 71 High Holborn, 122 Leadenhall Street Ropemaker Place Palestra (SE1), 90 York Way 10 Gresham Street 1 Victoria Street, 6–8 Bishopsgate 1 Exchange Square, 90 High Holborn 1 Threadneedle Street Brompton Road estate Devonshire Square, Chiswick Park, Broadgate, 1–11 John Adam Street 60 Victoria Embankment, Sampson House Broadgate West Bishops Square Plantation Place Grand Buildings (1 Trafalgar Square) Tower 42 Source: Jones Lang LaSalle (2012); GVA (2012).

Now it is very important that we have more street life and public space in East London. This is the character that draws people into the capital.” (Personal communication, 10 December 2013) The post-Olympic East London housing market has stimulated a new cycle of international investment in and around Stratford. Significant investments have already taken place from Dutch pension fund APG, Qatar’s sovereign wealth fund Qatari Diar, Sweden’s Inter Ikea Group, Germany’s Deka, and many others, while investment has also surged in nearby Hackney Wick (Sherwood, 2011). These pockets of new development have raised aspirations and made it possible for projects to go ahead, although how they will be stitched together to Homes and housing in London 107 form stable communities is as yet uncertain. Physical regeneration east of the City of London has a modest track record at tackling poverty, achieving social progress or generating improved prosperity for the median resident.


pages: 478 words: 126,416

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

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

Although the corporation has large cash balances – currently around $150 billion – it has few other tangible assets. Manufacturing is subcontracted. Apple is constructing a new headquarters building in Cupertino at an estimated cost of $5 billion, which will be its principal physical asset. The corporation currently occupies a variety of properties in that town, some of them owned, others leased. The flagship UK store on London’s Regent Street is jointly owned by the Queen and the Norwegian sovereign wealth fund. Operating assets therefore represent only around 3 per cent of the estimated value of Apple’s business. Apple shares have been listed on NASDAQ since 1980, when the corporation raised $100 million from investors. Even then, the purpose of the issue was not to obtain money to grow the business. As with most flotations of technology companies, the reason for bringing the company to market was to give early investors and employees of the business an opportunity to realise value.

Society taken as a whole can shift consumption from one point in time to another only by investing in, or running down, the physical assets of the nation: by building houses or other property, investing in infrastructure and creating and developing businesses. Small countries can also transfer wealth to the future by building up assets overseas. A few countries – such as Norway, Singapore and Qatar – have established sovereign wealth funds which are now a significant force in the investment channel. Still, even the largest of these – Norway’s $700 billion oil fund – is much smaller than the $4 trillion of funds managed by BlackRock. The scale and distribution of this transfer between present and future are the product of collective choices about public infrastructure and private choices about business investment. A further transfer of resources between generations is inherent in government spending.

Gerald 242 Countrywide Financial 150, 152, 293 Craig, James 26 credit cards companies 27, 210 debt 54 origin of 185–6 profitability 113 credit default swaps 41, 60, 61, 64, 73, 100, 101, 119, 120, 121, 139, 152, 153, 223 credit expansion 54, 98 Crédit Lyonnais 33 credit ratings 21, 101, 248 credit risk 42, 75, 177, 192 Crédit Suisse First Boston 167, 292 credit-scoring 84, 87, 290, 291 Crosby, James 125 crowd-funding 81 D Dad’s Army (television series) 12 Dahinden, Vincent 124 Daschle, Tom 230 debit cards 186 debt reduction 241 debt securities 101, 107 debt-to-value ratio 149 democracy 4, 52, 308 deposit channel 25–6, 147–8, 173–94 activities of 188–94, 189, 192 directed by retail banks 291 household wealth 173–80, 175, 179 the payment system 181–8 ring-fencing 194, 287 simplification needed 213 deposit insurance 25, 121 deposit protection schemes 135 Derbyshire Building Society 90 deregulation 13, 28, 31, 149–50, 151, 246–7, 292 derivative contracts 191, 192, 323n11 derivatives market 2, 19, 35, 38, 110 portfolios 98 regulation 57, 234 securities 2, 15, 17, 41, 71, 131 Detroit, Michigan 254 Deutsche Bank 33, 104, 136–8, 166, 169, 191–2, 192, 193, 200, 219, 222, 266, 282, 286, 303, 323n11 Diamond, Bob 34, 35, 261, 267, 295, 300 Dickens, Charles: Martin Chuzzlewit 201 Dimon, Jamie 14–15, 35, 231 Dirks, Ray 228 Disney, Walt 70, 71 diversification 21, 27, 28, 29, 32, 33, 45, 95–9, 153 ‘alternative assets’ 98 building societies 151 buying all available stocks 99 coin-tossing game 96 correlation 96, 97–8 Exchange Traded Funds 99 hedge funds 98–9 passive funds 99 diversification divorce 74 DLJ 313n15 Dodd-Frank regulatory regime 236–7, 271 Doerr, John 167 dollar devaluation (1971) 14, 36 Donoghue, Mrs 283 dot.com boom 40 Draghi, Mario 42, 139 Dreamworks 21 Drexel Burnham Lambert 46 drug use 22 ‘Dutch book’ 68, 116 E eBay 187 economic policy 240–69 the British dilemma 262–9 consumer protection 259–62 financial markets and economic policy 248–52 Maestro 240–48 pensions and inter-generational equity 252–9 Economist, The 115 ‘Edge, the’ 114–18, 288 Edinburgh Britain’s second financial centre 11, 263 investment trusts in 26 Edison, Thomas 196 education 253, 259 efficient market hypothesis (EMH) 69–70, 99 Einstein, Albert 129 El Paso oil business 117–18, 232 electricity 245–6, 278 eligible counterparty 282–3 Elizabeth II, Queen 161 Emanuel, Rahm 301 embezzlement 127 emerging markets 39, 42 Emerson, Ralph Waldo: The Conduct of Life 181 emperor’s guard’s new clothes, the 309–10 empire, decline of 13 Enron 123, 124, 126, 127, 158, 176–7, 197, 246, 317n5 Equitas 107 Equity Funding 228 equity markets 23, 85, 168–9, 249, 288 Ericsson 108 Espirito Santo 271 Eurodollar market 13, 20, 120, 121 European Central Bank 42, 98, 138, 139, 183, 243, 244 European Commission 184, 289 European Monetary System 184 European Parliament 184, 328n6 European Union (EU) 194, 220, 226, 228, 273, 287 Eurostat 250 Eurozone 158, 183, 243, 250 creation of 129 crisis 41–2, 139, 301 indebtedness in 184 exchange rates fixed 18 flexible 18 forward 73 Exchange Traded Funds (ETFs) 99 synthetic 99 exchange-traded funds 280 Exchequer Partnerships 158, 159 extended family 78 Exxon Mobil 96, 101, 120, 134, 161, 163, 164, 189, 196 F Facebook 81, 162–3, 166, 167, 185, 196 ‘fair value’ 125–6, 191 fallacy of composition 89 Fama, Eugene 69 family support 79 Fannie Mae 75, 91, 135, 152, 230, 317–18n5 Farkas, Lee 152, 293 FBI 131 febezzle (‘functionally equivalent bezzle’) 127, 128, 132, 136, 176, 177, 190 Federal Deposit Insurance Corporation (FDIC) 25, 135, 247 Federal Reserve Bank of Kansas City symposium (Jackson Hole, Wyoming, 2005) 56–7, 58, 73, 79, 102, 181, 236, 256, 280 Federal Reserve Bank of New York 57, 183, 232, 242, 243 Federal Reserve Board 5, 41, 56, 57, 58, 134, 183, 231, 240, 243, 245, 247 Federal Reserve System 13, 40, 90, 98, 150, 183, 245 Federated Department Stores 204 fee structures 204 Ferguson, Charles 236 Feynman, Richard P. 276, 327n3 Fidelity 109, 199, 200, 213 finance sector a bias to action 203–8 control of risk 6, 7 economic significance 6 excess in the industry 6 export contribution 265 greedy individualism 24 growth of 1–2, 33 heavy criticism of 233 as just another business 5 labour force 263 lack of sanction application 7 lobbying 230, 302, 306 major role in politics 4 management of household financial affairs 6 matching of borrowers and lenders 6, 7 past and current attitudes in 23–4 payments system 6, 7, 25, 281 profitability 132–40, 134 qualitative assessment 265 recurrent crises 35, 307 regarded as having unique status 4–5 remuneration 54, 112 role of 143 search 144 sense of personal entitlement 24, 300 share in GDP 264–5 skills 15 stewardship 144 structural reform 7 taxation 266–7 work incentives 7 workers in finance 6–7, 125 finance theory 5 Finance Watch 328n6 financial advisers 197, 199, 291 Financial Conduct Authority 230, 237, 261 Financial Products Group 293 financial sector, regulation of see regulation Financial Services Authority 243, 247, 303 Financial Services Compensation Scheme 260 Financial Times 68, 115 financialisation 4–7, 36, 45, 72, 163, 165, 172, 259 and complexity 276, 278 conflation of roles of agent and trader 198 and the conglomeration 133 direct impact of 176 effect on corporate behaviour 78 and emergence of large asset management companies 200 emphasis on monetary policy 241 in Germany 169 and hedge funds 289 and housing 149 national and international 39 and risk 55 and secondary markets 170 and social security 255 Summers supports 57 transition from agency to trading 84 two main componenents of 16 Fink, Larry 200 First Boston 200 First Data Corporation 186 First World War 221 fiscal arbitrage 122, 123, 223 FISIM (financial services indirectly measured) 264 Fitch rating agency 313n6 Fitzgerald, Scott: The Great Gatsby 17, 297 FitzPatrick, Sean 156, 293–4 Five Star Movement 306 fixed commissions 29 fixed interest, currency and commodities (FICC) 22, 107, 110, 111, 118, 125, 160, 191, 194, 288 fixed-interest securities 190, 193 Flaubert, Gustave: Sentimental Education 80 Florida land boom (1920s) 201 Forbes magazine 204, 231 Ford, Henry 45, 70, 71 foreign exchange transactions speculators in 18–19 value of 2 Fortune magazine 23 ‘four horsemen’ 167, 168 Fox, Justin 70 fractional reserve banking 88 France corporatism 303–4 defeat of Sarkozy 248, 249 downgraded bonds 248, 249, 250 housing 149, 174 ‘trente glorieuses’ 36 Frankfurt financial centre 26 Freddie Mac 75, 135 free market 18, 59, 238, 247, 302 Frick, Henry Clay 44 Friedman, Milton 60, 63 Free to Choose 56 front running 28 FrontNational 306 Frost, Robert: ‘Provide, Provide’ 252 FT Alphaville 16 Fuld, Dick 24, 32, 72–3, 75, 231, 293 full employment 241 fund managers 66, 86, 108, 115, 206, 209, 212 future of finance 297–308 futures 19 G G8 and G20 economic summits 220 Galbraith, J.K. 127, 201 Galton, Francis xi gambling 130–31, 289 close regulation of 71, 72 Lloyd’s coffee house 71–2 lottery 65, 66, 68, 72 Gates, Bill 174, 268 Gaussian copula 22 GEC 48, 51 GEICO 107 Geithner, Timothy 57–8, 73, 75–6, 92, 104, 183, 230, 232, 239, 276, 306, 307 Geithner doctrine 271 Gemeinschaft 17, 61, 255 General Electric 46, 196 General Motors 45, 49 general share price indexes 98 Generali 27 Generally Accepted Accounting Principles (GAAP) 193 Gensler, Gary 288 Germany corporatism 303, 304 ‘economic miracle’ 36 housing 149, 174 indebtedness to 183–4 Landesbanken 169 Mittelstand 52, 168, 169, 170, 171, 172 role of Bundesbank 243 social market economy 219 state pensions 253 Gesellschaft 17, 61, 255 Gingrich, Newt 230 Glass-Steagall Act (1933) 25, 28, 33 Glaxo 96 global financial crisis (2007–9) and bank assets 91 bankers’ cognitive dissonance 102 begins in the USA 41 causes of 194, 220, 271 collapse of asset-backed securities market 21 collapse of sub-prime mortgages 109 costs of 285 and derivative contracts 192 and diversification 32 emergency measures 285–6 Gaussian copula 22 and liquidity 188, 278, 286 misallocation of housing finance 148 most culpable figures 293 unprecedented public intervention 41 the worst financial crisis since the Great Depression 15 globalisation 13 of capital flows 176, 180 of financial markets 17 and income inequality 53–4 pressure on regulatory structures 14 ‘gnomes of Zurich’ 18 gold standard 13, 18, 36, 181, 241 Golden Dawn 306 Goldman Sachs 1, 14, 31, 55, 57, 59, 63, 104–5, 114, 115, 117, 118, 120, 135, 143, 158, 160, 164, 232, 233, 250, 258, 266, 282, 283, 284, 288, 294, 300, 306 Code of Business and Ethics 118 Goldsmith, Oliver: The Deserted Village 49 goodwill 31, 258–9 Goodwin, Fred 14, 34, 149, 156, 169, 231, 293 Google 80, 83, 162, 167, 196 Gould, Jay 44 government assets and liabilities 000 government bonds 17, 42, 86, 155, 178, 208, 222, 290 government debt 128, 178, 190, 203, 245, 250, 251 government spending 253 Graham, Ben 176 Grasso, Dick 49 Great Depression 12, 15, 25, 36, 57, 218, 221, 225, 258, 308 ‘Great Moderation, the’ 40, 57, 104 Greece accounting manipulation 158, 250 adoption of a common currency 41 government debt 42, 128 refinancing of Greek credit 42 Greenspan, Alan 57, 63, 104, 119, 181, 245, 276 and Ayn Rand 79, 240 and ‘Black Monday’ 242 chairman of the Federal Reserve Board 56, 58, 181, 240–41, 242 and Fed priorities 247–8 and the Markowitz model 68–9 and mortgage defaults 97 and risk 73 testimony to Congress 67–8, 240 ‘Greenspan doctrine’ 56, 60, 67, 68, 71, 87, 101, 249 ‘Greenspan put, the’ 242, 249 Grillo, Bepep 306 Grimaldis of Monaco 123 gross domestic product (GDP) 251, 256, 264–5, 265, 266 gross national income (GNI) 265–6 gross value added (GVA) 265 group insurance 76–7 Grubman, Jack 293 H Haldane, Andrew 139, 264 Halifax Building Society 31, 32, 140, 164, 258–9 becomes a public company 124 competition for the ‘talent’ 193–4 ‘the Edge’ established in wholesale financial markets 114 and fixed-interest securities 190, 193 Group Treasury 106, 107, 111, 129 origins 106 rescued by the British government 124 response to changing times (1990s) 129 takes over the Bank of Scotland 124, 125 the world’s largest mortgage lender 106 worthless windfall shares 127–8 Hamamatsu Photonics 168 Hambrecht & Quist 167 Hambros Bank 158 Hanson 45, 46–7 ‘hard’ commodities 17 Harding, David 111–12, 124 Hartlepool nuclear power station, northeast England 158 Harvard University 5, 14–15 Harvey-Jones, Sir John 51 Hawkins, Sir Henry 61, 64, 116 Hayek, Friedrich 225 HBoS 32, 91, 124, 125, 135 healthcare 77, 78, 79, 253, 257–8 hedge fund managers 23, 99, 109, 282 Hedge Fund Research 323n9 hedge funds 27, 98–9, 110, 191, 194, 284, 289, 323n9 hedge fund centre, Mayfair, London 263 Helyar, John 46, 164 Henderson, David 58 ‘hidden champions’ 168 high-frequency trading 2, 111, 280, 305 Hill, Lord 322n14 Hope, Bob 160 Hornby, Andy 14 horse-racing 72, 116 House of Commons library 115 House of Lords 283 House of Morgan 25, 35 Household International 34–5 housing 148–54, 290 causes of crisis in housing finance 153 collapse of thrifts 150 equity release 54 house prices (US) 41, 43, 174, 259 houses as physical assets 146–7 low-cost 79 mortgage defaults 97 owner-occupied housing stock 53, 149, 151 specialist lenders 150 HSBC 1, 24, 34–5, 286, 328n22 Hubler, ‘Howie’ 130 Hurricane Katrina (2005) 79, 256 I Ibsen, Henrik: An Enemy of the People 285 Iceland: bank and compensation scheme collapse 260 ICI 45, 46–8, 51, 78 Iksil, Bruno 35, 130 ‘I’ll be gone, you’ll be gone’ culture 125, 128, 129, 131, 133, 152, 156, 204, 273 imperialism 13, 218 income distribution 52–4, 53 Independent Commission on Banking 139, 287 India, economic growth in 53 inflation 36, 54, 178, 241–2, 258 information asymmetry 60, 74, 76, 251, 317n2 information technology 18, 19–20, 31, 168, 185 infrastructure, property and 154–60 initial public offering (IPO) 113 Inside Job (film) 236 insurance companies 16, 27, 29, 120, 197, 199, 208, 213, 264 Intel 29, 167 interest rates and inflation 241, 242 long-term 251 intergenerational accounting 258 intermediation 80–105 bad intermediaries 81–2 competition 271 direct/indirect 82, 83 and diversification 96 facilitating 7 and the internet 81 leverage 100–105 managed 83, 201, 212–13 the role of the middleman 80–99 total costs of 207 transparent 83, 84, 201–2, 203 International Financial Reporting Standards (IFRS) 193 International Labour Organization (ILO) 263 International Monetary Fund (IMF) 13–14, 38, 39, 56, 58, 139, 220, 302 international reply coupons 131 International Swaps and Derivatives Association (ISDA) 61, 119, 193 internet 182, 183, 185 connectedness 81, 83 and intermediation 81 Interstate Commerce Commission 233, 237 investment banking FICC trading 107 global expansion of American banks 33 investment trusts 26, 27 relationships 16 within commercial banks 22 investment banks boutique 205 ‘dark pools’ 29 economists in 248–9 legal partnerships 30 modern objectives 197 and rating agencies 249 and search 197 investment channel 26, 148, 174, 175, 195–213 a bias to action 203–8 fails to meet the needs of businesses and households 213 investable assets 202–3, 203 the role of the asset manager 208–13 simplification needed 213 and sovereign wealth funds 253 stewardship 195–203, 203 investment companies 26, 27, 96, 177, 197, 199, 200, 201, 202 investment funds closed-end (managed) 212 open-ended (transparent) 212 Investor B 108 investors allocation of risk 57, 60, 73 and credit ratings 21 foreign 39 institutional 23, 28, 46 large 98 and leverage 101 long-term 94 losses of 43 private 28 property 99 retail 66 small 30, 99 sophisticated 23 Ireland bank workers’ strike (1970) 182 collapse of banking system (2008) 42, 138, 182 Isaacson, Walter 71 Ishmael, Stacy-Marie 16 Israel defence forces 171 high-technology start-up sector 117 It’s a Wonderful Life (film) 12–13 ITT 45 J Japan credit expansion 98 economic growth 36, 39 imagined competitive threat from 221 and quantitative easing 245 speculative bubble (late 1980s) 38–9, 280 jobbers 25, 28, 29–30 Jobs, Steve 70, 71, 162, 196 Johnson, Simon 302 Jordan Marsh department store 46, 90 J.P.


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The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, barriers to entry, Bernie Madoff, bilateral investment treaty, bitcoin, blockchain, Bretton Woods, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, conceptual framework, Corn Laws, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Donald Trump, double helix, Edward Glaeser, Ethereum, ethereum blockchain, facts on the ground, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, full employment, global reserve currency, Hernando de Soto, income inequality, intangible asset, investor state dispute settlement, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, land reform, land tenure, London Interbank Offered Rate, Long Term Capital Management, means of production, money market fund, moral hazard, offshore financial centre, phenotype, Ponzi scheme, price mechanism, price stability, profit maximization, railway mania, regulatory arbitrage, reserve currency, Ronald Coase, Satoshi Nakamoto, secular stagnation, self-driving car, shareholder value, Silicon Valley, smart contracts, software patent, sovereign wealth fund, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, trade route, transaction costs, Wolfgang Streeck

Almost everyone suffered severe financial distress in the financial crisis, not caused by NC2 alone, but by the business practices for which NC2 was emblematic. New Century filed for bankruptcy already in the spring of 2007. Bear Stearns was forced into a shotgun marriage with JP Morgan Chase in the spring of 2008, as discussed in chapter 3. And Citigroup received several capital 84 c h a P te r 4 injections, first from the sovereign wealth funds of foreign nations (Qatar and Singapore in particular) and eventually from the US government.15 So much for the basic structure of NC2, which is more complex than the trusts we encountered earlier, but the basic structure is still the same. But what about the assets in the pool? Here too we can see remarkable advances in the coding strategies that were meant to enhance the marketability of these assets.

Note that Fannie Mae appears here as the buyer of securitized assets, not as the securitizer, a role that it had played earlier and would assume again after the crisis. NC2’s second most senior tranche found interest among leading financial intermediaries from the United States and elsewhere, including a subsidiary of JP Morgan Chase (Chase Security Lendings Asset m i nti n g d e Bt 85 Management), China’s sovereign wealth fund (the China Investment Corporation, or CIC), and six other investment funds. The third and fourth most senior tranches were acquired by a mix of domestic and foreign banks and investment funds that included, among others, Federal Home Loan Bank of Chicago (US), Fidelity (US), Société Générale (France), and Bayerische Landesbank (a German bank owned by the state of Bavaria). All of these entities were seeking higher returns than Fannie but were not willing to risk too much.

In 2003, the total amount of securitized residential mortgages amounted to $2.98 billion, of which only 10 percent were subprime. By 2004, the total volume had increased to $7.2 billion, of which 34 percent were subprime, and by 2005 had reached $18.4 billion with 45 percent subprime. 14. Adam J. Levitin and Susan M. Wachter, “Explaining the Housing Bubble,” Georgetown Law Journal 100, no. 4 (2012):1177–1258, p. 1192. 15. On the role of foreign sovereign wealth funds in stabilizing the global financial system in the fall of 2007, see Katharina Pistor, “Global Network Finance: Institutional Innovation in the Global Financial Market Place,” Journal of Comparative Economics 37, no. 4 (2009):552–567. 16. See FCIC, Financial Crisis Inquiry Report, p. 116 and documents uploaded to the commission’s web page. 17. Sudip Kar-Gupta and Yann Le Guernigou, “BNP freezes $2.2 bln of Funds over Subprime,” August 9, 2007; available online at www.reuters.com. 18.


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The Quest: Energy, Security, and the Remaking of the Modern World by Daniel Yergin

"Robert Solow", addicted to oil, Albert Einstein, Asian financial crisis, Ayatollah Khomeini, banking crisis, Berlin Wall, bioinformatics, borderless world, BRICs, business climate, carbon footprint, Carmen Reinhart, cleantech, Climategate, Climatic Research Unit, colonial rule, Colonization of Mars, corporate governance, cuban missile crisis, data acquisition, decarbonisation, Deng Xiaoping, Dissolution of the Soviet Union, diversification, diversified portfolio, Elon Musk, energy security, energy transition, Exxon Valdez, facts on the ground, Fall of the Berlin Wall, fear of failure, financial innovation, flex fuel, global supply chain, global village, high net worth, hydraulic fracturing, income inequality, index fund, informal economy, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), James Watt: steam engine, John von Neumann, Kenneth Rogoff, life extension, Long Term Capital Management, Malacca Straits, market design, means of production, megacity, Menlo Park, Mikhail Gorbachev, Mohammed Bouazizi, mutually assured destruction, new economy, Norman Macrae, North Sea oil, nuclear winter, off grid, oil rush, oil shale / tar sands, oil shock, Paul Samuelson, peak oil, Piper Alpha, price mechanism, purchasing power parity, rent-seeking, rising living standards, Robert Metcalfe, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Silicon Valley startup, smart grid, smart meter, South China Sea, sovereign wealth fund, special economic zone, Stuxnet, technology bubble, the built environment, The Nature of the Firm, the new new thing, trade route, transaction costs, unemployed young men, University of East Anglia, uranium enrichment, William Langewiesche, Yom Kippur War

The national currency became overvalued and exports became relatively more expensive—and, thus, declined. Domestic businesses became less competitive in the face of the rising tide of cheaper imports and increasingly embedded inflation. Jobs were lost and businesses couldn’t survive. All of this came to be known as Dutch disease. A partial cure for the disease is to segregate some of these earnings. The sovereign wealth funds that are now such important features of the global economy were invented, in part, as preventative medicine—to absorb this sudden and/or large flow of revenues and prevent it from flooding into the economy and thus, by so doing, insulate the country from the Dutch disease. The second, even more debilitating ailment of the petro-state is a seemingly incurable fiscal rigidity, which leads to more and more government spending—what has been called “the reversed Midas touch.”

As Ngozi Okonjo-Iweala, former finance minister and foreign minister of Nigeria, summed it up: “If you depend on oil and gas for 80 percent of government revenues, over 90 percent of exports are one commodity, oil, if that is what drives the growth of your economy, if your economy moves up and down with the price of oil, if you have volatility of expenditures and of GDP, then you’re a petro- state. You get corruption, inflation, Dutch disease, you name it.”4 While these are the general characteristics that define a petro-state, there are wide variations. The dependence on oil and gas of a small Persian Gulf country is obvious, but its population is also small, which reduces pressures. And it can insulate itself from volatile oil prices through the diversified portfolio of its sovereign wealth fund. A large country like Nigeria that depends heavily on oil and natural gas for government revenues and for its GDP has much less flexibility. Spending is very difficult to rein in. There is also a matter of degree. With 139 million people and a highly developed educational system, Russia possesses a large, diversified industrial economy. Yet it does depend upon oil and natural gas for 70 percent of its export revenues, almost 50 percent of government revenues, and 25 percent of GDP—all of which means that the overall performance of its economy is inordinately tied to what happens with the price of oil and gas.

Thus for investors—whether running hedge funds or pension funds, or retail investors—the commodity play was not just about oil itself, but about the booming economies that were using more and more oil.10 TRADING PLACES And now there were a lot more people in the oil market—the paper barrel part of the market—investing with no intention nor any need of ever taking delivery of the physical commodity. There were pension funds and hedge funds and sovereign wealth funds. There were the “massive passives”—the commodity index funds, heavily weighted to oil and with all the derivative trading around them. There were also exchange-traded funds; there were high net-worth individuals; and there were all sorts of other investors and traders, some of them in for the long term, and some of them very short term. Oil was no longer just a physical commodity, required to fuel cars and airplanes.


pages: 859 words: 204,092

When China Rules the World: The End of the Western World and the Rise of the Middle Kingdom by Martin Jacques

Admiral Zheng, Asian financial crisis, Berlin Wall, Bob Geldof, Bretton Woods, BRICs, British Empire, credit crunch, Dava Sobel, deindustrialization, Deng Xiaoping, deskilling, discovery of the americas, Doha Development Round, energy security, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, global reserve currency, global supply chain, illegal immigration, income per capita, invention of gunpowder, James Watt: steam engine, joint-stock company, Kenneth Rogoff, land reform, land tenure, lateral thinking, Malacca Straits, Martin Wolf, Naomi Klein, Nelson Mandela, new economy, New Urbanism, one-China policy, open economy, Pearl River Delta, pension reform, price stability, purchasing power parity, reserve currency, rising living standards, Ronald Reagan, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, spinning jenny, Spread Networks laid a new fibre optics cable between New York and Chicago, the scientific method, Thomas L Friedman, trade liberalization, urban planning, Washington Consensus, Westphalian system, Xiaogang Anhui farmers, zero-sum game

A proportion of these have been invested, notably in the case of China and Singapore, in state-controlled sovereign wealth funds whose purpose is to seek profitable investments in other countries, including the West. Commodity-producing countries, notably the oil-rich states in the Middle East, have similarly invested part of their newly expanded income in such funds. Sovereign wealth funds acquired powerful new leverage as a result of the credit crunch, commanding resources which the major Western financial institutions palpably lacked.5 The meltdown of some of Wall Street’s largest financial institutions in September 2008 underlined the shift in economic power from the West, with some of the fallen giants seeking support from sovereign wealth funds and the US government stepping in to save the mortgage titans Freddie Mac and Fannie Mae partly in order to reassure countries like China, which had invested huge sums of money in them: if they had withdrawn these, it would almost certainly have precipitated a collapse in the value of the dollar.

It is not difficult to imagine what some of these points of difference might be: growing competition and conflict over the sources of energy supplies - in Angola or Venezuela, or wherever; an intensifying dispute over the expanding strategic partnership between the United States and India; Chinese firms, awash with cash, threatening to take over American firms and provoking a hostile reaction (as happened in the case of the oil firm Unocal); the Chinese sovereign wealth fund, its coffers filled with the country’s huge trade surplus, seeking to acquire a significant stake in US firms that are regarded as of strategic importance;166 and a pattern of growing skirmishes over the militarization of space.167 Moreover, China being culturally so different from the United States, in a way that was not nearly as true of the USSR, only adds to the possibility of mutual misunderstanding and resentment.

China has since abandoned its opposition and is now exploring with others in the region the possibility of creating such a fund. Any such body would undoubtedly have the effect of seriously weakening the role of the IMF. In the event of another Asian financial crisis, it is likely that a regional financial solution would play a much bigger role than was the case before. The power of the IMF, moreover, has declined significantly over the last decade or so, with its role as a lender having diminished. In fact sovereign wealth funds have injected more capital into emerging markets in recent years than the IMF and World Bank combined (see Figure 40). This brings us to the World Bank. As China’s financial power expands, its ability to make loans and give aid will increase dramatically, as we have seen in the case of Africa, where Chinese loans already exceed those made by the World Bank; in time, Chinese aid and loans could dwarf those made by the World Bank on a global basis as well.176 Meanwhile the WTO , with the demise of the Doha round - effectively torpedoed by China and India177 - together with the growing popularity of bilateral trade agreements, presently looks rather less important than it did a decade ago when trade liberalization was in full swing.


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

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

U.S. growth in the second quarter had just been revised upwards from 1.2 percent to 1.8 percent13 and the biggest worry was no longer the credit crunch but the threat of inflation caused by overly rapid growth in China, India, and other emerging nations. The credit crunch was turning out to be less damaging than generally expected for several reasons. One was the continuing growth of Asia and the seemingly inexhaustible supply of excess savings in that part of the world. These savings were made available by the Sovereign Wealth Funds (SWFs) of Abu Dhabi, Singapore, Korea, China, and other countries to Western financial institutions that needed to rebuild their capital after their initial subprime losses—which helped maintain financial stability throughout the first twelve months of the subprime crisis. Another favorable factor, almost unnoticed by politicians and media commentators, was that the U.S. economy was displaying its usual flexibility in responding to the property bust.

The real significance of the rescue, which rapidly turned into paralyzing shock and awe for financial markets, was what it did to the shareholder stakes in Fannie and Freddie. These stakes were rendered essentially worthless—including some $20 billion of new capital subscribed just a few months earlier by long-term shareholders. Among these confiscated shareholders were several foreign governments and Sovereign Wealth Funds. They had provided badly needed capital to U.S. financial institutions throughout the credit crunch and had invested in Fannie and Freddie shares with the U.S. Treasury’s active encouragement and on the basis of a public statement by their regulator, James Lockhart of the Federal Housing Finance Agency, that they had sufficient capital and that their cash needs were adequately covered until at least the end of 2009.28 It later emerged that Paulson, to find a legal justification for his seizure, put intense political pressure on Lockhart to reverse his ruling and declare that Fannie and Freddie were in danger of insolvency, just two months after the FHFA analysis had found them to be adequately capitalized.

As a result, it became impossible for any U.S. bank to raise any additional capital from private shareholders, who now quite reasonably feared a Treasury decision could wipe them out overnight. The GSE seizure thus raised a Sword of Damocles over every U.S. financial institution that might conceivably need to raise any new capital anytime in the foreseeable future—first and foremost Lehman, but also Merrill Lynch, AIG, Morgan Stanley, and Citigroup. Following the GSE rescue, it was out of the question for American banks to raise new capital from the governments or sovereign wealth funds in Abu Dhabi, Singapore, or Saudi Arabia, regardless of how hard the U.S. treasury secretary, or even the president himself, might rattle the begging bowl. Amazingly, this unintended consequence of the GSE seizure seemed never to receive a moment’s consideration in the Treasury or the Fed.30 As a result, the GSE seizure effectively demolished the first of the two possible lines of defense discussed at the beginning of this chapter for banks facing a loss of confidence.


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Every Nation for Itself: Winners and Losers in a G-Zero World by Ian Bremmer

airport security, banking crisis, barriers to entry, Berlin Wall, blood diamonds, Bretton Woods, BRICs, capital controls, clean water, creative destruction, Deng Xiaoping, Doha Development Round, energy security, European colonialism, failed state, global rebalancing, global supply chain, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), Julian Assange, Kickstarter, Martin Wolf, mass immigration, Mikhail Gorbachev, mutually assured destruction, Nelson Mandela, Nixon shock, nuclear winter, Parag Khanna, purchasing power parity, reserve currency, Ronald Reagan, smart grid, South China Sea, sovereign wealth fund, special economic zone, Stuxnet, trade route, uranium enrichment, Washington Consensus, WikiLeaks, Yom Kippur War

The use of national oil companies allows the leadership to ensure that China’s long-term energy needs are met, in part by arming these firms with the financial resources and political influence they need to secure contracts with the governments of commodity-producing countries. Other state-owned enterprises and politically loyal national champions bolster the state’s ability to direct resources and create jobs to reinforce stability. State-run banks and sovereign wealth funds help ensure that capital is directed to support these and other projects. A growing number of Chinese companies have become much more competitive and now see foreign companies not as potentially useful partners but as rivals for local market share, and they’re using political connections within the bureaucracy to craft investment rules and regulations that favor local firms at the expense of their foreign competitors.

With every nation for itself, the next wave of would-be nuclear powers will see that—and may decide that they too can safely ignore demands from established powers. COMPANIES AND THE COMPETITIVE EDGE The G-Zero will provide many different kinds of companies and institutions with important advantages. First, well-managed and well-positioned state-owned enterprises, politically loyal national champions, favored banks, and sovereign wealth funds will continue to profit from the competitive boost their governments can provide them. Stories of Chinese and Russian policymakers finding creative ways to tip the commercial playing field to favor their favorites, both at home and abroad, have become well known, but we’re also seeing this trend in emerging-market democracies. Brazil’s government has passed a series of laws that make state-owned oil company Petrobras the lead operator for new exploration and production activity involving the country’s massive offshore oil deposits.

., 121 NGOs, 135 Nigeria, 48, 72, 177, 182 Nile, 106 Nixon, Richard, 44, 49–50 Noda, Yoshihiko, 20 North Africa, 18, 48, 136, 139, 175, 187 North Atlantic Treaty Organization (NATO), 17, 19, 30, 117, 133–34, 192 North Korea, 70, 91, 123, 125, 152, 154, 165, 208n nuclear program of, 15, 57, 58–59, 124, 158, 161 Norway, in Arctic Council, 96–97 Nuclear Non-Proliferation Treaty (NPT), 57–59 Obama, Barack, 8–9, 11, 64, 65, 100, 113, 190, 202n oil, 3, 22, 23, 30–31, 37, 47–49, 58, 61, 114, 116, 117, 120, 125–26, 127, 141–42, 147, 160, 181–82 in Arctic, 97 OPEC’s embargos of, 48–49, 50 as priced in dollars, 81–82 oilseeds, 100 Oman, 71 Organization of the Petroleum Exporting Countries (OPEC), 48–49, 50, 100 Paine, Thomas, 185 Pakistan, 14, 57, 70, 115, 161, 182, 183 food riots in, 98 India’s conflict with, 25, 70, 152, 158, 165–66 U.S. drone attacks in, 111 Palestinians, 17, 25, 136, 158 Pan Am Flight 103, 139 Panetta, Leon, 73 PayPal, 75 Peace Corps, 90–91 Pearl Harbor, 187 People’s Action Party, Singapore, 121 People’s Liberation Army, 146 Peru, 177 Petrobras, 125–26 Pew Research Center, 13 Philippines, 23, 51, 70, 114, 129, 194 pivot states, 115–20, 136, 140–41, 155, 165, 177, 178–79 Poland, 55 pollution, 104–5 population growth, 104 Portugal, 17 power grids, 169, 171 protectionism, 77–79 protectors, 128–30 Prussia, 167 Putin, Vladimir, 24, 54, 82, 137, 141, 182 Qatar, 48, 71 Rapaport, 132 Raytheon, 129 Reagan, Ronald, 65 “Red Dragon Rising: The Coming War with China” (board game), 170–71 referees, 133–35 regional development banks, 38 Research in Motion (RIM), 33 Resolution 1973, 192 Roach, Stephen, 12 rogue states, 123–25, 138–39 Roosevelt, Franklin, 42–43 Rosneft, 127 Royal Dutch Shell, 97 Rudd, Kevin, 203n Russia, 24, 28, 30, 54, 55, 69, 73, 77, 84, 102, 121, 122, 125, 141, 168, 169, 170, 177, 183, 203n in Arctic Council, 96, 97 climate change and, 94 default on debt in, 37 energy exported by, 30 Georgia’s war with, 32, 141 grain exports banned by, 102 Internet in, 88, 89, 91, 92 nuclear program of, 59 oil prices and, 141 Peace Corps unwelcome in, 90–91 state capitalism in, 78 suspicions of U.S. in, 91 Ukraine’s ties with, 54, 137–38, 141 water security in, 105 Russian Empire, 167, 182 Rwanda, 32, 106 Sarkozy, Nicolas, 9, 38 Sata, Michael, 119 Saudi Arabia, 26, 30, 33, 48, 67, 69, 71, 114, 128, 155, 182 foreign land purchased by, 102 grain production in, 104 Internet in, 92 local hegemony of, 175–76 oil of, 114 state capitalism in, 78 Schäuble, Wolfgang, 18 Schengen Agreement, 18, 176 Schularick, Moritz, 158 Scowcroft, Brent, 163 September 11, 2001, terrorist attacks of, 13, 32, 64, 188 Serageldin, Ismail, 104 shadow states, 136–38 Shanghai Cooperation Organization, 122 Shaw, George Bernard, 37 Shi Lang, 23 Siemens, 127 Sierra Leone, 130 Singapore, 51, 71, 120, 121–22, 194 Singh, Manmohan, 26 smart grids, 72, 73 Social Security, 12, 189 Somalia, 14, 183 Sony, 75 Soreq Nuclear Research Center, 207n South Africa, 10, 26, 28, 72, 131, 177 biofuel production in, 100 South Asia, water scarcity in, 104 South China Sea, 23, 129 Southeast Asia, 59, 102 urbanization in, 99 Southern African Development Community, 120 South Korea, 15, 51, 55, 70, 71, 114, 129, 165, 173, 208n foreign land purchased by, 102 U.S. beef banned by, 103 sovereign wealth funds, 125 Soviet Union, 39, 44, 45, 47, 52, 53, 54, 72–73, 138, 168, 173, 186 coup attempt in, 92 efforts at reform in, 179–80 nuclear program of, 57 post–World War II reconstruction needed in, 39–40 shifting borders of, 182 Spain, 17, 169 separatist movements in, 181 Spiegel, Der, 8 Spielberg, Steven, 119 Splinternet, 90 Standard Chartered Bank, 3 State Development & Investment Corporation (SDIC), 129, 140 state-owned companies, 78–79, 119, 125, 139–40, 160 in China, 59, 61, 86, 144, 148 Stoltenberg, Jens, 9 Strategic Arms Reduction Treaty (2010), 59 Strategy & Tactics, 170–71 Strauss-Kahn, Dominique, 27 Stuxnet, 56, 72–73 Sudan, 32, 106, 119 Sweden, in Arctic Council, 96–97 Syria, 48, 69, 112, 117, 123, 175, 183 Taiwan, 51, 114, 129, 172–73 as exposed state, 136 Tanzania, 106 tariffs, 79 Tata Group, 128 TD-SCDMA, 86 tech bubble, 64 telecommunications standards, 33, 83–94 terrorism, 3, 70, 93, 116, 128, 170, 183 Texas, 47, 48 Thailand, 51, 71, 114, 124, 168–69, 194 collapse of currency in, 37 multinationals in, 80 water security in, 105 3G mobile phone standard, 86 Three Gorges Dam, 105 Tiananmen Square, 53, 59, 148, 163 Time, 75 trade, global, 68, 70–71, 76–80, 178, 193–95 protectionist trend in, 77–79 trade balances, 32 trade routes, 15, 24, 59 Trans-Pacific Partnership, 71 Treasury Department, U.S., 38 Tunisia, 19, 69, 112, 175 Turkey, 3, 25, 26, 55, 69, 76, 141, 148, 155, 161, 166, 179, 187 as pivot state, 117 Turkmenistan, 54 Twitter, 91 Uganda, 72, 106 Ukraine, 54, 141, 177 as shadow state, 137–38 United Arab Emirates, 26, 48, 71 United Nations, 44, 89, 97, 104, 131 Food and Agriculture Organization, 100, 103 General Assembly of, 21, 44 Security Council of, 3, 25, 44, 57, 192 World Food Program of, 103 United States, 16, 21, 25, 30, 39, 44, 47, 50, 122, 148–49, 170, 182 in Arctic Council, 96–97 as Asian power, 70–71 beef production in, 103, 105 biofuels produced in, 100 United States (cont.)


pages: 288 words: 76,343

The Plundered Planet: Why We Must--And How We Can--Manage Nature for Global Prosperity by Paul Collier

agricultural Revolution, Berlin Wall, business climate, Doha Development Round, energy security, food miles, G4S, information asymmetry, Kenneth Arrow, megacity, new economy, offshore financial centre, oil shock, profit maximization, rent-seeking, Ronald Coase, Scramble for Africa, sovereign wealth fund, stem cell, Stewart Brand

When the oil arrives it is expected to generate revenues of between 4 and 5 percent of GDP, so the government hastily spent around four times the revenues that it anticipated. However, more prudent governments take the advice seriously because it approximates quite closely what the Norwegian government has been doing with its oil revenues. Revenues from natural assets are placed into a special public fund known as the Sovereign Wealth Fund, which is earmarked for future generations and invested in international capital markets. Although stock markets are very volatile, overall the system has served Norway well: according to the 2009 Human Development Index it offers the best quality of life in the world. Unsurprisingly, it has become a model for those governments of low-income countries which wish to behave responsibly. Indeed, I was told that the Norwegian government had received requests for advice from 50 other governments on how to manage their resource revenues.

Because the economy is short of capital it makes sense for the government to deploy those savings in its own economy rather than on international financial markets. But there are limits to how volatile that domestic investment can be without making the country unstable. So during boom time much of the savings will need to be parked abroad temporarily in safe, liquid financial assets. The role of those savings abroad is to smooth the investment process. Rather than a Sovereign Wealth Fund the country needs a Sovereign Liquidity Fund of short-term assets to buffer the shocks to revenue. How far should such buffering go? Simulations based on the past volatility of commodity prices suggest that in order fully to smooth out the highs and the lows, and spending versus saving, a very large Liquidity Fund would be needed. To build such a fund would take all the revenues for many years.

See also carbon emissions Liberia, 55, 69 Libya, 121–22, 218 The Life You Can Save (Singer), 24 light bulbs, 188 liquidity funds, 118–19 lobby groups and lobbying and ethanol, 223–24 fishing lobbies, 163, 170 and public spending, 135 lobsters, 154, 202–3 logistics and modern agriculture, 216–17 low-income countries and absorption problem, 133 and boom times, 115 and discovering natural assets, 74 and economic policy, 61 and free-rider problem, 192 and global industrial output, 185 and governance, 47 and Hotelling Rule, 107 and human development, 109 and implementation of public investments, 136–38 and international aid, 146 and need for capital, 110–14 and Norwegian model, 128 and peasant agriculture, 213 and plunder of natural assets, 125 and revenue sources, 100–101 and savings rate, 119–20 and tax policy, 100 See also developing countries luck, 20, 71, 196–97 Madagascar, 218 maize, 222–23 Malawi, 223 Malaysia, 48, 93, 94, 137 mankind, extinction of, 16 man-made assets, 28, 66, 99, 201 manufacturing, 180 Marie Antoinette, Queen, 221 Mexico, 6 Middle East, 32, 50, 193 middle-income countries and industry, 185, 197 and investments, 133, 137 and trade restrictions, 193 and vulnerability to plunder, 6 modern, birth of, 7 Mongolia, 89 monopolies, 69–70, 74, 219 Mugabe, Robert, 199, 218 Mumbai, India, 139 national identity, 31 national income accounting, 120–21 nationalism, 243 nationalization of resource extraction, 92–94 national parks, 166 nation states, 27, 237 natural assets, defining features of, 160 NaturalResourceCharter.org, 234 nature and agriculture, 8 man’s relationship with, 7 ownership of, 4, 16–23, 29, 168, 194 special status of, 10, 15, 26 vulnerability of, 15–16 need, Utilitarian principle of, 24, 25, 28, 31 Newsweek, 132 Niger Delta, 140 Nigeria banks in, 149 and capital flight, 144 and Cement Armada, 141, 144 construction in, 147, 148 corruption in, 37, 128–30 exports, 101 and inflated population figures, 198 and infrastructure, 140–41 Lagos, 139, 140, 141 oil of, 37, 41, 47, 101, 119–20, 122, 139–40 population shifts in, 138 and public distribution of revenues, 143 savings rate of, 121, 123 and taxation, 89–90 nitrates, 106 Nokia, 18 nonagricultural commodities, 42, 45 nongovernmental organizations (NGOs), 8, 231–32, 233 nonrenewable natural assets and African countries, 95 and boom times, 115 and custody principle, 155–56, 157 and ethics of depletion, 98–99, 230 and Hotelling Rule, 104, 155 and Permanent Income, 102 prices of, 104–7 renewable assets contrasted with, 157, 161 revenues from, 99 and sustainability, 98, 100–102, 154 See also specific assets, including coal and oil North America, 3, 91 North Atlantic Treaty Organization (NATO), 225 North Korea, 242 North Sea, 48, 93 Norway Arctic border of, 162 investment model of, 109, 113–14, 117–18, 128, 143 oil in, 38, 47, 48, 93, 109 and Sovereign Wealth Fund, 109 and state-owned oil company, 93–94 nuclear power, 181, 194 Obama, Barack, 238, 239, 240 Obasanjo, Olusegun, 129, 130 oceans, 167, 168–69. See also fisheries OECD countries and fishing, 163 and governance of natural assets, 7 prospecting of, 67–68 and subsoil assets, 63, 65, 66 and the world economy, 6 oil and Angola, 20, 41, 67, 122 in the Arctic, 29–30, 34, 162 and bio-fuels, 226 and bottom billion countries, 67, 68 and Britain, 65 and Cameroon, 81 demand for, 194 and France, 182 and Ghana, 108 and Indonesia, 93 and Kuwait, 32 and Malaysia, 93 and Mexico, 6 nationalization of, 93–94 and Nigeria, 41, 47, 101, 119–20, 139–40 and Norway, 38, 47, 48, 93, 109 oil booms, xiii, 41–42 potential exhaustion of, 106 price of, 194 returns on, 88 and Sierra Leone, 126 and technology, 106, 194 Olken, Benjamin, 59 opportunism, 29–30 organic food, 16, 213–14 Organisation for Economic Co-operation and Development (OECD), 82, 164, 225.


pages: 318 words: 77,223

The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse by Mohamed A. El-Erian

activist fund / activist shareholder / activist investor, Airbnb, balance sheet recession, bank run, barriers to entry, break the buck, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, collapse of Lehman Brothers, corporate governance, currency peg, disruptive innovation, Erik Brynjolfsson, eurozone crisis, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, friendly fire, full employment, future of work, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, inflation targeting, Jeff Bezos, Kenneth Rogoff, Khan Academy, liquidity trap, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Norman Mailer, oil shale / tar sands, price stability, principal–agent problem, quantitative easing, risk tolerance, risk-adjusted returns, risk/return, Second Machine Age, secular stagnation, sharing economy, sovereign wealth fund, The Great Moderation, The Wisdom of Crowds, too big to fail, University of East Anglia, yield curve, zero-sum game

He notes that “squeezing risk out of the economy can be like pressing down on a water bed: The risk often re-emerges elsewhere. So it goes with efforts to make the financial system safer since the financial crisis.”2 This development is accentuating a growing imbalance between the shrinking intermediaries in the marketplace (the broker-dealers) and the growing number of end users (asset managers of both the traditional and nontraditional ilk, as well as sovereign wealth funds, pension managers, insurance companies, etc.). It is a durable structural change that, in addition to the liquidity implications discussed in the next chapter, will make market volatility more common, together with prolonged price overshoots, price contagion, and then sudden and sharp reversals. There are already quite a few reasons that contribute to the repeated emergence of asset bubbles.

Pressured both by regulators looking to de-risk finance in order to avoid another 2008 global financial crisis, and by shareholders who have diminished appetite for countercyclical adventures, dealers have been a lot less willing to take the other side of large trades. As such, the intermediation capacity that sits at the core of the established market system and lubricates its functioning has been materially shrunk. Not so for those that access it. The last few years have seen a meaningful growth in the size and complexity of end users, be they asset managers, hedge funds, pensions, insurance companies, or sovereign wealth funds. Yet, having to go through a diminished middle, the pipes that link them have done more than fail to keep up in relative terms; they have actually contracted. Figure 10. Intermediaries and end users Two factors amplify the consequences of this growing imbalance, which is particularly acute for certain asset classes that lack inherent depth (such as emerging-market corporates and high-yield bonds) as well as products that many investors seem to believe are always highly liquid at acceptable prices (from ETF structures to TIPs).

There is also scope for greater use of modern approaches that better match the ability to spend with important national priorities. Despite analytical progress, the focus on enlarging the scope of private-public partnerships continues to lag. The potential is definitely there. As an example, just think of, on the one hand, severely underfunded infrastructure investment needs and, on the other hand, the large pool of long-term capital looking for long-dated opportunities (be they sovereign wealth funds, insurance companies, or pensions). It is a gap that is especially glaring given that a part of this pool is also seeking to have socially beneficial impacts. Yet too little has been done by governments to offer a matching menu of partnership options, and this despite the fact that, from roads to city parking facilities, there are encouraging operational examples. The demand mismatches are even more visible at the regional level, especially within the Eurozone.


pages: 151 words: 38,153

With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don't Pay Enough by Peter Barnes

Alfred Russel Wallace, banks create money, basic income, Buckminster Fuller, collective bargaining, computerized trading, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, diversified portfolio, en.wikipedia.org, Fractional reserve banking, full employment, hydraulic fracturing, income inequality, Jaron Lanier, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, land reform, Mark Zuckerberg, Network effects, oil shale / tar sands, Paul Samuelson, profit maximization, quantitative easing, rent-seeking, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the map is not the territory, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, Upton Sinclair, Vilfredo Pareto, wealth creators, winner-take-all economy

“Ordinary people ‘share,’ while elite network presences generate unprecedented fortunes,” he observes. Lanier thinks the Siren Servers should pay for our personal information and mind time, though he doesn’t say how.13 One possibility is to charge tiny fees for every ad click and put that money into the dividend pot. Other countries are experimenting, too. Dozens have created what are generically called sovereign wealth funds, which together own more than $6 trillion in assets. The largest of these, in Norway, has assets in excess of $1 million per Norwegian.14 If it paid dividends of 4 percent, everyone in Norway would receive about $40,000 a year. That, no doubt, seems excessive to Norwegians, so the fund pays 4 percent to their government instead. Norwegians are happy to fund their government this way because it provides, among other things, free medical treatment.

See also Co-owned wealth dividends from, 124–125 Silicon Valley, 25 Simon, Herbert, 49 Simons, Henry, 91 Skocpol, Theda, 110–112 Smith, Adam, 50–51, 52, 61 Social insurance, 37–39. See also Medicare; Social Security achievements of, 87–88 lessons of, 40–42 shared wealth dividends and, 124–125 universality and, 40–41 Social Security, 20, 38–40 as deferred wage, 27 dividends connected to, 87–88 growth of, 41–42 individual/employer contributions to, 84 privatization of, 21 Social Security Act, 38–40 South Africa, 131 Sovereign wealth funds, 129 Spectrum use, 94 Sports industry, 126 Springsteen, Bruce, 13 Stiglitz, Joseph, 55–56 Stocks and bonds. See also Universal stock ownership employee stock ownership plans (ESOPs), 81–82 potential revenue from transaction fees, 143 stock offers, 46 Student loans, 21 Suarez Industries, 26 Sugarscape, 31 Sulfur dioxide emissions, 99 Surplus production capacity, 7 Sweden, 19, 113 Switzerland, 129 Systems, defined, 10 T Taxation absurd tax (Smith), 52 carbon taxing, 113–115 of co-owned wealth, 64 financial transaction taxes, 143 negative income tax, 80–81 as political war zone, 85 redistributory schemes and, 86 rent and, 51 value added taxes (VATs), 140–141 Tax credits, 77 Tax cuts, 21 Republicans and, 22 Teachers, 23–24 Tea Party, 110, 111 Theobald, Robert, 80 Timber, rent from, 145 Tobin, James, 80 Tocqueville, Alexis de, 16 Townsend, Francis, 132–133 Townsend Plan, 133–134 Trademarks, rent from, 144 Transformative ideas, 127 Turner, Lord Adair, 91–92 U Unemployment insurance, 19 job training and, 25 Roosevelt, Franklin D. and, 38–39 Unions.


pages: 434 words: 114,583

Faster, Higher, Farther: How One of the World's Largest Automakers Committed a Massive and Stunning Fraud by Jack Ewing

1960s counterculture, Asilomar, asset-backed security, Berlin Wall, cognitive dissonance, collapse of Lehman Brothers, corporate governance, crossover SUV, Fall of the Berlin Wall, full employment, hiring and firing, McMansion, self-driving car, short selling, Silicon Valley, sovereign wealth fund, Steve Jobs

That was the equivalent of sitting in New York and betting on a horse race in Stuttgart, then complaining to the New York Gaming Commission that the jockey was corrupt. But it wasn’t just speculators who were unhappy with Porsche’s financial sleight of hand. Volkswagen’s largest outside shareholder was Norges Bank Investment Management (NBIM), which administers Norway’s oil riches on behalf of the country’s citizens. By some measures, NBIM, an arm of the country’s central bank, is the largest sovereign wealth fund in the world. In October 2009, the fund addressed a bluntly worded letter to Ferdinand Piëch and the Volkswagen supervisory board expressing dissatisfaction about the terms of Volkswagen’s acquisition of Porsche. The deal “was designed to suit the needs of the Porsche controlling families at the expense of Volkswagen and its non-controlling owners,” wrote Anne Kvam, the Norway fund’s global head of corporate governance, and Ola Peter Krohn Gjessing, a senior analyst.

Hirt told members of the supervisory board—dominated by the Porsche and Piëch families and organized labor—that they were ultimately responsible for a “culture in which the emissions scandal was able to unfold and remain undetected for many years.” The board members listened impassively from a stage. With less than 11 percent of Volkswagen’s voting shares in the hands of outsiders, they could easily ignore such criticism. The families as well as the state of Lower Saxony stood behind management. So did the company’s other major shareholder, the sovereign wealth fund of Qatar. Together, they crushed a motion by dissident shareholders to remove Pötsch as chairman of the supervisory board on the grounds that he had been chief financial officer when the wrongdoing was taking place. Speaking at the meeting, Müller continued to give the impression that the fraud was perpetrated by a small number of employees. “Based on what we now know, in the past there were certain process deficits in some technical subdivisions in addition to misconduct on the part of individuals,” he said.

(The other family members are Louise Kiesling, a niece of Ferdinand Piëch; Hans Michel Piëch, a brother of Ferdinand; Wolfgang Porsche, a cousin of Ferdinand and spokesman for the Porsche family; and Ferdinand Oliver Porsche, Wolfgang’s brother.) Annika Falkengren, a Swedish banker, is the only shareholder representative on the Volkswagen supervisory board who is not affiliated with the families, Lower Saxony, or the sovereign wealth fund of Qatar. The other ten members of the supervisory board are worker representatives, in line with German law. There is a shortage of outside voices, and no apparent will for reform. It would be a tragedy if, eight decades after the brick walls of the Volkswagenwerk rose on the banks of the Mittelland Canal to build Ferdinand Porsche’s “people’s car,” his descendants were the ones ultimately responsible for the Volkswagen’s demise.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

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

These forms include “the apparent authority exercised by global market forces, by private institutions engaged in the setting of international standards, by human rights and environmental non-governmental organizations, by transnational religious movements, and even by mafia and mercenary armies in some instances” (Hall and Bierstecker 2002: 4). Of key relevance to the discussion here is the notion of market authority, which in a monetary context includes banks and financial corporations, sovereign wealth funds, and various nonstate regulatory institutions. Sovereign wealth funds (SWFs) are especially interesting. These are special investment funds whose government-owned assets include international assets (Truman 2010: 10). The IMF lists five basic objectives of SWFs: stabilizing funds to insulate the budget from price swings; building wealth for future generations; managing foreign exchange reserves; building up development funds; and maintaining pension reserve funds (IMF 2008).

Moreover, the state played a crucial role in that history—just as it continues doing so today.27 Third, Marx’s analysis of the role of the “modern bankocracy” opens up an analytical space in which finance can be understood in relation to a particular kind of accumulation, more akin to mercantilism and rent seeking than more conventional forms of capitalist production.28 Financial derivatives did not exist in Marx’s day. Nor did hedge funds or sovereign wealth funds. Nonetheless, his analysis of primitive accumulation provides a powerfully suggestive means of framing these forms of financial capitalism (McNally 2009; Ekman 2012). Although Marx’s arguments soon became outdated empirically, in theoretical terms his analysis of money and finance, and especially the distinction between them, are as resonant today as they ever were. Nowhere is this resonance more evident than in the work of David Harvey, whose work I examine next.

Credit and State Theories of Money: The Contributions of A. Mitchell Innes, L. R. Wray, Ed. Cheltenham, U.K., Edward Elgar Publishing: 173–222. Ingham, G. (2004b). The Nature of Money, Cambridge, U.K., Polity Press. International Monetary Fund (IMF) (2006). “Global Financial Stability Report: Market Developments and Issues.” Washington, DC, International Monetary Fund. International Monetary Fund (IMF) (2008). Sovereign Wealth Funds—A Work Agenda, IMF Monetary and Capital Markets and Policy Development Review Departments, Washington, DC, International Monetary Fund. Isaac, B. (1993). “Retrospective on the Formalist–Substantivist Debate.” Research in Economic Anthropology, B. Isaac, Ed. Greenwich, CT, JAI Press: 213–33. Issing, O. (2008). The Birth of the Euro, Cambridge, U.K., Cambridge University Press. Jameson, F. (2007).


pages: 262 words: 83,548

The End of Growth by Jeff Rubin

Ayatollah Khomeini, Bakken shale, banking crisis, Berlin Wall, British Empire, business cycle, call centre, carbon footprint, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, decarbonisation, deglobalization, energy security, eurozone crisis, Exxon Valdez, Fall of the Berlin Wall, fiat currency, flex fuel, full employment, ghettoisation, global supply chain, Hans Island, happiness index / gross national happiness, housing crisis, hydraulic fracturing, illegal immigration, income per capita, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Kickstarter, McMansion, Monroe Doctrine, moral hazard, new economy, Occupy movement, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, quantitative easing, race to the bottom, reserve currency, Ronald Reagan, South China Sea, sovereign wealth fund, The Chicago School, The Death and Life of Great American Cities, Thomas Malthus, Thorstein Veblen, too big to fail, uranium enrichment, urban planning, urban sprawl, women in the workforce, working poor, Yom Kippur War, zero-sum game

Why do you think I’m an author now? I spent nearly twenty years as chief economist of CIBC World Markets, a major Canadian investment bank with clients and operations around the world. It was certainly a good way to earn a living. Global investors are constantly grappling with changing financial conditions, which puts the services of a chief economist in high demand. One week you’re advising sovereign wealth funds in exotic locales such as Kuwait or Singapore, and the next you’re back in North America telling heavyweight pension funds how economic events will impact stocks, bonds and currencies. On other days, you’re visiting global financial capitals and eating at nice restaurants with powerful portfolio managers and high-ranking government officials. The press frequently chases you for comments, which opens up an entirely different aspect of the job.

Will new leaders feel compelled to listen to the voices on the street that swept them to power? The answer feels like yes. And if the answer is yes, what will that mean for supply contracts inked by deposed rulers? New regimes born in the aftermath of the Arab Spring may be less inclined to supply oil to customers in Europe or North America. Production contracts could instead be granted to energy-hungry countries such as China and India, both of which have massive sovereign wealth funds looking for opportunities to invest in energy. No matter what form political change may take, the region’s history makes it abundantly clear that, for world energy markets, social upheaval invariably leads to less supply. OPEC CAPACITY IS TAPPED OUT Events taking place above the ground aren’t the only thing you should worry about in the Middle East. Apart from the inherent political instability, the global economy has other reasons to expect less oil from the region in the future.

Conversely, nations with abundant energy resources become more powerful and affluent. Few countries are in better shape in this regard than Russia, which is using the clout of its massive oil and gas reserves to extend its influence across Europe. The security that comes from a steady stream of petrodollars also allows Venezuela to thumb its nose at the United States and stoke anti-American sentiment across Latin America. The rise of sovereign wealth funds and state-owned oil companies can also be traced to the money that triple-digit oil prices have sent coursing into the global petro-economy. In the coming years, even more of the world’s petroleum supply will be controlled by state-run actors. Companies such as Saudi Aramco, Rosneft, Indian Oil, Sinopec and PetroChina already rank among the heavyweights of the world oil industry. As these companies get even bigger, more oil will be traded on a state-to-state basis, leaving fewer barrels for the open market.


pages: 304 words: 80,965

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

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

DE-EMPHASIZE TRADING AND SPECULATION, AND REWARD INVESTING FOR THE LONG TERM Market conditions encourage trading in public stocks based on price, rather than investing in public companies based on value. Here are suggestions for how to reverse that trend. Tim MacDonald of the Capital Institute has proposed a different form of ownership for long-term investors. In a back-to-the-future synthesis of modern financial engineering and old-fashioned direct ownership, he would have pension funds, endowments, insurance companies, sovereign wealth funds, and other large long-term investors curtail their public market investments, getting away from what he calls the tyranny of the trading tape. MacDonald’s idea, which he calls “evergreen direct investing,” is that an investor would make a direct investment into a company. Over time, the pension fund’s investment morphs from equity into debt, providing longterm cash flows after the period of high risk and need for growth capital has passed.

After twenty years, a saver contributing every year to a well-governed fund would be about 30 percent better off than someone stuck in one that was poorly governed.5 Indications that accountability improves results are slowly accumulating. The Cooper Review, a 2010 government inquiry in Australia, also projected substantial benefits when funds have better governance.6 Scholars have found similar results in sovereign wealth funds.7 And Morningstar’s test of its own stewardship rankings of more than forty US fund companies found a correlation between the governance of mutual funds and their performance over five years.8 As Oxford University’s Gordon L. Clark brutally puts it in reference to both defined benefit and defined contribution plans: “Poor organizational systems combined with a palpable lack of expertise makes many pension funds a soft target for unscrupulous financial service providers.”9 Why should good governance improve investment returns?

The price tag for subpar accountability would seem to be substantial if the Ambachtsheer gap holds up under further investigation. 6. Super System Review Final Report—Part One Overview and Recommendations (Super System Review, June 30, 2010), www.afr.com/rw/2009-2014/AFR/2010/07/05/Photos/0d280174-87d8-11df-bbd0-8f855dd2fda9_SSR%20Final%20Report%20Part%201.pdf, section 6.1. 7. Kathryn L. Dewenter, Xi Han, and Paul H. Malatesta, “Firm Values and Sovereign Wealth Fund Investments,” Journal of Financial Economics 98, no. 2 (November 2010): 256–78. 8. Lauren Pavlenko Lutton, Katie Rushkewicz, Kailin Liu, and Xin Ling, Morningstar 2011 Mutual Fund Stewardship Grade Research Paper (Morningstar Fund Research, March 2011), http://corporate.morningstar.com/us/documents/methodologydocuments/MethodologyPapers/StewardshipGradeMethodology.pdf. 9. Gordon L. Clark, “Pension Fund Governance 1: Expertise and Organisational Form” (Pennsylvania State University, College of Information Sciences and Technology), February 16, 2004, http://citeseerx.ist.psu.edu/viewdoc/download?


pages: 327 words: 84,627

The Green New Deal: Why the Fossil Fuel Civilization Will Collapse by 2028, and the Bold Economic Plan to Save Life on Earth by Jeremy Rifkin

1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, American Society of Civil Engineers: Report Card, autonomous vehicles, Bernie Sanders, blockchain, borderless world, business cycle, business process, carbon footprint, collective bargaining, corporate governance, corporate social responsibility, creative destruction, decarbonisation, en.wikipedia.org, energy transition, failed state, ghettoisation, hydrogen economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invisible hand, Joseph Schumpeter, means of production, megacity, Network effects, new economy, off grid, oil shale / tar sands, peak oil, planetary scale, renewable energy credits, Ronald Reagan, shareholder value, sharing economy, Silicon Valley, Skype, smart cities, smart grid, sovereign wealth fund, Steven Levy, the built environment, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade route, union organizing, urban planning, women in the workforce, zero-sum game

The Irish Parliament passed a bill forcing the Ireland Strategic Investment Fund, which oversees the investment of €8.9 billion ($10.4 billion) of government funds, to divest the estimated €318 million the country is investing in the global fossil fuel industry.44 Just eight months later, in March 2019, Norway sent tremors across the financial community when its government announced a recommendation that its sovereign wealth fund divest from all upstream oil and gas producers. Norway is Western Europe’s biggest producer of petroleum, and its sovereign wealth fund is the largest in the world.45 The message was clear: Norway is beginning to get out! In countries where national governments have either turned a deaf ear or dragged their heels on establishing protocols for divesting from fossil fuels, public employee unions have taken on the mission of unilaterally announcing divestment of their members’ pension funds.

He spent a lifetime diversifying the economy, turning Dubai into a regional hub for global trade between East and West. The oil hasn’t run out, but it is fast becoming a stranded asset. Most of the oil that is left will remain forever in the ground. It’s not just the Emirates at risk. It’s also carbon-rich countries around the world whose economies are so utterly dependent on the extraction, refining, and sale of oil, gas, and coal. To say that the world’s banks, insurance companies, sovereign wealth funds, and private equity funds are worried would be an understatement. In 2018, the World Bank issued a report titled The Changing Wealth of Nations 2018: Building a Sustainable Future, which laid out a somber analysis of what’s in store for carbon-rich nations. The World Bank pointed out that while private-sector investors and companies in the fossil fuel sector can always divest and reinvest in other more profitable and sustainable enterprises, carbon-rich sovereign nations tied to territorial boundaries are far more constrained and far less agile.


pages: 469 words: 132,438

Taming the Sun: Innovations to Harness Solar Energy and Power the Planet by Varun Sivaram

addicted to oil, Albert Einstein, asset-backed security, autonomous vehicles, bitcoin, blockchain, carbon footprint, cleantech, collateralized debt obligation, Colonization of Mars, decarbonisation, demand response, disruptive innovation, distributed generation, diversified portfolio, Donald Trump, Elon Musk, energy security, energy transition, financial innovation, fixed income, global supply chain, global village, Google Earth, hive mind, hydrogen economy, index fund, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), Internet of things, M-Pesa, market clearing, market design, mass immigration, megacity, mobile money, Negawatt, off grid, oil shock, peer-to-peer lending, performance metric, renewable energy transition, Richard Feynman, ride hailing / ride sharing, Ronald Reagan, Silicon Valley, Silicon Valley startup, smart grid, smart meter, sovereign wealth fund, Tesla Model S, time value of money, undersea cable, wikimedia commons

Its hunger for capital will not end there, given that its 2030 target is 250 GW of installed solar nationally. The Climate Policy Initiative (CPI) projects, however, that without new sources of capital, India will miss its 2022 funding target by roughly 30 percent.32 The only investors with pockets deep enough to bankroll the next phase of solar’s growth are institutional investors. These investors include pension funds, insurance funds, and sovereign wealth funds, and they collectively manage over $100 trillion.33 For them, the few trillion dollars needed for solar to explode on the world energy scene is small change. The problem is that currently only 1 percent of that gargantuan sum is invested in infrastructure globally, and even less supports low-carbon infrastructure. Indeed, just 2.5 percent of all clean energy assets were financed by institutional investors from 2004 to 2011.34 A casual observer might wonder why institutional investors haven’t already piled into solar power projects.

And institutional investors often employ too few staff to justify conducting extensive diligence on individual projects, each of which may require only tens of millions of dollars of investment. Despite the challenges, institutional investors are not uninterested in investing in renewable energy. In fact, some are getting creative in finding investment opportunities in the sector. For example, Abu Dhabi’s sovereign wealth fund invested hundreds of millions of dollars in Renew Power, India’s biggest solar company. And investors from the University of California’s endowment to the New Zealand pension fund have pooled resources to invest in clean energy companies around the world.36,37 By and large, though, these promising investments are drops in the bucket—nowhere near the trillions that will be needed to scale up solar.

That’s because the world’s largest investors are hungry for new opportunities to invest in infrastructure—so much so that from 2013 to 2017, the number of institutional investors holding infrastructure assets more than doubled.9 Investors that are even more active, such as private equity funds, are also looking for stable infrastructure investments (witness a $40 billion partnership in 2017 between the Public Investment Fund, a Saudi Arabian sovereign wealth fund, and Blackstone, a private equity investor, that is structured for long-term infrastructure holdings.10) Infrastructure investors seek opportunities to park their capital and harvest reliable income for several years or even decades without having to worry about reinvesting their money in new assets. Solar PV projects fit the bill. Yet they can’t be bundled into MLPs because of U.S. tax code restrictions enacted thirty years ago, well before it became clear that investors would have much appetite for including solar power projects in their portfolios.


pages: 293 words: 88,490

The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction by Richard Bookstaber

"Robert Solow", asset allocation, bank run, bitcoin, business cycle, butterfly effect, buy and hold, capital asset pricing model, cellular automata, collateralized debt obligation, conceptual framework, constrained optimization, Craig Reynolds: boids flock, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, dark matter, disintermediation, Edward Lorenz: Chaos theory, epigenetics, feminist movement, financial innovation, fixed income, Flash crash, Henri Poincaré, information asymmetry, invisible hand, Isaac Newton, John Conway, John Meriwether, John von Neumann, Joseph Schumpeter, Long Term Capital Management, margin call, market clearing, market microstructure, money market fund, Paul Samuelson, Pierre-Simon Laplace, Piper Alpha, Ponzi scheme, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, Richard Feynman, risk/return, Saturday Night Live, self-driving car, sovereign wealth fund, the map is not the territory, The Predators' Ball, the scientific method, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, tulip mania, Turing machine, Turing test, yield curve

Like the cash providers, the securities lenders provide the bank/dealer with securities and funding. Large securities lenders often lend securities to the bank/dealer and also reinvest the cash in the form of secured funding that they provide to the bank/dealer.15 Institutional Investors. The institutional investors encompass a wide swath of agents, ranging from asset managers to pension funds, sovereign wealth funds, and insurance companies. As we will see in the next chapter, these agents are critical for providing liquidity to the market. Because of their tendency to become embroiled in forced selling, and thus to have a special role in fostering crises, we have hedge funds as a specific agent type, but hedge funds really are a special class of institutional investor that can borrow money to put on leveraged positions, take on short positions, and enter into illiquid and unusual investment opportunities.16 So they have a lot of freedom, though that freedom can lead to peril.

Liquidity suppliers that try to profit from the demanders. They seek to meet the liquidity demand—for a price. There are some short-term liquidity suppliers, such as hedge funds and other speculators, though sometimes they end up falling into the liquidity demand group. If the liquidity demand is very high, the deep pockets to take the other side belong to investors who have a longer time frame—the asset managers, pension funds, and sovereign wealth funds. Between the two is the market maker. The market maker is the transaction intermediary, the broker, moving the price based on the liquidity demander’s needs in order to attract the appropriate amount of liquidity supply. Market makers trade with a very short horizon. They don’t want to take on risk; they want to buy in one instant and off-load their position in the next. They make their money off the bid-offer spread and from stockpiling positions in the face of demand by their clients (also called front running, which is allowed in many markets).

You can run through all the books on the crises, reread your economics textbooks, and the odds are you will not find the term asset owner. A bit strange, isn’t it, considering that asset owners are the source of vast amounts of capital? Everything starts with the asset owners. They include retail investors like you, but on a larger scale they are institutions such as global pension funds with oceans of capital under management. In some countries there is a centralized pension fund, called a sovereign wealth fund, such as Norway’s government pension fund with assets of $850 billion, or the Abu Dhabi Investment Authority with some $800 billion. Such funds are behemoths, but they hold their citizens’ savings; in a financial sense, they are you and me. The hedge funds, money managers, and banks all feed off these asset owners. The asset owners are rarely leveraged and do not have short-term demands for returns—they are looking out for the needs of their constituents years into the future, as they should.


pages: 733 words: 179,391

Adaptive Markets: Financial Evolution at the Speed of Thought by Andrew W. Lo

"Robert Solow", Albert Einstein, Alfred Russel Wallace, algorithmic trading, Andrei Shleifer, Arthur Eddington, Asian financial crisis, asset allocation, asset-backed security, backtesting, bank run, barriers to entry, Berlin Wall, Bernie Madoff, bitcoin, Bonfire of the Vanities, bonus culture, break the buck, Brownian motion, business cycle, business process, butterfly effect, buy and hold, capital asset pricing model, Captain Sullenberger Hudson, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, Diane Coyle, diversification, diversified portfolio, double helix, easy for humans, difficult for computers, Ernest Rutherford, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, Fractional reserve banking, framing effect, Gordon Gekko, greed is good, Hans Rosling, Henri Poincaré, high net worth, housing crisis, incomplete markets, index fund, interest rate derivative, invention of the telegraph, Isaac Newton, James Watt: steam engine, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, Louis Pasteur, mandelbrot fractal, margin call, Mark Zuckerberg, market fundamentalism, martingale, merger arbitrage, meta analysis, meta-analysis, Milgram experiment, money market fund, moral hazard, Myron Scholes, Nick Leeson, old-boy network, out of africa, p-value, paper trading, passive investing, Paul Lévy, Paul Samuelson, Ponzi scheme, predatory finance, prediction markets, price discovery process, profit maximization, profit motive, quantitative hedge fund, quantitative trading / quantitative finance, RAND corporation, random walk, randomized controlled trial, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Robert Shiller, Robert Shiller, Sam Peltzman, Shai Danziger, short selling, sovereign wealth fund, Stanford marshmallow experiment, Stanford prison experiment, statistical arbitrage, Steven Pinker, stochastic process, stocks for the long run, survivorship bias, Thales and the olive presses, The Great Moderation, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Triangle Shirtwaist Factory, ultimatum game, Upton Sinclair, US Airways Flight 1549, Walter Mischel, Watson beat the top human players on Jeopardy!, WikiLeaks, Yogi Berra, zero-sum game

The California Public Employees’ Retirement System—a single fund that routinely invests in fi xed-income securities of all types—manages $305 billion in assets as of August 2016. But there’s no reason to be limited to domestic sources of capital; we could go abroad, since finance and cancer are both international. The Oljefondet, the Norwegian sovereign wealth fund, has a value of $855 billion as of June 2016, and currently holds over 2 percent of all European stocks. Nobody really knows how large China’s sovereign wealth fund is, but it’s estimated to be in the hundreds of billions of dollars as 410 • Chapter 12 well, and China has a very big stake in developing cancer therapeutics, given the size and age of its population. There’s more than enough investment capital available for a cancer megafund, provided we structure the financing correctly.

During good times, hedge funds are the “tip of the spear”; they’ll take advantage of new investment opportunities as soon as they arise. During bad times, hedge funds are the “canary in the coal mine”; they’re the first to suffer from any kind of financial dislocation. Watching the hedge fund industry can give us tremendous insight into what’s happening to the market environment. Hedge funds innovate rapidly, and because they tend to be highly leveraged, they have a disproportionate impact on markets. Central banks and sovereign wealth funds, insurance companies, and pension funds invest in hedge funds alongside high net worth individuals. How well these large institutions fare affects the financial lives of the everyday consumer, people who are just a single step away in the financial ecology. You may not be interested in hedge funds, but hedge funds may be interested in you. The Galapagos Islands of Finance • 231 AN EVOLUTIONARY HISTORY OF THE HEDGE FUND Let’s use the Adaptive Markets Hypothesis to take a closer look at hedge funds.

How does the country earn its money?” Fear, Greed, and Financial Crisis • 299 Krugman’s response was, “These days, Americans make a living selling each other houses, paid for with money borrowed from the Chinese.”1 We were dramatically successful in bringing into the mortgage market new species of large investors that had never previously participated in these kinds of securities before: pension funds, mutual funds, sovereign wealth funds, endowments, and hedge funds. This didn’t happen by accident. All of this money was channeled through a large number of mortgage brokers who had a financial incentive to originate new mortgages. The tremendous amounts of money pumped into U.S. residential real estate over a relatively short period of time caused a huge boom in the housing industry, which built homes for all the buyers newly qualified for loans.


pages: 363 words: 101,082

Earth Wars: The Battle for Global Resources by Geoff Hiscock

Admiral Zheng, Asian financial crisis, Bakken shale, Bernie Madoff, BRICs, butterfly effect, clean water, cleantech, corporate governance, demographic dividend, Deng Xiaoping, Edward Lorenz: Chaos theory, energy security, energy transition, eurozone crisis, Exxon Valdez, flex fuel, global rebalancing, global supply chain, hydraulic fracturing, Long Term Capital Management, Malacca Straits, Masdar, mass immigration, megacity, Menlo Park, Mohammed Bouazizi, new economy, oil shale / tar sands, oil shock, Panamax, Pearl River Delta, purchasing power parity, Ralph Waldo Emerson, RAND corporation, Shenzhen was a fishing village, Silicon Valley, smart grid, South China Sea, sovereign wealth fund, special economic zone, spice trade, trade route, uranium enrichment, urban decay, WikiLeaks, working-age population, Yom Kippur War

CNOOC is working on a deal for the North Pars field, while CNPC and Sinopec are involved in at least three other Iranian oil and gas projects, including in Iran’s Caspian Sea territory. Outside of the Middle East, some of the biggest Chinese investments have been in Africa in the shape of roads, railways, ports, storage, and other logistics. A fourth Chinese company, Sinochem, paid more than $3 billion to Norway’s Statoil in 2010 for a 40 percent stake in Brazil’s Peregrino oilfield. China’s sovereign wealth fund, the China Investment Corporation (CIC), has bought other big oil and gas assets in Canada, Russia, and Kazakhstan. Pipelines Open New Markets Chinese oil companies also are investing in transnational oil pipelines to bring in supplies from Central Asia, Southeast Asia, and Russia. An example is the 1,830-km Central Asian gas pipeline, which opened in December 2009 and runs from Turkmenistan through Uzbekistan and Kazakhstan to China’s Xinjiang province.

In the Asia Society report, Rosen and Hanemann identified 230 Chinese investments in the United States between 2003 and 2010 worth about $11.7 billion, split between 109 greenfield projects and 121 acquisitions. They included such big-ticket investments as Tianjin Pipe’s 2009 decision to spend $1 billion to build a greenfield steel pipe plant in Corpus Christi, Texas, and the purchase of a 15 percent stake in Virginia power utility AES by sovereign wealth fund China Investment Corporation for $1.58 billion in 2010. Since then, CNOOC has agreed to spend $3.5 billion on U.S. shale assets and Sinopec has signed up for a $2.5 billion investment. Among the world’s other big emerging energy players, Brazil’s Petrobras has made a number of U.S. investments, including a Texas refinery and stakes in several oil fields in the Gulf of Mexico. India has Reliance Industries, GAIL, and ONGC in the U.S. picture, while Russian independent producer LUKOIL said in March 2011 it was keen to find an opening in U.S. shale fields.

While Qatar Petroleum has between 65 and 70 percent of each of the 14 trains, the remaining equity is shared by various combinations that include Total, ExxonMobil, Mitsui, Marubeni, Korea Gas, LNG Japan, ConocoPhillips, and Shell. Russia’s Gazprom is interested in being involved in future projects after 2014. China and India are substantial buyers of Qatari gas, but as yet, no Chinese or Indian energy companies have taken equity in any of the QatarGas and RasGas projects. India’s ONGC Videsh signed up in 2005 to explore for oil in a Qatari offshore block but relinquished it in 2008. Qatar’s sovereign wealth fund, the Qatar Investment Authority, took a stake in the Industrial and Commercial Bank of China (ICBC) at the time of its initial public share offer in 2006, and ICBC subsequently set up a branch in the Qatari capital Doha. In July 2007, Qatar Petroleum began sending natural gas via a pipeline to the United Arab Emirates and from October 2008 to Oman. Qatar Petroleum describes this $5 billion project, known as Dolphin Gas, as one of the largest energy-related ventures in the Middle East.


pages: 391 words: 102,301

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

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

At a dinner in Italy in 2010, Jeff Immelt, the chief executive of General Electric, complained, “I’m not sure in the end they want any of us to be successful.”34 The Chinese, in turn, were following a trend that has been visible in the oil industry for some years, as privately owned Western oil companies have been progressively squeezed out of the most promising markets by state-controlled national champions. As the political analyst Ian Bremmer noted in 2009, “Governments, not private shareholders, already own the world’s largest oil companies and control three-quarters of the world’s energy reserves.”35 By contrast, privately owned Western “multinationals produce just 10 percent of the world’s oil and hold just three percent of its reserves.”36 Sovereign wealth funds (SWFs), which make strategic investments on behalf of cash-rich governments, are also increasingly big players in the global economy. What the NIC report called “the transfer of wealth and economic power from West to East” means that the biggest SWFs are controlled by oil-rich nations, particularly in the Persian Gulf, and by Asian nations such as China. The sovereign funds control more capital than private hedge funds; according to Bremmer, by 2009 they already accounted for one-eighth of global investment, and the figure is rising.37 Although SWFs routinely claim that they make their investments on purely economic grounds, as major investors they have political influence if they choose to use it.

Any such move is likely to be the work of many years. But China’s growing importance as a market, customer, and source of cash is already increasing its global influence. The Beijing government’s willingness to extend aid to African nations without imposing the political conditions that Western nations liked to insist on has made China a favored partner for a range of African governments from Zimbabwe to Sudan and Angola. The largest sovereign wealth funds, which mobilize the capital of nations for overseas investment, are almost all controlled by undemocratic countries. (The sole exception is the Norwegian fund.) As a result, an America that is already struggling with the military and financial burdens of global leadership will find itself increasingly checked in global politics, in ways that have become unfamiliar over the past generation.

., 90, 222 Siberia, 240, 274 Sinatra Doctrine, 64–65 Singapore, 60, 137–40, 143, 213 Singh, Manmohan, 15, 54, 79–83, 102–3, 116, 225, 243 Single European Act (1986), 49–51 Smith, Adam, 2, 17, 82, 113, 192 Smoot-Hawley tariffs, 267 socialism, 15–16, 30, 64, 81 British, 35, 36, 38, 49 in France, 46–49 Solana, Javier, 151 Solidarity, 66, 67 Somalia, 132, 209, 210, 256–57, 273 South Africa, 69–70, 176, 193, 244–45, 246, 262 South Korea, 6, 18, 60, 82, 142, 143, 159, 186, 187, 195, 273 sovereign wealth funds (SWFs), 193, 247 Soviet bloc, 6, 102 collapse of, 17, 18, 35–36, 58–59, 63–71, 76, 128 Soviet Union, 7, 34, 41, 87, 88, 167, 183, 233, 279, 285 Brezhnev Doctrine and, 64, 67 China compared with, 59–61 collapse of, 4, 11, 15, 19, 21, 43, 54, 69–70, 84, 85, 88, 90, 93, 100, 102, 105, 164, 261, 282 Fukuyama’s study of, 99–100 Gorbachev’s reforms in, 15, 16, 25, 27, 42, 53–61, 68, 100, 297n Nehru’s visit to, 81 Soviet bloc collapse and, 58–59, 61, 65–66 U.S. competition with, 131, 282, 284, 291 Spain, Spanish, 8, 72, 147, 165, 188, 235, 270 global government and, 219, 221, 226, 228 Spence, Jonathan, 23–24 Sri Lanka, 223, 231, 274 Stalin, Joseph, 27, 236, 237 Starbucks, 155, 261 State Department, U.S., 99, 100, 117, 188 State of Emergency (Buchanan), 260 Steinberg, James, 5, 129 Stiglitz, Joseph, 157, 159, 160, 314n stock market, 83, 218 in Japan, 18–19, 88–89 U.S., 2–3, 4, 40, 96–97, 107, 110, 165 Strauss-Kahn, Dominique, 152, 219 Sudan, 195, 205, 223, 226, 227, 231, 246, 247, 248, 275, 289 Sullivan, Andrew, 280 Summers, Larry, 7, 117–18, 156, 184 Suskind, Ron, 168 Sweden, 150, 156 Switzerland, 96, 101, 269 Taiwan, 60, 82, 136–37, 143, 186, 237, 249 Talbott, Strobe, 126, 217, 304n Taliban, 167, 239, 252 tariffs, 74, 75, 77, 83, 265, 266, 267 taxes, 49, 94, 109, 115, 216, 236, 267 cuts in, 17, 32, 35, 38, 39, 74, 75, 83, 116 Tax Reform Act (1986), 38 Tbilisi, 233, 234 Tea Party movement, 268 technology, 27, 56, 87, 111, 118–28, 131, 174, 203, 271 climate change and, 203, 204, 286–87 global warming and, 125–26 gloomy predictions and, 125, 204, 206 India and, 6, 81, 84–85, 141 peace and, 5–6, 126 U.S., 93, 95, 118–26, 165, 167, 184, 187, 261 see also information technology television, 119, 124, 135, 234–37, 285 Tennyson, Alfred, Lord, 225 Tequila crisis (1994), 77 terror, war on, 96, 165, 198, 199, 211, 212, 244, 245 terrorism, 36, 161–62, 166, 174, 198, 199, 210, 220, 257, 258, 259, 280 nuclear proliferation and, 211–12 in Pakistan, 211, 212, 251, 252, 256, 313n see also 9/11 Tett, Gillian, 123 Texas A&M, 179–81 Thailand, 6, 60, 142, 143, 159–60 Thatcher, Margaret, 16–17, 29–36, 39–52, 54, 69, 74, 89, 114, 136, 191, 279 Falklands War and, 34, 43, 76 France and, 45–46, 48, 49 Hayek and, 118 as “iron lady,” 34, 42, 45 M.


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Ghost Fleet: A Novel of the Next World War by P. W. Singer, August Cole

3D printing, Admiral Zheng, augmented reality, British Empire, digital map, energy security, Firefox, glass ceiling, global reserve currency, Google Earth, Google Glasses, IFF: identification friend or foe, Just-in-time delivery, low earth orbit, Maui Hawaii, MITM: man-in-the-middle, new economy, old-boy network, RAND corporation, reserve currency, RFID, Silicon Valley, Silicon Valley startup, South China Sea, sovereign wealth fund, stealth mode startup, trade route, Wall-E, We are Anonymous. We are Legion, WikiLeaks, zero day, zero-sum game

Also see http://grafiti.mobi/dig-graffiti-applications-and-tools-for-smes-and-users/. 146 first-generation Google Glass: “Google Glass: What It Does,” Google, accessed August 20, 2014, http://www.google.com/glass/start/what-it-does/. 148 passed the SIG Sauer P226 pistol: “Pistols — P226,” SIG Sauer, accessed August 20, 2014, http://www.sigsauer.com/catalogproductlist/pistols-p226.aspx. 151 The Versatrax 300: “Versatrax 300,” Inuktun, accessed July 24, 2014, http://www.inuktun.com/crawler-vehicles/versatrax-300.html. 156 old Defense Production Act: “The Defense Production Act of 1950, As Amended,” Department of Defense, accessed August 20, 2014, http://www.acq.osd.mil/mibp/dpac/final__defense_production_act_091030.pdf. 157 representing a sovereign wealth fund: “Sovereign Wealth Funds — Frequently Asked Questions,” February 27, 2008, European Commission, accessed August 20, 2014, http://europa.eu/rapid/press-release_MEMO-08-126_en.htm?locale=en. 157 stepped out for a coffee break: Kay Mathews, “Photo: Sam Walton’s Office in Walmart Visitor Center, Bentonville, Ark.,” Digital Journal, June 4, 2011, accessed August 20, 2014, http://www.digitaljournal.com/image/88949. 163 graphene was light and strong: “The Story of Graphene,” University of Manchester, accessed August 20, 2014, http://www.graphene.manchester.ac.uk/explore/the-story-of-graphene/. 163 also known as a 3-D printer: Bob Tita, “How 3-D Printing Works,” Wall Street Journal, June 10, 2013, accessed August 20, 2014, http://online.wsj.com/news/articles/SB10001424127887323716304578483062211388072. 164 a manufacturing revolution: “3D printing: Second Industrial Revolution Is Under Way,” New Scientist, accessed August 20, 2014, http://www.newscientist.com/special/3D-printing. 165 just spoken Klingon: Klingon Pocket Dictionary, Klingonska Akademien, accessed August 20, 2014, http://klingonska.org/dict/. 166 “Russian Foundation for Advanced Research Projects”: “Putin Seeks to Create Russian DARPA Equivalent,” Global Security Newswire, June 21, 2012, accessed August 20, 2014, http://www.nti.org/gsn/article/putin-seeks-create-darpa-equivalent/. 167 the electronic ink used: Jason Koebler, “This E-Tattoo Uses Conventional Chips, No Nanotech Required,” Motherboard, April 4, 2014, accessed August 20, 2014, http://motherboard.vice.com/read/this-e-tattoo-uses-conventional-chips-no-nanotech-required. 167 Dmitri Shostakovich’s Fifth Symphony: “Shostakovich’s Symphony No. 5,” Keeping Score, accessed August 20, 2014, http://www.pbs.org/keepingscore/shostakovich-symphony-5.html. 169 Iliahi Elementary School: “About Iliahi,” Iliahi Elementary School, accessed August 20, 2014, https://sites.google.com/a/dragons.k12.hi.us/iliahiel/. 173 community development units: “Provincial Reconstruction Teams (PRTs),” Department of State, accessed August 20, 2014, http://www.state.gov/p/nea/ci/iz/c21830.htm; fictional unit. 174 Directorate Z-8K assault helicopters: “Product Information — Z8 Helicopter,” Changhe Aircraft Industries Group, accessed August 20, 2014, http://www.changhe.com/english/ecpxx/ecpxx.htm. 174 “It was always a risk”: Charles J.

The CEO tried to repeat the talking points’ core premise, that a corporation’s status as a legally defined individual meant that the government couldn’t tell it what to do, even in a time of war. “Legally defined individual?” Tilden retorted. “Mr. Colby, you know that’s bunk and you know that Sam would want to help the country any way he could.” Before he could reply, another voice broke in. A Swiss-German accent. One of the institutional investors, in this case representing a sovereign wealth fund from Qatar that had bought a 17 percent position when the share price collapsed after America lost Hawaii. “Madame, I appreciate this company’s quaint practice of letting anyone speak at these forums, but you simply fail to understand the multinational nature of this enterprise now. The global shareholder base must come first. This concern is not in the business of any one nation’s war. No matter where it is based, it is a global retail chain, definitively neutral in its activities and intent,” he said.

The Directorate has rigged our corporate network with enough tripwires and viruses that we might lose control of the company if they don’t like the way I part my hair.” “Then what do we have to lose?” said Lee-Ann. “I’m calling a vote.” There was no loss of life at Lee-Ann’s Revolt, as it would become known nationwide once the viz of the meeting leaked out, but it was nonetheless momentous. The voting bloc of sovereign wealth funds proved unable to stop the small investor pool once it was mobilized. And by the end of the meeting, shareholders were no longer voting about whether to resist U.S. government rationing schemes. Instead, Wal-Mart declared war on the Directorate. The color drained from Colby’s face as he stared out at the thousands of cheering people in the company auditorium. Two thoughts crossed his mind as the tunnel vision took over.


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Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bernie Madoff, 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, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, principal–agent problem, profit maximization, profit motive, Richard Thaler, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, ultimatum game

It’s possible to hold simultaneously the views that markets are efficient and agents are rational, and that at least some investors can expect returns beyond what they might earn with a diversified portfolio of stocks. To realize these returns, an investor must act out of character on an informed hunch. For-itself trading falls beyond, and so reveals a limit to, market efficiency. Institutional Investing Let’s start by taking a look at credit markets that are the domain of public and private pension funds, sovereign wealth funds, insurance companies, university endowments, and other institutional investors. How can a hierarchical group undertake a leap that hinges on personal beliefs formed on the front lines? And having taken the leap, how can it hang on through signs of trouble? From a trading standpoint, institutions differ from individuals in two ways: their resources give them access to esoteric and illiquid markets, and they have governance structures that prevent individuals from misusing resources.

., 211–212n12 Rotten Kid Theorem, 108–110, 125 Russell, Bertrand, 62 salience, 29 Sartre, Jean-Paul, 128–129 satisficing, 42–43 Saul of Tarsus, 63 Schopenhauer, Arthur, 5, 161, 209n5 Schwartz, Barry, 172 scientific knowledge, 61 scientific method, 49–50, 53 search costs, 9 Searle, John, 141–142 Securities and Exchange Commission (SEC), 16 selfish altruism, 104, 105–106, 109, 123, 125, 135 Seligman, Martin, 202 Sen, Amartya, 169 Shafir, Eldar, 174 Shane (film), 169 Sharpe, William, 65 short-term trading, 78 Siddhartha Gautama, 63 Simon, Herbert, 42 Singer, Peter, 110 Smith, Adam, 73, 82, 112, 171 Smith, Al, 211–212n12 Smith, Barbara Herrnstein, 47 social cost, 28–29, 133 social norms, 104, 106–108, 123 social relations, 28 rational choice explanations of, 104 Sodom and Gomorrah, 117–118 “soft selling,” 170 sovereign wealth funds, 74 speed limits, 138–140 spite, 126–127 spontaneity, 19–20, 202 altruistic, 28–29, 114–115, 119, 203 in spite, 127 stable preferences, 33, 115, 147, 207, 208 status symbols, 31 staying in the game, 179–181 stock-picking, 64–66 Strangers Drowning (MacFarquhar), 214n6 strategic competition, 125 structured credit, 15, 93 Strulovici, Bruno H., 217n1 Sturges, Preston, 7 subprime mortgages, 96–97 substitution effect, 187 survivor bias, 180 Taylor, Michael, 133 terrorism, 126 Thaler, Richard, 33–34 Thanet Offshore Wind, 83–90 Thus Spoke Zarathustra (Nietzsche), 43 tit-for-tat, in repeated games, 105 transaction costs, 64, 70, 78 transitivity of preferences, 158–159 Treatise of Human Nature (Hume), 209n5 “tricky profit,” 18–21 trolley problem, 133, 135–137 tulipmania, 212n1 Tversky, Amos, 168, 174 Twain, Mark, 60 ultimatum game, 107–108, 207 uncertainty, about future, 25, 153, 181–185 unique events, 70–71, 72–73, 74, 94 United Kingdom, 181 Energy Ministry of, 88 unemployment, 186 unemployment benefits, 188 university endowments, 74 University of Chicago, 8–9 unobserved care, 108, 112–113, 124, 125–126 utilitarianism, 135–136, 197–198 utility, 5–6, 18, 153–154, 196 vaccination, 58–59 values, 190–191 Van Gogh, Vincent, 79 Veblen, Thorstein, 167 veil of ignorance, 136 vengeance, 125, 126 venture capital, 27, 91–92, 100 Vestas Wind Systems, 84–88 video games, 180 Viner, Jacob, 219n2 Vogt, John, 117 wages, 154, 186, 187–188 waiting in line, 179 walk-a-thons, 178 “warm glow effect,” 114 wealth effect, 187 Wellington (Arthur Wellesley), Duke of, 71 Whitman, Walt, 50 The Will to Power (Nietzsche), 209n5 Williams, Bernard, 7 wind energy, 82–90 work-sports, 191–192 The World as Will and Idea (Schopenhauer), 209n5 Yavapai Indians, 133 Zarnowski, Frank, 191 Zeckhauser, Richard, 70–72 zero risk bias, 24


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Don't Be Evil: How Big Tech Betrayed Its Founding Principles--And All of US by Rana Foroohar

"side hustle", accounting loophole / creative accounting, Airbnb, AltaVista, autonomous vehicles, banking crisis, barriers to entry, Bernie Madoff, Bernie Sanders, bitcoin, book scanning, Brewster Kahle, Burning Man, call centre, cashless society, cleantech, cloud computing, cognitive dissonance, Colonization of Mars, computer age, corporate governance, creative destruction, Credit Default Swap, cryptocurrency, data is the new oil, death of newspapers, Deng Xiaoping, disintermediation, don't be evil, Donald Trump, drone strike, Edward Snowden, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Etonian, Filter Bubble, future of work, game design, gig economy, global supply chain, Gordon Gekko, greed is good, income inequality, informal economy, information asymmetry, intangible asset, Internet Archive, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, Kenneth Rogoff, life extension, light touch regulation, Lyft, Mark Zuckerberg, Marshall McLuhan, Martin Wolf, Menlo Park, move fast and break things, move fast and break things, Network effects, new economy, offshore financial centre, PageRank, patent troll, paypal mafia, Peter Thiel, pets.com, price discrimination, profit maximization, race to the bottom, recommendation engine, ride hailing / ride sharing, Robert Bork, Sand Hill Road, search engine result page, self-driving car, shareholder value, sharing economy, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, smart cities, Snapchat, South China Sea, sovereign wealth fund, Steve Jobs, Steven Levy, subscription business, supply-chain management, TaskRabbit, Telecommunications Act of 1996, The Chicago School, the new new thing, Tim Cook: Apple, too big to fail, Travis Kalanick, trickle-down economics, Uber and Lyft, Uber for X, uber lyft, Upton Sinclair, WikiLeaks, zero-sum game

But you could just as easily argue that this Silicon Valley unicorn, which at its peak boasted a valuation of $3.2 billion and attracted money from the world’s most successful venture capitalists, such as Sequoia Capital, Kleiner Perkins, Andreessen Horowitz, and Khosla Ventures, was a victim of its own success. In a classic case of what’s been dubbed “the foie gras effect,” the company burned through so much money and reached such sky-high valuations that it became, perhaps like one of its users, too rich and fat for its own good. Jawbone had to turn to the Kuwait Investment Authority for cash just to stay afloat, never a good sign, given that sovereign wealth funds are not exactly the smart money in Silicon Valley.20 They tend to come in big but late, offering loads of cash when others will not, or when start-ups want to inflate their valuations prior to an IPO. Indeed, many of the Big Tech platform firms that took money from the Middle East have come to regret it. Uber, for example, which received funding from the Saudi government, went to great pains to distance itself from Crown Prince Mohammed bin Salman, the autocrat accused of ordering the murder of journalist Jamal Khashoggi (a charge that he naturally denies), by awkwardly pulling out of a Saudi investment conference known as “Davos in the Desert” (along with a number of other high-profile U.S. businesspeople) right after that horror broke.

Education in particular would be an excellent use of such funds, given that all the shifts that I’ve outlined in this book will require the retraining of a twenty-first-century workforce; it seems only fair that Big Tech—which often complains about the lack of adequate education in the United States—should have to help pay for that. Meanwhile, a 50 percent levy on digital revenue could likewise plug the majority of an American infrastructure spending gap estimated to be $135 billion by 2022.6 That seems more than a fair exchange for allowing the data collectors free access to the country’s most valuable resource. If data is a resource, then perhaps we need a sovereign wealth fund for it. Taxing data extractors cannot, however, be a get-out-of-jail-free card that allows them to run roughshod over individual privacy or civil liberty. For users of platform technology, transparency could be increased with “opt-in” provisions that allow them more control over how their data is used (as is the case with the EU’s General Data Protection Regulation, and the even tougher proposals in California).

Companies were given government subsidies to keep workers on, and spent the cash on factory upgrades, technical improvements, and training costs, all of which helped German companies grab market share from U.S. rivals in China when growth returned. Corporations also contributed spare workers to public schemes that benefited the larger economy. In the United States, Cornell law professor Saule Omarova and colleague Robert Hockett have proposed a new National Investment Authority—a hybrid of the New Deal–era Reconstruction Finance Corporation, a modern sovereign wealth fund, and a private equity firm—that would develop and implement a national strategy to remake the real economy for the digital age. “The proposal is framed in terms of financing public infrastructure, but it is much broader and more ambitious than simply new roads,” says Omarova. “We envision it along the lines of the latter-day New Deal approach to financing transformative, large-scale, publicly beneficial projects that would create sustainable jobs and help the country regain its competitive edge—but without exacerbating inequality and excesses of private power.


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Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa by Dambisa Moyo

affirmative action, Asian financial crisis, Bob Geldof, Bretton Woods, business cycle, buy and hold, colonial rule, correlation does not imply causation, credit crunch, diversification, diversified portfolio, en.wikipedia.org, European colonialism, failed state, financial innovation, financial intermediation, Hernando de Soto, income inequality, information asymmetry, invisible hand, Live Aid, M-Pesa, market fundamentalism, Mexican peso crisis / tequila crisis, microcredit, moral hazard, Ponzi scheme, rent-seeking, Ronald Reagan, sovereign wealth fund, The Chicago School, trade liberalization, transaction costs, trickle-down economics, Washington Consensus, Yom Kippur War

Recently, the Russian gas giant Gazprom offered to invest up to US$2.5 billion to develop Nigeria’s natural-gas reserves, and in May 2008 Japan hosted the Fourth Tokyo International Conference on African Development, where forty-five African leaders and ministers were wooed, with much the same elixir – trade, aid, debt relief and infrastructure.12 Also in May 2008, Turkey signed mutual trade agreements with thirty-five African countries (including Burkina Faso, Cameroon, Ethiopia, Ghana, Kenya, Liberia, Nigeria, Senegal, South Africa and Tanzania), offering to trade under tax incentives and with government support.13 More generally, the World Bank’s President, Robert Zoellick, has urged Sovereign Wealth Funds (whose assets are estimated to be at least US$3 trillion) to invest 1 per cent of their proceeds in equity investment in Africa. Many of them have already done so. The pattern is clear. From whatever perspective, it’s a win-win proposition. For Africa’s investors they have money to put to work (China’s reserves topped US$1 trillion in 2007), and they have economic growth they need to sustain.

D. 46 Heavily Indebted Poorest Country debt relief programme (HIPC) 53 HIV–AIDS pandemic 4–5, 7, 71–2 Hu Jintao 104, 108 Human Development Report (1994) 52 Hungary 85–6 IMF (International Monetary Fund) aid warning 47 appointment of Irwin Blumenthal 53 debt crisis 18–19 and foreign capital 63 inception 11–13 and Malawi 55–6 and ‘nit-picking’ 108–9 Structural Adjustment Facilities 21 In Search of Prosperity (Rodrik) 34 India 112, 117, 123, 132, 134, 137–8 India–Africa Forum 112, 123 Indonesia 34, 56 Industrial and Commercial Bank (China) 106 inflation 61–5 innovation 139–40 International Bank for Reconstruction and Development see World Bank International Development Association (IDA) 37–8 International Development and Food Assistance Act (US 1975) 16 International Peace Research Institute (Stockholm) 59 International Remittance Network 136 International Trade Organization 11 investment bonds 77–83, 87–96 borrowing costs 84–5 credit ratings 78, 83, 87–8 emerging markets 79–81, 85 portfolio diversification 80–82 Ireland 37, 125 Israel 134 Italy 125 Ivory Coast 109–10 Jamaica 136 Japan 99, 102–3, 112, 125 Johannesburg Stock Exchange 4 John Paul II, Pope 26 joint liability 129 Jubilee Debt Campaign 26 Kagame, President Paul 27–8, 148–9 Kanbur, Ravi 54 Kariba dam 15 Kenya and EBA 118 and exports 62 favourable view of China 109 fragile democracy 72 HIV prevalence rates 3 and long-term debt 87–8 money transfer systems 136 population 124 and rampant corruption 48 stake in the economy 152 trade-oriented commodity-driven economy 146 turbulent elections 2008 33 Keynes, John Maynard 11 Kibaki, Mwai 33 Kiva 130 Kurtzman, Joel 51 Lambsdorff, Graf 51 Landes, David 33–4, 147 least-developed countries (LDC) 123 Lensink, R. 136 Lesotho 118 life expectancy 5 Lin Yifu, Justin 153 Live Aid 26 Lumumba, Patrice 14 Lundin, Lukas 98 M-Pesa (money transfer system) 136 Mahajan, Vijay 132 McLiesh, Caralee 101 McNamara, Robert 16, 17 maize scandal (Malawi) 56 Malawi 55–6, 106, 117, 145 Mali 71–2, 94, 109–10, 116 Maren, Michael 60 Markit (data/index firm) 91 Marshall, George C. 12 Marshall Plan 12–13, 35–8 Mauritania 120 Mauritius 34, 89 Maystadt, Philippe 107 Mengistu Haile Mariam 14, 23 Mexico 18, 82, 84, 117, 132, 144, 151 micro-finance 126–32, 140 middle class 57–8 Millennium Challenge Corporation aid campaign (US) 40, 56 Millennium Development Goals (MDG) 45, 96–7 Mkapa, President Benjamin 26 Mobutu Sese Seko, President 14, 22–3, 48, 53, 108 Monterrey Consensus 2002 74 Moody’s Investors Service 83 morality 150 ‘More Aid for the Poorest’ (UK white paper) 16 mosquito net producer (example) 44–5, 114, 122, 130–31 Mozambique 117, 134 Mugabe, Grace 146 Mugabe, Robert 108, 146–7 Mwanawasa, President Levy 53 Mystery of Capital, The (de Soto) 137–8 Na’m, Moisés 107 Namibia 89, 93 ‘negative corruption’ 57; see also corruption Netherlands 63 New York City 151; see also United States New Zealand 121 Nicaragua 151 Nigeria and AGOA duty-free benefits 118 aid from World Bank 107–8 assets looted 48 banking sector 4 beneficiary of FDI 105 and the bond index 92 and corruption 23 cotton revenues 116 favourable view of China 109 humanitarian catastrophe 26 independence 71 and long-term credit ratings 88 Maiduguri money find 137 many tribes 32 natural-gas reserves development 112 rebuilding colonial-era railway 106 remittances 133 ‘No Donor Money, No Loans’ policy 128 North, Douglass 41 Norway 73 ODA (official aid) 25 Odinga, Raila 33 oil 17–18, 48–9, 82, 105–6, 108–9, 120 oil crisis 1979 17–18 Olson, Mancur 41 Olympics 2008 108 Organization of Economic Cooperation and Development (OECD) 115 Oxfam 117 Pakistan 34, 124 Pan-African Infrastructure Development Fund (PAIDF) 95 Paris Club of creditors 108 PEPFAR (AIDS Relief) 7 Peru 151 Peters Projection Map 121 Pew Report 2007 109 Philippines, the 135 PIMCO (bond investment organization) 91 Poland 8–6 Ponzi schemes 130 ‘positive’ corruption 56, 59; see also corruption Private Equity investments 4–5 programme aid 21 Protestantism 31 Przeworski, Adam 43 Raiffeisen, Friedrich 131 Rajan, Raghuram G. 142 Ramalho, Rita 101 Ramesh, Jairam 123 Reagan, Ronald 20, 22 Reichel, R. 46 remittances 133–6 Resource Flows to Africa (UN) 133 Revolutionary United Front (Sierra Leone) 59 Rodrik, Dani 34 Rosenstein-Rodan, Paul 39 Ruiz-Arranz, Marta 136 Russia 84, 87, 112 Rwanda 27, 32, 148 Sachs, Jeffrey 96–7 Sani Abacha, President 48 São Tomé and Principe 106 savings 137–40 Schulze-Delitzsch, Herman 131 Scottish Banks 139–40 Second Conference of Chinese and African Entrepreneurs 114 securitization 96 Sen, Amartya 42 Senegal 109–10 Short, Clare 56 Sierra Leone 59 Singapore 152 Singh, Manmohan 123 small/medium enterprises (SMEs) 125 social capital 58–9 Somalia 60, 118, 133 South Africa abandoning foreign aid 144 and AGOA duty-free benefits 118 and bond issues 89, 92–3 and credit league tables 82 1997 stock market fall 84 not reliant on aid 150 and PAIDF 95 remittances 133 setting an example 78 South Korea 45, 82, 87 Sovereign Wealth Funds 112 Spain 86 Spatafora, N. 133 stabilization programme 20 Standard & Poor’s rating agency 83, 87–8 Standard Bank 106 sterilization 64–5 stock market liquidity 4 Structural Adjustment Facilities 20–21 Subramanian, Arvind 142 subsidies 115–16 Sudan 105–6, 108, 120 sugar production 116–17 Svensson, J. 39, 52 Swaziland 5, 106 Sweden 73 Tanzam Railway 103–4 Tanzania 26, 56, 97, 103–4, 110, 124, 131 taxation 52, 66 Thailand 57 Thatcher, Margaret 20, 67 Togo 94, 116 Tokyo International Conference on African Development 112 Toxopeus, H. 136 trade 17, 19–21, 38–40, 62, 64, 112, 114, 117–24 Transparency International 51, 56, 71 Turkey 93, 112, 117 Uganda aid-fuelled corruption 53 and bonds 65, 97 favourable view of China 109 and HIV–AIDS 71 improved economic growth 101 plunderers and despots 108 population 124 remittances 134 trade-oriented commodity-driven economy 146 UN Conference on Trade and Development (UNCTAD) 102 United Kingdom 108, 120 United Nations Development Programme (UNDP) 25 United Nations Human Development Report 5 United States and African Growth and Opportunity Act 118 aid history 12–17, 40 bond comparisons 80 diplomatic ties with Zimbabwe 108 Energy Information Administration 103 Food For Peace budget 45 freer trade access for African countries 149 influence compared to China 109–10 and Malawi 56 public’s desire on aid 74 Soft Banks 139 and subsidies 115–16 trading partner status 119 2006 foreign aid 99–100 US Farm Security and Rural Investment Act 2005 115 USSR 14, 19, 24 Venezuela 86 venture capital (VC) 139 Wade, President Abdoulaye 149 Washington Consensus 21–2 Wealth and Poverty of Nations, The (Landes) 33–4, 147 Weber, Max 31 Weder, Beatrice 52 Wen Jibao 104, 114 West African Economic and Monetary Union 88 What makes Democracies endure?


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Sabotage: The Financial System's Nasty Business by Anastasia Nesvetailova, Ronen Palan

algorithmic trading, bank run, banking crisis, barriers to entry, Basel III, Bernie Sanders, big-box store, bitcoin, Black-Scholes formula, blockchain, Blythe Masters, bonus culture, Bretton Woods, business process, collateralized debt obligation, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, distributed ledger, diversification, Double Irish / Dutch Sandwich, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, financial repression, fixed income, gig economy, Gordon Gekko, high net worth, Hyman Minsky, information asymmetry, interest rate derivative, interest rate swap, Joseph Schumpeter, Kenneth Arrow, litecoin, London Interbank Offered Rate, London Whale, Long Term Capital Management, margin call, market fundamentalism, mortgage debt, new economy, Northern Rock, offshore financial centre, Paul Samuelson, peer-to-peer lending, plutocrats, Plutocrats, Ponzi scheme, price mechanism, regulatory arbitrage, rent-seeking, reserve currency, Ross Ulbricht, shareholder value, short selling, smart contracts, sovereign wealth fund, Thorstein Veblen, too big to fail

Risk-weighted assets: A criterion used to determine the minimum amount of capital that must be held by banks and other institutions to reduce the risk of insolvency. RMBS: Residential mortgage-backed securities. SEC: Securities and Exchange Commission (USA). TBTF: Too big to fail. INTRODUCTION EVERYONE WANTS TO BE LIKE GOLDMAN In June 2016, in the wake of the fallen Gaddafi regime, the Libyan authorities sued Goldman Sachs for nine trades the bank advised on and then executed for the Libyan sovereign wealth fund between January and April 2008. The new Libyan government claimed that Goldman Sachs gained more than $200m in profits from the trade, whereas the Libyans lost almost all their investment. It would transpire during court proceedings that Goldman paid for prostitutes, private jets and five-star hotels to win the business from a Libyan investment fund. Goldman’s internal documents describe its Libyan clients as having ‘zero-level’ of financial sophistication.

., Civilization and Capitalism, 15th–18th Century, vol. 3: Perspective of the World, University of California Press, Berkeley, 1992. Braudel, F., Civilization & Capitalism 15th–18th Century, vol. 2: The Wheels of Commerce, new edn, Weidenfeld and Nicolson, 2002. Bray, C., ‘Goldman Sachs didn’t trick Libyan fund’, The New York Times, 14 October 2016, www.nytimes.com/2016/10/15/business/dealbook/goldman-sachs-libya-sovereign-wealth-fund.html. Brewer, E., and J. Jagtiani, ‘How Much Did Banks Pay to Become Too-Big-To-Fail and to Become Systemically Important?’ Journal of Financial Services Research, vol. 43, 2013, pp. 1–35, https://doi.org/10.1007/s10693-011-0119-6. Bristow, T., ‘Four hotels, an £8m firm, all gone – one Norfolk hotelier’s battle with RBS’, Eastern Daily Press, 21 March 2018, www.edp24.co.uk/business/hotelier-david-easter-rbs-grg-turnaround-norfolk-1-5443669.


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The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund by Anita Raghavan

airport security, Asian financial crisis, asset allocation, Bernie Madoff, British Empire, business intelligence, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, delayed gratification, estate planning, Etonian, glass ceiling, high net worth, kremlinology, locking in a profit, Long Term Capital Management, Marc Andreessen, mass immigration, McMansion, medical residency, Menlo Park, new economy, old-boy network, Ponzi scheme, risk tolerance, rolodex, Ronald Reagan, short selling, Silicon Valley, sovereign wealth fund, stem cell, technology bubble, too big to fail

Although the company dreamed up wonderful new computer chip designs, investors fretted that it did not have the stash of cash it needed to build the factories to manufacture them. What most investors didn’t know was that behind closed doors the company was quietly hatching an innovative plan that would enable it to build the chip factories without a big cash outlay. Instead of footing the bill all on its own, AMD looked to find a deep-pocketed investor—perhaps a cash-rich sovereign wealth fund—that could bankroll the plants. The supersecret initiative was code-named Asset-Lite. The moniker reflected the notion that once the deal was done, AMD would own fewer factories, or assets, because the facilities would be spun off. Kumar began briefing Rajaratnam regularly on the Asset-Lite strategy. In the winter of 2007, they spoke once every three weeks because Kumar was planning to move to New York to lead the McKinsey Asia Center, which advised US companies about business opportunities in Asia, and Asian companies about the United States.

In September, she and her mother were invited to the clambake at Rajaratnam’s Greenwich estate, where Kenny Rogers sang his hit “The Gambler” (“You got to know when to hold ’em, know when to fold ’em, know when to walk away and know when to run”). It was a favorite of Rajaratnam’s and he had Rogers sing it over and over again. Rajaratnam believed that through Ruiz, Chiesi came to learn of AMD’s bid to spin off its facility to make computer chips and create a joint venture that would be 50 percent owned by a Middle Eastern sovereign wealth fund. “Your value to me is a little bit diminished,” he told Kumar. Then he pressed Kumar to see Ruiz and tell him to stop the purported pillow talk. Lest Kumar be confused into thinking that Raj was trying to save Ruiz’s marriage, he made it clear to Kumar that his issue was that Chiesi was freely sprinkling Ruiz’s secrets to everyone who would listen on Wall Street. What irritated him was that the loose-lipped Chiesi robbed him of the “edge” he had at AMD.

As of the end of March, the diversified fund was down 2.96 percent for the year, making it all the more important for Galleon to shore up its investment coffers. There was always a risk that as markets turned south, skittish investors would start to pull money out of Galleon and move it into safer investments. In February, Rajaratnam hired Ayad Alhadi, a seasoned marketer whom he hoped would help Galleon unlock the millions of dollars sitting in the Middle East among the sovereign wealth funds of the region’s oil-rich countries. He was also in talks with Rajat Gupta to head Galleon International, a Pan-Asian emerging markets hedge fund, and help Galleon tap into new investors. Gupta was one of the few players in the corporate world who could be described as truly global. He was connected in India in a way that Rajaratnam, an outsider, a Sri Lankan Tamil, could never be, despite all the billions to his name.


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

3D printing, affirmative action, Albert Einstein, American energy revolution, anti-communist, Asian financial crisis, banking crisis, Berlin Wall, 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, corporate governance, creative destruction, crony capitalism, deindustrialization, demographic dividend, Deng Xiaoping, eurozone crisis, Gini coefficient, global supply chain, housing crisis, income inequality, indoor plumbing, inflation targeting, informal economy, Kenneth Rogoff, knowledge economy, labor-force participation, land reform, M-Pesa, Mahatma Gandhi, Marc Andreessen, market bubble, mass immigration, megacity, Mexican peso crisis / tequila crisis, Nelson Mandela, new economy, oil shale / tar sands, oil shock, open economy, Peter Thiel, planetary scale, quantitative easing, reserve currency, Robert Gordon, Shenzhen was a fishing village, Silicon Valley, software is eating the world, sovereign wealth fund, The Great Moderation, Thomas L Friedman, trade liberalization, Watson beat the top human players on Jeopardy!, working-age population, zero-sum game

Jonathan’s government looks to be targeting all the right steps to unleash growth from a low base. The first rule for a successful oil-rich state is “Thou shalt not steal.” Over the past decade an estimated $400 billion in profits from Nigerian oil has simply disappeared into the pockets of politicians and businessmen, a huge loss in a nation with an annual GDP of $250 billion. To stem the flow Jonathan has created a sovereign-wealth fund that operates according to the Santiago Principles, an international standard designed to ensure that these increasingly popular investment vehicles are professionally managed and do not become political and personal slush funds for those in power. That may not guarantee that oil money does not end up in the wrong pockets, but it reflects honest intentions. A nation at Nigeria’s income level should be spending well more than 20 percent of GDP on the staples of a modern economy: better roads, telecommunications, and power.

Budgets were deep in the red. When oil prices collapsed in the 1980s, the ensuing financial crises forced many Gulf nations to get a grip on spending. By the middle of the last decade, 70 percent of the oil revenue was going into savings, or to pay down debt, and today financial management remains top notch. Virtually every state in the Gulf has adopted the model established by Norway, which has a hugely successful sovereign-wealth fund to reinvest its oil profits. While some researchers have suggested these funds were a kind of fad in the Gulf, an attempt to look at least as modern as the neighbors, they continue to achieve their basic purpose: to manage money strategically and honestly in the long-term interest of the state. Even in Egypt, which was characterized by some as a sultanistic regime, there was real momentum for economic (if not political) reform in the last few years under the Mubaraks.

What’s less well known is that most of these countries are essentially run by consultants: in the typical oil company the board of directors and the CEO will be drawn from the royal family, but the president and everyone below him will be British, Indian, or Lebanese. Essentially the system is employing foreign talent to generate a trust fund for the locals as oil and petrochemical companies in the region churn out profits—which have contributed to an estimated $2 trillion in reserves—much of it now held in sovereign-wealth funds. These funds, in turn, invest outside the Gulf for the same reasons foreign investors avoid the Gulf: murky rules, opaque books, too few world-class companies. Local individual investors, however, are another story. This population holds enough wealth to create major bubbles in the Gulf stock markets. They live in liquidity hothouses, built on trade surpluses rising at the rate of more than $200 billion a year, or more than 20 percent of GDP.


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

anti-communist, Asian financial crisis, bank run, battle of ideas, Big bang: deregulation of the City of London, bonus culture, Boris Johnson, Bretton Woods, British Empire, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, centre right, citizen journalism, collapse of Lehman Brothers, collective bargaining, don't be evil, Edward Snowden, Etonian, eurozone crisis, falling living standards, Francis Fukuyama: the end of history, full employment, G4S, glass ceiling, hiring and firing, housing crisis, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, James Dyson, laissez-faire capitalism, light touch regulation, market fundamentalism, mass immigration, Monroe Doctrine, Mont Pelerin Society, moral hazard, Neil Kinnock, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, old-boy network, open borders, plutocrats, Plutocrats, popular capitalism, profit motive, quantitative easing, race to the bottom, rent control, road to serfdom, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, stakhanovite, statistical model, The Wealth of Nations by Adam Smith, transfer pricing, union organizing, unpaid internship, Washington Consensus, wealth creators, Winter of Discontent

All MPs have to register their non-parliamentary payments in a Register of Members’ Interests, and David Miliband’s entry made for fascinating reading. As vice-chairman and non-executive director of Sunderland Association Football Club, he made £75,000 for twelve to fifteen days’ work a year. He was also paid handsomely for speeches to law firms and tax specialists: Cameron McKenna LLP handed over £14,000 for an evening talk, while Global Arc, a network of pension funds, sovereign wealth funds and asset managers, paid him the same sum for a single speech. Oxford Analytica, which boasted of advising ‘corporate and government executives’, paid him £18,000 for two days’ work; VantagePoint, a self-described ‘leading investor in energy innovation and efficiency’, paid him nearly £100,000 for four days’ work. It was not just corporate interests lining his pockets. The dictatorship of the United Arab Emirates paid him £64,475 plus travel and accommodation for attending an event.

His clients included the oil giant BP, the gambling company BetFair, and Asia Pulp and Paper, a packaging firm attacked by Greenpeace and other campaigners for destroying Indonesia’s rainforest, until huge pressure forced it to reform its practices. Before the Egyptian Revolution in early 2011, Mandelson had approached Hosni Mubarak’s government to offer his services. He also became close to the dictatorship of Kazakhstan, condemned by the human-rights organization Amnesty International for its widespread use of torture. In 2010, Mandelson attended two events organized by the regime’s sovereign wealth fund, one in Kazakhstan itself. But it was the godfather of New Labour himself, Tony Blair, who benefited most profitably from ingratiating himself with the Kazakh dictator President Nursultan Nazarbayev. Blair, who once used the appalling human-rights record of dictatorships as justification for UK military intervention, was being paid up to $13 million a year from 2011 onwards to advise the regime.

Investors had to have a minimum of £750 available to buy shares. ‘It is disappointing that so much has been reserved for international funds and speculators, taking away from all individual applicants in the UK,’ complained Malcolm Hurlston, the chairman of the Esop Centre, which advocates workers’ shareholding schemes.18 Two-thirds of the company was bought up by City institutions; big winners included sovereign wealth funds, including foreign dictatorships such as Kuwait. One investor was Lansdowne Partners, one of the biggest hedge funds in the world, which made £18 million on the first day of the Royal Mail’s flotation on the London Stock Exchange: one of Lansdowne’s senior employees was Peter Davies, the best man of the Chancellor of the Exchequer. Here was a cheap sale of a 497-year-old institution, sold to City speculators and foreign dictatorships, now run on the basis of profit rather than satisfying customers’ needs, and leaving the taxpayer ripped off and expected to still carry the debt.


Basic Income: A Radical Proposal for a Free Society and a Sane Economy by Philippe van Parijs, Yannick Vanderborght

"Robert Solow", Airbnb, Albert Einstein, basic income, Berlin Wall, Bertrand Russell: In Praise of Idleness, centre right, collective bargaining, cryptocurrency, David Graeber, declining real wages, diversified portfolio, Edward Snowden, eurozone crisis, Fall of the Berlin Wall, feminist movement, full employment, future of work, George Akerlof, illegal immigration, income per capita, informal economy, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Kickstarter, Marshall McLuhan, means of production, minimum wage unemployment, open borders, Paul Samuelson, pension reform, precariat, price mechanism, profit motive, purchasing power parity, quantitative easing, race to the bottom, road to serfdom, Second Machine Age, secular stagnation, selection bias, sharing economy, sovereign wealth fund, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, universal basic income, urban planning, urban renewal, War on Poverty, working poor

Socialism is government taking from a wealthy few to provide what government thinks is best for all. Permanent Fund Dividends do just the opposite. They take from money which, by constitutional mandate, belongs to all and allows each individual to determine how to spend some of his or her share. What could be more capitalistic?”105 Is it surprising that the Alaska dividend scheme has not been emulated elsewhere? Perhaps. Â�There are now over fifty countries with sovereign wealth funds similar to the Alaska Permanent Fund. Yet, despite variÂ�ous proposals, Alaska’s dividend scheme remains unique so far. Transnational Network: From EuÂ�rope to the Earth What had been happening in EuÂ�rope in the meanwhile? Not very much. With some delay, the exceptionally lively American debate of the late 1960s and early 1970s did produce a modest echo in some EuÂ�roÂ�pean countries.

The resource itself may never get depleted, but its value is likely to fluctuate through time. A fund invested in a sufficiently diversified portfolio would help protect the sustainability of the payment. 39. Cummine (2011: 16–17) suspects that “managerial elitism” may explain this lack of enthusiasm: “Exaggerating the downside of dividends serves as a useful justificatory tool for current SWF [Sovereign Wealth Fund] arrangements where significant national savings stay Â�under the direct and relatively autonomous control of financial manÂ�agÂ�ers.” Contrary to what is sometimes asserted, Â�there is no basic income paid out of an oil fund in the gulf states, only generous conditional benefits reserved for their citizens. 40. See Clemons 2003 for the Iraqi plan (about which Â�there was even a survey, with 59 Â�percent of the American citizens in the sample expressing themselves in Â�favor and 23 Â�percent against), and Sala-Â�i-Â�Martin and Subramanian 2003 for the Nigerian plan.

Recherches sur les principes mathématiques de la théorie des richesses. Paris: Vrin. Crocker, Geoffrey. 2014. The Economic Necessity of Basic Income. Bristol: Technology Market Strategies. CSC (Confédération des syndicats chrétiens). 2002. “Dans quelle mesure mon revenu est-il juste?” Syndicaliste CSC 560, January 25. Cummine, Angela L. 2011. “Overcoming Dividend Skepticism: Why the World’s Sovereign Wealth Funds Are Not Paying Basic Income Dividends.” Basic Income Studies 6(1): 1–18. Cunha, Jesse M. 2014. “Testing Paternalism: Cash versus In-Â�Kind Transfers.” American Economic Journal: Applied Economics 6(2): 195–230. Cunliffe, John, and Guido Erreygers. 2001. “The Enigmatic Legacy of Charles Fourier: Joseph Charlier and Basic Income.” History of PoÂ�litiÂ�cal Economy 33(3): 459–484. 334 B ibliogra p hy —Â�—Â�—Â�, eds. 2004.


pages: 280 words: 79,029

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

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

After the 1930s (a decade now lauded for its postcrisis regulatory overhaul), US banks were required by their regulators to use credit ratings to assess the creditworthiness of the fixed-income instruments they invest in; international rules still use ratings to determine the amount of equity banks have to use to fund these assets. Investment firms use credit ratings to specify what types of fixed-income products they can invest in, and the biggest pools of capital—pension funds, sovereign-wealth funds, and the like—are often confined to “investment-grade securities,” which carry a higher rating. You can see why Andrew Lo wants to do whatever he can to win over the ratings agencies: they open the door to the largest amounts of money. To add another level of protection, Lo also thinks there might be room for a third party to come in and offer a guarantee, so that if the drugs in the megafund fail to deliver enough income, the guarantor will make up the shortfall.

One big clue is the type of money they are attracting. Hang around the industry long enough, and you’re bound to hear someone talk grandly about the “democratization of finance.” But the platforms also offer a way for big investors to get direct access to unsecured consumer-credit products. Institutional investors now account for more than two-thirds of loan volumes on Lending Club; insurers and sovereign-wealth funds have assigned pots as big as $100 million. Securitizations have already occurred: a hedge fund called Eaglewood Capital that was set up to invest in Lending Club loans bundled some of them into a securitized offering in the autumn of 2013. SoFi, another peer-to-peer lender specializing in student loans, won an investment-grade rating for a securitization from Standard & Poor’s in July 2014.


pages: 232 words: 76,830

Dreams of Leaving and Remaining by James Meek

Affordable Care Act / Obamacare, agricultural Revolution, anti-communist, bank run, Boris Johnson, centre right, Corn Laws, corporate governance, Donald Trump, Elon Musk, Etonian, full employment, global supply chain, illegal immigration, Jeff Bezos, low skilled workers, Martin Wolf, mega-rich, Neil Kinnock, North Sea oil, Northern Rock, obamacare, offshore financial centre, race to the bottom, Ronald Reagan, savings glut, Skype, sovereign wealth fund, special economic zone, Stephen Hawking, working-age population

There were three executive directors – Todd Stitzer, the chief executive, Bob Stack, the chief human resources officer, and Ken Hanna, the chief financial officer – and a changing cast of nine non-executive directors. Stitzer eventually walked away with £40 million in pay, pension and cashed-in shares when he left Cadbury after the company was swallowed up by another multinational, but at the time the Somerdale decision was taken the board was coming under fierce pressure from Cadbury’s big shareholders, particularly the hedge fund partner Nelson Peltz and his Qatar sovereign wealth fund investors, to deliver fatter returns on their investment. I contacted the three executive directors and eleven directors – Sir John Sunderland, Roger Carr, Rick Braddock, Ellen Marram, Guy Elliott, Rosemary Thorne, David Thompson, Sanjiv Ahuja, Wolfgang Berndt, Lord Patten and Raymond Viault. Only Berndt replied (Chris Patten’s assistant told me he was in ‘rural Asia’ without email, then, when the deadline was extended, too ill to respond).

The equilibrium, in other words, when the Poles catch up with the Britons, will see a European economy that is, overall, much bigger, but where working-class Britons will have fallen back, and working-class Poles will never enjoy the security and prosperity of their vanished British counterparts in what now seems a mid-twentieth-century golden age. Scaled up to the global level you have a system which, in its search for short-term efficiency and capital yield, restricts the power much of humanity has to consume what it produces. Multinational manufacturers of consumer goods cut their costs to the bone, sweating their wage and pension bill and buying up robots to deliver yield to the pension funds and sovereign wealth funds and hedge funds and wealthy families that own them; but who then will be able to afford the consumer goods? Those people who work for the other guy? But the other guy is doing the same thing. And robots don’t eat chocolate. Epilogue: Robin Hood The Robin Hood myth is the first and often the only political-economic fable we learn. It’s not a children’s story, although it is childlike.


pages: 352 words: 80,030

The New Silk Roads: The Present and Future of the World by Peter Frankopan

active measures, Berlin Wall, bitcoin, blockchain, Boris Johnson, cashless society, clean water, cryptocurrency, Deng Xiaoping, don't be evil, Donald Trump, Ethereum, ethereum blockchain, F. W. de Klerk, failed state, Fall of the Berlin Wall, global supply chain, illegal immigration, income inequality, invisible hand, land reform, Mark Zuckerberg, mass incarceration, Nelson Mandela, purchasing power parity, ransomware, Rubik’s Cube, smart cities, South China Sea, sovereign wealth fund, trade route, trickle-down economics, UNCLOS, urban planning, WikiLeaks, zero-sum game

In some cases, the dramatic fall in gas, oil and commodity prices during 2015 was the catalyst for a process of professionalisation, of clearing out poor practices and stamping down on corruption. Expectations had to be quickly reduced in Kazakhstan, for example, which is heavily dependent on sales of fossil fuels, as the price of oil fell from $115 to $33 per barrel in the space of eighteen months. This led to a squeeze on the sovereign wealth fund that was raided in order to help meet government obligations – with the result that assets fell by nearly 20 per cent in just over a year.113 Inevitably, this led not only to a recalibration of projected spending, but also to a clampdown on those who had done too well in times of plenty – men like Mukhtar Ablyazov, former chairman of BTA Bank, who is being pursued for the embezzlement of $4bn through courtrooms from Kazakhstan to Knightsbridge.114 A similar sobering process had begun in Russia following the slump in prices.

Policy Frameworks to Support Regional and Global Integration, July 2018. 110Jason Holland, ‘Turkmenistan opens US$2.25 billion airport with 1,100sq m of duty free and retail space’, The Moodie Davitt Report, 14 October 2016. 111Озодлик, ‘Бердымухамедов вызвал к себе руководство компании, строившей ашхабадский аэропорт из-за дефекта здания’, 13 January 2017. 112Альтернативные новости Туркменистана, ‘Ниже уровня толчка. В Гумдаге полиция занялась туалетами и мусорными свалками’, 21 May 2018. 113Attracta Mooney, ‘Kazakh sovereign wealth fund is latest victim of oil price fall’, Financial Times, 8 January 2016. 114Edward Robinson, ‘Bank’s $4 Billion Fraud Allegations Return to London Courtroom’, Bloomberg, 20 November 2017. 115Max Seddon, Lionel Barber and Kathrin Hille, ‘Elvira Nabiullina shuts down Russia’s banking “banditry”’, Financial Times, 19 October 2016. 116BNE Intellinews, ‘Taliban pledge protection as construction starts on Afghan part of TAPI pipeline’, 26 February 2018. 117Bruce Pannier, ‘Why Didn’t Turkmen, Uzbek Leaders Mention “Line D” To China?’


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 diamonds, Bretton Woods, BRICs, British Empire, business cycle, butterfly effect, creative destruction, deindustrialization, demographic transition, Deng Xiaoping, discovery of the americas, distributed generation, eurozone crisis, fiat currency, full employment, Gini coefficient, global village, hydraulic fracturing, income inequality, Isaac Newton, job automation, joint-stock company, Joseph Schumpeter, 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, 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, too big to fail, transaction costs, Washington Consensus, WikiLeaks

Seeking to manage economic difficulties in the 1970s, the United States and other core capitalist countries brought the Bretton Woods monetary system to an end, replacing the stabilization of backing by precious metals with floating, infinitely tradable fiat currencies. After the 1973 Arab-Israeli war OPEC oil producers restricted supply, vastly multiplying their returns from a world deeply dependent on petroleum, and then channeled much of the money into sovereign wealth funds. But financialization was at its most extreme in the world’s long-standing core capitalist economies (and weaker economies yoked to them, for example by membership in the European Union or asymmetrical commodity trade). And while it was led by big capital it also drew in ordinary citizens who saw their incomes stagnate but continued high levels of spending by relying on credit. A better balance between productive industrial enterprise and finance is in fact one of the advantages of today’s higher-growth economies like China or India as they move from semiperiphery to core in global capitalism.

Though the roots of the 2008 crisis were centered in the United States and the European Union, its effects have been worldwide. The dense interconnections and rapid flows of global capitalism and global media made it seem immediately obvious that the crisis was simply global. This was half fact and half illusion, or perhaps a distortion based on perspective. The roiling of capital markets did have far-flung effects. Plunging asset prices damaged sovereign wealth funds in Abu Dhabi and nearly bankrupted its neighboring emirate, Dubai. Exacerbated unemployment—especially among youth—may have helped to spark the so-called Arab Spring (though clearly the economic crisis can be no more than part of a more complex story). Stock markets in Shanghai, Tokyo, and Johannesburg sank with those in New York and London, though they regained ground much faster. Factory workers in China and Vietnam were laid off with sagging global demand, though after faltering briefly the Chinese and Vietnamese economies kept growing.


pages: 264 words: 76,643

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

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

This was the first of several big finds that was to make Norway one of the world’s top oil producers for decades to come. For the first twenty years, Oslo reinvested its growing oil revenues back into the oil industry itself and spent money on developing the country. But by the early 1990s, with oil revenues surpassing all expectations and forecast to continue for decades more, the government started planning for the future. It set up the Petroleum Fund of Norway, a sovereign wealth fund to hold savings for future generations. In 1996 the first oil money was transferred to the fund. Just twenty years later, what is more commonly known as the Oil Fund has become the biggest of its kind in the world, with holdings of around $875 billion.29 It invests what it likes to call “the people’s money” in three classes of assets—equity, bonds, and property, all outside Norway.

The account of Viken comes from “Discover How Norway Saved Its Vanishing Forests,” BBC, November 4, 2015: www.bbc.co.uk. 28. Tore Skroppa, “State of Forest Genetic Resource in Norway,” March 2012, p. iii: www.skogoglandskap.no/​filearchive. 29. Its formal name, changed in 2006, is actually the Government Pension Fund Global, a slightly confusing name given that it is not really a pension fund but a sovereign wealth fund. CHAPTER 12: THE LORD OF HAPPINESS 1. In 1975 pounds. 2. “Jeremy Bentham Makes Surprise Visit to UCL Council,” UCL News, July 10, 2013: www.ucl.ac.uk. 3. Jeremy Bentham, An Introduction to the Principles of Morals and Legislation, 1789. 4. William Davies, The Happiness Industry, Verso, 2015, p. 10. 5. Ibid., p. 61. 6. Ibid., p. 17. 7. This is based on a lecture by Jeffrey Sachs, director of the Earth Institute of Columbia University, at the London School of Economics, December 2016. 8.


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, barriers to entry, Branko Milanovic, BRICs, business process, business process outsourcing, call centre, collective bargaining, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, deindustrialization, deskilling, disruptive innovation, Frederick Winslow Taylor, full employment, future of work, glass ceiling, global supply chain, immigration reform, income inequality, industrial cluster, industrial robot, intangible asset, job automation, Joseph Schumpeter, knowledge economy, knowledge worker, low skilled workers, manufacturing employment, market bubble, market design, 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, 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, winner-take-all economy, working poor, zero-sum game

There has also been increasing use of state “sovereign funds” that have enabled countries including China, Russia, Singapore, and the Arab states to accumulate large reserves of U.S. dollars, giving them the financial resources to buy into overseas companies. The China 42 The Global Auction Investment Corporation has, for example, bought stakes in Blackstone and Morgan Stanley. The financial crisis has accelerated this process, and China’s access to the technologies and expertise it requires, as Anthony Leung, managing director of Blackstone Group Greater China, has suggested, is “a one-time-in-100-years chance for China’s Sovereign Wealth Funds to invest in good companies and acquire more shares.” It also gives Chinese companies a strategic opportunity to take “stakes in advanced overseas companies so that Chinese companies can learn how to move from the low end of the production chain to the high end.”32 Germany is a particular focus for China, and here their interest appears to be in the Mittlestand engineering companies. So concerned was the German government that it considered legislation to protect strategic German companies from mergers and acquisitions.

They insisted on joint ventures between foreign and domestic companies as a way of transferring technologies and know-how in exchange for access to its huge domestic market. They also targeted major R&D investments in fields offering potential for employment growth, including green technologies. Although these attempts will not always succeed, they highlight an active role for the state, aimed at exploiting the global market to rapidly upgrade the Chinese economy. New forms of state capitalism also emerged, including the growth of sovereign wealth funds used by countries including China, Singapore, and the Gulf states to buy into Western companies or to launch national champions, akin to General Motors in the 1950s. They recognized varieties of capitalism that do not correspond to the Anglo-Saxon hands-free variant. In many ways, there is nothing new about the way China has exploited the global economy to achieve rapid modernization, as Japan, Taiwan, South Korea, and Singapore all attempted to govern the market in pursuit of rapid economic growth.21 We have also shown that it was Western corporations seeking to take advantage of new markets that gave emerging economies the opportunity for high-end growth, as it is difficult to stop knowledge from being passed on to competitors.


pages: 253 words: 79,214

The Money Machine: How the City Works by Philip Coggan

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

There is little evidence that UK companies are short of capital and US and European investors are active in the UK market. Just as UK institutions invest overseas, overseas institutions buy into the UK market. Other countries have their own pension funds and insurance companies, of course. They also have mutual funds, the equivalent of unit trusts (see below). A fast-growing group of investors are so-called sovereign wealth funds. These are funds accumulated by overseas governments, such as China, Russia, Norway and the middle Eastern oil producers. All these countries have accumulated trade surpluses. This allows them to build up reserves. Traditionally, a lot of this money was held in the form of deposits or government bonds. But the countries have become more adventurous, buying equities and sometimes whole companies.

Eventually, China will get fed up with owning dollar bonds, especially as the US currency is likely to depreciate. Holding its currency (the yuan) down means that Chinese inflation is likely to accelerate. America is fed up with the loss of manufacturing jobs to China and some politicians have muttered about trade barriers. In addition, China, Russia and others are diversifying their reserves away from government bonds and have set up sovereign wealth funds that invest in shares and property. That has led to fears in the West; big companies are being bought by funds controlled by our geopolitical rivals. The contrast with how Russia treats overseas investors (often forcing them out through legal and tax moves) is striking. THE FOREIGN-EXCHANGE MARKET Participants in the foreign-exchange market include everyone from the Governor of the Bank of England to tourists when they buy foreign currency for a holiday.


pages: 545 words: 137,789

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

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

Low interest rates. Development of credit insurance. Risk-based regulation plus VAR models. Issuance of $1.5 billion in subprime mortgage securities, 2003–2006. Banks put many subprime securities on their books. Banks hold less capital and lever up their balance sheets. Credit Rating Agencies Paid by issuers. Generous fees. Most subprime securities rated “AAA” or “AA.” Hedge Funds/Sovereign Wealth Funds/Mutual Funds Ultralow interest rates. Investment-grade ratings for subprime securities. Search for “yield.” Heavy demand for subprime securities. Regulators/Policymakers “The Great Moderation.” Low inflation. Illusion of harmony/Illusion of stability. Disaster myopia. Interest rates too low. Deregulation pressed too far. What the table doesn’t show is how the various incentive problems aggravated and reinforced one another.

Rather than subjecting himself to questions about why his skills at Musical Chairs had failed him, he issued a statement saying resignation was “the only honorable course for me to take.” In the ensuing months, almost all of Prince’s peers announced that their firms had suffered heavy losses, but none resigned. Several borrowed a trick from Morgan Stanley’s John Mack, who, just before Christmas, twinned the announcement of $9.4 billion in write-offs with news of a $5 billion equity injection on the part of a Chinese sovereign wealth fund. Even if Wall Street had gotten itself into a mess, Morgan’s announcement seemed to signal that there were plenty of rich (and not necessarily very smart) foreigners ready to bail it out. The subprime crisis was front-page news, but there was still surprisingly little public recognition of the damage it might do. On December 31, 2007, the Dow closed out the year at 13,264.82, slightly above the level it had been at on August 1.

As the months passed, attention focused on some of the Wall Street firms that were most closely associated with the mortgage securitization industry: Merrill, Bear Stearns, and Lehman Brothers. Of these three, Merrill had taken the strongest steps to bolster its position, hiring as its new CEO John Thain, the former head of the New York Stock Exchange, and raising $6.6 billion from a group of investors that included Kuwaiti and Korean sovereign wealth funds. Bear and Lehman, which were known as savvy and aggressive trading houses, remained under the control of the executives who had led them to this pass. Both insisted they had adequate capital—in October 2007, Bear had raised $1 billion from a Chinese investment firm. Actually, their finances were precarious. Unlike commercial banks, such as Citigroup, they didn’t have access to the Fed’s lending facilities, which were steadily expanded in the winter of 2007–2008.


pages: 496 words: 131,938

The Future Is Asian by Parag Khanna

3D printing, Admiral Zheng, affirmative action, Airbnb, Amazon Web Services, anti-communist, Asian financial crisis, asset-backed security, augmented reality, autonomous vehicles, Ayatollah Khomeini, barriers to entry, Basel III, blockchain, Boycotts of Israel, Branko Milanovic, British Empire, call centre, capital controls, carbon footprint, cashless society, clean water, cloud computing, colonial rule, computer vision, connected car, corporate governance, crony capitalism, currency peg, deindustrialization, Deng Xiaoping, Dissolution of the Soviet Union, Donald Trump, energy security, European colonialism, factory automation, failed state, falling living standards, family office, fixed income, flex fuel, gig economy, global reserve currency, global supply chain, haute couture, haute cuisine, illegal immigration, income inequality, industrial robot, informal economy, Internet of things, Kevin Kelly, Kickstarter, knowledge worker, light touch regulation, low cost airline, low cost carrier, low skilled workers, Lyft, Malacca Straits, Mark Zuckerberg, megacity, Mikhail Gorbachev, money market fund, Monroe Doctrine, mortgage debt, natural language processing, Netflix Prize, new economy, off grid, oil shale / tar sands, open economy, Parag Khanna, payday loans, Pearl River Delta, prediction markets, purchasing power parity, race to the bottom, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, Ronald Reagan, Scramble for Africa, self-driving car, Silicon Valley, smart cities, South China Sea, sovereign wealth fund, special economic zone, stem cell, Steve Jobs, Steven Pinker, supply-chain management, sustainable-tourism, trade liberalization, trade route, transaction costs, Travis Kalanick, uber lyft, upwardly mobile, urban planning, Washington Consensus, working-age population, Yom Kippur War

Arabic is the fastest-growing language at Beijing’s Foreign Studies University. Cross-Asian investment growth is inspiring plans for a great decoupling between oil and the dollar. In return for a strong investment in Saudi Aramco, Saudi Arabia may begin to sell China oil priced in renminbi. Welcome to the petroyuan.7 Gulf economies cannot achieve their goal of economic diversification without support from East Asia. GCC countries’ sovereign wealth funds (SWFs) manage a total of $3 trillion, and parking that money in London or low-yield US Treasury bonds is less and less a sensible option. Instead, they are rapidly repatriating hundreds of billions of dollars from the United States and United Kingdom to spend with the Asian and European contractors that are building their future transportation networks and industrial parks. In 2015, Saudi Arabia’s Public Investment Fund (PIF) purchased a 38 percent stake in South Korea’s POSCO Engineering & Construction, after which Saudi Aramco turned to Korea’s Hyundai to construct the Gulf’s largest shipyard.

Many of the biggest, such as Sequoia Capital and Accel, have planted roots in Asia to branch out beyond the mature and overhyped US market. Their presence has inspired Asia-focused VCs, such as Golden Gate Ventures and East Ventures, while government-backed Asian funds have taken stakes in Silicon Valley incubators and accelerators, as Abu Dhabi Financial Group has done with the San Francisco–based 500 Startups. This rise of ever more regional start-ups has compelled Asian sovereign wealth funds such as Singapore’s GIC to increase their Asian tech portfolios beyond their superstar investments Alibaba and Xiaomi. The Boston-based tech PE firm TA Associates had zero international staff a decade ago, but now half its employees and investments are outside the United States, especially from Mumbai to Hong Kong. Talent is also in ever greater circulation between the West and Asia and within the region itself.

In partnership with the World Economic Forum, Japan, China, and India have set up centers to help design the future of regulation of AI, blockchain, drone, and other technologies. At the International Telecommunications Union (ITU), where the future of Internet regulation is taking shape, Asian officials go toe to toe with Americans and Europeans on matters of data privacy and e-commerce regulation. The future landscape of global regulation appears to be a hybrid of conventional Western rules and Asian practices. Investments by Asian sovereign wealth funds will be robust, but much more scrutiny of deals will create greater transparency. The United States and European Union will ever more confidently block Chinese investments in their territories unless their companies are granted reciprocal access—and have protections for their innovations. All the while, other Asian powers will be building their technological and financial foundations, snapping up assets where Chinese are rejected and building their own global portfolios.


pages: 515 words: 132,295

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

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

“Are institutional investors contributing to food and energy price inflation? My unequivocal answer is, YES!” said hedge fund portfolio manager Michael Masters in testimony on the topic before the US Senate Committee on Homeland Security and Governmental Affairs in May 2008. “What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets…corporate and government pension funds, sovereign wealth funds, university endowments, and other institutional investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.”28 It’s a trend that has only strengthened since then, as a good chunk of the $4.5 trillion that the Federal Reserve dumped into the markets to try to buoy the economy following the financial crisis ended up either in commodities or in emerging market economies that were essentially plays on the commodity markets.29 The fact that these markets have since collapsed, as hot money fled in the wake of the Fed’s pullback from quantitative easing, only shows just how financialized they’ve become.

According to some recent surveys, about 1 in 14 American workers is employed by a firm that’s owned at least in part by a private equity company.24 Even more amazing, many of us are funding these very same firms, via our pension and mutual funds. Private equity has in recent years raised most of its money from institutional investors like pension funds (which supply 44 percent of their capital) as well as mutual funds, sovereign wealth funds, and wealthy individuals, and then invested that money in a group of portfolio companies. It’s an incredible system when you think about it. Our nest eggs fund the very firms that are quite likely to cut our jobs, which of course makes it impossible to buy a home. Meanwhile, private equity capitalizes on that fact by making huge profits in a market that many average consumers don’t have the financial capacity to engage in.

Meanwhile, private equity capitalizes on that fact by making huge profits in a market that many average consumers don’t have the financial capacity to engage in. Talk about a closed loop of financialization. Why would such large institutional investors give their money to the wolves of Wall Street? Because they are under increasing pressure to meet their own return obligations. Pensioners need to be paid, universities need to be funded, governments in repressive countries need to grow their sovereign wealth funds so they can keep offering their people economic subsidies rather than political freedom, and so on. In many cases, the promises that such investors have made to their stakeholders were unrealistic in the first place. Many pension funds, for example, promise 8 percent annual returns, a number that seems unbelievable in the current economic climate. To try to meet these targets, investors turn to private equity titans, who have a reputation for being able to turn big profits quickly, often by downsizing firms and selling off assets, but also by accessing areas of the private market that are closed to those who aren’t financial insiders.


pages: 504 words: 139,137

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

activist fund / activist shareholder / activist investor, algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Black-Scholes formula, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, Eugene Fama: efficient market hypothesis, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, late capitalism, law of one price, Long Term Capital Management, margin call, market clearing, market design, market friction, merger arbitrage, money market fund, mortgage debt, Myron Scholes, New Journalism, paper trading, passive investing, price discovery process, price stability, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, selection bias, shareholder value, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stocks for the long run, stocks for the long term, survivorship bias, systematic trading, technology bubble, time value of money, total factor productivity, transaction costs, value at risk, Vanguard fund, yield curve, zero-coupon bond

For instance, some funds specialize in a particular industry (consistent with Graham’s “know your business”), e.g., technology stocks, healthcare stocks, or commodity-related stocks. Other long–short hedge funds specialize in value investing or growth investing. The large long–short equity hedge funds are often broad, but they might consist of several specialized teams. Discretionary equity investing is also used by active mutual funds, pension funds, sovereign wealth funds, and other traders. The main difference is that many of these investor types are long only. Hence, they will not just buy the stocks that they like, they will also overweight them relative to the benchmark, and, while they cannot short-sell stocks, they can underweight them relative to the benchmark or avoid them altogether. However, since most stocks are a very small percentage of a benchmark (often less than 1%), avoiding a stock has a much smaller effect than buying a significant position.

PART III Asset Allocation and Macro Strategies CHAPTER 10 Introduction to Asset Allocation The Returns to the Major Asset Classes Design of a portfolio involves at least four steps: deciding which asset classes to include and which to exclude from the portfolio; deciding upon the normal, or long-term, weights for each of the asset classes allowed in the portfolio; altering the investment mix weights away from normal in an attempt to capture excess returns from short-term fluctuations in asset class prices (market timing); and selecting individual securities within an asset class to achieve superior returns relative to that asset class (security selection) —Brinson, Hood, and Beebower (1986) Macro investing deals with an investor’s overall asset allocation, that is, how much to invest in equities, bonds, and the other major asset classes. This macro investment goal can be separated into two components: (1) The long-term strategic asset allocation policy. For example, the Norwegian sovereign wealth fund (Norges Bank Investment Management) has had a benchmark portfolio (also called policy portfolio) of about 60% global equities and 40% global bonds. (2) The reallocations around the long-term weights based on current market views, called tactical asset allocation or market timing. For example, a pension fund that views the equity market as especially attractive may decide to temporarily increase its equity weight.

See also dedicated short bias hedge funds short squeeze, 118; predatory trading and, 84 Siamese twin stocks, 6, 149–50, 149f side pockets, 75 size risk, 29 Skilling, Jeff, 127 small-minus-big (SMB) factor, 29 smile, of time series momentum, 220–21, 220f smirk, of implied volatility, 239 SML (security market line), 140–41, 140f, 141n SoftBank, 318, 319 Soros, George, viii, 1, 11, 13, 15–16, 15t; famous trade by, shorting the pound, viii, 1, 187, 204, 320; on going for the jugular, 11–12, 321; Internet bubble and, 41, 203, 206; interview with, 204–7; Paulson’s learning from, 206, 320, 321; Scholes on, 264; theory developed by, 15t, 200–204 Soros Fund Management, 204 Sortino ratio, 32 sovereign bonds, 260 sovereign credit risk, 200 sovereign wealth funds, 96, 167 specialness, 245–46, 245f special purpose acquisition companies (SPACs), 313 special security structures, 313 spin-offs, 14, 291, 307–9, 308f; Paulson on, 314, 316 split-offs, 14, 307–9, 308f spreads: widening during periods of stress, 267–68. See also bid–ask spreads; credit spread; deal spread in merger arbitrage spread trades, Scholes on, 264, 265 Sprint, 318, 319 SR.


pages: 77 words: 18,414

How to Kick Ass on Wall Street by Andy Kessler

Andy Kessler, Bernie Madoff, buttonwood tree, call centre, collateralized debt obligation, family office, fixed income, hiring and firing, invention of the wheel, invisible hand, London Whale, margin call, NetJets, Nick Leeson, pets.com, risk tolerance, Silicon Valley, sovereign wealth fund, time value of money, too big to fail, value at risk

It’s not easy and it’s not obvious and chances are if you ask a random person about it they will look at you with a blank stare and tell you to leave them alone. Another reason to pick the right mentor. I think your goal is to visualize and what the heck, actually draw a picture of how money flows or, as I like to say, sloshes around Wall Street. You need to see how the pieces are interconnected. Start with the asset managers on the buy side, the hedge funds, family offices, endowments, pensions, sovereign wealth funds, thrifts, insurance companies, venture capital firms, private equity firms, financial investors, rich dudes, who is servicing who and how does the money end up in the right hands. Then on the sell side, start connecting the dots between the bulge bracket firms, universal banks, broker dealers, wire houses, wealth platforms and intermediaries. And when a trade is executed, who touches it.


pages: 444 words: 86,565

Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum, Joshua Pearl, Joseph R. Perella

asset allocation, asset-backed security, bank run, barriers to entry, business cycle, capital asset pricing model, collateralized debt obligation, corporate governance, credit crunch, discounted cash flows, diversification, fixed income, intangible asset, London Interbank Offered Rate, performance metric, shareholder value, sovereign wealth fund, stocks for the long run, technology bubble, time value of money, transaction costs, yield curve

EXHIBIT 4.2 Key Participants Financial Sponsors The term “financial sponsor” refers to traditional private equity (PE) firms, merchant banking divisions of investment banks, hedge funds, venture capital funds, and special purpose acquisition companies (SPACs), among other investment vehicles. PE firms, hedge funds, and venture capital funds raise the vast majority of their investment capital from third-party investors, which include public and corporate pension funds, insurance companies, endowments and foundations, sovereign wealth funds, and wealthy families/individuals. Sponsor partners and investment professionals may also invest their own money in particular investment opportunities. This capital is organized into funds that are usually established as limited partnerships. Limited partnerships are typically structured as a fixed-life investment vehicle, in which the general partner (GP, i.e., the sponsor) manages the fund on a day-to-day basis and the limited partners (LPs) serve as passive investors.115 These vehicles are considered “blind pools” in that the LPs subscribe without specific knowledge of the investment(s) that the sponsor plans to make.116 However, sponsors are often limited in the amount of the fund’s capital that can be invested in any particular business, typically no more then 10% to 20%.

See selling, general & administrative share price accretion/(dilution) analysis implied performance benchmarking systematic risk unaffected shareholder approval shareholder vote shareholders’ equity short-form LBO model SIC. See Standard Industrial Classification system size, of company key financial data market valuation size premium (SP) small-cap sources and uses of funds sovereign wealth funds SOX. See Sarbanes-Oxley Act of 2002 SP. See size premium S&P. See Standard & Poor’s S&P 500 SPACs. See special purpose acquisition companies special dividends special purpose acquisition companies (SPACs) Sponsor Case/Model sponsors. See financial sponsors spreading comparable companies precedent transactions springing financial covenant standalone Standard & Poor’s (S&P) Standard & Poor’s Leveraged Commentary & Data Group Standard Industrial Classification (SIC) system standstill agreement stapled financing state law steady state stock-for-stock transaction stock options stock price.


pages: 261 words: 86,905

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

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

The gains were private, but the losses were socialized: and that’s socialism for the rich. sovereign In an economic context the term means to do with nations—I don’t know why the word “sovereign” is so popular, but it’s a quick fix to replace it with “national.” A sovereign wealth fund is a national body of pooled investments; such funds are huge players in the global financial markets, because of their sheer size combined with their ability to act with a single purpose. (The importance of sovereign wealth is a recent phenomenon: the term “sovereign wealth fund” was invented only in 2005.) Sovereign debt means the nation’s public debt, as opposed to all the other different kinds of debt owed by the citizens and corporations of a country. spread The gap between two prices. The term has a number of economic uses, but the main one concerns the divergence between two prices, one used as point of reference and the other as a point of concern.


pages: 303 words: 83,564

Exodus: How Migration Is Changing Our World by Paul Collier

Ayatollah Khomeini, Boris Johnson, charter city, Edward Glaeser, experimental economics, first-past-the-post, full employment, game design, George Akerlof, global village, guest worker program, illegal immigration, income inequality, informal economy, mass immigration, moral hazard, open borders, risk/return, Silicon Valley, sovereign wealth fund, Steven Pinker, The Wealth of Nations by Adam Smith, transaction costs, University of East Anglia, white flight, zero-sum game

Similarly, the return of Ayatollah Khomeini to Iran from safe haven in France scarcely ushered in an era of sweetness and light. While in such extreme instances governments are right to fear diasporas, more commonly policies of discouragement appear to be based on little more than resentment at success. For example, Haiti, with its huge latent diaspora asset, has denied migrants the right to dual citizenship. Governments are only slowly waking up to the need to manage this asset as carefully as a conventional sovereign wealth fund. The potential is far greater: while placing substantial financial capital abroad at negligible interest rates makes little sense for a poor country, it will inevitably have a huge stock of human capital abroad and so should plan to use it well. The diaspora as an asset is of particular importance in postconflict situations following civil wars. Typically, civil wars last many years, during which the educated young get out.

While resource-based growth has often proved to be unsustainable, as I discussed in The Plundered Planet, it may be the trigger for attracting back the diaspora. Such a coordinated influx of talented people may be critical in breaking bottlenecks and so improve the chances that growth can be sustained. A large diaspora is a latent asset for a country of origin that can be tapped once the conditions are right. It is a human variant on the sovereign wealth funds that are now fashionable. Where does this leave the “brain drain” as a concern? For developing countries as a group the concern is clearly misplaced: gains outweigh losses. But the category “developing country” can no longer be taken seriously. China, India, and many other countries are rapidly converging on the high-wage countries. Intractable poverty as a problem that warrants substantial and sustained international attention is becoming concentrated in the small, poor countries that have suffered significant net losses of their scarce skilled population.


pages: 449 words: 85,924

Lonely Planet Maldives (Travel Guide) by Planet, Lonely, Masters, Tom

British Empire, car-free, carbon footprint, haute cuisine, income inequality, Skype, sovereign wealth fund, sustainable-tourism, trade route, women in the workforce

While the political will to get an international agreement on how best to combat climate change may finally be within sight, the Maldives has long been making contingency plans in the likely event that whatever the international community does will be too little, too late. These contingency plans range from an already well-established project to reclaim land on a reef near Male to create a new island 2m above sea level, to a plan to set aside a portion of the country’s annual billion-dollar tourism revenue for a sovereign wealth fund to purchase a new homeland for the Maldivians if rising sea levels engulf the country in decades to come. Both options are fairly bleak ones – the prospect of moving to the new residential island of Hulhumale is not one relished by most Maldivians, who are attached to their home islands and traditional way of life, but the prospect of the entire country moving to India, Sri Lanka or even Australia (as has been suggested) is an even more sobering one.

There have been bold efforts made to ensure the survival of the human population of the Maldives in the future in the worst case scenario when waters wash over many of the lower-lying islands. Most obviously this includes the land reclamation project that has created 2m-high Hulhumale island next to the airport, which one day will house around half the country’s population and all of the government. If the day does indeed come when waters engulf the entire country, then in theory the government’s sovereign wealth fund may be used to buy land elsewhere in the world for at least some, if not all, of the Maldivian population. India and Sri Lanka are the most likely destinations due to proximity and similarities in culture, climate and cuisine, but Australia is also frequently mooted given its large amount of free space. The 2011 film The Island President is a fascinating documentary that followed the progress (or frankly, lack of progress) of former president Nasheed as he lobbied internationally for an agreement to curtail global warming and prevent the Maldives from being one of the first victims of the world’s rising sea levels.


pages: 497 words: 144,283

Connectography: Mapping the Future of Global Civilization by Parag Khanna

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

Germany ranks at the top of both the McKinsey Connectedness Index and the Pew/GlobeScan survey of the world’s most admired countries. The primacy of connectivity allows smaller states to have far greater gravity than their size would suggest. Singapore and the Netherlands have high flow intensity because they depend more on the in- and outflow of goods, services, finance, people, and data than large countries. Norway is a relatively small and geographically remote Arctic country, but its oil-generated sovereign wealth fund is the world’s largest and controls 1 percent of global stock exchange value and 3 percent in Europe. As it expands its emerging market portfolio allocation to 10 percent, its leverage over hundreds of major international companies will grow as well.7 More connectivity means more growth and more flows. Already 40 percent of global GDP (as well as 25 percent of global growth) depends on the flows of goods, services, and capital across borders,8 while knowledge-intensive flows such as digital services are already worth $13 trillion annually (about half the value of all flows) and rising rapidly—a reminder that viewing globalization only from the standpoint of manufacturing tells us ever less about its full trajectory.*2 In the standard “gravity model,” trade grows in proportion to the size of communities and inversely to the distance between them.

Additionally, the most vanilla of financial products, mutual and bond funds, which collectively represent another $30 trillion, are increasing exposure to foreign equities as well, putting money into mid-cap and large-cap companies abroad while leveraging their growth to generate returns for mom-and-pop retail investors at home. Official capital holdings have also expanded steadily in recent years. Central bank reserves have climbed to over $8 trillion, mostly concentrated in Asia, where governments are channeling ever more of this cash into government investment vehicles known as sovereign wealth funds (SWFs), collectively valued at $6 trillion, which are starting to deploy their capital in more adventurous ways across real estate, banks, and other companies (especially to compensate for falling revenues as oil prices decline). SWFs often invest with private equity funds, estimated to hold slightly more than $2 trillion in assets, or hedge funds that represent another $2 trillion in capital.

Climate negotiations are premised on national emissions rather than on distributing energy-efficient technologies through supply chains—which is why they fail. International organizations and liberal governments are instead switching their focus to using their role and leverage in supply chains to promote sustainability. The IFC’s Equator Principles, for example, won’t invest in projects dependent on coal-generated power unless there is absolutely no alternative. Norway’s sovereign wealth fund, the world’s largest, has divested from all coal-related investments. Investors, insurers, and asset managers have moved in a similar direction. Socially responsible investment funds actively screen a combined $4 trillion portfolio, looking beyond parent companies deep into their tens of thousands of suppliers to measure compliance with environmental standards. The Dutch fund manager RobecoSAM has co-developed a suite of Dow Jones Sustainability Indices covering two dozen industry clusters and issuing detailed reports on the practices of corporate leaders and their exposure to energy supply disruptions.


pages: 346 words: 89,180

Capitalism Without Capital: The Rise of the Intangible Economy by Jonathan Haskel, Stian Westlake

"Robert Solow", 23andMe, activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, Andrei Shleifer, bank run, banking crisis, Bernie Sanders, business climate, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, cognitive bias, computer age, corporate governance, corporate raider, correlation does not imply causation, creative destruction, dark matter, Diane Coyle, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Glaeser, Elon Musk, endogenous growth, Erik Brynjolfsson, everywhere but in the productivity statistics, Fellow of the Royal Society, financial innovation, full employment, fundamental attribution error, future of work, Gini coefficient, Hernando de Soto, hiring and firing, income inequality, index card, indoor plumbing, intangible asset, Internet of things, Jane Jacobs, Jaron Lanier, job automation, Kenneth Arrow, Kickstarter, knowledge economy, knowledge worker, laissez-faire capitalism, liquidity trap, low skilled workers, Marc Andreessen, Mother of all demos, Network effects, new economy, open economy, patent troll, paypal mafia, Peter Thiel, pets.com, place-making, post-industrial society, Productivity paradox, quantitative hedge fund, rent-seeking, revision control, Richard Florida, ride hailing / ride sharing, Robert Gordon, Ronald Coase, Sand Hill Road, Second Machine Age, secular stagnation, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, software patent, sovereign wealth fund, spinning jenny, Steve Jobs, survivorship bias, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, total factor productivity, Tyler Cowen: Great Stagnation, urban planning, Vanguard fund, walkable city, X Prize, zero-sum game

There may also be a different strategy available to the largest institutional investors: to invest broadly across an ecosystem, to such an extent that it is worth approving management plans for intangible investments even if they have large spillovers, since these large investors will benefit from the investment even if a different firm takes advantage of it because they have a stake in the industry as a whole. This tactic of investing across a particular industry (such as energy) could be applied more broadly perhaps—especially by very large investors such as sovereign wealth funds. This seems to be the most likely way that a latter-day generation of Bell Labs might arise under private finance. We will probably also see an expansion of venture capital, though whether serious VC sectors will arise in many places, or break through into entirely new sectors, is less certain. Either way, they will continue to rely on close relations both with established firms and with publicly funded intangible investments (such as long-run scientific research and development) to thrive.

First, it can remove regulations that discourage blockholding (these include disclosure requirements, rules on what information companies may provide blockholders, and rules about which shareholders may vote with borrowed stock). Second, it can reexamine standards of financial accounting to identify better ways of reflecting intangible investments (following the lead of the designers of California’s planned Long-Term Stock Exchange or of accounting scholar Baruch Lev’s reform agenda set out in The End of Accounting). There may also be a different strategy available to those governments fortunate enough to run sovereign wealth funds or large, endowed state pension funds. As we have seen, the largest institutional investors may be able to invest broadly across an ecosystem, knowing that they can benefit from spillovers of intangible investments even if an individual company they have backed does not. These larger national funds could be deployed to invest in particular ecosystems (in the way that Fidelity is reported to have invested across Elon Musk’s intangible-intensive business empire).


pages: 363 words: 92,422

A Fine Mess by T. R. Reid

Affordable Care Act / Obamacare, Bernie Sanders, Capital in the Twenty-First Century by Thomas Piketty, carried interest, centre right, clean water, Donald Trump, Double Irish / Dutch Sandwich, game design, Gini coefficient, High speed trading, Home mortgage interest deduction, Honoré de Balzac, income inequality, industrial robot, land value tax, loss aversion, mortgage tax deduction, obamacare, Occupy movement, offshore financial centre, oil shock, plutocrats, Plutocrats, race to the bottom, Ronald Reagan, seigniorage, Silicon Valley, Skype, Snapchat, sovereign wealth fund, Tesla Model S, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, We are the 99%, WikiLeaks

In the 1970s, when it became clear that the frozen northern tundra of the forty-ninth state was situated over an enormous underground lake of crude oil, the state government had a long shopping list of ways to spend the severance tax revenue that began pouring in. But some farsighted political leaders decided—over loud opposition—to set aside a portion of the oil tax, invest the money, and save it for the future. This kind of rainy-day fund is formally known as a “sovereign wealth fund.” But the one in Alaska bears an optimistic name—the “Permanent Fund”—on the theory that the money will always be there in time of need. In 1977, its first full year of operation, the Alaska Permanent Fund took in $734,000. By 2016, the fund totaled $53.7 billion and was making more each year on investment income than from oil revenues. As the Permanent Fund began to grow in the late 1970s, Alaskans came to realize that oil revenues, and the income from investing the fund’s assets, were big enough to replace the revenue from most state taxes.

Of course, Alaskans still have to pay federal income tax, and many use the Permanent Fund Dividend to pay what they owe Uncle Sam. These tax-free arrangements can dry up rapidly if the oil runs out or if the price of oil plummets on world markets, as it did in 2014. The extended swoon in the price of crude oil over the next two years badly stretched government coffers in the Middle East, even among those farsighted countries that had set aside a chunk of their annual oil earnings in sovereign wealth funds, which act like national rainy-day funds. By 2015, several of the Middle East’s no-tax territories were considering, or enacting, sales taxes, capital gains taxes, and tariffs on imported goods. In 2016, facing a severe budget deficit, Alaska cut its cherished Permanent Fund Dividend by 50%, setting a cap of $1,000 for each recipient; even more shocking, there was growing pressure to bring back a state income tax.


pages: 287 words: 86,870

The Glass Hotel by Emily St. John Mandel

Bernie Madoff, big-box store, discrete time, East Village, high net worth, McMansion, Panamax, Pepto Bismol, Ponzi scheme, sovereign wealth fund, white picket fence, Y2K

Oskar drew near, to see if he could decipher the signature in the lower right corner of the painting, and found that he could: Olivia Collins. He recognized the name. Harvey had told him to give her a higher-than-normal rate of return, because Alkaitis liked her, and this was something he’d carefully avoided thinking about until this moment. Some of the investors were institutions. Some of them were sovereign wealth funds. There were charities and retirement funds, unions and schools. There were individuals who lived at a level of wealth that Oskar could barely imagine, even after all these years in the city, even standing here in an apartment in the sky in one of the most expensive neighborhoods in the world. But there were also people like Olivia Collins, people who’d come into a little money or had been able to save over a lifetime.

If he’s to be honest with himself, he supposes Yvette Bertolli’s heart attack was probably Ponzi related, but she should have seen the scheme for what it was and she could’ve gotten out whenever she wanted, just like everyone else, and whatever happened to Olivia can’t possibly be blamed on him, he’s been in prison for years now and she’s only been dead for a month. When Alkaitis thinks about how much money he provided, all the checks he sent out over the years, he feels a hollow rage. “I’m not saying what I did was right but by any rational analysis I did some good in the world,” he writes to Julie Freeman. “By which I mean I made a lot of money over a period of decades for a lot of people, a lot of charities, many sovereign wealth funds and pension funds, etc., and I know that might seem self-justifying but the numbers are the numbers and if you look at investments vs. returns, most of those people/entities took out far more than they put in and made far more money than if they’d just invested in the stock market and therefore I would suggest that it is inaccurate to refer to them as ‘victims.’ ” * * * — “Well,” he said to Suzanne, in the hospice, “at least now you won’t have to go to prison when the scheme collapses.”


pages: 279 words: 87,875

Underwater: How Our American Dream of Homeownership Became a Nightmare by Ryan Dezember

activist fund / activist shareholder / activist investor, Airbnb, business cycle, call centre, Cesare Marchetti: Marchetti’s constant, cloud computing, collateralized debt obligation, coronavirus, corporate raider, COVID-19, Credit Default Swap, credit default swaps / collateralized debt obligations, Donald Trump, Home mortgage interest deduction, housing crisis, interest rate swap, margin call, McMansion, mortgage debt, mortgage tax deduction, negative equity, rent control, rolodex, sharing economy, sovereign wealth fund, transaction costs

Condo developers from the Gulf Coast courted Blackstone’s dealmakers, but when they got a look at the sales contracts, they learned that buildings purported to be sold out had really just been reserved by parties related to the developer and a few speculators aiming to flip. There was no reason to assume real buyers would ever materialize. Blackstone decided to sit out the most frenzied moments of the residential real estate mania. Because of its restraint and decade-long grip on its investors’ cash, the firm had billions of dollars from pensions, sovereign wealth funds, and rich families with which to go bargain hunting when the bubble burst. In 2012, Gray was back home in Chicago visiting family for Thanksgiving when he and his father hopped in the car and went for an after-dinner spin to do some due diligence. Gray wanted to see for himself what sorts of foreclosures were out there. He had a list of addresses and asking prices. He was shocked by how little the repossessed homes cost.

Investors around the world were getting comfortable with the idea that clusters of suburban homes could be managed efficiently enough to be profitable and were lined up at rental managers’ doors in hopes of emulating the success of early investors such as Alaska’s oil fund, which banked a $300 million profit in 2016 selling American Homes 4 Rent stock. Money flowed from all corners. At a time when not many other investments delivered much of a yield, rental houses cranked out cash. Bond-buying insurance companies, hedge funds, pension plans, sovereign wealth funds, stock market investors, community banks, and even Chinese millionaires wanted a piece of the action. Jordan Kavana, a Florida real estate investor who bought foreclosed homes and nonperforming loans after the crash, wrangled millionaires in China and pooled their cash to buy and build rental homes in the Southeast. A Canadian investment firm called Tricon Capital Group teamed with a Texas pension plan and a Singaporean fund to acquire about $2 billion worth of rental homes.


pages: 598 words: 169,194

Bernie Madoff, the Wizard of Lies: Inside the Infamous $65 Billion Swindle by Diana B. Henriques

accounting loophole / creative accounting, airport security, Albert Einstein, banking crisis, Bernie Madoff, break the buck, British Empire, buy and hold, centralized clearinghouse, collapse of Lehman Brothers, computerized trading, corporate raider, diversified portfolio, Donald Trump, dumpster diving, Edward Thorp, financial deregulation, financial thriller, fixed income, forensic accounting, Gordon Gekko, index fund, locking in a profit, mail merge, merger arbitrage, money market fund, plutocrats, Plutocrats, Ponzi scheme, Potemkin village, random walk, Renaissance Technologies, riskless arbitrage, Ronald Reagan, short selling, Small Order Execution System, source of truth, sovereign wealth fund, too big to fail, transaction costs, traveling salesman

What immediately became apparent was the astonishing geographical reach of Madoff’s crime, a perverse monument to two decades of financial globalization. The lists soon included Swiss private bankers, a Singapore insurance company, a Korean teachers pension fund, an Italian bank holding company, major Japanese banks and insurance companies, trust funds in Hong Kong, Dutch money managers, a sovereign wealth fund in Abu Dhabi, a French cosmetics heiress, minor royalty in England and Monaco, two Catholic schools on St Croix, hedge funds in Luxembourg, and wealthy families in Mexico, Brazil, Argentina, and Dubai. One legal consortium in Europe would later estimate that as many as three million people were touched by the scandal. In the United States, the visible victims included trustees of cultural institutions in New York, retired Wall Street executives, wealthy property developers in Chicago, respected academic figures in Boston, a foundation in Seattle, a state legislator in New Jersey, and a cluster of retirees in Aspen, Colorado.

Now that would be a story”; and “Just another jew money changer thief. It’s been happening for 3,000 years.” In reality, Madoff’s crime had far outstripped its original Jewish connections. Almost all of the hard cash wiped out by the fraud had poured in since Madoff’s cash crisis in late 2005, and it had come from hedge funds around the world, from aristocratic Europeans and shadowy Russians and sovereign wealth funds in the Persian Gulf. If those investors had heard of Bernie Madoff at all, they associated him with the rise of NASDAQ and the automation of Wall Street, not with the Jewish country clubs on Long Island and in Palm Beach or the board of trustees at Yeshiva University. But he had been a member of those Jewish country clubs, and hundreds of their members had lost decades of accumulated paper profits.

A typical example is Gordon Bennett, the natural foods entrepreneur who retired on his Madoff savings; with his modest nest egg generating a comfortable income, he was able to devote the second half of his life to conservation causes and making a notable difference in his community. Modest family foundations in towns and cities all across America are scattered through the Madoff victim list, and each one of them made small, precious improvements in the lives of those they touched. Rich and possibly selfish hedge fund managers invested with Madoff—and he paid out their money as investment income for Hadassah, which dedicated it to charity and good works. Rich Arab sovereign wealth funds invested with Madoff—and he paid their money out as profits and management fees to Stanley Chais, who gave it away to educational institutions in Israel. Rich investors living lavishly gave money to Madoff—and he used it to make reassuring, steady payments to modest investors who consequently lived in greater comfort and died with greater dignity than they might have enjoyed otherwise. These generous ends do not remotely justify the viciously criminal means that empowered them, of course.


The New Harvest: Agricultural Innovation in Africa by Calestous Juma

agricultural Revolution, Albert Einstein, barriers to entry, bioinformatics, business climate, carbon footprint, clean water, colonial rule, conceptual framework, creative destruction, double helix, energy security, energy transition, global value chain, income per capita, industrial cluster, informal economy, Intergovernmental Panel on Climate Change (IPCC), Joseph Schumpeter, knowledge economy, land tenure, M-Pesa, microcredit, mobile money, non-tariff barriers, off grid, out of africa, precision agriculture, Second Machine Age, self-driving car, Silicon Valley, sovereign wealth fund, structural adjustment programs, supply-chain management, total factor productivity, undersea cable

Banks have also increased lending to the agricultural sector, facilitated by NIRSAL, the risk-sharing facility of the Central Bank of Nigeria; a total of US$0.26 billion was lent to fertilizer and seed companies by banks between 2011 and 2014. A US$100 million fund for Agricultural Financing in 6 THE NEW HARVEST Nigeria (FAFIN) was launched for long-term, tailored financing. The fund is capitalized by the Ministry of Agriculture, the German Development Bank (KFW), and Nigeria’s Sovereign wealth fund. The latest release by the National Bureau of Statistics shows that the agricultural sector grew by 9.19% (year-on-year) in the third quarter of 2014, up by 2.7% points from the third quarter of 2013. The agricultural sector grew by 38.53% between the third and fourth quarters of 2014, with crop production being the main driver, with a growth of 43.5%. The country launched a bold effort to mechanize its agriculture and, in the words of President Jonathan, “put hoes and cutlasses into the museum.”

See also specific countries migration, 17, 188, 240, 254, 256 Millennium Development Goals, 150 millet, 36, 164, 191–94 Mitsubishi, 137 mobile phones, xviii, 6, 48–52, 115, 134–35 Moi University, 175 Mombasa (Kenya), 121 Monsanto, 7, 65, 74 Morocco, 126, 230, 257 Mozambique: aluminum smelting in, 118; breadfruit trees in, 213; CAADP and, 28; economic growth in, 22; land tenure system in, 32; management training in, 194; national academy of science and technology in, 230; policies encouraging women’s participation in science in, 151; transgenic crop regulations in, 75 MTN Uganda, 50 Nairobi (Kenya), 121 Namibia, 24 316 Index NanoClear, 56 nanotechnology, xviii, 41, 54–56, 240, 257 national agricultural research institutes (NARIs) and, 172–73, 176–77 national agricultural research system (NARS), 85 National Export Promotion Council (NEPC), 93 National Innovation Council (India), 210, 230 National Innovation Foundation (NIF), 210 National Knowledge Commission (India), 240 National Science Foundation (NSF; United States), 235 National System for Agriculture Research and Innovation (SNPA, Brazil), 114 National Tropical Botanical Garden Breadfruit Institute, 212 National University of Singapore, 243 natural resources: Africa’s dependence on, 254; Africa’s endowment in, 22, 63–64; future and, 254–56; geographic information systems (GIS) and, 52; innovation systems and, 255–56; missions and objectives of RECs and, 220; Strategy for Africa 2024, 224 NEPAD (New Partnership for Africa’s Development), 27–28, 251 NERICA (New Rices for Africa), 4, 99–101 Nestlé Nigeria, 88 The Netherlands, 102 Netherlands Foundation for International Cooperation, 91 networks and networking: clusters and, 87, 96, 105; communication technology and, 49; education and, 147, 166; entrepreneurship and, 185–86, 190; infrastructure and, 118, 120–21, 124, 133, 136, 141, 144; innovation and, 84, 87, 224, 227, 230, 241, 252; regional policy and, 28; social networks and, 49, 105; trade and, 95; traditional communities and, 109 New Partnership for Africa's Development (NEPAD), 27–28, 251 New Rices for Africa (NERICA), 4, 99–101 New Vision for Agriculture Initiative (World Economic Forum), 28 New Zealand, 63, 67 niche crops, 23 Nietvoorbij Institute for Viticulture and Oenology (South Africa), 103 Niger, 36, 161 Nigeria: agricultural sector growth in, 6; Agricultural Transformation Agenda (ATA) in, 2–3, 5; anti-corruption efforts in, 3; aquaculture in, 24; Babban Gona agricultural franchise in, 214–16; biotechnology awareness survey in, 80; breadfruit trees in, 213; CAADP and, 28; cassava production in, 89, 198–201; Cassava Transformation Agenda in, 199; cocoa innovation system in, 92–94; economic-agricultural linkages in, 26; economic Index growth in, 22, 48; electronic wallet (e-wallet) system in, 3; entrepreneurship in, 4–5, 197–201, 203, 206–7, 214–16; fertilizer and, 3, 16; flash drying in, 89; hydropower in, 125; independent power projects (IPPs) in, 126; leadership in, 2, 6–7, 10, 198–99, 265; Maruca vitrata (insect) in, 71; national academy of science and technology in, 230; peanut pilot projects in, 161; pea production in, 71; Power Africa initiative in, 127; rice production in, 4; science scholarships for low income students in, 237; sovereign wealth fund in, 6; Staple Crop Processing Zones (SCPZ) in, 6–7; transgenic crops in, 65–66; unemployment in, 216; university-industry linkages (UILs) in, 87–89 Nile River, 130 Nile University, 238 North Africa. See Middle East and North Africa Norway, 9 nutrition: agribusiness and, 211; breadfruit and, 211–12; economic-agricultural linkages and, 14; food security and, 23; health care and, 23; innovation and, 10, 13, 26, 151; school gardens and, 158; transgenic crops and, 64, 67–69, 72–73, 78 Obama, Barack, 127 Obasanjo, Olusegun, 2, 198 OECD (Organization for Economic Cooperation and Development), 18 317 Office du Niger, 129 offices on science, innovation, technology, and engineering, 229–30 oil palm, 4–5, 236 oilseed, 45 One Acre Fund, 205–6 ONE Campaign, 29 OpenCourseware Consortium, 179 Optolab Card project, 56 Organization for Economic Cooperation and Development (OECD), 18 PADRO (Projet d’Appui au Développement Rural de l’Ouémé), 100–101 partnerships: clusters and, 106, 110–11, 113, 115–16; education and, 166, 173, 177, 179; entrepreneurship and, 193–95; infrastructure and, 132, 138, 143–44; innovation and, 110–11, 222–24, 232, 234, 242, 244; international, 33, 42, 106, 222; public-private, 7, 19, 27–30, 32, 110, 113, 115–16, 132, 166, 223 peanuts, 160–61, 164 Peru, 32, 180–82 pest control.


pages: 340 words: 97,723

The Big Nine: How the Tech Titans and Their Thinking Machines Could Warp Humanity by Amy Webb

Ada Lovelace, AI winter, Airbnb, airport security, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, artificial general intelligence, Asilomar, autonomous vehicles, Bayesian statistics, Bernie Sanders, bioinformatics, blockchain, Bretton Woods, business intelligence, Cass Sunstein, Claude Shannon: information theory, cloud computing, cognitive bias, complexity theory, computer vision, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, Deng Xiaoping, distributed ledger, don't be evil, Donald Trump, Elon Musk, Filter Bubble, Flynn Effect, gig economy, Google Glasses, Grace Hopper, Gödel, Escher, Bach, Inbox Zero, Internet of things, Jacques de Vaucanson, Jeff Bezos, Joan Didion, job automation, John von Neumann, knowledge worker, Lyft, Mark Zuckerberg, Menlo Park, move fast and break things, move fast and break things, natural language processing, New Urbanism, one-China policy, optical character recognition, packet switching, pattern recognition, personalized medicine, RAND corporation, Ray Kurzweil, ride hailing / ride sharing, Rodney Brooks, Rubik’s Cube, Sand Hill Road, Second Machine Age, self-driving car, SETI@home, side project, Silicon Valley, Silicon Valley startup, skunkworks, Skype, smart cities, South China Sea, sovereign wealth fund, speech recognition, Stephen Hawking, strong AI, superintelligent machines, technological singularity, The Coming Technological Singularity, theory of mind, Tim Cook: Apple, trade route, Turing machine, Turing test, uber lyft, Von Neumann architecture, Watson beat the top human players on Jeopardy!, zero day

Meanwhile, in China, AI’s developmental track is tethered to the grand ambitions of government. China is quickly laying the groundwork to become the world’s unchallenged AI hegemon. In July 2017, the Chinese government unveiled its Next Generation Artificial Intelligence Development Plan to become the global leader in AI by the year 2030 with a domestic industry worth at least $150 billion,1 which involved devoting part of its sovereign wealth fund to new labs and startups, as well as new schools launching specifically to train China’s next generation of AI talent.2 In October of that same year, China’s President Xi Jinping explained his plans for AI and big data during a detailed speech to thousands of party officials. AI, he said, would help China transition into one of the most advanced economies in the world. Already, China’s economy is 30 times larger than it was just three decades ago.

The AI tribe under the People’s Republic of China operates under different rules and rituals, which include significant government funding, oversight, and industrial policies designed to propel the BAT forward. Together, they are part of a well-capitalized, highly organized state-level AI plan for the future, one in which the government wields tremendous control. This is China’s space race, and we are its Sputnik to their Apollo mission. We might have gotten to orbit first, but China has put its sovereign wealth fund, education system, citizens, and national pride on the line in its pursuit of AI. China’s AI tribes begin at universities, too, where there is even more focus on skills and commercial applications. Because China is interested in ramping up the country’s skilled workforce as quickly as possible, its diversity problems aren’t exactly analogous to the West, though they do exist. Gender isn’t as much of a consideration, so women are better represented.


pages: 391 words: 97,018

Better, Stronger, Faster: The Myth of American Decline . . . And the Rise of a New Economy by Daniel Gross

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Airbnb, American Society of Civil Engineers: Report Card, asset-backed security, Bakken shale, banking crisis, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, Carmen Reinhart, clean water, collapse of Lehman Brothers, collateralized debt obligation, commoditize, creative destruction, credit crunch, currency manipulation / currency intervention, demand response, Donald Trump, Frederick Winslow Taylor, high net worth, housing crisis, hydraulic fracturing, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, index fund, intangible asset, intermodal, inventory management, Kenneth Rogoff, labor-force participation, LNG terminal, low skilled workers, Mark Zuckerberg, Martin Wolf, Maui Hawaii, McMansion, money market fund, mortgage debt, Network effects, new economy, obamacare, oil shale / tar sands, oil shock, peak oil, plutocrats, Plutocrats, price stability, quantitative easing, race to the bottom, reserve currency, reshoring, Richard Florida, rising living standards, risk tolerance, risk/return, Silicon Valley, Silicon Valley startup, six sigma, Skype, sovereign wealth fund, Steve Jobs, superstar cities, the High Line, transit-oriented development, Wall-E, Yogi Berra, zero-sum game, Zipcar

Community banks set the rate for home mortgages, and then the Bank of North Dakota purchases them. Think of it as a state-level Fannie Mae, except without the huge executive salaries and lobbying budget.4 In September 2011 the Bank of North Dakota accepted a new deposit from a new customer: the state’s Legacy Fund. In the fall of 2010 the state’s voters easily approved a constitutional ballot initiative that created a sort of state-level sovereign wealth fund. Agricultural states suffer consistently from droughts and floods, and recognize that the weather may not always be favorable and that crop prices may not always be high. So it makes sense to set aside funds for lean years. The new legislation stipulates that each year 30 percent of the gusher of corporate oil and gas revenues is to be siphoned off into the Legacy Fund and locked away from lawmakers until 2017.

., 2, 82, 89, 91, 95, 144 Michigan, 15, 118–19, 135–36, 169, 174 Microsoft, 143, 160 middle class, 20, 25, 94, 127, 144 Middle East, 21, 203, 228 exports and, 108–9, 112–13, 123 inports and, 132, 145 Millennium Bulk Terminals, 103 Millward Brown, 143 Milner, Yuri, 84 Mittleider, John, 154 Moinian Organization, 94 monetary policy, 19, 30, 32 money market fund industry, 33–34 Moody’s, Moody’s Analytics, 1, 31, 190, 207 Morgan Stanley, 21–22, 37, 53, 74 mortgage-backed securities, 34–36 mortgage equity withdrawal (MEW), 54, 56 mortgages, 2, 12, 24, 156, 164, 212, 219, 225 efficient consumers and, 190–91 and Fannie Mae and Freddie Mac bailout, 42–43 refinancing of, 34–35, 54, 190 restructuring and, 45, 50, 53–55, 57–58 subprime, 16–18, 39, 82 timely policy decisions and, 30, 32, 34–36, 39, 42–43 Motion Picture Association of America, 128 Mountain Area Information Network (MAIN), 209–10 Mubadala Healthcare, 145 Murck, Christian, 166–67 Murphy, Roger, 169 MVP RV, 96–97 National Foundation for American Policy, 117 natural gas, 79, 86, 102 exports of, 105–6 in North Dakota, 151–53, 157 NBC/ Wall Street Journal poll, 3 NCR, 174–76, 178 Ness, Ron, 152 Nest Learning Thermostat, 195–96 Netherlands, 14, 81–82, 86, 198 networks, networking, 66, 71, 77, 96, 176, 197 supersizing and, 199, 201–4, 206–9, 211–13 New Deal, 14, 18 New England Smart Energy, 187–88 New Jersey, 50, 111, 211–12, 216, 225 New Jersey Nets, 85, 126 Newsweek, 3, 15–16, 19, 93, 229–30 New York, 8, 19, 26, 41, 47, 89, 108, 111, 141, 148, 154, 156, 172, 224–25, 228 efficiency economy and, 61, 68–72, 74 efficient consumers and, 192–93, 195 exports and, 118, 121–22, 125, 127 FDI and, 82, 84–85, 92–95 inports and, 144–46 restructuring and, 49–50 supersizing and, 204–6, 211–13 New York City marathon, 228 New Yorker, 183–84 New York Federal Reserve Bank, 32, 55–56 New York Stock Exchange, 7, 12–13, 48, 133 New York Times, 6, 9, 19, 72, 85, 100, 119, 141, 174, 178 Next Convergence, The (Spence), 100 Nike, 119, 140, 168–69 9/11, 18, 109, 118, 120–21, 145 Nishimura, Kiyohiko, 29–30 Nixon, Richard, 26, 218 Noah, Timothy, 199–200 Nooyi, Indra, 117–18 Normandy Real Estate Partners, 50 Norris, Floyd, 19 North Dakota, 148–63, 212 agriculture in, 149, 153–58, 162 demographics of, 149, 159–62 economic decline of, 149–50 education in, 153, 157–58, 160–62 efficiency economy and, 158–59 housing in, 150–52, 155–56, 158 oil in, 79, 148, 151–53, 157, 160, 162, 223 sovereign wealth fund of, 156–57 nuclear power, 7, 24, 74, 109 NUMMI, 79 Obama, Barack, 2, 77, 99, 205, 222 economic decline and, 3, 5–6, 10, 15 financial crisis and, 6, 12–13 restructuring and, 54–55 timely policy decisions and, 30, 33, 54–55 “Obama’s Radicalism Is Killing the Dow” (Boskin), 5 Odake, Shin, 93 offshoring, 83, 94, 98, 110, 133, 147, 164, 167–68, 171–73, 175 oil, 26, 100, 102, 165, 217 domestic production of, 79–80, 86, 148, 151–53, 157, 160, 162, 222–23 efficiency economy and, 75, 77, 79–80, 222–23 efficient consumers and, 188–89 FDI and, 86, 95 price of, 15, 75, 77, 153, 172, 188 On China (Kissinger), 127 O’Neill, Jim, 23 Organization for International Investment (OFII), 83, 95–97 output gap, 9 Outrageous Fortunes (Altman), 141 Outsourced, 171 outsourcing, 26, 62, 98, 169, 171–72, 175 Panama Canal, 208 Paris, 68, 109, 137, 144 Parish, Robert, 170–71 Paulson, Henry, 32–33 Peabody Coal, 103 pecans, 100 Peek, Jeff, 47 Peerless Industries, 178 Peisach, Alberto, 88–90 pensions, 91, 132, 181, 216 inports and, 136–37, 147 Pepsi, PepsiCo, 117, 133, 143 Petrobras, 95 Philadelphia, Pa., 65–66, 110 Philadelphia Federal Reserve Bank, 17 Plastic Omnium, 68 Plaza Hotel, 84 politics, politicians, 21–23, 25–26, 61, 148, 163, 167, 218–19, 221 crises and, 15, 29 economic decline and, 5–6 infrastructure and, 205, 211 and reshoring and insourcing, 175–76 timely policy decisions and, 28–31, 40, 43 pools, 185–87 Popper, Deborah Epstein and Frank J., 149–50 Porter’s Fabrication, 176 Poss, Jim, 64–65, 68 Post-American World, The (Zakaria), 19 Poughkeepsie-Highland Bridge, 225–26 poverty, 16, 19, 25, 100, 124, 141, 164, 225 Power, Thomas M., 103 power plants, 7, 72–74 Prague, 139–40, 144 Pratt & Whitney, 108 Principles of Economics (Mankiw), 193 procyclicality, 45, 58, 72–73 production, productivity, 81, 96–103, 215 in agriculture, 100–101, 122 efficiency economy and, 60, 62–63, 65, 73, 78–80, 107, 223–24 efficient consumers and, 181–82, 184, 189, 195 employment and, 163–64, 166–69 exports and, 98–101, 103, 105–7, 109–13, 115–16, 122–23, 131, 226 FDI and, 86–87, 89–90, 96–97 inports and, 131–32, 134–37, 140–43 North Dakota and, 150, 153–54, 157, 159 and reshoring and insourcing, 169–73, 175–79 supersizing and, 199–202, 206–8, 210 U.S. economic importance and, 227–28 profits, profit, 16, 81, 198, 204, 215, 225 efficiency economy and, 62, 65, 76, 78 efficient consumers and, 183, 193–94 exports and, 104, 128–29 inports and, 133, 136, 140, 146–47 restructuring and, 44, 52–53, 58 timely policy decisions and, 33–36, 38–39 Prokhorov, Mikhail, 85 propane, 185–86 Pulaski County, Va., 88–91 Pulpy, 138 Qatar, 108, 145 quantitative easing (QE), 30, 34, 57 railroads, 110, 200, 224–25 FDI and, 13, 81–82, 90, 95 supersizing and, 206, 208–9, 211–12 Ratner, Bruce, 85 Rawlings, 169–70 real estate, 89, 105, 167, 171, 204, 226 efficiency economy and, 68–74, 80 FDI and, 83–85, 92–94, 96 in Japan, 8, 30 restructuring and, 45, 49–51 supersizing and, 212–13 see also houses, housing RealtyTrac, 55 recessions, 9, 13, 23, 26, 180, 221 see also Great Recession recoveries, 4, 9, 17–19, 21, 26, 28, 57, 60, 75, 99, 162, 180, 199, 218, 225 economic pessimism and, 22–23 restructuring and, 45, 51, 80 slowness of, 17–18 strengthening of, 215–17 recycled paper, 107 reengineering, 61–62, 69–70, 113 Regional Plan Association, 211 Regions Financial, 38 regulations, regulation, 2, 10, 16, 19, 25, 29, 52–53, 102, 212 Reid, T.


pages: 326 words: 103,170

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

Airbnb, Albert Einstein, algorithmic trading, barriers to entry, Berlin Wall, bitcoin, British Empire, cloud computing, crowdsourcing, Danny Hillis, defense in depth, Deng Xiaoping, drone strike, Edward Snowden, Fall of the Berlin Wall, Firefox, Google Chrome, income inequality, Isaac Newton, Jeff Bezos, job automation, Joi Ito, market bubble, Menlo Park, Metcalfe’s law, Mitch Kapor, natural language processing, Network effects, Norbert Wiener, Oculus Rift, packet switching, Paul Graham, price stability, quantitative easing, RAND corporation, recommendation engine, Republic of Letters, Richard Feynman, road to serfdom, Robert Metcalfe, Sand Hill Road, secular stagnation, self-driving car, Silicon Valley, Skype, Snapchat, social web, sovereign wealth fund, Steve Jobs, Steve Wozniak, Stewart Brand, Stuxnet, superintelligent machines, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, too big to fail, Vernor Vinge, zero day

She had studied in China, had moved overseas and mastered the technical arts of economics and finance, and then returned eagerly to help in the construction of modern post-reform China. Nearly any time the government had some new and difficult financial problem to manage, she would be shuffled into the nervous hands of some baffled minister or vice premier. She had, in her various activities, helped put the Chinese stock exchange on its feet, rebuilt bankrupt banks, and overseen the construction of China’s first sovereign wealth fund. Though only a few years older than I, her unique skills and absolute loyalty meant she had seen much of the development of China’s speed-train economy—part miracle, part near accident—from zero-distance range. As she and I were finishing dinner that evening, a door opened to a nearby private dining room. Chinese often eat out in private rooms, and the best restaurants are usually warrens of well-appointed secret spaces, a reminder that in China door after door after door leads to ever more secure sanctums—think of the nested power architecture of the Forbidden City.

The interests of these three castes, Priestland wrote, could be aligned at certain historical moments like powerful gears. Combine France’s sage-bureaucrats with her artful soldiers and you get the French imperial period. Marry Britain’s trading bankers with her martially inclined sailors, and the result is globe-spanning Victorian success. The merchants and soldiers and sages still operate today, of course. They sit in sovereign wealth funds, wired situation rooms, religious schools, and research labs. You could see American power, if you wanted, as a result of the fusion of the country’s financial and commercial castes with a powerful, experienced martial caste. But now, all around the globe, we’re seeing the emergence of what we might think of as a new caste, joining the merchants, soldiers, and sages. This is the caste that controls the networks on which we all depend.


pages: 311 words: 99,699

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

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

The debates about the superfund and the Northern Rock fiasco left no doubt that the UK and US governments hated the idea of using taxpayer funds to recapitalize the banks, and there seemed to be little chance of persuading Western investors to recapitalize the banks. In mounting desperation, some bankers looked east for help. During the first seven years of the decade, China, Singapore, Korea, and the oil-rich countries of the Middle East had all built up large so-called sovereign wealth funds, huge investment funds dedicated to managing pools of government money. By 2007, such funds were estimated to control over $3 trillion of assets, though the precise tally was unknown because the funds were highly secretive. Traditionally, much of their cash had been invested in US Treasury bonds and other safe assets. The funds had shied away from taking direct stakes in American companies, partly because doing so tended to provoke nationalist ire.

The funds had shied away from taking direct stakes in American companies, partly because doing so tended to provoke nationalist ire. However, as the panic intensified on Wall Street and in the City of London, bankers laid aside that concern, and senior deal makers from Wall Street, London, and Zurich hopped onto planes in a frantic effort to persuade Asian and Middle Eastern funds to help. Citi was the first to clinch a deal. In late November, the Abu Dhabi Investment Fund, the world’s biggest sovereign wealth fund, announced plans to inject $7.5 billion into the bank. Soon after, UBS raised $11 billion from the GIC fund of Singapore and Middle Eastern investors. Then Merrill Lynch raised $5 billion from a Chinese government fund, while Morgan Stanley garnered a similar sum from Singapore. It was an extraordinary turn of fortune. The Western banks had been the ones to bail out their emerging-market counterparts in the past.


pages: 831 words: 98,409

SUPERHUBS: How the Financial Elite and Their Networks Rule Our World by Sandra Navidi

activist fund / activist shareholder / activist investor, assortative mating, bank run, barriers to entry, Bernie Sanders, Black Swan, Blythe Masters, Bretton Woods, butterfly effect, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, commoditize, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, diversification, East Village, Elon Musk, eurozone crisis, family office, financial repression, Gini coefficient, glass ceiling, Goldman Sachs: Vampire Squid, Google bus, Gordon Gekko, haute cuisine, high net worth, hindsight bias, income inequality, index fund, intangible asset, Jaron Lanier, John Meriwether, Kenneth Arrow, Kenneth Rogoff, knowledge economy, London Whale, Long Term Capital Management, longitudinal study, Mark Zuckerberg, mass immigration, McMansion, mittelstand, money market fund, Myron Scholes, NetJets, Network effects, offshore financial centre, old-boy network, Parag Khanna, Paul Samuelson, peer-to-peer, performance metric, Peter Thiel, plutocrats, Plutocrats, Ponzi scheme, quantitative easing, Renaissance Technologies, rent-seeking, reserve currency, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, rolodex, Satyajit Das, shareholder value, Silicon Valley, social intelligence, sovereign wealth fund, Stephen Hawking, Steve Jobs, The Future of Employment, The Predators' Ball, The Rise and Fall of American Growth, too big to fail, women in the workforce, young professional

He dedicates much of his time to developing and maintaining relationships and spends half of the year flying around the world to visit clients. BlackRock’s financial links are ubiquitous. It controls trillions of dollars, more than most countries’ GDP and at times exceeding the Federal Reserve’s balance sheet. Through its management and advisory mandates, BlackRock is connected with most sovereign wealth funds, pension funds, central banks, endowments, and foundations. By the time of the financial crisis, BlackRock essentially had a monopoly on risk management and Fink had become known as “Mr. Fix-It.” Several governments retained BlackRock firm to help sort out the mess, and U.S. treasury secretary Geithner mandated it to analyze and sell $30 billion of risky mortgage securities. BlackRock was then retained to proceed in a similar fashion with AIG’s mortgage securities, a deal that eventually yielded a profit for taxpayers.

As chairman of the JPMorgan Advisory Council, he has made himself available for corporate events and high-level client meetings, rendering advice on international matters for a reported $3 million a year. He was also on retainer for Petro Saudi, an oil company related to the Saudi royal family, for $66,000 a month plus an additional 2 percent of any deal resulting from his efforts, as well as to Zürich Insurance for $750,000 a year. Moreover, he has advised Abu Dhabi’s sovereign wealth fund, Kazakhstan’s President Nursultan Nazarbayev, and Paul Kagame, the president of Rwanda. He has had business dealings with China, Kuwait, Azerbaijan, Mongolia, Sierra Leone, Liberia, Mozambique, and East Timor. For a three-hour engagement, facilitating the $66 billion merger negotiations between Glencore, Xstrata, and the Qatari ruling family, he received $1 million. He is also a highly sought-after speaker and on average charges $200,000 per speaking engagement.


pages: 371 words: 98,534

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

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

After a week, the Securities Regulatory Commission prevented shareholders with stakes above 5 per cent from selling for a period of six months, and ordered executives and board members of companies who had sold shares in the prior six months to buy them back. The China Insurance Regulatory Commission announced that insurance companies would be allowed to increase the proportion of stocks in their assets from 30 to 40 per cent. An investment arm of China Investment Corporation, China’s sovereign wealth fund, announced it would buy exchange-traded funds, and the China Securities Finance Corporation injected RMB 200 billion ($31 billion) into five mutual funds so as to be able to buy more shares. Even after this tsunami of regulatory interventions, the market did not really calm down until after over a third of Shanghai-listed firms, accounting for a half of all Chinese shares on all exchanges, halted trading.

Bank Credit Analyst, ‘China’s Belt and Road Initiative: Can It Offset a Mainland Slowdown?’, Emerging Markets Strategy, BCA Research, 13 September 2017. 8. About 20 per cent of financing has come from the so-called policy banks, including China Development Bank, and Export Import Bank of China. The rest comes from the Silk Road Fund, launched by the government in 2014 with initial funding of $40 billion and backed by the China Investment Corporation, China’s sovereign wealth fund, and the State Administration for Foreign Exchange. The Asian Infrastructure Investment Bank is also a supplier of financing but in 2017 its outstanding loans disbursed to BRI countries were around $2 billion. 9. David Dollar, ‘Yes, China is Investing Globally – But Not So Much in Its Belt And Road Initiative’, Brookings, 8 May 2017, <https://www.brookings.edu/blog/order-from-chaos/2017/05/08/yes-china-is-investing-globally-but-not-so-much-in-its-belt-and-road-initiative/>. 10.


Saudi America: The Truth About Fracking and How It's Changing the World by Bethany McLean

addicted to oil, American energy revolution, Asian financial crisis, buy and hold, corporate governance, delayed gratification, Donald Trump, family office, hydraulic fracturing, Jeff Bezos, Mark Zuckerberg, Masdar, oil shale / tar sands, peak oil, Silicon Valley, sovereign wealth fund, Upton Sinclair, Yom Kippur War

But if the Kremlin’s global political ambitions may ultimately be stunted by Russia’s faltering finances, there’s little proof yet. In the fall of 2017, the New York Times wrote that Russia is “increasingly wielding oil as a geopolitical tool, spreading its influence around the world and challenging the interests of the United States.” Among other things, Russia has cut oil deals in the Middle East with Iraq and Libya, and, in late 2016, the Kremlin allowed Qatar’s sovereign wealth fund to buy a stake in Rosneft. Russia has also stepped into China’s shoes as the chief financial backer of Venezuela. Over the course of the past three years, the Times calculated that Russia and Rosneft have provided Caracas with $10 billion in financial assistance, and have helped Venezuela avoid default on its debts at least twice. In October, Venezuelan President Nicolás Maduro traveled to Moscow seeking fresh financial backing, and thanked Putin “for your support, both political and diplomatic.”


pages: 430 words: 109,064

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

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

However, the idea was quietly dropped in December. Most likely the banks realized that using their own money to bail out their own SIVs—or, as some suspected, pooling the money of many banks to bail out Citigroup’s SIVs—did not represent a real solution. The failure of the MLEC implied that the major banks might be facing more than a simple liquidity crisis and might need more capital. At this point, sovereign wealth funds (investment funds owned by other countries) were still willing to supply that capital. Between October 2007 and January 2008, CITIC (China) committed to invest in Bear Stearns, the Abu Dhabi Investment Authority and the Government of Singapore Investment Group invested in Citigroup, China Investment Corporation invested in Morgan Stanley, and Temasek (Singapore), the Korean Investment Corporation, and the Kuwait Investment Authority invested in Merrill Lynch.12 But the next time banks needed capital, it would be much harder to find.

On the idea that Chinese oversaving (caused by an artificially high currency) caused the crisis, see Sebastian Mallaby, “What OPEC Teaches China,” The Washington Post, January 25, 2009, available at http://www.washingtonpost.com/wp-dyn/content/article/2009/01/23/AR2009012303291.html. 12. Sameera Anand, “Citic’s Close Call with Bear Stearns,” Business Week, March 19, 2008, available at http://www.businessweek.com/globalbiz/ content/mar2008/gb20080319_886607.htm. CITIC is technically a conglomerate owned by the Chinese government, not a sovereign wealth fund. CITIC was able to back out of its deal with Bear Stearns. 13. For more on the fall of Bear Stearns, see Kate Kelly, Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street (New York: Portfolio, 2009); and William D. Cohan, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street (New York: Doubleday, 2009). 14. Heidi N. Moore, “Can What Happened to Bear Happen to Other Banks?”


pages: 419 words: 109,241