tulip mania

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pages: 263 words: 84,410

Tulipomania: The Story of the World's Most Coveted Flower & the Extraordinary Passions It Aroused by Mike Dash

fixed income, Ponzi scheme, random walk, South Sea Bubble, spice trade, trade route, tulip mania

From the context in which the chronicler mentions the tulip house it seems the passage may not be contemporary. The development of the tulip mania Posthumus, “The Tulip Mania in Holland,” pp. 140–42; Krelage, Bloemenspeculatie in Nederland, pp. 42, 49–52. A contemporary chronicler Aitzema, Saken van Staet en Oorlogh, p. 504. Like many of the prices cited by historians of the mania, van Aitzema’s seem to be drawn from the fictionalized Samenspraecken, three pamphlets published in 1637 that purported to record conversations between a tulip dealer and his friend. See chapter 11 for details. Generael der Generaelen van Gouda Krelage, Bloemenspeculatie in Nederland, pp. 35, 49. Schama says that Gouda was one of the cheapest and least spectacular varieties, which is not correct. Later prices quoted for Semper Augustus Ibid., pp. 32–33, 68; Garber, “Tulip-mania,” p. 537; Segal, Tulips Portrayed, pp. 8–9.

It is perfectly possible that methods of this sort were indeed practiced upon occasion, but surely not so cynically and so regularly as to have a significant effect on bulb prices. In truth there was no need to concoct elaborate conspiracy theories to account for the excesses of the bulb craze. The greed, inexperience, and shortsightedness of the florists themselves were all that was required to turn tulip trading into tulip mania. It was the last week of April before the Court of Holland finally concluded its review of the tulip mania. Eight weeks had passed since the growers had met at Amsterdam to propose their own solution to the crisis, three months since the collapse of the flower trade throughout the province. Yet when the learned judges of the Court returned their findings to the States, they began by admitting that they still did not fully understand what had caused the bulb craze or why things had gotten so badly out of hand.

He was the last known victim of the tulip mania. CHAPTER 15 At the Court of the Tulip King The final liquidation of the Dutch mania at the beginning of 1639 left many Hollanders with a distinct aversion to tulips. The episode did not entirely put off the wealthiest collectors of the rarest bulbs; they had never really been involved in the tavern trade in any case and could thus afford to ignore the ridicule that the pamphleteers heaped on those who had found themselves caught up in the frenzy. These few continued to pay high prices for individual bulbs for another hundred years. But interest in tulips otherwise fell away in the United Provinces, now that there was no possibility of making a quick fortune from the flower. Yet the world had not seen the last of tulip mania. Like bubonic plague, it was a strange and complex disease that could rage for a while and then seem to disappear when—like plague—it was really only lying dormant.


pages: 333 words: 76,990

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

"Robert Solow", asset allocation, banking crisis, banks create money, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, Fall of the Berlin Wall, financial innovation, fixed income, Flash crash, forward guidance, Francis Fukuyama: the end of history, George Akerlof, housing crisis, index fund, invention of the printing press, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kickstarter, liberal capitalism, light touch regulation, liquidity trap, Live Aid, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, oil shock, open economy, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve

For the sake of simplicity, the following sections bring together some of the similarities and themes that are common to these different bubble periods in an attempt to draw together a guide to investors who are looking for important warning signs and red flags, but there are many excellent and more in-depth studies of historical bubbles for those seeking more detail, in particular the work of Edward Chancellor.4 Spectacular Price Appreciation … and Collapse One of the most important features of bubbles in financial assets is the spectacular and often rapid appreciation of prices and valuations that occurs during the bubble, which generates valuations that ultimately overstate the likely possible future returns. It is the sheer scale of the excitement and speculation, as well as price appreciation, which is really the hallmark of all bubbles. The tulip mania of the 1630s, one of the earliest well-documented bubbles, has become synonymous with the idea of a ‘mania’ in financial markets. It is intriguing not only because of the staggering price rises during the bubble period itself, but also because the mania appears to have been based purely on greed and speculation, with no fundamental underpinnings to support it. Although the breadth and impact of the tulip mania has since been questioned (see Thompson 2007) it was, nonetheless, a boom of historic proportions. Between November 1636 and February 1637, the price of some tulip bulbs had increased 20 times and, at the height of the bubble, a single bulb could have the same value as a luxury townhouse.5 When the market finally crashed, in February 1637, just as occurred in so many other examples in history, the falls were as spectacular as the rises that preceded them.

They also found that the magnitude of these bubbles increases with the radicalness of innovations, with their potential to generate indirect network effects and with their public visibility at the time of commercialisation.12 Although it is not obvious that innovation was a trigger in the case of the tulip mania, it could be argued that it was important in the financial bubbles of the South Sea Company in Great Britain and the Mississippi Company in France in 1720. Although these bubbles involved frenzied speculation and price rises in the shares of the companies involved, and may appear no more rational than the tulip mania a century earlier, more recent interpretations have suggested that innovations and new technologies did play a part in their development. Furthermore, as is also common in so many bubble periods, a strong narrative helped to justify the increase in expected future returns at the time.13 Frehen, Goetzmann and Geert Rouwenhorst (2013) argue that ‘financial bubbles require a plausible story to justify investor optimism’.

According to their work, 83%–95% of buyers in 2003 were expecting an annual growth rate for housing prices of about 9%, on average, in the following 10 years, well above long-run averages.3 This chapter touches on the issue of bubbles solely in an attempt to identify repeated patterns, characteristics and behaviours that echo across history. There have been many famous bubbles that have been well documented over a period of more than four centuries. Among the most notable, although by no means the only ones, were the following: 1630s: The tulip mania in Holland 1720: The South Sea bubble, UK, and the Mississippi bubble, France 1790s: The canal mania in UK 1840s: The railway bubble in UK 1873: The railway bubble in the US 1920s: The stock market boom in the US 1980s: The land and stock bubble in Japan 1990s: The technology bubble, global 2007: The housing/banking bubble in the US (and Europe). When reviewing these bubbles, and their eventual collapse, there are some common threads and characteristics that link them even though they originated in an array of different industries and under very different circumstances.


pages: 289 words: 113,211

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

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

They were within the paradigms of the Internet demand, so they were purchased as equivalent commodities. The reason so many businesses with no apparent prospects for profitability found takers was that the demand they were fulfilling was speculative, not economic. This dynamic is not new. It has been in play in the markets as far back as the classic tulip bubble in seventeenth-century Holland. WHY TULIP MANIA WASN’T CRAZY Many of the stories related to the Dutch tulip mania of the 1630s are apocryphal, drawn for sermons on the bitter fruits of avarice, the fodder for object lessons on prudence and frugality. These stories often tried to bring perspective to the phenomenon by introducing hapless, but arguably more rational, outsiders into the middle of the frenzy. One concerns a sailor returning to Amsterdam from sea, unaware of the tulip boom.

Then, within a few short days in mid-February of the next year, the market simply disappeared. 174 ccc_demon_165-206_ch09.qxd 7/13/07 2:44 PM Page 175 T H E B R AV E N E W W O R L D OF HEDGE FUNDS The explanation for the tulip mania usually centers on the irrationality of the market—the incredible excess in paying unbelievable prices for mere flowers. This misses the point. Botany and horticulture were an avocation for many wealthy Europeans in the seventeenth century. And tulips in Holland were among the most sought-after and valued. The rarest, most highly prized tulips were those with irregular colors, or “flames.” They hardly ever reproduced, and when they did, their offspring often did not share the same flaming characteristics as the mother bulb.3 Paying exorbitant sums for these rare flowers was no more unusual than for the very wealthy today to pay fortunes for a Rembrandt (who, by the way, was painting the rich in Amsterdam in 1637). But even before tulip mania seized Holland—and for decades after the bubble burst—such rare bulbs fetched huge sums.

But even before tulip mania seized Holland—and for decades after the bubble burst—such rare bulbs fetched huge sums. In fact, just one month after the common bulbs that fueled the mania could no longer find a buyer, a quantity of rare bulbs was sold in Haarlem, a center of the tulip mania, for more than 10,000 guilders. Tulip mania came neither from these rare bulbs nor from their collectors. The fervor of the collectors may have been a trigger for the bubble, but it was distinct from the event. Rare bulbs were the exclusive province of the wealthy, and in any case were in such short supply that they could not possibly have supported a broad market upsurge. No, the objects of the mania were ordinary bulbs, which were in abundant supply—at least to meet the usual demand. They were purchased by the pound, sight unseen, and were traded for the simple reason that, unlike the rare bulbs, they were available.


pages: 319 words: 106,772

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

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

If you had bought and held an equally weighted portfolio of these stocks from 1970 until 1996, you would have done as well as the Standard & Poor’s 500 Index.8 This example appears to provide evidence that clearly refutes the claim that there are times when stock prices are just plain wrong. If the Nifty Fifty are examples of absurdly overpriced stocks, then it seems that we have failed to make our case that such examples are proof of market irrationality. Peter Garber, in his book Famous First Bubbles, argues that the most famous bubble of all, the seventeenth-century tulip mania in Holland, was not a clear example of irrational mispricing either. The story of the tulip mania, popularized in a book by Charles Mackay in 1841, is so well known today as to be part of our popular culture, and it is widely cited as an example of a speculative bubble. The term refers to a time when prices of tulip bulbs reached what seemed like absurd levels and then crashed. In 1636, for example, a single tulip bulb was sold in exchange for twelve acres of building land.

.: Harvard University Press, 1969], Book 6, No. 19, pp. 437–38.) By saying that there was much discussion, he is suggesting word-of-mouth effects, but he really does not tell a mania story. 2. The tulip mania, a speculative bubble in the price of tulips in Holland in the 1630s, will be discussed in Chapter 9. There were Dutch newspapers by 1618, and Holland, in contrast to other countries at the time, allowed the printing of domestic news, not just foreign news. On these pioneering Dutch newspapers, see Robert W. Desmond, The Information Process: World News Reporting to the Twentieth Century (Iowa City: University of Iowa Press, 1978). The primary surviving source of information about the tulip mania is a pamphlet published in Holland during its peak. The anonymous 1637 document, in the form of a dialogue between two men, gives detailed news of the speculation as it was then unfolding.

For a better understanding of how precipitating factors exert their effects and how they are amplified, we turn, in the next part, to a broader discussion of the cultural changes that accompanied the recent stock market boom and other speculative booms. Part Two Cultural Factors This page intentionally left blank Four The News Media T he history of speculative bubbles begins roughly with the advent of newspapers.1 One can assume that, although the record of these early newspapers is mostly lost, they regularly reported on the first bubble of any consequence, the Dutch tulip mania of the 1630s.2 Although the news media—newspapers, magazines, and broadcast media, along with their new outlets on the Internet—present themselves as detached observers of market events, they are themselves an integral part of these events. Significant market events generally occur only if there is similar thinking among large groups of people, and the news media are essential vehicles for the spread of ideas.


pages: 442 words: 39,064

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

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

A variety of tulip (the Viceroy) whose bulb was one of the most expensive at the time of the tulip mania in Amsterdam, from The Tulip Book of P. Cos, including weights and prices from the years of speculative tulip mania (1637); Wageningen UR Library, Special Collections. finan cial crashe s : w h a t, w h y, a n d w h e n? 9 as the medium of speculation and their price determined the wealth of participants in the tulip business. It is not clear whether the build-up attracted new investment or new investment fueled the build-up, or both. What is known is that as the build-up continued, more and more people were roped into investing their hard-won earnings. The price of the tulip lost all correlation to its comparative value with other goods or services. What we now call the “tulip mania” of the seventeenth century was the “sure thing” investment during the period from the mid-1500s to 1636.

This signals the possible existence of a subtle but nonetheless influential worldwide cooperativity at times preceding crashes. HISTORICAL CRASHES In the financial world, risk, reward, and catastrophe come in irregular cycles witnessed by every generation. Greed, hubris, and systemic fluctuations have given us the tulip mania, the South Sea bubble, the land booms in the 1920s and 1980s, the U.S. stock market and great crash in 1929, and the October 1987 crash, to name just a few of the hundreds of ready examples [454]. The Tulip Mania The years of tulip speculation fell within a period of great prosperity in the republic of the Netherlands. Between 1585 and 1650, Amsterdam became the chief commercial emporium, the center of the trade of the northwestern part of Europe, owing to the growing commercial activity in newly discovered America.

The rather sophisticated presentations, the apparently serious references that seem to justify their origins, and their distinguished proponents provide food for amplifications serving diverse interests and psychological biases in all layers of society. Notwithstanding the probable confusion it may bring to the mind of readers, it seems appropriate to mention here a recent book by P. M. Garber that reexamined the tulip mania and the Law and South Sea bubbles described in chapter 1 with a fresh and close look at the historical record [153]. His main conclusion is that the fabled elements ritually invoked as underlying speculative bubbles with herding and irrational behavior are just not true. Instead, he defends the view that these events have a possible explanation in terms of fundamental valuation. The interesting part is that Garber views the tulip mania “myth” as originating from a rumor that was progressively strengthened by successive authors using it for their own agenda, such as to support moralistic attacks against “excessive speculation” and, in modern times, to plead for government regulation: “the tulipmania episode is simply a rhetorical device used to put forward an argument that the existence of positi ve feedback s 111 tulipmania proves that markets are crazy.


pages: 247 words: 68,918

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

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

Market failure didn’t begin with the global recession of 2009, the bank failures of 2008, the credit crunch of 2007, the savings-and-loan crisis of the 1980s,3 or even the stock market crash of 1929. Those investing heavily in the South Sea Company in 1720, the victims of irrational exuberance over the firm’s monopoly on trade in the South Seas, might have saved themselves some heartache had they learned the lessons of the Dutch tulip mania of 1637.4 Each successive market meltdown creates a temporary surge of momentum behind government efforts to ensure that it never happens again. That’s why the state’s role in enabling modern capitalism extends well beyond the provision of a social safety net. Even in America, home to many a free-market champion, government is expected to referee the game to ensure that players observe the rules, to serve as lender and guarantor of last resort, and to provide public goods like national defense, a criminal-justice system, public education, environmental protection, health insurance for the elderly and poor, air-traffic control, and disaster relief.

What’s true for the U.S. approach to China is true for relations with other champions of state capitalism. Profiting from access to markets in Russia, the Persian Gulf, and elsewhere means welcoming investment from these places—even from state-owned companies. Free markets will always move in cycles. Greed will fuel more booms, and fear will drive more busts. Each time a bubble bursts, someone will retell the story of the tulip mania of 1636, the South Sea bubble of 1720, and the dot-com bubble of the 1990s. But markets are not to blame when governments fail to properly regulate them. As Philip Stephens wrote in the Financial Times at the height of the crisis in March 2009, “Prominent among the causes of the financial crash was the failure of politics to keep up with economic integration. Global markets ran far ahead of the capacity of governments to oversee, even to understand, them.”16 Severe as it was, this crisis cannot obscure what came before.

The shares then fell 90 percent in the remainder of 1720, ending the year at the January price but ruining many latecomers to the market in the process. In the same year, a similar Mississippi Bubble led to the collapse in value of the French-based Louisiana Company shares, which had risen 3,600 percent the year before. These two first stock-based bubbles were preceded nearly a century earlier by the Netherlands’ tulip mania, in which tulip bulbs briefly became a commodity as valuable as gold before the price collapsed in February 1637. All three bubbles were first popularly summarized in Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds (1841; New York: Harmony Books, 1980). 5 The most accessible reference to Wilhelm Liebknecht’s use of this phrase is at http://www.marxists.org/archive/liebknecht-w/1896/08/our-congress.htm. 6 Ludwig von Mises, Socialism: An Economic and Sociological Analysis, trans.


pages: 309 words: 54,839

Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts by David Gerard

altcoin, Amazon Web Services, augmented reality, Bernie Madoff, bitcoin, blockchain, Blythe Masters, Bretton Woods, clean water, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, distributed ledger, Ethereum, ethereum blockchain, Extropian, fiat currency, financial innovation, Firefox, Flash crash, Fractional reserve banking, index fund, Internet Archive, Internet of things, Kickstarter, litecoin, M-Pesa, margin call, Network effects, peer-to-peer, Peter Thiel, pets.com, Ponzi scheme, Potemkin village, prediction markets, quantitative easing, RAND corporation, ransomware, Ray Kurzweil, Ross Ulbricht, Ruby on Rails, Satoshi Nakamoto, short selling, Silicon Valley, Silicon Valley ideology, Singularitarianism, slashdot, smart contracts, South Sea Bubble, tulip mania, Turing complete, Turing machine, WikiLeaks

., the Beanie Baby craze of the late 1990s, in which the asset was various instances of a manufactured product line controlled by a single company. (Though after that crash, at least you had a nice cuddly toy.) The key point is the “mania phase.” Charles Mackay’s superlative Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, first published in 1841, remains an excellent and accessible introduction to economic bubbles and the thinking behind them, starting with the Tulip Mania of 1637 and the South Sea Bubble of 1720.51 Bitcoin is a completely standard example. “Stages in a bubble” by Jean-Paul Rodrigue, 2008.52 Bitcoin prices, January 2012 to January 2015. Totally no resemblance to the above. Data: coindesk.com The first bitcoin was mined in January 2009, but for the first year the enthusiasts just exchanged them amongst themselves for fun. The first known conversion to conventional currency was by Martti Malmi, ardent anarcho-capitalist and Bitcoin core coder: “I sold 5,050 BTC for $5,02 on 2009-10-12.”53 The first exchange site was bitcoinmarket.com, which opened 6 February 2010.

Hacked shortly after launch, losing $50 million and splitting Ethereum into two currencies. Tor: The Onion Router, a method to browse the web anonymously. Development is substantially sponsored by the US government, both for their own use and to help dissidents in oppressive countries. (Even as the NSA doesn’t like it at all.) Also favoured by Internet trolls and darknet users. Tulip: a pretty flower, and the subject of the 1637 bubble known as “tulip mania,” one of the first well-documented bubbles. Turing complete: when a computer or computer language is sophisticated enough that it can theoretically solve any problem that any other computer can … given enough memory and time. You often don’t want this, because it makes it harder to prove mathematical correctness when you really need to be certain, e.g. in a smart contract. Wallet: anywhere you keep the private keys to your bitcoins.

Gox 37, 44, 62, 82, 139 MTFLabs 132, 137 Mullins, Eustace 17, 21 Music On The Blockchain 132 MusicGlue 125 MusicTechFest 132 MyBus 75 Mycelia 129 mycrimes.txt 51 Nakamoto, Dorian 59, 60 Nakamoto, Satoshi 20, 22, 48, 59, 61, 122 Namecoin 91 NASA 105, 107 NASCAR 93 nChain 68 nCrypt 65 Netflix 130 New York Times 32, 64 Newsweek 60, 64 NHS 73, 113 Nicolle, Raphael 40, 89 nonce 14 nTrust 63 O’Hagan, Andrew 63 OKCoin 82 Open Music Initiative 134 OpenOffice 59 oracle problem 103, 117 Overstock.com 76 Palmer, Jackson 93 Paul, Ron 21, 49 PayPal 18, 28, 36, 62 PC Cyborg Trojan 72 Pedersen, Allen 66 PeerTracks 134 Pembury Tavern 79 Penn State 49 permissioned blockchain 119 Pink Floyd 132 Pirate Bay, The 92, 136 Pirateat40 37, 40, 89 police virus 72 Ponzi 30, 38, 107 PonzICO : Popper, Nathaniel 64, 141 Potter, Phil 87 praxeology 23 press.one 99 Project Black Flag 54 Proof of Elapsed Time 123 Proof of Stake 91, 94 Proof of Work 13, 91, 94, 118, 131 prosecution futures 52 provably fair gambling 39 Provenance, Inc. 116 pump-and-dump 30 quantum computer 96 R3 Blockchain Consortium 111, 123 R3 Corda 123 ransomware 69, 72 RationalWiki 141 Reason (magazine) 31 Rebit.ph 29 Recording Industry Association of America 45 Recovery Right Token 86 Reddit /r/bitcoin 38, 69, 75, 76 /r/buttcoin 143 /r/dogecoin 93 Bitfinex discussion 87 remittances 28 Revelator 135 Ripple 48 Rodrigue, Jean-Paul 36 Rogers, Benji 135 Ron, Dorit 30 Rothbard, Murray 24, 49 RRT 86 Rubixi 108 RuneScape 39 Sandifer, Phil 24 Sartre, Jean-Paul 67 SatoshiDice 111 Sawtooth Lake 123 secured by math 13, 25, 27, 57 Semetric 134 SGI 65 SGX™ 123 SHA-256 96 Shamir, Adi 30 ShapeShift 130 Shavers, Trendon 40 Sheep Marketplace 54 Shiba Inu 92 sidechains 28, 70 SiliconAngle 67 Silk Road 26, 37, 48, 64, 69 Silk Road 2.0 54 Silver, Jeremy 125 133 SingularDTV 98, 136 Singularity 137 Skunk House 71 Slashdot 36, 45 Slock.it 108 smart contract 94 SNGLS 136 SNT 98 Solarstorm 107 Solidity 106, 107, 109, 122 Sony 127 SoundExchange 126 South Sea Bubble 35 Spotify 130, 131, 137 St. Petersburg Bowl 77 Status 95, 98 Stellar 48 Stephenson, Neal 19 streaming 127 Szabo, Nick 19, 32, 59, 101, 102, 105, 107 TAO, The 135 TechUK 115 Telstra 73 Temkin, Max 75 Thiel, Peter 18 Thornburg, Jonathan 23 Tiny Human 129 Today (Radio 4) 67 Todd, Peter 59, 68 Top500 65 Tor 49, 59 Tual, Stephen 109 Tucker, Jeffrey 40 Tulip Mania 35 Tulip Trust 64 Turing completeness 107 Ujo Music 129 UK Government Office for Science 123 Ukash 73 Ulbricht, Lyn 53 Ulbricht, Ross 26, 48, 64 unbanked 29 Underhanded C Contest 106 Underhanded Solidity Coding Contest 106 Venezuela 31 Ver, Roger 17, 37, 44, 47, 48, 50 virtual reality 135 Visa 28, 36 wallet 12 Walpole, Sir Mark 123 WannaCry 73 Washington Post 32 Wells Fargo 87 Western Union 28 Westwood, Adam 64 WhollyHemp 76 WikiLeaks 36, 62 Wikimedia Foundation 76 Wikipedia 76 Wilcke, Jeffrey 94 Willybot 82 Winter Olympics 93 Wired 64 Wise, Josh 93 Wood, Gavin 94 WordPress 75 Wright Family Trust 63 Wright, Craig 61, 139 Yapizon 89 YouTube 137 Zamovskiy, Andrey 120 Zero Hedge 24 Zhoutong 83 Notes [1] Satoshi Nakamoto.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

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

See Britain sunk in lucre’s sordid charms… ‘All this is madness,’ cries a sober sage: But who, my friend, has reason in his rage? The ruling Passion, be it what it will, The ruling Passion conquers Reason still.72 Throughout history there have been periods where asset prices have moved far out of line with economic fundamentals, driven by what Jonathan Swift, in his ballad The Bubble, called ‘the madness of crowds’. These episodes, ranging from the Dutch tulip mania of the seventeenth century to the Mississippi Bubble in eighteenth-century France, were brilliantly chronicled in Memoirs of Extraordinary Popular Delusions by the nineteenth-century journalist Charles Mackay, of which more in a moment.73 If this sounds like a narrow academic debate, it is not. For much of the instability that currently afflicts the world economy is a direct reflection of an aberrant turn in the direction taken by academic economics over the past sixty years or so.

But he added that it was impossible to quash a bubble in a democratic society because it would lead to the Fed’s independence being curtailed.76 As for efficient market theorists such as Eugene Fama, they, too, remain unrepentant. How do they justify themselves? Consider this, first, from the perspective of financial history. In an academic paper, the economist Peter Garber has examined three great bubbles in detail: the Dutch tulip mania, in which contract prices for bulbs soared to astronomical heights and then collapsed; the Mississippi Bubble in France, a scheme engineered by the Scottish adventurer John Law which enjoyed a monopoly over French colonial trade and ended in a speculative frenzy fuelled by the issue of paper money; and the South Sea Bubble in England, where speculation hinged on the South Sea Company’s modest trading rights in the West Indies and South America, together with its purchase of the national debt in exchange for an annual payment from the Exchequer.77 On the seventeenth-century tulip euphoria, Garber argues that Charles Mackay failed to discuss what the fundamental price of tulips should have been, pointing out that there is a standard pricing pattern for new varieties of flowers that holds even today.

This is intended to address the efficient market theorists’ argument that a bubble is an impossibility because market participants would detect any valuation anomaly and immediately bet against it, bringing prices back to ‘efficient’ levels. Shiller has also produced detailed statistical work on stock prices and dividends going back to 1871, in which he finds that the volatility of prices relative to underlying corporate performance is far more than can be explained by efficient market theory.82 Charles Mackay is interestingly in tune with these insights of behavioural finance, even if he is prone to exaggerate. Writing of the tulip mania, he said: Many individuals grew suddenly rich. A golden bait hung temptingly out before the people, and one after the other, they rushed to the tulip-marts, like flies around a honey pot. Everyone imagined that the passion for tulips would last for ever, and that the wealthy from every part of the world would send to Holland, and pay whatever prices were asked for them. The riches of Europe would be concentrated on the shores of the Zuyder Zee, and poverty banished from the favoured clime of Holland.


pages: 611 words: 130,419

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

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

For example, gold has held tremendous value in the public mind for thousands of years, but the public could just as well have accorded it little value if people had started using something else for money. People value gold primarily because they perceive that other people value gold. In addition, Peter Garber, in his book Famous First Bubbles (2000), points out that bubbles can last a long time. Long after the seventeenth-century tulip mania, rare and beautiful tulips continued to be highly valued, though not to such extremes. To some extent, tulip mania continues even today, in a diminished form. The same might happen to Bitcoin. Nonetheless, the value of Bitcoin is very unstable. At one point, according to a headline in the Wall Street Journal, the US dollar price of Bitcoin rose 40% in forty hours2 on no clear news. Such volatility is evidence of the epidemic quality of economic narratives that may lead to an erratic jostling of prices.

There is an impressive mathematical theory underlying cryptocurrencies, but the theory does not identify what might cause people to value them or to believe that other people will also think they have value. Often, detractors describe the valuation of Bitcoin as nothing more than a speculative bubble. Legendary investor Warren Buffett said, “It’s a gambling device.”1 Critics find its story similar to the famous tulip mania narrative in the Netherlands in the 1630s, when speculators drove up the price of tulip bulbs to such heights that one bulb was worth about as much as a house. That is, Bitcoins have value today because of public excitement. For Bitcoin to achieve its spectacular success, people had to become excited enough by the Bitcoin phenomenon to take action to seek out unusual exchanges to buy them. For Bitcoin’s advocates, labeling Bitcoin as a speculative bubble is the ultimate insult.

., 16 Tracy, Spencer, 201 traffic light, replacing policemen, 182–83 Trans-Lux Movie Ticker, 228–29 “trending now,” x trickle-down economics, 44 Triumph of the Will (film), 122 Trohan, Walter, 51 Trulia, 218 Trump, Donald J.: bigly and yuge coined by, 244; downplaying modesty and compassion, 150; gold standard and, 156, 173; modeling ostentatious living, 272; narrative of, xii, 225–26 Trump administration, less generosity toward the poor during, 272 Trump supporters, resembling Silverites, 162–63 Trump University, 226 trust, in business dealings, 101 trusts, public anger about, 181 tulip mania in 1630s, 4, 5 Tversky, Amos, 66 Twain, Mark, 124 Twitter: meme quickly going viral on, 88; retweeting of mostly false stories on, 96–97 Typhoid Mary, 20 tyranny of metrics, 75, 306n5 Uchitelle, Louis, 150 Uncharted: Big Data as a Lens on Human Culture (Aiden and Michel), 24 Uncle Tom’s Cabin (Stowe), 33 underconsumption theory, 187–92 Understanding the Process of Economic Change (North), 14 unemployment: artificial intelligence narrative and, 273; automation and, 199–200, 204; constant reminders of possibility of, 89; crime and, 141, 142; in depression during 1890s, 111; employee morale and, 147; gold standard and, 172; in Great Depression of 1930s, xiv, 111, 132, 141, 142, 143, 146–47, 172, 187, 189–91, 193; Kiplinger’s 1930 list of causes of, 130, 132; labor-saving machinery narrative and, xiv, 9, 130, 177–81, 187–88, 191–92; narratives focused on massive occurrence of, 129–31; Nazi Party’s rise in Germany and, 195; robotics and, 209; technology raising specter of, 8–9, 130; underconsumption theory and, 187–91.


pages: 338 words: 106,936

The Physics of Wall Street: A Brief History of Predicting the Unpredictable by James Owen Weatherall

Albert Einstein, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Asian financial crisis, bank run, beat the dealer, Benoit Mandelbrot, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, Brownian motion, business cycle, butterfly effect, buy and hold, capital asset pricing model, Carmen Reinhart, Claude Shannon: information theory, collateralized debt obligation, collective bargaining, dark matter, Edward Lorenz: Chaos theory, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, George Akerlof, Gerolamo Cardano, Henri Poincaré, invisible hand, Isaac Newton, iterative process, John Nash: game theory, Kenneth Rogoff, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, martingale, Myron Scholes, new economy, Paul Lévy, Paul Samuelson, prediction markets, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical arbitrage, statistical model, stochastic process, The Chicago School, The Myth of the Rational Market, tulip mania, Vilfredo Pareto, volatility smile

They took the foreign investment to mean that all of Europe was catching on to their tulip craze, and so they doubled down: ordinary people sold their belongings, mortgaged their houses, and exhausted their savings to participate in the tulip market. Tulips bulbs are typically planted in the fall and then harvested in the late spring. But winter was the prime time for speculation because this was when would-be investors had the least information about the supply for the coming year: the old bulbs had been planted but the new bulbs and cut flowers were not yet available. It was during the winter of 1636–37 that tulip mania (as it is now called) reached its height. That winter, a single bulb sold for as much as 5,200 guilders (more than $60,000 for one tulip bulb!). And then one day in February 1637, at an otherwise ordinary tulip auction in Haarlem, the bidding stopped too soon. Apparently no one had invited the next batch of tulip fools. That day, prized tulips sold for just a fraction of what they had even one day before.

Herding and similar phenomena — the kinds of behavior that lead to bubbles — seem to be an ever-present aspect of human psychology. No one wants to be left out, and so we tend to copy one another. Ordinarily, though, we do not act like lemmings. Even if we look to one another for guidance, we do not usually follow blindly. The question, then, is why under some circumstances herding seems to take over. How does something like tulip mania strike? When do the normal mental brakes that would keep someone from spending his entire life savings on a tulip bulb give out? Sornette doesn’t have an answer to this question, though he has developed some models that predict which circumstances will lead herding effects to become particularly strong. What Sornette can do is identify when herding effects have taken over. This amounts to identifying when a speculative bubble has taken hold in a particular market and to predicting the probability that the bubble will pop before a certain fixed time (the critical point).

.”: The first paper with Bouchaud was Bouchaud and Sornette (1994). “. . . realized that Sornette’s earlier work . . .”: The first paper on this topic was Sornette (1996); it was greatly expanded the following year in Sornette and Johansen (1997). “. . . in 1841, Charles Mackay wrote a book . . .”: This is Mackay (1841). “Perhaps the most striking example . . .”: For more on tulip mania, see Dash (1999) and Goldgar (2007); for another, more skeptical perspective, see Thompson (2007). “That winter, a single bulb . . .”: These numbers are from Dash (1999). “Since first predicting the October 1997 crash . . .”: See the description of his predictions in Sornette (2003); my reports on his more recent successes are from private communication. “. . . he calls them ‘dragon kings’ ”: See Sornette (2009). 8.


pages: 464 words: 117,495

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

additive manufacturing, Atul Gawande, backtesting, Benoit Mandelbrot, buy and hold, buy low sell high, Checklist Manifesto, computerized trading, 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, zero-sum game

You can only set your position size and decide whether and when to enter or exit your trades. Most traders feel jittery entering a trade. Their judgment becomes clouded after they join the crowd. Caught up in crowd emotions, many traders deviate from their plans and lose money. Experts on Crowds Charles Mackay, a Scottish barrister, wrote his classic book, Extraordinary Popular Delusions and the Madness of Crowds, in 1841. He described several mass manias, including the Tulip Mania in Holland in 1634 and the South Seas investment bubble in England in 1720. The tulip craze began as a bull market in tulip bulbs. The long bull market convinced the prosperous Dutch that tulips would continue to appreciate. Many abandoned their businesses to grow tulips, trade them, or become tulip brokers. Banks accepted tulips as collateral and speculators profited. Finally, that mania collapsed in waves of panic selling, leaving people destitute and the nation shocked.

A trend can continue as long as bulls and bears remain in conflict. A high degree of consensus precedes reversals. When the crowd becomes highly bullish, get ready to sell, and when it becomes strongly bearish, get ready to buy. This is the contrary opinion theory, whose foundations were laid by Charles Mackay, a Scottish barrister. His classic book, Extraordinary Popular Delusions and the Madness of Crowds (1841) describes the infamous Dutch Tulip Mania and the South Seas Bubble in England. Humphrey B. Neill in the United States applied the theory of contrary opinion to stocks and other financial markets. In his book, The Art of Contrary Thinking, he made it clear why the majority must be wrong at the market's turning points: prices are established by crowds, and by the time the majority turns bullish, there aren't enough new buyers to support a bull market.

timing of trades and and volume of trading Trend-following indicators Directional system MACD Lines in Triple Screen trading system Trendlines: diagonal subjectivity of TRIN Triple bullish or bearish divergences Triple Screen trading system choosing timeframes in day-trading entry technique screen Force Index in market tide screen market wave screen objective of Stochastic signals in stops and profit targets in trend-following indicators and oscillators True breakouts True Range (TR) Tulip Mania 12-step programs Twelve Steps and Twelve Traditions (AA) 20-day New High–New Low Index 2% Rule in futures markets as a guideline for pyramiding for institutional traders and Iron Triangle of risk control Two Roads Diverged: Trading Divergences (Alexander Elder) Tyson, Mike U Uncertainty Undecided traders Undercapitalization myth U.S. stock market: price cycles in trends in Unstuff Your Life (Andrew J.


pages: 288 words: 64,771

The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality by Brink Lindsey

"Robert Solow", Airbnb, Asian financial crisis, bank run, barriers to entry, Bernie Sanders, Build a better mousetrap, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, collective bargaining, creative destruction, Credit Default Swap, crony capitalism, Daniel Kahneman / Amos Tversky, David Brooks, diversified portfolio, Donald Trump, Edward Glaeser, endogenous growth, experimental economics, experimental subject, facts on the ground, financial innovation, financial intermediation, financial repression, hiring and firing, Home mortgage interest deduction, housing crisis, income inequality, informal economy, information asymmetry, intangible asset, inventory management, invisible hand, Jones Act, Joseph Schumpeter, Kenneth Rogoff, Kevin Kelly, knowledge worker, labor-force participation, Long Term Capital Management, low skilled workers, Lyft, Mark Zuckerberg, market fundamentalism, mass immigration, mass incarceration, medical malpractice, Menlo Park, moral hazard, mortgage debt, Network effects, patent troll, plutocrats, Plutocrats, principal–agent problem, regulatory arbitrage, rent control, rent-seeking, ride hailing / ride sharing, Robert Metcalfe, Ronald Reagan, Silicon Valley, Silicon Valley ideology, smart cities, software patent, too big to fail, total factor productivity, trade liberalization, transaction costs, tulip mania, Uber and Lyft, uber lyft, Washington Consensus, white picket fence, winner-take-all economy, women in the workforce

Private-label securitization collapsed when the bubble burst and never recovered, but Fannie, Freddie, and Ginnie Mae have kept on buying up and pooling mortgages and issuing government-guaranteed securities as if the crisis never happened. As a result, up to 80 percent of all new home mortgages are being securitized and backed by these state-owned enterprises as of 2016.15 II WE’RE FOREVER BLOWING BUBBLES For all the arcane jargon and hyper-sophisticated financial engineering associated with it, at the bottom of the subprime fiasco was a very old and familiar phenomenon: an asset bubble. Going back to tulip mania in the 1630s, asset bubbles have always been a feature of capitalism. Prices for some investment good start rising for whatever reason, which attracts other investors who want in on the action. At some point, the upswing in prices takes on a life of its own. Prices keep going up simply because people think they will, regardless of the underlying fundamentals. Eventually, something happens to pierce the collective delusion, the bubble pops, and prices come crashing down again.

See regulation; regulatory capture status quo bias, 100 Stiglitz, Joseph, 12, 61 stock market, 31, 38, 46–48 Stop Online Piracy Act, 176 student loans, 38 subprime mortgages, 42–47 subsidies, 17 of countervailing power, 154–59, 208n13, 208n14 debt financing and, 36–63 failure to limit, 55–58 financial sector and, 32, 55–58 mortgage lending and, 36–45, 47, 57–59, 63 “Tobin’s Q” and, 20 Sunstein, Cass, 137, 165 Supreme Court, 76, 100, 166 judicial review and, 170–75 Tabarrok, Alex, 186n14 tariffs, 29, 31, 95, 149 taxation, 7 high income, 11 post-New Deal, 30–31 rising costs of home ownership and, 113 technology. See digital era/information technology Teles, Steven M., 14, 36, 161 Temin, Peter, 11 temporary monopolies, 16, 73 TFP. See total factor productivity “third party support”, 155 Thomas, Diana, 186n14 “Tobin’s Q”, 19–20, 22–23 total factor productivity, 24–27, 78–79 “Treaty of Detroit”, 11 Trump, Donald, 2–4, 8 tulip mania, 46 unionization, 6, 11, 31, 146, 157 collective bargaining and, 28 decline of, 91–92 post-New Deal, 29 upstream innovation, 74 upward mobility, 1, 30, 97–98, 143 upward redistribution, 12–14, 28–31, 127. See also redistribution of wealth homeownership and, 121–22 land-use and, 110 mortgage lending and, 39 urban areas, 114–15 VA. See Veterans Administration Vergara v. California, 158 Veterans Administration, 39, 41 Vox, 149 Wagner Act, 28 Walker, Jack, 155 Warren, Elizabeth, 135 “Washington Consensus”, 11 wealth inequality.


pages: 275 words: 84,980

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

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

Close your eyes and you can hear the London traders of four centuries ago laughing about the idea of ledger money as ridiculous while considering tulip speculation to be a perfectly reasonable commercial venture. After all, tulips are in the end pretty and people like them, whereas no one would accept marks on paper rather than bullion. Yet it was in Amsterdam that an entirely new kind of bank was founded: the Amsterdam bourse began to develop new kinds of trading supported by that bank, and the well-known crisis caused by tulip mania led to regulated derivatives markets (Jay 2000). This came about because of an innovation in the relationship between banks and markets. There had been calls for some sort of ‘payments bank’ (that is, a financial institution that did not extend credit, and therefore could not fail, but that could facilitate value transfers between people) as far back as the fourteenth century in Venice. This was in recognition of the difference between a bank to facilitate transfers in space and a bank to facilitate transfers in time (which involves the provision of credit).

The existence of this marketplace gave the city an immediate comparative advantage because of its access to information. In modern terms it meant that merchants were able to allocate their capital in the most efficient ways. Among other things, the bourse traded derivatives. Futures trading in the Amsterdam markets had its origin in the sixteenth century and futures were traded on the Amsterdam exchange just like any other commodity. Derivatives fed the tulip mania and the subsequent crash, although the reasons for the crisis and crash are not as clear as you might think. Some observers see the tulip market’s collapse as a response to financial regulation, not market fundamentals (see ‘Was tulipmania irrational?’, The Economist, 4 October 2013). Government officials, who were themselves speculating on the markets, were planning a rule change to convert futures contracts into options, which would mean that people who had undertaken to buy tulip bulbs in the future could pay a small amount to cancel the contracts if the price was not in their favour.


pages: 135 words: 26,407

How to DeFi by Coingecko, Darren Lau, Sze Jin Teh, Kristian Kho, Erina Azmi, Tm Lee, Bobby Ong

algorithmic trading, asset allocation, Bernie Madoff, bitcoin, blockchain, buy and hold, capital controls, collapse of Lehman Brothers, cryptocurrency, distributed ledger, diversification, Ethereum, ethereum blockchain, fiat currency, Firefox, information retrieval, litecoin, margin call, new economy, passive income, payday loans, peer-to-peer, prediction markets, QR code, reserve currency, smart contracts, tulip mania, two-sided market

Retrieved from https://help.dydx.exchange/en/articles/2906496-what-is-liquidation-and-when-will-liquidation-occur Zhang, Y., Chen, X., & Park, D. (2018). Formal Specification of Constant Product (x x y = k) Market Maker Model and Implementation. Retrieved from https://github.com/runtimeverification/verified-smart-contracts/blob/uniswap/uniswap/x-y-k.pdf ~ Chapter 8: Decentralized Derivatives Tulip Mania (n.d.). Retrieved from https://penelope.uchicago.edu/~grout/encyclopaedia_romana/aconite/tulipomania.html Chen, J. (2020, January 27). Derivative. Retrieved from https://www.investopedia.com/terms/d/derivative.asp Decentralised synthetic assets. (n.d.). Retrieved from https://www.synthetix.io/products/exchange/ Synthetix.Exchange Overview. (2019, February 15). Retrieved from https://blog.synthetix.io/synthetix-exchange-overview/ Synthethix Litepaper v1.3. (2019).


pages: 121 words: 31,813

The Art of Execution: How the World's Best Investors Get It Wrong and Still Make Millions by Lee Freeman-Shor

Black Swan, buy and hold, cognitive bias, collapse of Lehman Brothers, credit crunch, Daniel Kahneman / Amos Tversky, diversified portfolio, family office, I think there is a world market for maybe five computers, index fund, Isaac Newton, Jeff Bezos, Long Term Capital Management, loss aversion, Richard Thaler, Robert Shiller, Robert Shiller, rolodex, Skype, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, technology bubble, The Wisdom of Crowds, too big to fail, tulip mania, zero-sum game

The hidden force that drives speculative money to buy into a winner is the same as that which causes us to choose to dine in a restaurant that has a queue coming out of the door. Success has an allure. But not all success will last forever. Investors seem to be hard-wired to follow the herd, so we need to be careful when riding a winning stock. Charles Mackay, in his 1841 book Extraordinary Popular Delusions and the Madness of Crowds, examined three bubbles (the 18th-century Mississippi project, the South Sea bubble, and the 17th-century Dutch tulip mania). His research showed how people lose the ability to think rationally under pressures of crowd behaviour. At the height of a bull market or in the depths of a bear market people become herd-minded. And it is rarely safe to be relying on irrationality for profit for too long. “I learned that even though markets look their very best when they are setting new highs, that is often the best time to sell.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

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

Meanwhile banks become unwilling to lend, and indeed demand repayment of their loans, further weakening the supply/demand balance. In the case of American housing, homeowners walked away from their loans or faced foreclosure from the banks, leaving behind a glut of empty houses that weighed on the markets. Charles Kindleberger, a great historian of bubbles, used the Minsky model to examine everything from tulip mania in the seventeenth century to John Law’s system and the Asian crisis of the late 1990s. He showed they followed a template of a ‘displacement’ – some development like a war or technological change – credit expansion, over-trading (the final speculative phase), followed by distress (as some investors try to exit) and revulsion, as all who took part are berated for their stupidity. The sub-prime boom fits the pattern.

Rubin, Robert Rueff, Jacques Rumsfeld, Donald Russia Sack, Alexander St Augustine Saint-Simon, duc de Salamis (city) Santelli, Rick Sarkozy, Nicholas Saudi Arabia savings savings glut Sbrancia, Belen Schacht, Hjalmar Scholes, Myron shale gas Second Bank of the United States Second World War Securities and Exchange Commission seignorage Shakespeare, William share options Shiller, Robert short-selling silver Singapore Sloan, Alfred Smith, Adam Smith, Fred Smithers & Co Smithsonian agreement Snowden, Philip Socialist Party of Greece social security Société Générale solidus Solon of Athens Soros, George sound money South Africa South Korea South Sea bubble sovereign debt crisis Soviet Union Spain special drawing right speculation, speculators Stability and Growth pact stagnation Standard & Poor’s sterling Stewart, Jimmy Stiglitz, Joseph stock markets stop-go cycle store of value Strauss-Kahn, Dominque Strong, Benjamin sub-prime lending Suez canal crisis Suharto, President of Indonesia Sumerians supply-side reforms Supreme Court (US) Sutton, Willie Sweden Swiss franc Swiss National Bank Switzerland Sylla, Richard Taiwan Taleb, Nassim Nicholas taxpayers Taylor, John tea party (US) Temin, Peter Thackeray, William Makepeace Thailand Thatcher, Margaret third world debt crisis Tiernan, Tommy Times Square, New York tobacco as currency treasury bills treasury bonds Treaty of Versailles trente glorieuses Triana, Pablo Triffin, Robert Triffin dilemma ‘trilemma’ of currency policy Truck Act True Finn party Truman, Harry S tulip mania Turkey Turner, Adair Twain, Mark unit of account usury value-at-risk (VAR) Vanguard Vanity Fair Venice Vietnam War vigilantes, bond market Viniar, David Volcker, Paul Voltaire Wagner, Adolph Wall Street Wall Street Crash of 1929 Wal-Mart wampum Warburton, Peter Warren, George Washington consensus Weatherstone, Dennis Weimar inflation Weimar Republic Weinberg, Sidney West Germany whales’ teeth White, Harry Dexter William of Orange Wilson, Harold Wirtschaftswunder Wizard of Oz, The Wolf, Martin Women Empowering Women Woodward, Bob Woolley, Paul World Bank Wriston, Walter Xinhua agency Yale University yen yield on debt yield on shares Zambia zero interest rates Zimbabwe Zoellick, Robert Philip Coggan is the Buttonwood columnist of the Economist.


pages: 416 words: 106,532

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

Airbnb, altcoin, asset allocation, asset-backed security, autonomous vehicles, bitcoin, blockchain, Blythe Masters, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, commoditize, correlation coefficient, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, disintermediation, distributed ledger, diversification, diversified portfolio, Donald Trump, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, fiat currency, financial innovation, fixed income, George Gilder, Google Hangouts, high net worth, Jeff Bezos, Kenneth Rogoff, Kickstarter, Leonard Kleinrock, litecoin, Marc Andreessen, Mark Zuckerberg, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, packet switching, passive investing, peer-to-peer, peer-to-peer lending, Peter Thiel, pets.com, Ponzi scheme, prediction markets, quantitative easing, RAND corporation, random walk, Renaissance Technologies, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ross Ulbricht, Satoshi Nakamoto, Sharpe ratio, Silicon Valley, Simon Singh, Skype, smart contracts, social web, South Sea Bubble, Steve Jobs, transaction costs, tulip mania, Turing complete, Uber for X, Vanguard fund, WikiLeaks, Y2K

If the urge is to buy the asset because everyone else is buying it and it keeps going up, then it’s likely best to walk away from any consideration of that investment. Speculative bubbles are particularly dangerous when there is no underlying long-term value proposition to the asset. In these cases, it’s as bad as gambling (or worse, as there’s an illusion of value). We sometimes hear skeptical investors warn of the dangers of bitcoin. Nout Wellink, the former president of the Dutch Central Bank, is famous for saying, “This is worse than the tulip mania. At least then you got a tulip, now you get nothing.”19 While we understand that some may have a hard time grasping that something with no physical form could have value, at this point in its life, bitcoin is a far cry from tulips. The key to understanding bitcoin’s value is recognizing it has utility as “Money-over-Internet-Protocol” (MoIP)—allowing it to move large amounts of value to anyone anywhere in the world in a matter of minutes—which drives demand for it beyond mere speculation.

Gustave Le Bon, The Psychology of Revolution, http://www.gutenberg.org/ebooks/448. 9. Niall Ferguson, The Ascent of Money: A Financial History of the World (Penguin, 2008). 10. Edward Chancellor, Devil Take the Hindmost. 11. http://penelope.uchicago.edu/~grout/encyclopaedia_romana/aconite/semperaugustus.html. 12. Edward Chancellor, Devil Take the Hindmost. 13. Ibid. 14. http://www.bbc.com/culture/story/20160419-tulip-mania-the-flowers-that-cost-more-than-houses. 15. Edward Chancellor, Devil Take the Hindmost. 16. http://www.economist.com/blogs/freeexchange/2013/10/economic-history. 17. http://penelope.uchicago.edu/~grout/encyclopaedia_romana/aconite/semperaugustus.html. 18. Edward Chancellor, Devil Take the Hindmost. 19. https://www.theguardian.com/technology/2013/dec/04/bitcoin-bubble-tulip-dutch-banker. 20. https://coinmarketcap.com/currencies/steem/. 21. https://z.cash/. 22.


pages: 385 words: 101,761

Creative Intelligence: Harnessing the Power to Create, Connect, and Inspire by Bruce Nussbaum

3D printing, Airbnb, Albert Einstein, Berlin Wall, Black Swan, Chuck Templeton: OpenTable:, clean water, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Danny Hillis, declining real wages, demographic dividend, disruptive innovation, Elon Musk, en.wikipedia.org, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, follow your passion, game design, housing crisis, Hyman Minsky, industrial robot, invisible hand, James Dyson, Jane Jacobs, Jeff Bezos, jimmy wales, John Gruber, John Markoff, Joseph Schumpeter, Kickstarter, lone genius, longitudinal study, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, new economy, Paul Graham, Peter Thiel, QR code, race to the bottom, reshoring, Richard Florida, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, six sigma, Skype, Steve Ballmer, Steve Jobs, Steve Wozniak, supply-chain management, Tesla Model S, The Chicago School, The Design of Experiments, the High Line, The Myth of the Rational Market, thinkpad, Tim Cook: Apple, too big to fail, tulip mania, We are the 99%, Y Combinator, young professional, Zipcar

In the 1960s and 1970s, as EMT was being developed, Hyman Minsky was writing about booms leading to euphoria, panic, and busts. Charles Kindleberger’s Manias, Panics and Crashes: A History of Financial Crises, was hugely popular when it came out in 1978. British journalist and essayist Walter Bagehot had written about financial crises in Lombard Street, London’s financial district, back in the latter half of the nineteenth century. And who hasn’t heard of the extraordinary tulip mania in the Netherlands of the 1630s, popularized in Charles Mackay’s 1841 book Extraordinary Popular Delusions and the Madness of Crowds? Of course, we don’t need to look that far back, considering that we’ve all lived through two major manias of our own, the dot-com bubble and the housing boom and bust. It would appear that uncertainty with all its promise and perils is very much a part of our economic system.

., 107–9, 114 Songwriting, 3–9, 66 Sony VCRs, 93 South Korea, 106–7 Space cargo transport business, 147–49 Space stations, 109–10 SpaceX (Space Exploration Technologies Corporation), 66, 147–49 Sparked, 102 Specialization, 77–78 Spies, recruitment of CIA, 17–20, 27 Spills, engagement framing of, 102 Spitballing, 59 Sports, capitalism and, 120 Spotify, 256 Spring Health, 69–70 Stanford University, 17, 34–35, 72, 180, 251–52 StarCraft II game, 137 Start-ups creative hubs for, 72–73 disruptive innovations of, 28–29 e-commerce platforms and, 162–66 education and, 121 job creation by, 239 in New York, 181–82 social enterprise and, 158 venture capital and, 243–45 Stern, Sam, 194–95 Stewart, Martha, 104 Stigler, George, 228 Stock options, 230 Stone, Biz, 121–22 Storytelling, framing and, 92–97, 110–15 Strategies pivoting, 215–20 playing and, 119, 141–45 Strickler, Yancey, 86–88 Studio Neat, 171 Subprime mortgages, 231 Summer day camp games, 137 Summers, Lawrence, 232 Summit on the Future of Design, 251–52 SuperBetter program, 131–32 Sustainability, 46–48, 157–59 Sutton, Thomas, 129 Systrom, Kevin, 182, 207 Taleb, Nassim Nicholas, 228 Tanizaki, Jun’ichiro, 185–86 Taxes, Indie Capitalism and, 248 Taylor, Kathleen, 101–2 Teams creativity and, 21–22 playing and, 122–23, 142–44 Tea Party, 90, 151 TechCrunch, 214 Technion, 182 TechShop, 173 TED conferences, 72 Tesla Motors, 148 Tests, creativity, 19–24, 252 Tetra Paks, 117–18, 123, 127–28 Text messages, 99–100 Thiel, Peter, 215, 235 Thinking connecting dots in, 59–60 design, 14–17, 28 divergent, 21 outside-in, 108–9 ThinkJet printer, 190–97 Thomas, Maria, 166 Threadless (company), 86 Tools, 38–39, 155–56 Top Chef TV program, 254–55 Torrance, Ellis Paul, 21 Toys, wooden, 162–66 Trade deficit, 235 Trade policy, 246 Treadle irrigation pumps, 68 Trends, what-if framing and, 106–10, 114–15 Tripod, iPhone, 167–71 Trust creativity and, 26 destruction of, at Hewlett-Packard, 225 playing and, 127, 143 T-shirt makers, 86 Tulip mania, 229 Tumblr, 155, 165–66, 181, 202 TV, reality, 254 Twitter, 104, 121, 202 Typewriters, 155–56 Typography, 43–44 Umpqua Bank, 113–14 Uncertainty. See also Risk creativity and, 7, 27, 30 economics of, 242 efficient market theory and, 228–31 framing and, 110–15 gaming and, 135–38, 141–45 Gilt fashion platform and, 132–33 global environment and, 32–33 Indie Capitalism and, 240 playing and, 35 Union Square Ventures, 181 United States culture of, 31 failure of innovation in, 234–37 military war games in, 120 political parties of, 94 reshoring of manufacturing to, 160–62 Universities.


pages: 384 words: 118,572

The Confidence Game: The Psychology of the Con and Why We Fall for It Every Time by Maria Konnikova

attribution theory, Bernie Madoff, British Empire, Cass Sunstein, cognitive dissonance, coherent worldview, Daniel Kahneman / Amos Tversky, endowment effect, epigenetics, hindsight bias, lake wobegon effect, lateral thinking, libertarian paternalism, Milgram experiment, placebo effect, Ponzi scheme, post-work, publish or perish, Richard Thaler, risk tolerance, side project, Skype, Steven Pinker, the scientific method, tulip mania, Walter Mischel

In practice, though, it never seems to be quite the moment for it. After all, things are going so well. The convincer is precisely that: wholly convincing. Why quit while you’re ahead, if you are certain you’ll remain ahead in the future? The ebullient optimism that doesn’t see its own demise isn’t a function of modern markets, either; it’s far older and more pervasive than that. One of the most famous bubbles in history was the great Dutch tulip mania—tulpenwoede—of the early seventeenth century. So desired were the flowers, and so high their price, that in the 1630s a sailor was jailed for mistaking one for an onion and eating it. While the story is likely apocryphal, the sentiment is not. At the bubble’s peak in 1637, some bulbs had increased in price twentyfold in a three-month period. Semper Augustus, considered particularly desirable, cost about a thousand guilders in the 1620s.

., ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10, ref11, ref12, ref13 Crichton and ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8 at monasteries ref1, ref2, ref3 as navy surgeon ref1, ref2, ref3 “papering” tactic of ref1 as prison warden ref1, ref2, ref3, ref4 school gifts from ref1 Demara, Ferdinand Waldo, Sr., ref1 Demara, Mary McNelly ref1, ref2 determinism, creeping ref1 Deveraux, Jude ref1 De Védrines, Christine ref1 De Védrines, Ghislaine ref1, ref2 “Diddling” (Poe), ref1 disasters ref1 disrupt-then-reframe ref1 Dittisham Lady, ref1, ref2 door-in-the-face ref1, ref2 Drake, Francis ref1, ref2, ref3, ref4, ref5 Dunbar, Robin ref1, ref2, ref3 Dunning, David ref1 Dutch tulip mania ref1 Dylan, Bob ref1 Ebola crisis ref1 Egan, Michael ref1 Eiffel Tower ref1 Ekman, Paul ref1, ref2, ref3 elaboration likelihood model ref1 elder fraud ref1 Elizabeth I, Queen ref1 Emler, Nicholas ref1, ref2 emotions ref1, ref2, ref3, ref4, ref5, ref6, ref7 anticipation of ref1 donations and ref1 stories and ref1, ref2, ref3, ref4, ref5, ref6 endowment effect ref1, ref2 entrapment effect ref1 environment ref1 Epley, Nicholas ref1, ref2, ref3 Epstein, Seymour ref1, ref2 Erdely, Sabrina Rubin ref1 Evans, Elizabeth Glendower ref1 even-a-penny scenario ref1, ref2 exceptionalism ref1, ref2, ref3, ref4 expectancies ref1, ref2 exposure ref1, ref2 Extraordinary Popular Delusions and the Madness of Crowds (Mackay), ref1 Eyal, Tal ref1 Facebook ref1, ref2, ref3, ref4, ref5, ref6, ref7 facial expressions ref1, ref2, ref3 Fallon, James ref1 familiarity ref1, ref2, ref3, ref4 Farms Not Factories ref1 FBI ref1, ref2, ref3 fear ref1 Feldman, Robert ref1 Fenimore, Karin ref1 Festinger, Leon ref1, ref2, ref3 Fetzer, Barbara ref1 Figes, Orlando ref1 Fischhoff, Baruch ref1, ref2 Fiske, Susan ref1 Fitzgerald, Alan and Eilis ref1 Fitzgerald, Elizabeth (Madame Zingara), ref1, ref2 fix ref1 Folt, Carol ref1 football ref1 foot-in-the-door ref1, ref2, ref3, ref4 Frampton, Anne-Marie ref1, ref2, ref3 Frampton, Paul ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9 Frank, Jerome ref1 Franklin, Benjamin ref1, ref2 Franklin Syndicate ref1, ref2, ref3, ref4 Fraser, Scott ref1 Freedman, Ann ref1, ref2, ref3, ref4, ref5, ref6, ref7 Freeman, Jonathan ref1 French, John ref1, ref2 Fund for the New American Century ref1 future ref1 predicting ref1, ref2, ref3, ref4 Galinsky, Adam ref1 gambler’s fallacy ref1, ref2 Gant, Robert ref1 Geis, Florence ref1 genetics ref1 Gerard, Harold ref1 Gerhartsreiter, Christian ref1 Gifford, Adam Lord ref1 Gilbert, Daniel ref1, ref2 Gilligan, Andrew ref1 Gilovich, Thomas ref1 Glass, Stephen ref1, ref2 Goetzinger, Charles ref1 Gondorf, Fred and Charles ref1 Goodrich, Judge ref1 Gordon, John Steel ref1 gorilla experiment ref1 gossip ref1, ref2, ref3 Goya, Francisco ref1 Grazioli, Stefano ref1 Great Imposter, The (Crichton), ref1, ref2, ref3 Green, Melanie ref1, ref2 Green Dot cards ref1 Greg ref1 grifter ref1 grooming ref1 groups, belonging to ref1 Guillotin, Joseph ref1 Gur, Ruben ref1 Gurney, Edmund ref1 Hancock, Jeffrey ref1 Hansen, Chris ref1 Hanson, Robert ref1 happiness ref1, ref2, ref3 Hare, Robert ref1 Harley, Richard ref1 Harlow, E.


pages: 504 words: 126,835

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

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

It was not unique because entrepreneurs now recognized opportunities to produce and sell what people demanded: that is an old economic habit. Nor was it different from past entrepreneurship because it could raise capital to fund new enterprises. Merchants, explorers, and voyagers had done that for centuries, but the fortunes of the trade they created never spread widely in the economy. The premodern economic system was full of speculative capital and asset bubbles, such as the Dutch tulip mania in the 1600s or the French Mississippi finance bubble in the 1700s. All past ages have had their own financial sharks and Bernie Madoff-type hustlers. A defining characteristic of modern capitalist entrepreneurship, to follow economic historian Alexander Gerschenkron, was rather one of time: investments in big innovation needed far longer to generate expected economic gains. One of the factors separating past entrepreneurs from the new generation emerging after the modernization of entrepreneurship was the latter’s understanding of uncertainty as a necessary ingredient to build private and societal profits.42 The twentieth century witnessed ideological experiments with other economic systems, but capitalism, for all its faults, has stood the test of time.

(i) cargo services and deregulation (i) see also air cargo services cash hoarding (corporate savings) (i), (ii), (iii), (iv), (v) catalytic converter technology (i) Central Europe, German-Central European supply chain (i), (ii) chemicals, and EU regulation (i), (ii) Chicago school of economics (i) Chili, and Cybersyn project (i) China and BRIC concept (i), (ii) exports from European Union (i) GDP (2014) (i), (ii) and globalization (i), (ii), (iii) R&D spending (i) sovereign wealth fund (i) Christensen, Clayton (i), (ii) Churchill, Winston (i) Clark, Gregory (i), (ii)n41 classical market liberalism (i) Clinton, Bill (i) Club des Chiffrephiles (i) Coase, Ronald (i), (ii), (iii), (iv), (v) Coca-Cola (i) Code of Federal Regulations (US) (i) cognition, mechanistic vs. organic (i) collaboration “noise” (i) Comin, Diego (i) command economies (i), (ii) command-and-control (i), (ii) community-generated content, and socialism (i) companies see big firms; firm boundaries; firms; multinational (global) companies competition and bureaucracy (i) and containerization (of global trade) (i) vs. contesting markets (i) and financial regulation (i) and firm boundaries (i), (ii) and geography of production (i) and globalization (i) life-or-death competition (i), (ii), (iii), (iv) and market concentration (i) and mergers and acquisitions (i) move of from countries to firms (i), (ii) and multinationals (i) oligopolistic (or monopolistic) competition (i) and planning machines (i) see also market contestability competitive forces concept (i) complexity “complex by design” capitalism (i) market complexity (i) see also regulatory complexity/uncertainty compliance officers (i) complicatedness index (Boston Consulting Group) (i) compound growth (i) Compustat, corporate cash holdings (i) computer technology/computerization and corporate managerialism (i) and knowledge obsolescence (i) and labor (i) and leisure (i) and market socialism (i) and production (i) and quantum dots/cadmium (i) see also digitalization; ICT (information and communications technology); information technology (IT); software technology Conference Board (economics consultancy) (i), (ii) consolidation (i), (ii) see also mergers and acquisitions Consumer Protection Act (US) (i) containerization (of global trade) (i) contestability see market contestability contracts (i) copying, and strategy (i), (ii) corporate borrowing and low investment growth (i) see also corporate net lending corporate control, and specialization (i) corporate failure see failure corporate globalism (i), (ii), (iii) corporate managerialism and bureaucracy (i), (ii), (iii), (iv), (v) and capitalism, decline of (i), (ii), (iii) corporate destruction and innovation: IBM (i); Microsoft (i), (ii); Nokia (i), (ii), (iii), (iv), (v) formula of failure (i) and globalist worldview (i) and globalization (i), (ii), (iii), (iv) managerial ideology on the rise (i), (ii) planning: planning machines (i), (ii), (iii); risk and uncertainty (i); strategy (i) regulation (i), (ii) regulation and compliance officers (i) Swedish managerialist culture (i), (ii) value vs. numbers (i) see also bureaucracy corporate medical research, and financial regulation (i) corporate net lending (i), (ii) see also corporate borrowing corporate politics (i), (ii), (iii), (iv) see also political world corporate savings (cash hoarding) (i), (ii), (iii), (iv), (v) corporate size and entrepreneurship (i) and globalization (i) and regulation (i) corporate social responsibility (CSR) (i) corporate socialism (i), (ii) corporate socialization (i) corporate valuations (i) costs production costs (i), (ii), (iii) sunk costs (i), (ii), (iii), (iv) transaction costs (i), (ii), (iii), (iv), (v), (vi) transmission costs (i), (ii), (iii) Cowen, Tyler (i) creative destruction fear of and political institutions (i) and globalization (i) and innovation (i), (ii), (iii), (iv), (v) and New Machine Age (i) and Nokia (i) and present-day capitalism (i) see also withering credit rating agencies (i), (ii), (iii) Credit Suisse, on stock markets (i) crony capitalism (i) cronyism (i), (ii), (iii), (iv) culture of experimentation (i), (ii) see also entrepreneurs; entrepreneurship culture of individualism (i) see also dissent; eccentricity; freedom customer loyalty (i) Cybersyn project (i) cyclical effects, and productivity (i) da Vinci, Leonardo see Leonardo da Vinci Darwinianism (i), (ii) Das, Gurcharan (i) data see recorded data (national accounts) data economy, and productivity (i) DAX 30 index (Germany) (i) de Blasio, Bill (i) debt and dividends/share buybacks vs. investment (i), (ii) and economic decline (i) vs. equity funding (i), (ii), (iii), (iv), (v), (vi) and retirement savings (i), (ii) decision-making probabilistic decision-making (i), (ii) and strategy (i) decoupling (productivity/incomes) thesis (i), (ii) deregulation case of air cargo services (FedEx) (i) and diffusion of innovations (i), (ii) OECD product market regulation (PMR) indicators (i), (ii) and reallocation of business (i) and regulatory accumulation (i) wave in 1980s–1990s (i), (ii) see also regulation; regulatory complexity/uncertainty Descartes, René (i) design (i) development vs. research (i), (ii) see also incremental development; R&D diffusion and deregulation (i), (ii) and globalization (i), (ii) and occupational licenses (i) and productivity (i) and R&D (i) “diffusion machine” (i), (ii), (iii) digital age and capitalism (i) and politics (i) digitalization and innovation (i) and leisure (i) and managerialism (i) and productivity growth (i) and regulation (i) and second unbundling of production (i) see also computer technology/computerization; ICT (information and communications technology); information technology (IT); “servicification” (or “servitization”) direct-to-consumer sales (i) dirigisme (France) (i) discriminate dynamism theory (i) dispersed ownership (i) dissent (i), (ii), (iii), (iv) see also culture of individualism; eccentricity diversification and investment (i), (ii) organizational (i), (ii) dividends (i), (ii), (iii), (iv), (v) DJs, and jobs and technology debate (i) dock labor, and containerization (of global trade) (i) Dodd-–Frank Act (US) (i), (ii), (iii), (iv) Dolly the Sheep (i) Dr. Strangelove character (i) driverless vehicles (i), (ii), (iii), (iv) drones, and regulation (i) Drucker, Peter (i), (ii) drugs see pharmaceutical sector dual class stock structures (i) Dutch disease (i) Dutch tulip mania (i) dynamism see discriminate dynamism theory; economic dynamism East Asia, trade and value chains (i) Ebenezer Scrooge character (i) eccentricity (i), (ii), (iii), (iv), (v) see also culture of individualism; dissent economic dynamism and capitalism (i), (ii), (iii) and innovation (i), (ii), (iii) and market contestability (i) economic growth compound growth (i) and productivity (i), (ii) and regulatory complexity/uncertainty (i) see also GDP (gross domestic product) Economic Policy Institute (Washington, DC) (i) The Economist on global corporations (i) on new technology and social dislocation (i) on pensioners vs. working-age households incomes (i) “Planet of the Phones” (i) on share buybacks (i) economy “bazaar economy” (Hans-Werner Sinn) (i) data economy (i) knowledge-based economy (i) “new economy” (i) and technology (i), (ii), (iii) see also economic dynamism; economic growth; financial economy; GDP (gross domestic product) EFAMA, on asset management industry (i) Einstein, Albert (i), (ii) electronic devices (i) electronic wallets (i) embedded liberalism (i) emerging markets (i), (ii), (iii), (iv), (v) employment protection legislation (i) see also labor; unemployment Energy Policy and Conservation Act (EPCA, US) (i) energy sector and antitrust laws (i) and innovation (i) and regulation (i), (ii) renewable/green energy: and regulation in Europe (i), (ii); and sunk costs (i) Engels, Friedrich, Communist Manifesto (Marx and Engels) (i), (ii) Enlightenment (i), (ii) Enron (i) entrepreneurs vs. bureaucrats (i), (ii) vs. managerialists (i) and passion vs. market complexity (i), (ii) Schumpeter on (i) tech entrepreneurs (i) see also entrepreneurship entrepreneurship aging trend (i), (ii) and capitalism (i), (ii) and dual class stock structures (i) and equity financing (i) and globalization (i), (ii) and innovation (i), (ii) and organizational diversification (i) vs. planning machines (i), (ii) and precautionary regulations (i) and size of firms (i) and strategy (i) and uncertainty (i) see also culture of experimentation; culture of individualism; entrepreneurs; start-ups equity vs. debt funding (i), (ii), (iii), (iv), (v), (vi), (vii) and institutional investors (i) and retirement savings (i), (ii) Ericsson (i), (ii) Ericsson, John (i) Europe asset management industry (i) big firms’ relative importance (i) capital expenditure (capex) (i), (ii)n39 corporate renewal levels (i) corporate savings (i) debt vs. equity financing (i) energy sector and antitrust laws (i) German-Central European supply chain (i) higher- vs. lower-income countries (i) labor, and tax (i) labor markets: low rates of flexibility (i); and lower productivity (i) mergers and acquisitions (i) pensions (i) productivity (i), (ii), (iii); total factor productivity (TFP) growth (i) R&D spending (i), (ii) regulation: compliance officers and Basel III (i); deregulation trend (i); index of regulatory freedom (i), (ii); index of regulatory trade barriers (i), (ii); medical devices (i); occupational/professional standards (i); technological platforms (i) services and globalization (i) trade: and big business (i); index of regulatory trade barriers (i), (ii); and value chains (i) see also eurozone; European Union European Food Safety Authority (EFSA) (i) European Union biofuels regulations (i) cadmium exemption issue (i), (ii) capitalist ownership and dual class stocks (i) chemicals regulations (i), (ii) exports to China (i) financial regulations (i), (ii); banks and Basel III rules (i), (ii) genetically modified organisms (GMOs) regulations (i), (ii), (iii) GM potato regulations (i) Leave campaign and older generation (UK) (i) nanotechnology regulations (i), (ii) precautionary principle (i) R&D scoreboards (i), (ii) Single Market (i) see also eurozone; Europe eurozone Germany and “sick man of the euro” label (i) pensions (i) see also Europe; European Union experimentation, culture of (i), (ii) see also entrepreneurs; entrepreneurship external capital markets (i), (ii), (iii), (iv), (v) Fabian Society (i) Facebook (i), (ii), (iii), (iv) failure failing companies and planning (i) formula of failure (i) and innovation process (i) Fairchild Semiconductor (i) FDI (foreign direct investment) (i), (ii), (iii) Federal Deposit Insurance Corporation (i) Federal Express (FedEx) (i), (ii) Feldstein, Martin (i) Fernald, John (i) fiduciary duties and laws (i) financial capitalism (i), (ii), (iii), (iv) see also financial economy financial crisis (2007) and aspirations (i) and financial regulations (i), (ii), (iii) and globalist worldview (i) and rich people vs. capitalists issue (i) and sovereign wealth funds (i) and stock markets (i) and Wall Street (i), (ii) see also Great Recession financial economy and gray capitalism (i), (ii), (iii) vs. real economy (i), (ii), (iii) financial institutions and financial regulations (i), (ii) and globalization (i) SIFIs (systemically important financial institutions) (i) see also banks financial regulations (i), (ii), (iii), (iv) financial sector growth of and productivity (i) financial services, and globalization (i) financial skills, vs. business-building skills (i) Financial Times on compliance officers (i) on French ban on Mercedes-Benz cars (i) Fink, Lawrence (i) Finland dependence on larger enterprises (i) Nokia story (i) firm boundaries and competition (i), (ii) and corporate managerialism (i), (ii), (iii), (iv), (v), (vi), (vii) and globalization (i) and innovation (i), (ii), (iii) and market concentration (i) and multinationals (i), (ii) and pharmaceutical sector (i) and R&D (i), (ii) and specialization (i), (ii), (iii), (iv), (v) see also firms firms entry-and-exit rates (i), (ii), (iii), (iv) high-growth firms (i) home-market firms vs. multinationals (i) interfirm vs. intrafirm trade (i) joint-stock companies (i), (ii) as logistics hubs (i), (ii) role of in the economy (i) start-ups (i), (ii), (iii), (iv), (v) unicorns (i) see also big firms; corporate size; firm boundaries; multinational (global) companies first-mover advantage (i) Food and Drug Administration (FDA, US) (i), (ii), (iii) food retailing, and globalization (i) Ford, Henry (i), (ii) Ford, Martin, The Rise of the Robots (i), (ii) foreign direct investment (FDI) (i), (ii), (iii) Fortune 500 companies (i) Foster, George (i) Foxconn (i) France ban on Mercedes-Benz cars (i) CAC 40 index (i) corporate renewal levels (i) dependence on larger enterprises (i) dirigisme (i) exports to China (i) and globalization (i) productivity, decline in and labor market rules (i) profit margins (i) public debt (i) R&D spending (i) regulation: index of regulatory freedom (i), (ii); index of regulatory trade barriers (i), (ii); medical devices (i); taxi services (i) trade: and big business (i); index of regulatory trade barriers (i), (ii) Fraser Institute, index of regulatory freedom (i), (ii) free-market capitalism (i) free speech, and academia (i) freedom (i), (ii), (iii) see also culture of individualism; dissent; eccentricity French Mississippi finance bubble (i) Frey, Carl Benedikt (i) Friedman, Milton (i) Fukuyama, Francis, The End of History and the Last Man (i) future, the (and how to prevent it) capitalist decline and pessimism (i) from corporate globalism to global corporatism (i) rise of regulatory uncertainty (i) “silver tsunami” for cash and pensions (i) state of Western economies and future imperfect (i) suggested steps to prevent the future: agency and economic history (i); boosting market contestability (i); nurturing culture of dissent and eccentricity (i); severing gray capital–corporate ownership link (i) Future Perfect, A (Micklethwait and Wooldridge) (i) G7 (Group of Seven) countries, labour productivity (i), (ii) Galbraith, John Kenneth, The New Industrial State (i), (ii), (iii), (iv), (v), (vi) Gallup, job satisfaction survey (i) Galston, William (i) Gates, Bill (i) GATT (General Agreement on Tariffs and Trade) (i) see also World Trade Organization (WTO) GDP (gross domestic product) and business investment (i), (ii), (iii) China’s (2014) (i), (ii) declining trend (i), (ii) and financial sector growth (i) GDP statistics issues (i) and global trade (i) and globalization (i) ICT hardware investment as share of (i), (ii) labor’s share of (i) and pensions (i) and R&D spending (i), (ii) and robots (i) Gekko character (Wall Street movie) (i) General Electric (GE) (i), (ii) generations boomer (or baby boomer) generation (i), (ii), (iii), (iv) The Clash of Generations (Kotlikoff and Burns) (i) EU Leave campaign and older generation (UK) (i) and income inequality (i) technology-frustrated generation (i) genetically modified (GM) potato, and EU regulation (i) genetically modified organisms (GMOs), and EU regulation (i), (ii), (iii) geographical zoning laws (i) Germany aging population (i) business investment declining trend (i) car industry: French ban on Mercedes-Benz cars (i); and value chains (i) corporate profit margins (1990–2014) (i), (ii), (iii), (iv) corporate renewal levels (i) DAX 30 index (i) dependence on larger enterprises (i) exports to China (i) German-Central European supply chain (i), (ii) and globalization (i), (ii), (iii), (iv) income inequality and generations (i) pensions (i) productivity: decline in and labor market rules (i); and wages (i) regulation: bureaucracy brake (i); deregulated vs. regulated sectors 148–9 index of regulatory freedom 151, (i); index of regulatory trade barriers 152, (i); medical devices (i); taxi services (i) “sick man of the euro” (i) trade: index of regulatory trade barriers (i), (ii); and value chains (i) Gerschenkron, Alexander (i), (ii) Gerstner, Louis (i) Ghosh, Shikhar (i) Gilder, George (i) global firms see multinational (global) companies global trade and containerization (i) expansion phases (i) and globalization, 2nd phase of (i) growth statistics (i) and market contestability (i) and multinationals (i), (ii) regionalization of Asia’s trade growth (i) regulatory trade barriers (i), (ii), (iii) see also mercantilism; protectionism; trade “Globalise or Fossilise!”


pages: 756 words: 120,818

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

"Robert Solow", 3D printing, Airbnb, algorithmic trading, bank run, banking crisis, barriers to entry, Bernie Sanders, bitcoin, Black Swan, blockchain, Boris Johnson, Branko Milanovic, Bretton Woods, British Empire, business cycle, business process, capital controls, Celtic Tiger, central bank independence, cloud computing, continuation of politics by other means, corporate governance, credit crunch, cryptocurrency, deglobalization, deindustrialization, disruptive innovation, distributed ledger, Donald Trump, eurozone crisis, financial innovation, first-past-the-post, fixed income, Geoffrey West, Santa Fe Institute, Gini coefficient, global value chain, housing crisis, income inequality, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, liberal world order, Long Term Capital Management, longitudinal study, market bubble, minimum wage unemployment, new economy, Northern Rock, offshore financial centre, open economy, pattern recognition, Peace of Westphalia, performance metric, private military company, quantitative easing, race to the bottom, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Scramble for Africa, secular stagnation, Silicon Valley, Sinatra Doctrine, South China Sea, South Sea Bubble, special drawing rights, supply-chain management, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, total factor productivity, trade liberalization, tulip mania, Valery Gerasimov, Washington Consensus

Yet before we can set off on an unencumbered path to steadier, organic growth, as I hope The Levelling will make clear, the obstacles and detritus of previous crises first need to be removed. I have two obstacles and two provocative solutions in mind. I conceive of them as “a Westphalia Treaty for Finance,” and they make up the third idea in this book. The two obstacles are debt and central banks. It seems the world has learned little from the 2009 global financial crisis or, indeed, the long history of financial crises going back to the tulip mania, the South Sea Bubble, and the Mississippi scheme. Debt levels (global debt to GDP) today are higher than at the beginning of the financial crisis. China, emerging-market governments, corporate America, and select European countries (that is, France) have taken on most new debt. Most of this debt is not productive, in that it doesn’t fuel growth; rather, it has been taken on to patch up economic holes, fuel financial engineering, and buy time rather than to fund new investments.

From a relative wealth point of view, this again helps those with existing securities portfolios, though it must be said that investors deserve some compensation for holding risky assets in uncertain times. Underlying this, in May 2017, when ECB president Draghi testified on quantitative easing to the Dutch Parliament, he was presented with a solar-powered tulip (by Pieter Duisenberg, son of the first ECB president, Wim Duisenberg) to underscore to him the parallel between the tulip-mania asset price bubble of the mid-seventeenth century and the price of eurozone financial assets (government bonds). Furthermore, because valuations for asset classes like equities and corporate bonds are now so high, the future returns they produce will inevitably be limited, thereby limiting the growth in the value of pensions. There is also a growing dilemma for millennials, who will struggle to find assets that generate a decent return around which they can build a pension.


pages: 578 words: 131,346

Humankind: A Hopeful History by Rutger Bregman

Airbnb, Anton Chekhov, basic income, Berlin Wall, bitcoin, Broken windows theory, call centre, David Graeber, Donald Trump, experimental subject, Fall of the Berlin Wall, Frederick Winslow Taylor, Hans Rosling, invention of writing, invisible hand, knowledge economy, late fees, Mahatma Gandhi, mass incarceration, meta analysis, meta-analysis, Milgram experiment, Nelson Mandela, New Journalism, placebo effect, sharing economy, Shoshana Zuboff, Silicon Valley, social intelligence, Stanford prison experiment, Stephen Hawking, Steve Jobs, Steven Pinker, The Spirit Level, The Wealth of Nations by Adam Smith, transatlantic slave trade, tulip mania, universal basic income, World Values Survey

Imagine you’re presented with a hundred contestants, but, rather than picking your own favourite, you have to indicate which one others will prefer.10 In this kind of situation, our inclination is to guess what other people will think. Likewise, if everybody thinks everybody else thinks that the value of a share will go up, then the share value goes up. This can go on for a long time, but eventually the bubble bursts. That happened, for example, when tulip mania hit Holland in January 1637, and a single tulip bulb briefly sold for more than ten times the annual wage of a skilled craftsman, only to become all but worthless days later. Bubbles of this kind are not isolated to the financial world. They’re everywhere. Dan Ariely, a psychologist at Duke University, once gave a brilliant demonstration during a college lecture. To explain his field of behavioural economics, he provided the class with what sounded like an extremely technical definition.

., here Smith, Adam, here, here Smith, Carlyle, here snipers, here, here social learning, here social psychology, rise of, here socialisation, here sociopathy, here, here, here, here Sodom and Gomorrah, here Sokoloff, Jose Miguel, here, here Solnit, Rebecca, here Sørensen, Carl Theodor, here South Africa, here, here, here Spanish Civil War, here, here Speer, Albert, here Spencer, Herbert, here Spinoza, Baruch, here Stalin, Josef, here, here, here, here, here, here Stanford Prison Experiment, here, here, here, here, here, here, here, here, here Stangneth, Bettina, here Starr, Belle, here states, origins of, here STDs, here Stein, Gertrude, here Sudbury Valley School, here Summerhill School, here Sungir grave, here Sutton-Smith, Brian, here Syrian refugees, here Taleb, Nassim Nicholas, here Taufa’ahau Tupou IV, King of Tonga, here, here, here Taylor, Frederick, here, here Temple of Apollo (Delphi), here Terre’Blanche, Eugène, here terrorists, here, here, here, here Thomas, Elizabeth Marshall, here Thucydides, here Tigris–Euphrates floodplain, here Tilley, Oswald, here Titanic, sinking of, here Tomasello, Michael, here Torres, here, here Totau, Mano, here, here, here, here, here, here Tower of Babel, here Travolta, John, here Treaty of Versailles, here Trilling, Lionel, here Trojan War, here, here Trump, Donald, here, here, here Trut, Lyudmila, here, here, here, here, here tulip mania, here Turchin, Peter, here Twain, Mark, here Twitter, here, here, here Uber, here Uhila, Taniela, here, here unemployment benefits, here University of Delaware, Disaster Research Center, here Uruk, here US Congress, here US Constitution, here, here vaccines, here van der Graaff, Laurens, here Van Reybrouck, David, here Vedda people, here veneer theory, here, here Verdun, Battle of, here, here Vietnam War, here, here, here Viljoen, Abraham, here, here, here, here Viljoen, Constand, here, here, here, here violent deaths, decline in, here Virgin Mary, here virtue labelling, here Voltaire, here Walkington, Leslie, here war crimes, and propaganda, here warfare causes of death, here, here commanders, here and conditioning, here, here and friendship, here, here origins of, here, here, here Ward, Colin, here Warneken, Felix, here, here Warner, Arthur, here Warner, Peter, here, here, here water resources, here Waterloo, Battle of, here, here Wesley, John, here Wichmann, Fabian, here Wigram, Lieutenant Colonel Lionel, here Wikipedia, here Williams, Graham, here Williams, John, here, here Wilson, James Q., here, here, here Wolfowitz, Paul, here World Values Survey, here Wrangham, Richard, here, here xenophobia, here, here, here, here, here Yahil, Leni, here Yanomami people, here, here Ypres, Battles of, here Zehmisch, Lieutenant Kurt, here Zimbardo, Philip, here, here, here, here, here, here, here, here, here, here, here, here, here Zobrist, Jean-François, here, here A NOTE ON THE AUTHOR Rutger Bregman is one of Europe’s most prominent young historians.


pages: 436 words: 76

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

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

In Greek and Roman times and in the Middle Ages, business was conducted by individuals, or partnerships of people who knew each other well-who else would take on the risks? When larger partnerships were formed, speculation and fraud followed, and after the South Sea bubble large-scale commercial organization was prohibited. The objective was to restrict investment to ventures the participants might expect to understand. But throughout history, from the tulip mania of 1636 to the dot-com bubble of 1999, greed and gullibility have defeated that purpose. The precursors of the modern corporation were international trading companies, such as the English East India Company or the Dutch VOC. These companies acted as both businesses and governments in the areas they colonized and controlled territories larger than the native countries from which they came. The development of canals from 1790, and railroads from 1820, required the creation of domestic enterprises operating on a large scale, in Europe and the United States.

Optimism and risk sharing enable many more new businesses to be started and contribute to the pluralism of a market economy. Information asymmetries extend more widely. Those who invest with Antonio will not be a random sample of the population. Investors will be those who know Antonio or believe they do. Investors, like those telecom shareholders, will be those who are more than averagely optimistic about the prospects for Antonio's trade. In all investment booms-from the tulip mania to the dot-com mania-money is raised cheaply from people who expect high returns but do not in the end receive them. Investment banks have become skilled in managing the issue process so as best to appeal to "irrationalities" in the minds of potential investors-the attraction of "prospects," their aversion to even small losses. In chapter 14, I described how the stock market had developed, not as a primary means of raising capital for new businesses, but as a market for the sale and resale of secondary participations.


pages: 457 words: 128,838

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

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

You read the paper every day, and enough stories have appeared to convince you that bitcoin is real, that some entrepreneurs, including the Winklevoss twins of Facebook fame, expect to make a lot of money from it. But the details don’t add up. You get it by doing math problems? No? By having your computer do math problems? How can that possibly work? At this stage, phrases like Ponzi scheme and tulip mania enter your mind. Stage Three: Curiosity. You’ve kept reading. It becomes clear that many people, even some seemingly sensible people such as Internet pioneer Marc Andreessen, people with a track record for being right about this stuff, are genuinely excited by it. But why all the fuss? Okay, it’s digital money, it may work, but what difference is that going to make to regular people? And why are people so heated up about it?

A positive feedback loop is how Silicon Valley would describe it, with the higher prices begetting more interest in cryptocurrencies, more investment capital flowing into bitcoin, more innovation and more interest and benefits for the sector, which should push the price even higher. Skeptics could equally call it a bubble—and many sought to do so once the price retreated below $500 in the first half of 2014, using it to justify their depictions of “tulip mania” around bitcoin. But even at those newly lower levels, bitcoin was still higher than any level it had held in its entire history before mid-November 2013. That’s left many miners, bitcoin entrepreneurs, and businesses that have earned the cryptocurrency for a year or more markedly wealthier. The choices they make in investing that wealth have encouraged still more innovation in the sector and have driven prices for bitcoin-related digital properties higher, much as the NASDAQ stock boom fueled the mania for IT start-ups and stocks in the late 1990s.


pages: 166 words: 49,639

Start It Up: Why Running Your Own Business Is Easier Than You Think by Luke Johnson

Albert Einstein, barriers to entry, Bernie Madoff, business cycle, collapse of Lehman Brothers, corporate governance, corporate social responsibility, creative destruction, credit crunch, Grace Hopper, happiness index / gross national happiness, high net worth, James Dyson, Jarndyce and Jarndyce, Jarndyce and Jarndyce, Kickstarter, mass immigration, mittelstand, Network effects, North Sea oil, Northern Rock, patent troll, plutocrats, Plutocrats, Ponzi scheme, profit motive, Ralph Waldo Emerson, Silicon Valley, software patent, stealth mode startup, Steve Jobs, Steve Wozniak, The Wealth of Nations by Adam Smith, traveling salesman, tulip mania, Vilfredo Pareto, wealth creators

But there are lessons to be had from the booms and busts of previous eras. In particular, you should consider your options before jumping onto bandwagon businesses. To that end I can recommend Devil Take the Hindmost by Edward Chancellor (Macmillan, 2000), for its fine introduction to the subject of wild booms and busts through the ages. The author is an ex-Lazard merchant banker who understands his material. His book covers a grand sweep from the Dutch tulip-mania of the 1630s to the Japanese bubble economy of the 1980s. It shows that when it comes to making investments, we are doomed to endlessly repeat our mistakes. Every era brings forth innovations, which offer great reward and attract risk capital. The substantial initial profits encourage a rush of capital and company valuations get out of control. Things then inevitably come down to earth, with drastic suffering the result.


End the Fed by Ron Paul

affirmative action, Bernie Madoff, Bernie Sanders, Bretton Woods, business cycle, crony capitalism, currency manipulation / currency intervention, fiat currency, Fractional reserve banking, hiring and firing, housing crisis, illegal immigration, invisible hand, Khyber Pass, Long Term Capital Management, market bubble, means of production, moral hazard, Ponzi scheme, price mechanism, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, too big to fail, tulip mania, Y2K

Businesses fail, homes are foreclosed upon, and people bail out of stocks or whatever is the fashionable investment of the day. That phony money creates a false boom is not an unknown fact in history. Thomas Paine observed in the late eighteenth century that paper money threatened to turn the country into a nation of “stockjobbers.” In fact, this can even happen when the money is not paper. The famous case of tulip mania in the Dutch golden era was driven by gold inflows from around Europe after the government gave a massive coinage subsidy to all comers. 13 International markets complicate the picture by allowing the boom phase of the cycle to continue longer than it otherwise would, as foreigners buy up and hold new debt, using it as collateral for their own monetary extensions. But eventually they, too, become ensnared in the boom-bust cycle of false prosperity followed by an all-too-real bust.


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

Albert Einstein, Bernie Madoff, Black Swan, business cycle, buy and hold, commodity trading advisor, correlation coefficient, delayed gratification, diversified portfolio, en.wikipedia.org, Eugene Fama: efficient market hypothesis, family office, full employment, Lao Tzu, Long Term Capital Management, market bubble, market microstructure, Mikhail Gorbachev, moral hazard, Myron Scholes, Nick Leeson, oil shock, Ponzi scheme, prediction markets, quantitative trading / quantitative finance, random walk, Sharpe ratio, systematic trading, the scientific method, transaction costs, tulip mania, upwardly mobile, Y2K, zero-sum game

“The human brain responds to high-stakes trading just as it does to the lure of sex. And the riskier trades get, the more the brain craves them.” “Social conformity drives human beings. Even if the group is wrong, people go along.” Sounds about right, right? Consider the question: Does raw human emotion dictate financial decisions, or are we rational calculators of our self-interest? At the peak of tulip mania in Holland, in February 1637, single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman.2 The idea that we behave irrationally when it comes to money may not seem radical, but it challenges the dominant University of Chicago economic philosophy that has framed business and government for fifty years. Their campus has given rise to more Nobel Prize winners in economics than any other institution.


pages: 196 words: 57,974

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

affirmative action, barriers to entry, Bonfire of the Vanities, borderless world, business process, Charles Lindbergh, Corn Laws, corporate governance, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, double entry bookkeeping, Etonian, hiring and firing, industrial cluster, invisible hand, James Watt: steam engine, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, knowledge worker, laissez-faire capitalism, manufacturing employment, market bubble, mittelstand, new economy, North Sea oil, race to the bottom, railway mania, Ronald Coase, Silicon Valley, six sigma, South Sea Bubble, Steve Jobs, Steve Wozniak, strikebreaker, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, tulip mania, wage slave, William Shockley: the traitorous eight

Whereas the English East India Company initially treated each voyage as a separate venture, with different shareholders, the VOC made all the voyages part of a twenty-one-year venture (something the English imitated a decade later). The VOC’s charter also explicitly told investors that they had limited liability. Dutch investors were the first to trade their shares at a regular stock exchange, founded in 1611, just around the corner from the VOC’s office. All the Amsterdam hub needed to prove its capitalistic credentials was a market crash, which duly arrived with tulip mania in 1636–1637. If the Dutch set the fashion for stock-market speculation at home, they also set the tone for competitive imperialism abroad. The VOC’s first voyage had the simple instructions: “Attack the Spanish and Portuguese wherever you find them.” Within forty years, the VOC had established itself as the dominant force in the Moluccan Spice Islands, driving the Portuguese away and forcing the English to concentrate on India.


pages: 174 words: 58,894

London Review of Books by London Review of Books

Albert Einstein, cuban missile crisis, David Attenborough, Deng Xiaoping, Donald Trump, failed state, Mikhail Gorbachev, Neil Kinnock, Sapir-Whorf hypothesis, tulip mania, Wolfgang Streeck

What is more significant is that much, probably most, of the very expensive and almost invariably huge contemporary art sold today does not go on display in the houses of its purchasers but into storage, or is lent to a museum. Contemporary pieces are also bought as investments, more than has ever previously been the case; they are deemed to constitute a secure ‘alternative asset class’. A little knowledge of auction records (not to mention the 17th-century tulip mania) and of the history of artistic reputations should inspire caution. Hook describes with some bemusement the case of Monticelli, a painter hugely admired around 1900, not only by dealers and collectors but also by Van Gogh, but almost forgotten today. He doesn’t encourage us to dwell on this or on the very many other such cases, but one need only look at the forgotten painters promoted by the ‘visionary’ Durand-Ruel, or indeed by Peggy Guggenheim, or flick through the advertisements in Artforum in recent decades.


pages: 180 words: 61,340

Boomerang: Travels in the New Third World by Michael Lewis

Berlin Wall, Bernie Madoff, Carmen Reinhart, Celtic Tiger, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, fiat currency, financial thriller, full employment, German hyperinflation, Irish property bubble, Kenneth Rogoff, offshore financial centre, pension reform, Ponzi scheme, Ronald Reagan, Ronald Reagan: Tear down this wall, South Sea Bubble, the new new thing, tulip mania, women in the workforce

Digging into the data, he found in Iceland the outlines of what was so clearly a historic act of financial madness that it belonged in a textbook. “The Perfect Bubble,” Aliber calls Iceland’s financial rise, and he has the textbook in the works: an updated version of Charles Kindleberger’s 1978 classic, Manias, Panics, and Crashes. Aliber is editing the new edition. In it, Iceland, he decided back in 2006, would now have its own little box, along with the South Sea Bubble and tulip mania—even though Iceland had yet to crash. For him the actual crash was a mere formality. Word spread in Icelandic economic circles that this distinguished professor at Chicago had taken a special interest in Iceland. In May 2008, Aliber was invited by the University of Iceland’s economics department to give a speech. To an audience of students, bankers, and journalists, he explained that Iceland, far from having an innate talent for high finance, had all the markings of a giant bubble, but he spoke the technical language of academic economists.


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

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

., p. 244. 4 Fueling the Flames: the Expansion of Credit 1. At least as far as I can tell from limited sources. Typically at the height of the bubble, sellers had no bulbs, and some (many?) buyers made down-payments, if at all, in kind, that is, in personal possessions or commodities, presumably because they lacked cash. The difference between the value of the down-payment and the negotiated price was personal credit. See N.W. Posthumus, ‘The Tulip Mania in Holland in the Years 1636 and 1637’, Journal of Economic and Business History, vol. 1 (1928–29), reprinted in W.C. Scoville and J.C. LaForce, eds, The Economic Development of Western Europe, vol. 2, The Sixteenth and Seventeenth Centuries (Lexington, Mass.: D.C. Heath, 1969), p. 142; Simon Schama, The Embarrassment of Riches: an Interpretation of Dutch Culture in the Golden Age (Berkeley: University of California Press, 1987), p. 358; Robert P.

Hansen, Cycles of Prosperity and Depression in the United States, Great Britain and Germany: a Study of Monthly Data, 1902–1908 (Madison: University of Wisconsin, 1921), p. 13. 68. H.S. Foxwell, ‘The American Crisis of 1907’, in Papers in Current Finance (London: Macmillan, 1919), pp. 202–3. 6 Euphoria and Paper Wealth 1. Peter M. Garber, ‘Tulipmania’, in Robert P. Flood and Peter M. Garber, Speculative Bubbles, Speculative Attacks, and Policy Switching (Cambridge, Mass.: MIT Press, 1994), p. 72. 2. N.W. Posthumus, ‘The Tulip Mania in Holland in the Years 1636 and 1637’, Journal of Business and Economic History, vol. 1 (1928–29), reprinted in W.C. Scoville and J.C. LaForce, eds, The Economic Development of Western Europe, vol. 2, The Sixteenth and Seventeenth Centuries (Lexington, Mass.: D.C. Heath, 1969), p. 169. 3. Simon Schama, The Embarrassment of Riches: an Interpretation of Dutch Culture in the Golden Age (New York: Knopf, 1987), p. 358.


pages: 218 words: 63,471

How We Got Here: A Slightly Irreverent History of Technology and Markets by Andy Kessler

Albert Einstein, Andy Kessler, animal electricity, automated trading system, bank run, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, British Empire, buttonwood tree, Claude Shannon: information theory, Corn Laws, Douglas Engelbart, Edward Lloyd's coffeehouse, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, Grace Hopper, invention of the steam engine, invention of the telephone, invisible hand, Isaac Newton, Jacquard loom, James Hargreaves, James Watt: steam engine, John von Neumann, joint-stock company, joint-stock limited liability company, Joseph-Marie Jacquard, Kickstarter, Leonard Kleinrock, Marc Andreessen, Maui Hawaii, Menlo Park, Metcalfe's law, Metcalfe’s law, Mitch Kapor, packet switching, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, railway mania, RAND corporation, Robert Metcalfe, Silicon Valley, Small Order Execution System, South Sea Bubble, spice trade, spinning jenny, Steve Jobs, supply-chain management, supply-chain management software, trade route, transatlantic slave trade, tulip mania, Turing machine, Turing test, undersea cable, William Shockley: the traitorous eight

These profits would then be “reported” to investors, which would drive the stock higher. Circular and dangerously wrong reasoning. Enron would pull this scam almost 300 years later. England was ripe for manipulation. At the exact same time, thanks to a Brit named John Law, the French were in the midst of their own speculative bubble: The Mississippi Company was worth more than all of the gold and silver in France. The Dutch tulip mania of the 1630’s didn’t quite kill off speculation there. Between the fall of 1719 and the summer of 1720, close to two hundred joint stock companies, many of them purely speculative, went public. As an inducement to Parliament, Blunt offered a fee of 7.5 million pounds back to the Treasury for the rights to do the exchange. In early 1720, Parliament agreed to Blunt’s swap proposal. It didn’t hurt that he paid off the secretary of the treasury and the Duchess of Kendal, with whom King George I was doing his own speculating.


pages: 249 words: 66,383

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

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

His colleague and Nobel laureate Robert Solow compared Kindleberger to Darwin on the Beagle: “collecting, examining, and classifying interesting specimens . . . it was Kindleberger’s style as an economic historian to hunt for interesting things to learn, not pursue a systematic agenda.”2 The culmination of Kindleberger’s massive data collection on bubbles—Manias, Panics, and Crashes: A History of Financial Crises—is one of the most influential books written in economic history. The book is a tour de force: it covers bubbles going back to the tulip mania in the seventeenth-century Netherlands to the commercial real estate boom before Japan’s “Lost Decade,” to the 1998 financial crisis spurred by the collapse of Long-Term Capital Management. It represents one of the most systematic and large-scale explorations of bubbles and financial crises ever written. The Science of Bubbles Even though Kindleberger didn’t set out to prove any one theory, his close examination of the historical data led him to strong conclusions.


pages: 206 words: 70,924

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton by Colin Read

"Robert Solow", Albert Einstein, Bayesian statistics, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, discovery of penicillin, discrete time, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, floating exchange rates, full employment, Henri Poincaré, implied volatility, index fund, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market clearing, martingale, means of production, moral hazard, Myron Scholes, Paul Samuelson, price stability, principal–agent problem, quantitative trading / quantitative finance, RAND corporation, random walk, risk tolerance, risk/return, Ronald Reagan, shareholder value, Sharpe ratio, short selling, stochastic process, Thales and the olive presses, Thales of Miletus, The Chicago School, the scientific method, too big to fail, transaction costs, tulip mania, Works Progress Administration, yield curve

Call options used by tulip buyers ensured a good price on delivery, and puts could be used to provide sellers with a predictable price for their product upon harvest. While these mechanisms acted at first as a way to ensure predictability for buyers and sellers of tulips, it soon became obvious to speculators that profits could be had. As speculators wrote puts and calls, it would not be long before gyrations in tulip mania caused mismatches in options and delivered prices and quantities that those speculators on the losing end could not cover. Such breakdowns in market-making also created breakdowns in trust in options and in financial markets in general. By the 1600s and 1700s, large global trading companies, such as the South Seas Trading Company, were contributing to an options frenzy on their securities. To curry favor from politicians in exchange for helpful legislation, company representatives offered the politicians warrants or the right to buy company-issued stock at a later date but at a predetermined price.


pages: 322 words: 77,341

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

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

Stocks and bonds are the two biggest single fields of global investment, reaching into every corner of economic life. At the beginning of the new millennium, however, both of them were going through an odd patch. The stock market had undergone a spectacular bubble in Internet and new-economy stocks. Some of what was happening seemed to belong to a classic hysteria equal to that of the great historical bubbles such as the Dutch tulip mania, the South Sea bubble, or the nineteenth-century bubble in railway stocks. The broad rules of these bubbles and implosions are well known. They were first systematized by the economist Hyman Minsky, and their best-known popular formulation is in the classic text by Charles P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises. The basic pattern of these manias is that a real phenomenon comes along (overseas exploration, railways, the Internet), is latched onto by investors, is blown out of all proportion, and continues surging upward anyway, so more investors pile in on the basis of what’s now called “greater fool theory.”


Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Pérez

agricultural Revolution, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, business cycle, capital controls, commoditize, Corn Laws, creative destruction, David Ricardo: comparative advantage, deindustrialization, distributed generation, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Hyman Minsky, informal economy, joint-stock company, Joseph Schumpeter, knowledge economy, late capitalism, market fundamentalism, new economy, nuclear winter, offshore financial centre, post-industrial society, profit motive, railway mania, Robert Shiller, Robert Shiller, Sand Hill Road, Silicon Valley, Simon Kuznets, South Sea Bubble, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, trade route, tulip mania, Upton Sinclair, Washington Consensus

According to his data, in 2001 it was estimated that only 1 to 2 per cent of the fiber optic cable buried under Europe and the United States had so far been turned on (or ‘lit’). Courtappointed receivers of bankrupted telecommunications companies were recovering an average of less than 10 per cent of the original cost of building the networks when they tried to sell the assets. 156 The cemetery of ‘dot.coms’ after the NASDAQ collapse is another witness to the madness of late-Frenzy. 152. Neither the Tulip mania of the 1630s nor the South Sea Bubble of 1720 qualifies in this particular sense. In fact there are many collective psychology phenomena associated with speculative behavior, but not related to the assimilation of technological revolutions in a capitalist context. There are also many other financial crises in capitalism, following particular episodes of speculation, which have more immediate explanatory factors. 153.


pages: 249 words: 77,342

The Behavioral Investor by Daniel Crosby

affirmative action, Asian financial crisis, asset allocation, availability heuristic, backtesting, bank run, Black Swan, buy and hold, cognitive dissonance, colonial rule, compound rate of return, correlation coefficient, correlation does not imply causation, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, endowment effect, feminist movement, Flash crash, haute cuisine, hedonic treadmill, housing crisis, IKEA effect, impulse control, index fund, Isaac Newton, job automation, longitudinal study, loss aversion, market bubble, market fundamentalism, mental accounting, meta analysis, meta-analysis, Milgram experiment, moral panic, Murray Gell-Mann, Nate Silver, neurotypical, passive investing, pattern recognition, Ponzi scheme, prediction markets, random walk, Richard Feynman, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, science of happiness, Shai Danziger, short selling, South Sea Bubble, Stanford prison experiment, Stephen Hawking, Steve Jobs, stocks for the long run, Thales of Miletus, The Signal and the Noise by Nate Silver, tulip mania, Vanguard fund

Understanding that markets are part luck and part skill informs us that we should emphasize rules over practice and that we should hold portfolios that are diverse enough to protect against bad luck but differentiated enough to benefit from tilting probability in our favor in a rule-based manner. Acknowledging the place of luck should chasten our ego in good times and soften our fall in bad times. And while success through strict obedience to rules is not as sexy as practicing three pointers like an NBA star, it has the potential to be just as rewarding. List of some notable manias, panics and crashes Tulip mania (Netherlands) – 1637 South Sea Bubble (UK) – 1720 Bengal Bubble (UK) – 1769 Credit Crisis of 1772 (UK) Financial Crisis of 1791 (US) Panic of 1796–7 (US) Panic of 1819 (US) Panic of 1825 (UK) Panic of 1837 (US) Panic of 1847 (UK) Panic of 1857 (US) Panic of 1866 (UK) Black Friday (US) – 1869 Paris Bourse crash of 1882 (France) “Encilhamento” (Brazil) – 1890 Panic of 1893 (US) Panic of 1896 (US) Panic of 1901 (US) Panic of 1907 (US) Great Depression (US) – 1929 Recession of 1937–8 (US) Brazilian Market Crash of 1971 British Market Crash of 1973–4 Souk Al-Manakh Crash (Kuwait) – 1982 Black Monday (US) – 1987 Rio de Janeiro Stock Exchange Crash – 1989 Japanese Asset Price Bubble – 1991 Black Wednesday (UK) – 1992 Asian Financial Crisis – 1997 Russian Financial Crisis – 1998 dot.com Bubble (US) – 2000 Chinese Stock Bubble – 2007 Great Recession of 2007–9 (US) European Sovereign Debt Crisis (2010) Flash Crash of 2010 (US) Notes 114 L.


pages: 253 words: 79,214

The Money Machine: How the City Works by Philip Coggan

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

They resent the way that financiers make millions in bonuses when times go well but expect the taxpayer to bail them out when things go badly, as they did in 2008. This ambivalent attitude towards financiers dates back over centuries. Roman emperors and medieval monarchs had to flatter financiers when they needed to borrow money; the attitude quickly turned to revulsion when the time came to pay it back. Whole populations have been caught up in frenzies of speculation dating back from Dutch tulip mania through the South Sea Bubble to the Florida land boom of the 1920s. Individual financiers have found it laughably easy to buy popularity when their schemes were prospering (think of Robert Maxwell). But there have been no shortages of commentators saying ‘I told you so’ when their empires subsequently collapsed. Perhaps the public has tended to treat the subject of finance as a soap opera (complete with heroes and villains) because too few people attempt to understand the workings of the financial system.


pages: 695 words: 194,693

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

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

Although this book is not a cultural history of finance—in many instances, artists, writers, moral philosophers, dramatists, and even comedians have interpreted financial markets, and this in turn has influenced the course of these markets’ development. The criticism of finance as a tool of exploitation on moral grounds goes back to Babylonian times. The discomfort that society has felt with the complexity and abstraction of financial tools has stimulated rich artistic interpretations that in turn shaped cultural attitudes. We sometimes turn to art for a perspective, and artists’ views on finance—from seventeenth-century tulip mania prints to the twentieth-century murals about commerce in New York’s Rockefeller Center—depict finance in the context of familiar cultural symbols. The artist’s vision is an integral part of the narrative of this book. Much of my research in finance has been directed toward a scholarly audience; however, one motivation for writing this book is the hope that a broader audience will be curious about the origins of a toolkit that we all share and a mindset that seems at times difficult and perhaps unnatural.

Despite these isolated details, however, the crowd itself is a unified force in the picture—the obvious implication being that the financial crisis derived from the madness of the mob, the tendency of people to get swept up and lose their reason. Several of the prints in the book hearken back to earlier Dutch art. For example, borrowing freely from Peter Brueghel and Hieronymus Bosch, The Great Mirror of Folly artists portrayed loony investors having the stone of folly extracted from their feverish brains, or as fools doomed to perpetually drift in lunatic reverie. One print of the Dutch tulip mania of the 1630s is simply reproduced in the volume to draw the direct analogy between the episode of bulb speculation and the great financial crash. The bulb print is a figure of a giant, empty cap—suggesting the loss of the head and mind to speculative passions. FIGURE 24. Engraving from The Great Mirror of Folly, 1720, depicting the global market bubble on its path from the coffeehouse, pulled by the six great companies.


pages: 290 words: 83,248

The Greed Merchants: How the Investment Banks Exploited the System by Philip Augar

Andy Kessler, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, business cycle, buttonwood tree, buy and hold, capital asset pricing model, commoditize, corporate governance, corporate raider, crony capitalism, cross-subsidies, financial deregulation, financial innovation, fixed income, Gordon Gekko, high net worth, information retrieval, interest rate derivative, invisible hand, John Meriwether, Long Term Capital Management, Martin Wolf, new economy, Nick Leeson, offshore financial centre, pensions crisis, regulatory arbitrage, Sand Hill Road, shareholder value, short selling, Silicon Valley, South Sea Bubble, statistical model, Telecommunications Act of 1996, The Chicago School, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, tulip mania, value at risk, yield curve

Market strategists prefer fundamental explanations for the bubble such as the information technology revolution, complacency amongst investors following the twenty-year bull market, confidence arising from the apparently permanent benign economic conditions and the surfeit of cash looking for places to invest. Behavioural finance experts favour psychological interpretations of the mass hysteria that at times threatened to overrun markets. Historians look for context to explain recent events, turning for parallels to previous examples of markets overshooting such as the seventeenth-century Dutch tulip mania, the South Sea Bubble in the eighteenth century and the Roaring Twenties. Defenders of the free market have been quick to use these explanations to deflect criticism from the system and the institutions they believe in. Prominent figures such as Alan Greenspan have qualified their criticism of corporate excess by saying that the nineties saw no increase in human greed, just an increase in the opportunities to be greedy resulting from economic growth.


pages: 252 words: 78,780

Lab Rats: How Silicon Valley Made Work Miserable for the Rest of Us by Dan Lyons

Airbnb, Amazon Web Services, Apple II, augmented reality, autonomous vehicles, basic income, bitcoin, blockchain, business process, call centre, Clayton Christensen, clean water, collective bargaining, corporate governance, corporate social responsibility, creative destruction, cryptocurrency, David Heinemeier Hansson, Donald Trump, Elon Musk, Ethereum, ethereum blockchain, full employment, future of work, gig economy, Gordon Gekko, greed is good, hiring and firing, housing crisis, income inequality, informal economy, Jeff Bezos, job automation, job satisfaction, job-hopping, John Gruber, Joseph Schumpeter, Kevin Kelly, knowledge worker, Lean Startup, loose coupling, Lyft, Marc Andreessen, Mark Zuckerberg, McMansion, Menlo Park, Milgram experiment, minimum viable product, Mitch Kapor, move fast and break things, move fast and break things, new economy, Panopticon Jeremy Bentham, Paul Graham, paypal mafia, Peter Thiel, plutocrats, Plutocrats, precariat, RAND corporation, remote working, RFID, ride hailing / ride sharing, Ronald Reagan, Rubik’s Cube, Ruby on Rails, Sam Altman, Sand Hill Road, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, six sigma, Skype, Social Responsibility of Business Is to Increase Its Profits, software is eating the world, Stanford prison experiment, stem cell, Steve Jobs, Steve Wozniak, Stewart Brand, TaskRabbit, telemarketer, Tesla Model S, Thomas Davenport, Tony Hsieh, Toyota Production System, traveling salesman, Travis Kalanick, tulip mania, Uber and Lyft, Uber for X, uber lyft, universal basic income, web application, Whole Earth Catalog, Y Combinator, young professional

So they fly out and have drinks at the Rosewood Hotel on Sand Hill Road in Menlo Park, where venture capitalists hang around, as do expensive “companions,” many with Eastern European accents. They eat lunch at the Battery, a members-only private club for social-climbing parvenus in San Francisco. They wangle an invitation to a Bitcoin party and rub shoulders with the scammers, hustlers, Ponzi schemers, and obnoxious knobs who are trying to cash in on a modern-day tulip mania based around a cryptocurrency that Warren Buffett describes as “rat poison squared.” Buffett’s partner, Charlie Munger, was even less polite about Bitcoin mania: “It’s like somebody else is trading turds and you decide you can’t be left out.” The problem is that when you dig through the bullshit you discover, as Gertrude Stein once said about Oakland, that “there is no there there.” Silicon Valley has no fountain of youth.


pages: 309 words: 85,584

Nine Crises: Fifty Years of Covering the British Economy From Devaluation to Brexit by William Keegan

banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, capital controls, congestion charging, deindustrialization, Donald Trump, Etonian, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial thriller, floating exchange rates, full employment, gig economy, inflation targeting, Just-in-time delivery, light touch regulation, liquidity trap, Martin Wolf, moral hazard, negative equity, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, oil shock, Parkinson's law, Paul Samuelson, pre–internet, price mechanism, quantitative easing, Ronald Reagan, school vouchers, short selling, South Sea Bubble, The Chicago School, transaction costs, tulip mania, Winter of Discontent, Yom Kippur War

Canada’s experience was the exception to the rule that, in a globalised financial world, with sub-prime ‘paper’ turning up on bank balance sheets all over Europe, it was difficult to avoid being tainted by the crisis. For a time, it was fashionable to blame financial engineering for the banking crisis but in Thucydidean terms the truest cause could well have been a recrudescence of the historical pattern of greed and excessive risk-taking – parallels with the Dutch tulip mania and South Sea Bubble – to relieve so many people of their senses. But the assumed sophistication of the global financial system was the proximate cause and was to magnify the effects. The general atmosphere was epitomised by the slogan ‘This time it’s different’ – an indication of the human propensity not to learn from history. My great hero J. K. Galbraith was particularly good on this subject.


pages: 282 words: 81,873

Live Work Work Work Die: A Journey Into the Savage Heart of Silicon Valley by Corey Pein

23andMe, 4chan, affirmative action, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, Anne Wojcicki, artificial general intelligence, bank run, barriers to entry, Benevolent Dictator For Life (BDFL), Bernie Sanders, bitcoin, Build a better mousetrap, California gold rush, cashless society, colonial rule, computer age, cryptocurrency, data is the new oil, disruptive innovation, Donald Trump, Douglas Hofstadter, Elon Musk, Extropian, gig economy, Google bus, Google Glasses, Google X / Alphabet X, hacker house, hive mind, illegal immigration, immigration reform, Internet of things, invisible hand, Isaac Newton, Jeff Bezos, job automation, Kevin Kelly, Khan Academy, Law of Accelerating Returns, Lean Startup, life extension, Lyft, Mahatma Gandhi, Marc Andreessen, Mark Zuckerberg, Menlo Park, minimum viable product, move fast and break things, move fast and break things, mutually assured destruction, obamacare, passive income, patent troll, Paul Graham, peer-to-peer lending, Peter H. Diamandis: Planetary Resources, Peter Thiel, platform as a service, plutocrats, Plutocrats, Ponzi scheme, post-work, Ray Kurzweil, regulatory arbitrage, rent control, RFID, Robert Mercer, rolodex, Ronald Reagan, Ross Ulbricht, Ruby on Rails, Sam Altman, Sand Hill Road, Scientific racism, self-driving car, sharing economy, side project, Silicon Valley, Silicon Valley startup, Singularitarianism, Skype, Snapchat, social software, software as a service, source of truth, South of Market, San Francisco, Startup school, stealth mode startup, Steve Jobs, Steve Wozniak, TaskRabbit, technological singularity, technoutopianism, telepresence, too big to fail, Travis Kalanick, tulip mania, Uber for X, uber lyft, ubercab, upwardly mobile, Vernor Vinge, X Prize, Y Combinator

Wannabe entrepreneurs, a demographic that once declared, “San Francisco or bust,” are now increasingly amenable to gentrifying more affordable cities such as Pittsburgh or Detroit instead. The causes are complex but the result is evident: Silicon Valley simply isn’t making unicorns like it did a few years ago. Crucially, though, this most recent bubble didn’t collapse suddenly and with a loud bang, as with the 2000 dot-com fiasco. Rather, the surface of the bubble solidified like a cocoon. What looked like another absurd example of American excess, a high-tech tulip mania, was actually a glimpse at something much more remarkable: a fundamental economic transformation, much like the one brought about by the 2008 financial crisis. The Wall Street bailouts elicited by that crisis rendered the U.S. government subservient to capital in ways not seen since the Great Depression, but the Web 2.0 unicorns pulled off a subtler, and potentially more consequential exploit by turning their ostensible customers into a source of invaluable data as well as free labor.


pages: 268 words: 81,811

Flash Crash: A Trading Savant, a Global Manhunt, and the Most Mysterious Market Crash in History by Liam Vaughan

algorithmic trading, backtesting, bank run, barriers to entry, Bernie Madoff, Black Swan, Bob Geldof, centre right, collapse of Lehman Brothers, Donald Trump, Elliott wave, eurozone crisis, family office, Flash crash, high net worth, High speed trading, information asymmetry, Jeff Bezos, Kickstarter, margin call, market design, market microstructure, Nick Leeson, offshore financial centre, pattern recognition, Ponzi scheme, Ralph Nelson Elliott, Ronald Reagan, sovereign wealth fund, spectrum auction, Stephen Hawking, the market place, Tobin tax, tulip mania, yield curve, zero-sum game

A former Liffe trader led classes on economics, markets, financial products, and risk management, and set homework assignments reading classic texts like Market Wizards, Reminiscences of a Stock Operator, and Steidlmayer on Markets. Goldberg gruffly explained the nuts and bolts of placing and canceling trades using the trading software. Paolo regaled the group with war stories. They learned how to read charts and gauge market profile, and discussed the importance of psychology by examining the crowd effect, the history of various market crashes, and seventeenth-century Holland’s tulip mania. During the training period, the rookies were paid £500 (around $800 at the time) a month, a large chunk of which was taken up just making their way to the hinterland of Weybridge. To make ends meet, they waited for sandwiches to be discounted in the Waitrose downstairs and ate them in the vacant office next door. Still mostly in their early twenties, the recruits had few responsibilities outside IDT, and they became close quickly.


pages: 725 words: 221,514

Debt: The First 5,000 Years by David Graeber

Admiral Zheng, anti-communist, back-to-the-land, banks create money, Bretton Woods, British Empire, carried interest, cashless society, central bank independence, colonial rule, commoditize, corporate governance, David Graeber, delayed gratification, dematerialisation, double entry bookkeeping, financial innovation, fixed income, full employment, George Gilder, informal economy, invention of writing, invisible hand, Isaac Newton, joint-stock company, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, oil shock, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, place-making, Ponzi scheme, price stability, profit motive, reserve currency, Right to Buy, Ronald Reagan, seigniorage, sexual politics, short selling, Silicon Valley, South Sea Bubble, Thales of Miletus, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transatlantic slave trade, tulip mania, upwardly mobile, urban decay, working poor, zero-sum game

True, Locke’s materialism also came to be broadly accepted—even to be the watchword of the age.83 Mainly, though, the reliance on gold and silver seemed to provide the only check on the dangers involved with the new forms of credit-money, which multiplied very quickly—especially once ordinary banks were allowed to create money too. It soon became apparent that financial speculation, unmoored from any legal or community constraints, was capable of producing results that seemed to verge on insanity. The Dutch Republic, which pioneered the development of stock markets, had already experienced this in the tulip mania of 1637—the first of a series of speculative “bubbles,” as they came to be known, in which future prices would first be bid through the ceiling by investors and then collapse. A whole series of such bubbles hit the London markets in the 1690s, in almost every case built around a new joint-stock corporation formed, in imitation of the East India Company, around some prospective colonial venture.

On the other hand, it does seem that the moment a significant portion of the population begins to actually believe this, and particularly, starts treating credit institutions as if they really will be around forever, everything goes haywire. Note here how it was the most sober, cautious, responsible capitalist regimes—the seventeenth-century Dutch Republic, the eighteenth-century British Commonwealth—the ones most careful about managing their public debt—that saw the most bizarre explosions of speculative frenzy, the tulip manias and South Sea bubbles. Much of this seems to turn on the nature of national deficits and credit money. The national debt is, as politicians have complained practically since these things first appeared, money borrowed from future generations. Still, the effects have always been strangely double-edged. On the one hand, deficit financing is a way of putting even more military power in the hands of princes, generals, and politicians; on the other, it suggests that government owes something to those it governs.


pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

"Robert Solow", accounting loophole / creative accounting, banking crisis, banks create money, barriers to entry, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, money market fund, open economy, Pareto efficiency, Paul Samuelson, place-making, Ponzi scheme, profit maximization, quantitative easing, RAND corporation, random walk, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

But Bentham’s more important sleight of mind was to ignore the macroeconomic argument that the legislative ceiling to the rate of interest improved the overall quality of investment by favoring ‘sober people’ over ‘prodigals and projectors.’ The historical record favored Smith. The seventeenth, eighteenth and nineteenth centuries are awash with examples of projectors promoting fantastic schemes to a gullible public. The most famous have entered the folklore of society: the Tulip Mania, the South Sea Bubble, the Mississippi Land Scheme (Mackay 1841). What has not sunk in so deeply is that the financial panics that occurred when these bubbles burst frequently ruined whole countries.6 However, the tide of social change and the development of economic theory favored Bentham. The statutes setting maximum rates were eventually repealed, the concept of usury itself came to be regarded as one of those quaint preoccupations of a more religious age, and modern economics extended Bentham’s concept that ‘putting money out at interest, is exchanging present money for future’ (Bentham 1787).

straight lines, in economic analysis subprime bubble substitution effects Summers, Larry supply and demand; analysis of; backward-bending, in labor market; independence of; laws of; of labor; setting of price supply curves; non-existence of; of labor; theory of surplus, production of surplus value, origins of Swan, Trevor Sweezy, Paul, The Theory of Capitalist Development Systems Engineering Approach Taleb, Nassim tatonnement (groping) Taylor Rule Taylor, John Thatcher, Margaret thermodynamics third agent Thornton, Henry time: concept of; economists’ treatment of; factor omitted; importance of time constants time discount; rate of time value: of goods; of money total differential of profit trade unions; economists’ view of; laws against; non-unionization of economists transformation problem transitivity Tsallis-statistics Tulip Mania Turing, Alan turnover: of money; periods of uncertainty; Keynes and Undercover Economist, The unemployment; definitions of; relation to wage increases see also inflation, relation to unemployment unexplored conditions unions see trade unions United States of America (USA); debt deflation in; economic boom in; economic future of; economy of (insolvency of); idle industrial capacity in; industrialization in; leveraging in; money supply in; power of finance sector in; shadow banking in; unemployment definition in use-value; in Marx usury util utilitarianism utility; cardinal; concept of; expected; immeasurable; marginal (diminishing); maximization of; ordinal; perceived; ratio of; social; subjective value; relation to price; source of; theory of; transition to price see also labor theory of value value at risk formulas Varian, Hal; Microeconomic Analysis Veblen, Thorstein velocity of money Vensim program Vissim program Volcker, Paul wages; determination of (theory of); minimum wages; relation to unemployment Wagner, Adolph Wallace, Neil Walras, L.; Elements of Pure Economics; view of equilibrium Walras’s Law; fallacy of weather, modeling of Weintraub, Sidney welfare state well-being, social Wellstone, Paul Wheelwright, Ted Williams, John Woodford, M.


pages: 284 words: 92,688

Disrupted: My Misadventure in the Start-Up Bubble by Dan Lyons

activist fund / activist shareholder / activist investor, Airbnb, Ben Horowitz, Bernie Madoff, bitcoin, call centre, cleantech, cloud computing, corporate governance, disruptive innovation, dumpster diving, fear of failure, Filter Bubble, Golden Gate Park, Google Glasses, Googley, Gordon Gekko, hiring and firing, Jeff Bezos, Lean Startup, Lyft, Marc Andreessen, Mark Zuckerberg, Menlo Park, minimum viable product, new economy, Paul Graham, pre–internet, quantitative easing, ride hailing / ride sharing, Rosa Parks, Sand Hill Road, sharing economy, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Skype, Snapchat, software as a service, South of Market, San Francisco, Stanford prison experiment, Steve Ballmer, Steve Jobs, Steve Wozniak, telemarketer, tulip mania, uber lyft, Y Combinator, éminence grise

You spend your days talking to people who don’t seem any smarter than you—some don’t seem very bright at all—and yet they are gazillionaires, while you’re an underpaid hack who can barely pay his bills. I wasn’t sure whether to resent them or envy them. In the end I felt a bit of both. Of course the dotcom bubble finally blew up, and I felt a little bit vindicated and even a bit relieved. Now everything could go back to normal. I figured the dotcom bubble had been a historical anomaly akin to the Dutch tulip mania of the seventeenth century, something we would never see again in our lifetime. Instead another one is taking shape. People my age, who remember the first dotcom bubble, are walking around San Francisco feeling like the character played by Bill Murray in Groundhog Day. We’ve lived through this before. We reckon it will all end in tears, just like the first one did. The young kids running these new companies, however, have almost no memory of the first crash.


pages: 293 words: 88,490

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

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

I will argue that these are the reasons for using agent-based models, models that allow for individuals who are each plotting their own course, making adjustments along the way, and affecting the world and others through their actions. Agent-based models do this by applying the simulation approach that is rooted in the analysis of complex and adaptive systems. These are models that respect our very human limits. Let me summarize four broad phenomena that are endemic to financial crises as they have been evolving since the tulip mania of seventeenth-century Holland. I will treat these in more detail in chapters 3 through 6. 1. Emergent phenomena. You’re cruising along the highway when traffic jams up, and you wonder: Is there an accident up ahead? Or maybe road repair? Then, five minutes and a mile later, you’re again moving along smoothly without any obvious reason for the jam. There are less benign versions of transitory congestion, like the flow of fans exiting a concert or soccer match that suddenly turns into a stampede.


pages: 471 words: 97,152

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

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

., 186n13 Thought experiments, 2, 3, 5, 117 Times of London, 71 Tinbergen, Jan, 16, 179n8 Tirole, Jean, 196n14 Tobacman, Jeremy, 192n13,25 Tobias, Ronald, 52, 53, 184n7 Tobin, James, 46, 145, 178n4, 183n11, 189n1, 194n34 Tobin’s q, 145, 195n36,37 Toyota Motor Company, 137–40 Traité de l’Homme (Descartes), 178n3 Trajectory of metal ball experiment, 151 Treasury bills, 79, 91–92 Treasury Department, U.S., 46, 91 Treyer, Valerie, 181n9 Trondheim, Norway, 11, 13 Troubled Assets Relief Program (TARP), 91, 92, 94 Trust Indenture Act of 1939, 39 Tuccillo, John, 149–50, 195n3 Tulip mania, 13 Turner, Frederic Jackson, 62, 184n9 Tversky, Amos, 190n13, 191n4 Two-target approach, 18, 95–96 Uccello, Cori E., 192n14 Uchitelle, Louis, 189n15 Ueda, Kazuo, 183n14 uncertainty, 144, 194n32 unemployment, xxi–xxiii, 6, 97–106, 174, 188–89n1–17; classical economics on, 2–3; current rate of, 3; in the depression of the 1890s, 60; efficiency wage theory on (see efficiency wage theory); in the Great Depression, xxi–xxii, 2, 3, 67; inflation and (see inflation-unemployment tradeoff); involuntary, xxiii, xxv, 97–100; in minorities, 157, 158, 163; natural rate of (see natural rate theory); in New Classical Economics, xxv; quits and, 103–4, 106; recent rise in, 4; voluntary, 2 unions.


pages: 356 words: 103,944

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

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

The subprime mortgage crisis has also generated a large literature, and in view of its magnitude and momentous implications, surely much more will be written. But some of the key conclusions are not hard to foresee: markets are prone to bubbles, unregulated leverage creates systemic risk, lack of transparency undermines confidence, and early intervention is crucial when financial markets are going belly-up. Didn’t we know all this from as long ago as the famous tulip mania of the seventeenth century? These crises transpired not because they were unpredictable but because they were unpredicted. Economists (and those who listen to them) had become overconfident in their preferred narrative of the moment: markets are efficient, financial innovation transfers risk to those best able to bear it, self-regulation works best, and government intervention is ineffective and harmful.


The Orchid Thief: A True Story of Beauty and Obsession by Susan Orlean

Donald Trump, financial independence, index card, Joan Didion, new economy, offshore financial centre, Richard Bolles, traveling salesman, tulip mania

So many new varieties were being found every day that no collector could ever rest—orchids were an endless preoccupation. Once the vogue for orchids began, the prices paid for the plants, the measures taken to obtain them, and the importance attached to them took on an air of madness. This Victorian obsession, this “or-chidelirium,” was a rapacious desire. In intensity, it was similar to the Dutch tulip mania of the 1630s, which reached its zenith in 1637, when the rights to a tulip bulb named Viceroy were sold at auction for a farm’s worth of valuable goods including six loads of grain, four oxen, eight hogs, twelve sheep, wine, beer, and a thousand pounds of cheese. The most valued tulips were those with brilliant streaks and stripes of colors, then thought to be the mark of distinction, and now known by botanists to be the evidence of a devastating flower virus spread by aphids.


pages: 306 words: 97,211

Value Investing: From Graham to Buffett and Beyond by Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin, Michael van Biema

Andrei Shleifer, barriers to entry, Berlin Wall, business cycle, capital asset pricing model, corporate raider, creative destruction, Daniel Kahneman / Amos Tversky, discounted cash flows, diversified portfolio, Eugene Fama: efficient market hypothesis, fixed income, index fund, intangible asset, Long Term Capital Management, naked short selling, new economy, place-making, price mechanism, quantitative trading / quantitative finance, Richard Thaler, shareholder value, short selling, Silicon Valley, stocks for the long run, Telecommunications Act of 1996, time value of money, tulip mania, Y2K, zero-sum game

This intellectual environment, when coupled with stock markets that for three or four years only went up, and up substantially, was not friendly to value investors. Even those whose long-term performance records were the stuff of legend fell behind those who either understood the New Economy or, more likely, were able to anticipate how other investors would respond to its prospects. At the end of the decade (and century and millennium), the debate between those who saw the current market level as tulip mania revisited and those who saw it as a stepping stone to 36,000 on the Dow was still raging. It has diminished, at least for the moment, as the year 2000 reminded investors that everything that rises may not rise forever. Like most value investors, we do not put much credence in predictions about the market-our own included. But we strongly believe that the laws of economics have not been repealed, and that in a market economy, competition will, in the absence of readily identifiable barriers to entry, eventually keep profits in check.


pages: 349 words: 102,827

The Infinite Machine: How an Army of Crypto-Hackers Is Building the Next Internet With Ethereum by Camila Russo

4chan, Airbnb, algorithmic trading, altcoin, always be closing, Any sufficiently advanced technology is indistinguishable from magic, Asian financial crisis, bitcoin, blockchain, Burning Man, crowdsourcing, cryptocurrency, distributed ledger, diversification, Donald Trump, East Village, Ethereum, ethereum blockchain, Flash crash, Google Glasses, Google Hangouts, hacker house, Internet of things, Mark Zuckerberg, Maui Hawaii, mobile money, new economy, peer-to-peer, Peter Thiel, pets.com, Ponzi scheme, prediction markets, QR code, reserve currency, RFC: Request For Comment, Richard Stallman, Robert Shiller, Robert Shiller, Sand Hill Road, Satoshi Nakamoto, semantic web, sharing economy, side project, Silicon Valley, Skype, slashdot, smart contracts, South of Market, San Francisco, the payments system, too big to fail, tulip mania, Turing complete, Uber for X

You know it’s a bubble when a random twitter thread bounces the price.” Richard Turnill, formerly chief investment strategist at BlackRock, the world’s largest asset manager, said in an interview, “I look at the charts, and to me that looks pretty scary.” Stock market analyst Elliott Prechter said in his newsletter, “The price activity and manic sentiment that led to present prices have dwarfed even the Tulip mania of nearly 400 years ago,” and that most altcoins are no more than “high-tech, pump-and-dump schemes.” Howard Marks, billionaire investor and Oaktree Capital cofounder, wrote in a letter to investors that “digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme).” For one headline writer at The Economist the question wasn’t whether crypto was in a bubble, the question was, “What If the Bitcoin Bubble Bursts?”


pages: 372 words: 107,587

The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg

3D printing, agricultural Revolution, back-to-the-land, banking crisis, banks create money, Bretton Woods, business cycle, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, global village, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Kenneth Rogoff, late fees, liberal capitalism, mega-rich, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, Ronald Reagan, short selling, special drawing rights, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, WikiLeaks, working poor, zero-sum game

If you’re this kind of investor, you are more likely to hold shares relatively briefly, and you are likely to gravitate toward stocks that see rapid swings in value. You are also likely to be constantly on the lookout for information — even rumors — that could tip you off to impending price swings in particular stocks. When lots of people engage in speculative investment, the likely result is a series of occasional manias or bubbles. A classic example is the 17th-century Dutch tulip mania, when trade in tulip bulbs assumed bubble proportions; at its peak in early February 1637, some single tulip bulbs sold for more than ten times the annual income of a skilled craftsman.17 Just days after the peak, tulip bulb contract prices collapsed and speculative tulip trading virtually ceased. More recently, in the 1920s, radio stocks were the bubble du jour while the dot-com or Internet bubble ran its course a little over a decade ago (1995–2000).


pages: 408 words: 108,985

Rewriting the Rules of the European Economy: An Agenda for Growth and Shared Prosperity by Joseph E. Stiglitz

Airbnb, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, basic income, Berlin Wall, bilateral investment treaty, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, corporate social responsibility, creative destruction, credit crunch, deindustrialization, discovery of DNA, diversified portfolio, Donald Trump, eurozone crisis, Fall of the Berlin Wall, financial intermediation, Francis Fukuyama: the end of history, full employment, gender pay gap, George Akerlof, gig economy, Gini coefficient, hiring and firing, housing crisis, Hyman Minsky, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, investor state dispute settlement, invisible hand, Isaac Newton, labor-force participation, liberal capitalism, low skilled workers, market fundamentalism, mini-job, moral hazard, non-tariff barriers, offshore financial centre, open economy, patent troll, pension reform, price mechanism, price stability, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, shareholder value, Silicon Valley, sovereign wealth fund, TaskRabbit, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, tulip mania, universal basic income, unorthodox policies, zero-sum game

And no government ever has wasted resources on the scale of the private financial system, for instance, in the case of the United States during the run-up to the financial crisis. During this time, homes financed through unaffordable mortgages birthed a real estate bubble. European finance got in on the action by buying securities backed by those loans. The long series of real estate and other bubbles, dating back to the Dutch tulip mania of the seventeenth century, testifies to the extensive history of private financial sector misallocation of scarce resources in faddish, boom-and-bust cycles. Of course, all human institutions are fallible. We seek to learn how to be more productive, to identify waste when we see it, and then cut it out. Even so, there is waste in both the public and private sectors. The only relevant questions, then, are which sector best tackles a particular challenge and how can money be spent most effectively.


pages: 393 words: 115,217

Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries by Safi Bahcall

accounting loophole / creative accounting, Albert Einstein, Apple II, Apple's 1984 Super Bowl advert, Astronomia nova, British Empire, Cass Sunstein, Charles Lindbergh, Clayton Christensen, cognitive bias, creative destruction, disruptive innovation, diversified portfolio, double helix, Douglas Engelbart, Douglas Engelbart, Edmond Halley, Gary Taubes, hypertext link, invisible hand, Isaac Newton, Johannes Kepler, Jony Ive, knowledge economy, lone genius, Louis Pasteur, Mark Zuckerberg, Menlo Park, Mother of all demos, Murray Gell-Mann, PageRank, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, prediction markets, pre–internet, Ralph Waldo Emerson, RAND corporation, random walk, Richard Feynman, Richard Thaler, side project, Silicon Valley, six sigma, Solar eclipse in 1919, stem cell, Steve Jobs, Steve Wozniak, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tim Cook: Apple, tulip mania, Wall-E, wikimedia commons, yield management

The book contained an offbeat suggestion. Most researchers tried to solve the fat tail problem by studying the behavior of individual traders. Johnson, instead, looked at clusters. He asked what would happen if we assumed traders acted in cliques: small groups whose members all behave the same way, that is, they make the same buy or sell decisions. (The evidence for groupthink in markets, from tulip mania to the internet bubble, is strong.) The clusters need not be permanent. Just like cliques in high school, members come and go, trading cliques form and dissolve, they merge with other cliques or split into two. Imagine bringing a pot of water to a boil. Just before the boiling point, bubbles of gas appear. Those bubbles grow or collapse, merge with other bubbles or fragment, all while new bubbles are forming.


pages: 387 words: 112,868

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

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

“That’s just pretty wild, right?” Morehead said. “I think when they dig up our society, all Planet of Apes–style, in a couple of centuries, Bitcoin is probably going to have had a greater impact on the world than Urban Outfitters. We’re still in early days.” Many bankers, economists, and government officials dismissed the Bitcoin fanatics as naive promoters of a speculative frenzy not unlike the Dutch tulip mania four centuries earlier. On several occasions, the Bitcoin story bore out the warnings of the critics, illustrating the dangers involved in moving toward a more digitized world with no central authority. Just a few weeks before Morehead’s gathering, the largest Bitcoin company in the world, the exchange known as Mt. Gox, announced that it had lost the equivalent of about $400 million worth of its users’ Bitcoins and was going out of business—the latest of many such scandals to hit Bitcoin users.


pages: 523 words: 111,615

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

"Robert Solow", accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, business cycle, 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, different worldview, disintermediation, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), 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, zero-sum game

Even if you think capitalism is working pretty well despite the crisis—and after all, there have been many crises in financial markets over the centuries—it has to be acknowledged that there is at least a crisis of legitimacy. Majorities of people in many countries do not believe, at present, that markets are doing a good job of organizing the economy. The immediate crisis is probably the least interesting way in which markets are failing at the moment, however. Financial crises do indeed recur in market economies, at least as far back as the tulip mania of the seventeenth century.17 The economist Hyman Minsky has argued that there is an internal cycle of capitalism that guarantees there will be banking crises from time to time.18 There have been a few in recent decades—in 1993–94, 1997–98, in 2001, as well as 2007–8. Each one is different, and the most recent crisis has been distinctive in involving the world’s very biggest banks. So each carries new lessons, the lesson from the most recent being that regulators have allowed banks to grow too big.


pages: 460 words: 122,556

The End of Wall Street by Roger Lowenstein

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

It could be that changes in either supply or demand warrant a much higher price. A bubbly market is one that has lost its connection to supply and demand. In such cases—as in the late ’90s, when fundamentally worthless Internet stocks claimed valuations of tens of billions of dollars; or in the 1630s in Holland when, at the peak of a mania, twelve acres of land were offered for a single bulb of Semper Augustus tulip—prices are floated on sheer froth.10 During the tulip mania, Dutch traders met at taverns and contracted for the future delivery of bulbs of a flower regarded as a luxury and a status symbol. Precipitously, the bubble collapsed, and tulips once more were merely tulips. The question posed about bubbly markets has been the same ever since: What is the real price, or the price justified by supply and demand? In 2005, to get a fix on the housing market, Fannie Mae’s managers overlaid a graph of prices with that of incomes over the previous generation.


pages: 478 words: 126,416

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

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

.: Hyperion 220 Loomis, Carol 108 lotteries 65, 66, 68, 72 Lucas, Robert 40 Lynch, Dennios 108 Lynch, Peter 108, 109 M M-Pesa 186 Maastricht Treaty (1993) 243, 250 McCardie, Sir Henry 83, 84, 282, 284 McGowan, Harry 45 Machiavelli, Niccolò 224 McKinley, William 44 McKinsey 115, 126 Macy’s department store 46 Madoff, Bernard 29, 118, 131, 132, 177, 232, 293 Madoff Securities 177 Magnus, King of Sweden 196 Manhattan Island, New York: and Native American sellers 59, 63 Manne, Henry 46 manufacturing companies, rise of 45 Marconi 48 marine insurance 62, 63 mark-to-market accounting 126, 128–9, 320n22 mark-to-model approach 128–9, 320n21 Market Abuse Directive (MAD) 226 market economy 4, 281, 302, 308 ‘market for corporate control, the’ 46 market risk 97, 98, 177, 192 market-makers 25, 28, 30, 31 market-making 49, 109, 118, 136 Markets in Financial Instruments Directive (MIFID) 226 Markkula, Mike 162, 166, 167 Markopolos, Harry 232 Markowitz, Harry 69 Markowitz model of portfolio allocation 68–9 Martin, Felix 323n5 martingale 130, 131, 136, 139, 190 Marx, Groucho 252 Marx, Karl 144, 145 Capital 143 Mary Poppins (film) 11, 12 MasterCard 186 Masters, Brooke 120 maturity transformation 88, 92 Maxwell, Robert 197, 201 Mayan civilisation 277 Meade, James 263 Means, Gardiner 51 Meeker, Mary 40, 167 Melamed, Leo 19 Mercedes 170 merchant banks 25, 30, 33 Meriwether, John 110, 134 Merkel, Angela 231 Merrill Lynch 135, 199, 293, 300 Merton, Robert 110 Metronet 159 Meyer, André 205 MGM 33 Microsoft 29, 167 middleman, role of the 80–87 agency and trading 82–3 analysts 86 bad intermediaries 81–2 from agency to trading 84–5 identifying goods and services required 80, 81 logistics 80, 81 services from financial intermediaries 80–81 supply chain 80, 81 transparency 84 ‘wisdom of crowds’ 86–7 Midland Bank 24 Milken, Michael 46, 292 ‘millennium bug’ 40 Miller, Bill 108, 109 Minuit, Peter 59, 63 Mises, Ludwig von 225 Mittelstand (medium-size business sector) 52, 168, 169, 170, 171, 172 mobile banking apps 181 mobile phone payment transfers 186–7 Modigliani-Miller theorem 318n9 monetarism 241 monetary economics 5 monetary policy 241, 243, 245, 246 money creation 88 money market fund 120–21 Moneyball phenomenon 165 monopolies 45 Monte Carlo casino 123 Monte dei Paschi Bank of Siena 24 Montgomery Securities 167 Moody’s rating agency 21, 248, 249, 313n6 moral hazard 74, 75, 76, 92, 95, 256, 258 Morgan, J.P. 44, 166, 291 Morgan Stanley 25, 40, 130, 135, 167, 268 Morgenthau, District Attorney Robert 232–3 mortality tables 256 mortgage banks 27 mortgage market fluctuation in mortgage costs 148 mechanised assessment 84–5 mortgage-backed securities 20, 21, 40, 85, 90, 100, 128, 130, 150, 151, 152, 168, 176–7, 284 synthetic 152 Mozilo, Angelo 150, 152, 154, 293 MSCI World Bank Index 135 muckraking 44, 54–5, 79 ‘mugus’ 118, 260 multinational companies, and diversification 96–7 Munger, Charlie 127 Munich, Germany 62 Munich Re 62 Musk, Elon 168 mutual funds 27, 108, 202, 206 mutual societies 30 mutualisation 79 mutuality 124, 213 ‘My Way’ (song) 72 N Napoleon Bonaparte 26 Napster 185 NASA 276 NASDAQ 29, 108, 161 National Economic Council (US) 5, 58 National Employment Savings Trust (NEST) 255 National Institutes of Health 167 National Insurance Fund (UK) 254 National Provincial Bank 24 National Science Foundation 167 National Westminster Bank 24, 34 Nationwide 151 Native Americans 59, 63 Nazis 219, 221 neo-liberal economic policies 39, 301 Netjets 107 Netscape 40 Neue Markt 170 New Deal 225 ‘new economy’ bubble (1999) 23, 34, 40, 42, 98, 132, 167, 199, 232, 280 new issue market 112–13 New Orleans, Louisiana: Hurricane Katrina disaster (2005) 79 New Testament 76 New York Stock Exchange 26–7, 28, 29, 31, 49, 292 New York Times 283 News of the World 292, 295 Newton, Isaac 35, 132, 313n18 Niederhoffer, Victor 109 NINJAs (no income, no job, no assets) 222 Nixon, Richard 36 ‘no arbitrage’ condition 69 non-price competition 112, 219 Norman, Montagu 253 Northern Rock 89, 90–91, 92, 150, 152 Norwegian sovereign wealth fund 161, 253 Nostradamus 274 O Obama, Barack 5, 58, 77, 194, 271, 301 ‘Obamacare’ 77 Occidental Petroleum 63 Occupy movement 52, 54, 312n2 ‘Occupy Wall Street’ slogan 305 off-balance-sheet financing 153, 158, 160, 210, 250 Office of Thrift Supervision 152–3 oil shock (1973–4) 14, 36–7, 89 Old Testament 75–6 oligarchy 269, 302–3, 305 oligopoly 118, 188 Olney, Richard 233, 237, 270 open market operations 244 options 19, 22 Organisation for Economic Co-operation and Development (OECD) 263 Osborne, George 328n19 ‘out of the money option’ 102, 103 Overend, Gurney & Co. 31 overseas assets and liabilities 179–80, 179 owner-managed businesses 30 ox parable xi-xii Oxford University 12 P Pacific Gas and Electric 246 Pan Am 238 Paris financial centre 26 Parliamentary Commission on Banking Standards 295 partnerships 30, 49, 50, 234 limited liability 313n14 Partnoy, Frank 268 passive funds 99, 212 passive management 207, 209, 212 Patek Philippe 195, 196 Paulson, Hank 300 Paulson, John 64, 109, 115, 152, 191, 284 ‘payment in kind’ securities 131 payment protection policies 198 payments system 6, 7, 25, 180, 181–8, 247, 259–60, 281, 297, 306 PayPal 167, 168, 187 Pecora, Ferdinand 25 Pecora hearings (1932–34) 218 peer-to-peer lending 81 pension funds 29, 98, 175, 177, 197, 199, 200, 201, 208, 213, 254, 282, 284 pension provision 78, 253–6 pension rights 53, 178 Perkins, Charles 233 perpetual inventory method 321n4 Perrow, Charles 278, 279 personal financial management 6, 7 personal liability 296 ‘petrodollars’ 14, 37 Pfizer 96 Pierpoint Morgan, J. 165 Piper Alpha oil rig disaster (1987) 63 Ponzi, Charles 131, 132 Ponzi schemes 131, 132, 136, 201 pooled investment funds 197 portfolio insurance 38 Potts, Robin, QC 61, 63, 72, 119, 193 PPI, mis-selling of 296 Prebble, Lucy: ENRON 126 price competition 112, 219 price discovery 226 price mechanism 92 Prince, Chuck 34 private equity 27, 98, 166, 210 managers 210, 289 private insurance 76, 77 private sector 78 privatisation 39, 78, 157, 158, 258, 307 probabilistic thinking 67, 71, 79 Procter & Gamble 69, 108 product innovation 13 property and infrastructure 154–60 protectionism 13 Prudential 200 public companies, conversion to 18, 31–2, 49 public debt 252 public sector 78 Q Quandt, Herbert 170 Quandt Foundation 170 quantitative easing 245, 251 quantitative style 110–11 quants 22, 107, 110 Quattrone, Frank 167, 292–3 queuing 92 Quinn, Sean 156 R railroad regulation 237 railway mania (1840s) 35 Raines, Franklin 152 Rajan, Raghuram 56, 58, 79, 102 Rakoff, Judge Jed 233, 294, 295 Ramsey, Frank 67, 68 Rand, Ayn 79, 240 ‘random walk’ 69 Ranieri, Lew 20, 22, 106–7, 134, 152 rating agencies 21, 41, 84–5, 97, 151, 152, 153, 159, 249–50 rationality 66–7, 68 RBS see Royal Bank of Scotland re-insurance 62–3 Reagan, Ronald 18, 23, 54, 59, 240 real economy 7, 18, 57, 143, 172, 190, 213, 226, 239, 271, 280, 288, 292, 298 redundancy 73, 279 Reed, John 33–4, 48, 49, 50, 51, 242, 293, 314n40 reform 270–96 other people’s money 282–5 personal responsibility 292–6 principles of 270–75 the reform of structure 285–92 robust systems and complex structures 276–81 regulation 215, 217–39 the Basel agreements 220–25 and competition 113 the origins of financial regulation 217–19 ‘principle-based’ 224 the regulation industry 229–33 ‘rule-based’ 224 securities regulation 225–9 what went wrong 233–9 ‘Regulation Q’ (US) 13, 14, 20, 28, 120, 121 regulatory agencies 229, 230, 231, 235, 238, 274, 295, 305 regulatory arbitrage 119–24, 164, 223, 250 regulatory capture 237, 248, 262 Reich, Robert 265, 266 Reinhart, C.M. 251 relationship breakdown 74, 79 Rembrandts, genuine/fake 103, 127 Renaissance Technologies 110, 111, 191 ‘repo 105’ arbitrage 122 repo agreement 121–2 repo market 121 Reserve Bank of India 58 Reserve Primary Fund 121 Resolution Trust Corporation 150 retirement pension 78 return on equity (RoE) 136–7, 191 Revelstoke, first Lord 31 risk 6, 7, 55, 56–79 adverse selection and moral hazard 72–9 analysis by ‘ketchup economists’ 64 chasing the dream 65–72 Geithner on 57–8 investment 256 Jackson Hole symposium 56–7 Kohn on 56 laying bets on the interpretation of incomplete information 61 and Lloyd’s 62–3 the LMX spiral 62–3, 64 longevity 256 market 97, 98 mitigation 297 randomness 76 socialisation of individual risks 61 specific 97–8 risk management 67–8, 72, 79, 137, 191, 229, 233, 234, 256 risk premium 208 risk thermostat 74–5 risk weighting 222, 224 risk-pooling 258 RJR Nabisco 46, 204 ‘robber barons’ 44, 45, 51–2 Robertson, Julian 98, 109, 132 Robertson Stephens 167 Rockefeller, John D. 44, 52, 196 Rocket Internet 170 Rogers, Richard 62 Rogoff, K.S. 251 rogue traders 130, 300 Rohatyn, Felix 205 Rolls-Royce 90 Roman empire 277, 278 Rome, Treaty of (1964) 170 Rooney, Wayne 268 Roosevelt, Franklin D. v, 25, 235 Roosevelt, Theodore 43–4, 235, 323n1 Rothschild family 217 Royal Bank of Scotland 11, 12, 14, 24, 26, 34, 78, 91, 103, 124, 129, 135, 138, 139, 211, 231, 293 Rubin, Robert 57 In an Uncertain World 67 Ruskin, John 60, 63 Unto this Last 56 Russia defaults on debts 39 oligarchies 303 Russian Revolution (1917) 3 S Saes 168 St Paul’s Churchyard, City of London 305 Salomon Bros. 20, 22, 27, 34, 110, 133–4 ‘Salomon North’ 110 Salz Review: An Independent Review of Barclays’ Business Practices 217 Samuelson, Paul 208 Samwer, Oliver 170 Sarkozy, Nicolas 248, 249 Savage, L.J. 67 Scholes, Myron 19, 69, 110 Schrödinger’s cat 129 Scottish Parliament 158 Scottish Widows 26, 27, 30 Scottish Widows Fund 26, 197, 201, 212, 256 search 195, 209, 213 defined 144 and the investment bank 197 Second World War 36, 221 secondary markets 85, 170, 210 Securities and Exchange Commission (SEC) 20, 64, 126, 152, 197, 225, 226, 228, 230, 232, 247, 292, 293, 294, 313n6 securities regulation 225–9 securitisation 20–21, 54, 100, 151, 153, 164, 169, 171, 222–3 securitisation boom (1980s) 200 securitised loans 98 See’s Candies 107 Segarra, Carmen 232 self-financing companies 45, 179, 195–6 sell-side analysts 199 Sequoia Capital 166 Shad, John S.R. 225, 228–9 shareholder value 4, 45, 46, 50, 211 Sharpe, William 69, 70 Shell 96 Sherman Act (1891) 44 Shiller, Robert 85 Siemens 196 Siemens, Werner von 196 Silicon Valley, California 166, 167, 168, 171, 172 Simon, Hermann 168 Simons, Jim 23, 27, 110, 111–12, 124 Sinatra, Frank 72 Sinclair, Upton 54, 79, 104, 132–3 The Jungle 44 Sing Sing maximum-security gaol, New York 292 Skilling, Jeff 126, 127, 128, 149, 197, 259 Slim, Carlos 52 Sloan, Alfred 45, 49 Sloan Foundation 49 small and medium-size enterprises (SMEs), financing 165–72, 291 Smith, Adam 31, 51, 60 The Wealth of Nations v, 56, 106 Smith, Greg 283 Smith Barney 34 social security 52, 79, 255 Social Security Trust Fund (US) 254, 255 socialism 4, 225, 301 Société Générale 130 ‘soft commission’ 29 ‘soft’ commodities 17 Soros, George 23, 27, 98, 109, 111–12, 124, 132 South Sea Bubble (18th century) 35, 132, 292 sovereign wealth funds 161, 253 Soviet empire 36 Soviet Union 225 collapse of 23 lack of confidence in supplies 89–90 Spain: property bubble 42 Sparks, D.L. 114, 283, 284 specific risk 97–8 speculation 93 Spitzer, Eliot 232, 292 spread 28, 94 Spread Networks 2 Square 187 Stamp Duty 274 Standard & Poor’s rating agency 21, 99, 248, 249, 313n6 Standard Life 26, 27, 30 standard of living 77 Standard Oil 44, 196, 323n1 Standard Oil of New Jersey (later Exxon) 323n1 Stanford University 167 Stanhope 158 State Street 200, 207 sterling devaluation (1967) 18 stewardship 144, 163, 195–203, 203, 208, 209, 210, 211, 213 Stewart, Jimmy 12 Stigler, George 237 stock exchanges 17 see also individual stock exchanges stock markets change in organisation of 28 as a means of taking money out of companies 162 rise of 38 stock-picking 108 stockbrokers 16, 25, 30, 197, 198 Stoll, Clifford 227–8 stone fei (in Micronesia) 323n5 Stone, Richard 263 Stora Enso 196 strict liability 295–6 Strine, Chancellor Leo 117 structured investment vehicles (SIVs) 158, 223 sub-prime lending 34–5, 75 sub-prime mortgages 63, 75, 109, 149, 150, 169, 244 Summers, Larry 22, 55, 73, 119, 154, 299 criticism of Rajan’s views 57 ‘ketchup economics’ 5, 57, 69 support for financialisation 57 on transformation of investment banking 15 Sunday Times 143 ‘Rich List’ 156 supermarkets: financial services 27 supply chain 80, 81, 83, 89, 92 Surowiecki, James: The Wisdom of Crowds xi swap markets 21 SWIFT clearing system 184 Swiss Re 62 syndication 62 Syriza 306 T Taibbi, Matt 55 tailgating 102, 103, 104, 128, 129, 130, 136, 138, 140, 152, 155, 190–91, 200 Tainter, Joseph 277 Taleb, Nassim Nicholas 125, 183 Fooled by Randomness 133 Tarbell, Ida 44, 54 TARGET2 system 184, 244 TARP programme 138 tax havens 123 Taylor, Martin 185 Taylor Bean and Whitaker 293 Tea Party 306 technological innovation 13, 185, 187 Tel Aviv, Israel 171 telecommunications network 181, 182 Tesla Motors 168 Tetra 168 TfL 159 Thai exchange rate, collapse of (1997) 39 Thain, John 300 Thatcher, Margaret 18, 23, 54, 59, 148, 151, 157 Thiel, Peter 167 Third World debt problem 37, 131 thrifts 25, 149, 150, 151, 154, 174, 290, 292 ticket touts 94–5 Tobin, James 273 Tobin tax 273–4 Tolstoy, Count Leo 97 Tonnies, Ferdinand 17 ‘too big to fail’ 75, 140, 276, 277 Tourre, Fabrice ‘Fabulous Fab’ 63–4, 115, 118, 232, 293, 294 trader model 82, 83 trader, rise of the 16–24 elements of the new trading culture 21–2 factors contributing to the change 17–18 foreign exchange 18–19 from personal relationships to anonymous markets 17 hedge fund managers 23 independent traders 22–3 information technology 19–20 regulation 20 securitisation 20–21 shift from agency to trading 16 trading as a principal source of revenue and remuneration 17 trader model 82, 83 ‘trading book’ 320n20 transparency 29, 84, 205, 210, 212, 226, 260 Travelers Group 33, 34, 48 ‘treasure islands’ 122–3 Treasuries 75 Treasury (UK) 135, 158 troubled assets relief program 135 Truman, Harry S. 230, 325n13 trust 83–4, 85, 182, 213, 218, 260–61 Tuckett, David 43, 71, 79 tulip mania (1630s) 35 Turner, Adair 303 TWA 238 Twain, Mark: Pudd’nhead Wilson’s Calendar 95–6 Twitter 185 U UBS 33, 134 UK Independence Party 306 unemployment 73, 74, 79 unit trusts 202 United States global dominance of the finance industry 218 house prices 41, 43, 149, 174 stock bubble (1929) 201 universal banks 26–7, 33 University of Chicago 19, 69 ‘unknown unknowns’ 67 UPS delivery system 279–80 US Defense Department 167 US Steel 44 US Supreme Court 228, 229, 304 US Treasury 36, 38, 135 utility networks 181–2 V value discovery 226–7 value horizon 109 Van Agtmael, Antoine 39 Vanderbilt, Cornelius 44 Vanguard 200, 207, 213 venture capital 166 firms 27, 168 venture capitalists 171, 172 Vickers Commission 194 Viniar, David 204–5, 233, 282, 283, 284 VISA 186 volatility 85, 93, 98, 103, 131, 255 Volcker, Paul 150, 181 Volcker Rule 194 voluntary agencies 258 W wagers and credit default swaps 119 defined 61 at Lloyd’s coffee house 71–2 lottery tickets 65 Wall Street, New York 1, 16, 312n2 careers in 15 rivalry with London 13 staffing of 217 Wall Street Crash (1929) 20, 25, 27, 36, 127, 201 Wall Street Journal 294 Wallenberg family 108 Walmart 81, 83 Warburg 134 Warren, Elizabeth 237 Washington consensus 39 Washington Mutual 135, 149 Wasserstein, Bruce 204, 205 Watergate affair 240 ‘We are the 99 per cent’ slogan 52, 305 ‘We are Wall Street’ 16, 55, 267–8, 271, 300, 301 Weber, Max 17 Weill, Sandy 33–4, 35, 48–51, 55, 91, 149, 293, 314n40 Weinstock, Arnold 48 Welch, Jack 45–6, 48, 50, 52, 126, 314n40 WestLB 169 Westminster Bank 24 Whitney, Richard 292 Wilson, Harold 18 windfall payments 14, 32, 127, 153, 290 winner’s curse 103, 104, 156, 318n11 Winslow Jones, Alfred 23 Winton Capital 111 Wolfe, Humbert 7 The Uncelestial City 1 Wolfe, Tom 268 The Bonfire of the Vanities 16, 22 women traders 22 Woodford, Neil 108 Woodward, Bob: Maestro 240 World Bank 14, 220 World.Com bonds 197 Wozniak, Steve 162 Wriston, Walter 37 Y Yellen, Janet 230–31 Yom Kippur War (1973) 36 YouTube 185 Z Zurich, Switzerland 62


pages: 415 words: 125,089

Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein

"Robert Solow", Albert Einstein, Alvin Roth, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, Bayesian statistics, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buttonwood tree, buy and hold, capital asset pricing model, cognitive dissonance, computerized trading, Daniel Kahneman / Amos Tversky, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Lloyd's coffeehouse, endowment effect, experimental economics, fear of failure, Fellow of the Royal Society, Fermat's Last Theorem, financial deregulation, financial innovation, full employment, index fund, invention of movable type, Isaac Newton, John Nash: game theory, John von Neumann, Kenneth Arrow, linear programming, loss aversion, Louis Bachelier, mental accounting, moral hazard, Myron Scholes, Nash equilibrium, Norman Macrae, Paul Samuelson, Philip Mirowski, probability theory / Blaise Pascal / Pierre de Fermat, random walk, Richard Thaler, Robert Shiller, Robert Shiller, spectrum auction, statistical model, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas Bayes, trade route, transaction costs, tulip mania, Vanguard fund, zero-sum game

If AT&T stock rose above the strike price before October 15 by an amount greater than the option premium, the option would generate a profit. In fact, the potential profit on the option would be limitless. The option on AT&T stock was selling for $2.50 on June 6, 1995. Why $2.50? Resolving Paccioli's unfinished game of balla was kid stuff compared to this! We can only wonder whether two quants like Pascal and Fermat could have come up with an answer-and why they did not even try. The Dutch tulip mania, a striking example of what happens when "oldfashioned human hunches" take over, had occurred only twenty years before Pascal and Fermat first laid out the principles of probability theory; the memory of it must still have been vivid when they began their historic deliberations. Perhaps they ignored the challenge of valuing an option because the key to the puzzle is in the price of uncertainty, a concept that seems more appropriate to our own times than it may have seemed to theirs.


Lonely Planet Amsterdam by Lonely Planet

3D printing, Airbnb, haute couture, haute cuisine, post-work, QR code, Silicon Valley, trade route, tulip mania, young professional

And it's a creative environment, with a quality of life that attracts top international talent. There are now 1.3 start-ups per 1000 residents. Pioneering projects range from building a canal house and canal bridge by 3D printer to offering networks where residents can trade surplus green energy with each other. Best on Film Tulip Fever (2017) Based on the 1999 novel by Deborah Moggach, this love story takes place in 17th-century Amsterdam during the heady days of tulip mania. The Paradise Suite (2015) A Bulgarian woman forced into prostitution, a Swedish piano prodigy, a Serbian war criminal and other troubled characters cross paths in Amsterdam. The Fault in Our Stars (2014) Based on the 2012 novel by John Green, this story of two cancer-stricken young lovers travelling to Amsterdam is sad yet uplifting. Best in Print The Diary of Anne Frank (Anne Frank; 1952) A moving account of a young girl's thoughts and yearnings while in hiding from the Nazis in Amsterdam.


pages: 424 words: 140,262

Blood, Iron, and Gold: How the Railways Transformed the World by Christian Wolmar

banking crisis, Beeching cuts, British Empire, Cape to Cairo, invention of the wheel, James Watt: steam engine, joint-stock company, Khartoum Gordon, Kickstarter, Mahatma Gandhi, railway mania, refrigerator car, side project, South China Sea, transcontinental railway, tulip mania, urban sprawl

Most losses occurred when promoters, either fraudulent, stupid or simply over-optimistic, obtained huge sums of money for lines that were never completed so that investors lost all their cash. Investors were most vulnerable during the railway manias which raged through different countries at various times and were swept up in the rush simply because everyone else seemed to think it was a good idea. Railway bubbles simply fit into the history of similar scandals from the Dutch tulip mania of 1637 to the recent banking crisis. There’s no shortage of elegantly embellished but completely valueless railway company share certificates still adorning living-room walls, dating from the various railway manias of the nineteenth century. However, it was when governments became involved that unbelievably huge sums could be purloined by corrupt promoters and the world centre for such activity was the United States, where several later scams dwarfed even the dodgy dealings outlined in Chapter 6 during the construction of the first transcontinental.


pages: 513 words: 141,153

The Spider Network: The Wild Story of a Math Genius, a Gang of Backstabbing Bankers, and One of the Greatest Scams in Financial History by David Enrich

Bernie Sanders, call centre, centralized clearinghouse, computerized trading, Credit Default Swap, Downton Abbey, Flash crash, Goldman Sachs: Vampire Squid, information asymmetry, interest rate derivative, interest rate swap, London Interbank Offered Rate, London Whale, Long Term Capital Management, Nick Leeson, Northern Rock, Occupy movement, performance metric, profit maximization, tulip mania, zero-sum game

Rowe Price, 247 Taibbi, Matt, 157 Tamura, Naomichi, x, 145–46, 290, 445 Tan, Stantley, 276–77, 281–82, 291–92 TARP (Troubled Asset Relief Program), 164–65, 187, 212, 230 Tchenguiz, Robert and Vincent, 332 Team America: World Police (movie), 90 Texas A&M University, 184 Texas electricity markets, 250 Thailand, 115–17, 224 Thatcher, Margaret, 15, 41, 70, 331 Thomson Reuters, 72, 76, 222 Thursfield, Andrew, x BBA meetings, 78 Citigroup Libor submissions, 276–77, 295 first meeting with Hayes, 258–61, 260n Libor, 79, 192, 244, 245–46, 246n Libor trial, 405–6 update on, 445 Tibor, 92, 93–94, 113–14, 269–70, 278 Tighe, Emma, 140, 154, 218, 365, 384, 388 Tighe, Karen, 153–54, 167, 306 Tighe, Sarah Alykulov telephone call, 329–30 cancer of, 381 Citigroup’s firing of Hayes, 303–4, 305–6, 313–14 Citigroup’s investigation of Hayes, 298–99, 300–301 first meetings with Hayes, 137–41 Hayes arrest, 364–65, 367–69, 370 Hayes car accident, 394 Hayes diagnosis, 413–314 Hayes hiring of lawyer, 347–49 Hayes job offers, 213, 230, 231 Hayes prison term, 451–52 Hayes trial, 410–11, 414–16, 419–20, 428–29, 430, 437–38, 443–44 at Herbert Smith, 161, 217–18 honeymoon with Hayes, 307 marriage proposal of Hayes, 209–10 move to Tokyo, 153–55 Old Rectory home, 337–38, 363–64 pregnancy and birth of Joshua, 328, 330, 337 relationship with Hayes, 147–48, 152–55, 167–68 resignation of, 455 SFO investigation, 383–84, 388–89 vacations with Hayes, 160–61, 224, 285–86, 319–20, 402–3 wedding to Hayes, 265, 305, 306–7 Time (magazine), 33 Title X Technology, 360 Tokyo Dome Bowling Center, 93 traders, 17–22, 41–43, 146–47 derivatives and, 31–35 “entertainment” and broker commissions, 50–53 ethos, 23–24 role of luck, 59 Tradition Financial Services, 52–53, 128–29 Treasury Department, U.S., 247–48, 357 Trivedi, Harsh, 351–54 Troy (movie), 237, 459 tulip mania, 32 Tullett Prebon brokers, xii. See also specific brokers Libor investigation, 397–99 polo shirts, 88 switch trades, 170–77 Tyrrell, Steven, xiii, 368–69, 374–75 UBS Adoboli internship, 22 Adoboli trades, 335–37 bankers and traders, x. See also specific bankers and traders CFTC Libor investigation, 270–71, 315–19, 322 culture of, 275, 336–37 FSA investigation, 338–39 government bailout, 164–65, 212 Hayes job offer, 60–61 history of, 80–81 Justice investigation, 323–25 Libor financial settlement, 369–70, 372–73 Libor system, 81–83 OFT investigation, 332–33 Pieri’s anti-Hayes bandwagon, 292–94 post-Hayes trading, 288–94 shareholder meeting, 149–51 switch trades, 169–77 “Umbrella” (song), 153 UniCredit Bank, 220 University of Bath, 67 University of California, 256 University of Delaware, 311 University of London, 447 University of Minnesota, 249–50 University of Nottingham, 14, 16, 21, 22, 335 University of Pennsylvania, 246–47 University of Southampton, 448 Vampire Squid, 157–58 Venice Beach, 209 Vogels, Frits, xi, 168, 335 Wall Street Journal, 6, 188–91 “Libor Fog: Bankers Cast Doubt on Key Rate Amid Crisis,” 190–91, 195, 202–3, 204–5 “Rate Probe Keys on Traders,” 346–47 “Study Casts Doubt on Key Rate,” 196–98, 201–2 Wallis, Deborah, 183, 192 Walsh, Andrew, 150–51 Wandsworth Prison, 444, 450 Waterloo Station, 98 We Need to Talk About Kevin (Shriver), 54 Weill, Sandy, 230 WestLB, 97, 98, 99, 133, 206 When Genius Failed (Lowenstein), 288 White, Paul, x, 283, 334–35 Whitehouse, Mark, 190–91, 196–98 Whitewater controversy, 268 Wikipedia, 207–8 Wiley, Stuart, xi, 107–8, 108n, 170, 214, 225–26 Wilkinson, Danny, xi, 126–30 background of, 127 fees and commissions, 132, 274 Hayes and, 128–29, 130, 155–56, 225–26, 352–54 Hayes firing, 304 Justice criminal charges, 394–95 Libor investigation, 335 FSA/CFTC interview, 352–54 Libor submissions, 99, 130, 132, 225–26, 274 Libor trial, 452–53, 455–56 music and DJing, 412 nicknames of, 126 SFO criminal charges, 404 suspension of, 343–44, 343n Williams, Andrew, 372 Williams, David, 348, 348n, 391 Willkie Farr & Gallagher, 400 Wilmot-Sitwell, Alex, x, 231, 233, 372–73 Windsor Pub, 152–53, 313 Wink, Angus, xii, 173–74, 174n Wiston House, 256–57 World Darts Championship, 401–2 World Trade Center, 120–21, 202 Yomiuri Giants, 93 Youle, Thomas, 249–53 “Does the Libor reflect banks’ borrowing costs?”


pages: 461 words: 128,421

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

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

Instead, they hoped their number crunching could give them something more valuable—the ability to see into the future and forecast the cycles of the market. That there were cycles seemed obvious to most. Securities markets as we understand them today (continuously operating, indoor exchanges) developed in the late 1700s as European governments began selling bonds on a regular basis, mainly to finance wars. There had been famous market manias and panics before—tulip mania in 1630s Holland, and in the early 1700s the Mississippi Bubble in France and the South Sea Bubble in England. It was only in the 1800s that observers began to see a certain regularity in them. Near-clockwork regularity, it seemed. In England there were market panics in 1804–5, 1815, 1825, 1836, 1847, and 1857. A famous early explanation for these cycles came from William Stanley Jevons, the mathematical economist, who proposed in the 1870s that the waxing and waning of spots on the sun—that occurred on an eleven-year cycle—was to blame.


pages: 624 words: 127,987

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

Albert Einstein, Atul Gawande, Black Swan, business cycle, business process, buy low sell high, capital asset pricing model, Checklist Manifesto, cognitive bias, correlation does not imply causation, Credit Default Swap, Daniel Kahneman / Amos Tversky, David Heinemeier Hansson, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, discounted cash flows, Donald Knuth, double entry bookkeeping, Douglas Hofstadter, en.wikipedia.org, Frederick Winslow Taylor, George Santayana, Gödel, Escher, Bach, high net worth, hindsight bias, index card, inventory management, iterative process, job satisfaction, Johann Wolfgang von Goethe, Kevin Kelly, Kickstarter, Lao Tzu, lateral thinking, loose coupling, loss aversion, Marc Andreessen, market bubble, Network effects, Parkinson's law, Paul Buchheit, Paul Graham, place-making, premature optimization, Ralph Waldo Emerson, rent control, side project, statistical model, stealth mode startup, Steve Jobs, Steve Wozniak, subscription business, telemarketer, the scientific method, time value of money, Toyota Production System, tulip mania, Upton Sinclair, Vilfredo Pareto, Walter Mischel, Y Combinator, Yogi Berra

A simple blood test by your doctor can verify the levels of many essential nutrients—always consult with your MD before making any major changes to your diet or supplement intake. 4 For more on the neurophysiology of the brain, check out Kluge: The Haphazard Construction of the Human Mind by Gary F. Marcus (Faber & Faber, 2008). 5 http://macfreedom.com. 6 http://www.proginosko.com/leechblock.html. 7 http://www.timessquarenyc.org/facts/PedestrianCounts.html. 8 http://en.wikipedia.org/wiki/Austrian_business_cycle_theory. 9 http://en.wikipedia.org/wiki/Tulip_mania. 10 http://en.wikipedia.org/wiki/Dot-com_bubble. 11 http://en.wikipedia.org/wiki/United_States_housing_bubble. CHAPTER 8: WORKING WITH YOURSELF 1 http://www.pomodorotechnique.com/. 2 http://www.pnas.org/content/103/31/11778.abstract. 3 http://www.ingentaconnect.com/content/hfes/hf/2006/00000048/00000002/art00014. 4 http://www.paulgraham.com/makersschedule.html. 5 http://crashcourse.personalmba.com. 6 Personally, I work with the folks at Timesvr.com—they’re skilled, fast, friendly, and cost effective. 7 http://davidseah.com/pceo/etp. 8 http://govleaders.org/powell.htm. 9 For a complete look at my personal productivity system, visit http://book.personalmba.com/bonus-training/. 10 http://www.markforster.net/autofocus-system/. 11 For an example of how I do this, visit http://book.personalmba.com/bonus-training/.


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

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

Psychologists call this penchant to follow the crowd the herding instinct—the tendency of individuals to adapt their thinking to the prevailing opinion. The Internet bubble has many precedents. In 1852, Charles Mackay wrote the classic Extraordinary Delusions and the Madness of Crowds, which chronicled a number of financial bubbles during which speculators were driven into a frenzy by the upward movement of prices: the South Sea bubble in England and the Mississippi bubble in France around 1720 and the tulip mania in Holland a century earlier.8 Let me read you my favorite passage from the book. See if you can relate with this: We find that whole communities suddenly fix their minds upon one subject, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion and run after it. . . . Sober nations have all at once become desperate gamblers, and risked most of their existence upon the turn of a piece of paper. . . .


pages: 517 words: 139,477

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

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

Psychologists call this penchant to follow the crowd the herding instinct—the tendency of individuals to adapt their thinking to the prevailing opinion. The Internet bubble has many precedents. In 1852, Charles Mackay wrote the classic Extraordinary Delusions and the Madness of Crowds, which chronicled a number of financial bubbles during which speculators were driven into a frenzy by the upward movement of prices: the South Sea bubble in England and the Mississippi bubble in France around 1720 and the tulip mania in Holland a century earlier.8 Let me read you my favorite passage from the book. See if you can relate to this: We find that whole communities suddenly fix their minds upon one subject, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion and run after it. . . . Sober nations have all at once become desperate gamblers, and risked most of their existence upon the turn of a piece of paper. . . .


pages: 452 words: 150,785

Business Adventures: Twelve Classic Tales From the World of Wall Street by John Brooks

banking crisis, Bretton Woods, business climate, cuban missile crisis, Ford paid five dollars a day, Gunnar Myrdal, invention of the wheel, large denomination, lateral thinking, margin call, Marshall McLuhan, plutocrats, Plutocrats, short selling, special drawing rights, tulip mania, upwardly mobile, very high income

More than that, the attitude of educators toward printed textbooks and of business people toward written communication underwent a discernible change; avant-garde philosophers took to hailing xerography as a revolution comparable in importance to the invention of the wheel; and coin-operated copying machines began turning up in candy stores and beauty parlors. The mania—not as immediately disrupting as the tulip mania in seventeenth-century Holland but probably destined to be considerably farther-reaching—was in full swing. The company responsible for the great breakthrough and the one on whose machines the majority of these billions of copies were made was, of course, the Xerox Corporation, of Rochester, New York. As a result, it became the most spectacular big-business success of the nineteen-sixties. In 1959, the year the company—then called Haloid Xerox, Inc.


pages: 585 words: 151,239

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

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bonfire of the Vanities, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, corporate governance, corporate raider, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, fixed income, full employment, George Gilder, germ theory of disease, global supply chain, hiring and firing, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, Louis Pasteur, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, means of production, Menlo Park, Mexican peso crisis / tequila crisis, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, plutocrats, Plutocrats, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Ronald Reagan, Sand Hill Road, savings glut, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

In the last quarter of 2008, real GDP contracted at an annualized rate of 8.2 percent. By the end of the year, global equities had lost more than $35 trillion in value and American homeowners had lost an additional $7 trillion in equity. Add in corporate entities of all sorts (nonlisted and unincorporated) and global equities had lost about $50 trillion—or close to four-fifths of global GDP for 2008.3 Bubbles are endemic to capitalism and human nature: think of the Dutch tulip mania in the early seventeenth century, when Dutch investors paid extravagant prices for tulip bulbs, or the South Sea Bubble in the early eighteenth century, when the British became obsessed with buying shares in a company selling government debt. People’s animal spirits exceed their rational powers and they overcommit themselves, sometimes horribly so. All bubbles eventually burst, as hope and hype collide with reality, but not all bubbles burst with the same consequences.


pages: 566 words: 163,322

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

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

These varying explanations resulted in much confusion and contributed to the general failure of most big financial institutions to see the credit crisis looming before 2008. Embarrassed by that failure, the Bank for International Settlements, the European Central Bank, the IMF, and other authorities began to look at the problem anew, and, by 2011, they had moved along separate paths to similar conclusions. One strong thread in their research linked the major credit crises going back to the Great Depression of the 1930s and in some cases even to the “tulip mania” that tripped up Holland in the 1600s. The precursor of all these crises—and thus the most powerful indicator of a coming crisis—was that domestic private credit had been growing faster than the economy for a significant length of time. This is a very important clue. The authorities also reached another surprising conclusion: Although the total size of a nation’s debt—meaning the total of government and private-sector debt—does matter for the economy’s prospects, the clearest signal of coming financial trouble comes from the pace of increase in that debt.


pages: 552 words: 163,292

Boom: Mad Money, Mega Dealers, and the Rise of Contemporary Art by Michael Shnayerson

activist fund / activist shareholder / activist investor, banking crisis, Bonfire of the Vanities, corporate raider, diversified portfolio, Donald Trump, East Village, estate planning, Etonian, high net worth, index card, Jane Jacobs, mass immigration, NetJets, Peter Thiel, plutocrats, Plutocrats, rent control, rolodex, Silicon Valley, tulip mania, unbiased observer, upwardly mobile, Works Progress Administration

You walked in, and half the auction didn’t sell. People weren’t even bidding. It was just unbelievable, because in May there had been an incredibly strong auction. Huge prices. Records for many artists. Vibrant market. It just turned on a dime. And the ensuing recession in the art market was absolutely the worst thing I’ve ever been through in my career as an art dealer. The phone literally didn’t ring.… It was like tulip mania, like a Ponzi thing, it was crazy. Everybody was making money and everybody was happy, and then when the music stopped it was just like a crushing hangover.”2 Gagosian, like Blum, had tense meetings with his bankers. By now he had a multimillion-dollar personal art collection and could borrow against it, though only up to a point. Banks put punishingly low valuations on the art they kept as collateral, and typically granted loans for no more than a few months.


pages: 611 words: 188,732

Valley of Genius: The Uncensored History of Silicon Valley (As Told by the Hackers, Founders, and Freaks Who Made It Boom) by Adam Fisher

Airbnb, Albert Einstein, AltaVista, Apple II, Apple's 1984 Super Bowl advert, augmented reality, autonomous vehicles, Bob Noyce, Brownian motion, Buckminster Fuller, Burning Man, Byte Shop, cognitive dissonance, disintermediation, don't be evil, Donald Trump, Douglas Engelbart, Dynabook, Elon Musk, frictionless, glass ceiling, Hacker Ethic, Howard Rheingold, HyperCard, hypertext link, index card, informal economy, information retrieval, Jaron Lanier, Jeff Bezos, Jeff Rulifson, John Markoff, Jony Ive, Kevin Kelly, Kickstarter, knowledge worker, life extension, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, Maui Hawaii, Menlo Park, Metcalfe’s law, Mother of all demos, move fast and break things, move fast and break things, Network effects, new economy, nuclear winter, PageRank, Paul Buchheit, paypal mafia, peer-to-peer, Peter Thiel, pets.com, pez dispenser, popular electronics, random walk, risk tolerance, Robert Metcalfe, rolodex, self-driving car, side project, Silicon Valley, Silicon Valley startup, skunkworks, Skype, social graph, social web, South of Market, San Francisco, Startup school, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, Ted Nelson, telerobotics, The Hackers Conference, the new new thing, Tim Cook: Apple, tulip mania, V2 rocket, Whole Earth Catalog, Whole Earth Review, Y Combinator

And if you’re me, a fucking idiot who doesn’t know anything about the history of the market, for all you know you might as well be playing Dig Dug. Carl Steadman: So you have people investing in ideas, some of them good, some of them bad, and because what you get in a frenzied economy that is in search of IPOs are ideas like Pets.com. They were willing to ship you a forty-pound bag of dog food, for no shipping fee, at a tremendous discount. It made no sense, there was no underlying business plan. It was this tulip mania. It was the exuberance, irrational exuberance. Ev Williams: This company would IPO and that company would IPO. We were all swept up in it. Tiffany Shlain: There was so much talk about IPOs that we had an Initial Pumpkin Offering for Halloween. Everyone came out to South Park. I still have all the schwag from that; it was very funny. It was a ridiculous time. Carl Steadman: My marker for a long time was Paris, 1968.


pages: 670 words: 194,502

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

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

The sales charge is universally stated as a percentage of the selling price, which includes the charge, making it appear lower than if applied to net asset value. We consider this a sales gimmick unworthy of this respectable industry. 2. The Money Managers, by G. E. Kaplan and C. Welles, Random House, 1969. 3. See definition of “letter stock” on p. 579. 4. Title of a book first published in 1852. The volume described the “South Sea Bubble,” the tulip mania, and other speculative binges of the past. It was reprinted by Bernard M. Baruch, perhaps the only continuously successful speculator of recent times, in 1932. That was locking the stable door after the horse was stolen. Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds (Metro Books, New York, 2002) was first published in 1841. Neither a light read nor always strictly accurate, it is an extensive look at how large numbers of people often believe very silly things—for instance, that iron can be transmuted into gold, that demons most often show up on Friday evenings, and that it is possible to get rich quick in the stock market.


pages: 772 words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Basel III, Black Swan, blood diamonds, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Gordon Gekko, hiring and firing, income inequality, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, pension reform, performance metric, pirate software, plutocrats, Plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

Continental Europe was the site of all three pivotal elements comprising modern financial economics: joint stock companies, banks conducting fractional reserve lending, and stock exchanges. Each was essentially in place around the time settlers reached Jamestown. That allowed greedy sovereigns and schemers during the Colonial era to profit on a mass scale from the opportunities offered by credit. Perhaps the most famous bubble was the 1636 Tulip Mania that caused the Dutch to wildly bid up prices—some writers suggest even so high that the value of one bulb could feed a merchant ship’s crew for one year; woe the unfortunate sailor who munched one, mistaking it for an onion.9 In the eighteenth century, the Mississippi Scheme in France and the South Sea Bubble in England caused 1720 to be a particularly bad year for deregulation—worse even than the Great Depression.


pages: 1,088 words: 228,743

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

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

When Soros’s The Alchemy of Finance was first published in 1987, academics ignored or dismissed the reflexivity idea, partly because the practitioner-oriented book was written “in a different language”. Yet, it has found a large following among investors and it may have also influenced later academic work on positive-feedback trading and on bubbles. Other research also confirms that fast credit growth and financial deregulation /innovation are common characteristics of major booms that end in tears. Bubbles have a long, infamous history since the Dutch tulip mania (1637) and the South Sea and Mississippi company bubbles (both about 1720). Wall Street in 1929, Japan in 1989, and global technology stocks in 1999 are the most famous equity market bubbles of the past century. Of course, there are alternative explanations for these high equity prices but the explanations involving purely rational stories, such as time-varying risk premia, are unsatisfactory.


Debt of Honor by Tom Clancy

airport security, banking crisis, Berlin Wall, buttonwood tree, complexity theory, cuban missile crisis, defense in depth, job satisfaction, low earth orbit, margin call, New Journalism, oil shock, Silicon Valley, tulip mania, undersea cable

Small already—the entire nation was about the size of California, and populated with roughly half the people of the United States—their country was further crowded by the fact that little of the land was arable, and since arable land also tended to be land on which people could more easily live, the major part of the population was further concentrated into a handful of large, dense cities, where real-estate prices became more precious still. The remarkable result of these seemingly ordinary facts was that the commercial real estate in the city of Tokyo alone had a higher "book" value than that of all the land in America's forty-eight contiguous states. More remarkably still, this absurd fiction was accepted by everyone as though it made sense, when in fact it was every bit as madly artificial as the Dutch Tulip Mania of the seventeenth century. But as with America, what was a national economy, after all, but a collective belief? Or so everyone had thought for a generation. The frugal Japanese citizens saved a high proportion of their earnings. Those savings went into banks, in such vast quantities that the supply of capital for lending was similarly huge, as a result of which the interest rates for those loans were correspondingly low, which allowed businesses to purchase land and build on it despite prices that anywhere else in the world would have been somewhere between ruinous and impossible.