transfer pricing

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pages: 497 words: 123,718

A Game as Old as Empire: The Secret World of Economic Hit Men and the Web of Global Corruption by Steven Hiatt; John Perkins

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airline deregulation, Andrei Shleifer, Asian financial crisis, Berlin Wall, big-box store, Bretton Woods, British Empire, capital controls, centre right, clean water, colonial rule, corporate governance, corporate personhood, deglobalization, deindustrialization, Doha Development Round, energy security, European colonialism, financial deregulation, financial independence, full employment, global village, high net worth, land reform, large denomination, Long Term Capital Management, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, Naomi Klein, new economy, North Sea oil, offshore financial centre, oil shock, Ponzi scheme, race to the bottom, reserve currency, Ronald Reagan, Scramble for Africa, statistical model, structural adjustment programs, too big to fail, trade liberalization, transatlantic slave trade, transfer pricing, union organizing, Washington Consensus, working-age population, Yom Kippur War

Oiling the Wheels of Globalized Business: The Mechanisms of Tax Evasion Much of the tax evasion by corporations involved trade mispricing. Many of our clients were multinational businesses, which use tax havens to move profits away from higher-tax jurisdictions through what’s called transfer pricing: the process through which two or more businesses owned by the same people trade with each other. Technically speaking, transfer pricing is legal and necessary because the majority of world trade occurs between subsidiaries of the same company. In practice, however, the international conventions relating to transfer pricing are largely ineffective because there is no market price for goods traded between units of a multinational company. Businesses thus use their tax haven subsidiaries to overprice their imports and underprice their exports, thereby massively reducing their tax bill.

This research estimated the tax losses to the U.S. government between 1998 and 2001 at $175 billion from transfer mispricing alone.11 The consequences are proportionately greater for developing countries, because they lack sufficient resources to pursue lengthy investigations of secret offshore centers. Many African economies, for example, are dominated by multinational businesses operating in strategic sectors such as oil and gas, mining, commodities trading, and pharmaceuticals. Because their tax administrations are unable to investigate transfer pricing schemes, developing countries are unable to raise the money they need to fund their public services. One expert on African tax issues notes that no African country has ever successfully challenged a transfer pricing arrangement, even though such abuses are endemic across the continent. Some economists actually endorse this type of aggressive tax avoidance. Company directors, they argue, have a duty to minimize costs, including taxes. And by acting in this way they restrain high-tax/high-spend governments, forcing them to comply with the rigors of the market economy.

To lead the project, Witt hired Brian O’Connor, a former economist at BP and later an energy adviser to Britain’s Department for International Development. O’Connor had been petroleum tax adviser to ITIC since 2000, when he led a European Union project to reform Russia’s tax system. Although the EU project was publicly funded, ITIC had enthused in its newsletter, “The legislative areas to be addressed in this project will include many of the priorities identified by ITIC sponsors, including: transfer pricing, oil and gas taxation, VAT, and environmental taxation, and profits tax…. As the project moves forward, we will be regularly seeking input and guidance from our sponsors.”19 O’Connor and Witt formed an “expert group” of nine other economists to work on the Iraq project. Only one, Muhammad Ali Zainy, was Iraqi. He now works at the Centre for Global Energy Studies (CGES), a London-based think tank founded by former Saudi Oil Minister Sheikh Ahmad Zaki Yamani.


pages: 425 words: 122,223

Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein

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Albert Einstein, asset allocation, backtesting, Benoit Mandelbrot, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, buy low sell high, capital asset pricing model, debt deflation, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, full employment, implied volatility, index arbitrage, index fund, interest rate swap, invisible hand, John von Neumann, Joseph Schumpeter, law of one price, linear programming, Louis Bachelier, mandelbrot fractal, martingale, means of production, new economy, New Journalism, profit maximization, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, stochastic process, the market place, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, transfer pricing, zero-coupon bond

Fred Weston, a distinguished professor on the UCLA faculty, had Sharpe taking one of his seminar courses and simultaneously teaching part of another of Weston’s courses on the basis of what had he had learned in the first. The work Sharpe was doing at RAND in 1960 was in an area known as transfer prices, the prices that one division of a corporation charges another division. When General Motors buys radios from its wholly owned subsidiary Delco to install in its automobiles, the price charged by Delco is a transfer price. And when Exxon moves crude oil from the well to the refinery, the refinery pays the drilling organization an appropriate transfer price. Without transfer prices, integrated corporations would never be able to arrive at a rational appraisal of the profitability of the assets they devote to their individual segments. Sharpe has happy memories of his days at RAND: “We operated under very loose instructions there—basically, we played around with ideas until we found one that could save the Air Force some money.

His next effort, “Aircraft Compartment Design Criteria for the Army Deployment Mission,” appeared in the Naval Research Logistics Quarterly, the same journal that had carried Markowitz’s “The Optimization of a Quadratic Function Subject to Linear Constraints” three years earlier. The article on the simplified model in Management Science was only the third time Sharpe had appeared in print. For reasons that he now finds difficult to reconstruct, Sharpe became fascinated by the subject of transfer pricing in 1960, so much so that he decided to write his Ph.D. thesis about it. After writing some 60 pages of what he thought was “earth-shattering stuff,” he showed his work to Jack Hirshleifer, a newly arrived economist to whom Sharpe had just been assigned.6 Hirshleifer came back to him a week later and declared flatly that there was absolutely no thesis there. Although Sharpe now admits that Hirshleifer’s rejection had a profound effect on the course of his career, he was shattered by the bad news.

See also Capital Asset Pricing Model; Random price fluctuations; specific types of securities arbitrage Black/Scholes formula of: see Black/Scholes formula earnings ratio efficient markets and future of growth stocks information and interest rates and intrinsic value and manipulation risk and security analysis and shadow transfer trends value differentiation zero downside limit on “Price Movements in Speculative Markets: Trends or Random Walks” (Alexander) “Pricing of Options and Corporate Liabilities, The” (Black/Scholes) Probability theory Procter & Gamble Profit maximization Program trading Prospective yield “Proposal for a Smog Tax, A” (Sharpe) Puts: see Options Railroads RAND Random Character of Stock Prices, The (Cootner) “Random Difference Series for Use in the Analysis of Time Series, A” (Working) Random price fluctuations/random walks selection of securities and “Random Walks in Stock Market Prices” (Fama) Rational Expectations Hypothesis “Rational Theory of Warrant Pricing” (Samuelson) Regulation of markets Return analysis: see Risk/return ratios Review of Economics and Statistics Review of Economic Studies, The “RHM Warrant and Low-Price Stock Survey, The” Risk arbitrage calculations diversification and dominant expected return and minimalization portfolio premium return ratios Rosenberg’s model stock prices and of stocks vs. bonds systematic (beta) trade-offs valuation of assets and “Risk and the Evaluation of Pension Fund Performance” (Fama) Risk-free assets Rosenberg Institutional Equity Management (RIEM) “Safety First and the Holding of Assets” (Roy) Samsonite Savings rates Scott Paper Securities analysis Securities and Exchange Commission Security Analysis (Graham/Dodd) Security selection Separation Theorem Shadow prices “Simplified Model for Portfolio Analysis, A” (Sharpe) Singer Manufacturing Company Single-index model Sloan School of Management Standard & Poor’s 500 index “State of the Art in Our Profession, The” (Vertin) Stock(s) cash ratios common expected return on growth income international legal restrictions on market value variance volatility Stock market (general discussion) Black Monday (October, 1987, crash) “Stock Market ‘Patterns’ and Financial Analysis” (Roberts) Supply and demand theory Swaps Tactical asset allocation theory Tampax Taxes. See also Capital gains tax Texas Instruments “Theoretical Valuation Formula for Options, Warrants, and Other Securities, A” (Black/Scholes) Theory of Interest, The (I. Fisher) Theory of Investment Value, The (Williams) Ticker tape Time analysis Tokyo Stock Exchange “Toward a Theory of Market Value of Risky Assets” (Treynor) Transaction costs. See also Brokerage commissions Transfer pricing Transportation Average Treasury bills/bonds Trends in stock movements, predictive model “Trouble With Earnings, The” (Treynor) Trust management Trusts, personal UCLA Union Carbide United Air Lines (UAL) University of Chicago. See also Center for Research in Security Prices (CRSP) U.S. Steel Utilities Average Utility function Valuation. See also Price/value differentiation bond vs. stock corporate intrinsic market option risk and “Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets” (Lintner) Value Line Investment Survey Variance/variability Volatility of assets Wall Street Journal, The Warrants expected return on pricing/valuation of Warsaw Stock Exchange Wealth of Nations, The (Smith) Wells Fargo Bank client reports investment strategy Management Sciences Group pension fund Stagecoach Fund trust activities Wells Fargo Investment Advisors (WFIA) Wells Fargo-Nikko investment Advisors Xerox Corporation Yak University “Yes, Virginia, There Is Hope” (Black) Zero downside limit on stock prices


pages: 334 words: 98,950

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

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affirmative action, Albert Einstein, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, falling living standards, Fellow of the Royal Society, financial deregulation, fixed income, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labour mobility, land reform, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, moral hazard, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

, Finance and Development, vol.. 28, no. 2. 22 In addition, with the increasing importance of collective investment funds that I discussed previously (note 5), there is also shortening of time horizons for FDI, which makes such ‘liquidizing’ of FDI more likely. 23 These include local content requirements (where TNCs are required to buy more than a certain share of inputs from local producers), export requirements (where they are forced to export more than a certain proportion of their output) and foreign exchange balancing requirements (where they are required to export at least as much as they import). 24 Christian Aid (2005), ‘The Shirts off Their Backs – How Tax Policies Fleece the Poor’, September 2005. 25 Kose et al. (2006), pp. 29. 26 Moreover, brownfield investment can magnify the negative impact of transfer pricing. If a TNC that has bought up, rather than newly created, a company is practising transfer pricing, the firm that has now become a TNC subsidiary could be paying less tax than it used to when it was a domestic firm. 27 The data are from UNCTAD (United Nations Conference on Trade and Development). 28 Especially when it comes to FDI by collective investment funds (see notes 5 and 22), this may be the sensible strategy, as they do not have the industry-specific knowhow to improve the productive capabilities of the firms they buy up. 29 R.

Of course, it can (but may not) also generate additional foreign currency through exporting, but whether it will earn more foreign exchange than it uses is not a foregone conclusion. This is why many countries have imposed controls on the foreign exchange earnings and spending by the foreign companies making the investment (e.g., how much they should export, how much inputs they have to buy locally).23 Another drawback with foreign direct investment is that it creates the opportunity for ‘transfer pricing’ by transnational corporations (TNCs) with operations in more than one country. This refers to the practice where the subsidiaries of a TNC are overcharging or undercharging each other so that profits are highest in those subsidiaries operating in countries with the lowest corporate tax rates. And when I say overcharging or undercharging, I really mean it. A Christian Aid report documents cases of underpriced exports like TV antennas from China at $0.40 apiece, rocket launchers from Bolivia at $40 and US bulldozers at $528, and overpriced imports such as German hacksaw blades at $5, 485 each, Japanese tweezers at $4, 896, and French wrenches at $1, 089.24 This is a classic problem with TNCs, but today the problem has become more severe because of the proliferation of tax havens that have no or minimal corporate income taxes.Companies can vastly reduce their tax obligations by shifting most of their profits to a paper company registered in a tax haven.

A Christian Aid report documents cases of underpriced exports like TV antennas from China at $0.40 apiece, rocket launchers from Bolivia at $40 and US bulldozers at $528, and overpriced imports such as German hacksaw blades at $5, 485 each, Japanese tweezers at $4, 896, and French wrenches at $1, 089.24 This is a classic problem with TNCs, but today the problem has become more severe because of the proliferation of tax havens that have no or minimal corporate income taxes.Companies can vastly reduce their tax obligations by shifting most of their profits to a paper company registered in a tax haven. It may be argued that the host country should not complain about transfer pricing, because, without the foreign direct investment in question, the taxable income would not have been generated in the first place. But this is a disingenuous argument. All firms need to use productive resources provided by government with taxpayers’ money (e.g., roads, the telecommunications network, workers who have received publicly funded education and training). So, if the TNC subsidiary is not paying its ‘fair share’ of tax, it is effectively free-riding on the host country.


pages: 347 words: 99,317

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

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affirmative action, Albert Einstein, banking crisis, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, falling living standards, Fellow of the Royal Society, financial deregulation, fixed income, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labour mobility, land reform, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, moral hazard, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

, Finance and Development, vol.. 28, no. 2. 22 In addition, with the increasing importance of collective investment funds that I discussed previously (note 5), there is also shortening of time horizons for FDI, which makes such ‘liquidizing’ of FDI more likely. 23 These include local content requirements (where TNCs are required to buy more than a certain share of inputs from local producers), export requirements (where they are forced to export more than a certain proportion of their output) and foreign exchange balancing requirements (where they are required to export at least as much as they import). 24 Christian Aid (2005), ‘The Shirts off Their Backs – How Tax Policies Fleece the Poor’, September 2005. 25 Kose et al. (2006), pp. 29. 26 Moreover, brownfield investment can magnify the negative impact of transfer pricing. If a TNC that has bought up, rather than newly created, a company is practising transfer pricing, the firm that has now become a TNC subsidiary could be paying less tax than it used to when it was a domestic firm. 27 The data are from UNCTAD (United Nations Conference on Trade and Development). 28 Especially when it comes to FDI by collective investment funds (see notes 5 and 22), this may be the sensible strategy, as they do not have the industry-specific knowhow to improve the productive capabilities of the firms they buy up. 29 R.

Of course, it can (but may not) also generate additional foreign currency through exporting, but whether it will earn more foreign exchange than it uses is not a foregone conclusion. This is why many countries have imposed controls on the foreign exchange earnings and spending by the foreign companies making the investment (e.g., how much they should export, how much inputs they have to buy locally).23 Another drawback with foreign direct investment is that it creates the opportunity for ‘transfer pricing’ by transnational corporations (TNCs) with operations in more than one country. This refers to the practice where the subsidiaries of a TNC are overcharging or undercharging each other so that profits are highest in those subsidiaries operating in countries with the lowest corporate tax rates. And when I say overcharging or undercharging, I really mean it. A Christian Aid report documents cases of underpriced exports like TV antennas from China at $0.40 apiece, rocket launchers from Bolivia at $40 and US bulldozers at $528, and overpriced imports such as German hacksaw blades at $5,485 each, Japanese tweezers at $4,896, and French wrenches at $1,089.24 This is a classic problem with TNCs, but today the problem has become more severe because of the proliferation of tax havens that have no or minimal corporate income taxes.

A Christian Aid report documents cases of underpriced exports like TV antennas from China at $0.40 apiece, rocket launchers from Bolivia at $40 and US bulldozers at $528, and overpriced imports such as German hacksaw blades at $5,485 each, Japanese tweezers at $4,896, and French wrenches at $1,089.24 This is a classic problem with TNCs, but today the problem has become more severe because of the proliferation of tax havens that have no or minimal corporate income taxes. Companies can vastly reduce their tax obligations by shifting most of their profits to a paper company registered in a tax haven. It may be argued that the host country should not complain about transfer pricing, because, without the foreign direct investment in question, the taxable income would not have been generated in the first place. But this is a disingenuous argument. All firms need to use productive resources provided by government with taxpayers’ money (e.g., roads, the telecommunications network, workers who have received publicly funded education and training). So, if the TNC subsidiary is not paying its ‘fair share’ of tax, it is effectively free-riding on the host country.


pages: 413 words: 119,379

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

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

All this happens within one company and bears scant relation to the actual costs involved. The result is that the group’s overall effective tax rate is much lower than it would have been had it apportioned profits fairly. Many such tax manoeuvres are perfectly legal. When it is done ethically ‘transfer pricing’, as the technique in this example is known, uses the same prices when selling goods and services within one company as when selling between companies at market rates. But the ruses to fiddle transfer pricing are legion. A mining company might tweak the value of machinery it ships in from abroad, or an oil company might charge a subsidiary a fortune to use the parent’s corporate logo. Suppose Fowl Play gets even cannier. It creates another subsidiary, this time in the British Virgin Islands, one of the tax havens where the rate of corporation tax is zero.

(The BVI company is only a piece of paper and doesn’t employ anyone, but then there is no need to threaten the British Virgin Islands – its tax rate could not be lower.) Numerous studies have concluded that, although such tax dodging is a problem, no one knows the scale of it, particularly in poor countries, where reliable data are scarce.30 The Organisation for Economic Co-operation and Development, the club of the world’s richest nations, acknowledged in 2013 that ‘multinationals have been able to use and/or misapply’ the rules that govern transfer pricing ‘to separate income from the economic activities that produce that income and to shift it into low-tax environments’.31 Noting that ‘tax policy is at the core of countries’ sovereignty’, the OECD called for ‘fundamental changes’ to the ways in which multinationals are taxed. If multinational companies were genuinely declaring profits where they were made, one might expect a broad correlation between the size of the profit and the size of the economy.

., 233 Steinmetz, Beny Guinea minerals and, 108, 110, 113, 123, 124, 125, 126–127, 128, 143, 228, 244 wealth/minerals (overview), 105–106, 228 See also BSGR Stiglitz, Joseph, 4 Sudan, 136, 147, 154 Sule, Yusuf Maitama, 179–181 Sunmonu, Mutiu, 193–194, 195–196, 207–208 Survival of the fattest, 74, 190 Susa, Anna Rebecca/family, 46–47 Sussman, Robert, 33, 34 Sylva, Timipre, 189–190 Takatoshi Kato, 173 Tandja, Mamadou coup against, 133, 137–138, 141–142 Ousmane (son), 141 as president/corruption, 131–133, 135, 137–138, 139–140, 141–142 Tantalum, 29–30, 34, 42, 45 Tantalus (Greek mythology), 29–30, 34 Tanzania, 31, 165 Taxation and representation relationship, 73 Taylor, Charles, 225 Tegera, Aloys, 59 Thiam, Mahmoud Guinea and, 112–115, 117, 118–120, 121–122, 124, 125, 128, 190, 243–244 Queensway Group individuals/tactics and, 83, 90, 146–147, 190 Tompolo, 177 Total, 2, 11, 94, 136, 139, 142–143, 145 Toumba. See Diakité, Aboubacar Touré, Mamadie with Cilins in Florida, 103–105, 109, 125–126, 127 Guinea’s minerals and, 103–105, 109, 110, 124, 125–126, 127 Transfer pricing, 166 Transparency International, 17 Trendfield company, 140–141, 144 Trump, Donald, 246 Tsvangirai, Morgan, 219, 223, 237 Turner, Bill, 39–40 Tutsi/Hutu conflict and aftermath, 30–31, 32, 40–41, 43–44, 45–46, 55, 56 Tutu, Desmond, Archbishop, 66 Uba, Andy, 77, 193 Ukraine, 147, 242 Umunna, Hillary, 64–65 Vale mining and Guinea, 104, 108, 123–124, 128, 129–130 Varma, Somit, 163–164 Vicente, Manuel background, 10–11, 19 business empire, 23, 99 China Sonangol/Queensway Group and, 26, 94, 95, 96–97, 98, 100, 114, 119 Futungo and, 10–11, 12, 97, 111 oil and, 11, 12, 14, 16, 17, 18–19, 25, 26, 94, 95, 96–97, 98, 100, 114, 119 poverty in Angola and, 20, 208 Vines, Alex, 100 ‘VIP’ (‘Vagabond in Power’/Nneka), 246–247 Voser, Peter, 194 ‘Vultures’ (Achebe), 208 Wang Xiangfei, 90–91, 92–93 Wase, Abdullahi, 182 Washington Consensus, 163, 171 Wolfensohn, James, 157, 171 Wolfowitz, Paul, 170 World Bank Africa/African countries and, 57–58, 65, 136, 151–152, 163–164 BRICS nations vs., 218 China credit vs., 137, 170, 171 criticism of, 3, 151–152, 157–159, 160, 161, 164, 170, 171 description/staff, 169–170 ‘extreme poverty’/poor countries, 4 IFC and, 153, 154, 156 Miga and, 158–161 reputation/influence, 169–170 role/methods, 144, 151, 153, 154, 157, 165, 170 Salim’s criticism/recommendations, 157–159, 160, 161, 164, 170, 171 structural adjustment programmes, 162–163, 171 See also International Finance Corporation (IFC) World Trade Organization (WTO), 81, 157, 239 Wu Yang, 93, 98, 101–102, 145, 193 Xi Jinping, 23 Xia Huang, 134–135, 148, 149 Xueming Li (pseudonym), 91 Yar’Adua, Umaru health problems/death, 72, 73, 77, 78, 79, 183–184, 189, 201, 202, 203 as Katsina governor, 68 presidential campaign/as president, 69, 72, 77–78, 179, 202 Zambia, 4, 34, 56, 163, 165, 225 Zeng Peiyan, 86–87, 94, 99 Zibi, Songezo, 217 Zimbabwe diamonds/effects, 220–223, 226, 235–236 ‘indigenization’ of mining industry/corruption, 230–232 Marange massacre/Operation No Return, 220–221, 222, 226, 235, 236 minerals (overview), 231 Mugabe’s security forces/CIO, 223, 226, 234–236, 237, 243 Pa/Queensway Group and, 223, 230, 234, 235–236, 237–238, 243 See also specific companies/organizations; specific individuals Ziv, Israel, 117 Zuks, Nik, 143–144 Zuma, Jacob, 217–218 About the Publisher Australia HarperCollins Publishers (Australia) Pty.


pages: 385 words: 111,807

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

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

A 2005 report by Christian Aid, the development charity, documents cases of under-priced exports like TV antennas from China at $0.40 apiece, rocket launchers from Bolivia at $40 and US bulldozers at $528 and over-priced imports such as German hacksaw blades at $5,485 each, Japanese tweezers at $4,896 and French wrenches at $1,089.17 The Starbucks and Google cases were different from those examples only in that they mainly involved ‘intangible assets’, such as brand licensing fees, patent royalties, interest charges on loans and in-house consultancy (e.g., coffee quality testing, store design), but the principle involved was the same. When TNCs evade taxes through transfer pricing, they use but do not pay for the collective productive inputs financed by tax revenue, such as infrastructure, education and R&D. This means that the host economy is effectively subsidizing TNCs. There are also other potentially negative effects of FDI for the host economy Transfer pricing is only one of the possible negative effects of FDI, especially when it comes to FDI into developing countries. Another one is that TNC subsidiaries may ‘crowd out’ local firms (in their own industry and in other industries) in the credit market.

* These companies minimized their tax obligations in countries like Britain by inflating the costs for their British subsidiaries by having their subsidiaries in third countries ‘over-charge’ (that is, charge more than what they would have in open markets) the British subsidiaries for their services. These third countries were countries with a corporate tax rate that is lower than the UK rate (e.g., Ireland, Switzerland or the Netherlands) or even tax havens, namely, countries that attract foreign companies to set up ‘paper companies’ by charging very low, or even no, corporate taxes (e.g., Bermuda, the Bahamas).16 The age-old trick of transfer pricing Taking advantage of the fact that they operate in countries with different tax rates, TNCs have their subsidiaries over-charge or under-charge each other – sometimes grossly – so that profits are highest in those subsidiaries operating in countries with the lowest corporate tax rates. In this way, their global post-tax profit is maximized. A 2005 report by Christian Aid, the development charity, documents cases of under-priced exports like TV antennas from China at $0.40 apiece, rocket launchers from Bolivia at $40 and US bulldozers at $528 and over-priced imports such as German hacksaw blades at $5,485 each, Japanese tweezers at $4,896 and French wrenches at $1,089.17 The Starbucks and Google cases were different from those examples only in that they mainly involved ‘intangible assets’, such as brand licensing fees, patent royalties, interest charges on loans and in-house consultancy (e.g., coffee quality testing, store design), but the principle involved was the same.


pages: 272 words: 64,626

Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs by Andy Kessler

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23andMe, Andy Kessler, bank run, barriers to entry, Berlin Wall, British Empire, business process, California gold rush, carbon footprint, Cass Sunstein, cloud computing, collateralized debt obligation, collective bargaining, computer age, disintermediation, Eugene Fama: efficient market hypothesis, fiat currency, Firefox, Fractional reserve banking, George Gilder, Gordon Gekko, greed is good, income inequality, invisible hand, James Watt: steam engine, Jeff Bezos, job automation, Joseph Schumpeter, knowledge economy, knowledge worker, libertarian paternalism, low skilled workers, Mark Zuckerberg, McMansion, Netflix Prize, packet switching, personalized medicine, pets.com, prediction markets, pre–internet, profit motive, race to the bottom, Richard Thaler, risk tolerance, risk-adjusted returns, Silicon Valley, six sigma, Skype, social graph, Steve Jobs, The Wealth of Nations by Adam Smith, transcontinental railway, transfer pricing, Yogi Berra

The British Empire colonized much of the world to lock up the supply of raw materials (to feed their factories, and keep them out of French and German hands). But the reason a horizontal structure is the most efficient is twofold: price and pace. Prices are set by the marketplace. IBM was segmented in divisions that were supposedly independent, but one group would “sell” their output to the next at some phony transfer price, showing a “profit.” Every division might show a profit, but the company itself would still lose money because, in the real world, someone else sold the product more cheaply, which meant that competitors could get the same thing done for a lot less (and pass the savings along in the form of lower prices). I saw this when I worked at AT&T. We used to design and sell modem chips to Western Electric for $30, about three times what it cost us to make—a tidy “profit.”

Have enough information, some definition of profit, so that everything can trade. Your little minimarkets will allocate resources better than any other method. It could be internal prices or external prices with your customers. The price will be set by more than one person, the masses out at the edge, and therefore will be more reflective of actual profits—however profits are actually defined—than one person sitting in a room making up the “price.” It could be a transfer price between divisions, the price to use a conference room during peak hours, whatever. eBay made an entire business out of price discovery and then closing the financial part of the transaction. Not always an efficient market, but it was better than going to garage sales and estate markets trying to figure out the right price. Sadly, eBay didn’t create a market for their own fees—raising them instead of lowering them—and stopped growing.


pages: 460 words: 130,053

Red Notice: A True Story of High Finance, Murder, and One Man's Fight for Justice by Bill Browder

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Berlin Wall, British Empire, corporate governance, El Camino Real, Gordon Gekko, half of the world's population has never made a phone call, index card, rolodex, Ronald Reagan, transfer pricing, union organizing

With no more incentive to behave, and with all these profits piling up after the devaluation, there was no longer any incentive not to steal. Why share the profits with minority investors? What had they done to help? Nothing. With the brakes off, the oligarchs embarked on an orgy of stealing. The tools they used were many and with no law enforcement to stop them, their imaginations ran wild. They engaged in asset stripping, dilutions, transfer pricing, and embezzlement, to name but a few of their tricks. This was a huge problem that every business person in Russia was obsessed with, and because I’d developed a reputation after my fight with Sidanco, in early January 2000 I was invited by the American Chamber of Commerce in Moscow to give a presentation to the local business community about corporate-governance abuse. It seemed as though I was the only person in Moscow crazy enough to speak publicly about the misdeeds of the Russian oligarchs.

It seemed as though I was the only person in Moscow crazy enough to speak publicly about the misdeeds of the Russian oligarchs. I decided to use the Yukos oil company as my case study. I could have picked any Russian company, but Yukos was attractive because it had had so many minority-shareholder scandals. I called my presentation “The Armed Forces of Corporate Governance Abuse” to describe the many ways that the oligarchs went about ripping off their minority shareholders. The “Army” was transfer pricing; the “Navy,” asset stripping; and the “Marines,” shareholder dilutions. The presentation was scheduled for 8:00 on a snowy morning in January. As my alarm went off at 6:30, I could barely pull myself out of bed. The temperature outside was minus-twenty degrees Celsius, the streets were covered with a fresh coat of snow, and the sun had not yet risen. Because the Moscow stock exchange didn’t open until 11:00 a.m., I didn’t normally get to the office until 10:30.

., 12, 14 Rostelecom, 69 Rozhetskin, Leonid, 118–20, 124 Russia (post-Soviet), 1–11, 156–57 adoption ban law, 357–62 Audit Chamber, 161 bond market, 132–38 Border Service, 194, 195, 242, 312 Browder banned from, 11–13, 169, 170–89, 193 Browder’s trial in abstentia, 364–70 bureaucracy, 158, 232 business culture, 125 conspiracy theories, 166 corporate-governance abuse, 144–49, 165–69 dachas, 104, 156, 249 economy, 60, 87 fall of communism, 2–3, 59–60, 112, 158, 291 fatalism, 298 food, 67, 87 Foreign Ministry, 172–73 Gazprom theft and investigation, 154–62, 192–93 gulags, 96–97, 274 human rights atrocities, 279–80, 301, 328, 373, 376 IMF bailout, 133–34 independent thinkers penalized in, 6, 96–97, 163–65 Interior Ministry, see Interior Ministry literature, 96, 298 Mafia, 150, 241, 289 May holidays, 151 National Police Day, 327–28 1993 attempted coup, 197 1996 presidential elections, 87–93, 94–103 1998 financial crisis and aftermath, 131–46 oil and gas, 60, 69, 98–101, 104–30, 143–44, 167–69 oligarchs, see oligarchs, Russian orphans, 357–62 Parliament, 161, 340–44, 356, 357 and n, 358–60 persecuted journalists in, 303 police raids on Hermitage offices, 196–200, 203, 208–10, 216, 218, 230 Politburo, 156 press, 91, 182, 214, 236, 252, 264, 288, 301, 359, 365 privatizations in, 54–63, 64–76, 87, 91–93, 98–101 raider attacks, 213–27 Red Notice for Browder, 367–70, 374 response to Magnitsky Act, 356–62 roads, 243 Salomon operations in, 54–63, 64–76 shipping, 55–59 stocks, 3, 54–63, 64–76, 98–130, 133–38, 144–45, 183–85, 198 tax law, 201–4 tax-rebate fraud, 231–37, 252–53, 257, 264, 271–72, 288, 301, 316–26, 328 theft of government money, 231–37, 236–53, 257, 264, 271–72, 288, 296, 301, 311, 316–26, 328 transition to capitalism, 59–60, 87 Ukraine invaded by, 373 visa sanctions and asset freezes on corrupt officials, 291, 293–94, 297, 298, 299–309, 327–29, 368, 373, 377 voucher privatization, 59–60, 67–70, 105 wealth gap, 156–57 women, 147, 254 as WTO member, 333–34 Yeltsin’s economic reforms, 87, 91 Russian Central Bank, 233, 234 Russian General Prosecutor’s Office, 262, 285, 287, 314 Russian raider attack, 213–27 Russian State Investigative Committee, 220–26, 232–33, 252 russian-untouchables.com, 313 Russian Untouchables videos, 310–15, 321–26, 343 Safra, Edmond, 72–76, 131, 138–39, 365 death of, 142 Hermitage Fund and, 72–76, 77–88, 93, 94, 98, 100–102, 112, 119–32, 138–39, 142 Sagiryan, Igor, 219–23, 317 Saint Petersburg, 56, 186, 212, 213, 217, 223, 229 Salomon Brothers, 52–76, 79, 106, 225 Browder at, 52–76, 77 “five times” formula, 53, 54 London trading floor, 64–70 Treasury bond scandal, 52, 65 Samolov, Boris, 254 San Francisco, 70, 272 Sanok, 30–39 Saudi Arabia, 220 Sberbank, 165 Scandinavian Airlines, 367 Schmidt, Wolfgang, 27–31, 35, 38, 40 Scott, Kyle, 290–95, 329, 333 Securities and Exchange Commission (SEC), 52, 176 Senate, US, 302, 305, 307, 330–39, 346, 354–55 Finance Committee, 336, 340, 344 Foreign Relations Committee, 290, 330–39 Magnitsky Act and, 327–39, 340 Seoul, 210–13, 250, 251 Severov, Dmitry, 106–7 Shanghai, 2 Shao, Jude, 2, 3, 5, 6, 9 Sheremetyevo Airport, 2–10, 95, 169, 243–44 Shuvalov, Igor, 174, 176, 178 Siberia, 69, 104 oil, 69, 104, 110, 159 Sibneftegaz, 159 Sidanco, 104–30, 134–35, 219, 363 dilutive share issue, 115–30 FSEC investigation of, 127–29 Siemens, 92 Sikorsi, Leschek, 32–38 Silchenko, Oleg, 258–60, 265, 267, 275–76, 277, 283, 327–28 Siluyanov, Anton, 358 Smith, Simon, 170–72, 181, 182, 186–87, 256 Snob, 359 Sochi, 242 Sokolova, Ksenia, 359 Solent, David, 51 Soros, George, 70 and n, 92, 122 South Africa, 71, 114–15, 117 apartheid, 114 South Korea, 131, 210–13 Soviet Union, 12, 24, 157, 253 fall of, 2–3, 59, 112, 158, 280, 334 Jews, 334 Katyn massacre, 279–80 World War II, 13, 228, 279–80 See also Russia (post-Soviet) Spain, 312 Stalin, Joseph, 6, 364 Stanford University, 2, 20–21, 106, 272, 376 Stashina, Yelena, 267, 275–76 State Department, US, 289 Magnitsky case and, 289–97, 302, 304, 329, 341 Proclamation 7750, 291, 293–94, 297, 298, 299–309, 327–39 stealing analysis, 155–60 steel, 60 Steinmetz, Beny, 71–76, 83–84, 138 Stepanov, Vladlen, 316, 319, 321–26 Swiss bank accounts, 316–26, 343 YouTube video on, 321–23, 325–36, 343 Stepanova, Olga, 316, 319, 321–26 Swiss bank accounts, 316–26, 343 as Tax Princess, 326 YouTube video on, 321–23, 325–26, 343 Stern, Carl, 24 stocks Chinese wall and, 64 front-running, 183–84 Gazprom theft and investigation, 154–62 liquidity, 132 MNPZ, 98–100 1998 financial crisis and aftermath, 131–46 preferred shares, 98–101 Russian, 3, 54–63, 64–76, 98–130, 133–38, 144–45, 183–85, 198 share dilution, 115–30, 144–45 Sidanco, 104–30 tourist, 99 Stoppard, Tom, 350 Summer Olympics (1980), 3 Summers, Larry, 133, 134 Sunday Express, 314 Sunday Observer, 187 Sunday Telegraph, 2 Surgutneftegaz, 69 surveillance, 221–23, 241–42, 317–18 Switzerland, 88, 89 bank accounts and Magnitsky case, 316–26, 343 Syria, 357 Tarkosaleneftegaz, 156 Tatar Republic, 111 Tatarstan, 214, 229, 238 Tatneft, 111 Tatum, Paul, 126–27 tax-rebate fraud, 231–37, 252–53, 257, 264, 271–72, 288, 301, 316–26, 328 Swiss bank accounts and, 316–26, 343 telephone, 69, 191 television, 91, 365 Templeton, Sir John, 70 and n Templeton Asset Management, 70n “ten bagger,” 39 tennis, 163 Thailand, 131, 191, 210 Tiger Management Corp., 70n Time magazine, 12, 131 Tokyo, 28, 55, 211 Tom Lantos Human Rights Commission, 302 Toronto, 70 Trammell Crow, 21 transfer pricing, 144 Truman, Harry, 13 Tuesdays with Morrie, 149–50 Turkey, 162, 191, 312 Turner, Fred, 338 Tverskoi District Court, 365 UK Law Society, 262 Ukraine, 30, 242 Russian invasion of, 373 Unified Energy System (UES), 69, 165 United Arab Emirates, 191 United States, 256, 312 beef, 334, 336 communism in, 12–14, 26, 27 Depression, 12 IMF bailout of Russian bond market and, 133–34 Magnitsky case and, 262–63, 269, 289–97, 298–309, 327–39, 340–55, 356 Russian adoption ban and, 357–62 Treasury bond market, 52, 65 Wall Street, 119, 144, 376 World War II, 13 United Steelworkers, 23 Universal Savings Bank, 233–34 University of Chicago, 14, 15, 19 University of Colorado, Boulder, 18 Ural Mountains, 274 Vasiliev, Dmitry, 127–29 Vedomosti, 182, 214, 236 Velvet Revolution, 27 Vienna, 14 Vietnam War, 2, 306 visa sanctions and asset freezes, 291, 293–94, 297, 298, 299–309, 327–39, 368, 373, 377 Vladivostok, 287 Volgograd, 225–26 von Pierer, Heinrich, 92 Voronezh, 246 Voronin, Victor, 257 voucher auctions, 68–69 voucher privatization, 59–60, 67–70, 105 Vyakhirev, Andrey, 159 Vyakhirev, Gennady, 159 Vyakhirev, Rem, 159, 162 Vyugin, Oleg, 176, 178 Wall Street (film), 119 Wall Street Journal, 2, 48, 49, 126, 148, 160, 182 Warsaw, 31, 35 Washington, D.C., 263, 269, 289–97, 298–309, 327–39, 340–50 Washington Post, 160, 180, 263–64, 330 Welch, Jack, 92 Weyerhaeuser pension fund, 122 Whiteman School, Steamboat Springs, Colorado, 15–17 Wicker, Roger, 327, 335 and n, 341 Winer, Jonathan, 289–91, 293, 295, 297 Wolosky, Lee, 147 World Bank, 27–31, 38, 134 World Economic Forum, Davos in 1996, 88–93 in 2007, 191–95 in 2013, 363 World Trade Organization (WTO), 333 World War II, 13, 228, 279–80, 369 Yale University, 14, 20 Year of Living Dangerously, The (film), 24 Yeltsin, Boris, 87 economic reforms, 87, 91 1996 presidential elections, 87–94, 97–98, 101–3 YouTube, 264, 310–15, 321–26, 327 Hermitage video, 264–65, 271–72, 310 Karpov video, 313, 314–15, 322–23, 343 Kuznetsov video, 313–15, 322–23, 343 Russian Untouchables videos, 310–15, 321–26, 343 Stepanova video, 321–23, 325–26, 343 Yucaipa, 81 and n Yuganskneftegaz, 111 Yukos, 144, 145, 167, 183, 257 oligarch corruption, 167–69 Zurich, 70, 89 Zyuganov, Gennady, 87, 89, 91–93, 100, 102–3 Simon & Schuster 1230 Avenue of the Americas New York, NY 10020 www.SimonandSchuster.com Copyright © 2015 by Hermitage Media Limited Certain names and identifying characteristics have been changed.


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

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

These strategies, known to lawyers as the double Irish and the Dutch sandwich, helped Google to reduce its overseas tax rate to 2.4%.65 Margaret Hodge, who chairs the UK parliament’s Public Accounts Committee, took Google’s UK Vice-President, Matt Brittin, to task over this: ‘You are a company that says you “do no evil”. And I think that you do do evil.’ Hodge, who has repeatedly challenged rich and irresponsible business leaders, was condemned by the Treasury for ‘grandstanding’ and scaring off foreign investment.66 Transfer pricing is a business in itself: in 2009, accountancy firm Ernst & Young employed 900 staff just on working out transfer pricing packages to sell to companies.67 Many major multinationals each employ hundreds of lawyers and accountants to work out ever more ingenious ways of avoiding tax. Yet at the time, the UK’s tax authority, Her Majesty’s Revenue and Customs (HMRC), employed only 600 workers to check the affairs of 700 companies, and only about 100 of those deal with tax avoidance.

It operates as a hugely powerful lobbying agency for financial interests.58 Uniquely, it has an official, known as the ‘remembrancer’, with an annual budget of £6 million, who is allowed to sit in the House of Commons and vet legislation to protect the interests of the City.59 The Corporation has been immensely successful in its mission, though it got a helping hand in 1996 from Tony Blair, who reversed the Labour Party’s long-standing opposition to it and endorsed and extended its power.60 The position of the City at the centre of the UK’s tax haven network is reflected in the webpage of Mark Boleat, the Corporation’s current Policy and Resources Committee chair and chief lobbyist: it tells us that he was born in Jersey, was formerly a member of the Gibraltar Financial Services Commission and currently has non-executive positions that include the States of Jersey Development Company and Chair of the Channel Islands Competition and Regulatory Authorities.61 ‘Transfer pricing’ – or ‘mis-pricing’ – is another key to the havens’ existence. Multinational companies can play off countries against each other to minimise tax by rigging their accounts. They can shift profits across borders to where taxes are lowest, minimising their declared profits where taxes are relatively high – even if those places are also where they do most business. Let’s say a company does much of its business in country A, where profits are relatively highly taxed.


pages: 1,065 words: 229,099

Real World Haskell by Bryan O'Sullivan, John Goerzen, Donald Stewart, Donald Bruce Stewart

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bash_history, database schema, Debian, distributed revision control, domain-specific language, en.wikipedia.org, Firefox, general-purpose programming language, job automation, p-value, Plutocrats, plutocrats, revision control, sorting algorithm, transfer pricing, type inference, web application, Y Combinator

It gives an item only if the character actually possesses it, which is reasonable, but by returning a Bool, it complicates the code of its callers. Here is an item sale function that has to look at the result of maybeGiveItem to decide what to do next: -- file: ch28/GameInventory.hs maybeSellItem :: Item -> Gold -> Player -> Player -> STM Bool maybeSellItem item price buyer seller = do given <- maybeGiveItem item (inventory seller) (inventory buyer) if given then do basicTransfer price (balance buyer) (balance seller) return True else return False Not only do we have to check whether the item was given, we have to propagate an indication of success back to our caller. The complexity thus cascades outwards. There is a more elegant way to handle transactions that cannot succeed. The STM API provides a retry action that will immediately terminate an atomically block that cannot proceed.

We can use retry to correct this, while keeping the function’s type the same: -- file: ch28/GameInventory.hs transfer :: Gold -> Balance -> Balance -> STM () transfer qty fromBal toBal = do fromQty <- readTVar fromBal when (qty > fromQty) $ retry writeTVar fromBal (fromQty - qty) readTVar toBal >>= writeTVar toBal . (qty +) Now that we are using retry, our item sale function becomes dramatically simpler: -- file: ch28/GameInventory.hs sellItem :: Item -> Gold -> Player -> Player -> STM () sellItem item price buyer seller = do giveItem item (inventory seller) (inventory buyer) transfer price (balance buyer) (balance seller) Its behavior is slightly different from our earlier function. Instead of immediately returning False if the seller doesn’t have the item, it will block (if necessary) until both the seller has the item and the buyer has enough money to pay for it. The beauty of STM lies in the cleanliness of the code it lets us write. We can take two functions that work correctly, and use them to create a third that will also behave itself, all with minimal effort.

. -- file: ch28/GameInventory.hs bogusTransfer qty fromBal toBal = do fromQty <- atomically $ readTVar fromBal -- window of inconsistency toQty <- atomically $ readTVar toBal atomically $ writeTVar fromBal (fromQty - qty) -- window of inconsistency atomically $ writeTVar toBal (toQty + qty) bogusSale :: Item -> Gold -> Player -> Player -> IO () bogusSale item price buyer seller = do atomically $ giveItem item (inventory seller) (inventory buyer) bogusTransfer price (balance buyer) (balance seller) In concurrent programs, these kinds of problems are notoriously difficult to find and reproduce. For instance, the inconsistency that we describe here will usually only occur for a brief period of time. Problems such as this often refuse to show up during development, instead occurring only in the field under heavy load. The alwaysSucceeds function lets us define an invariant, a property of our data that must always be true: ghci> :type alwaysSucceeds alwaysSucceeds :: STM a -> STM () When we create an invariant, it will immediately be checked.


pages: 388 words: 125,472

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

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

Senior MPs have concluded that accountants were not simply offering governments their expertise: they were advising governments on tax law, and then telling their clients how to get around the laws they had themselves helped to draw up. It was a lucrative business for the Big Four, worth £2 billion in Britain alone. As the Public Accounts Committee pointed out, HMRC could not even hope to compete with the resources of the accountancy firms, meaning they had to depend on their expertise. The firms could boast four times as many workers as HMRC in the field of ‘transfer pricing’ – a euphemistic accountancy term that refers to the shifting of taxable profits to places with lower tax. As well as staffing tax-advisory panels, the Big Four second members of their team to the Treasury. The civil service proudly champions secondment, claiming that ‘it allows people from different organizations to learn from each other and share good practice’, as well as giving ‘organizations outside the civil service a useful insight into the workings of central government’.2 Secondment, though, has everything to do with the Establishment mentality of blurring the lines between the private and public sectors, and pushing for the ever-greater influence of business in the state machinery.

Starbucks’ defence was that, despite having 735 British outlets, it was reporting losses year after year, and thus was not eligible for corporation tax: it paid no corporation tax whatsoever between 2009 and 2013. Privately, Starbucks was telling its investors and analysts that it was profitable in Britain, and even suggested it as an example to emulate back in the United States. In reality, the company was routing profits to the Netherlands and Switzerland using offshore licensing and transfer pricing. Its thirty Swiss stores were reporting a 20 per cent profit margin. The company charged its British subsidiary a royalty fee worth 6 per cent of total sales for using ‘intellectual property’ such as the Starbucks brand. The company had a secretive, profitable tax arrangement with the Dutch government, and paid just a 12 per cent tax rate in Switzerland. This is ingenious: a company levying a tax on itself, and redirecting profits to countries with more favourable tax regimes.


pages: 515 words: 142,354

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

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

The Troika could and should have focused its attention on this. 29 Thus Apple, the largest firm by capitalization in the world, has claimed that a very large part of its profits originated in a subsidiary in Ireland. Multinationals can easily claim that their profits are earned in a low-tax jurisdiction. The mechanics by which this is done need not detain us here. In today’s globalized world, production of a final good entails multiple steps, and firms have considerable discretion in determining where, along the production line, true value added occurs. The system is called the “transfer price system,” because companies pretend that they buy and sell partially completed goods from one country to another. The prices are supposed to be arm’s-length prices; the problem is that in the case of most of these partially completed goods, there does not exist a true market to determine the value. 30 An international commission of which I was a member, the Independent Commission for the Reform of International Corporate Taxation, proposed an alternative, and at a major UN conference on Finance for Development meeting in Addis Abba in July 2015, the developing and emerging markets, led by India, virtually unanimously supported beginning a UN process to look at these alternatives.

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


pages: 170 words: 51,205

Information Doesn't Want to Be Free: Laws for the Internet Age by Cory Doctorow, Amanda Palmer, Neil Gaiman

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Airbnb, barriers to entry, Brewster Kahle, cloud computing, Dean Kamen, Edward Snowden, game design, Internet Archive, John von Neumann, Kickstarter, optical character recognition, Plutocrats, plutocrats, pre–internet, profit maximization, recommendation engine, rent-seeking, Saturday Night Live, Skype, Steve Jobs, Steve Wozniak, Stewart Brand, transfer pricing, Whole Earth Catalog, winner-take-all economy

And that means that the existing YouTube-like services will stabilize, consolidate, and settle on the least competitive terms they can all live with. The fewer channels there are, the worse the deal for creators will be. Any choke point between the creator and the audience will turn into a tollbooth, where someone will charge whatever the market will bear for the privilege of facilitating the buying and selling of creative work. Economists call this “transfer pricing”—all of a sudden, profits are captured at this choke point, rather than at any previous or successive stage. Right now, there are a lot of distribution channels that creators can use to reach audiences—if you don’t like YouTube, there’s Hulu, Vimeo, Vodo, and a hundred others. If you don’t like Amazon, there’s BN.com, Lulu, Smashwords, BookBaby, and many other platforms. If you don’t want to sell your video games through Walmart, there’s Steam, the Humble Indie Bundle, and many other venues.

Global Financial Crisis by Noah Berlatsky

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accounting loophole / creative accounting, asset-backed security, banking crisis, Bretton Woods, capital controls, Celtic Tiger, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, Doha Development Round, energy security, eurozone crisis, financial innovation, Food sovereignty, George Akerlof, Gordon Gekko, housing crisis, illegal immigration, income inequality, market bubble, market fundamentalism, moral hazard, new economy, Northern Rock, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, South China Sea, structural adjustment programs, too big to fail, trade liberalization, transfer pricing, working poor

African countries should have the right to take unilateral actions to stop debt payments because they violate the basic human and social rights of their citizens. Likewise, Africa should launch another major struggle for the repatriation of the wealth stolen from the African people and illegally kept abroad with the complicity of Western states and financial institutions. Tax evasions, capital flight and transfer pricing have deprived African countries of billions of dollars that should be returned to serve the continent’s development. Therefore, Africa, through its regional and continental institutions, should launch a campaign for the repatriation of that wealth and seek the help of the United Nations institutions, the solidarity of the global South and the support of progressive public opinion in the North.


pages: 249 words: 73,731

Car Guys vs. Bean Counters: The Battle for the Soul of American Business by Bob Lutz

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corporate governance, currency manipulation / currency intervention, flex fuel, medical malpractice, Ponzi scheme, profit maximization, Ralph Nader, shareholder value, Steve Jobs, Toyota Production System, transfer pricing, Unsafe at Any Speed, upwardly mobile

“If this is really what you want, why deal with Asia-Pacific? We can do exactly the same thing, right here in North America!” I wasn’t buying. Changing a car that much really meant “all-new car,” and at the anticipated modest sales volume, would never make business sense. I just kept insisting on a Holden-based idea, which had evolved into a coupe body style, to be marketed as a reborn Pontiac GTO. Months passed in arguments over “transfer price” and “Who’s going to pay for the engineering and the tooling for the U.S. headlights?” GM North America’s view was “Why should we fund an Asia-Pacific project so they can sell in our market?” Asia-Pacific’s view was “You’re the customer and the beneficiary; why should we pay?” My somewhat naïvely utopian view was “Hello! This is all GM. These are wooden nickels we’re pushing back and forth.Toyota wouldn’t be having this stupid discussion, since they care about corporate profitability and don’t suboptimize by region.”


pages: 892 words: 91,000

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

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

The net effect would eliminate $2 million in earnings for ConsumerCo’s consolidated financials (see the Eliminations I column in Exhibit 17.5).4 As for ConsumerCo, in most situations, the earnings impact is small because it is driven by the change in inventory, not the ending inventory. In addition, the $50 million of ending inventory of internal supplies is eliminated in ConsumerCo’s 2015 consolidated financials, with 3 The cumulative value of business units will equal the aggregate value, but the value split depends on the level of transfer pricing between the two units. The higher the transfer price, the more aggregate value is transferred to the private-label business. To value each business unit accurately, record intercompany transfers at the value that would be transacted with third parties. Otherwise, the relative value of the business units will be distorted. 4 There is no impact on cash taxes or NOPLAT from the accounting consolidation. We abstract from any impact of tax consolidation (fiscal grouping) in this example. 384 VALUATION BY PARTS a corresponding deduction from adjusted equity.

Procurement contracts, long-term contracts with customers, and loan agreements, for example, often require the creation of transitional service agreements between buyer and seller to guarantee continuity of the business unit. Or they may include 640 DIVESTITURES change-of-ownership clauses activated upon divestiture that render the existing contract or agreement invalid when ownership in the business transfers. Pricing and Liquidity As discussed in Chapter 5, market valuation levels are generally in line with intrinsic value potential in the long term but can deviate in the short term. A near-term divestiture would seem to be a good idea if the market would price a business above management’s estimate of its intrinsic value. The reverse holds as well: Siemens, for example, abandoned the initial public offering (IPO) of its lighting business OSRAM several times due to adverse market conditions.


pages: 364 words: 101,286

The Misbehavior of Markets by Benoit Mandelbrot

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

He was born in Boston, the son of a Harvard University placement officer; but when World War II began he and his family migrated from city to city, following his father’s military assignments. He also changed universities and concentrations—from the University of California in Berkeley to the campus in Los Angeles, and from medicine to business to economics. His thesis, on a classic economics topic called transfer pricing, was not going well; in fact, one professor advised he drop it. Another suggested he go visit Markowitz, who had left Chicago and was working near UCLA at a well-known think-tank, the RAND Corp. “I introduced myself to him and said I was a great fan of his work,” Sharpe recalled later. And, of course, Markowitz had a good thesis idea, for which he became Sharpe’s unofficial adviser: Simplify the portfolio model.


pages: 523 words: 111,615

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

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accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, disintermediation, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, Hyman Minsky, If something cannot go on forever, it will stop, illegal immigration, income inequality, income per capita, invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey

All of us together, in and out of government, must bear the burden.” 6 OECD (2009). 7 Baker (2010). 8 Dunleavy and Hood (1994), World Bank (2000), Dunleavy et al. (2006); “The New Public Management and its Legacy,” The World Bank, (2000), http://www.mh-lectures.co.uk/npm_2.htm 9 Kay (2010). 10 Surveys of this literature include O’Flynn (2007), OECD (2001, 2003). 11 OECD (2003), 3. 12 Kamarck (2003). 13 Ibid., 7. 14 The study of the role, nature, and evolution of institutions in economic growth and economic behaviour. 15 The well-known difficulty of establishing correct transfer prices within big organizations illustrates how hard it would be for the transactions concerned to involve explicit prices in an external market. 16 For recent examples see Sowell (2007, 2008), Blond (2010). 17 Simon (1991). 18 An overview of their work is available in the 2009 Nobel citation and background paper http://nobelprize.org/nobel_prizes/economics/laureates/2009/sci.html. Accessed 8 June 2010. 19 Ostrom and Ostrom (2004). 20 Helpman (2004). 21 Thomas Jefferson, letter to Isaac McPherson, 13 August 1813, http://press-pubs.uchicago.edu/founders/documents/a1_8_8s12.html. 22 Andersen (2009). 23 Coyle (2003). 24 Johnson (2009); see also Johnson and Kwak (2010). 25 Kay (2009). 26 European Committee for Interoperable Systems, “The Court of First Instance’s Judgement in Case T-201/04, Microsoft v.


pages: 489 words: 111,305

How the World Works by Noam Chomsky, Arthur Naiman, David Barsamian

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affirmative action, anti-communist, Ayatollah Khomeini, Berlin Wall, Bernie Sanders, Bretton Woods, British Empire, business climate, capital controls, clean water, corporate governance, deindustrialization, Fall of the Berlin Wall, feminist movement, glass ceiling, Howard Zinn, income inequality, interchangeable parts, Isaac Newton, joint-stock company, labour market flexibility, land reform, Monroe Doctrine, offshore financial centre, Plutocrats, plutocrats, race to the bottom, Ralph Nader, Ronald Reagan, Rosa Parks, single-payer health, strikebreaker, Telecommunications Act of 1996, transfer pricing, union organizing, War on Poverty, working poor

They don’t enter the Mexican market, and there’s no meaningful sense in which they’re exports to Mexico. Still, that’s called “trade.” The corporations that do this are huge totalitarian institutions, and they aren’t governed by market principles—in fact, they promote severe market distortions. For example, a US corporation that has an outlet in Puerto Rico may decide to take its profits in Puerto Rico, because of tax rebates. It shifts its prices around, using what’s called “transfer pricing,” so it doesn’t seem to be making a profit here. There are estimates of the scale of governmental operations that interfere with trade, but I know of no estimates of internal corporate interferences with market processes. They’re no doubt vast in scale, and are sure to be extended by the trade agreements. GATT and NAFTA ought to be called “investor rights agreements,” not “free trade agreements.”


pages: 487 words: 139,297

Dancing in the Glory of Monsters: The Collapse of the Congo and the Great War of Africa by Jason Stearns

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Berlin Wall, business climate, clean water, colonial rule, failed state, Fall of the Berlin Wall, land tenure, Mahatma Gandhi, means of production, microcredit, technology bubble, transfer pricing, unemployed young men, working-age population, éminence grise

Ann Wright and Renée Fenby (London: Verso, 2001), 31. 13 “Demands and Derailment,” Africa Energy & Mining, May 21, 1997. 14 Special Commission Charged with Examining the Validity of Economic and Financial Conventions Concluded During the Wars of 1996–1997 and 1998: The Lutundula Report , National Assembly of the Democratic Republic of the Congo, February 26, 2006, 35. 15 Author’s interview with Mabi Mulumba, Kinshasa, December 2007. 16 Author’s interview with former presidential advisor, Kinshasa, November 2007. 17 Ibid. 18 Lutundula Report, 32–33. 19 The commander of the armed forces was General Vitalis Zvinavashe and the minister of defense Sidney Sekeramayi. 20 Author’s interview with businessman in Paris, February 2008. 21 “Rautenbach Denies Murder Allegation,” South African Press Agency, December 16, 1999. 22 Author’s interview with Gécamines official, Kinshasa, July 2009. 23 Report of the United Nations Panel on the Illegal Exploitation of Natural Resources in the Democratic Republic of the Congo, United Nations, October 8, 2002, 11; Gérard Prunier, Africa’s World War: Congo, the Rwandan Genocide, and the Making of a Continental Catastrophe (Oxford: Oxford University Press, 2009), 218. 24 Author’s off-the-record telephone interview with a mining executive, May 2009. 25 Confidential South African intelligence report in the author’s possession. 26 Report of the United Nations Panel on the Illegal Exploitation of Natural Resources in the Democratic Republic of the Congo, United Nations, April 12, 2001, 33. 27 International Monetary Fund, Democratic Republic of the Congo: Selected Issues and Statistical Appendix, Country Report 1/123, July 2001, 16. 28 Author’s interview with Jean Mbuyu, Kinshasa, November 2007; author’s interview with Mwenze Kongolo, Kinshasa, May 2009. 29 Confidential industry intelligence report on Billy Rautenbach, August 10, 2000. 30 Ibid. 31 Cliff Taylor, “Congo Wealth Lures Africa’s Power-Players,” Independent (London), October 31, 1998; Michael Nest, “Ambitions, Profits and Loss: Zimbabwean Economic Involvement in the DRC,” African Affairs 100, no. 400 (2001): 484. 32 Report of the United Nations Panel, 8. 33 Martin Meredith, Our Votes, Our Guns: Robert Mugabe and the Tragedy of Zimbabwe (New York: PublicAffairs, 2002), 142. 34 Author’s interview with mining officials, Kinshasa, May 2009. There are, unfortunately, almost no legal safeguards in the Congo to prevent such transfer pricing. 35 Author’s interview with Dona Kampata, Kinshasa, July 2009. 36 Prunier, Africa’s World War, 239. 37 His name has been changed to protect his identity. 38 This section is based on several interviews with the pilot in the Eastern Congo, March 2008. 39 The UN panel of experts that was researching the illegal exploitation of natural resources in the Congo at the time was given similar information regarding how long it took to fly the stockpiles to Kigali. 40 According to Global Witness, a kilo of tin was being sold for $6 in Goma in 1998, when the world coltan price was hovering around $60 per kilo of refined tantalum.


pages: 464 words: 117,495

The New Trading for a Living: Psychology, Discipline, Trading Tools and Systems, Risk Control, Trade Management by Alexander Elder

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additive manufacturing, Atul Gawande, backtesting, Benoit Mandelbrot, buy low sell high, Checklist Manifesto, deliberate practice, diversification, Elliott wave, endowment effect, loss aversion, mandelbrot fractal, margin call, offshore financial centre, paper trading, Ponzi scheme, price stability, psychological pricing, quantitative easing, random walk, risk tolerance, short selling, South Sea Bubble, systematic trading, The Wisdom of Crowds, transaction costs, transfer pricing, traveling salesman, tulip mania

It allows commercial interests to concentrate on their core businesses, offer stable consumer pricing, and obtain a long-term competitive advantage. Hedgers give up a chance of a windfall but insulate themselves from price risks. Survivors value stability. That why the Exxons, the Coca-Colas, and the Nabiscos of the world are among the major players in commodity markets. Hedgers are the ultimate insiders, and a good hedging department not only buys price insurance, but also serves as a profit center. Hedgers transfer price risks to speculators who enter the markets, lured by the glitter of potential profits. It's ironic that hedgers, who have inside information, are not fully confident about prices, while crowds of cheerful outsiders plunk down money to bet on futures. The two largest groups of speculators are farmers and engineers. Farmers produce commodities, while engineers love to apply scientific methods to the futures game.


pages: 493 words: 132,290

Vultures' Picnic: In Pursuit of Petroleum Pigs, Power Pirates, and High-Finance Carnivores by Greg Palast

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anti-communist, back-to-the-land, bank run, Berlin Wall, Bernie Madoff, British Empire, capital asset pricing model, capital controls, centre right, Chelsea Manning, clean water, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, Donald Trump, energy security, Exxon Valdez, invisible hand, means of production, offshore financial centre, random walk, Ronald Reagan, sensible shoes, transfer pricing, uranium enrichment, Washington Consensus, Yogi Berra

I did, and simultaneously worked my way into a closed little circle called “The Workshop on Latin America,” led by Arnold Harberger, the post-graduate seminar better known as the Chicago Boys, the crew then advising the dictator of Chile, Augusto Pinochet. Milton Friedman was easy to charm. The charm I used on him was a theory I had about a new phenomenon: multinational corporations. These huge international corporations could, through their internal transfer pricing and accounting methods, work around the centuries-old laws that controlled, and pretty much prevented, speculators from shifting capital across borders. Once these capital controls were finally defeated and removed, I foresaw a dystopic world, with borders erased, with international corporations more powerful than any nation and above any one nation’s laws or regulations, markets unchained, trade barriers demolished, and finance capital racing like a wild animal from continent to continent.

How I Became a Quant: Insights From 25 of Wall Street's Elite by Richard R. Lindsey, Barry Schachter

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Albert Einstein, algorithmic trading, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, asset allocation, asset-backed security, backtesting, bank run, banking crisis, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, Brownian motion, business process, buy low sell high, capital asset pricing model, centre right, collateralized debt obligation, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, discounted cash flows, disintermediation, diversification, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, full employment, George Akerlof, Gordon Gekko, hiring and firing, implied volatility, index fund, interest rate derivative, interest rate swap, John von Neumann, linear programming, Loma Prieta earthquake, Long Term Capital Management, margin call, market friction, market microstructure, martingale, merger arbitrage, Nick Leeson, P = NP, pattern recognition, pensions crisis, performance metric, prediction markets, profit maximization, purchasing power parity, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Richard Feynman, Richard Feynman, Richard Stallman, risk-adjusted returns, risk/return, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, sorting algorithm, statistical arbitrage, statistical model, stem cell, Steven Levy, stochastic process, systematic trading, technology bubble, The Great Moderation, the scientific method, too big to fail, trade route, transaction costs, transfer pricing, value at risk, volatility smile, Wiener process, yield curve, young professional

For brevity’s sake, I have excluded some themes, including my contributions into asset/liability management for both banks and insurance companies. JWPR007-Lindsey May 7, 2007 16:50 Thomas C. Wilson 99 The Early 1990s: The Market Risk Era The early 1990s marked the market risk era. During this period, the banking industry developed economic capital or value-at-risk (VaR) models, Raroc performance measures,1 and treasury funds transfer pricing rules in order to answer questions with substantial strategic consequences. In order to understand these developments, as well as the contributions I made during this period, it is useful to provide some historical context. Although complex and difficult to summarize, several forces were at work in the early 1990s that helped to shape the market risk and treasury agenda. Primary among these was “The Great Derivatives Debate.”


pages: 552 words: 168,518

MacroWikinomics: Rebooting Business and the World by Don Tapscott, Anthony D. Williams

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accounting loophole / creative accounting, airport security, Andrew Keen, augmented reality, Ayatollah Khomeini, barriers to entry, bioinformatics, Bretton Woods, business climate, business process, car-free, carbon footprint, citizen journalism, Clayton Christensen, clean water, Climategate, Climatic Research Unit, cloud computing, collaborative editing, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, corporate social responsibility, crowdsourcing, death of newspapers, demographic transition, distributed generation, don't be evil, en.wikipedia.org, energy security, energy transition, Exxon Valdez, failed state, fault tolerance, financial innovation, Galaxy Zoo, game design, global village, Google Earth, Hans Rosling, hive mind, Home mortgage interest deduction, interchangeable parts, Internet of things, invention of movable type, Isaac Newton, James Watt: steam engine, Jaron Lanier, jimmy wales, Joseph Schumpeter, Julian Assange, Kevin Kelly, knowledge economy, knowledge worker, Marshall McLuhan, medical bankruptcy, megacity, mortgage tax deduction, Netflix Prize, new economy, Nicholas Carr, oil shock, online collectivism, open borders, open economy, pattern recognition, peer-to-peer lending, personalized medicine, Ray Kurzweil, RFID, ride hailing / ride sharing, Ronald Reagan, scientific mainstream, shareholder value, Silicon Valley, Skype, smart grid, smart meter, social graph, social web, software patent, Steve Jobs, text mining, the scientific method, The Wisdom of Crowds, transaction costs, transfer pricing, University of East Anglia, urban sprawl, value at risk, WikiLeaks, X Prize, young professional, Zipcar

Build New Revenue and Collaboration Models Between Higher Education Institutions to Break Down the Silos Between Them Right now, universities around the world are embracing, to varying degrees, levels one and two—course content exchange and co-innovation—of the Global Network for Higher Learning. But we need to move to the next level. To achieve a Global Network for Higher Learning where students can benefit from the capability of any university in the world, we will need a collaborative revenue model and a new structure of transfer pricing. Students would enroll with their “primary” university, which would handle the disbursement of their tuition fees depending on what other university courses they study. The value of, say, a second-year psychology course at Stanford would be determined by market forces, not some central bureaucracy. Change Incentive Systems to Reward Teaching, Not Just Research Why are universities judged by the number of students they exclude or by how much they spend?


pages: 829 words: 186,976

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

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airport security, availability heuristic, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, big-box store, Black Swan, Broken windows theory, Carmen Reinhart, Claude Shannon: information theory, Climategate, Climatic Research Unit, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, computer age, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, Daniel Kahneman / Amos Tversky, diversification, Donald Trump, Edmond Halley, Edward Lorenz: Chaos theory, en.wikipedia.org, equity premium, Eugene Fama: efficient market hypothesis, everywhere but in the productivity statistics, fear of failure, Fellow of the Royal Society, Freestyle chess, fudge factor, George Akerlof, haute cuisine, Henri Poincaré, high batting average, housing crisis, income per capita, index fund, Internet Archive, invention of the printing press, invisible hand, Isaac Newton, James Watt: steam engine, John Nash: game theory, John von Neumann, Kenneth Rogoff, knowledge economy, locking in a profit, Loma Prieta earthquake, market bubble, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, Monroe Doctrine, mortgage debt, Nate Silver, new economy, Norbert Wiener, PageRank, pattern recognition, pets.com, prediction markets, Productivity paradox, random walk, Richard Thaler, Robert Shiller, Robert Shiller, Rodney Brooks, Ronald Reagan, Saturday Night Live, savings glut, security theater, short selling, Skype, statistical model, Steven Pinker, The Great Moderation, The Market for Lemons, the scientific method, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, transfer pricing, University of East Anglia, Watson beat the top human players on Jeopardy!, wikimedia commons

Bill James, who twenty-five years earlier had ushered in the Sabermetric era* by publishing a book called The Bill James Baseball Abstract, was soon to be hired as a consultant by the Red Sox. An unhealthy obsession with baseball statistics suddenly seemed like it could be more than just a hobby—and as it happened, I was looking for a new job. Two years out of college, I was living in Chicago and working as something called a transfer pricing consultant for the accounting firm KPMG. The job wasn’t so bad. My bosses and coworkers were friendly and professional. The pay was honest and I felt secure. But telling a company how to set prices at its cell phone factory in Malaysia so as to minimize its tax exposure, or hopping a 6 A.M. flight to St. Louis to value contracts for a coal company, was not exactly my idea of stimulating work.


pages: 585 words: 165,304

Trust: The Social Virtue and the Creation of Prosperity by Francis Fukuyama

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barriers to entry, Berlin Wall, blue-collar work, business climate, capital controls, collective bargaining, corporate governance, deindustrialization, Deng Xiaoping, deskilling, double entry bookkeeping, equal pay for equal work, European colonialism, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, global village, hiring and firing, industrial robot, Jane Jacobs, job satisfaction, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, labour market flexibility, labour mobility, land reform, low skilled workers, manufacturing employment, mittelstand, price mechanism, profit maximization, RAND corporation, rent-seeking, Ronald Coase, Silicon Valley, Steve Jobs, Steve Wozniak, The Death and Life of Great American Cities, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, transfer pricing, traveling salesman, union organizing

Large corporations are generally able to borrow money at lower real rates of return than small ones;23 the keiretsu in effect socializes the costs of capital among its members and uses the stable income from the older and better-established firms to subsidize the newer and riskier ventures. Finally, the keiretsu bank, through preferential lending, can serve as a price-clearing agent, helping to equalize rates of return for member companies whose profits have been adversely affected by noncompetitive pricing, much like a corporate treasury that compensates divisions for losses on distorted intracompany transfer pricing. There may be other rationales for intermarket keiretsu. The keiretsu’s brand names, for instance, can be used in new product markets to establish credibility. One very important function that the keiretsu played in the 1960s and 1970s was to block or otherwise control the degree of direct foreign investment in Japan. When the Japanese government agreed to liberalize capital markets in the late 1960s, many Japanese companies feared an influx of foreign, mostly U.S., competition as outside multinationals bought stakes in Japanese businesses.

Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals by David Aronson

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Albert Einstein, Andrew Wiles, asset allocation, availability heuristic, backtesting, Black Swan, capital asset pricing model, cognitive dissonance, compound rate of return, Daniel Kahneman / Amos Tversky, distributed generation, Elliott wave, en.wikipedia.org, feminist movement, hindsight bias, index fund, invention of the telescope, invisible hand, Long Term Capital Management, mental accounting, meta analysis, meta-analysis, p-value, pattern recognition, Ponzi scheme, price anchoring, price stability, quantitative trading / quantitative finance, Ralph Nelson Elliott, random walk, retrograde motion, revision control, risk tolerance, risk-adjusted returns, riskless arbitrage, Robert Shiller, Robert Shiller, Sharpe ratio, short selling, statistical model, systematic trading, the scientific method, transfer pricing, unbiased observer, yield curve, Yogi Berra

Because stocks and corporate bond investments expose investors to risks that exceed the risk-free rate (government treasury bills), investors are compensated with a risk premium—the equity risk premium and the corporate-bond risk premium. The economic function of the futures markets has nothing to do with raising capital and everything to do with price risk. Price changes, especially large ones, are a source of risk and uncertainty to businesses that produce or use commodities. The futures markets provide a means by which these businesses, called commercial hedgers, can transfer price risk to investors (speculators). At first blush, it may seem puzzling that commercial hedgers would even need investors to assume their price risk. Because some hedgers need to sell, like the farmer who grows wheat, and some need to buy, like the bread company that uses wheat, why don’t hedgers simply contract with each other? They do, but often there is an imbalance in their hedging needs. Sometimes wheat farmers have more wheat to sell than bakery companies and other commercial users of wheat need to buy.


pages: 554 words: 168,114

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

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

None of their experts had accurately assessed all the consequences of President Putin’s seizure of Yukos in November 2003. Nor did they link it with the decision by Gennadi Timchenko, Putin’s key adviser about oil during the Saint Petersburg era, to move Gunvor, a Russian oil trader, from London to Switzerland. Some said the move was executed to exploit an easier climate, beyond regulatory reach. Others assumed that Gunvor was involved in transfer pricing by reselling Russian crude oil and refined products bought for artificially low prices. A few in Moscow felt that Timchenko was doing the opposite, paying top prices for Russian crude to get market share and earning his profits from refined products. In more prosaic language, Albert Helmig, a former vice chairman of Nymex, who had served on several of its regulatory committees, explained that in Switzerland Timchenko could benefit from “better vocabulary texture.”