the payments system

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pages: 363 words: 107,817

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

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

As the reforms would make the UK a fundamentally stronger economy, with less household debt, less exposure to banking crises, and a currency that will not be debased by the profit-seeking lending activities of commercial banks, there is no reason why any fall in the currency (as a result of panic) would be permanent. 10.4 Impacts on the payment system National security The stability and resilience of the payments system is a matter of national security. The former Chairman of the Federal Reserve Board, Alan Greenspan, has commented that: “We’d always thought that if you wanted to cripple the US economy, you’d take out the payment systems. Banks would be forced to fall back on inefficient physical transfers of money. Businesses would resort to barter and IOUs; the level of economic activity across the country would drop like a rock.” (Greenspan, 2007) A couple of high-profile bank failures might be sufficient to lead most shopkeepers and businesses to accept cash only as payment (because they could not be guaranteed that they would ever get the money if they were paid electronically).

Current accounts are then converted into state-issued electronic currency, rather than being promises to pay from a bank, and the payments system is functionally separated from the lending side of a bank’s business. The act of lending would then involve transferring state-issued electronic currency from savers to borrowers. Banks would become money brokers, rather than money creators, and the money supply would be stable regardless of whether banks are currently expanding or contracting their lending. Taken together, the reforms end the practice of ‘fractional reserve banking’, a slightly inaccurate term used to describe a banking system where banks promise to repay all customers on demand despite being unable to do so. In late 2010 Mervyn King discussed such ideas in a speech: “A more fundamental, example [of reform] would be to divorce the payment system from risky lending activity – that is to prevent fractional reserve banking … In essence these proposals recognise that if banks undertake risky activities then it is highly dangerous to allow such ‘gambling’ to take place on the same balance sheet as is used to support the payments system, and other crucial parts of the financial infrastructure.

This can lead to a cascade of bankruptcies throughout the entire system. Second, insolvency at one bank can lead to runs on solvent banks as depositors panic about their own bank’s position. The belief a bank is insolvent can become a self fulfilling prophecy, as a fire sale of assets reduces their value. Third, the payment system itself may be affected by bank insolvency: many banks do not have direct access to the high value payment systems, instead accessing them indirectly through a correspondent bank (known as a settlement bank). If the settlement bank became insolvent this could create problems in the payment system, as the ‘customer bank’ would not be able to make or receive payments. In addition, insolvency at either the customer or the settlement bank could lead to insolvency at the other bank. For example, if a settlement bank makes payments with their own liquidity on behalf of their customer banks, they are in effect lending to their customer bank until the accounts are settled at the end of the day.


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, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, John Meriwether, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, money market fund, moral hazard, mortgage debt, Myron Scholes, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, 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

The remainder of this chapter is concerned with the functioning of the deposit channel (and the payment system that is inextricably linked to it), while Chapter 7 reviews the operation of the investment channel. The payment system Money often costs too much. Ralph Waldo Emerson, The Conduct of Life, 1860 Paul Volcker, the tall, laconic figure who preceded Alan Greenspan as chairman of the Federal Reserve Board, has been reported as saying that the only useful recent financial innovation was the ATM.4 Volcker is deeply sceptical of the developments in wholesale financial markets that excited the celebrants at Jackson Hole. What matters from the perspective of ordinary customers is innovation in retail financial services. The payment system, which all of us use every day, is the principal financial service that business and households need.

But what has happened to the quality of financial activity? Finance can contribute to society and the economy in four principal ways. First, the payments system is the means by which we receive wages and salaries, and buy the goods and services we need; the same payments system enables business to contribute to these purposes. Second, finance matches lenders with borrowers, helping to direct savings to their most effective uses. Third, finance enables us to manage our personal finances across our lifetimes and between generations. Fourth, finance helps both individuals and businesses to manage the risks inevitably associated with everyday life and economic activity. These four functions – the payments system, the matching of borrowers and lenders, the management of our household financial affairs and the control of risk – are the services that finance does, or at least can, provide.

To the extent that there was design at all, such design was the work of financiers and administrators. This difference in historical evolution – a difference not only in the development of the payment system but also in the evolution of the financial system as a whole – is the primary reason why financial networks have repeatedly proved so much less stable than other infrastructure networks. Nassim Taleb has explained how system fragility creates profit opportunities, so that this instability serves the interest of many market participants.6 I will return to these issues of system design in Chapter 10. In Britain, and in most European countries, the payment system is controlled by a consortium of banks. When you write a cheque or make an electronic payment through the internet or via an automated transfer, your payment is aggregated in a clearing system with all other payments made by your bank and offset against the total of payments that your bank receives from other banks.


pages: 183 words: 17,571

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

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banking crisis, banks create money, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, labor-force participation, labour market flexibility, light touch regulation, liquidity trap, London Interbank Offered Rate, lump of labour, market bubble, market clearing, Martin Wolf, means of production, mobile money, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Ponzi scheme, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, seigniorage, shareholder value, Silicon Valley, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

Otherwise, the very fact that someone is willing and able to bail them out of the consequences of risky behavior in fact provides incentives to the private-sector banks for that behavior—a concept knows as a moral hazard, as mentioned previously. The second key reason why some degree of financial regulation is legitimate is that deposit money in banks forms the basis of the payments system. Payments system is an arcane term for all the institutions and mechanisms that allow one person or organization to transfer monetary claims to another. Wire transfers, checks, and plastic cards all play a role in the payments system, as does paper money.There are many parties involved, including consumers, merchants, utilities and other billers, and key infrastructure such as ATM switches and clearinghouses. At the end of the day, however, only banks can really settle financial claims by making one customer’s deposit money claim another customer’s deposit money claim.

In other words, the banking system is ultimately a big spreadsheet or ledger on computers recording numbers representing the claims on deposit money which everyone in society owns at a given point in time. The payments system moves these blips of data around within a given banking system and also between banking systems worldwide. It is one of those things, such as power and electric light, that we take for granted until they fail to go on when we flick the switch. The government has an interest in seeing that doesn’t happen because commerce on Main Street would grind to a halt instantly if the payments system ceased to function. Broken Markets The regulation of deposit taking and the regulation of payments systems are deeply intertwined. Customarily, even in the absence of a specific law, having an account on the central bank books more or less defines who is a bank.

In London, by contrast, a second flavor took hold. The private banks there did not use a single public bank, because the only public bank was the Bank of England, their arch-competitor. So instead, all the other private banks swapped bills on each other in a clearinghouse (originally a tavern), which excluded the Bank of England, and settled up in cash. All the payments systems in the English-speaking world are basically extensions of this mechanism. From these simple pragmatic arrangements, something known as the payments system was born, but after four centuries it still revolves around the clearing and settlement of claims between banks in some type of clearinghouse. The exchange of claims—once paper bills and checks (a stripped-down form of a bill), or transfer instructions—is called clearing. Settlement is simply final payment—once in specie (gold or silver) and now in central bank money—of the net sums due after clearing is completed.


pages: 225 words: 11,355

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

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asset-backed security, bank run, banking crisis, Bernie Madoff, bonus culture, Bretton Woods, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, disintermediation, diversification, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, George Santayana, global reserve currency, Home mortgage interest deduction, Isaac Newton, joint-stock company, liquidity trap, London Interbank Offered Rate, long peace, margin call, market clearing, mass immigration, money market fund, moral hazard, mortgage tax deduction, Northern Rock, offshore financial centre, paradox of thrift, pattern recognition, pension reform, pets.com, Plutocrats, plutocrats, Ponzi scheme, profit maximization, pushing on a string, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Ronald Reagan, shareholder value, Silicon Valley, South Sea Bubble, statistical model, The Great Moderation, the new new thing, the payments system, too big to fail, value at risk, very high income, War on Poverty, Y2K, yield curve

Even so, all the methods customers can use to make and receive payment using their deposit-money accounts represent a lot of work and expense for banks. In fact, these costs account, directly or indirectly, for the bulk of operating expenses of most banks. The Payments System The technical term for all the methods for moving around deposit money between those who buy stuff—‘‘payors’’ in bank-speak—and those who are paid for stuff—‘‘payees’’ in bank-speak—is ‘‘the payments system.’’ Without an effective, reliable payments system that makes deposit money usable in daily life, nobody would use it at all. So, banking is really the business of deposit taking, and deposit taking is based on the payments system. Deposit money in banks gets its ‘‘use value’’—the real reason we use it at all—from its role as the basis of payment, the ability to swap money for other stuff. All of the payments that we make and receive constitute, ultimately, the transfer of the right to some amount of deposit money from one person to another.

This is money that did not exist before. The money you owe the bank is essentially new money in the economy. If you borrowed the same money from a lender who wasn’t a bank, they in turn would have to borrow that money from the money market or from a bank. They couldn’t just create it by extending your credit. Clearing and Settlement Access to the books of the central bank also amounts to a monopoly position in the payment system. All payments in deposit money ultimately get settled up between banks through their accounts on the books of central banks. These accounts are the balance point upon which a giant mountain of payments rest. For example, during the month you may deposit a paycheck, get an insurance payment via the ACH, make a half dozen credit card payments, write ten checks, and use your ATM card for cash four times and four times at the store.

This way, a very small amount of deposit money at the Federal Reserve supports a vastly larger volume of payments in deposit money between banks and then with customers. The actual amount of money passed around is mind numbing. WHY BANKS ARE SPECIAL As we said previously, the United States produced about $13 trillion in goods and services in 2007. That is a very big number. However, it is dwarfed by the annual turnover in the payment system. In 2007, Americans paid each other $83 trillion in the ‘‘real economy.’’ Because most daily payments we make are quite small and we make many of these small payments, over 340 billion transactions took place. All but about 100 billion of these payments used paper money and coins, but these ‘‘cash’’ transactions accounted for only one dollar in sixteen of turnover. The so-called non-cash payment system that runs on bank deposit money made up the rest, some $78 trillion, or six times the GDP.


pages: 249 words: 66,383

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

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

Lender of Last Resort The primary justification for protecting the banking system is based on the role of deposits in the payment system. Deposits are not just a bank liability; they are the means of settling transactions in the economy. Further, depositors can pull out their money at any time they want. If the value of banking assets falls, spooked depositors may all demand their money when they sense the bank is in trouble—a bank run. Bank runs can lead to even healthy banks going under. For example, even a depositor in a healthy bank will “run” if he believes that other depositors are withdrawing their funds in a panic. The run dynamic is dangerous. It forces banks to sell assets at prices below market value. It can also damage the payment system of a country, which relies on bank deposits: when someone writes a check, it is cleared by shifting deposits from one bank to another.

For solvent banks, the money will be paid back with interest. For insolvent banks, if the government is acting appropriately, long-term creditors and shareholders of the bank will be wiped out. This leads to the primary policy lesson of bank support: To prevent runs and preserve the payment system, there is absolutely no reason for the government to protect long-term creditors and shareholders of banks. Resuming the Flow of Credit Support for the banks in the United States during the Great Recession went far beyond protecting the payment system. Indeed, government policies took money from taxpayers and gave it directly to the creditors and shareholders. Pietro Veronesi and Luigi Zingales estimated that the equity injections into large financial institutions by the Treasury in the fall of 2008 increased the value of bank debt and equity by $130 billion.12 Bryan Kelly, Hanno Lustig, and Stijn Van Nieuwerburgh examined options on bank stocks and indices, and found that “a collective government guarantee for the financial sector” helped significantly boost the price of bank equity.13 So while any policy that would have helped home owners was shelved, governments bailed out bank creditors and shareholders using taxpayer money.

Further, “the disruptions of 1930–1933 reduced the effectiveness of the financial sector as a whole in performing these services.” Or, according to Bernanke, bank failures caused lending to collapse, which drove the Great Depression.15 Notice the difference between the two independent reasons to support the banking system. In the first, depositors and the payment system must be protected. This does not require any assistance to long-term creditors or shareholders of banks. In fact, it is possible to completely wipe out shareholders and long-term creditors while preserving the integrity of the payment system. The FDIC has done this many times. But in the second, bank creditors and shareholders must be protected because banks have a unique ability to lend. Did the Bank-Lending Channel Cause the Great Recession? The bank-lending view holds that the economy would heal if we could just get the banks to lend again.


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, break the buck, 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, fixed income, George Akerlof, Growth in a Time of Debt, income inequality, invisible hand, Jean Tirole, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Larry Wall, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, margin call, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nick Leeson, Northern Rock, open economy, peer-to-peer lending, regulatory arbitrage, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Satyajit Das, shareholder value, sovereign wealth fund, technology bubble, The Market for Lemons, the payments system, too big to fail, Upton Sinclair, Yogi Berra

How Banks Benefit the Economy Among the important services banks provide are those associated with deposits and the payment system. For depositors, it is important that banks make funds that were deposited readily available where and when the depositors want them. The checking accounts in which demand deposits are kept allow people to receive and make payments through checks, bank transfers, or the use of debit cards and credit cards. Because banks provide these services, depositors are willing to accept less interest than they might earn elsewhere.6 The convenience of the payment system is captured in Paul Volcker’s 2009 quip that the ATM had been the only useful banking innovation in the previous twenty years.7 Demand deposits and the payment system that is based on them make up an important part of the infrastructure of the economy, akin to a system of roads. If the payments system is efficient, transactions are cheap and easy to make and economic exchange works smoothly.

In the European Union, a group of experts set up by the European Commission under the chairmanship of Finnish central bank governor Erkki Liikanen has put forward a similar proposal.34 These proposals presume that concerns about depositors and the payment system are, or should be, the major reason for government interventions in banking, for guarantees and bailouts as well as banking regulation. For example, the ICB’s ring-fencing proposal for the United Kingdom is based on the assumption that retail banks will benefit from government guarantees and that investment banks will not be able to count on such support. Given the prospect of government support for retail banks, the ICB wants to insulate these banks from the risks of activities such as speculating on the banks’ own accounts, participation in derivatives markets, or, more generally, investment banking.35 This approach has two weaknesses, however. First, protection of depositors and the payment system is not the only concern that might induce governments to bail out banks.

These early bankers realized that they did not have to hold all the deposits in reserves, so they engaged in lending, providing loan customers with gold or with additional newly created banknotes.8 Over time issuing banknotes has become a privilege of central banks, but deposits still provide an important part of the funding of private banks, and they are still closely tied to the payment system.9 People treat their deposits as akin to money, something that can be readily used for payments, by means of checks or bank transfers or through credit and debit cards.10 In the words of one author, from “a money view perspective,” banking is part of “the sophisticated mechanism that operates to channel cash flows wherever they are emerging to meet cash commitments wherever they are the most pressing.”11 The role of banks in the payment system, in the past when they issued banknotes, as well as later with demand deposits in checking accounts, has made them vulnerable to the risk of runs. In the eighteenth century, there were even runs on the Bank of England when wars and government finances made the bank appear unsafe.


pages: 275 words: 84,980

Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives) by David Birch

agricultural Revolution, Airbnb, bank run, banks create money, bitcoin, blockchain, Bretton Woods, British Empire, Broken windows theory, Burning Man, capital controls, cashless society, Clayton Christensen, clockwork universe, creative destruction, credit crunch, cross-subsidies, crowdsourcing, cryptocurrency, David Graeber, dematerialisation, Diane Coyle, distributed ledger, double entry bookkeeping, ethereum blockchain, facts on the ground, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, index card, informal economy, Internet of things, invention of the printing press, invention of the telegraph, invention of the telephone, invisible hand, Irish bank strikes, Isaac Newton, Jane Jacobs, Kenneth Rogoff, knowledge economy, Kuwabatake Sanjuro: assassination market, large denomination, M-Pesa, market clearing, market fundamentalism, Marshall McLuhan, Martin Wolf, mobile money, money: store of value / unit of account / medium of exchange, new economy, Northern Rock, Pingit, prediction markets, price stability, QR code, quantitative easing, railway mania, Ralph Waldo Emerson, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social graph, special drawing rights, technoutopianism, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, wage slave, Washington Consensus, wikimedia commons

Since 1996 these accounts have been held within the Bank’s Real Time Gross Settlement (RTGS) system, which provides for real-time posting, with finality and irrevocability, of debit and credit entries to participants accounts (see the Bank’s guide online at http://bit.ly/2miUEzL). This system, which is an element of vital national infrastructure, is used for several purposes. It is used settle for the Clearing House Automated Payment System (CHAPS) in real time. It is also used for real-time settlement of the payment system embedded within the CREST securities settlement system. It is used to settle several times per day on a deferred net basis for the Faster Payments Service (FPS). And it is also used to settle on a deferred net basis for a variety of other retail payment systems (BACS, Cheque & Credit, LINK and Visa). So, crucially, the RTGS system is used by CHAPS. This is real-time final settlement to any limit in ‘Bank of England money’.

It costs the United States Mint 1.5 cents to make a penny that no one cares is real or not. So why bother? If Chinese criminals can produce one for half a cent, ship it to the United States in a container and make a profit of 0.2 cents on it, why not let them? Exchange without banks One interesting building block for our emerging narrative is the role of institutions in general and, specifically, the role of banks. It is not surprising that the payments system naturally evolved to emphasize transfers of claims on banks (such as cheques) as an alternative to cash payment. However, the term ‘naturally’ in this instance does not mean ‘inevitably’ (Roberds 1997). Not only is there a theory that says that economic life can continue without retail banks, there are practical examples of it happening. One often-discussed example (indeed, I discussed it my previous book) comes from Ireland in the decade from 1966 to 1976.

Stefan Brands, a leading cryptographer and one of the pioneers of digital currency, describes Bitcoin as ‘clever’ and is loath to denigrate it, but he believes that, fundamentally, it is structured like ‘a pyramid scheme’ that rewards early adopters (Wallace 2011) – a charge also levelled by other observers of the financial markets (Robinson 2014). Whether this is true or not, there is no clear evidence that Bitcoin (despite the media attention) is being used at all. While the public debate around Bitcoin has, from the earliest time, focused on the supposed anonymity of the payment system and therefore its use for black market purchases (Greenberg 2011), detailed analysis of data from the Bitcoin system by the Federal Reserve has shown that it has barely been used at all for payments for goods and services (let alone for guns and drugs), and further that the pattern of circulation of Bitcoins and the dynamics of the exchange rate are consistent with low usage of Bitcoin for retail transactions (Badev and Chen 2014).


pages: 257 words: 71,686

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

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

Not only are hundreds of millions of lives, cars and holidays insured, but also ships, coal power plants, footballers’ legs and financial products. Insurance partly overlaps with banking, the second huge area of finance. The biggest players here are so-called commercial or retail banks. They offer insurance products – hence the overlap – but generate most of their revenues from activities that our grandparents would still recognise: the payment systems, savings accounts, mortgages and loans to small and medium-sized companies as well as major corporations and institutions. ‘Commercial’ is where the project finance banker works who loved driving through the country thinking, ‘That is my toll bridge.’ As my interviewees pointed out, commercial banks are fundamentally different beasts to investment banks. In the latter, you’ll see the traders on their trading floors, the dealmakers who get companies listed on the Stock Exchange, those who work in corporate finance or mergers and acquisitions, and also the ‘structurers’ who invent and build financial products – for instance the collateralised debt obligations (CDOs) we heard so much about thanks to the crash.

And how about the pension funds and other investors that had been clamouring for more complex financial instruments to buy, since these promised a good return and they were only allowed to invest in AAA products? The list of parties to blame is in fact considerably longer yet two things already stand out. First, ‘the bankers’ were clearly not the only ones responsible. Second, most people working in the banks, as well as entire areas of ‘finance’, had absolutely nothing to do with all of this. Most commercial bankers were filling their days operating the payment system, or financing the construction of an oil rig, or dreaming up a new type of savings account for children under the age of twelve. The vast majority of accountants were at work auditing the books of energy companies, technology firms or government institutions, while the overwhelming majority of credit raters were studying the financial health of countries or corporations, far removed from financial products.

In the crash of 2008, investment bankers at megabanks were found to be speculating with the savings that ordinary citizens had entrusted to the commercial division of that megabank. So have megabanks now been forced to break themselves up into two different parts – the high-risk investment division and the more traditional commercial division, which contains everyone’s savings accounts and the payment system? Not at all, there is merely going to be an ‘electrified ring fence’ between the two arms – at least in the UK, and not now but in a few years’ time. Meanwhile the banks themselves have never offered full access to their staff to be interrogated about what went wrong and why, nor have banks said: we are kicking out everybody who in the recent past gambled with our capital buffers or our reputation.


pages: 470 words: 144,455

Secrets and Lies: Digital Security in a Networked World by Bruce Schneier

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Ayatollah Khomeini, barriers to entry, business process, butterfly effect, cashless society, Columbine, defense in depth, double entry bookkeeping, fault tolerance, game design, IFF: identification friend or foe, John von Neumann, knapsack problem, moral panic, mutually assured destruction, pez dispenser, pirate software, profit motive, Richard Feynman, Richard Feynman, risk tolerance, Silicon Valley, Simon Singh, slashdot, statistical model, Steve Ballmer, Steven Levy, the payments system, Y2K, Yogi Berra

Disable or patch the vulnerable daemon(s)” Specifically, he suggests turning off logging and deleting log records of the compromise, and figuring out how often the system is maintained and administered, and how often the log files are analyzed. Hacker tools can automate a lot of the process. They’re not nearly as good as a virtuoso hacker, but they can turn an inept teenager into a formidable adversary. Another example: an attack against a smart card payment system. Step 1 is to gather whatever information is available on the payment system: design specifications, public interface documents, public information on the various algorithms and protocols used, and so forth. There is probably a lot of information out there, if you know where to look. Step 2 is to study the documentation, looking for a weakness. Part 2 of this book talks about all sorts of weaknesses that can affect a system like this. Maybe there’s a weakness in the cryptographic algorithms and protocols.

Step 4 is to perform the attack: clone the smart card and use the clone, alter the smart card’s memory and use it to make purchases, change the balance and demand a cash refund, whatever. The point here is that it’s not enough to break the smart card payment system, you need to convert that break into cash. Step 5 is cleaning up. You may want to destroy physical evidence of your attack. If you have equipment at home you used to complete the attack, throw it away. If you have computer evidence of your attack, delete the files. Maybe you can break into the payment system’s computers and destroy audit-log entries that could be damaging. Whatever it is, try to cover your tracks. Some attacks short-circuit these steps. For some publicity attacks, there are no Steps 2, 3, or 5. Here’s a publicity attack against the encryption algorithms used in digital cell phones: Step 1, get information on the cell phones’ cryptographic algorithms. Steps 2 and 3, not applicable.

We could mug someone, nowhere near the restaurant, and buy the pancakes. We can forge a coupon for free pancakes. And there’s always the time-honored tradition of pulling a gun and shouting, “Give me all your pancakes.” There are probably even more possibilities, but you get the idea. Looking at this list, most of the attacks have nothing to do with the point where money changes hands. This is interesting, because it means that securing the payment system does not prevent illicit pancake stealing. It’s similar in the digital world. If this were a Web-based digital pancake store, most of the attacks would have nothing to do with the electronic payment scheme. There are many other areas of vulnerability. (Remember the beautiful Web page hack against shopping cart software from Chapter 10, where an attacker could change the price of an item to an arbitrary amount.


pages: 457 words: 128,838

The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order by Paul Vigna, Michael J. Casey

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3D printing, Airbnb, altcoin, bank run, banking crisis, bitcoin, blockchain, Bretton Woods, California gold rush, capital controls, carbon footprint, clean water, collaborative economy, collapse of Lehman Brothers, Columbine, Credit Default Swap, cryptocurrency, David Graeber, disintermediation, Edward Snowden, Elon Musk, ethereum blockchain, fiat currency, financial innovation, Firefox, Flash crash, Fractional reserve banking, hacker house, Hernando de Soto, high net worth, informal economy, intangible asset, Internet of things, inventory management, Julian Assange, Kickstarter, Kuwabatake Sanjuro: assassination market, litecoin, Long Term Capital Management, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, McMansion, means of production, Menlo Park, mobile money, money: store of value / unit of account / medium of exchange, Network effects, new economy, new new economy, Nixon shock, offshore financial centre, payday loans, Pearl River Delta, peer-to-peer, peer-to-peer lending, pets.com, Ponzi scheme, prediction markets, price stability, profit motive, QR code, RAND corporation, regulatory arbitrage, rent-seeking, reserve currency, Robert Shiller, Robert Shiller, Satoshi Nakamoto, seigniorage, shareholder value, sharing economy, short selling, Silicon Valley, Silicon Valley startup, Skype, smart contracts, special drawing rights, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, supply-chain management, Ted Nelson, The Great Moderation, the market place, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, Turing complete, Tyler Cowen: Great Stagnation, Uber and Lyft, underbanked, WikiLeaks, Y Combinator, Y2K, zero-sum game, Zimmermann PGP

The bank tells its processor to give the all clear to the association, which conveys it back to the front-end processor so that Starbucks and the acquiring bank can be satisfied … for now. The cashier is notified of the approval via an “authorized” message that appears on the card-reader display. This long series of electronic communications has all occurred within seconds. You’re now walking down the street, cup in hand. But the payment system is far from being done with either you or Starbucks. For one, the café still hasn’t been paid for delivering the coffee. For that, it must send a follow-up request to its acquiring bank, usually in a batch of receipts at day’s end. The acquiring bank will pay the merchant for those receipts, but it will need to place a request for reimbursement from the issuing bank, using an automatic clearinghouse (ACH) network managed by either the regional Federal Reserve banks or the Electronic Payments Network of the Clearing House Payments Co., a company owned by eighteen of the world’s biggest commercial banks.

What if their whole motivation is to bring the system down, not to profit from bitcoin investments? Bitcoiners sometimes refer to this as a Dr. Evil attack and throw out hypothetical threats: a terrorist organization that wants to throw the Western world into chaos, a sovereign nation—Russia, perhaps, or China—whose monetary system is threatened by bitcoin, or a consortium of multinational banks seeking to protect their monopoly on the payment system. At close glance it seems unlikely. After all, these prospects become relevant only if bitcoin reaches enough penetration that its destruction would matter, and by that time attackers would need to part with much more than $1 billion, with every giant order for ASIC chips and mining equipment drawing attention to them. Nonetheless, the vulnerability exists. In essence, bitcoin is not watertight, and that’s the kind of thing that might bother a hypercautious in-house lawyer for a company wondering whether to trade in it.

Just as important, it creates opportunities for expansion. A seamstress serving local markets in Dhaka, Bangladesh, can widen her product line if she can now send money to a fabric producer in Chittagong, 160 miles away. And if she can find foreign buyers willing to pay her in bitcoin, all of a sudden she has a means for taking in export revenues. While roads and other forms of infrastructure need to develop, too, bitcoin, in addressing the payment system, promises to tackle at least one flawed area of infrastructure. That could in turn drive change in the other areas by freeing up wealth to deal with them. Most important, communication technologies have come a long way in the developing world. Go to an Internet café in a dusty altiplano town in Bolivia, the poorest country in South America, and you may well find the connection is faster than in most American or European homes.


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, break the buck, 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, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy, zero-sum game

It is the least we need to do to lower the probability of still bigger crises in future. The ideas of the Chicago Plan for monetary and financial reform, or similar radical rearrangements, are, as Mervyn King argues, also intellectually compelling: Another, more fundamental, example [of reform] would be to divorce the payment system from risky lending activity – that is to prevent fractional reserve banking … In essence these proposals recognise that if banks undertake risky activities then it is highly dangerous to allow such ‘gambling’ to take place on the same balance sheet as is used to support the payments system, and other crucial parts of the financial infrastructure. And eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not coexist with risky assets.30 A system that is based, as today, on the ability of profit-seeking institutions to create money as a by-product of often grotesquely irresponsible lending is irretrievably unstable.

Meanwhile, other intermediation would be done either on a mark-to-market basis or with substantial equity requirements. Investors would have to accept substantial risk if they desired high returns. It would remain important to avoid the emergence of a shadow banking system able to destabilize economies. Thus, it would be crucial to curb excessive credit creation and maturity mismatches outside the banking system. That would continue to require regulatory oversight. But if the payment system were unquestionably safe, regulators might be able to be more relaxed than in the past about failure elsewhere. Long-Term Health – Challenges for the Eurozone Now turn to the challenges specific to the Eurozone. The crisis has raised questions about the longer-term institutional preconditions for a workable currency union. In accordance with the views of Germany, the reformed Eurozone is designed as a system for imposing discipline upon wayward countries: it is a ‘discipline union’.


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

Bagehot would have been used to banks with leverage ratios (total assets to equity capital) of around six to one.11 In the years immediately prior to the crisis, leverage in the banking system of the industrialised world increased to astronomical levels.12 How did banks find themselves in such a precarious position? Without a banking system our economy would grind to a halt with people unable to receive wages and salaries, pay bills, service loans and make other transactions. Banking is at the heart of the ‘payments system’. As with the supply of electricity, its importance to the economy is much greater than is reflected in the number of its employees or its contribution to GDP. Because of its critical role in the infrastructure of the economy, markets correctly believed that no government could let a bank fail, since that would cause immense disruption to everyone’s ability to make and receive payments. Creditors were willing to lend to banks at lower interest rates than would otherwise have been on offer because they were confident – correctly as it turned out – that even if things went wrong taxpayers would see them right.

Creditors were willing to lend to banks at lower interest rates than would otherwise have been on offer because they were confident – correctly as it turned out – that even if things went wrong taxpayers would see them right. When all the functions of the financial system are so closely interconnected, any problems that arise can end up playing havoc with services vital to the operation of the economy – the payments system, the role of money and the provision of working capital to industry. If such functions are materially threatened, governments will never be able to sit idly by. Institutions supplying those services are quite simply too important to fail.13 Everyone knows it. So highly risky banking institutions enjoy implicit public sector support. In turn, the implicit subsidy incentivises banks to take on yet more risk.

A similar benefit from size can be seen in the experience of Canada, a country with a long history of remarkably few banking crises.35 Canada has a small number of banks (now five) and is not an international financial centre.36 Those two factors have stood it in good stead and explain the comparatively good performance of Canadian banking during the recent crisis. Those advantages of size relate to the composition of the banking sector and its concentration. There are three reasons to believe that, before the crisis, the banking sector as a whole became too large. First, because bank deposits are used as money, their failure can prevent people paying bills and receiving wages, so undermining the payments system. That is why governments are unwilling to allow banks, other than small ones, to fail. Banks, as we have seen, are too important to fail. The implicit guarantee of bank liabilities amounts to an effective subsidy, allowing banks to raise finance more cheaply than other entities in the private sector. Depositors and others who lend money to banks believe that they are in effect lending to the government.37 The belief that when in trouble banks will be bailed out by the state because they are too important to fail leads to an implicit subsidy, which means a larger banking system than is justified by the underlying economics.


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, assortative mating, 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, fixed income, 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, money market fund, 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

A well-diversified money-market fund invested in highly rated commercial paper and marked every day to market is almost as safe and should not experience the kinds of runs experienced by funds that were not marked to market during this crisis.20 Another important reason for insuring deposits was to ensure that the payment system would be relatively safe: unregulated, unsafe, uninsured entities could not pollute it and cause the system to freeze. But now that technological advances, such as real-time gross settlement payments, make it possible to protect the payment system from the failure of any payer, even this rationale is weak. Deposit insurance does help keep small, undiversified banks in business. To the extent that these small banks are important in making loans in the local community—to the local bakery or toy shop—they have some economic and social value.


pages: 361 words: 97,787

The Curse of Cash by Kenneth S Rogoff

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Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Bretton Woods, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, distributed ledger, Edward Snowden, ethereum blockchain, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial exclusion, financial intermediation, financial repression, forward guidance, frictionless, full employment, George Akerlof, German hyperinflation, illegal immigration, inflation targeting, informal economy, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, moveable type in China, New Economic Geography, offshore financial centre, oil shock, open economy, payday loans, price stability, purchasing power parity, quantitative easing, RAND corporation, RFID, savings glut, secular stagnation, seigniorage, The Great Moderation, the payments system, transaction costs, unbanked and underbanked, unconventional monetary instruments, underbanked, unorthodox policies, Y2K, yield curve

Because the technology is evolving so rapidly, I am hesitant to go into much more detail, beyond saying that phasing out paper currency does not really move the needle much on society’s vulnerability to cybercrime. Some of the present-day obstacles to improving security are really more political than economic. Some innovations in security, such as the potentially disruptive distributed-ledger technology embodied in cryptocurrencies like Bitcoin or Ethereum, may eventually lead to major improvements in financial security, at least at the core of the payment system, as discussed further in chapter 14. It is particularly hard to see in any of these arguments why large-denomination notes are important. Probably they would be looked on askance after a power outage, earthquake, or other kind of catastrophe. I won’t deny there are going to be residual issues that simply take time to sort out. Again, all these problems are good reasons to go slow and to leave some rump part of the paper currency system around for an extended period.

If the emergency negative interest rate situation is over, it might be desirable to bring the paper currency and the electronic currency exchange rate back to par (one to one). The government does not have to do this—it can leave the paper currency at 0.97, or it can just keep on pushing down the exchange rate for paper currency as a way to collect more seigniorage tax. However, it would certainly be convenient in terms of the payment system to bring the exchange rate back to one, especially if negative interest rate episodes are few and far between. Then, in normal times, the distinction between paper and electronic currency is not anything that anyone would have to worry about. Bringing the paper currency back to parity, however, is trickier than it seems. If the central bank tries to return paper to parity too quickly, say within 6 months, it would mean that paper currency would effectively pay a 6% interest, and this would likely conflict with monetary objectives.


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

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

While the pricing in the existing system is governed by the member institutions, a lower entry barrier to becoming a transactions verifier in a CBDC environment would mean that more players would enter the payment services market and lower the price of transaction fees so that it is more representative of the cost of verification. Chapter 3 ■ Innovating Capitalism Second, current payment systems are subject to operational risks. If a bank or payment institution were to shut down even temporarily, all payments need to be routed via other channels. This could in effect cut off the end user from the payment system till they find an alternative. However, with a Blockchain13-based model, this problem is avoided, owing to its distributed architecture. The real advantage in terms of payments is with reduced collateral and settlement sums. Currently, any payment involves risk: credit risk (in case the bank goes bust) and liquidity risk (in case one of the counterparties does not have assets that can be turned liquid in case of nonpayment).

Better payment infrastructure can reduce TBTF: Financial settlement systems currently used by central banks (such as CHAPS, BACS, FasterPayments, Fedwire, TARGET2, etc....) are expensive, have large downtimes, and are stagnant are in terms of innovation (Danezis and Meiklejohn, 2015). Moreover, while some central banks already use an electronic equivalent to cash in the form of reserves (e.g., the Bank of England), these reserve accounts are only available to licensed commercial banks and a small number of financial institutions (Dyson and Hodgson, 2014). As a result, commercial banks have become the gatekeepers to the payments system, and have the capacity to become systematically important nexuses within the economy. As a result, new entrants, smaller banks, and other payment service providers have to enter the payments space via a licensed bank even if they are able to provide better payment services. Moving to a Blockchainbased payment infrastructure could provide a single solution to these multiple latencies and thus increase competition in the payments space.


pages: 190 words: 53,970

Eastern standard tribe by Cory Doctorow

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airport security, call centre, forensic accounting, high net worth, moral panic, offshore financial centre, old-boy network, pirate software, Silicon Valley, the payments system

It was knocking around in his brain and he just couldn't figure out how to bring it to the fore. The counterman kept his slips in the basement so that he could sit among them and see how his business had grown, every slip a person served, a ring on the till, money in the bank. Drivers on the MassPike who used traffic jams to download music from nearby cars and then paid to license the songs. Only they didn't. They circumvented the payment system in droves, running bootleg operations out of their cars that put poor old Napster to shame for sheer volume. Some people drove in promiscuous mode, collecting every song in every car on the turnpike, cruising the tunnels that riddled Boston like mobile pirate radio stations, dumping their collections to other drivers when it came time to quit the turnpike and settle up for their music at the toll booth.


pages: 322 words: 77,341

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

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

A spectacular example of this, in modern Britain, is the question of the check-clearing system. If I give you a check today and you pay it into your bank, the funds will clear out of my account tomorrow but won’t be credited to your account until three days later—if you’re lucky; it can take up to seven days. This is much too slow; but it’s okay because a government report, commissioned by Gordon Brown, has made stinging criticisms of the payment system and action has been promised. Cool! But wait! The report was published, and the promise of decisive action was made, in 2000, when Brown was chancellor of the Exchequer. Legislation and new regulatory bodies to enforce it have repeatedly been promised, but the problem has consistently been the industry’s reluctance to act, since this is change which does nothing to benefit banks’ profits—it benefits only customers.


pages: 275 words: 77,017

The End of Money: Counterfeiters, Preachers, Techies, Dreamers--And the Coming Cashless Society by David Wolman

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Bay Area Rapid Transit, Berlin Wall, Bernie Madoff, bitcoin, Bretton Woods, carbon footprint, cashless society, central bank independence, collateralized debt obligation, corporate social responsibility, credit crunch, cross-subsidies, Diane Coyle, fiat currency, financial innovation, floating exchange rates, German hyperinflation, greed is good, Isaac Newton, M-Pesa, Mahatma Gandhi, mental accounting, mobile money, money: store of value / unit of account / medium of exchange, offshore financial centre, Peter Thiel, place-making, placebo effect, Ponzi scheme, Ronald Reagan, seigniorage, Silicon Valley, special drawing rights, Steven Levy, the payments system, transaction costs

It sounds like something right out of Blade Runner. Yet evidence supporting Guest’s fear about controlled commerce isn’t confined to such oddities. In the winter of 2010 the New York Times echoed this prophecy in an editorial about the decision by MasterCard, VISA, PayPal, and others to stop processing payments for Wikileaks: “A handful of big banks could potentially bar any organization they disliked from the payments system, essentially cutting them off from the world economy.” I tell Guest that I recently met with electronics experts at Hitachi in Tokyo, who are developing biometric devices for seamless transactions. One of these technologies uses the unique three-dimensional pattern of veins within every person’s fingertip. Touch your finger to a register, vending machine, or subway turnstile and you can instantly settle up without having to break your stride.


pages: 252 words: 75,349

Spam Nation: The Inside Story of Organized Cybercrime-From Global Epidemic to Your Front Door by Brian Krebs

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barriers to entry, bitcoin, Brian Krebs, cashless society, defense in depth, Donald Trump, employer provided health coverage, John Markoff, mutually assured destruction, offshore financial centre, payday loans, pirate software, placebo effect, ransomware, Silicon Valley, Stuxnet, the payments system, transaction costs, web application

And most times, they’ll say, ‘Thank you very much,’ because they can get big fines for processing these miscoded transactions. And so if you tell them, they get to shut it down without Visa finding out and fining them.” Damon McCoy, assistant professor at George Mason University’s computer science department, said many pharmacy, scareware, and OEM software affiliate programs have responded to the payment system crackdowns by putting burdensome security measures in place to screen out test buys. For example, some rogue pharmacy programs—such as RxPayouts—began requiring buyers to send scans or faxes of their driver’s licenses and physical credit cards. Others have decided only to process payments for existing customers. But both security measures can be self-defeating, for customers and affiliates alike.


pages: 302 words: 73,581

Platform Scale: How an Emerging Business Model Helps Startups Build Large Empires With Minimum Investment by Sangeet Paul Choudary

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3D printing, Airbnb, Amazon Web Services, barriers to entry, bitcoin, blockchain, business process, Chuck Templeton: OpenTable, Clayton Christensen, collaborative economy, commoditize, crowdsourcing, cryptocurrency, data acquisition, frictionless, game design, hive mind, Internet of things, invisible hand, Kickstarter, Lean Startup, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, means of production, multi-sided market, Network effects, new economy, Paul Graham, recommendation engine, ride hailing / ride sharing, shareholder value, sharing economy, Silicon Valley, Skype, Snapchat, social graph, social software, software as a service, software is eating the world, Spread Networks laid a new fibre optics cable between New York and Chicago, TaskRabbit, the payments system, too big to fail, transport as a service, two-sided market, Uber and Lyft, Uber for X, Wave and Pay

The sender then pays the sum to the first agent along with a small fee. The debt between the agents is logged and settled at a later date. MPesa adopted this behavior, without trying to introduce new ones, and made it more efficient by tracking the movement of money. The user-agent relationship remained the same while the agent-agent relationship improved significantly. Instead of logging in transactions in a book and settling them at a later date, the payments system allows the agents to settle money transfers instantly, over the network. While reintermediating an existing payments business, mPesa brings in added efficiency to the transaction, without reinventing the end-user behavior. BACKWARD COMPATIBILITY AS A ROAD TO GRADUAL BEHAVIOR DESIGN Any form of payment has to combat a behavioral problem. Hence, building in some form of ‘backward compatibility’ helps spur adoption because users have the choice to continue with the existing method or transition to a new one.

Rethinking Money: How New Currencies Turn Scarcity Into Prosperity by Bernard Lietaer, Jacqui Dunne

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3D printing, agricultural Revolution, Albert Einstein, Asian financial crisis, banking crisis, Berlin Wall, BRICs, business climate, business process, butterfly effect, carbon footprint, Carmen Reinhart, clockwork universe, collapse of Lehman Brothers, complexity theory, conceptual framework, credit crunch, discounted cash flows, en.wikipedia.org, Fall of the Berlin Wall, fear of failure, fiat currency, financial innovation, Fractional reserve banking, full employment, German hyperinflation, happiness index / gross national happiness, job satisfaction, liberation theology, Marshall McLuhan, microcredit, mobile money, money: store of value / unit of account / medium of exchange, more computing power than Apollo, new economy, Occupy movement, price stability, reserve currency, Silicon Valley, the payments system, too big to fail, transaction costs, trickle-down economics, urban decay, War on Poverty, working poor

Since the verifiability of carbon sequestration is a key criterion for registration of projects under the clean development mechanism (CDM) of the Kyoto Protocol, information about the producers and their sequestering process would, in any case, need to be measured. Data could be collected with sensors built into the biomass processor equipment. Such sensors could include an automatic satellite positioning mechanism that identifies the exact location at which the carbon credits are being generated. Furthermore, the carbon credits could be independently verified by satellite, tracer systems, and/or soil sampling. The payment system for CPX exchanges could use highly advanced payment technologies, more secure and cost-effective on a decentralized basis than those currently used in centralized credit or debit card payment systems. Corporate buyers of the credits in the CPX system would be able to bid for the carbon credits of specific groups of producers and could exchange the seeds, fertilizers, or equipment they produce for farmers’ carbon credits.

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

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air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business process, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, labour market flexibility, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, new economy, North Sea oil, oil shock, open economy, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, Right to Buy, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, the payments system, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K, zero-sum game

The possible economic crises were all too evident. The worst, which I thought highly unlikely, would be a collapse of the financial system. The Federal Reserve is in charge of the electronic payment systems that transfer more than $4 trillion a day in money and securities between banks all over the country and much of the rest of the world. We'd always thought that if you wanted to cripple the U.S. economy, you'd take out the payment systems. Banks would be forced to fall back on inefficient physical transfers of money. Businesses would resort to barter and IOUs; the level of economic activity across the country could drop like a rock. During the cold war, as a precaution against nuclear attack, the Federal Reserve had built a large number of redundancies into the communication and computer facilities on which the money system relies.

The FOMC ordered the traders at the New York Fed to buy billions of dollars of treasury securities on the open market. This had the effect of putting more money into circulation and lowering short-term rates. Though we'd been tightening interest rates before the crash, we were now easing them to help keep the economy moving. Despite our best efforts, there were a half dozen near disasters, mostly involving the payment system. A lot of transactions during the business day on Wall Street aren't made simultaneously: companies will do business with 108 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright. BLACK M O N DAY one another's customers, for instance, and then settle up at day's end. On Wednesday morning Goldman Sachs was scheduled to make a $700 million payment to Continental Illinois Bank in Chicago, but initially withheld payment pending receipt of expected funds from other sources.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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

This meant that many of the world’s largest banks faced insolvency, and not only led to a virtual halt in bank lending to developing countries but, by virtue of such high repayment risk in the interbank market, also threatened an imminent bank crisis in the advanced capitalist countries. The Fed developed a comprehensive strategy that radically expanded the superintendence of interbank repayment risk, focusing on how to inject liquidity into the payment system to “strengthen the international banks that had been severely weakened by the crisis.”101 The Fed took on the added short-term task of managing repayment and default risk by lending to commercial banks and restructuring bank debt at home, while the Treasury provided bridging assistance to the states negotiating with the IMF. Throughout the 1980s the Fed and Treasury focused on ensuring that the strict conditionality the IMF attached to its loans required not just immediate measures of fiscal austerity, but long-term structural-adjustment programs designed to protect and guarantee financial assets alongside the neoiberalization of each recipient state.

The Concordat of 1975 was elaborated in 1983 so as to expand the scope of national bank supervisors by requiring banks to supply data on their international operations to them, while setting out new rules for overseeing as well as supporting cross-border liquidity flows and creating new channels for increased information-sharing between central banks. The cornerstone of the new policy regime promulgated by the BIS was the introduction of risk-based capital standards for international banking institutions. From the mid 1970s, Federal Reserve and Bank of England officials in particular expressed concern that the vulnerabilities created by low levels of tangible bank liquidity could erode public confidence in the payments system, and they used the Basel negotiations to explore ways to create a cushion against institutional risk. In December 1981, shortly after Britain introduced a capital-rating system for its banks, the US bank regulators, led by the Fed, established minimum capital adequacy ratios for banks and bank holding companies on the basis of size (such ratios had formerly applied only when new banks were opened).56 The seventeen largest bank organizations were initially given more leeway than other banks in adopting these ratios because of their very low existing capital-to-asset ratios and their fear of losing international competitiveness; but a 5 percent rule had been applied to the big banks even before the failure of Continental Illinois in 1984.


pages: 250 words: 87,503

The Futurist: The Life and Films of James Cameron by Rebecca Winters Keegan

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call centre, Colonization of Mars, cuban missile crisis, Saturday Night Live, Silicon Valley, Steve Jobs, the payments system

I want the same money’” He nearly quadrupled his salary. There’s a reason Cameron has spent much of his career without an agent. Next he reported to the production manager’s office. “He said, ‘OK, here’s your petty cash voucher. And here’s your coke and here’s your black beauties,’” Cameron says. It was January 1980. “I said, ‘What’s this for?’ He said, ‘Well, this is for the crew. It’s part of the payment system.’ “Cameron took the two bottles. He had never done either drug before, so he took a crew member aside and asked what he was supposed to do. “You just chop a little line, do it up with a spoon, and hand it to somebody,” the crew member told Cameron. “You ask ‘em, ‘Do you need something?’” Cameron felt strange about his new responsibility. “Now I’m the production drug dealer all of a sudden?


pages: 261 words: 103,244

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

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

This might make it necessary that foreign banks who want to do business in another country would be required to do so through a subsidiary incorporated in the host country and regulated by the host country. This would ensure that international rules delineate the lower bound, not the upper bound, of the strictness of regulation. Much higher reserve requirements and capital standards would make bank runs less likely and make the payment system safer, thus reducing the amount required to bail out large banks that are failing. Financial transaction taxes (of say 0.1 percent) are an empirically proven method for reducing trading volumes (Wrobel 1996), but given the industry’s mortal opposition to them they have never spread past limited application by some European and Latin American countries (and most countries eliminated them after the industry fought back).


pages: 299 words: 91,839

What Would Google Do? by Jeff Jarvis

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23andMe, Amazon Mechanical Turk, Amazon Web Services, Anne Wojcicki, barriers to entry, Berlin Wall, business process, call centre, cashless society, citizen journalism, clean water, commoditize, connected car, credit crunch, crowdsourcing, death of newspapers, disintermediation, diversified portfolio, don't be evil, fear of failure, Firefox, future of journalism, Google Earth, Googley, Howard Rheingold, informal economy, inventory management, Jeff Bezos, jimmy wales, Kevin Kelly, Mark Zuckerberg, moral hazard, Network effects, new economy, Nicholas Carr, old-boy network, PageRank, peer-to-peer lending, post scarcity, prediction markets, pre–internet, Ronald Coase, search inside the book, Silicon Valley, Skype, social graph, social software, social web, spectrum auction, speech recognition, Steve Jobs, the medium is the message, The Nature of the Firm, the payments system, The Wisdom of Crowds, transaction costs, web of trust, Y Combinator, Zipcar

Just as I was dotting the final i on this manuscript, Google announced that it would create the means for publishers and authors of out-of-print books to receive payment from readers who want access to the full text online (Google will keep 37 percent of the fees as commission). Google also may sell ads on pages with book content and share that revenue with publishers and authors. Sergey Brin told a Wall Street Journal blog that the payment system could be extended to video, music, and other media. This offer came in the settlement of a suit brought by publishers and authors fighting Google’s scanning of books—seven million to date—to make them searchable online. But it is far more than a sop to angry book people. In one fell swoop, Google altered the life cycle and economics of books and potentially answered some of their most pressing digital needs.


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, commoditize, commodity trading advisor, computerized trading, diversified portfolio, Doha Development Round, Elon Musk, energy security, European colonialism, flex fuel, food miles, Hernando de Soto, Hugh Fearnley-Whittingstall, hydrogen economy, Intergovernmental Panel on Climate Change (IPCC), Long Term Capital Management, new economy, North Sea oil, oil rush, oil shale / tar sands, oil shock, out of africa, Paul Samuelson, 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

A Rich Business The very large, family-owned farms (those with 2000 acres or more) represent 4 % of America’s 2.1 million farms and received 31.9 % ($7.75 billion) of the 2005 total payments, while small farmers (those with 100 acres or less), who represent 51.3 % of all farms, received 4.5 % of all payments, and more than half of this was for farmers, not farming, as it was payments for land in the conservation programmes.40 The USDA made no secret of the method of the payment system when it said, ‘Generally, the size of the farm is directly correlated with the value of sales. Larger farms receive more payments and payments increase with the size of the farm.’ The government payment system appears even more skewed to the rich farmers – it is essentially based on profitability (Hoppe and Korb, 2006). Nearly 90 % of all subsidies go to growers of just five crops: wheat, cotton, corn, soya beans and rice, and until 2007, no American fruit and vegetable growers 116 | LIVING IN A MATERIAL WORLD could receive a payment.


pages: 294 words: 85,811

The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care by T. R. Reid

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Berlin Wall, British Empire, double helix, employer provided health coverage, fudge factor, Kenneth Arrow, medical malpractice, profit maximization, profit motive, single-payer health, South China Sea, the payments system

U.S. hospitals, in contrast, routinely deal with twenty, fifty, or a hundred different public and private payers. Even a neighborhood doctor’s office, with three or four family physicians and four nurses, will have a corps of four to eight people in the back room just to handle the billing. Not surprisingly, one of the fastest-growing aspects of the American health care industry is the booming business for “compilers,” middlemen who compile the bills that doctors submit and then shuttle them through the payment system. This makes life easier for doctors, but at a price: It adds an extra level of complexity and yet another layer of bills to the overall cost of American medicine. The Wall Street Journal neatly summarized the general state of affairs in a cartoon that was thumbtacked to the wall in just about every American doctor’s office. “Like other observers,” noted the prominent health care economist Henry Aaron, of the Brookings Institution, “I look at the U.S. health care program and see an administrative monstrosity, a truly bizarre mélange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird.”14 The administrative monstrosity we have built costs us a lot of money—by far the highest administrative costs of any health care system on earth.


pages: 421 words: 110,406

Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You by Sangeet Paul Choudary, Marshall W. van Alstyne, Geoffrey G. Parker

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3D printing, Affordable Care Act / Obamacare, Airbnb, Alvin Roth, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, Apple's 1984 Super Bowl advert, autonomous vehicles, barriers to entry, big data - Walmart - Pop Tarts, bitcoin, blockchain, business process, buy low sell high, chief data officer, Chuck Templeton: OpenTable, clean water, cloud computing, connected car, corporate governance, crowdsourcing, data acquisition, data is the new oil, digital map, discounted cash flows, disintermediation, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, financial innovation, Haber-Bosch Process, High speed trading, information asymmetry, Internet of things, inventory management, invisible hand, Jean Tirole, Jeff Bezos, jimmy wales, John Markoff, Khan Academy, Kickstarter, Lean Startup, Lyft, Marc Andreessen, market design, Metcalfe’s law, multi-sided market, Network effects, new economy, payday loans, peer-to-peer lending, Peter Thiel, pets.com, pre–internet, price mechanism, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Robert Metcalfe, Ronald Coase, Satoshi Nakamoto, self-driving car, shareholder value, sharing economy, side project, Silicon Valley, Skype, smart contracts, smart grid, Snapchat, software is eating the world, Steve Jobs, TaskRabbit, The Chicago School, the payments system, Tim Cook: Apple, transaction costs, two-sided market, Uber and Lyft, Uber for X, winner-take-all economy, zero-sum game, Zipcar

Among other techniques, they simulated consumer demand on eBay by creating a bot (an automated software tool) that bought goods on the site and then insisted on paying for these transactions using PayPal. Noting this apparent growth in demand, many eBay sellers signed up for the PayPal service—which in turn made PayPal even more visible and attractive to consumers. The sellers began posting PayPal icons on their sites, enabling buyers to access the payment system with just a single click of the mouse, reducing friction still further.3 Within three months, PayPal’s user base grew from 100,000 to one million. The leaders of eBay noticed how PayPal had built its own platform business partly on eBay’s back. Concerned about the potential competitive threat posed by a company that was building an independent connection with eBay customers (and siphoning off a fraction of the revenues from eBay transactions to boot), eBay tried to fight back.

The Future of Money by Bernard Lietaer

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agricultural Revolution, banks create money, barriers to entry, Bretton Woods, clean water, complexity theory, corporate raider, dematerialisation, discounted cash flows, diversification, fiat currency, financial deregulation, financial innovation, floating exchange rates, full employment, George Gilder, German hyperinflation, global reserve currency, Golden Gate Park, Howard Rheingold, informal economy, invention of the telephone, invention of writing, Lao Tzu, Mahatma Gandhi, means of production, microcredit, money: store of value / unit of account / medium of exchange, Norbert Wiener, North Sea oil, offshore financial centre, pattern recognition, post-industrial society, price stability, reserve currency, Ronald Reagan, seigniorage, Silicon Valley, South Sea Bubble, The Future of Employment, the market place, the payments system, trade route, transaction costs, trickle-down economics, working poor

For the unemployed and economically disadvantaged This system enables people to turn time into money. Economically disadvantaged people can therefore more fully participate in the economic system, as they are typically those who have more time than money to spend. It also provides them with a second career chance in the non-profit world which would otherwise not exist. The discreet nature of the payment system (nobody but themselves has to know whether they are paying in dollars or C$D) also ensures more dignity than food stamps or social security cheques. It is also free of the hassles of these bureaucratic programmes. For the rest of the community Even the people who do not participate at all in any pan of the system derive a significant benefit from this approach. If the Commonweal programme did not exist, a number of functions in their community would either not happen at all or would have to be subsidised by their taxes.


pages: 327 words: 90,542

The Age of Stagnation by Satyajit Das

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9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Albert Einstein, Alfred Russel Wallace, Anton Chekhov, Asian financial crisis, banking crisis, Berlin Wall, bitcoin, Bretton Woods, BRICs, British Empire, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, disintermediation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, happiness index / gross national happiness, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, labour mobility, light touch regulation, liquidity trap, Long Term Capital Management, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, Mikhail Gorbachev, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, passive income, peak oil, peer-to-peer lending, pension reform, Plutocrats, plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Ronald Reagan, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, TaskRabbit, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

The claim on future income and wealth reduces the money available for other purposes and can become a drag on economic activity. Fractional banking, as well as the shadow banking system and derivatives, can amplify the risk within an economy. Debt is intermediated by banks, which by design are leveraged with each dollar of shareholders’ capital supporting anywhere up to 30 dollars in borrowings. Losses can quickly threaten the solvency of financial institutions, increasing the risk of failure of the payment system crucial to modern economies. Weakness in the banking system can reduce the supply of credit to successful businesses, hampering activity. As investors, directly or indirectly through the banking system, hold the borrowers’ IOUs, the value and security of savings are inextricably linked to borrowing. Default, debt forgiveness, or inflation wipe out savings designed to finance future needs, such as retirement.


pages: 443 words: 98,113

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

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

Partial Uberisation will follow, transferring rental income to those possessing assets, outside the legal profession. The ensuing dynamics of inequality cannot be predicted with certainty, but one outcome will be greater income differentiation within the profession. Much the same has been happening to the medical professions since they have been subject to more state regulation. This began with the Thatcher government, which changed the payment system and rolled back doctors’ autonomy. But the decisive changes came under Tony Blair, when reforms led to the widespread contracting out of hospital services. Outsourcing is accelerating the de-professionalisation of services and weakening the rent-earning capacity of professionals. Some analysts have argued that automation will – and should – largely displace the professions.31 For example, in 2014 48 million Americans used online software rather than professionals to do their tax returns, and the most popular US legal service is legalzoom.com, an online advice and do-it-yourself document-drafting service. eBay and PayPal process over 60 million disagreements each year using ‘online dispute resolution’ software that helps settle disputes without involving lawyers.


pages: 290 words: 87,549

The Airbnb Story: How Three Ordinary Guys Disrupted an Industry, Made Billions...and Created Plenty of Controversy by Leigh Gallagher

Airbnb, Amazon Web Services, barriers to entry, Bernie Sanders, cloud computing, crowdsourcing, don't be evil, Donald Trump, East Village, Elon Musk, housing crisis, iterative process, Jeff Bezos, Jony Ive, Justin.tv, Lyft, Marc Andreessen, Mark Zuckerberg, medical residency, Menlo Park, Network effects, Paul Buchheit, Paul Graham, performance metric, Peter Thiel, RFID, Sand Hill Road, Saturday Night Live, sharing economy, side project, Silicon Valley, Silicon Valley startup, South of Market, San Francisco, Startup school, Steve Jobs, TaskRabbit, the payments system, Tony Hsieh, Y Combinator, yield management

“The Inspector” While Brian Chesky and Joe Gebbia have received the lion’s share of the media attention over the years—and there has been a lot of media attention—Nate Blecharczyk’s path is in many ways the most interesting. By all accounts, he is a technical and coding genius. Chesky has said of the early days that having Blecharczyk on board was like having three engineers. He was the one who created all kinds of free ways to grow: Airbnb’s early hack into Craigslist, the dynamic ad campaigns that could target specific cities, and the special technology to interface with Google AdWords. The payment system he built is legendary in the engineering community. With a less talented person in AirBed & Breakfast’s chief technical role, it may not have gotten off the ground. But Blecharczyk has always had more of a business-oriented mind than the average engineer. He took the GMAT after college and thought seriously about applying to business school. He also went pretty far down the road trying to start his own social-advertising network before committing to Chesky and Gebbia and AirBed & Breakfast.


pages: 455 words: 133,322

The Facebook Effect by David Kirkpatrick

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Andy Kessler, Burning Man, delayed gratification, demand response, don't be evil, global village, happiness index / gross national happiness, Howard Rheingold, Jeff Bezos, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, Menlo Park, Network effects, Peter Thiel, rolodex, Sand Hill Road, sharing economy, Silicon Valley, Silicon Valley startup, Skype, social graph, social software, social web, Startup school, Steve Ballmer, Steve Jobs, Stewart Brand, the payments system, The Wealth of Nations by Adam Smith, Whole Earth Review, winner-take-all economy, Y Combinator

We sort of stumbled our way through becoming good at dealing with developers.” The company implemented a variety of new rules to try to police applications and make them behave. It urged users to complain about spam. It changed the software to reduce the number of application stories flowing into a user’s News Feed. And it hired an industry veteran to head up the platform. Ben Ling, a slender and flamboyant Chinese-American, had been running the payment system called Google Checkout. He was the highest-level employee Facebook had ever lured away from Google. Executives called him a “rock star.” By the summer of 2008 the problems had gotten completely out of hand. Facebook’s platform was like the Wild West. So at a second f8 that July, Facebook announced a variety of refinements and rule changes, including a rating system. Now Facebook could weed out apps by “verifying” the good ones.


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, break the buck, Brownian motion, Carmen Reinhart, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fear of failure, financial deregulation, 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, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, Ponzi scheme, profit motive, race to the bottom, risk tolerance, Ronald Reagan, Rubik’s Cube, savings glut, short selling, sovereign wealth fund, statistical model, the payments system, too big to fail, tulip mania, Y2K

But Pandit, whose bank, like JPMorgan, was advising AIG, delivered a firm rebuke. “I heard you,” he told his regulator. “AIG is absolutely appropriate.” The CEOs divided their weekend labor into three groups: one would assess Lehman’s most problematic assets; another, steered by Thain, would devise a structure for acquiring Lehman (or parts of it); and a third, a “doomsday” unit, would explore how to minimize the damage to the payment system and other banking functions if a rescue failed. Around 8:30 P.M., the CEOs left, scattering to restaurants and homes. John Mack picked up a takeout Italian dinner and headed back to Morgan Stanley, where he briefed his lieutenants.16 Dimon phoned Hogan, his associate, on his way uptown, advising him to order JPMorgan hands to report early Saturday morning. Black drove on to Greenwich, where he and his wife had a reservation at Rebecca’s, an exclusive French restaurant.


pages: 458 words: 134,028

Microtrends: The Small Forces Behind Tomorrow's Big Changes by Mark Penn, E. Kinney Zalesne

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affirmative action, Albert Einstein, Ayatollah Khomeini, Berlin Wall, big-box store, call centre, corporate governance, David Brooks, Donald Trump, extreme commuting, Exxon Valdez, feminist movement, glass ceiling, God and Mammon, Gordon Gekko, haute couture, hygiene hypothesis, illegal immigration, immigration reform, index card, Isaac Newton, job satisfaction, labor-force participation, late fees, life extension, low skilled workers, mobile money, new economy, RAND corporation, Renaissance Technologies, Ronald Reagan, Rosa Parks, Rubik’s Cube, stem cell, Stephen Hawking, Steve Jobs, Superbowl ad, the payments system, Thomas L Friedman, upwardly mobile, uranium enrichment, urban renewal, War on Poverty, white picket fence, women in the workforce, Y2K

In the future, expect more egalitarian relationships between doctors and patients, including greater e-mail correspondence. In 2005, only 8 percent of adults said they use e-mail with their doctors—but 81 percent said they would like to. Doctors will have to figure out a way to charge for e-mail consults first—they would no doubt like to help patients this way, especially existing patients, but perhaps not at the expense of all their office visits. Once the payment system catches up, though, look for more e-consults. We can also anticipate even more pressure on the Federal Drug Administration to move more medicines from prescription-only to OTC. Already, we can get about 700 more medicines OTC today than we could thirty years ago, but that may not be sufficient for hard-core DIY Docs. Is DIYD a good trend? Since people can’t sue themselves for malpractice, we may never know.


pages: 543 words: 147,357

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

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

In reality, the degree of connectedness in finance was – and is – astonishing. One study has shown that the degree of separation is as low as 1.4: in other words, almost all of the members of the network transact with each other. But at the same time, there has been a fourteen-fold increase in the number of ‘nodes’(the constituents of a network, whether individuals or banks), many of whose activities – the payment system, deposits and lending – burrow deeply into the real economy.48 This lack of awareness about interconnectedness had plagued the financial system for years – both regulators and participants. As mentioned earlier, LTCM was brought to its knees because it had wrongly assumed a high degree of separation between Danish mortgage-backed bonds and Russian bonds. But similar observations could have been made of the markets at any time in the previous thirty years.


pages: 566 words: 155,428

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

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

Everyone knew, however, that Alan Greenspan, the Fed’s chairman until 2006, was a self-proclaimed libertarian—adhering to a philosophy that believes in caveat emptor and abhors the nanny state. The problem went deeper than Greenspan’s personal beliefs, however, and was more generic. Consumer affairs are destined to occupy the lowest rung on any central bank’s ladder—always dwarfed in prestige and internal importance by the bank’s primary missions: conducting monetary policy, regulating and supervising banks, and safeguarding the payments system. Indeed, one could argue—as many did—that it made little sense to assign primary responsibility for consumer protection to the central bank. It wasn’t one of the Fed’s core competencies. In a now-celebrated 2007 article, a Harvard law professor named Elizabeth Warren proposed the creation of a new regulatory agency, which she dubbed the Financial Product Safety Commission, by clear analogy to the Consumer Product Safety Commission, to focus single-mindedly on this issue.


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, fixed income, full employment, Goldman Sachs: Vampire Squid, hiring and firing, hydraulic fracturing, income inequality, jimmy wales, job automation, John Markoff, late fees, London Whale, low skilled workers, Mahatma Gandhi, market clearing, Maui Hawaii, Menlo Park, Occupy movement, oil shale / tar sands, Parag Khanna, Pareto efficiency, 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, zero-sum game

The industry’s success at beating back attacks by the Medicare bureaucrats to rein in costs would be repeated again and again. It wasn’t just the drugmakers who were advocating for the drugs, either. On Capitol Hill, the nation’s dialysis clinics, which were receiving as much as 25 percent of their revenue from using the drugs, were sometimes a key ally of the drugmakers. One of the nation’s largest dialysis chains, in fact, in 2004 offered bonuses to its chief medical officer if he blocked efforts to reform the payment system. According to a financial filing, Charles J. McAllister, chief medical officer of DaVita, the dialysis company, was to receive a $200,000 bonus if the rules for the drugs’ use being considered by regulators were dropped or delayed. He was to receive an additional $100,000 if the then-new legislation, known as the Medicare Modernization Act, didn’t cut into the company’s revenue. The Medicare proposal was “deeply flawed,” DaVita spokesman Skip Thurman said in a recent statement, because it limited dosing levels “without regard to the patient.”


pages: 387 words: 112,868

Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money by Nathaniel Popper

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4chan, Airbnb, Apple's 1984 Super Bowl advert, banking crisis, bitcoin, blockchain, Burning Man, capital controls, Colonization of Mars, crowdsourcing, cryptocurrency, David Graeber, Edward Snowden, Elon Musk, Extropian, fiat currency, Fractional reserve banking, Jeff Bezos, Julian Assange, Kickstarter, life extension, litecoin, lone genius, M-Pesa, Marc Andreessen, Mark Zuckerberg, Occupy movement, peer-to-peer, peer-to-peer lending, Peter Thiel, Ponzi scheme, price stability, QR code, Satoshi Nakamoto, Silicon Valley, Simon Singh, Skype, slashdot, smart contracts, Startup school, stealth mode startup, the payments system, transaction costs, tulip mania, WikiLeaks

The questions from the Wells Fargo executives did not reveal much about how serious the bank was about the project, but they had clearly done their homework and came with detailed questions about what exactly an exchange would look like and how it might satisfy regulators. The meeting concluded with an understanding that the bank would take it all under consideration. The potential advantages of Bitcoin over the existing system were underscored in late December, when it was revealed that hackers had breached the payment systems of the retail giant Target and made off with the credit card information of some 70 million Americans, from every bank and credit card issuer in the country. This brought attention to an issue that Bitcoiners had long been talking about: the relative lack of privacy afforded by traditional payment systems. When Target customers swiped their credit cards at a register, they handed over their account number and expiration date.


pages: 309 words: 114,984

The Digital Doctor: Hope, Hype, and Harm at the Dawn of Medicine’s Computer Age by Robert Wachter

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activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, AI winter, Airbnb, Atul Gawande, Captain Sullenberger Hudson, Checklist Manifesto, Chuck Templeton: OpenTable, Clayton Christensen, collapse of Lehman Brothers, computer age, creative destruction, crowdsourcing, deskilling, en.wikipedia.org, Erik Brynjolfsson, everywhere but in the productivity statistics, Firefox, Frank Levy and Richard Murnane: The New Division of Labor, Google Glasses, Ignaz Semmelweis: hand washing, Internet of things, job satisfaction, Joseph Schumpeter, knowledge worker, lifelogging, medical malpractice, medical residency, Menlo Park, minimum viable product, natural language processing, Network effects, Nicholas Carr, obamacare, pattern recognition, peer-to-peer, personalized medicine, pets.com, Productivity paradox, Ralph Nader, RAND corporation, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley startup, six sigma, Skype, Snapchat, software as a service, Steve Jobs, Steven Levy, the payments system, The Wisdom of Crowds, Thomas Bayes, Toyota Production System, Uber for X, US Airways Flight 1549, Watson beat the top human players on Jeopardy!, Yogi Berra

Unless the organization is fully supportive of that person, it will never be completely safe, no matter how good its technology. Chapter 29 Art and Science The more questioningly we ponder the essence of technology, the more mysterious the essence of art becomes. —Martin Heidegger, The Question Concerning Technology, 1977 Not long ago, I gave a talk to a group of UCSF medical students. I chose to focus on the transformation of healthcare: changes in the payment system, public reporting, the structure of hospitals and clinics, the engagement and empowerment of patients, and, yes, the technology. Of course, it’s the older doctors who are most troubled by the changes (a few years ago, one of my senior colleagues, a respected cardiologist, said, “It could be worse… . I could be younger”). Nevertheless, I thought the students should be prepared to enter a profession that has become barely recognizable to those of us who started 30 years ago.


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, G4S, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, light touch regulation, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, working-age population, zero-sum game

‘If you knew it was going to cost €30 billion, the sensible thing for the Irish government to do would have been to have closed it down to depositors and for bondholders to have to taken a hit,’ one of Ireland’s most senior policymakers told me. ‘For the Irish authorities in retrospect, I think it was a very bad mistake.’ Anglo Irish did not have cash machines, and could not be considered systemic for the functioning of ordinary deposits or the payments system. The first guarantee of September 2008 was an Irish sovereign decision. Indeed, the ‘Anglo Tapes’ of internal conversations of its bankers from just before this decision showed the contempt Anglo Irish had for Irish taxpayers. Not only was an initial negotiation of €7 billion a number ‘picked out of my arse’, but the senior bankers also plotted to lure a small amount of taxpayer funding, knowing that the government would never be able to stop and would not get its money back.


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, information asymmetry, investor state dispute settlement, invisible hand, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, labour mobility, light touch regulation, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert 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

I described, too, a system by which net payments to and from abroad could be kept balanced: exporters would receive chits in addition to payments in the local-euro into their account, and those who wanted to import would have to buy a corresponding number of chits, in addition to making payments out of their accounts. The system of marketable trading chits would ensure that the value of exports equaled the value of imports—there would be no net flow in or out of the payments system. As we saw in chapter 10, countries could decide to allow a trade deficit or insist on a trade surplus, simply by changing the ratio of chits one received for a euro of exports relative to those needed for imports. In this system, the value of one country’s euro could vary relative to that of another’s (and even more, the value of that country’s euro plus the associated value of a chit).


pages: 424 words: 121,425

How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy by Mehrsa Baradaran

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access to a mobile phone, affirmative action, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, British Empire, call centre, Capital in the Twenty-First Century by Thomas Piketty, cashless society, credit crunch, David Graeber, disintermediation, diversification, failed state, fiat currency, financial innovation, financial intermediation, Goldman Sachs: Vampire Squid, housing crisis, income inequality, Internet Archive, invisible hand, Kickstarter, M-Pesa, McMansion, microcredit, mobile money, moral hazard, mortgage debt, new economy, Own Your Own Home, payday loans, peer-to-peer lending, price discrimination, profit maximization, profit motive, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, Ronald Reagan: Tear down this wall, savings glut, the built environment, the payments system, too big to fail, trade route, transaction costs, unbanked and underbanked, underbanked, union organizing, white flight, working poor

Lawsky instructed the banks to develop safeguards to “choke off” the offending lenders as well as the payday lending industry as a whole.109 By December 2013, the DOJ had issued over fifty subpoenas to banks and payment processors.110 In January 2014, Four Oaks Bank was the first bank to settle with the DOJ for $1.2 million and agreed to restrictions on its ability to do business with Internet payday lenders.111 Almost 100 percent of Four Oaks Bank’s customers were Internet payday lenders, and the company was granting them access to the payment system only to be used by banks. Not only were these lenders charging between 400 percent and 1800 percent interest, in excess of state usury laws, but they were gaining unauthorized access to their borrower’s accounts. According to the consent order, the lenders offered borrowers loans with an agreement that customers would pay their loan via a debit on a particular date, at which point their obligation would be discharged.


pages: 554 words: 167,247

Money, Politics, Back-Room Deals, and the Fight to Fix Our Broken Healthcare System by Steven Brill

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Affordable Care Act / Obamacare, barriers to entry, Bernie Sanders, business process, call centre, collapse of Lehman Brothers, collective bargaining, crony capitalism, desegregation, Donald Trump, Edward Snowden, employer provided health coverage, medical malpractice, Menlo Park, Nate Silver, obamacare, Potemkin village, Ronald Reagan, Saturday Night Live, side project, Silicon Valley, the payments system, young professional

“The Administration will put its foot down in Conference,” one aide wrote in a journal, referring to additional opportunities to make changes during the closed-door negotiations in which a bill passed by the Senate would be merged with one passed by the House. The House and the Senate bills each included language encouraging the bundling of care as an alternative to fee-for-service, but “the design of the bundled payment program will have almost no effect on the payment system and practices of physicians,” one memo circulating among the staff conceded, before listing five bundling provisions that they had to push for in the anticipated conference. Meantime, Reid moved not only to lock in votes with any amendments necessary to keep his Democrats on board, but also to head off some Republican mischief. In December, the Republicans hatched a plan to launch a poison pill that would cause the drug companies to walk away from the deal and launch an attack reminiscent of the “Harry and Louise” ads that had scuttled Hillarycare fifteen years earlier.


pages: 554 words: 167,247

America's Bitter Pill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System by Steven Brill

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Affordable Care Act / Obamacare, barriers to entry, Bernie Sanders, business process, call centre, collapse of Lehman Brothers, collective bargaining, crony capitalism, desegregation, Donald Trump, Edward Snowden, employer provided health coverage, medical malpractice, Menlo Park, Nate Silver, obamacare, Potemkin village, Ronald Reagan, Saturday Night Live, side project, Silicon Valley, the payments system, young professional

“The Administration will put its foot down in Conference,” one aide wrote in a journal, referring to additional opportunities to make changes during the closed-door negotiations in which a bill passed by the Senate would be merged with one passed by the House. The House and the Senate bills each included language encouraging the bundling of care as an alternative to fee-for-service, but “the design of the bundled payment program will have almost no effect on the payment system and practices of physicians,” one memo circulating among the staff conceded, before listing five bundling provisions that they had to push for in the anticipated conference. Meantime, Reid moved not only to lock in votes with any amendments necessary to keep his Democrats on board, but also to head off some Republican mischief. In December, the Republicans hatched a plan to launch a poison pill that would cause the drug companies to walk away from the deal and launch an attack reminiscent of the “Harry and Louise” ads that had scuttled Hillarycare fifteen years earlier.


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, centre right, circulation of elites, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation coefficient, David Ricardo: comparative advantage, demographic transition, distributed generation, diversification, diversified portfolio, European colonialism, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, German hyperinflation, Gini coefficient, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Arrow, market bubble, means of production, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, Paul Samuelson, pension reform, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, The Nature of the Firm, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, very high income, Vilfredo Pareto, We are the 99%, zero-sum game

The other has to do with the increasingly apparent deficiencies of Europe’s current institutional architecture: the European Union is engaged in a historically unprecedented experiment: attempting to create a currency on a very large scale without a state. The Cyprus Crisis: When the Capital Tax and Banking Regulation Come Together The primary and indispensable role of central banking is to ensure the stability of the financial system. Central banks are uniquely equipped to evaluate the position of the various banks that make up the system and can refinance them if necessary in order to ensure that the payment system functions normally. They are sometimes assisted by other authorities specifically charged with regulating the banks: for example, by issuing banking licenses and ensuring that certain financial ratios are maintained (in order to make sure that the banks keep sufficient reserves of cash and “safe” assets relative to loans and other assets deemed to be higher risk). In all countries, the central banks and bank regulators (who are often affiliated with the central banks) work together.


pages: 1,242 words: 317,903

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

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

Aircraft make and model were determined from airline operating data reported on the Department of Transportation’s Form 41 and made available via Bureau of Transportation Statistics at the TranStats Air Carrier Statistics (Form 41 Traffic)—All Carriers’ database, http://www.transtats.bts.gov/Tables.asp?DB_ID=111&DB_Name=Air%20Carrier%20Statistics%20%28Form%2041%20Traffic%29-%20All%20Carriers&DB_Short_Name=Air%20Carriers. 29. Greenspan, Age of Turbulence, Kindle locations 80–87. 30. From Age of Turbulence: “We’d always thought that if you wanted to cripple the U.S. economy, you’d take out the payment systems. Banks would be forced to fall back on inefficient physical transfers of money. Businesses would resort to barter and IOUs; the level of economic activity across the country could drop like a rock.” Ibid., 91–93. 31. Emily Walker, “Memorandum for the Record of Meeting with William J. McDonough” (National Commission on Terrorist Attacks upon the United States, January 21, 2004), https://catalog.archives.gov/OpaAPI/media/2610306/content/arcmedia/9-11/MFR/t-0148-911MFR-00711.pdf. 32.


pages: 1,335 words: 336,772

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow

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always be closing, bank run, banking crisis, Big bang: deregulation of the City of London, Bolshevik threat, Boycotts of Israel, Bretton Woods, British Empire, California gold rush, capital controls, collective bargaining, corporate raider, Etonian, financial deregulation, fixed income, German hyperinflation, index arbitrage, interest rate swap, margin call, money market fund, Monroe Doctrine, North Sea oil, oil shale / tar sands, old-boy network, paper trading, Plutocrats, plutocrats, Robert Gordon, Ronald Reagan, short selling, strikebreaker, the market place, the payments system, too big to fail, transcontinental railway, Yom Kippur War, young professional

This would have sacrificed perhaps 20 percent of its business, forcing it to forgo checking accounts and deposit insurance. Although the statement apparently wasn’t a case of clever premeditation, Preston didn’t mind the uproar. Bob Engel reiterated the point: “If we became convinced that we would never get full expanded securities power, we would owe it to our shareholders to reconsider whether we still wanted to be a bank. We could still become a private bank—drop out of the Fed and the payments system.”7 Some of this was tactical bluster, but it revealed the impatience at 23 Wall. The 1929 crash had led straight to Glass-Steagall. Ironically, the 1987 crash would prove its undoing, as Black Monday deepened national discontent with Wall Street. Morgan Stanley and the other big securities houses looked increasingly like a cosy cartel protected by Glass-Steagall —an outcome quite different from that expected by the New Deal reformers, who wanted to bust up concentrated Wall Street power.


Eastern USA by Lonely Planet

1960s counterculture, active transport: walking or cycling, Affordable Care Act / Obamacare, Albert Einstein, Berlin Wall, bike sharing scheme, Bretton Woods, British Empire, car-free, carbon footprint, centre right, collective bargaining, cuban missile crisis, desegregation, Donald Trump, East Village, Fall of the Berlin Wall, Frank Gehry, glass ceiling, Guggenheim Bilbao, haute cuisine, Hernando de Soto, illegal immigration, immigration reform, information trail, interchangeable parts, jitney, license plate recognition, Mason jar, mass immigration, McMansion, megacity, Menlo Park, new economy, New Urbanism, obamacare, Ralph Waldo Emerson, Ronald Reagan, Rosa Parks, Saturday Night Live, Silicon Valley, Skype, the built environment, the High Line, the payments system, transcontinental railway, union organizing, Upton Sinclair, upwardly mobile, urban decay, urban planning, urban renewal, urban sprawl, walkable city, white flight, Works Progress Administration, young professional

Large communal tables and a lengthy counter facing the street encourage socializing. Katz’s Delicatessen DELI $$ (205 E Houston St; sandwiches $13; 8am-9:45pm Mon & Tue, to 10:45pm Wed, Thu & Sun, to 2:45am Fri & Sat) One of the few remaining Jewish delicatessens in the city, Katz’s attracts locals, tourists and celebrities whose photos line the walls. Massive pastrami, corned beef, brisket and tongue sandwiches are throwbacks, as is the payment system: hold on to the ticket you’re handed when you walk in and pay cash only. Kuma Inn ASIAN $$ ( 212-353-8866; 113 Ludlow St, btwn Delancey & Rivington; mains $11; 6-11pm) Reservations are a must at this strikingly popular spot, in a secretive 2nd-floor location that feels like a reconfigured apartment. Filipino- and Thai-inspired tapas rung the gamut, from vegetarian summer rolls to an oyster omelet and grilled salmon with mung beans and pickled onions.


USA Travel Guide by Lonely, Planet

1960s counterculture, active transport: walking or cycling, Affordable Care Act / Obamacare, Albert Einstein, Asilomar, Bay Area Rapid Transit, Berlin Wall, Big bang: deregulation of the City of London, big-box store, bike sharing scheme, Bretton Woods, British Empire, Burning Man, California gold rush, call centre, car-free, carbon footprint, centre right, Chuck Templeton: OpenTable, cuban missile crisis, desegregation, Donald Trump, Donner party, East Village, edge city, El Camino Real, Fall of the Berlin Wall, feminist movement, Frank Gehry, glass ceiling, global village, Golden Gate Park, Guggenheim Bilbao, Haight Ashbury, haute couture, haute cuisine, Hernando de Soto, Howard Zinn, illegal immigration, immigration reform, information trail, interchangeable parts, intermodal, jitney, license plate recognition, Mars Rover, Mason jar, mass immigration, Maui Hawaii, McMansion, Menlo Park, Monroe Doctrine, new economy, New Urbanism, obamacare, off grid, Ralph Nader, Ralph Waldo Emerson, RFID, ride hailing / ride sharing, Ronald Reagan, Rosa Parks, Saturday Night Live, Silicon Valley, South of Market, San Francisco, stealth mode startup, stem cell, supervolcano, the built environment, The Chicago School, the High Line, the payments system, trade route, transcontinental railway, union organizing, Upton Sinclair, upwardly mobile, urban decay, urban planning, urban renewal, urban sprawl, walkable city, white flight, working poor, Works Progress Administration, young professional, Zipcar

Large communal tables and a lengthy counter facing the street encourage socializing. Katz’s Delicatessen DELI $$ Offline map Google map ( 205 E Houston St; sandwiches $13; 8am-9:45pm Mon & Tue, to 10:45pm Wed, Thu & Sun, to 2:45am Fri & Sat) One of the few remaining Jewish delicatessens in the city, Katz’s attracts locals, tourists and celebrities whose photos line the walls. Massive pastrami, corned beef, brisket and tongue sandwiches are throwbacks, as is the payment system: hold on to the ticket you’re handed when you walk in and pay cash only. Kuma Inn ASIAN $$ Offline map Google map ( 212-353-8866; 113 Ludlow St, btwn Delancey & Rivington; mains $11; 6-11pm) Reservations are a must at this strikingly popular spot, in a secretive 2nd-floor location that feels like a reconfigured apartment. Filipino- and Thai-inspired tapas rung the gamut, from vegetarian summer rolls to an oyster omelet and grilled salmon with mung beans and pickled onions.