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 Curt Anderson

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asset allocation, banking crisis, Bretton Woods, business continuity plan, business intelligence, business process, collective bargaining, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, diversified portfolio, 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?

Investment: A History by Norton Reamer, Jesse Downing

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

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: 381 words: 101,559

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

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

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.


pages: 561 words: 87,892

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

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Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, 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, Francis Fukuyama: the end of history, full employment, 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, low skilled workers, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, 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 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: 289 words: 77,532

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

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Bakken shale, bank run, Credit Default Swap, diversification, fixed income, Gordon Gekko, index fund, 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, 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: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

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accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, Branko Milanovic, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation coefficient, David Ricardo: comparative advantage, demographic transition, distributed generation, diversification, diversified portfolio, European colonialism, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, German hyperinflation, Gini coefficient, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, market bubble, means of production, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, pension reform, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, The Nature of the Firm, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, very high income, We are the 99%

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

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algorithmic trading, asset-backed security, bank run, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, collateralized debt obligation, computer age, 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, Monroe Doctrine, moral hazard, mortgage debt, new economy, oil shale / tar sands, oil shock, peak oil, Plutocrats, plutocrats, Ponzi scheme, profit maximization, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, 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.

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

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affirmative action, Affordable Care Act / Obamacare, Bernie Sanders, Bretton Woods, carried interest, clean water, collateralized debt obligation, collective bargaining, 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, 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.


pages: 475 words: 155,554

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

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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, 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, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, 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, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, 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, working-age population

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.


pages: 471 words: 124,585

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

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Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, Corn Laws, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, German hyperinflation, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, interest rate swap, Isaac Newton, iterative process, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour mobility, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Naomi Klein, Nick Leeson, Northern Rock, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, structural adjustment programs, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, value at risk, Washington Consensus, Yom Kippur War

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.


pages: 537 words: 144,318

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

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Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business process, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, 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, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, 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, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, The Great Moderation, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve

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: 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

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

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: 251 words: 76,868

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

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

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

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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, 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, Flash crash, floating exchange rates, forward guidance, George Akerlof, global reserve currency, global supply chain, Growth in a Time of Debt, income inequality, inflation targeting, invisible hand, jitney, Kenneth Rogoff, labor-force participation, labour mobility, 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: 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, 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.


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

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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, Bretton Woods, 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, 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, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, 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

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: 1,088 words: 228,743

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

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

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: 278 words: 82,069

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

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Asian financial crisis, banking crisis, Bretton Woods, capital controls, carried interest, central bank independence, centre right, collateralized debt obligation, conceptual framework, corporate governance, 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, kremlinology, Long Term Capital Management, margin call, market bubble, market fundamentalism, McMansion, 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.


pages: 695 words: 194,693

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

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

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: 468 words: 145,998

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

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asset-backed security, bank run, banking crisis, Bretton Woods, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Doha Development Round, fear of failure, financial innovation, housing crisis, income inequality, London Interbank Offered Rate, Long Term Capital Management, margin call, 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.


pages: 433 words: 125,031

Brazillionaires: The Godfathers of Modern Brazil by Alex Cuadros

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

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: 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

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affirmative action, Asian financial crisis, Berlin Wall, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, 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, moral hazard, NetJets, Northern Rock, oil shock, paper trading, risk tolerance, 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 GHW 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 insuffic ient—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: 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

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Alfred Russel Wallace, banks create money, Buckminster Fuller, collective bargaining, 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, 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, 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: 484 words: 136,735

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

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bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, 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, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, 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 Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Washington Consensus

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.


pages: 478 words: 126,416

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

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

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.


pages: 234 words: 63,149

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

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airport security, banking crisis, barriers to entry, Berlin Wall, blood diamonds, Bretton Woods, BRICs, capital controls, clean water, Deng Xiaoping, Doha Development Round, energy security, European colonialism, failed state, global rebalancing, global supply chain, income inequality, informal economy, Julian Assange, labour mobility, Martin Wolf, Mikhail Gorbachev, mutually assured destruction, Nixon shock, nuclear winter, 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

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agricultural Revolution, Berlin Wall, business climate, Doha Development Round, energy security, food miles, 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: 304 words: 80,965

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

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

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: 318 words: 77,223

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

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Airbnb, balance sheet recession, bank run, barriers to entry, Bretton Woods, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, collapse of Lehman Brothers, corporate governance, currency peg, Erik Brynjolfsson, eurozone crisis, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, Flash crash, forward guidance, friendly fire, full employment, future of work, Hyman Minsky, If something cannot go on forever, it will stop, income inequality, inflation targeting, Jeff Bezos, Kenneth Rogoff, Khan Academy, liquidity trap, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, 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

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: 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

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Admiral Zheng, Asian financial crisis, Berlin Wall, 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, Malacca Straits, Martin Wolf, Naomi Klein, new economy, New Urbanism, open economy, 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, Xiaogang Anhui farmers

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.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

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

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: 537 words: 149,628

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

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3D printing, Admiral Zheng, augmented reality, British Empire, energy security, Firefox, glass ceiling, global reserve currency, Google Earth, Google Glasses, IFF: identification friend or foe, Just-in-time delivery, Maui Hawaii, new economy, 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, zero day

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.


pages: 363 words: 101,082

Earth Wars: The Battle for Global Resources by Geoff Hiscock

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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, megacity, Menlo Park, Mohammed Bouazizi, new economy, oil shale / tar sands, oil shock, Panamax, 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, 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: 262 words: 83,548

The End of Growth by Jeff Rubin

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Ayatollah Khomeini, Bakken shale, banking crisis, Berlin Wall, British Empire, 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, Jane Jacobs, labour mobility, 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

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: 391 words: 102,301

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

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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, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, mutually assured destruction, Naomi Klein, offshore financial centre, open borders, open economy, Peace of Westphalia, peak oil, pension reform, Plutocrats, plutocrats, 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

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.


pages: 225 words: 61,388

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

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affirmative action, Asian financial crisis, Bretton Woods, 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, invisible hand, 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?


pages: 77 words: 18,414

How to Kick Ass on Wall Street by Andy Kessler

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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: 209 words: 80,086

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

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affirmative action, barriers to entry, Branko Milanovic, BRICs, business process, business process outsourcing, call centre, collective bargaining, corporate governance, credit crunch, David Ricardo: comparative advantage, deindustrialization, deskilling, Frederick Winslow Taylor, full employment, future of work, glass ceiling, global supply chain, immigration reform, income inequality, industrial robot, job automation, Joseph Schumpeter, knowledge economy, knowledge worker, labour market flexibility, low skilled workers, manufacturing employment, market bubble, market design, neoliberal agenda, new economy, pensions crisis, post-industrial society, profit maximization, purchasing power parity, QWERTY keyboard, race to the bottom, Richard Florida, Ronald Reagan, 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

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: 280 words: 79,029

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

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

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: 545 words: 137,789

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

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

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: 388 words: 125,472

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

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anti-communist, Asian financial crisis, bank run, battle of ideas, Big bang: deregulation of the City of London, bonus culture, 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, glass ceiling, hiring and firing, housing crisis, inflation targeting, investor state dispute settlement, James Dyson, laissez-faire capitalism, market fundamentalism, Monroe Doctrine, Mont Pelerin Society, moral hazard, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, open borders, Plutocrats, plutocrats, 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, 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.


pages: 497 words: 144,283

Connectography: Mapping the Future of Global Civilization by Parag Khanna

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

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: 504 words: 139,137

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

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algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Black-Scholes formula, Brownian motion, 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, mortgage debt, 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, shareholder value, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, 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: 515 words: 132,295

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

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3D printing, accounting loophole / creative accounting, additive manufacturing, Airbnb, algorithmic trading, Asian financial crisis, asset allocation, bank run, Basel III, bonus culture, Bretton Woods, British Empire, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, corporate governance, 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, interest rate derivative, interest rate swap, Internet of things, invisible hand, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, knowledge economy, labor-force participation, labour mobility, London Whale, Long Term Capital Management, manufacturing employment, market design, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, 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, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, sovereign wealth fund, Steve Jobs, technology bubble, The Chicago School, 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

“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: 411 words: 114,717

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

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3D printing, affirmative action, Albert Einstein, American energy revolution, anti-communist, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, business climate, business process, business process outsourcing, call centre, capital controls, Carmen Reinhart, central bank independence, centre right, cloud computing, collective bargaining, colonial rule, corporate governance, 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, labour market flexibility, land reform, M-Pesa, Mahatma Gandhi, market bubble, megacity, Mexican peso crisis / tequila crisis, 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

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.


pages: 430 words: 109,064

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

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Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bernie Madoff, Bonfire of the Vanities, bonus culture, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, 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, interest rate derivative, interest rate swap, Kenneth Rogoff, laissez-faire capitalism, late fees, Long Term Capital Management, market bubble, market fundamentalism, Martin Wolf, moral hazard, mortgage tax deduction, Ponzi scheme, price stability, profit maximization, race to the bottom, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, 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: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

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affirmative action, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Bretton Woods, capital controls, Cass Sunstein, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial innovation, floating exchange rates, full employment, Gini coefficient, global reserve currency, global village, high net worth, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, invisible hand, Just-in-time delivery, Kenneth Rogoff, labour market flexibility, labour mobility, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, sovereign wealth fund, special drawing rights, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Washington Consensus, women in the workforce, yield curve

UBS conducted a survey in mid-2010 that suggested that the central bank demand for gold could increase further. In the survey, UBS asked central bankers what the most important reserve asset would be in the future. Half of the officials said the US dollar would be, but 22 percent said gold. Bullion ranked well above the European currency and Asian currencies. UBS surveyed more than eighty central bank reserve managers, sovereign wealth funds, and multilateral institutions with over $8 billion of assets at its annual seminar for sovereign institutions. In the run-up to the G-20 summit in Korea in November 2010, World Bank President Robert Zoellick suggested that the world should move toward a multi-polar currency system with some form of anchor in gold. He did not ask for a return to the old gold standard, but rather acknowledged that gold could play some role.

The fact that many central banks in developing countries now plan to buy gold suggests that it could be gradually re-monetized. The most important new player could potentially be China. China announced in 2009 that it had increased its gold reserves from a long-standing figure of 600 tonnes to 1,054 tonnes. Some government officials have called on the central bank to increase its gold holdings to 10,000 tonnes by 2020. In early 2010 China Investment Corporation, Beijing’s newest sovereign wealth fund, revealed a $155 million investment in the SPDR gold trust—an ETF. As China has over $2.3 trillion of foreign exchange reserves, it could expand its gold holdings three or four times, and they would still represent less than 10 percent of total reserves. The same is true of other Asian nations. They now have collective foreign exchange reserves of nearly $5 trillion that are invested overwhelmingly in dollar securities.


pages: 444 words: 86,565

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

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asset allocation, asset-backed security, bank run, barriers to entry, capital asset pricing model, collateralized debt obligation, corporate governance, credit crunch, discounted cash flows, diversification, fixed income, London Interbank Offered Rate, performance metric, shareholder value, sovereign wealth fund, 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: 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

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accounting loophole / creative accounting, asset-backed security, bank run, banking crisis, Black-Scholes formula, Bretton Woods, business climate, collateralized debt obligation, 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, locking in a profit, Long Term Capital Management, McMansion, mortgage debt, North Sea oil, Northern Rock, Renaissance Technologies, risk tolerance, Robert Shiller, Robert Shiller, 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: 391 words: 97,018

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

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

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: 261 words: 86,905

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

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

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: 326 words: 103,170

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

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Airbnb, Albert Einstein, algorithmic trading, barriers to entry, Berlin Wall, bitcoin, British Empire, cloud computing, crowdsourcing, Danny Hillis, defense in depth, Deng Xiaoping, Edward Snowden, Fall of the Berlin Wall, Firefox, Google Chrome, income inequality, Isaac Newton, Jeff Bezos, job automation, market bubble, Menlo Park, 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, Richard Feynman, road to serfdom, 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: 598 words: 169,194

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

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accounting loophole / creative accounting, airport security, Albert Einstein, banking crisis, Bernie Madoff, British Empire, centralized clearinghouse, collapse of Lehman Brothers, diversified portfolio, Donald Trump, dumpster diving, financial deregulation, forensic accounting, Gordon Gekko, index fund, locking in a profit, mail merge, merger arbitrage, Plutocrats, plutocrats, Ponzi scheme, Potemkin village, random walk, Renaissance Technologies, riskless arbitrage, Ronald Reagan, short selling, Small Order Execution System, 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.


pages: 421 words: 120,332

The World in 2050: Four Forces Shaping Civilization's Northern Future by Laurence C. Smith

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Bretton Woods, BRICs, clean water, Climategate, colonial rule, deglobalization, demographic transition, Deng Xiaoping, energy security, flex fuel, global supply chain, Google Earth, guest worker program, Hans Island, hydrogen economy, ice-free Arctic, informal economy, invention of agriculture, invisible hand, land tenure, Martin Wolf, megacity, Mikhail Gorbachev, New Urbanism, oil shale / tar sands, oil shock, peak oil, purchasing power parity, Ronald Reagan, Ronald Reagan: Tear down this wall, side project, Silicon Valley, smart grid, sovereign wealth fund, special economic zone, The Wealth of Nations by Adam Smith, Thomas Malthus, trade liberalization, trade route, UNCLOS, UNCLOS, urban planning, Washington Consensus, Y2K

Geopolitically, Singapore has become one of the most globalized, stable, and prosperous countries in the world. Per capita income is over USD $50,000, higher than in the United States. It has a democratically elected government and ranks second in the world’s Index of Economic Freedom. 56 It is a member of the IMF, WTO, UNESCO, Interpol, and many other global institutions. Since the 1970s the performance of its sovereign wealth funds has been legendary. Through heavy global investments they’ve returned 4%-10% annually, growing a few humble millions into over USD $200 billion today.57 Singapore has learned to manage long-standing tensions between its main ethnic groups (Chinese, Malay, and Indian) and religions. Mass transit is abundant, clean, and energy-efficient.58 There are wonderful parks, theaters, and museums.

Singapore received 87 out of 100 possible points in 2009; the United States received 80 points out of 100, ranking it sixth behind Hong Kong, Singapore, Australia, Ireland, and New Zealand. Nigeria received only 55 points, ranking it #117 out of 179 countries evaluated. Data from www.heritage.org/index, viewed January 28, 2009. 57 Government of Singapore Investment Corporation and Temasek Holdings, V. Shih, “Tools of Survival: Sovereign Wealth Funds in Singapore and China,” Geopolitics 14, no. 2 (2009): 328-344; also http://www.temasekholdings.com.sg/media_centre_faq.htm (accessed November 16, 2009). 58 Mass transit is so efficient and appealing in Singapore that it has far fewer cars per capita than other comparable cities. Only 5% of Singapore’s energy consumption goes into transportation, unlike Berlin (35%), London (26%), New York (36%), Tokyo (38%), Bologna (28%), Mexico City (53%), or Buenos Aires (49%).


pages: 499 words: 152,156

Age of Ambition: Chasing Fortune, Truth, and Faith in the New China by Evan Osnos

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conceptual framework, crony capitalism, currency manipulation / currency intervention, David Brooks, Deng Xiaoping, East Village, financial independence, Gini coefficient, income inequality, indoor plumbing, land reform, Lao Tzu, low skilled workers, market fundamentalism, Mohammed Bouazizi, Plutocrats, plutocrats, rolodex, Silicon Valley, South China Sea, sovereign wealth fund, special economic zone, Steve Jobs, transcontinental railway, Washington Consensus, Xiaogang Anhui farmers, young professional

They enlisted the support of rising stars in the Party, such as Wang Qishan, who was the son-in-law of a vice-premier, and Zhou Xiaochuan, a reform-minded political scion. She began hanging around and ended up with a string of scoops and, eventually, an incomparable Rolodex of names destined for China’s highest offices. (Wang Qishan reached the Standing Committee of the Politburo; Gao Xiqing became head of China’s sovereign wealth fund; Zhou Xiaochuan ran China’s central bank.) Later, many people in Beijing whispered that these connections protected Hu, but she insisted that outsiders overestimated her proximity to power. “I don’t know their birthdays,” she said, of high-ranking officials. “I’m a journalist, and they treat me as a journalist.” In 1998, Hu received a phone call from Wang Boming, one of the hotel room financiers.

“We opened our market, but when we try to buy your companies, we hit political obstacles. It’s not fair.” Their view, which was popular in China across ideological lines, had some validity: American politicians invoked national security concerns, with varying degrees of credibility, to oppose Chinese direct investment. But Tang’s view, infused with a sense of victimhood, also obscured some evidence to the contrary: China had succeeded in other deals abroad—its sovereign wealth fund had stakes in the Blackstone Group and in Morgan Stanley—and though China had taken steps to open its markets to foreigners, it remained equally inclined to reject an American attempt to buy an asset as sensitive as a Chinese oil company. Tang’s belief that the United States would seek to obstruct China’s rise—“a new Cold War”—extended beyond economics to broader American policy. Disparate issues of relatively minor importance to Americans, such as support for Taiwan and Washington’s calls to raise the value of the yuan, had metastasized in China into a feeling of strategic containment


pages: 421 words: 128,094

King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone by David Carey; John E. Morris; John Morris

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asset allocation, banking crisis, Bonfire of the Vanities, carried interest, collateralized debt obligation, corporate governance, credit crunch, diversification, diversified portfolio, fixed income, Gordon Gekko, margin call, Menlo Park, mortgage debt, new economy, Northern Rock, risk tolerance, Rod Stewart played at Stephen Schwarzman birthday party, Sand Hill Road, sealed-bid auction, Silicon Valley, sovereign wealth fund, The Predators' Ball, éminence grise

It should have been smoother sailing, but the project instead lurched forward and back as a succession of out-of-the-blue events caught Schwarzman, James, and the rest of Blackstone off guard. The first was utterly fortuitous. Through friends, Antony Leung, the newly hired head of the firm’s Asian operations and Hong Kong’s former finance minister, contacted the managers of a new Chinese government sovereign wealth fund that was being formed to invest the billions of surplus dollars China was accumulating because of its yawning trade deficit with the West. Leung had in mind that the fund might buy a few Blackstone shares, but the managers of the new fund, later named China Investment Corporation, or CIC, instead expressed interest in buying a major stake. Schwarzman wasn’t sure at first if the offer was worth the potential complication and delay of negotiating a side deal, but the Chinese offered to invest $3 billion and their terms turned out to be simple.

“If we don’t reinvent ourselves continually, we’re dead,” Schwarzman likes to tell his troops. At the end of the day, there are thousands of sources of pure capital. The trick is to supply something extra. Amid the financial upheaval, Blackstone was observing that maxim, elaborating on the concept of private equity through new investments and investment vehicles in China. On the heels of the investment by China’s sovereign wealth fund, Chinese Investment Corporation, in Blackstone in 2007, Blackstone took a minority stake in China Bluestar, a state-owned specialty chemicals company, for $500 million and agreed to work with it to acquire chemical makers elsewhere in the world. Two years later, Blackstone’s real estate group invested with a local Chinese developer to build a shopping mall, and the firm followed that by launching a $730 million private equity fund denominated in the Chinese renmimbi currency that will invest in the Shanghai region.


pages: 413 words: 119,379

The Looting Machine: Warlords, Oligarchs, Corporations, Smugglers, and the Theft of Africa's Wealth by Tom Burgis

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Berlin Wall, blood diamonds, BRICs, British Empire, central bank independence, clean water, colonial rule, corporate social responsibility, crony capitalism, Deng Xiaoping, Donald Trump, F. W. de Klerk, Gini coefficient, Livingstone, I presume, McMansion, megacity, offshore financial centre, oil shock, open economy, purchasing power parity, rolodex, Ronald Reagan, Silicon Valley, South China Sea, sovereign wealth fund, structural adjustment programs, trade route, transfer pricing, upwardly mobile, urban planning, Washington Consensus, WikiLeaks

Many western states supposedly worried about China’s dealings were among the first to backtrack on reform … [W]hile Angola’s oil economy has never been more transparent, the impact of this on the governance of the country is trivial and even strengthens the regime.’46 The cryptocracy evolved, but it kept its most secretive recesses – such as China Sonangol, the oil partnership with the Queensway Group – out of sight behind offshore companies and undisclosed contracts. The Futungo was able to enjoy the legitimacy conferred by the IMF’s engagement, selectively implement the reforms that made commercial sense, and twist others to entrench its authority. In 2012, as stipulated in the terms of its loan from the IMF, Angola set up a sovereign wealth fund, a commonly used vehicle for countries that make lots of cash from exports to invest some of it at home and abroad. It was a sensible idea in an economy so skewed by oil. Norway’s sovereign wealth fund is arguably the main reason it has been able to dodge the resource curse – by keeping most of its oil revenues well away from the budget, to be invested for posterity, rather than inflicting Dutch Disease on the economy and allowing the political elite of the day to reward its cronies with fast cash.


pages: 566 words: 163,322

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

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3D printing, Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labor-force participation, Malacca Straits, Mark Zuckerberg, market bubble, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Peter Thiel, pets.com, Plutocrats, plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

Follow the Locals Even though the rapid expansion of global trade and money flows stopped after the crisis of 2008, many politicians are still quick to blame any local financial crisis on foreigners. It is a common perception that the large shifts in money flows that can cause currency crises are dictated by global players, many of whom emerged on the international scene during the recent decades of go-go globalization. The most powerful among these players are hedge fund moguls, fund managers at various investment firms, sovereign wealth funds that invest the oil profits of petro-states like Saudi Arabia, and pension funds that handle savings for hundreds of millions of working people all over the world. A certain conspiratorial aura prevails around some of these “secretive” new agents of finance. They are often cast as all-seeing eyes—somewhat the way many countries view the CIA—with sources on the ground and technology in the ether that allow them to shape events and outfox rival investors in far corners of the world.

Even Jonathan’s predecessor, the notoriously corrupt Olusegun Obasanjo, had managed during his term to build up the savings held in Nigeria’s foreign exchange reserves. After Jonathan took power in 2010, those reserves were slowly drained from $50 billion to $33 billion, despite growing revenue from rising oil prices. When the oil price boom ended in 2014, Nigeria was left with dangerously low foreign reserves. By 2015 most large oil exporting nations had combined savings, stored in foreign exchange reserves and sovereign wealth funds, which at least matched the size of the economy. In Nigeria those savings had fallen to 8 percent of GDP. Much of this shortfall was due to theft, and the result is that Nigeria now has enough savings to cover its looming budget deficits for barely more than a year. A former general, Buhari came in promising to attack corruption and the terrorist rebels of Boko Haram, and both of those moves are vital to creating a foundation of trust and security in the economy.


pages: 515 words: 142,354

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

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bank run, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bretton Woods, capital controls, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, investor state dispute settlement, invisible hand, Kenneth Rogoff, knowledge economy, labour market flexibility, labour mobility, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

Indeed, in the United States, the financial sector has been engaged in disintermediation, taking money out of the corporate sector, resulting in fewer funds available for investment. Huge amounts, for instance, are leaving firms in the form of share buybacks—in 2014, some 4 percent of GDP, and in 2015, 3.5 percent. Moreover, much of the savings is being done by “long-term savers,” those saving for their retirement or money put aside by countries in their sovereign wealth funds. Many of the key investment opportunities (infrastructure and technology) are long-term investments. It is perhaps not a surprise that shortsighted financial markets are unable to intermediate well between long-term savers and long-term investments. There are reforms in the legal, regulatory, and tax frameworks of Europe that would help focus the financial sector on the long-term—and on doing what it should do, and not doing what it shouldn’t.32 (2) REFORMING CORPORATE GOVERNANCE Firms, too, have become increasingly shortsighted, focusing on quarterly returns.

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


pages: 147 words: 45,890

Aftershock: The Next Economy and America's Future by Robert B. Reich

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Berlin Wall, declining real wages, delayed gratification, Doha Development Round, endowment effect, full employment, George Akerlof, Home mortgage interest deduction, Hyman Minsky, illegal immigration, income inequality, invisible hand, job automation, labor-force participation, Long Term Capital Management, loss aversion, mortgage debt, new economy, offshore financial centre, Ralph Nader, Ronald Reagan, school vouchers, sovereign wealth fund, Thorstein Veblen, too big to fail, World Values Survey

A significant number of Independence Party members have also taken seats away from Democrats and Republicans in Congress. The platform of the Independence Party, as well as its message, is clear and uncompromising: zero tolerance of illegal immigrants; a freeze on legal immigration from Latin America, Africa, and Asia; increased tariffs on all imports; a ban on American companies moving their operations to another country or outsourcing abroad; a prohibition on foreign “sovereign wealth funds” investing in the United States. America will withdraw from the United Nations, the World Trade Organization, the World Bank, and the International Monetary Fund; end all “involvements” in foreign countries; refuse to pay any more interest on our debt to China, essentially defaulting on it; and stop trading with China unless China freely floats its currency. Profitable companies will be prohibited from laying off workers and cutting payrolls.


pages: 190 words: 53,409

Success and Luck: Good Fortune and the Myth of Meritocracy by Robert H. Frank

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, attribution theory, availability heuristic, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, carried interest, Daniel Kahneman / Amos Tversky, David Brooks, deliberate practice, en.wikipedia.org, endowment effect, experimental subject, framing effect, full employment, hindsight bias, If something cannot go on forever, it will stop, income inequality, invisible hand, labor-force participation, labour mobility, lake wobegon effect, loss aversion, minimum wage unemployment, Network effects, Report Card for America’s Infrastructure, Richard Thaler, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Rory Sutherland, side project, sovereign wealth fund, Steve Jobs, The Wealth of Nations by Adam Smith, Tim Cook: Apple, ultimatum game, Vincenzo Peruggia: Mona Lisa, winner-take-all economy

Almost all of them work extremely hard and are unusually good at what they do. They have lots of human capital. But what the human capital approach misses is that certain skills are far more valuable in some settings than in others. In our 1995 book, The Winner-Take-All Society, Philip Cook and I argued that a gifted salesperson, for example, will be far more productive if her assignment is to sell financial securities to sovereign wealth funds than if she’s selling children’s shoes.1 If markets have been growing more competitive over time, why are the earnings gaps unaccounted for by the human capital approach larger than ever? Cook and I argued that what’s been changing is that new technologies and market institutions have been providing growing leverage for the talents of the ablest individuals. The best option available to patients suffering from a rare illness was once to consult with the most knowledgeable local practitioner.


pages: 202 words: 62,199

Essentialism: The Disciplined Pursuit of Less by Greg McKeown

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Albert Einstein, Clayton Christensen, Daniel Kahneman / Amos Tversky, deliberate practice, double helix, en.wikipedia.org, endowment effect, Isaac Newton, iterative process, Jeff Bezos, Lao Tzu, loss aversion, Mahatma Gandhi, microcredit, minimum viable product, North Sea oil, Peter Thiel, Ralph Waldo Emerson, Richard Thaler, Rosa Parks, side project, Silicon Valley, Silicon Valley startup, sovereign wealth fund, Steve Jobs

But what is beyond contestation is that it was used; instead of creating an endowment to prepare against unexpected disasters (such as, in hindsight, the coming great recession), the British government spent it in other ways. The way of the Essentialist, on the other hand, is to use the good times to create a buffer for the bad. Norway also benefited enormously from windfall taxes from oil but unlike Britain, Norway invested much of its good fortune in an endowment.2 Today, this endowment has grown over time to be worth an extraordinary $720 billion, making it the world’s largest sovereign wealth fund and providing a cushion against unknown future scenarios.3 These days the pace of our lives is only getting faster and faster. It is as if we are driving one inch behind another car at one hundred miles an hour. If that driver makes even the tiniest unexpected move—if he slows down even a little, or swerves even the smallest bit—we’ll ram right into him. There is no room for error. As a result, execution is often highly stressful, frustrating, and forced.

Power Systems: Conversations on Global Democratic Uprisings and the New Challenges to U.S. Empire by Noam Chomsky, David Barsamian

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affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Chelsea Manning, collective bargaining, colonial rule, corporate personhood, David Brooks, discovery of DNA, double helix, failed state, Howard Zinn, hydraulic fracturing, income inequality, inflation targeting, Julian Assange, land reform, Martin Wolf, Mohammed Bouazizi, Naomi Klein, new economy, obamacare, Occupy movement, oil shale / tar sands, pattern recognition, quantitative easing, Ralph Nader, Ralph Waldo Emerson, single-payer health, sovereign wealth fund, The Wealth of Nations by Adam Smith, theory of mind, Tobin tax, union organizing, Upton Sinclair, uranium enrichment, WikiLeaks

There’s a lot of talk about a global shift of power: India and China are going to become the new great powers, the wealthiest powers. Again, one should be pretty reserved about that. For example, there is a lot of talk about the U.S. debt and the fact that China holds so much of it. Actually, Japan holds more U.S. debt than China.15 There have been occasions when China passed Japan, but most of the time, including right now, Japan holds most of the debt. When you put them together, the sovereign wealth funds of the United Arab Emirates probably hold more debt than China.16 Furthermore, the whole framework for the discussion of U.S. decline is misleading. We’re taught to talk about the world as a world of states conceived as unified, coherent entities. If you study international relations (IR) theory, there’s what’s called “realist” IR theory, which says there is an anarchic world of states and states pursue their “national interest.”


pages: 285 words: 81,743

Start-Up Nation: The Story of Israel's Economic Miracle by Dan Senor; Saul Singer

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agricultural Revolution, Albert Einstein, back-to-the-land, banking crisis, Boycotts of Israel, call centre, Celtic Tiger, cleantech, Dissolution of the Soviet Union, friendly fire, immigration reform, labor-force participation, new economy, pez dispenser, post scarcity, profit motive, Silicon Valley, smart grid, social graph, sovereign wealth fund, Steve Ballmer, web application, women in the workforce, Yom Kippur War

But those racing cars crashed badly whereas the carts traveled more slowly and stayed on course.”1 This is the good news for Israel. Yet while Israel’s economy was not exposed to bad lending practices or complex credit products, it may be overexposed to venture finance, which could soon be in scarce supply. Venture capital firms are funded largely by institutional investors such as pension funds, endowments, and sovereign wealth funds. These investors set aside a specific allocation for what are called alternative investments (venture capital, private equity, hedge funds), typically in the range of 3 to 5 percent of their overall portfolios. But as the dollar value of their public equity (stock market) allocations has shrunk—due in large measure to crashing markets globally—it has shrunk the absolute dollar amount available for alternative investments.

The Handbook of Personal Wealth Management by Reuvid, Jonathan.

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

Whilst there is pressure on rents there is, in most sub-sectors, no overdevelopment, so a rise in vacancy rates will not be substantial. Property fundamentals are still reasonably comfortable. There is a wall of equity raised by overseas funds to look at investing in European real estate. It has been widely publicized that US funds such as Carlyle, Blackstone and Apollo as well as several sovereign wealth funds have ________________________________________ UK COMMERCIAL PROPERTY REVIEW 67 ឣ raised equity and will be targeting Europe. With mainland Europe having seen capital values fall by less than in the UK so far, and in many cases with poorer occupier fundamentals, the first wave of this money is likely to target the UK. With the sums of money being substantial, there is likely to be a race for quantity as much as quality that will lead to a pressure on values.


pages: 232 words: 77,956

Private Island: Why Britain Now Belongs to Someone Else by James Meek

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Affordable Care Act / Obamacare, Berlin Wall, business continuity plan, call centre, clean water, Deng Xiaoping, Etonian, HESCO bastion, housing crisis, illegal immigration, Martin Wolf, medical bankruptcy, Mikhail Gorbachev, post-industrial society, pre–internet, price mechanism, risk tolerance, road to serfdom, Ronald Reagan, Skype, sovereign wealth fund, Washington Consensus, working poor

What if interest rates go up, you can’t make the loan payments, and you have to sell, just when everybody else is trying to sell for the same reason, driving prices down further? Well, that’s bad news for the ultimate owners – but not for everyone. Look again at the identities of the Thames Thirteen. Apart from Macquarie, which is acting as the agent for another group of smaller institutional investors, and the two sovereign wealth funds, most have something in common: they’re investing on behalf of present and future pensioners, and are, or grew out of, pension funds set up for state workforces. The Queensland Investment Corporation began as the pension fund for Queensland state employees; State Super caters for New South Wales civil servants. ABP and Stichting Pensioenfonds Zorg en Welzijn are pension funds for Dutch civil servants, teachers, social workers, doctors and nurses.


pages: 219 words: 61,720

American Made: Why Making Things Will Return Us to Greatness by Dan Dimicco

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, Affordable Care Act / Obamacare, American energy revolution, American Society of Civil Engineers: Report Card, Bakken shale, barriers to entry, Bernie Madoff, carbon footprint, clean water, crony capitalism, currency manipulation / currency intervention, David Ricardo: comparative advantage, decarbonisation, fear of failure, full employment, Google Glasses, hydraulic fracturing, invisible hand, job automation, knowledge economy, laissez-faire capitalism, Loma Prieta earthquake, manufacturing employment, oil shale / tar sands, Ponzi scheme, profit motive, Report Card for America’s Infrastructure, Ronald Reagan, Silicon Valley, smart grid, smart meter, sovereign wealth fund, The Wealth of Nations by Adam Smith, too big to fail, uranium enrichment, Washington Consensus, Works Progress Administration

A case in point would be the California Public Employee Retirement System (CalPERS), one of the largest institutional investments in the United States, with more than $245 billion in assets.29 Right now, the pension fund has about $1 billion invested in infrastructure around the world.30 In October 2012, CalPERS announced plans to expand those investments even more—upward of $5 billion.31 Where better to put that money than in the United States? Thinking more broadly, we could leverage some of our relationships around the world with sovereign wealth funds that are more interested in putting their capital to work in a stable market. Foreigners who’ve bought U.S. government securities in the past would likely be willing to fund an infrastructure bank. How do I know? Because in addition to Europe’s bank, the private sector has already invested in California’s infrastructure and economic development bank, which the state set up back in 1994.


pages: 300 words: 77,787

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

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

As a result the portfolio consist of companies like Apple, Exxon, Vodafone, PetroChina, General Electric, Nestlé, Google, IBM, Royal Dutch Shell, Petrobras, etc. While you also have some exposure to smaller companies in the broadest equity indices, the proportion of those stocks in the portfolio is far below what it would be in a portfolio of exclusively small- or medium-sized companies. Unless you have an investment portfolio the size of a sovereign wealth fund there should not be much of a liquidity concern with the world equity portfolio. Even if the values of your holding are dropping, you would be able to liquidate your portfolio in far less than a day without causing price movements. Likewise the liquidity of a rational portfolio that includes sub-AA rated government bonds and corporate bonds is very good. As with the case of the broad equity indices, these are broad and diversified exposures.


pages: 257 words: 71,686

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

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

Most clients pay as close attention to that as you do when you hit the “Accept” button before downloading music from iTunes.’ Suppose, Smith wrote, that you buy a can of tuna to find that it contains dog food. What a nasty surprise, did the label on the can not say tuna? You turn to the legal document that came with the tuna and there it says ‘can also contain dog food’. The governments of Italy and Greece, the Libyan sovereign wealth fund, the American state of Alabama and ‘countless other endowments and foundations’ … over the past years all of them discovered dog food in their Goldman Sachs-made can of tuna, Smith wrote. This is immensely profitable, he added, especially with the category of clients Smith described as those ‘Who Don’t Know How to Ask Questions’. In his time there, Goldman Sachs kept an internal list of clients that had brought in the most commission.


pages: 593 words: 189,857

Stress Test: Reflections on Financial Crises by Timothy F. Geithner

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Affordable Care Act / Obamacare, asset-backed security, Atul Gawande, bank run, banking crisis, Basel III, Bernie Madoff, Bernie Sanders, Buckminster Fuller, Carmen Reinhart, central bank independence, collateralized debt obligation, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Doomsday Book, eurozone crisis, financial innovation, Flash crash, Goldman Sachs: Vampire Squid, housing crisis, Hyman Minsky, illegal immigration, implied volatility, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Nate Silver, Northern Rock, obamacare, paradox of thrift, pets.com, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, RAND corporation, regulatory arbitrage, reserve currency, Saturday Night Live, savings glut, short selling, sovereign wealth fund, The Great Moderation, The Signal and the Noise by Nate Silver, Tobin tax, too big to fail, working poor

It would be unfair to the relatively strong, and it would make investments in financial firms less attractive, which could make it harder for the entire system to raise more capital if conditions deteriorated. However, we did force Citi to reduce its dividend, which it had pledged not to do, and we told it to raise new capital. The bank managed to raise $20 billion over the next few months, mostly from sovereign wealth funds in the Middle East and Asia. Those funds, the last big sources of liquidity left in the markets, also injected capital into other struggling firms, including Merrill and Morgan Stanley. I believed then and still believe now that forcing banks to hold enough capital and liquidity to absorb significant losses is the best defense against future crises, the ultimate shock absorber. My financial reform mantra after the crisis would be “capital, capital, capital.”

We even considered Fed assistance, but the financials looked uncertain, and the optics were awful. Hank had just received a conflict-of-interest waiver to work on Goldman issues a few days earlier, while Wachovia CEO Bob Steel, another Goldman alum, had been one of Hank’s deputies at Treasury until a few months earlier. Nothing was working. John Mack talked to Pandit, but a Morgan Stanley merger with Citi would have raised similar drunks-in-a-ditch problems. China’s sovereign wealth fund explored an investment in Morgan Stanley, but the talks fell apart quickly. Mack told us the Japanese bank Mitsubishi UFJ was interested in a major investment, but Hank and I were skeptical. We told Mack he needed a faster, more enduring solution, and we pressured him to try Jamie again. Mack basically told us to let him do his job. The perception that I was racing to arrange a bunch of shotgun weddings apparently led some Wall Street executives to dub me eHarmony.


pages: 726 words: 172,988

The Bankers' New Clothes: What's Wrong With Banking and What to Do About It by Anat Admati, Martin Hellwig

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Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bonus culture, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, diversified portfolio, en.wikipedia.org, Exxon Valdez, financial deregulation, financial innovation, financial intermediation, George Akerlof, Growth in a Time of Debt, income inequality, invisible hand, Jean Tirole, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, margin call, Martin Wolf, moral hazard, mortgage debt, mortgage tax deduction, Nick Leeson, Northern Rock, open economy, peer-to-peer lending, regulatory arbitrage, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, shareholder value, sovereign wealth fund, technology bubble, The Market for Lemons, the payments system, too big to fail, Upton Sinclair, Yogi Berra

Banks operating under Basel II, which included banks in Europe and U.S. investment banks, found many creative ways to have very high leverage and to evade the requirements by shifting risks to others or hiding them behind flawed risk models or misleading credit ratings.54 When the financial crisis began in 2007, the equity of some of the major financial institutions worldwide was 2 or 3 percent of their total assets. The fact that these margins of safety were so thin played a major role in the crisis.55 For example, without help from the Singapore Sovereign Wealth Fund and from the Swiss government, the Swiss bank UBS would have become insolvent, destroyed by losses from mortgage-backed securities and related derivatives that had been treated as riskless.56 In the aftermath of the crisis, regulators set out to strengthen capital regulation. Although the resulting accord, “Basel III,” eliminates some abuses, it fails to address the basic problem that banks can easily game the regulation.

., 330n17 Shleifer, Andrei, 277n13 short-term debt of banks: as beneficial to economy, 231n14; claimed disciplining effect of, 164, 301n56, 317n83; as factor in financial crisis of 2007-2009, 66, 164–65, 238n46; interest rates on, 138, 251n25, 281n10; liquidity problems in, 39–40, 63; in maturity transformation, 158–59; money market funds and, 62–63, 67; net stable funding ratio and, 272n42; safety nets for, 93 SIFIs. See systemically important financial institutions silent participations, 315n79, 319n8 Silver-Greenberg, Jessica, 244n6, 264n66 Sinclair, Upton, 115, 116 Singapore Sovereign Wealth Fund, 96 Singer, Paul, 327n65 Singh, Manmohan, 301n55, 317n88 single-counterparty credit limit proposal, 268n24 Sinn, Hans-Werner, 233n19, 238n47, 323n39 SIVs. See structured investment vehicles size of banking sector: excess capacity in, 172, 202, 293n5, 304nn17–18; ideal, 182–83, 335n48; need for reductions in, 176, 182–83 size of banks: efficient scale for, 50–51, 89, 144, 270n31, 290n29; higher capital requirements and, 221, 335n48; impact of subsidies on, 89, 130, 144, 270n31; as largest companies in world, 89, 269n29; as percentage of GDP, 238n49; regulatory restrictions on, 89, 270n33.


pages: 554 words: 168,114

Oil: Money, Politics, and Power in the 21st Century by Tom Bower

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Ayatollah Khomeini, banking crisis, bonus culture, corporate governance, credit crunch, energy security, Exxon Valdez, falling living standards, fear of failure, forensic accounting, index fund, interest rate swap, kremlinology, LNG terminal, Long Term Capital Management, margin call, Mikhail Gorbachev, millennium bug, new economy, North Sea oil, offshore financial centre, oil shale / tar sands, oil shock, passive investing, peak oil, Piper Alpha, price mechanism, price stability, Ronald Reagan, shareholder value, short selling, Silicon Valley, sovereign wealth fund, transaction costs, transfer pricing, éminence grise

Relishing their power to make more money by producing less, the national oil companies celebrated each cent added to the oil price, calculating the additional billions of dollars deposited in their treasuries. For the Gulf states, where production of a barrel of crude cost $2 in Saudi Arabia and at most $5 elsewhere, the daily windfall was enormous. Since oil had risen above $20, at least an additional $3 trillion had passed from consumers to the producers. The enhancement of the sovereign wealth funds was matched by the decline of the oil majors, although Tillerson’s gesture at the company’s staff Christmas party disguised any hint of shrinkage. The ground floor of the headquarters in Irving was covered with artificial snow, imported reindeer were tethered along the drive and the hospitality was uncommonly generous, reflecting record profits from high prices. Although the corporation’s oil production in the first quarter of 2008 would fall by 5.6 percent, it accumulated $40.9 billion in cash during 2007, after spending $28 billion to buy back shares and distributing $1.9 billion in dividends.

The Washington Post would report that the CFTC had noted that Vitol, which boasted an annual $147 billion turnover, had traded contracts for 57.7 million barrels by June 2008, three times the USA’s daily needs, and at one point in July held a huge 11 percent of the futures market. Vitol stated that it was “not in the business of taking large positions speculating on the rise or fall of market prices,” but others were unsure. Many in Congress regarded Vitol’s activity as speculation rather than trading. “It’s dirty hedge money and even dirtier sovereign wealth funds,” suspected Ed Morse, the senior oil analyst at Lehman’s. Russians and Arabs were assumed to be playing the markets by taking a position and then releasing price-sensitive rumors to move the market in a profitable direction. Commodity markets throughout history had experienced periods of boom and bust, but no oil trader had ever witnessed the sheer weight of money now being bet on oil.


pages: 305 words: 79,356

Drowning in Oil: BP & the Reckless Pursuit of Profit by Loren C. Steffy

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Berlin Wall, clean water, corporate governance, Exxon Valdez, Fall of the Berlin Wall, North Sea oil, oil rush, oil shock, peak oil, Piper Alpha, Ronald Reagan, South China Sea, sovereign wealth fund

Hayward traveled around the world, courting investments from foreign governments and winning assurances that they would vote against any buyout offers that BP might face because of its depressed stock price. He met with officials in Abu Dhabi to propose that the emirate buy 10 percent of BP’s shares, and he wooed investments from Kuwait, Qatar, and Singapore. With BP’s stock battered by the crisis, sovereign wealth funds suddenly started talking about buying double-digit stakes in BP. BP had signed a deal to drill off the Libyan coast, and Libya’s oil minister said he recommended that the country’s investment fund buy a stake in the company because “it’s a good opportunity for bargain hunters.”5 By the time Hayward returned to London and addressed shareholders on July 27, no oil had flowed into the Gulf for two weeks.


pages: 358 words: 106,729

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

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

One reason the authorities bail out financial-firm claim holders is that they do not know whether these claims are held by other financial firms: by letting the claims bear losses, they could be precipitating a cascade of failures. It is therefore important that regulators prohibit any levered financial firms from holding contingent convertibles or writing capital insurance (or, for that matter, holding unsecured long-term debt issued by other leveraged financial firms). Instead mutual funds, pension funds, and sovereign wealth funds should be the holders of choice. By requiring systemically important entities to have stronger buffers against failure, regulators would reduce the likelihood that they would take advantage of their status. If a firm is made near fail-safe by its equity cushion, the prospect of government protection against failure confers little advantage. Making Financial Firms Easier to Resolve In dire crises, some systemically important firms may eat through their capital and be close to failure no matter how good the prior supervision or how ample the equity buffers.


pages: 311 words: 17,232

Living in a Material World: The Commodity Connection by Kevin Morrison

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barriers to entry, Berlin Wall, carbon footprint, clean water, commodity trading advisor, diversified portfolio, Doha Development Round, Elon Musk, energy security, European colonialism, flex fuel, food miles, Hernando de Soto, Hugh Fearnley-Whittingstall, hydrogen economy, Long Term Capital Management, new economy, North Sea oil, oil rush, oil shale / tar sands, oil shock, out of africa, peak oil, price mechanism, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the payments system, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, uranium enrichment, young professional

The major beneficiaries of high oil prices are Middle Eastern oil exporters, who have reaped record receipts from every barrel they ship. This has seen a dramatic rise in the region’s economy, which has outpaced global economic growth rates for the past eight years (International Monetary Fund, 2007). The Middle East is spending on new infrastructure and oil and gas projects, as well as topping up public coffers (International Monetary Fund, 2007).6 According to the Asian Development Bank’s World Outlook 2007, the sovereign wealth fund of Abu Dhabi – the biggest oil-producing emirate of the UAE – had $875 bn at the end of June 2007. The large amounts of expenditure and saving by Middle Eastern governments is dependent on higher oil prices, which is something that these governments can help influence through Opec. With bulging pockets, Arab oil sheiks and sultans are broadening their economic influence by acquiring established businesses such as ports in the West, as well as taking large stakes in the world’s biggest investment banks.


pages: 339 words: 88,732

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson, Andrew McAfee

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, access to a mobile phone, additive manufacturing, Airbnb, Albert Einstein, Amazon Mechanical Turk, Amazon Web Services, American Society of Civil Engineers: Report Card, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, barriers to entry, Baxter: Rethink Robotics, British Empire, business intelligence, business process, call centre, clean water, combinatorial explosion, computer age, computer vision, congestion charging, corporate governance, crowdsourcing, David Ricardo: comparative advantage, employer provided health coverage, en.wikipedia.org, Erik Brynjolfsson, factory automation, falling living standards, Filter Bubble, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, Freestyle chess, full employment, game design, global village, happiness index / gross national happiness, illegal immigration, immigration reform, income inequality, income per capita, indoor plumbing, industrial robot, informal economy, inventory management, James Watt: steam engine, Jeff Bezos, jimmy wales, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Khan Academy, knowledge worker, Kodak vs Instagram, law of one price, low skilled workers, Lyft, Mahatma Gandhi, manufacturing employment, Mark Zuckerberg, Mars Rover, means of production, Narrative Science, Nate Silver, natural language processing, Network effects, new economy, New Urbanism, Nicholas Carr, Occupy movement, oil shale / tar sands, oil shock, pattern recognition, payday loans, price stability, Productivity paradox, profit maximization, Ralph Nader, Ray Kurzweil, recommendation engine, Report Card for America’s Infrastructure, Robert Gordon, Rodney Brooks, Ronald Reagan, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Simon Kuznets, six sigma, Skype, software patent, sovereign wealth fund, speech recognition, statistical model, Steve Jobs, Steven Pinker, Stuxnet, supply-chain management, TaskRabbit, technological singularity, telepresence, The Bell Curve by Richard Herrnstein and Charles Murray, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, Tyler Cowen: Great Stagnation, Vernor Vinge, Watson beat the top human players on Jeopardy!, winner-take-all economy, Y2K

For instance: How do lottery winners react to not having to work anymore? (Hint: not always well.) What can we learn from industries with a concentration of high-income superstars like professional sports, motion pictures, and music? What challenges and opportunities do citizens of nations like Norway and the United Arab Emirates face when they have access to enormous wealth as a birthright via sovereign wealth funds? What were the institutions and incentives that helped some children of wealthy landowners in the seventeenth century go on to lead happy, inventive, and creative lives, while others did not? In the coming decade, we will have the good fortune to witness a wave of astonishing technologies unleashed. They will require changes in our economic institutions and intuitions. By maximizing the flexibility of our systems and mental models, we will be in the best position to identify and implement these changes.


pages: 385 words: 111,807

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

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

When they sell shares and bonds for their client companies, investment banks do not deal with ‘retail’ investors, namely, small individual investors who only buy small quantities. They only deal with large investors, such as extremely rich individuals (‘high net worth individuals’ is the jargon) or institutional investors, that is, large funds created by individual investors pooling their money. The most important types of funds include: pension funds, investing money that individuals save for their pensions; sovereign wealth funds, which manage state-owned assets of a country (Government Pension Fund of Norway and Abu Dhabi Investment Council are two of the biggest examples); mutual funds or unit trusts, which manage money pooled by small individual investors that buy into them in the open market; hedge funds, which invest actively in high-risk, high-return assets, using a pool of large sums given to them by very rich individuals or other, more ‘conservative’, funds (e.g., pension funds); private equity funds, which are like hedge funds, but make money solely out of buying up companies, restructuring them and selling at a profit.


pages: 484 words: 104,873

Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford

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3D printing, additive manufacturing, Affordable Care Act / Obamacare, AI winter, algorithmic trading, Amazon Mechanical Turk, artificial general intelligence, autonomous vehicles, banking crisis, Baxter: Rethink Robotics, Bernie Madoff, Bill Joy: nanobots, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chris Urmson, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, computer age, debt deflation, deskilling, diversified portfolio, Erik Brynjolfsson, factory automation, financial innovation, Flash crash, Fractional reserve banking, Freestyle chess, full employment, Goldman Sachs: Vampire Squid, High speed trading, income inequality, indoor plumbing, industrial robot, informal economy, iterative process, Jaron Lanier, job automation, John Maynard Keynes: technological unemployment, John von Neumann, Khan Academy, knowledge worker, labor-force participation, labour mobility, liquidity trap, low skilled workers, low-wage service sector, Lyft, manufacturing employment, McJob, moral hazard, Narrative Science, Network effects, new economy, Nicholas Carr, Norbert Wiener, obamacare, optical character recognition, passive income, performance metric, Peter Thiel, Plutocrats, plutocrats, post scarcity, precision agriculture, price mechanism, Ray Kurzweil, rent control, rent-seeking, reshoring, RFID, Richard Feynman, Richard Feynman, Rodney Brooks, secular stagnation, self-driving car, Silicon Valley, Silicon Valley startup, single-payer health, software is eating the world, sovereign wealth fund, speech recognition, Spread Networks laid a new fibre optics cable between New York and Chicago, stealth mode startup, stem cell, Stephen Hawking, Steve Jobs, Steven Levy, Steven Pinker, strong AI, Stuxnet, technological singularity, telepresence, telepresence robot, The Bell Curve by Richard Herrnstein and Charles Murray, The Coming Technological Singularity, Thomas L Friedman, too big to fail, Tyler Cowen: Great Stagnation, union organizing, Vernor Vinge, very high income, Watson beat the top human players on Jeopardy!, women in the workforce

If Piketty’s theory is correct—and it has been subject to a great deal of debate—then I think advancing technology is likely to greatly amplify his conclusions, quite possibly producing even higher levels of future inequality than his model predicts. It’s possible that as the issue of inequality, and especially its impact on the political process in the United States, gains ever more visibility with the public, the kind of wealth tax that Piketty advocates might someday become viable. If so, I would argue that rather than portioning out redistributed capital to individuals, it would be better to set up a centrally managed sovereign wealth fund (similar to the Alaska fund) and then use the resulting returns to help fund a basic income. Near-Term Policies While the establishment of a guaranteed income will probably remain politically unfeasible for the foreseeable future, there are a number of other things that might prove helpful in the nearer term. Many of these ideas are really generic economic policies geared toward enabling a more robust recovery from the Great Recession.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

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accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, Bretton Woods, British Empire, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, joint-stock company, Kenneth Rogoff, labour market flexibility, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, Plutocrats, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce

First central banks, led by Paul Volcker of the US Fed, showed themselves willing to tackle inflation. And secondly, real interest rates were high, compensating creditors for their earlier losses. As a result, investment returns were high as bond yields fell from their late 1970s peaks. From the late 1990s onwards, however, the main investors in government bonds were not retail investors or professional fund managers, looking to maximize returns. Instead they were central banks and sovereign wealth funds in Asia and the Middle East, looking to park the foreign exchange reserves earned through accumulating current account surpluses. Such buyers have been relatively indifferent to yield. Nevertheless, eventually even the patience of those investors must wear thin. By the autumn of 2011, government bond yields were very low round the world, leaving investors very vulnerable to inflation, currency depreciation or default.


pages: 207 words: 86,639

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

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

A month after that, reports that Northern Rock was looking for emergency financial support from the Bank of England led to the first run on a British bank for over a century, with the alien sight of savers queuing for hours in the rain outside branches. Since then, as we know, the crisis accelerated until most of the investment banks on Wall Street had disappeared, and – spurred by the bankruptcy of Lehman Brothers – most of the banks in Europe and North America were forced to accept state bail outs and partial state control, or went cap in hand to the sovereign wealth funds in the Middle East, to avoid bankruptcy. The economic assumptions of the past generation lay in ruins, the advice provided by the best financial minds had been disastrous, and occasionally fraudulent, and the architecture that runs the world’s economies was broken beyond repair. The epicentre of the disaster on the ground was by then the city of Cleveland, Ohio, where one in ten homes was repossessed and vacant, nearly every street blighted by boarded up properties and street gangs.6 With one in five US mortgages now sub-prime, many of them facing major hikes in the repayment rate after two or three years, more than 2 million foreclosure proceedings began in the USA in 2007 alone, many of them against people sold mortgages where the terms and interest rates were misrepresented to them, which is what happens when products are believed to be risk free by those selling them.

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

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

Money, after all, is only worth something if the public trust it. If that trust disappears, money becomes worthless. 220 4099.indd 220 29/03/13 2:23 PM Dystopia How might this mechanism – however unlikely – be triggered in practice? The most plausible route would surely be an initial loss of faith in the currency not so much from the public at large but, instead, from foreign creditors – reserve managers, sovereign wealth funds and the like. They, after all, are most vulnerable to what I labelled in chapter 6 the ‘democratic deficit’. Unlike the 1930s, when a government’s creditors were almost entirely home-­grown (and where, if international credit was available, it came from other governments, not from the private sector), creditors today come from all over the world. The mismatch between the interests of creditors and voters is, therefore, considerable.


pages: 330 words: 91,805

Peers Inc: How People and Platforms Are Inventing the Collaborative Economy and Reinventing Capitalism by Robin Chase

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3D printing, Airbnb, Amazon Web Services, Andy Kessler, banking crisis, barriers to entry, bitcoin, blockchain, Burning Man, business climate, call centre, car-free, cloud computing, collaborative consumption, collaborative economy, collective bargaining, congestion charging, crowdsourcing, cryptocurrency, decarbonisation, don't be evil, Elon Musk, en.wikipedia.org, ethereum blockchain, Ferguson, Missouri, Firefox, frictionless, Gini coefficient, hive mind, income inequality, index fund, informal economy, Internet of things, Jane Jacobs, Jeff Bezos, jimmy wales, job satisfaction, Kickstarter, Lean Startup, Lyft, means of production, megacity, Minecraft, minimum viable product, Network effects, new economy, Oculus Rift, openstreetmap, optical character recognition, pattern recognition, peer-to-peer lending, Richard Stallman, ride hailing / ride sharing, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Search for Extraterrestrial Intelligence, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, smart cities, smart grid, Snapchat, sovereign wealth fund, Steve Crocker, Steve Jobs, Steven Levy, TaskRabbit, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, Turing test, Uber and Lyft, Zipcar

And it too is experiencing phenomenal growth rates: Prosper took eight years to attract the first $1 billion in loans, and then, within just six months, they crossed the $2 billion-in-loans milestone.10 However, both Lending Club and Prosper, which started firmly as peer-to-peer lending marketplaces, now mostly facilitate loans from institutional lenders, not individuals. At Prosper, more than 80 percent of the loans made in March 2014 were financed by hedge funds, pension funds, asset managers, sovereign wealth funds, and foreign banks.11 And at Lending Club, that number—the percentage of loans fulfilled by institutional lenders—was about 70 percent.12 In October 2014, institutional investors issued $177 million in loans, three-and-a-half times more than they had in October 2013.13 Larry Summers, secretary of the treasury during the Clinton administration and now a Lending Club board member, said, “Lending Club’s platform has the potential to profoundly transform traditional banking over the next decade.”14 The question is, transform it into what?


pages: 430 words: 140,405

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Lawrence G. Mcdonald, Patrick Robinson

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asset-backed security, bank run, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, diversification, fixed income, high net worth, hiring and firing, if you build it, they will come, London Interbank Offered Rate, Long Term Capital Management, margin call, moral hazard, mortgage debt, naked short selling, new economy, Ronald Reagan, short selling, sovereign wealth fund, value at risk

It was, however, blindingly obvious to the big brains in the organization that the two top guys were living in Delusion City. Both of them were devoted to the commercial mortgage-backed securities—CMBS—another gigantic securitized debt portfolio, this one based on huge buildings not yet paid for with real money. Again, Lehman was slicing them up and packaging them, getting them rated AAA, and selling the bonds to banks, hedge funds, and sovereign wealth funds all over the world. Instead of the vast army of struggling homeowners, this derivative, the CMBS, offered the backing of major corporations in the form of cash flow paid by rents to those who owned the buildings. And so far as Dick and Joe were concerned, this was perfect: a hedge against the residential real estate, a safe diversification. Except that in the current global asset bubble, no one was diversified, nothing was safe.


pages: 790 words: 150,875

Civilization: The West and the Rest by Niall Ferguson

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

We have to realize the political and economic environments [in Africa] are not ideal. But we don’t have to wait for everything to be satisfactory or human rights to be perfect.’51 Growing overseas investment in natural resources not only makes sense as a diversification strategy to reduce China’s exposure to the risk of dollar depreciation. It also allows China to increase its financial power, not least through its vast and influential sovereign wealth fund, China Investment Corporation, which has around $200 billion of assets. And investment abroad justifies China’s ambitious plans for naval expansion. In the words of Rear Admiral Zhang Huachen, Deputy Commander of the East Sea Fleet: ‘With the expansion of the country’s economic interests, the navy wants to better protect the country’s transportation routes and the safety of our major sea-lanes.’52 The South China Sea is increasingly regarded as a ‘core national interest’ and deep-water ports are projected in Pakistan – in the former Omani enclave of Gwadar – as well as in Burma and Sri Lanka.


pages: 460 words: 122,556

The End of Wall Street by Roger Lowenstein

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Asian financial crisis, asset-backed security, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Brownian motion, Carmen Reinhart, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fear of failure, financial deregulation, fixed income, high net worth, Hyman Minsky, interest rate derivative, invisible hand, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, Martin Wolf, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, profit motive, race to the bottom, risk tolerance, Ronald Reagan, savings glut, short selling, sovereign wealth fund, statistical model, the payments system, too big to fail, tulip mania, Y2K

CHAPTER 15 1 Some biographical details from Emily Thornton, “Morgan Stanley’s Mack Attack,” BusinessWeek, June 21, 2006. 2 Premiums: CMA (Credit Market Analysis). 3 Many details of Morgan’s Stanley’s duress are from Susan Pulliam, Liz Rappaport, Aaron Lucchetti, Jenny Strasburg, and Tom McGinty, “Anatomy of the Morgan Stanley Panic,” Wall Street Journal, November 24, 2008, and Lisa Kassenaar and Christine Harper, “Mack Tells Wife He May Lose Firm Before Brokerage Bid,” Bloomberg, January 26, 2009. 4 Kendrick Wilson, interview with the author. 5 Gretchen Morgenson and Don Van Natta Jr., “Paulson’s Calls to Goldman Tested Ethics During Crisis,” New York Times, August 8, 2009. 6 Joe Nocera, “As Credit Crisis Spiraled, Alarm Led to Action,” New York Times, October 2, 2008. 7 China announced that its sovereign wealth fund would invest $200 billion in shares of the country’s three largest banks. Russia approved a $120 billion plan to rescue its financial system. Both moves were announced September 18. On Bernanke, the New York Times (Edmund L. Andrews, Carl Hulse, and David M. Herszenhorn, “Federal Reserve and Treasury Offer Congress a Plan for a Vast Bailout,” September 19, 2008) estimated that the Fed pumped almost $300 billion into “global credit markets” on a single day. 8 Interviews with the author; see also Joe Nocera and Edmund L.


pages: 481 words: 120,693

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

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

(Incidentally for Sir Howard, the future embarrassment of having written this opinion piece would turn out to be a lesser example of the personal dangers of buying into the worldview of the global plutocracy. On March 3, 2011, he resigned as director of the LSE because of the embarrassment he had caused the school by accepting a £1.5 million donation from Saif Gadhafi, son of the dictator, and agreeing to a £2.2 million deal to train Libyan civil servants. Sir Howard had also been a paid adviser to Libya’s sovereign wealth fund.) Once you get beyond how jarringly wrong all of these bold-faced names were, and how uniform, bipartisan, and international their consensus, you notice the epistemological wrong turn at the center of their mistake. The premise of this entire 2006–2007 conversation about the regulation of U.S. financial markets was that you learn whether your rules are working by asking the banks upon which they are imposed.


pages: 497 words: 150,205

European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right by Philippe Legrain

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3D printing, Airbnb, Asian financial crisis, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, cleantech, collaborative consumption, collapse of Lehman Brothers, collective bargaining, corporate governance, credit crunch, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, debt deflation, Diane Coyle, Downton Abbey, Edward Glaeser, Elon Musk, en.wikipedia.org, energy transition, eurozone crisis, fear of failure, financial deregulation, first-past-the-post, forward guidance, full employment, Gini coefficient, global supply chain, Growth in a Time of Debt, hiring and firing, hydraulic fracturing, Hyman Minsky, Hyperloop, immigration reform, income inequality, interest rate derivative, Irish property bubble, James Dyson, Jane Jacobs, job satisfaction, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidity trap, margin call, Martin Wolf, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, North Sea oil, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, open economy, price stability, private sector deleveraging, pushing on a string, quantitative easing, Richard Florida, rising living standards, risk-adjusted returns, Robert Gordon, savings glut, school vouchers, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart grid, smart meter, software patent, sovereign wealth fund, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, working-age population, Zipcar

Ideally, big financial institutions ought to be broken up into a diverse range of smaller, simpler and safer ones, many of them partnerships with unlimited liability (as they used to be). If you gamble with other people’s money, you ought to have skin in the game. A financial system with a greater diversity of investors could cope better with disruptions: witness how cash-rich, long-term investors such as Warren Buffett, the American billionaire investor, and sovereign-wealth funds helped stabilise banks by buying into them in the crash. Healthy financial systems require investors with a wide range of investment horizons, a diversity of ability to bear risk, and a mix of bulls and bears. If investors are affected differently by a particular change – and react differently to it – the system as a whole will be better able to cope. Curbing property speculation While banks are the biggest source of fragility, households’ predilection for debt-financed property speculation is another.


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

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accounting loophole / creative accounting, Albert Einstein, asset-backed security, banking crisis, banks create money, Bretton Woods, British Empire, call centre, capital controls, carbon footprint, collective bargaining, corporate social responsibility, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, high net worth, income inequality, investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, labour market flexibility, laissez-faire capitalism, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, means of production, moral hazard, mortgage debt, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Plutocrats, plutocrats, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, Winter of Discontent, working poor, Yom Kippur War

It was also driven by an expansion of demand for them – ‘a growing “wall of money” chasing yield’40 – from spare cash seeking ‘investments’, at a time when productive investment outlets have been choked by overcapacity and slow growth in demand. As we’ve seen, one source of this surplus capital looking for outlets was non-finance companies, switching into financial investment. A second source was so-called sovereign wealth funds held by governments, such as China and Saudi Arabia, that had large trade surpluses to ‘invest’. They account for 1.5% of the world’s total private wealth, equal to the share of the world’s billionaires.41 They too faced limited opportunities for profitable productive investment, so much of their activity has been rent-seeking – for example, buying up land in Africa in anticipation of future commercial exploitation, or property in the US in the expectation of price inflation.


pages: 514 words: 152,903

The Best Business Writing 2013 by Dean Starkman

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Asperger Syndrome, bank run, Basel III, call centre, clean water, cloud computing, collateralized debt obligation, Columbine, computer vision, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, Erik Brynjolfsson, eurozone crisis, Exxon Valdez, factory automation, full employment, Goldman Sachs: Vampire Squid, hiring and firing, hydraulic fracturing, income inequality, jimmy wales, job automation, late fees, London Whale, low skilled workers, Mahatma Gandhi, market clearing, Maui Hawaii, Menlo Park, Occupy movement, oil shale / tar sands, price stability, Ray Kurzweil, Silicon Valley, Skype, sovereign wealth fund, stakhanovite, Steve Jobs, Stuxnet, the payments system, too big to fail, Vanguard fund, wage slave, Y2K

Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival. Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave. How did we get here? The firm changed the way it thought about leadership.


pages: 413 words: 117,782

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences by Steven G. Mandis

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algorithmic trading, Berlin Wall, bonus culture, BRICs, business process, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, diversification, Emanuel Derman, financial innovation, fixed income, friendly fire, Goldman Sachs: Vampire Squid, high net worth, housing crisis, London Whale, Long Term Capital Management, merger arbitrage, new economy, passive investing, performance metric, risk tolerance, Ronald Reagan, Saturday Night Live, shareholder value, short selling, sovereign wealth fund, The Nature of the Firm, too big to fail, value at risk

Partners I interviewed pointed to two key examples of pushing the client envelope in terms of the questionable nature of clients taken on. Interestingly, they were both outside the US market. One was London’s Robert Maxwell, whom Goldman acquired at the very end of John L. Weinberg’s watch, when it was still trying to establish itself in London—and well before the IPO. The other recent example was Libya. In early 2008, Libya’s sovereign-wealth fund controlled by Col. Moammar Gadhafi gave $1.3 billion to Goldman to sink into a currency bet and other complicated trades. At one time, the investments lost 98 percent of their value. Also, according to reports, afterward Goldman had to arrange for security to protect its employees dealing with Libya. Many current and former partners questioned the firm’s dealing with a client like Libya—even though the United States had lifted sanctions in 2004—where employees would need security protection.


pages: 483 words: 143,123

The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters by Gregory Zuckerman

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American energy revolution, Asian financial crisis, Bakken shale, Bernie Sanders, Buckminster Fuller, corporate governance, credit crunch, energy security, Exxon Valdez, housing crisis, hydraulic fracturing, LNG terminal, margin call, Maui Hawaii, North Sea oil, oil rush, oil shale / tar sands, oil shock, peak oil, Peter Thiel, reshoring, self-driving car, Silicon Valley, sovereign wealth fund, Steve Jobs, urban decay

He just wanted it. There was a limit to how much debt Chesapeake could pile up to pay for the deals. But McClendon told Ralph Eads, the senior Houston investment banker at the firm Jefferies & Co., that he had an idea where to get the billions he needed. “If we’re going to look for new money, let’s go to Asia,” McClendon told his old college friend, well aware of the growing coffers of companies and sovereign wealth funds on that continent. “They have the money and they’re short on energy.” McClendon and Eads began traveling to Asia to sell stakes in new American fields suddenly churning out oil and gas. With remarkable speed, Chesapeake established a 600,000-net-acre position in the Eagle Ford in 2010 for $1.2 billion and then sold a one-third interest to the China National Offshore Oil Corporation for $2.2 billion.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

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

Economists had long warned of public deficit spending ‘crowding out’ private investment, causing high interest rates and low growth; but they were never able to specify where exactly the critical threshold was. In practice, it turned out to be possible, at least for a while, to keep interest rates low by deregulating financial markets while containing inflation through continued union-busting.8 Still, the US in particular, with its exceptionally low national savings rate, was soon selling its government bonds not just to citizens but also to foreign investors, including sovereign wealth funds of various sorts.9 Moreover, as debt burdens rose, a growing share of public spending had to be devoted to debt service, even with interest rates remaining low. Above all, there had to be a point, although apparently unknowable beforehand, at which creditors, foreign and domestic alike, would begin to worry about getting their money back. By then at the latest, pressures would begin to mount from ‘financial markets’ for consolidation of public budgets and a return to fiscal discipline.


pages: 584 words: 187,436

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

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

Mahmood Pradhan, who worked with Wadhwani at Tudor, elaborates: “There are times when particular variables explain certain asset prices, and there are times when other things determine the price. So you need to understand when your model is working and when it isn’t. For example, sometimes current account deficits have a strong bearing on exchange rates. But other times people are quite willing to tolerate very large current account deficits because of some new preoccupation that is not in your model. Sovereign wealth funds may have emerged. Or the Asians have more capital. Or something else is going on that you may not be capturing.” Mahmood Pradhan, interview with the author, April 29, 2008. 18. Mark Dalton, interview with the author, September 29, 2008. Dalton is the president of Tudor. 19. Eric Wepsic of D. E. Shaw confirms, “Our staff started on average a little younger, a little more right out of school, a lot of people who had just got their PhDs, or people like me who didn’t even have a PhD.”


pages: 603 words: 182,781

Aerotropolis by John D. Kasarda, Greg Lindsay

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

With $2 trillion in fiscal adrenaline hitting circulation at once, credit bubbles were a given. Billions found their way into real estate—land prices in China doubled that year, rising 200 percent in Shanghai and 400 percent in Guangzhou. “Both China and America are addressing bubbles by creating more bubbles and we’re just taking advantage of that,” explained the chairman of the People’s Republic’s $300 billion sovereign wealth fund. “So we can’t lose.” But the vast majority was spent on yet another upgrade to the world’s factory: more steel mills than the EU, Japan, the United States, and Russia combined, built with more cement than the rest of the planet combined. At this moment, China is spending a higher percentage of its GDP on infrastructure—planes, trains, and power plants—than any nation in history, close to half of its total output.


pages: 903 words: 235,753

The Stack: On Software and Sovereignty by Benjamin H. Bratton

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1960s counterculture, 3D printing, 4chan, Ada Lovelace, additive manufacturing, airport security, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, algorithmic trading, Amazon Mechanical Turk, Amazon Web Services, augmented reality, autonomous vehicles, Berlin Wall, bioinformatics, bitcoin, blockchain, Buckminster Fuller, Burning Man, call centre, carbon footprint, carbon-based life, Cass Sunstein, Celebration, Florida, charter city, clean water, cloud computing, connected car, corporate governance, crowdsourcing, cryptocurrency, dark matter, David Graeber, deglobalization, dematerialisation, disintermediation, distributed generation, don't be evil, Douglas Engelbart, Edward Snowden, Elon Musk, en.wikipedia.org, Eratosthenes, ethereum blockchain, facts on the ground, Flash crash, Frank Gehry, Frederick Winslow Taylor, future of work, Georg Cantor, gig economy, global supply chain, Google Earth, Google Glasses, Guggenheim Bilbao, High speed trading, Hyperloop, illegal immigration, industrial robot, information retrieval, intermodal, Internet of things, invisible hand, Jacob Appelbaum, Jaron Lanier, Jony Ive, Julian Assange, Khan Academy, linked data, Mark Zuckerberg, market fundamentalism, Marshall McLuhan, Masdar, McMansion, means of production, megacity, megastructure, Menlo Park, Minecraft, Monroe Doctrine, Network effects, new economy, offshore financial centre, oil shale / tar sands, packet switching, PageRank, pattern recognition, peak oil, performance metric, personalized medicine, Peter Thiel, phenotype, place-making, planetary scale, RAND corporation, recommendation engine, reserve currency, RFID, Sand Hill Road, self-driving car, semantic web, sharing economy, Silicon Valley, Silicon Valley ideology, Slavoj Žižek, smart cities, smart grid, smart meter, social graph, software studies, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Startup school, statistical arbitrage, Steve Jobs, Steven Levy, Stewart Brand, Stuxnet, Superbowl ad, supply-chain management, supply-chain management software, TaskRabbit, the built environment, The Chicago School, the scientific method, Torches of Freedom, transaction costs, Turing complete, Turing machine, Turing test, universal basic income, urban planning, Vernor Vinge, Washington Consensus, web application, WikiLeaks, working poor, Y Combinator

Enclaves, exclaves, and especially colonies drew another jigsaw on top of the first, nonlinear and noncontiguous outlines of sovereign control rule.25 At various times, this becomes a momentum for jurisdictional integration (as for the American colonies in the 1770s, the European Union in the 1990s, Italy and Germany in the nineteenth century), and at other times it is an equal momentum for disintegration (as for the United States in the 1860s, India/Pakistan in the 1940s, the USSR in the 1990s, and seemingly everywhere today). It takes different forms and seeks different ends: schemes to break up California would mean political autonomy for Silicon Valley and several more Senate seats; Special Economic Zones freeing up markets for commodity assemblage by keeping hands and fingers on call in special factory camps; sovereign wealth funds turning states into corporate actors; Supreme Court rulings turning corporate actors into holders of religious and political speech rights; neo-Confederates once again taking control of one of the major US political parties; Saudi Arabia buying sovereign farmland in Indonesia to secure its food future; the hard geopolitics of ongoing state-sponsored spying, hacking, and mutual recriminations; and so on.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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

For its part, the US Treasury organized, first, a consortium of international banks and investment funds, and then an overlapping consortium that included mortgage companies and financial securitizers, to take concrete measures to calm the markets. As they had done a decade earlier during the Long Term Capital Management (LTCM) crisis, Treasury officials convened the CEOs of the nation’s ten largest commercial banks in September 2007, with the goal of determining whether there were “market-based solutions that could help reduce the possibility of a disorderly solution in the marketplace.”37 Sovereign wealth funds of other countries were also encouraged to invest directly in Wall Street banks to beef up their capital. Both the Treasury and Federal Reserve staff also continued to work through the President’s Working Group on Financial Markets (established after the stock market crash of 1987) to coordinate their firefighting activities with the Securities Exchange Commission and the Commodity Futures Trading Commission.38 At the beginning of 2008 insurers of US municipal bonds were in deep trouble, and stock markets in Asia and Europe were shaken at the prospect of a serious American recession.39 The Fed made a large emergency cut in interest rates, and soon followed this by supplying other central banks with even more dollars.40 By March, just as the Treasury was about to issue a “Blueprint for a Modernized Financial Regulatory Structure” designed to enhance the Fed’s regulatory authority over the whole financial system, two Bear Stearns hedge funds went bust.


pages: 701 words: 199,010

The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal by Ludwig B. Chincarini

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affirmative action, asset-backed security, automated trading system, bank run, banking crisis, Basel III, Bernie Madoff, Black-Scholes formula, buttonwood tree, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, discounted cash flows, diversification, diversified portfolio, family office, financial innovation, financial intermediation, fixed income, Flash crash, full employment, Gini coefficient, high net worth, hindsight bias, housing crisis, implied volatility, income inequality, interest rate derivative, interest rate swap, labour mobility, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low skilled workers, margin call, market design, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Northern Rock, Occupy movement, oil shock, price stability, quantitative easing, quantitative hedge fund, quantitative trading / quantitative finance, Ralph Waldo Emerson, regulatory arbitrage, Renaissance Technologies, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, short selling, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, systematic trading, The Great Moderation, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

Buffett’s concerns centered around Lehman’s real estate and high-yield investments, lending-related commitments, derivatives and related credit-market risk, level-three assets, and securitization activity. Buffett is a famously acute investor, but even he probably didn’t learn much that was new from Lehman’s financial statements. His decision not to invest was based in part on fear. The real estate market was crumbling and Buffett didn’t want an unknown real estate exposure, even as part of an otherwise good deal.27 On March 15, 2008, the sovereign wealth fund ICD approached Lehman about buying equity. Lehman wasn’t interested in raising equity capital at that time. ICD responded that, if and when Lehman considered raising capital, ICD should be Lehman’s “first call in the Middle East.”28 In March 2008, Fuld appointed McDade “balance sheet czar” and instructed him to sell assets and take other actions to reduce the size of Lehman’s balance sheet.


pages: 892 words: 91,000

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

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air freight, barriers to entry, Basel III, BRICs, business climate, business process, capital asset pricing model, capital controls, cloud computing, compound rate of return, conceptual framework, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, distributed generation, diversified portfolio, energy security, equity premium, index fund, iterative process, Long Term Capital Management, market bubble, market friction, meta analysis, meta-analysis, new economy, p-value, performance metric, Ponzi scheme, price anchoring, purchasing power parity, quantitative easing, risk/return, Robert Shiller, Robert Shiller, shareholder value, six sigma, sovereign wealth fund, speech recognition, technology bubble, time value of money, too big to fail, transaction costs, transfer pricing, value at risk, yield curve, zero-coupon bond

Finally, with some exceptions, clout with the government rarely provides an advantage, given the arm’s-length government procurement processes more common in these countries. THE BEST-OWNER LIFE CYCLE The definition of best owner isn’t static, and best owners themselves will change over time as a business’s circumstances change. Thus, a business’s best owner could at different times be a larger company, a private-equity firm, a government, a sovereign wealth fund, a family, the business’s customers, its employees, or shareholders whenever a business becomes an independent public company listed on a stock exchange. Furthermore, the parties vying to become best owners are continually evolving in different ways in different parts of the world. In the United States, most large companies are either listed or owned by private-equity funds. They tend to go public earlier than companies elsewhere, so they rarely involve the second generation of a founding family.


pages: 1,797 words: 390,698

Power at Ground Zero: Politics, Money, and the Remaking of Lower Manhattan by Lynne B. Sagalyn

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affirmative action, airport security, Bonfire of the Vanities, clean water, conceptual framework, corporate governance, deindustrialization, Donald Trump, Edward Glaeser, estate planning, Frank Gehry, Guggenheim Bilbao, high net worth, informal economy, intermodal, iterative process, Jane Jacobs, mortgage debt, New Urbanism, place-making, rent control, Rosa Parks, Silicon Valley, sovereign wealth fund, the built environment, the High Line, time value of money, too big to fail, Torches of Freedom, urban decay, urban planning, urban renewal, white flight, young professional

Morgan Chase about selling the development rights on site 5. It was an ideal time for the Port Authority to test the appetite of investor interest, even though the 104-story tower, with construction beams just being welded to the building’s base, was years away from completion. In 2007, the Manhattan office market was red hot, flooded with capital from a broad range of investors—private equity firms, pension interests, and sovereign wealth funds—all looking to acquire Manhattan office property, especially trophy buildings. It is “welcome news,” editorialized the Wall Street Journal. “The twin towers were underoccupied and underutilized for at least two decades after their construction. Letting private capital take on the risks of turning a profit” on the tower “would ensure that history does not repeat itself at taxpayer expense.”50 But the PA’s early efforts at bringing in private capital failed to gain traction, and when the financial crisis hit the next year, the opportunity disappeared.