Bear Stearns

351 results back to index


pages: 620 words: 214,639

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan

Alan Greenspan, asset-backed security, Bear Stearns, book value, call centre, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deal flow, Deng Xiaoping, diversification, Financial Instability Hypothesis, fixed income, Glass-Steagall Act, Hyman Minsky, Irwin Jacobs, Jim Simons, John Meriwether, junk bonds, Long Term Capital Management, low interest rates, margin call, merger arbitrage, Michael Milken, money market fund, moral hazard, mortgage debt, mutually assured destruction, Myron Scholes, New Journalism, Northern Rock, proprietary trading, Renaissance Technologies, Rod Stewart played at Stephen Schwarzman birthday party, Savings and loan crisis, savings glut, shareholder value, sovereign wealth fund, stock buybacks, too big to fail, traveling salesman, uptick rule, vertical integration, Y2K, yield curve

(On June 27, the Fed released the minutes of its March 14 deliberations on Bear Stearns's “funding difficulties” and “the likely effects of its bankruptcy on financial markets.” The four board members present—the fifth was flying home from Helsinki—agreed unanimously that “given the fragile condition of the financial markets at the time, the prominent position of Bear Stearns in those markets, and the expected contagion that would result from the immediate failure of Bear Stearns, the best alternative was to provide temporary emergency financing” to Bear Stearns through JPMorgan. “Such a loan would facilitate efforts to effect a resolution of the Bear Stearns situation that would be consistent with preserving financial stability.”

“Effective immediately, JPMorgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations,” it read. “Other than shareholder approval, the closing is not subject to any material conditions.” Dimon added, “JPMorgan Chase stands behind Bear Stearns. Bear Stearns' clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns' counterparty risk. We welcome their clients, counterparties and employees to our firm, and we are glad to be their partner.” Schwartz, the man who presided over Bear Stearns's demise, chimed in: “The past week has been an incredibly difficult time for Bear Stearns.

The SEC found that Bear's clearance business “caused violations of the antifraud provisions of the federal securities laws in connection with its clearing relations with” A. R. Baron. Specifically, the SEC found that “although Bear Stearns was aware that Baron was engaging in unauthorized trading in customer accounts, Bear Stearns charged unauthorized trades to Baron customers instead of to Baron; Bear Stearns took money and securities from customer accounts to pay for the unauthorized trades; and Bear Stearns refused to return the customer property it took, even after Baron admitted that certain trades were unauthorized.” The SEC also found that Bear Stearns “assisted Baron in staying in business when it knew that Baron lacked required capital to operate and was engaging in an ongoing fraud.


pages: 350 words: 109,220

In FED We Trust: Ben Bernanke's War on the Great Panic by David Wessel

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Berlin Wall, Black Swan, break the buck, business cycle, central bank independence, credit crunch, Credit Default Swap, crony capitalism, debt deflation, Fall of the Berlin Wall, financial engineering, financial innovation, financial intermediation, fixed income, full employment, George Akerlof, Glass-Steagall Act, Greenspan put, housing crisis, inflation targeting, information asymmetry, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, Michael Milken, money market fund, moral hazard, mortgage debt, new economy, Northern Rock, price stability, quantitative easing, Robert Shiller, Ronald Reagan, Saturday Night Live, Savings and loan crisis, savings glut, Socratic dialogue, too big to fail

Not everyone was happy: Dallas’s Richard Fisher dissented this time, fretting about inflation. But the Four Musketeers thought, finally, they had been aggressive enough to get ahead of the curve. They were wrong. Chapter 9 “UNUSUAL AND EXIGENT” In the Great Panic, there will always be Before Bear Stearns and After Bear Stearns. Before Bear Stearns, no major financial institution had failed. Before Bear Stearns, the Fed was doing what central banks have done for generations: lending money for a few days, sometimes a few weeks, to solid commercial banks that couldn’t raise cash quickly on their own. The Fed lent readily, but only to banks, after the 1987 stock market crash and the September 11, 2001, terrorist attacks.

All that was before, though. After Bear Stearns, potential buyers of any failing financial institution — Lehman Brothers, Wachovia — would ask the Fed not whether it would lend, but how much it was willing to kick in. After Bear Stearns, the debate would not be whether the Great Panic would require government bailouts but would instead be who would be bailed out and on what terms. After Bear Stearns, the line between Fed-protected, deposit-taking Main Street banks and less tightly regulated, more leveraged Wall Street investment banks was obliterated. After Bear Stearns, the Fed’s elastic interpretation of its power to lend to almost anyone in “unusual and exigent circumstances” would lead the Bush administration to see the Fed as the lender of first resort, rather than in its traditional role as the lender of last resort.

On Monday, March 10, 2008, Moody’s Investors Service downgraded mortgage-backed debt issued by a Bear Stearns fund, and with that, rumors began to circulate in the market that there were liquidity problems at Bear Stearns itself. Bear Stearns denied the rumors, but the market ignored the denials. When new CEO Alan Schwartz went on CNBC Wednesday to try to shore up confidence in the firm’s finances, his appearance got upstaged by news that New York’s governor Eliot Spitzer was resigning after law-enforcement authorities discovered his dalliance with prostitutes. The run on Bear Stearns continued. Bob Steel, the former Goldman executive who had come to Treasury to serve as Paulson’s undersecretary for domestic finance, told his boss: “They’ve got a month or so.”


pages: 265 words: 93,231

The Big Short: Inside the Doomsday Machine by Michael Lewis

Alan Greenspan, An Inconvenient Truth, Asperger Syndrome, asset-backed security, Bear Stearns, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, facts on the ground, financial engineering, financial innovation, fixed income, forensic accounting, Gordon Gekko, high net worth, housing crisis, illegal immigration, income inequality, index fund, interest rate swap, John Meriwether, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, medical residency, Michael Milken, money market fund, moral hazard, mortgage debt, pets.com, Ponzi scheme, Potemkin village, proprietary trading, quantitative trading / quantitative finance, Quicken Loans, risk free rate, Robert Bork, short selling, Silicon Valley, tail risk, the new new thing, too big to fail, value at risk, Vanguard fund, zero-sum game

I don't know that our trades went directly into their funds, but I don't know where else they would have gone." And therein lay a new problem: Bear Stearns had sold Cornwall 70 percent of its credit default swaps. Because Bear Stearns was big and important, and Cornwall Capital was a garage band hedge fund, Bear Stearns hadn't been required to post collateral to Cornwall. Cornwall was now totally exposed to the possibility that Bear Stearns would be unable to pay off its gambling debts. Cornwall Capital couldn't help but notice that Bear Stearns was not so much shaping the subprime mortgage bond business as being reshaped by it. "They'd turned themselves from a low-risk brokerage operation into a subprime mortgage engine," said Jamie.

Cornwall had a problem more immediate than the collapse of society as we know it: the collapse of Bear Stearns. On June 14, 2007, Bear Stearns Asset Management, a CDO firm, like Wing Chau's, but run by former Bear Stearns employees who had the implicit backing of the mother ship, declared that it had lost money on bets on subprime mortgage securities and that it was being forced to dump 3.8 billion dollars' worth of these bets before closing the fund. Up until this moment, Cornwall Capital had been unable to see why Bear Stearns, and no one else, had been so eager to sell them insurance on CDOs. "Bear was able to show us liquidity in the CDOs that I couldn't understand," said Ben.

"They'd turned themselves from a low-risk brokerage operation into a subprime mortgage engine," said Jamie. If the subprime mortgage market crashed, Bear Stearns was going to crash with it. Back in March, Cornwall had bought $105 million in credit default swaps on Bear Stearns--that is, they'd made a bet on the collapse of Bear Stearns--from the British bank HSBC. If Bear Stearns failed, HSBC would owe them $105 million. Of course this only shifted their risk to HSBC. HSBC was the third largest bank in the world, and one of those places it was hard to think about going down. On February 8, 2007, however, HSBC rocked the market with the announcement that it was taking a big, surprising loss on its portfolio of subprime mortgage loans.


pages: 258 words: 71,880

Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street by Kate Kelly

Alan Greenspan, bank run, Bear Stearns, book value, buy and hold, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Donald Trump, eat what you kill, fixed income, housing crisis, index arbitrage, Long Term Capital Management, margin call, moral hazard, proprietary trading, quantitative hedge fund, Renaissance Technologies, risk-adjusted returns, shareholder value, technology bubble, too big to fail, traveling salesman

Siezes Mortgage Giants—Government Ousts CEOs of Fannie, Freddie; Promises Up to $200 Billion in Capital,” Wall Street Journal, September 8, 2008. 221 twenty thousand dollars in medical debt: Ianthe Jeanne Dugan, “For Workers, Medical Bills Add to Pain as Firms Fail,” Wall Street Journal, December 6, 2008. 221 bus commuters out of their jobs: Michael Cooper, “Rider Paradox: Surge in Mass, Drop in Transit,” New York Times, February 3, 2009. 222 didn’t understand what they were dealing with: Bryan Burrough, “Bringing Down Bear Stearns,” Vanity Fair, August 1, 2008. 225 “how this happened”: Kate Kelly, “The Fall of Bear Stearns: Lost Opportunities Haunt Final Days of Bear Stearns,” Wall Street Journal, May 27, 2008. 225 an outraged Bear broker: Kate Kelly, “The Fall of Bear Stearns: Bear Stearns Neared Collapse Twice in Frenzied Last Days,” Wall Street Journal, May 29, 2008. 225- 6 That Easter weekend . . . accepted the new terms: Ibid. 226 “I personally apologize”: Kate Kelly et al., “The Fall of Bear Stearns: Bear’s Final Moment,” Wall Street Journal, May 30, 2008. 227 “Barry Fox, a manager”: Kate Kelly, “Crisis on Wall Street: His Job at Bear Gone, Mr.

NOTES Thursday 14 reducing their balance levels: Kate Kelly, “The Fall of Bear Stearns: Fear, Rumors Touched off Fatal Run on Bear Stearns,” Wall Street Journal, May 28, 2008. 17 Thursday morning brought another big blow: Kate Kelly and Serena Ng, “In Dealing with Bear Stearns, Wall St. Plays Guardedly,” Wall Street Journal, March 13, 2008 18 “clients are leaving us”: Kate Kelly, “The Fall of Bear Stearns.” Thursday Evening 25 Bear refused to participate: Roger Lowenstein, When Genius Failed (Random House, 2000). 26 scantily clad models: Michael Siconolfi, “Talented Outcasts: Bear Stearns Prospers Hiring Daring Traders That Rival Firms Shun,” Wall Street Journal, November 11, 1993. 26 liked to put out his cigars: The Wall Street Journal, Who’s Who and What’s What on Wall Street (Ballantine Books, 1998). 26 small stock-trading house: “A History of Bear Stearns,” graphic, New York Times, March 17, 2008. 27 distressed quasi-public investments: Charles Kaiser, “Salim L.

Pioneer in Stock Block Trading, Dies at 69,” New York Times, May 1, 1978. 36 an embarrassing tussle: Kate Kelly and Serena Ng, “The Sure Bet Turns Bad Funds Howl as Bear Stearns Buys Mortgages,” Wall Street Journal, June 7, 2007. 38 pleaded for the chance: Matthew Goldstein and David Henry, “Bear Bets Wrong; Two Bear Stearns Hedge Funds Soared,” BusinessWeek, October 22, 2007. 39 emergency $3.2 billion loan: Kate Kelly and Susanne Craig, “Losing Hand: How Bear Stearns Mess Cost Executive His Job,” Wall Street Journal, August 6, 2007. 39 reassure the public: Kate Kelly and Randall Smith, “Remodeling Job: Market Swoons as Bear Stearns Bolsters Finances—Brokerage Raises Cash, Cuts Short-Term Debt; Spector Expected to Exit,” Wall Street Journal, August 4, 2007. 40 Bear had already taken another step: Kate Kelly and Susanne Craig, “Losing Hand: How Bear Stearns Mess Cost Executive His Job.” 48 He was at a restaurant in Anguilla: Bryan Burrough, “Bringing Down Bear Stearns,” Vanity Fair, August 1, 2008. Friday 62 $46 trillion market: International Swaps and Derivatives Association, Inc., Web-published market survey, 1987-present (2008). 65 Hoping to stabilize their teetering economy: Aurel Schubert, The Credit-Anstalt Crisis of 1931 (Cambridge University Press, 1991). 72 Corzine hid in his town car: Craig Horowitz, “The Deal He Made,” New York, July 10, 1985. 74 it was heading toward $100 billion: Julie Creswell and Ben White, “Wall Street, R.I.P.: The End of an Era,” New York Times, September 28, 2008. 79 “People realized that Bear Stearns”: Kate Gibson, “Market Snapshot: U.S.


pages: 342 words: 99,390

The greatest trade ever: the behind-the-scenes story of how John Paulson defied Wall Street and made financial history by Gregory Zuckerman

1960s counterculture, Alan Greenspan, banking crisis, Bear Stearns, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, financial engineering, financial innovation, fixed income, index fund, Isaac Newton, Jim Simons, junk bonds, Larry Ellison, Long Term Capital Management, low interest rates, margin call, Mark Zuckerberg, Menlo Park, merger arbitrage, Michael Milken, mortgage debt, mortgage tax deduction, Ponzi scheme, Renaissance Technologies, rent control, Robert Shiller, rolodex, short selling, Silicon Valley, statistical arbitrage, Steve Ballmer, Steve Wozniak, technology bubble, zero-sum game

As prices of various mortgage investments fell further in the summer and the funds ran into more losses, Cayne spent more than a week in Nashville, Tennessee, competing in a bridge tournament, seemingly confident that Cioffi’'s funds wouldn’'t have much of an impact on Bear Stearns.4 Soon, though, lenders forced Bear Stearns to extend one of the hedge funds’' portfolios $1.6 billion to keep it afloat. A huge red flag had been raised, warning investors to Bear Stearns’' own problems. By July, the Bear Stearns funds had collapsed, leading to billions of dollars of losses for clients and throwing financial markets into chaos. Investors suddenly shunned mortgages. Brokerage firms could no longer avoid reducing the value of slices of all kinds of CDOs and sub-prime mortgage bonds, sending the price of all of Paulson’'s insurance shooting higher.

In one deal, Paulson helped score a $36 million profit for Bear Stearns after the bank, along with an investment firm called Gruss & Co., made a $679 million buyout offer for Anderson Clayton Company, a food and insurance conglomerate. The $36 million score was a drop in the bucket at Bear Stearns, where it was divided among hundreds of partners. But Paulson noticed that Gruss, which hadn’'t previously undertaken a buyout, divided the same $36 million among just the firm’'s five partners. To Paulson, there seemed to be a limit to how much money he could make at a large firm like Bear Stearns, especially since most of its profit came from charging customers fees rather than undertaking deals like Anderson with a huge upside.

Devaney said in a mockingly hysterical tone to a reporter, poking fun at the worrywarts.3 ·* ·* ·* BACK IN JANUARY, at a conference devoted to subprime securities at Las Vegas’'s Venetian hotel, Rosenberg was chatting with a banker outside a conference hall when an investor approached and relayed a troubling conversation he had had the previous evening with some Bear Stearns traders. “"It’'s not so simple to short mortgages,”" one of the Bear Stearns traders allegedly told the investor. “"A servicer can just buy mortgages out of a pool, so you guys never will be able to collect”" on the insurance contracts. It turned out that Bear Stearns owned a “"servicing”" company called EMC Mortgage Corp. that collected the monthly loan payments of home owners. If EMC exchanged poorly performing home loans within a mortgage pool for healthier loans, or added cash to the pool, it could ensure that the pool had sufficient cash flow to pay off all its investors, rendering Paulson’'s insurance worthless.


pages: 419 words: 130,627

Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase by Duff McDonald

"World Economic Forum" Davos, Alan Greenspan, AOL-Time Warner, bank run, Bear Stearns, Blythe Masters, Bonfire of the Vanities, book value, business logic, centralized clearinghouse, collateralized debt obligation, conceptual framework, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Exxon Valdez, financial innovation, fixed income, G4S, Glass-Steagall Act, Greenspan put, housing crisis, interest rate swap, Jeff Bezos, John Meriwether, junk bonds, Kickstarter, laissez-faire capitalism, Long Term Capital Management, margin call, market bubble, Michael Milken, money market fund, moral hazard, negative equity, Nelson Mandela, Northern Rock, profit motive, proprietary trading, Renaissance Technologies, risk/return, Rod Stewart played at Stephen Schwarzman birthday party, Saturday Night Live, sovereign wealth fund, statistical model, Steve Ballmer, Steve Jobs, technology bubble, The Chicago School, too big to fail, Vanguard fund, zero-coupon bond, zero-sum game

(It had already been reported that he’d been playing golf the day the hedge funds were bailed out.) Bear Stearns was now a symbol of risk management gone amuck, and on Wall Street, where reputation is everything, the Journal’s article spelled the end for Cayne, if not the entire firm. Bear hung around long enough to place second in Fortune magazine’s annual list of the most admired securities firms—behind Lehman Brothers—but it was now officially circling the drain. At the end of 2007, Bear Stearns reported $2.6 billion in write-downs, as well as its first-ever quarterly loss. Bear Stearns was the smallest firm of Wall Street’s giants, and the first to go down.

The discussion was still theoretical at that point, as the men speculated blow-by-blow on the events that would occur if Bear Stearns couldn’t open for business. Bear Stearns, after all, had trading positions with 5,000 firms and billions of dollars at risk. “It was a scary description of events that we all thought would lead to more dominoes falling in subsequent weeks,” recalls Cavanagh. Dimon essentially demanded all hands on deck on Thursday night. By 6:00 the next morning, he told his team to cut Bear Stearns into numerous slices. He wanted the teams looking at those slices to come back every three hours and give him a sense of their value.

Paulson didn’t want to anger the American people by seeming to rescue greedy bankers from their own mistakes. He also raised the issue of “moral hazard”—the idea that bailing out equity holders of Bear Stearns would encourage future reckless behavior. “Where there is intervention, I really believe that the shareholders need to lose,” Paulson later told Fortune magazine. “Bear Stearns was a great old institution, but I don’t know how you can put government money in there and protect the shareholders.” Dimon replied that he’d been thinking of the shareholders’ vote that would be required at Bear Stearns, and that to go much lower would be to risk enraging the very people he needed to approve a transaction.


pages: 566 words: 155,428

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

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

It was authorized by Section 13(3) to lend to anyone—as long as the collateral on the loan was “secured to the satisfaction” of . . . whom? Why, the Fed itself! On March 14, the Fed had judged that Bear Stearns’ dodgy mortgage assets—the stuff Jamie Dimon wouldn’t take—met this rather lax test. But on September 14, it judged that Lehman Brothers’ even worse mortgage and real estate assets did not. Why the difference? Here is how Bernanke explained it later: To avoid the failure of Bear Stearns, we facilitated the purchase of Bear Stearns by JP Morgan Chase by means of a Federal Reserve loan, backed by assets of Bear Stearns and a partial guarantee from JP Morgan. In the case of AIG, we judged that emergency Federal Reserve credit would be adequately secured by AIG’s assets.

That weekend, a veritable army of JP Morgan bankers descended on Bear Stearns headquarters—conveniently, the two firms were almost neighbors in Midtown Manhattan—to pore over the books. They did not like some of the things they saw. In particular, Bear Stearns owned about $30 billion in dodgy mortgage-related assets that JP Morgan did not want at all. (It already had its own pile of mortgage garbage.) And that’s exactly what Dimon told the Fed and the Treasury. To Bernanke and Geithner, that $30 billion represented a major stumbling block. Lending to Bear Stearns via JP Morgan for a few days was one thing. While the action was highly unusual, at least Section 13(3) koshered it.

And they certainly don’t like bailouts, which, by reducing the pain of failure, make risk taking less scary—and therefore make failure more likely. Needless to say, they did not like the Bear Stearns “bailout” one little bit. No one denies that moral hazard exists: the debate is over magnitudes and tradeoffs. Using Bear Stearns as a concrete example: Would other Wall Street firms line up for the honor of replicating Bear’s experience? Many moral hazard “doves” thought this unlikely. Perhaps more important are the fates of innocent bystanders. Bernanke, Geithner, and others did not save Bear Stearns as an act of charity or forgiveness. They did it because they feared that a messy failure would do extensive damage to third parties—and to the economy itself.


pages: 701 words: 199,010

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

affirmative action, Alan Greenspan, asset-backed security, automated trading system, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black-Scholes formula, Bob Litterman, business cycle, buttonwood tree, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, delta neutral, discounted cash flows, diversification, diversified portfolio, family office, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, full employment, Gini coefficient, Glass-Steagall Act, global macro, high net worth, hindsight bias, housing crisis, implied volatility, income inequality, interest rate derivative, interest rate swap, John Meriwether, Kickstarter, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, low skilled workers, managed futures, margin call, market design, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, Mitch Kapor, money market fund, moral hazard, mortgage debt, Myron Scholes, National best bid and offer, negative equity, Northern Rock, Occupy movement, oil shock, price stability, proprietary trading, quantitative easing, quantitative hedge fund, quantitative trading / quantitative finance, Ralph Waldo Emerson, regulatory arbitrage, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ronald Reagan, Sam Peltzman, Savings and loan crisis, Sharpe ratio, short selling, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, survivorship bias, systematic trading, tail risk, The Great Moderation, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

Erin Callan: Managing Director and Head of Hedge Fund Investment Banking; Chief Financial Officer, 2007–2008. Mark Carhart: Former co-head of Quantitative Strategies and Global Alpha hedge fund at Goldman Sachs. Jimmy Cayne: Chairman of the Board of Bear Stearns during the financial crisis. Former CEO of Bear Stearns. Ralph Cioffi: Managing Director of Bear Stearns Asset Management and head of two Bear Stearn hedge funds that collapsed in 2007. Jon Corzine: Former CEO of Goldman Sachs and Meriwether's classmate at the University of Chicago. Also served as Governor of New Jersey from 2006 to 2010 and former CEO of MF Global.

Bear bailed the hedge fund out to save the firm’s reputation. The counterparties they saved didn’t care. They were done with Bear Stearns. The firm’s reputation suffered despite the bailout. Maybe Cayne was right: Bear should never have bailed out the hedge funds. What he [Warren Spector] didn’t get was it made us the poster child for a problem in the whole industry. —Jimmy Cayne, former CEO of Bear Stearns (Cohan 2010) After the news was reported, Bear Stearns shares fell 3.6%, to $134.90 on July 18, 2007. The stock was down about 14% for the year. On July 31, 2007, Bear Stearns announced that it would close both hedge funds. As Cayne had surmised, various mortgage-related indices declined from July 13 to 18.

After Lehman’s collapse, by contrast, interest rates on commercial paper and short-term lending skyrocketed, creating imbalances on both Wall Street and Main Street. Merrill Lynch’s Herbert Allison was lead investment banker, and banks contributed according to how much risk each had with LTCM. Bear Stearns and Lehman did not want to put up as much capital as other participants. Bear Stearns paid nothing, claiming that clearing LTCM’s trades had already given them too much exposure—a clever excuse, and one that Bear Stearns stuck with, despite protests from other creditors. Jimmy Cayne was making a pure business decision. He had millions of his own money still invested with LTCM. He also was on good terms with LTCM partners, playing poker and golf with Meriwether and Rosenfeld frequently.


pages: 218 words: 62,889

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

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

Although Cayne fought back against the allegations in a memo to Bear staff, the publication further damaged Bear Stearns’s reputation (K. Amadeo, ‘Bear Stearns, Its Collapse, and Bailout’, The Balance, 8 October 2018). See also https://dealbook.nytimes.com/2007/11/02/the-bear-stearns-memo-cayne-speaks/. 15. Kelly, Street Fighters, p. 15. 16. Cohan, House of Cards, p. 11. 17. R. Boyd, ‘The last days of Bear Stearns’, Fortune, 31 March 2008. 18. It could never be determined, which bank, although it was speculated that it was Deutsche Bank (Cohan, House of Cards, p. 16). 19. Boyd, ‘The last days of Bear Stearns’. 20. Ibid. 21. Kelly, Street Fighters, p. 14. 22.

Paul Friedman, managing director and in charge of refinancing operations (Fixed Income Division) recalls that ‘the loss of confidence had three related consequences: prime brokerage clients withdrew their cash and unencumbered securities at a rapid and increasing rate; repo market lenders declined to roll over or renew repo loans, even when the loans were supported by high-quality collateral such as agency securities; and counterparties to non-simultaneous settlements of foreign exchange trades refused to pay until Bear Stearns paid first. Although this loss of confidence in Bear Stearns was unwarranted given the firm’s strong capital position and substantial liquidity, it resulted in a rapid flight of capital from the firm that could not be survived.’ Friedman concluded in front of the US Financial Crisis Inquiry Commission: ‘In retrospect, I do not believe that there was anything that Bear Stearns could have done differently with respect to its funding model that would have prevented this run on the bank’ (FCIC, ‘Financial Crisis Inquiry Report’). 34.

Amadeo, ‘Bearn Stearns, Its Collapse, and Bailout’. 36. Ibid. 37. R. Peston, ‘How hedge funds sunk Bear Stearns’, BBC News, 14 March 2008. 38. A. Clark, ‘Former Bear Stearns boss Jimmy Cayne blames conspiracy for bank’s collapse’, Guardian, 5 May 2010. 39. K. Kelly and S. Craig, ‘Goldman is queried about Bear’s fall’, Wall Street Journal, 16 July 2008. Goldman representatives insisted on multiple occasions that their actions were never prompted by ill intentions (Cohan, House of Cards, p. 28). 40. Z. Goldfarb, ‘Former Bear Stearns executives blame collapse on “self-fulfilling prophecy”’, Washington Post, 6 May 2010. 41.


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

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

And we knew that Bear wasn’t the only overleveraged and interconnected nonbank at risk of a run. Seven months into the crisis, the Bear drama was a sobering reality check about the frailty of the system, the limits of our powers, and the potential for catastrophe in the near future. BEAR STEARNS: TOO INTERCONNECTED TO FAIL Unfettered by the capital requirements and other rules constraining commercial banks, Bear Stearns had been aggressive in using leverage during the boom and enjoyed five straight years of record earnings. But by the week of March 10, a run on Bear was under way, and it was hard to imagine how the run could stop on its own. After all, an investment bank that doesn’t have the confidence of its clients or the markets doesn’t have much of anything.

He was trying to motivate the private sector to assume as much of Lehman’s bad assets as possible, to increase the likelihood that a Bear Stearns–like rescue would be possible. But this was one of the few moments during the crisis when we were not all on the same page. Tim thought that telling the private sector it was on its own would intensify the run, and he was concerned that a “no government money” proclamation would hurt our credibility if the Fed did get the opportunity to assist a buyer with a Bear Stearns–type loan. But Hank said he would gladly reverse his position if we got an opportunity to save Lehman. We all knew that if the government needed to take some risk to get Lehman sold through a Bear-type deal, we would do it even if we didn’t like it, because a Lehman collapse would be far costlier in terms of financial and economic stability than a Lehman bailout.

See also specific financial institutions Barclays, 66, 67–68 Basel III global regulatory regime, 113 Bear Stearns and acceleration of crisis, 22 and arsenal for dealing with future crises, 119, 121 and early stages of financial crises, 33 and Fannie Mae/Freddie Mac conservatorship, 55, 56 and Lehman failure, 61–62, 63 management firings, 73 and onset of financial crisis, 31, 155 and post-crisis reforms, 115 regulatory agency overseeing, 46–47 rescue of, 47–54 and stress tests, 102 Bernanke, Ben and acceleration of crisis, 24 and AIG rescue, 74–75 and arsenal for dealing with future crises, 120, 123 and Bear Stearns rescue, 50, 54 and Countrywide sale, 39 and early stages of financial crises, 33 and expansion of crisis, 76 and expansion of emergency authorities, 79–80 and Fannie Mae/Freddie Mac conservatorship, 57, 60 Great Depression expertise, 13, 109 and Lehman failure, 70 and monetary stimulus efforts, 43 and onset of financial crisis, 1, 30 and policy responses to crisis, 97, 98, 99, 103 and post-crisis reforms, 112, 118 and shortcomings of U.S. regulatory regime, 28–29 and spark of crisis, 16 and TARP, 89, 93, 94, 96 and Term Securities Lending Facility, 44–45 and theoretical approaches to financial crises, 34–36, 38 BlackRock, 50 Blankfein, Lloyd, 77 BNP Paribas, 32, 35, 155 Boehner, John, 44 bridge loans, 66, 68–69 Brookings Papers on Economic Activity, 107 bubbles and acceleration of crisis, 21–22 and causes of financial crisis, 4 and effects of liquidity crunch, 43 and onset of financial crisis, 30 and post-crisis reforms, 117 and roots of financial crisis, 12 and theoretical approaches to financial crises, 37 budget deficits, 104, 124–25 Buffett, Warren, 78 Bunning, Jim, 51, 58 Bush, George W.


pages: 479 words: 113,510

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America by Danielle Dimartino Booth

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, Bernie Sanders, Black Monday: stock market crash in 1987, break the buck, Bretton Woods, business cycle, central bank independence, collateralized debt obligation, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, forward guidance, full employment, George Akerlof, Glass-Steagall Act, greed is good, Greenspan put, high net worth, housing crisis, income inequality, index fund, inflation targeting, interest rate swap, invisible hand, John Meriwether, Joseph Schumpeter, junk bonds, liquidity trap, London Whale, Long Term Capital Management, low interest rates, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, moral hazard, Myron Scholes, natural language processing, Navinder Sarao, negative equity, new economy, Northern Rock, obamacare, Phillips curve, price stability, proprietary trading, pushing on a string, quantitative easing, regulatory arbitrage, Robert Shiller, Ronald Reagan, selection bias, short selling, side project, Silicon Valley, stock buybacks, tail risk, The Great Moderation, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, yield curve

Geithner insisted that: Stephen Labaton, “Testimony Offers Details of Bear Stearns Deal,” New York Times, April 4, 2008. Bear’s CEO Schwartz: Henry Blodget, “Government Screwed Bear Stearns: NY Fed Welched On Loan, Forcing Sale,” BusinessInsider.com, April 14, 2008, www.businessinsider.com/2008/4/u-s-government-screwed-bear-stearns-ny-fed-welched-on-loan-forcing-sale. “Buying a house”: Labaton, “Testimony Offers Details of Bear Stearns Deal.” Economist Nouriel Roubini: Stewart, “Eight Days.” “Our system has many strengths”: Labaton, “Testimony Offers Details of Bear Stearns Deal.” The mystery was finally solved: Carney, “Goldman Sachs and Bear Stearns: A Financial-Crisis Mystery Is Solved.”

Cayne exhibited a bizarre indifference: Ibid. But the investing community: Kelly, “Bear CEO’s Handling of Crisis Raises Issues.” Beginning on March 10: Matthew Goldstein, “Bear Stearns’ Big Bailout,” Bloomberg.com, March 14, 2008. Early on March 12: Ibid. Schwartz denied it: John Carney, “Goldman Sachs and Bear Stearns: A Financial-Crisis Mystery Is Solved,” Wall Street Journal, March 28, 2016. On March 14, Schwartz: Goldstein, “Bear Stearns’ Big Bailout.” The Financial Times reported: Gillian Tett and Krishna Guha, “The Cost of a Lifeline: Humbled Financial Groups Brace for More Regulation,” Financial Times, April 23, 2008.

We can go through the numbers, but I think it is best expressed by the CEO of one of the five big builders, who said that in March he was arguing internally with his board that the headlines were worse than reality and now reality is worse than the headlines.” At the June 2007 FOMC meeting, after news that two Bear Stearns hedge funds were in trouble due to toxic MBSs, Geithner dismissed concerns by saying “direct exposure of the counterparties to Bear Stearns is very, very small compared with other things.” Fisher begged to differ. “I was once a hedge fund manager—I know all the tricks that are played there, including, by the way, the valuation of underlying securities—in a day when the business was less sophisticated than it is now,” Fisher said.


pages: 351 words: 102,379

Too big to fail: the inside story of how Wall Street and Washington fought to save the financial system from crisis--and themselves by Andrew Ross Sorkin

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Andy Kessler, Asian financial crisis, Bear Stearns, Berlin Wall, book value, break the buck, BRICs, business cycle, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deal flow, Dr. Strangelove, Emanuel Derman, Fall of the Berlin Wall, fear of failure, financial engineering, fixed income, Glass-Steagall Act, Goldman Sachs: Vampire Squid, housing crisis, indoor plumbing, invisible hand, junk bonds, Ken Thompson, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Michael Milken, Mikhail Gorbachev, money market fund, moral hazard, naked short selling, NetJets, Northern Rock, oil shock, paper trading, proprietary trading, risk tolerance, Robert Shiller, rolodex, Ronald Reagan, Savings and loan crisis, savings glut, shareholder value, short selling, sovereign wealth fund, supply-chain management, too big to fail, uptick rule, value at risk, éminence grise

On CNBC, Joe Kernen was interviewing Anton Schutz of Burnham Asset Management about the fallout from the Bear Stearns deal and what it meant for Lehman. “We’ve been characterizing Lehman Brothers as the front, or ground zero, for what’s happening today,” Kernen said. “What do you expect to see throughout the session?” “I expect these investment banks to be weak,” Schutz replied. “The reason is there’s just this tremendous fear of mismarking of assets on balance sheets, and how could JP Morgan have gotten away with paying so little for Bear Stearns, and why did the Fed have to step up with $30 billion to take on some of the bad assets.

We’re all over it, we’re looking for ways to work our way through it. I’ve got great confidence in our markets, they’re resilient, they’re flexible, but this has taken some time and we’re focused on it.” Fuld waited with growing impatience for Lauer to ask about the implications of the Bear Stearns bailout. “The Fed took some extraordinary steps over the weekend to deal with the Bear Stearns situation,” Lauer finally said. “It has some people asking: ‘Does the Fed react more strongly to what’s happening on Wall Street than they do to what’s happening to people in pain across the country, the so-called people who live on Main Street?’” An exasperated Fuld thought Lauer’s question was just another example of the popular media’s tendency to frame complex financial issues in terms of class warfare, pitting Wall Street—and Paulson, Goldman’s former CEO—against the nation’s soccer moms, the Today show’s audience.

An exasperated Fuld thought Lauer’s question was just another example of the popular media’s tendency to frame complex financial issues in terms of class warfare, pitting Wall Street—and Paulson, Goldman’s former CEO—against the nation’s soccer moms, the Today show’s audience. Paulson paused as he searched for his words. “Let me say that the Bear Stearns situation has been very painful for the Bear Stearns shareholders, so I don’t think that they think that they’ve been bailed out here.” He was obviously trying to send a message: The Bush administration isn’t in the business of bailouts. Period. Then Lauer, quoting from the front page of the Wall Street Journal, asked, “‘Has the government set a precedent for propping up failing financial institutions at a time when its more traditional tools don’t appear to be working?’


pages: 468 words: 145,998

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

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

“I spent some time with Rodge Cohen this morning,” he said, mentioning the prominent bank lawyer advising Bear Stearns. “Bear is having liquidity problems. We’re trying to learn more.” Before Bob had finished, I knew Bear Stearns was dead. Once word got out about liquidity problems, Bear’s clients would pull their money and funding would evaporate. My years on Wall Street had taught me this brutal truth: when financial institutions die, they die fast. “This will be over within days,” I said. I swallowed hard and braced myself. Whatever we did we would have to do quickly. The crisis seemed to have arrived suddenly, but Bear Stearns’s plight was not a surprise. It was the smallest of the big five investment banks, after Goldman Sachs, Morgan Stanley, Merrill Lynch, and Lehman Brothers.

And even though many people thought Jamie Dimon had gotten a great deal, the Bear transaction remained very shaky to the end. We learned a lot doing Bear Stearns, and what we learned scared us. CHAPTER 6 Late March 2008 For the first few days after the Bear Stearns rescue, the markets calmed. Share prices firmed up, while credit default swap spreads on the investment banks eased. Some at Treasury, and in the market, thought that after seven long months, we had finally reached a turning point, just as the industry intervention in Long-Term Capital Management had marked the beginning of the end of 1998’s troubles. But I remained wary. Bear Stearns’s failure had called into question not only the business models but also the very viability of the other investment banks.

Treasury had no authorities to invest capital, and no U.S. regulator had the power to seize Lehman and wind it down outside of very messy bankruptcy proceedings. And unlike with Bear Stearns, the Fed’s hands were tied because we had no buyer. Markets demand absolute certainty, and we had known all along that Lehman couldn’t open for business on Monday unless it had lined up a major institution, like Barclays, to guarantee its trades. That had been the crucial element of the Bear Stearns rescue. Even after JPMorgan, backed by the Fed, had announced that it would lend to Bear Stearns on Friday, March 14, the investment bank had continued to disintegrate. A collapse was only avoided on Sunday when JPMorgan agreed to buy Bear and guarantee its trading obligations until the deal closed.


pages: 460 words: 122,556

The End of Wall Street by Roger Lowenstein

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, benefit corporation, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, 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, financial engineering, fixed income, geopolitical risk, Glass-Steagall Act, Greenspan put, high net worth, Hyman Minsky, interest rate derivative, invisible hand, junk bonds, Ken Thompson, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Martin Wolf, Michael Milken, 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 and loan crisis, savings glut, short selling, sovereign wealth fund, statistical model, the payments system, too big to fail, tulip mania, Y2K

See also TARP mortgage bubble and neglect by in New Deal option ARMs and strengthening of calls for strengthening of unprecedented meddling by Bank of America purchase of Countrywide Financial job losses at Lehman Brothers and discussions with and acquisition of Merrill Lynch stock price of John Thain and Bank of New York Bank One bank runs bankruptcy, academic theory of Barbera, Robert Barclays Barings Bank Basel II Baxter, Thomas Bear Stearns Alternative-A loans, packaging of bailout of. See Bear Stearns bailout Ben Bernanke and capital raised by CDOs and failure to pull back from mortgage-backed securities hedge funds organized by JPMorgan Chase and leadership change at leverage of Merrill Lynch and net worth New York Federal Reserve Bank and shareholders stock price of Bear Stearns bailout criticism of Jamie Dimon and effects of fear of systemic collapse and Federal Reserve and Timothy Geithner and JPMorgan Chase involvement in Lehman Brothers’ bankruptcy compared with Hank Paulson and Beattie, Richard Beneficial Loan Society Bent, Bruce Bernanke, Ben S..

In 2006, Ken Thompson earned $18 million for his handiwork in acquiring Golden West; Daniel Mudd netted $15 million from Fannie Mae; Angelo Mozilo, $43 million at Countrywide; John Mack, $41 million at Morgan Stanley; Lloyd Blankfein, $55 million at Goldman; Richard Fuld, $28 million at Lehman; and James Cayne, $40 million at Bear Stearns.19 Such sums reflected a suave self-assurance and remunerated arrogance. Their profits were at a record, their status exalted, their corporate palaces bedecked in Asian rubbings and polished wood. How could the banks’ foundations be anything but solid? In fact, their profits were dependent on their billowing leverage. Lehman was levered 26 to 1 (that is, it was using $26 of borrowed capital for each $1 of its own). At Bear Stearns, leverage was 29; at Morgan Stanley, 32 .20 The bankers were almost unaware of these numbers.

Paulson aired his concerns in a speech in London on July 2, in which he called for legislative changes to permit federal takeovers of failed investment banks. Betraying his fear of another Bear Stearns, Paulson declared, “We need to create a resolution process that ensures the financial system can withstand the failure of a large complex financial firm.” He stressed that he wanted to reduce the “perception” that the government considered some firms too big to fail. Yet he added, in somewhat contradictory fashion, that his first duty was ensuring market stability.12 The tension between stability and moral hazard had raged since Bear Stearns, and it was not going away. Investors in Fannie Mae and Freddie Mac were highly unsettled, and Fannie and Freddie—responsible for about half of America’s mortgages—were as close to “too big to fail” as any corporations in existence.


pages: 311 words: 99,699

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

"World Economic Forum" Davos, accounting loophole / creative accounting, Alan Greenspan, asset-backed security, bank run, banking crisis, Bear Stearns, Black-Scholes formula, Blythe Masters, book value, break the buck, Bretton Woods, business climate, business cycle, buy and hold, collateralized debt obligation, commoditize, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, easy for humans, difficult for computers, financial engineering, financial innovation, fixed income, Glass-Steagall Act, housing crisis, interest rate derivative, interest rate swap, inverted yield curve, junk bonds, Kickstarter, locking in a profit, Long Term Capital Management, low interest rates, McMansion, Michael Milken, money market fund, mortgage debt, North Sea oil, Northern Rock, Plato's cave, proprietary trading, Renaissance Technologies, risk free rate, risk tolerance, Robert Shiller, Satyajit Das, Savings and loan crisis, short selling, sovereign wealth fund, statistical model, tail risk, The Great Moderation, too big to fail, value at risk, yield curve

As the financial woes intensified in early 2008: This section is drawn from interviews with key participants. See also Kelly, Kate, “The Fall of Bear Stearns (part 1): Lost Opportunities Haunt Final Days of Bear Stearns”; “The Fall of Bear Stearns (part 2): Fear, Rumors Touched Off Fatal Run on Bear Stearns”; “The Fall of Bear Stearns (part 3): Bear Stearns Neared Collapse Twice in Frenzied Last Days—Paulson Pushed Low-Ball Bid, Relented; a Testy Time for Dimon,” Wall Street Journal (May 27, 28, 29, 2008). Burrough, Bryan, “Bringing Down Bear Stearns,” Vanity Fair (August 1, 2008). See also Bamber, Bill, and Spencer, Andrew, Bear Trap; The Fall of Bear Stearns and the Panic of 2008 (Brick Tower Press, 2008).

Eleven: First Failures “Hard hit by turmoil”: Kelly, Kate, and Ng, Serena, “Bear Stearns Fund Hurt by Subprime Loans,” Wall Street Journal (June 12, 2007). “I’m fearful of these markets”: Quote taken from indictment filed by prosecutors in New York State law courts against Cioffi and Tannin. For details, see http://f11.findlaw.com/news.findlaw.com/nytimes/docs/crim/uscioffitannin61808ind.pdf. See also Landon, Thomas, “Prosecutors Build Bear Stearns Case on E-mails,” New York Times (June 20, 2008), or Hurtado, Patricia, and Scheer, David, “Former Bear Stearns Fund Managers Arrested by FBI,” Bloomberg.com (June 19, 2008).

See also Landon, Thomas, “Prosecutors Build Bear Stearns Case on E-mails,” New York Times (June 20, 2008), or Hurtado, Patricia, and Scheer, David, “Former Bear Stearns Fund Managers Arrested by FBI,” Bloomberg.com (June 19, 2008). “another illustration of the danger facing funds that rely”: Goldstein, Matthew, “Bear Stearns Subprime Bath,” BusinessWeek (June 12, 2007). Moody’s announced it was cutting its ratings on 131 bonds: Ng, Serena, and Kelly, Kate, “Ills Deepen in Subprime-Bond Arena,” Wall Street Journal (June 18, 2008). In late June, Bear Stearns publicly announced that it would: Creswell, Julie, and Bajaj, Vikas, “$3.2 Billion Move by Bear Stearns to Rescue Fund,” New York Times (June 23, 2007); Mackintosh, James, Scholtes, Saskia, and White, Ben, “Bear Hits Other Banks by Raising Exposure to Subprime Mortgages,” Financial Times (June 23, 2007).


When Free Markets Fail: Saving the Market When It Can't Save Itself (Wiley Corporate F&A) by Scott McCleskey

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, barriers to entry, Bear Stearns, Bernie Madoff, break the buck, call centre, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, financial engineering, financial innovation, fixed income, Glass-Steagall Act, information asymmetry, invisible hand, Isaac Newton, iterative process, junk bonds, Long Term Capital Management, margin call, money market fund, moral hazard, mortgage debt, place-making, Ponzi scheme, prediction markets, proprietary trading, risk tolerance, Savings and loan crisis, shareholder value, statistical model, The Wealth of Nations by Adam Smith, time value of money, too big to fail, web of trust

The ball started rolling against Bear Stearns when the housing market collapse led to the equally precipitous fall in the value of residentialmortgage-backed securities (RMBSs; see Chapter 4). Bear Stearns had borrowed heavily to invest in these securities and had done very well while the securities did well. The market knew that Bear Stearns was heavily invested in (that is, exposed to) the RMBS market. Of course, the market did not know exactly how exposed the firm was, and that uncertainty served only to exaggerate fears. As the value of these investments plummeted, so did the level of Bear Stearns’ reserves (since the notional value of how much money (continued ) 13 C01 06/16/2010 14 11:14:11 & Page 14 Meltdown in the Markets: Systemic Risk (continued ) the firm could raise by selling them—if it could sell them—was reduced).

As the value of these investments plummeted, so did the level of Bear Stearns’ reserves (since the notional value of how much money (continued ) 13 C01 06/16/2010 14 11:14:11 & Page 14 Meltdown in the Markets: Systemic Risk (continued ) the firm could raise by selling them—if it could sell them—was reduced). Their value as collateral in the overnight loan market also fell. As rumors spread about Bear Stearns’ liquidity, a run on the bank began. No firm wanted to be left holding the bag as a creditor to Bear Stearns the morning they went bankrupt. Unlike depositors covered by FDIC insurance, creditors to Bear Stearns would have to wait in line, possibly for years, to see whether they would get repaid from any remaining assets. Given their fiduciary responsibility to their investors and their own personal interest in trading profitably, decision makers at many, then most, firms became reluctant to do business with Bear.

The lessons of the financial crisis teach us another potential flaw in the resolution authority approach, and it is perhaps a fatal one. In the very short period of time in which firms like Bear Stearns were on the brink of collapse, the traders and bankers in the other firms had to decide whether it was worth the risk to expose themselves to the collapsing giant either by loaning money, buying repos, or engaging in other transactions. Knowing that a resolution authority would be able to wind down Bear Stearns in an ‘‘orderly’’ way would probably not have convinced anyone that it was safe to go swimming in the Bear Stearns pool. Traders, risk managers, treasurers and other decision makers in the market think in terms of what their balance sheet will look like hours and days from now.


pages: 430 words: 140,405

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

"World Economic Forum" Davos, Alan Greenspan, AOL-Time Warner, asset-backed security, bank run, Bear Stearns, Black Monday: stock market crash in 1987, book value, business cycle, Carl Icahn, collateralized debt obligation, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, diversification, fixed income, Glass-Steagall Act, high net worth, hiring and firing, if you build it, they will come, it's over 9,000, junk bonds, London Interbank Offered Rate, Long Term Capital Management, margin call, money market fund, moral hazard, mortgage debt, naked short selling, negative equity, new economy, Ronald Reagan, Savings and loan crisis, short selling, sovereign wealth fund, value at risk

By the end of that Wednesday afternoon there were clear and obvious signs of investors becoming worried—it looked like thousands of them were trying to get out. For the moment, the Bear Stearns funds were still breathing. Just. But we all stood back in anticipation of a wild rush to the desk of Jeremiah Stafford to pile fortunes into short positions on the HY-9, because if those Bear Stearns funds went down, they were big enough to cause nothing short of abject chaos in the markets. Right now we were certainly not in chaos. The Bear Stearns situation was not, for the moment, life-threatening, and the market was still quite buoyant. But Wall Street’s most sinister problems occasionally arrive without the thunder of the guns and the clash of mounted cavalry on the stock exchange floor.

Commercial paper is the quickest, cheapest, and easiest way for them to raise a fast loan that is not regulated by the SEC. As an example, say Bear Stearns goes to JPMorganChase and requests a $500 million loan for fourteen days. Question: would you lend Bear Stearns half a billion dollars for just a couple of weeks when they were backing it with AAA-rated mortgage bonds and willing to pay 5 percent interest? Answer: probably yes, since that would mean a $959,000 profit. Now, JPMorganChase isn’t going to offer up that $500 million to any old applicant. But Bear Stearns is a highly respected bank, and they’ve done something similar many times before. The same would apply to Lehman, Morgan Stanley, Goldman Sachs, General Motors, or Countrywide.

All of this cast a dark cloud over Wall Street, setting off a chain reaction that would shake the CDO market globally. The SEC moved in to conduct a thorough examination of the Bear Stearns fund’s balance sheets. The fund immediately suspended investor redemptions. Bear Stearns itself was doing an impressive impersonation of a nerve-wracked ostrich that had planted its head straight into the sand, without the slightest intention of coming back up. The Strategies Fund was not in such dire straits as the Enhanced, being only six times leveraged. And Bear Stearns threw it a lifeline of $1.6 billion, because they thought it had a chance to survive. But they were wrong, and on July 17 they sent out a letter to investors telling them more or less what was going on, and that the funds were essentially worthless and would be disbanded.


pages: 543 words: 157,991

All the Devils Are Here by Bethany McLean

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, Bear Stearns, behavioural economics, Black-Scholes formula, Blythe Masters, break the buck, buy and hold, call centre, Carl Icahn, collateralized debt obligation, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, diversification, Dr. Strangelove, Exxon Valdez, fear of failure, financial innovation, fixed income, Glass-Steagall Act, high net worth, Home mortgage interest deduction, interest rate swap, junk bonds, Ken Thompson, laissez-faire capitalism, Long Term Capital Management, low interest rates, margin call, market bubble, market fundamentalism, Maui Hawaii, Michael Milken, money market fund, moral hazard, mortgage debt, Northern Rock, Own Your Own Home, Ponzi scheme, proprietary trading, quantitative trading / quantitative finance, race to the bottom, risk/return, Ronald Reagan, Rosa Parks, Savings and loan crisis, shareholder value, short selling, South Sea Bubble, statistical model, stock buybacks, tail risk, Tax Reform Act of 1986, telemarketer, the long tail, too big to fail, value at risk, zero-sum game

It was an astonishingly brazen idea—like “a bettor asking a football owner to bench a star quarterback to improve the odds of his wager against the team.” That was the description Scott Eichel, a Bear Stearns trader, gave to Gregory Zuckerman, the Wall Street Journal reporter whose book The Greatest Trade Ever documented Paulson’s audacious short. Eichel explained to Zuckerman that when Paulson broached his idea with Bear Stearns, it said no. “[I]t didn’t pass the ethics standards,” said Eichel. It didn’t pass Bear Stearns ethics standards? The same Bear Stearns that had created some truly terrible subprime securities without batting an eyelash? Yet Goldman Sachs had no such qualms.

Jim Lockhart, a Yale fraternity buddy of Bush’s who had become the chairman of OFHEO, told Congress, “The GSEs have become the dominant funding mechanism for the entire mortgage system in these troubling times. In doing so, they have been reducing risks in the market, but concentrating mortgage risks on themselves.” It was Bear Stearns that went first, in March of 2008. If the failure of the two Bear Stearns hedge funds in July 2007 served as a kind of prologue to the financial crisis—a taste of what was to come—then the collapse of Bear Stearns itself was a rousing act one. There wasn’t much substantive difference between the two failures except in scale. Bear Stearns was awash in mortgage-backed securities of all sorts. It used them as collateral for its repo transactions. It had them on its balance sheet.

Tom Savage CEO of AIG-FP from 1994 to 2001. Howard Sosin Founder of AIG-FP. Ran it from 1987 to 1993. Martin Sullivan Succeeded Greenberg in 2005. Forced out by the board in 2008. Robert Willumstad Sullivan’s successor as CEO until the financial crisis hit four months later. Bear Stearns Ralph Cioffi Bear Stearns hedge fund manager. His two funds—originally worth $20 billion—went bankrupt in the summer of 2007 because of their subprime exposure. Matthew Tannin Cioffi’s partner. Cioffi and Tannin were tried for fraud and found not guilty. Steve Van Solkema Analyst who worked for Cioffi and Tannin.


pages: 246 words: 74,341

Financial Fiasco: How America's Infatuation With Homeownership and Easy Money Created the Economic Crisis by Johan Norberg

accounting loophole / creative accounting, Alan Greenspan, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, business cycle, capital controls, central bank independence, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Brooks, diversification, financial deregulation, financial innovation, Greenspan put, helicopter parent, Home mortgage interest deduction, housing crisis, Howard Zinn, Hyman Minsky, Isaac Newton, Joseph Schumpeter, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, Mexican peso crisis / tequila crisis, millennium bug, money market fund, moral hazard, mortgage tax deduction, Naomi Klein, National Debt Clock, new economy, Northern Rock, Own Your Own Home, precautionary principle, price stability, Ronald Reagan, savings glut, short selling, Silicon Valley, South Sea Bubble, The Wealth of Nations by Adam Smith, too big to fail

He plays professionally and has won the North American Bridge Championships several times. Since 1993, he had also found the time to be president, CEO, and eventually chairman of Bear Stearns, the investment bank that made much of not being like all the rest. While the other banks were nice suits with nice degrees, Bear Stearns was a working-class outsider that didn't give a hoot about appearance or tradition but instead worked harder and longer. When the huge hedge fund LTCM shook global markets in 1998, Bear Stearns was the only investment bank that refused to help rescue it. Bear Stearns was smaller than the other investment banks and had not expanded internationally, so it had to play an aggressive game with the hand it had been dealt.

This was a safe investment for savers because the giant bank Citigroup guaranteed these "Klios" in case the underlying assets should run into problems. Bear Stearns's huge revenues from fees inspired many other banks to create similar off-balance-sheet structures.19 Bear Stearns also launched its own hedge funds, which operated according to the same principles. At the peak, James Cayne's personal fortune was $1.3 billion, most of it in Bear Stearns stock. But he did not give up his bridge, and on Thursdays in the summer, he would take a helicopter from New York City to have time for his afternoon golf in New Jersey.

They were spending too much money building it out, opening one subprime center after another."' One week after that conference call, two of Bear Stearns's hedge funds collapsed. Those funds, valued at $40 billion, had made large bets on mortgages, especially subprime mortgages, and had now sustained severe losses. Nobody wanted to inject new money. At that fateful hour for the aggressive investment bank, its chairman and CEO, James Cayne, was playing bridge in a tournament in Nashville, Tennessee, and could not be contacted either by cell phone or by e-mail. Bear Stearns's third-quarter profit would fall by 61 percent.' During a conference call on August 3, its chief financial officer said that the bond market was in worse shape than it had been for 22 years.


pages: 350 words: 103,270

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again by Nicholas Dunbar

Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Black Swan, Black-Scholes formula, bonus culture, book value, break the buck, buy and hold, capital asset pricing model, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, delayed gratification, diversification, Edmond Halley, facts on the ground, fear index, financial innovation, fixed income, George Akerlof, Glass-Steagall Act, Greenspan put, implied volatility, index fund, interest rate derivative, interest rate swap, Isaac Newton, John Meriwether, junk bonds, Kenneth Rogoff, Kickstarter, Long Term Capital Management, margin call, market bubble, money market fund, Myron Scholes, Nick Leeson, Northern Rock, offshore financial centre, Paul Samuelson, price mechanism, proprietary trading, regulatory arbitrage, rent-seeking, Richard Thaler, risk free rate, risk tolerance, risk/return, Ronald Reagan, Salesforce, Savings and loan crisis, seminal paper, shareholder value, short selling, statistical model, subprime mortgage crisis, The Chicago School, Thomas Bayes, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, yield curve, zero-sum game

But on that fateful Friday in August, these lenders were worried about the mortgage market, to which Bear Stearns was heavily exposed. Unlike a standard commercial bank, Bear Stearns had no central bank standing behind it, ready to take up the slack if repo lenders pulled out. As he greeted Macchiaroli and Eichner at Bear Stearns’s offices on Madison Avenue that Sunday afternoon, Bear Stearns’s CFO, Sam Molinaro, Jr., was not taken in by Macchiaroli’s attempts at levity. “This is a formal meeting,” he had warned colleagues. “There is stuff going on and we’ve got to respect their need to know.” That same morning, he had attended a board meeting in which Warren Spector, Bear Stearns’s co-president, was fired, taking the fall for the firm’s CDO hedge fund disaster.

Using derivatives and securitization, these firms were competing directly with the traditional banks in the post–Glass-Steagall world. That Friday rumors were flying that Bear Stearns was concealing big problems, and that its management was in turmoil. Macchiaroli phoned a colleague, Matt Eichner, at home that evening. “What the heck is going on there?” he said. “I’m really worried about Bear Stearns. This is a disaster waiting to happen. Get those people in on Sunday!” A call from the SEC went out to Bear Stearns, as Macchiaroli and Eichner booked flights to New York. Bear Stearns had built up a $400 billion balance sheet with the help of repo, a $2 trillion market in short-term borrowing in which assets it wanted to own were pledged as collateral.7 On the other side of that deal were money market mutual funds, such as Fidelity’s $120 billion Cash Reserves Fund.

Reassuring his SEC visitors that the high-level management shakeup was not a sign of worse things to come, Molinaro fielded questions about Bear Stearns’s numbers. What’s your capital? How are earnings? What’s the liquidity situation? Then Macchiaroli and Eichner zeroed in on their big worry: a loss in confidence that could force a fire-sale. Are there illiquid assets that are going to have to be sold to raise money? They knew that taking losses in a forced sale would force Bear to take a huge hit to its capital. At that point, Bear Stearns was balancing its $400 billion balance sheet on a capital sliver of just $12 billion—a leverage ratio of 33 times. From the outside, Bear Stearns looked like a powerful, thriving investment bank with 13,000 employees.


pages: 430 words: 109,064

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

Alan Greenspan, American ideology, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Bonfire of the Vanities, bonus culture, book value, break the buck, business cycle, business logic, buy and hold, capital controls, Carmen Reinhart, central bank independence, Charles Lindbergh, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency risk, Edward Glaeser, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, George Akerlof, Glass-Steagall Act, Gordon Gekko, greed is good, Greenspan put, Home mortgage interest deduction, Hyman Minsky, income per capita, information asymmetry, interest rate derivative, interest rate swap, junk bonds, Kenneth Rogoff, laissez-faire capitalism, late fees, light touch regulation, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, Martin Wolf, Michael Milken, money market fund, moral hazard, mortgage tax deduction, Myron Scholes, Paul Samuelson, Ponzi scheme, price stability, profit maximization, proprietary trading, race to the bottom, regulatory arbitrage, rent-seeking, Robert Bork, Robert Shiller, Ronald Reagan, Saturday Night Live, Satyajit Das, Savings and loan crisis, sovereign wealth fund, Tax Reform Act of 1986, The Myth of the Rational Market, too big to fail, transaction costs, Tyler Cowen, value at risk, yield curve

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

Between October 2007 and January 2008, CITIC (China) committed to invest in Bear Stearns, the Abu Dhabi Investment Authority and the Government of Singapore Investment Group invested in Citigroup, China Investment Corporation invested in Morgan Stanley, and Temasek (Singapore), the Korean Investment Corporation, and the Kuwait Investment Authority invested in Merrill Lynch.12 But the next time banks needed capital, it would be much harder to find. The next firestorm erupted in March 2008 with the collapse of Bear Stearns, then considered the weakest of the big five stand-alone investment banks. Bear Stearns was brought down by a modern-day bank run.13 On a proportional basis, it was more exposed to structured mortgage-backed securities than its rivals, and it was also highly dependent on short-term funding—cash that came from very short-term borrowing, much of it overnight.14 This meant that its creditors could refuse to roll over their loans from one day to the next and demand their money back instead.

The rush by creditors to get their money out first is a classic feature of financial crises around the world, particularly in emerging markets. In the United States since the 1930s, deposit insurance has generally prevented bank runs by depositors—but that insurance did not cover the institutions lending money overnight to Bear Stearns and the hedge funds who parked their securities at Bear. In early March, rumors surfaced that Bear Stearns was in trouble. Those rumors quickly became self-fulfilling as nervous creditors and hedge fund clients began cutting their exposure to the bank, causing Bear’s cash to drain away. Treasury and the Fed faced the prospect that a major investment bank might go bankrupt, tying up its assets in bankruptcy court for months or years and leaving its creditors and counterparties without access to their money.


pages: 1,073 words: 302,361

Money and Power: How Goldman Sachs Came to Rule the World by William D. Cohan

"Friedman doctrine" OR "shareholder theory", "RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alan Greenspan, asset-backed security, Bear Stearns, Bernie Madoff, Bob Litterman, book value, business cycle, buttonwood tree, buy and hold, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, diversified portfolio, do well by doing good, fear of failure, financial engineering, financial innovation, fixed income, Ford paid five dollars a day, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, high net worth, hiring and firing, hive mind, Hyman Minsky, interest rate swap, John Meriwether, junk bonds, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, managed futures, margin call, market bubble, mega-rich, merger arbitrage, Michael Milken, moral hazard, mortgage debt, Myron Scholes, paper trading, passive investing, Paul Samuelson, Ponzi scheme, price stability, profit maximization, proprietary trading, risk tolerance, Ronald Reagan, Saturday Night Live, short squeeze, South Sea Bubble, tail risk, time value of money, too big to fail, traveling salesman, two and twenty, value at risk, work culture , yield curve, Yogi Berra, zero-sum game

Bank of America Merrill Lynch purchased by, prl.1, prl.2 Bank of England, 1.1, 14.1 Bank of New York Banque Nationale de Paris (BNP) Barclays de Zoete Wedd Barkley, Albert Barofsky, Neil Barron’s, 13.1 Baruc, Edgar, 5.1, 5.2, 5.3, 5.4 Baruch, Bernard, 3.1, 5.1 Bash-Polley, Stacy Basis Yield Alpha Fund, prl.1, prl.2, 23.1 Bass, Kyle B.A.T. Industries Bear, Dicky, 5.1, 5.2 Bear Stearns, prl.1, prl.2, 7.1, 16.1, 19.1, 20.1, 20.2, 22.1 capital of collapse of, prl.1, 22.1, 22.2 Cy Lewis at demise of, prl.1, prl.2, prl.3, prl.4 fixed-income group of government rescue of, prl.1, 22.1, 23.1 hedge funds of, prl.1, prl.2, 2.1, 20.1, 21.1, 21.2, 22.1, 22.2, 22.3, 22.4, 22.5, 23.1 IPO of LTCM deal and mortgage-backed securities of, 18.1, 21.1, 21.2, 22.1, 22.2 private-equity fund of Bear Stearns Asset Management (BSAM), 21.1, 21.2, 22.1, 22.2 Bear Stearns Merchant Banking Bear Stearns Residential Mortgage Corporation Beatrice Foods, 11.1, 11.2, 11.3, 11.4, 11.5, 11.6, 15.1 Becerra, Lawrence Becton, Dickinson Bell, Lord Timothy Bendix Bentsen, Lloyd, 13.1, 15.1 Berkshire Hathaway, 2.1, 16.1, 16.2, 18.1, 23.1 Bernanke, Ben, prl.1, 20.1, 21.1, 21.2, 22.1, 23.1 Bernanke Doctrine Bernard, Lewis Bernice Pauahi Bishop, Princess of Hawaii Bernstein, Sandy Bethlehem Steel Bevan, David C., 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7 B.

The demise of the Bear hedge funds also sent Bear Stearns itself on a path to self-destruction after the firm decided, in June 2007, to become the lender to the hedge funds—taking out other Wall Street firms, including Goldman Sachs, at close to one hundred cents on the dollar—by providing short-term loans to the funds secured by the mortgage securities in the funds. When the funds were liquidated a month later, Bear Stearns took billions of the toxic collateral onto its books, saving its former counterparties from that fate. While becoming the lender to its own hedge funds was an unexpected gift from Bear Stearns to Goldman and others, nine months later Bear Stearns was all but bankrupt, its creditors rescued only by the Federal Reserve and by a merger agreement with JPMorgan Chase.

In other words, Swenson wanted to know who had sold the CDS to Paulson on the Bear Stearns debt. There was no answer—at least on e-mail—from Tourre, but chances are good that Paulson made an additional bundle betting his old firm would collapse. At the end of December 2006, the cost of buying insurance against a default on Bear Stearns debt was 0.18 cents per dollar of protection. Since Paulson had bought $2 billion worth of protection, his cost would have been $3.6 million. During the week before JPMorgan Chase bought Bear Stearns, on March 16, 2008, and saved its debt from defaulting, the cost of buying that insurance had skyrocketed to 7.5 cents per dollar of protection.


pages: 840 words: 202,245

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

Abraham Maslow, accounting loophole / creative accounting, Alan Greenspan, AOL-Time Warner, Asian financial crisis, bank run, Bear Stearns, book value, Bretton Woods, business cycle, capital controls, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Glass-Steagall Act, Greenspan put, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Bogle, John Meriwether, junk bonds, Kitchen Debate, laissez-faire capitalism, locking in a profit, Long Term Capital Management, low interest rates, market bubble, Mary Meeker, Michael Milken, minimum wage unemployment, MITM: man-in-the-middle, Money creation, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, North Sea oil, Northern Rock, oil shock, Paul Samuelson, Philip Mirowski, Phillips curve, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Bork, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, scientific management, shareholder value, short selling, Silicon Valley, Simon Kuznets, tail risk, Tax Reform Act of 1986, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

In the 1960s, an early LBO practitioner was a Bear Stearns banker named Jerome Kohlberg, who completed several buyouts, even though most of the buyout deals were friendly. Kohlberg’s expertise began to pay off in the 1970s when stock prices fell to levels that made borrowing to buy shares especially attractive and prices so low that hostile LBOs made sense. Kohlberg started working with two new Bear Stearns employees, George Roberts from Texas and later his cousin, Henry Kravis, from Oklahoma, both some twenty years younger than Kohlberg. In 1976, he left Bear Stearns and asked Roberts and Kravis to join him in their own firm, Kohlberg Kravis Roberts.

Then recession descended upon the nation. Merrill Lynch lost $1 billion between 1987 and 1989. But Bear Stearns bucked the trend. Greenberg had kept Bear Stearns’ risks in check, unlike most other firms, and did not post a quarterly loss from the 1987 crash through the 1990–1991 recession. By 1991, it was one of the most profitable firms on Wall Street, mostly because of its mortgage operation. Greenberg was paid $5 million and his number two man, Jimmy Cayne, just a little less. In 1992, the economy recovered, and with the housing market thriving, Bear Stearns earned $275 million. Greenberg paid himself $15.8 million and Cayne $14.7 million, the two making as much or more than peers in far bigger firms like Merrill.

Cayne and Schwartz had been urged to raise fresh equity through a stock offering for months and refused to do so, partly because the stock price was falling and, partly, according to financial writer William Cohan, because it would have diluted their ownership and therefore their bonuses. They then sought merger partners, but could not come to terms with any. Market conditions continued to deteriorate in early 2008, and Bear Stearns’ lenders stopped the flow of funds to them. In March, Bear Stearns was essentially out of cash, and told the Fed it might face bankruptcy. Bernanke, Timothy Geithner, the president of the New York Federal Reserve branch, and Henry Paulson, the Bush treasury secretary, agreed that Bear Stearns should not be allowed to go bankrupt because a domino effect could bring down other firms. They sought a buyer to avoid the turmoil among creditors if there were a bankruptcy.


pages: 454 words: 134,482

Money Free and Unfree by George A. Selgin

Alan Greenspan, asset-backed security, bank run, banking crisis, barriers to entry, Bear Stearns, break the buck, Bretton Woods, business cycle, capital controls, central bank independence, centralized clearinghouse, Charles Lindbergh, credit crunch, Credit Default Swap, crony capitalism, disintermediation, Dutch auction, fear of failure, fiat currency, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, foreign exchange controls, Fractional reserve banking, German hyperinflation, Glass-Steagall Act, Hyman Minsky, incomplete markets, inflation targeting, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, large denomination, liquidity trap, Long Term Capital Management, low interest rates, market microstructure, Money creation, money market fund, moral hazard, Network effects, Northern Rock, oil shock, Paul Samuelson, Phillips curve, plutocrats, price stability, profit maximization, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, Robert Gordon, Robert Solow, Savings and loan crisis, savings glut, seigniorage, special drawing rights, The Great Moderation, the payments system, too big to fail, transaction costs, Tyler Cowen, unorthodox policies, vertical integration, Y2K

The Treasury nevertheless intervened on Friday to guarantee all money-market share prices at $1.39 In deciding not to rescue Lehman Brothers, the Fed abided by the classical rules of last-resort lending. It earlier chose, on the other hand, to rescue the creditors of Bear Stearns by paying about $30 billion for the firm’s worst assets so that JPMorgan Chase would purchase the firm and assume its debts. Later, it also chose to rescue AIG. On what grounds did it determine that Bear Stearns and AIG were “too big to fail,” while Lehman Brothers was not?40 Bear Stearns, like Lehman Brothers, was an investment bank, and AIG was an insurance company and CDS issuer. Both Bear Stearns and AIG had played highly risky strategies and were caught out. Neither was a commercial bank involved in retail payments, and neither performed functions that couldn’t have been performed just as well by other private firms.

., Cline and Gagnon 2013) maintain that Bear and AIG were solvent when the Fed came to their aid.20 Nor, finally, was it merely that the Fed made last-resort loans at below-market rates or without securing those loans adequately—though it has been charged with doing both.21 The main problem was that even if the Fed did intend to confine its emergency lending to illiquid but solvent firms, as Bagehot’s rule dictates, in its public pronouncements it justified its emergency lending, and its $29 billion loan in support of Bear Stearns’s acquisition in particular, not on the Bagehotian grounds that, having been denied credit elsewhere but having good collateral to offer, the firms were entitled to it, but on the grounds that the firms it was aiding were too big (or “systematically important”) to fail. Explaining the Bear Stearns rescue to the Joint Economic Committee, for example, Ben Bernanke (2008a; see also Bernanke 2008b) testified: Normally, the market sorts out which companies survive and which fail, and that is as it should be. However, . . . Bear Stearns participated extensively in a range of critical markets.

Bear Stearns participated extensively in a range of critical markets. With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence. The company’s failure could also have cast doubt on the financial positions of some of Bear Stearns’ thousands of counterparties and perhaps of companies with similar businesses. Given the current exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain. Moreover, the adverse effects would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability.


pages: 526 words: 158,913

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

"World Economic Forum" Davos, Airbus A320, Apple's 1984 Super Bowl advert, bank run, banking crisis, Bear Stearns, Black Monday: stock market crash in 1987, bonus culture, call centre, Captain Sullenberger Hudson, collapse of Lehman Brothers, collateralized debt obligation, compensation consultant, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, financial engineering, financial innovation, fixed income, glass ceiling, Glass-Steagall Act, high net worth, junk bonds, Ken Thompson, Long Term Capital Management, mass affluent, Mexican peso crisis / tequila crisis, Michael Milken, Nelson Mandela, plutocrats, Ronald Reagan, six sigma, sovereign wealth fund, technology bubble, too big to fail, US Airways Flight 1549, yield curve

What he did not know was that Merrill Lynch, which had more than doubled its balance sheet to $1 trillion in assets over the previous two years, had been mortally wounded by the wipeout of the subprime mortgage market. O’Neal only tuned in to the problem in late July, after the implosion of two hedge funds run by a competing firm, Bear Stearns. The funds had been gigantic, multi-billion-dollar bets on collateralized debt obligations—CDOs, for short—which were securities constructed from subprime mortgages. Following the collapse of the Bear Stearns funds, other Wall Street firms, including Merrill Lynch, scoured their own balance sheets for any signs of exposure to the subprime market. Then on August 9, 2007, a French bank, BNP Paribas, announced it would suspend the valuation of three subprime mortgage–based investment funds because liquidity in the market had disappeared.

At a board meeting in London in early March, Chai presented his plan, which indicated a profit for the quarter. About two weeks later, one of Merrill’s primary competitors disintegrated. Bear Stearns, one of the five giant investment banks on Wall Street, collapsed in late March when concerns over whether it had enough cash on hand to continue its operations sparked a run on the bank. For years, Bear Stearns had funded itself through the sale of overnight commercial paper—short-term loans backed by the firm’s assets. But in the early months of 2008, as Bear stumbled to deal with the losses generated by exposure to subprime assets, management tried to quell rumors that the firm was running low on cash.

ON THURSDAY, APRIL 24, Merrill Lynch held its annual shareholder meeting in the third-floor conference room. At the board meeting that took place afterward, on the thirty-third floor, several directors, including John Finnegan, wanted to know how the collapse of Bear Stearns might affect Merrill Lynch. Merrill’s business was fundamentally healthier than Bear Stearns’s, Thain said, because the wealth management business managed by the firm’s herd of 16,000 financial advisors provided a steady stream of income. That private client business would help Merrill weather any future storms. “Are you sure that would be enough to protect us?”


pages: 290 words: 83,248

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

Alan Greenspan, Andy Kessler, AOL-Time Warner, barriers to entry, Bear Stearns, 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, Carl Icahn, commoditize, corporate governance, corporate raider, crony capitalism, cross-subsidies, deal flow, equity risk premium, financial deregulation, financial engineering, financial innovation, fixed income, Glass-Steagall Act, Gordon Gekko, high net worth, information retrieval, interest rate derivative, invisible hand, John Meriwether, junk bonds, Long Term Capital Management, low interest rates, Martin Wolf, Michael Milken, new economy, Nick Leeson, offshore financial centre, pensions crisis, proprietary trading, regulatory arbitrage, risk free rate, Sand Hill Road, shareholder value, short selling, Silicon Valley, South Sea Bubble, statistical model, systematic bias, 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

Their business profile is not identical – Merrill Lynch is strongest in retail broking, Morgan Stanley in consumer financial services and Goldman Sachs in trading – and they do not win every league table every year; but they share an unequalled reputation for consistency and market power. The smaller firms Bear Stearns and Lehman Brothers complete the group of leading independents. Bear Stearns, once a small commission house, has built a consistent profits record, with a strong position in clearing and settling, the pipes and drains of financial services, as well as the more glamorous advisory and broking businesses. Lehman Brothers has emerged from a history of changing owners, financial instability and variable reputation into a strong position.

The SEC was required to draw up rules to ensure that conflict of interest between analysts and investment bankers was properly managed and disclosed. Faced with damaging allegations, together with mounting regulatory pressure as the SEC and other agencies belatedly joined Spitzer, the investment banks needed to draw a line under the affair. In April 2003 ten of them – Bear Stearns, Credit Suisse First Boston, Goldman Sachs, Lehman Brothers, J. P. Morgan, Merrill Lynch, Morgan Stanley, Citigroup’s Salomon Smith Barney, UBS Warburg, and Piper Jaffray – agreed a settlement. The ten firms, whilst admitting no wrongdoing, agreed to pay $1.4 billion between them and to separate the management of research and investment banking.

The arrival of negotiated commissions caused rates to drop, trading became an increasingly important part of the business and the investment banks and brokers needed more capital, especially after 1982 when bought deals – purchases of blocks of stock with the firm’s own capital – were facilitated by an SEC rule change.* As we have seen, in the 1980s and 1990s there was an explosion in capital markets activity, which further increased the need for capital. Partnerships and private companies now seemed too risky and under-capitalized and many investment banks went public – Morgan Stanley in 1986, Bear Stearns in 1985 and Goldman Sachs in 1999 – or merged with stronger partners – Salomon Brothers merged with the commodities trader PhiBro in 1981, Lehman Brothers sold itself to Shearson American Express in 1984, Kidder Peabody was bought by GE in 1986. The abolition of fixed commissions finally marked the end of the era of ‘giving preference to each other’ in securities trading that had begun nearly two hundred years earlier under Wall Street’s buttonwood tree.


pages: 726 words: 172,988

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

Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bonus culture, book value, break the buck, business cycle, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, diversified portfolio, en.wikipedia.org, Exxon Valdez, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, George Akerlof, Glass-Steagall Act, Growth in a Time of Debt, income inequality, information asymmetry, invisible hand, Jean Tirole, joint-stock company, joint-stock limited liability company, junk bonds, Kenneth Rogoff, Larry Wall, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, margin call, Martin Wolf, Money creation, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nick Leeson, Northern Rock, open economy, Paul Volcker talking about ATMs, peer-to-peer lending, proprietary trading, regulatory arbitrage, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Satyajit Das, Savings and loan crisis, shareholder value, sovereign wealth fund, subprime mortgage crisis, technology bubble, The Market for Lemons, the payments system, too big to fail, Upton Sinclair, Yogi Berra

To forestall such contagion effects, the Federal Reserve Bank of New York pressured major banks, creditors of LTCM, into bailing out LTCM by putting in equity, which would enable a slow unwinding without a bankruptcy pro-cedure.46 LTCM was treated as a systemically important financial institution even though before the crisis it had not looked like one. In the spring of 2008, similar concerns made the Federal Reserve want to avoid a Bear Stearns bankruptcy, so it arranged the takeover of Bear Stearns by JPMorgan Chase instead. In the process, the Federal Reserve took over a portfolio of close to $30 billion of dubious assets with a $1 billion contribution from JPMorgan Chase and close to $29 billion of its own money.47 The Federal Reserve acted in this way because it feared that a Bear Stearns bankruptcy would impose great damage on the partners of Bear Stearns in derivatives contracts.48 People in the financial industry often claim that they are experts at detecting and managing risks and therefore that their actual risks are much smaller than others might consider them, certainly much smaller than the risks of nonfinancial companies.

Similar criticism was raised in the spring of 2008 when the Federal Reserve arranged for JPMorgan Chase to acquire Bear Stearns, providing support through guarantees for some of the assets of Bear Stearns. Such interventions by the central bank or any other government body are in conflict with the principle that firms should be allowed, or even required, to fail if they cannot meet their obligations. In the fall of 2008, this principle was honored in the case of Lehman Brothers, but the outcome confirmed the worst fears that had been expressed in the LTCM and Bear Stearns episodes. Since then, no other important financial institution has been allowed to fail, even though some are very weak and possibly insolvent.55 Instead, many have been bailed out, from AIG a few days later to the European banks, Bankia and Crédit Immobilier de France in the summer of 2012.

Acharya et al. (2010, 213 ff) note that ten years after the LTCM crisis the problem of contagion from the failure of an internationally active, systemically important financial institution had not been reduced. 46. For details, see Lowenstein (2001) and Das (2010). 47. FCIC (2011, 290) and Cohan (2012). 48. These partners were expected to grab the collateral that Bear Stearns had pledged; while trying to sell the collateral, they would exert great downward pressure on asset prices. Even before the end, people trying to get out of derivatives contracts with Bear Stearns played a significant role in the run on Bear Stearns (FCIC 2011, 286–291). This issue is discussed in the next chapter. 49. See, for example, Wuffli (1995) and the contributions of Freeland and Gummerlock in Hellwig and Staub (1996).


pages: 374 words: 114,600

The Quants by Scott Patterson

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, automated trading system, Bear Stearns, beat the dealer, Benoit Mandelbrot, Bernie Madoff, Bernie Sanders, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Blythe Masters, Bonfire of the Vanities, book value, Brownian motion, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, Carl Icahn, centralized clearinghouse, Claude Shannon: information theory, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, Doomsday Clock, Dr. Strangelove, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, Financial Modelers Manifesto, fixed income, Glass-Steagall Act, global macro, Gordon Gekko, greed is good, Haight Ashbury, I will remember that I didn’t make the world, and it doesn’t satisfy my equations, index fund, invention of the telegraph, invisible hand, Isaac Newton, Jim Simons, job automation, John Meriwether, John Nash: game theory, junk bonds, Kickstarter, law of one price, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, Mark Spitznagel, merger arbitrage, Michael Milken, military-industrial complex, money market fund, Myron Scholes, NetJets, new economy, offshore financial centre, old-boy network, Paul Lévy, Paul Samuelson, Ponzi scheme, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, risk-adjusted returns, Robert Mercer, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Savings and loan crisis, Sergey Aleynikov, short selling, short squeeze, South Sea Bubble, speech recognition, statistical arbitrage, The Chicago School, The Great Moderation, The Predators' Ball, too big to fail, transaction costs, value at risk, volatility smile, yield curve, éminence grise

By then, serious trouble was erupting in subprime. The same month Brown joined AQR, news emerged that a pair of Bear Stearns hedge funds that had dabbled heavily in subprime CDOs—the mind-numbingly named Bear Stearns High Grade Structured Credit Strategies Master Fund and Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Master Fund—were suffering unexpected losses. Managed by a Bear Stearns hedge fund manager named Ralph Cioffi, the funds had invested heavily in subprime CDOs. Broadly, Bear Stearns was optimistic that while the housing market was shaky, it wasn’t poised for serious pain. A report issued on February 12, 2007, by Bear researcher Gyan Sinha argued that weakness in certain derivatives tied to subprime mortgages represented a buying opportunity.

., Bear chief executive Alan Schwartz appeared to assure the troops that all was well. No one was buying it. Bear Stearns, founded in 1923, was teetering on the edge of collapse as its trading clients pulled billions from the bank in a white-hot panic. Insiders at the firm knew it was serious when one of its most cherished clients pulled out more than $5 billion in the first half of March. The client: Renaissance Technologies. Then another top client bolted for the exits with $5 billion more in hand: D. E. Shaw. The quants were killing Bear Stearns. To this day, former Bear Stearns employees believe the firm was taken out in a ruthless mugging.

Regulators lent a helping hand: “Agency’s ’04 Rule Let Banks Pile Up New Debt,” by Stephen Labaton, New York Times, October 2, 2008. news emerged that a pair of Bear Stearns hedge funds: The Bear Stearns meltdown has been extensively covered and I used multiple sources. The best were a series of articles written by Wall Street Journal reporter Kate Kelly, who also wrote an excellent book documenting Bear’s meltdown, Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street (Portfolio, 2009). 10 THE AUGUST FACTOR Cliff Asness walked to the glass partition: Virtually all of the information in this chapter derives from dozens of interviews with the participants, including many who requested anonymity.


pages: 234 words: 63,844

Filthy Rich: A Powerful Billionaire, the Sex Scandal That Undid Him, and All the Justice That Money Can Buy: The Shocking True Story of Jeffrey Epstein by James Patterson, John Connolly, Tim Malloy

"World Economic Forum" Davos, Bear Stearns, Bernie Madoff, corporate raider, Donald Trump, East Village, Elon Musk, Isaac Newton, Jeffrey Epstein, Julian Assange, junk bonds, Murray Gell-Mann, Ponzi scheme, Stephen Hawking, WikiLeaks

There were allegations of insider trading. Within a few weeks, Bear Stearns’s employees were called in to testify. Epstein got called in as well and categorically denied any wrongdoing. But, as it turned out, he’d just resigned from Bear Stearns. CHAPTER 23 Jeffrey Epstein: 1981 Epstein will always maintain that his resignation had nothing to do with the SEC’s investigation into Bear Stearns and Edgar Bronfman’s ill-fated attempt to take over St. Joe’s. But of course this raises the question: Why did Epstein resign from Bear Stearns? In his testimony before the SEC, Epstein says he was offended by the company’s investigation of a twenty-thousand-dollar loan he’d made to his friend Warren Eisenstein.

That same year, he moved to New York and, after a series of rejections at white-shoe firms—places that never would hire a Jew—landed a job at Bear Stearns, earning $32.50 a week as a clerk. By 1958, he’d been made a full partner. Built like a pit bull, Greenberg smoked cigars, performed coin tricks for his friends, and always dressed in a bow tie. He was an all-elbows trader—gruff, cheap, and, above all, impatient. He was also a champion bridge player, a hunter of big game in Africa, and the firm but loyal leader of the team he’d built at Bear Stearns—an unusual team made up mostly of men who’d grown up in New York’s outer boroughs. Greenberg didn’t care about MBAs or Ivy League diplomas.

CHAPTER 22 Jeffrey Epstein: 1976–1981 According to several published reports, it was Ace Greenberg’s son, Ted, who introduced Epstein to Greenberg. But other sources say Greenberg’s daughter, Lynne, was dating Epstein at the time. According to them, that was how Epstein got into Bear Stearns—by charming a young and beautiful woman and using her to advance his career. At Bear Stearns, Epstein started as an assistant to a trader on the American Stock Exchange and quickly worked up to junior partner, which meant that he was entitled to a share of the profits. Still in his twenties, he was running with the bulls, kicking down any doors that stood in his way.


pages: 293 words: 88,490

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

asset allocation, bank run, Bear Stearns, behavioural economics, 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, data science, disintermediation, Edward Lorenz: Chaos theory, epigenetics, feminist movement, financial engineering, financial innovation, fixed income, Flash crash, geopolitical risk, Henri Poincaré, impact investing, 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, Robert Solow, Saturday Night Live, self-driving car, seminal paper, 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

The stage for the panic in the fall of 2008 was set where things began: at 383 Madison Avenue, the headquarters of Bear Stearns. The parent company of Bear Stearns Asset Management and its two ill-fated hedge funds, Bear had upped its equity investment in the more troubled fund, the Enhanced Leverage Fund, and as funding dried up, the firm became the sole repo lender to the High-Grade Fund, loaning it $1.6 billion. When Bear took the funds’ exposures onto its own book, the market dislocations passed through to it. So it sat in the crosshairs of its lenders. And Bear Stearns was already heavily exposed to the same subprime garbage that had led to the demise of the two hedge funds.

Bear instead became critically dependent on the repo market for a day-to-day flow of funding, and relied on the collateral from its prime brokerage business to fuel that lending.12 Other banks began to refuse Bear Stearns as a counterparty, stoking concerns about default. Hedge fund clients using Bear Stearns as their prime broker became concerned that Bear would be unable to return their cash and securities, and started to withdraw. Some repo lenders were unwilling to lend to Bear even against U.S. treasuries as collateral. From the time of the hedge fund failures and related actions, the do-or-die issue for Bear Stearns was retaining the confidence of its sources of collateral and funding. That was it; there was no fundamental solvency problem with Bear beyond that.

There is buying and selling of assets, borrowing and lending, posting or taking in collateral. The agents we all know; at the end of the day, it is a small group: the banks are JP Morgan and Citigroup; the broker-dealers (which, if they survived, became banks down the road) are those that are in the thick of trouble—Bear Stearns and Merrill Lynch. And causing the trouble all around, Goldman Sachs. The two hedge funds that set it all off are housed in Bear Stearns Asset Management; the financial institutions are AIG and some others that in the grand scheme of things had bit parts, a few monolines and a few mortgage firms. And there are the rating agencies that helped nudge things over the edge: Moody’s and S&P.


pages: 113 words: 37,885

Why Wall Street Matters by William D. Cohan

Alan Greenspan, Apple II, asset-backed security, bank run, Bear Stearns, Bernie Sanders, Blythe Masters, bonus culture, break the buck, buttonwood tree, Carl Icahn, corporate governance, corporate raider, creative destruction, Credit Default Swap, Donald Trump, Exxon Valdez, financial innovation, financial repression, Fractional reserve banking, Glass-Steagall Act, Gordon Gekko, greed is good, income inequality, Joseph Schumpeter, junk bonds, London Interbank Offered Rate, margin call, Michael Milken, money market fund, moral hazard, Potemkin village, quantitative easing, secular stagnation, Snapchat, South Sea Bubble, Steve Jobs, Steve Wozniak, tontine, too big to fail, WikiLeaks

The truth is that the most acute problems in the years leading up to the financial crisis occurred in what we would traditionally think of as pure investment banks—Bear Stearns, Lehman Brothers, Merrill Lynch, and Morgan Stanley—which, thanks to Wall Street’s wayward incentive system, had gone hog wild in the manufacture and sale of mortgage-backed securities, billions of dollars of which they allowed to build up on their balance sheets. When the banks’ short-term lenders no longer wanted to use these assets as collateral for overnight loans, the investment banks could not finance their daily operations and up came the white flags of surrender. As we all remember, JPMorgan Chase rescued Bear Stearns, and Bank of America rescued Merrill Lynch.

As we all remember, JPMorgan Chase rescued Bear Stearns, and Bank of America rescued Merrill Lynch. If Glass-Steagall were reimposed, JPMorgan Chase’s rescue of Bear Stearns and Bank of America’s rescue of Merrill Lynch would have been prohibited. Just contemplate the idea of Lehman Brothers, Bear Stearns, and Merrill Lynch in bankruptcy at the same time. You can bet that Morgan Stanley and Goldman Sachs would have also filed for bankruptcy in Senator Warren’s world, too, because the Federal Reserve essentially rescued both of those investment banks, in late September 2008, by allowing them to become bank holding companies. That gave them access to short-term funding from the Fed, a huge benefit because other forms of short-term financing in the markets were drying up.

Nor is a simple clawback of an employee’s bonus—even though it never seems to happen—or that an employee gets some of his or her compensation in deferred stock a sufficient deterrent for bad behavior. Jimmy Cayne, the former chairman and CEO of Bear Stearns, at one time had a net worth of $1.6 billion, about $1 billion of which was in his firm’s stock. He was the first Wall Street CEO to hold more than $1 billion of his firm’s stock. And when Bear’s stock hit its all-time high in January 2007, Cayne no doubt felt like the happiest man on Wall Street. You would have thought that because he had more than 60 percent of his net worth tied up in Bear Stearns stock, he would have been deeply focused on the firm and the risks that were accruing there.


pages: 782 words: 187,875

Big Debt Crises by Ray Dalio

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, break the buck, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital controls, central bank independence, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, declining real wages, equity risk premium, European colonialism, fiat currency, financial engineering, financial innovation, foreign exchange controls, German hyperinflation, global macro, housing crisis, implied volatility, intangible asset, it's over 9,000, junk bonds, Kickstarter, land bank, large denomination, low interest rates, manufacturing employment, margin call, market bubble, market fundamentalism, military-industrial complex, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, refrigerator car, reserve currency, risk free rate, Savings and loan crisis, short selling, short squeeze, sovereign wealth fund, subprime mortgage crisis, too big to fail, transaction costs, universal basic income, uptick rule, value at risk, yield curve

The Treasury, Congress and accounting regulators aren’t doing their parts yet.” –BDO March 14, 2008 JPM and Fed Move to Bail Out Bear Stearns “With the support of the Federal Reserve Bank of New York, JPMorgan said.…it had ‘agreed to provide secured funding to Bear Stearns, as necessary, for an initial period of up to 28 days.’” –New York Times March 14, 2008 Stocks Tumble on Bank’s Troubles “Stocks took a sharp dive on Friday after an emergency bailout for Bear Stearns, the troubled investment bank, rocked Wall Street’s confidence in the fragile credit market. …Early in the day, the Fed issued a statement that it would ‘continue to provide liquidity as necessary’ to keep the wheels of the financial system turning.

…Early in the day, the Fed issued a statement that it would ‘continue to provide liquidity as necessary’ to keep the wheels of the financial system turning. But investors seemed to take little solace in the pledge. …The news from Bear Stearns came after the bank had insisted for days that its finances were in adequate shape. But its chief executive said the bank’s liquidity had ‘significantly deteriorated’ since Thursday.” –New York Times March 14, 2008 One can look at today’s developments for Bear Stearns... “One can look at today’s developments for Bear Stearns and other US investment companies as either today’s events or the latest manifestation of the deleveraging process. If you look at these developments as just today’s news, it won’t do you much good in preparing you for what might come next.

By June, these tightening pressures flowed through to the first broad sign of financial distress: rising foreclosures and delinquencies started to translate into meaningful losses for bigger banks. In mid-June, two hedge funds run out of the investment bank Bear Stearns that invested in subprime mortgage-backed securities (MBS)—one of them leveraged about 20:19—faced growing losses and a wave of investor redemptions. That required them to do a fire-sale of $3.6 billion of the securities, a large amount for the market.10 The leveraged financial buying shifted into deleveraging selling. As the prices of securities they held fell, the hedge funds faced huge losses and forced liquidations. In the end, Bear Stearns promised a $3.2 billion loan to bail out one of the funds (later reduced to $1.6 billion), and other banks that seized collateral from the hedge funds cooperated to ensure that the market remained stable (e.g., not selling more subprime MBS).


pages: 491 words: 131,769

Crisis Economics: A Crash Course in the Future of Finance by Nouriel Roubini, Stephen Mihm

Alan Greenspan, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, dark matter, David Ricardo: comparative advantage, debt deflation, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, Glass-Steagall Act, global pandemic, global reserve currency, Gordon Gekko, Greenspan put, Growth in a Time of Debt, housing crisis, Hyman Minsky, information asymmetry, interest rate swap, invisible hand, Joseph Schumpeter, junk bonds, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, means of production, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, Northern Rock, offshore financial centre, oil shock, Paradox of Choice, paradox of thrift, Paul Samuelson, Ponzi scheme, price stability, principal–agent problem, private sector deleveraging, proprietary trading, pushing on a string, quantitative easing, quantitative trading / quantitative finance, race to the bottom, random walk, regulatory arbitrage, reserve currency, risk tolerance, Robert Shiller, Satyajit Das, Savings and loan crisis, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, subprime mortgage crisis, Suez crisis 1956, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, too big to fail, tulip mania, Tyler Cowen, unorthodox policies, value at risk, We are all Keynesians now, Works Progress Administration, yield curve, Yom Kippur War

Losses mounted in the fall and winter of 2007 as the value of CDOs—particularly AAA tranches—eroded. There was a growing sense of clarity in the market: Bear Stearns was in trouble, and like the depositors who withdrew their money from Countrywide, Northern Rock, and other banks, the hedge funds borrowing from Bear Stearns and other firms lending funds to the ailing investment bank pulled their money. On March 13 the besieged bank reported that 88 percent of its liquid assets were gone, the result of creditors’ refusing to roll over short-term financing. Bear Stearns was moribund, and over a frantic weekend the legendary firm was summarily sold off to JPMorgan Chase.

But the independents—Lehman Brothers, Merrill Lynch, Morgan Stanley, Goldman Sachs, and Bear Stearns—were on their own. Like ordinary banks, they borrowed short and lent long, but they did not have access to a lender of last resort, and their creditors could not rely on deposit insurance if things went awry. Worse, being less regulated, they tended to be much more leveraged. They were also highly dependent on short-term financing in the repo market. None of the independent broker dealers would remain by the end of the year. The first to go was Bear Stearns in March 2008. Like its counterparts, it had been a big player in running CDO assembly lines, and it had kept plenty of now-toxic securities on its books.

The Federal Reserve intervened heavily, facilitating the sale and agreeing to assume most of the future losses tied to the former firm’s toxic assets. The Federal Reserve’s move was not a full bailout; Bear Stearns’s shareholders were effectively wiped out. But its creditors and counterparties were fully bailed out. Instead, the Fed made a classic central bank move, as if following Bagehot’s admonition to rescue the bank whose failure threatents otherwise solvent banks. In Bear Stearns’s case, it deemed such intervention necessary: the firm had been a big player in selling credit default swaps against a variety of risky assets held by other banks and investors.


pages: 593 words: 189,857

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

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, Atul Gawande, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Bernie Sanders, Black Monday: stock market crash in 1987, break the buck, Buckminster Fuller, Carmen Reinhart, central bank independence, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency risk, David Brooks, Doomsday Book, eurozone crisis, fear index, financial engineering, financial innovation, Flash crash, Goldman Sachs: Vampire Squid, Greenspan put, housing crisis, Hyman Minsky, illegal immigration, implied volatility, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market fundamentalism, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, Nate Silver, negative equity, Northern Rock, obamacare, paradox of thrift, pets.com, price stability, profit maximization, proprietary trading, pushing on a string, quantitative easing, race to the bottom, RAND corporation, regulatory arbitrage, reserve currency, Saturday Night Live, Savings and loan crisis, savings glut, selection bias, Sheryl Sandberg, short selling, sovereign wealth fund, stock buybacks, tail risk, The Great Moderation, The Signal and the Noise by Nate Silver, Tobin tax, too big to fail, working poor

In May, the New York Fed staff calculated that Lehman would need $84 billion in additional liquidity to survive a severe run, a scenario we dubbed “Bear Stearns,” and $15 billion to survive a somewhat less severe run we called “Bear Stearns Light.” In a June 25 memo, our team concluded that Lehman had borrowed too much, too short, against too many illiquid assets, resulting in a “weak liquidity position”—a pretty mild way to put it. But when Lehman’s risk managers ran their own less conservative version of Bear Stearns Light, they concluded they would weather the storm with $13 billion in cash to spare. Merrill Lynch seemed almost as vulnerable as Lehman, and almost as deep in denial.

But I knew many nonbanks had much less capital, even though they didn’t have the safeguard of insured deposits and wouldn’t have access to Fed loans in an emergency. For example, by the end of 2007, capital levels at the five SEC-regulated Wall Street investment banks—Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, and Goldman Sachs—were just 3 percent of assets. At the mortgage giants Fannie Mae and Freddie Mac, they would drop to barely 1 percent of the assets they owned and guaranteed. The question was what to do about it. The Fed didn’t have the legal authority to force Bear Stearns, Lehman Brothers, or other investment banks to raise more capital. We couldn’t even generate stress scenarios bleak enough to force the banks we regulated to raise more capital.

He was still uncomfortable allowing the shareholders of a failed firm to benefit from a government rescue. But Ben and I helped persuade him that allowing JPMorgan to offer a somewhat better deal to the shareholders of Bear Stearns mattered less than the stability of the financial system. Dimon upped his offer to $10 a share, and the deal was done. WELL, ALMOST done. The New York Fed and JPMorgan spent the next three months locked in brutal behind-the-scenes negotiations, arguing over which Bear Stearns assets the Fed would take and how much they were worth, fighting over every security and every mark. Dimon wanted to leave as much risk with us as possible, especially now that he had given us a $1 billion cushion against losses.


pages: 354 words: 105,322

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

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, blockchain, Boeing 747, Bonfire of the Vanities, Bretton Woods, Brexit referendum, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, driverless car, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, Glass-Steagall Act, global macro, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, low interest rates, machine readable, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Minsky moment, Money creation, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, operational security, Paul Samuelson, Peace of Westphalia, Phillips curve, Pierre-Simon Laplace, plutocrats, prediction markets, price anchoring, price stability, proprietary trading, public intellectual, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk free rate, risk-adjusted returns, Robert Solow, Ronald Reagan, Savings and loan crisis, Silicon Valley, sovereign wealth fund, special drawing rights, stock buybacks, stocks for the long run, tech billionaire, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, We are all Keynesians now, Westphalian system

Buying and selling shares in takeover deals is expensive because of commissions and margin interest on short positions. LTCM used an equity basket swap arranged by its prime broker, Bear Stearns. In an equity basket swap, a limit is placed on the basket’s size. In the case of the LTCM–Bear Stearns equity swap, the basket held $15 billion in equities. LTCM put items in the basket or took them out with a phone call to the Bear Stearns swap desk. The swap gave LTCM the same profit or loss as owning actual shares without the expense or capital requirements of ownership. Old-school arbitrageurs were mystified by LTCM’s trading in their market.

LTCM’s edge was high leverage and statistical odds, just another mathematical game. The partners pursued this strategy in the era’s biggest takeover deals, including Lockheed-Boeing, MCI-WorldCom, and Citicorp-Travelers. LTCM put long and short stock picks in the swap basket, then Bear Stearns did real stock trades to cover its basket exposure. LTCM and Bear Stearns were both hedged. Bear Stearns got cheap financing because it was a dealer. LTCM got cheap financing because it used an off-balance-sheet swap. Everyone was a winner, everyone was hedged. So it seemed. In 1996, near the height of LTCM’s profits and praise, JPMorgan offered to buy a 50 percent interest in LTCM for $5 billion, a reasonable price considering the management company was making more than $300 million per year in management fees alone.

The latter crisis also started the summer before and appeared solved by winter, only to reemerge by spring. The 2008 crisis repeated this pattern almost ten years to the day. In March 2008, the crisis became visible again with Bear Stearns’s collapse over the course of a few days, March 12 to 16. On Wednesday, March 12, Bear Stearns CEO Alan Schwartz told CNBC, “We have no problems with our liquidity and overnight funding. … Bear Stearns’s balance sheet, liquidity and capital remain strong … and the situation, with time, will stabilize.” Three days later, Bear was broke and its business was absorbed by JPMorgan. The worst positions were buried off-balance-sheet at the Federal Reserve.


EuroTragedy: A Drama in Nine Acts by Ashoka Mody

Alan Greenspan, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Basel III, Bear Stearns, Berlin Wall, book scanning, book value, Bretton Woods, Brexit referendum, call centre, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, debt deflation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, fear index, financial intermediation, floating exchange rates, forward guidance, George Akerlof, German hyperinflation, global macro, global supply chain, global value chain, hiring and firing, Home mortgage interest deduction, income inequality, inflation targeting, Irish property bubble, Isaac Newton, job automation, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, Kickstarter, land bank, liberal capitalism, light touch regulation, liquidity trap, loadsamoney, London Interbank Offered Rate, Long Term Capital Management, low interest rates, low-wage service sector, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, mortgage tax deduction, neoliberal agenda, offshore financial centre, oil shock, open borders, pension reform, precautionary principle, premature optimization, price stability, public intellectual, purchasing power parity, quantitative easing, rent-seeking, Republic of Letters, Robert Gordon, Robert Shiller, Robert Solow, short selling, Silicon Valley, subprime mortgage crisis, The Great Moderation, The Rise and Fall of American Growth, too big to fail, total factor productivity, trade liberalization, transaction costs, urban renewal, working-age population, Yogi Berra

Among those who took an especially hard knock were shareholders of Lehman Brothers, the investment bank whose practices most resembled those of Bear Stearns.57 But because Bear Stearns’s creditors had been protected, financial indicators for creditors improved. The stress level in the interbank market—​the term premium—​fell for US banks but remained about the same for European banks. In the United States, there was also a small decline in the premium to insure against the risk that a bank would default on its debts.58 Author and journalist David Wessel later wrote, “there will always be Before Bear Stearns and After Bear Stearns.”59 In his memoirs, Bernanke described the Bear Stearns episode as “the end of the beginning.”60 The crisis was evidently no longer about a temporary shortage of liquidity.

after the bust, the denial 205 Over the weekend, Geithner, as president of the New York Federal Reserve, hammered out a deal under which JPMorgan Chase agreed to buy Bear Stearns at a price of $10 per share. If, however, JPMorgan discovered larger than anticipated losses, it could bill the Fed up to $29 billion. All of Bear Stearns’s creditors were to be paid in full. Bear Stearns was an accident waiting to happen. The investment bank had borrowed $35 for every dollar of capital it held.55 It had borrowed funds to invest in highly risky mortgage-​related securities. Bear Stearns’s creditors knew these facts. The creditors included some of the world’s most sophisticated investors, and they knew exactly the risk they were taking.

In response to the financial-​market turbulence, the Fed reduced its policy interest rate by 50 basis points (100 basis points equal 1 ​percentage point). The Fed thus embarked on aggressive monetary easing to “forestall” adverse effects from the financial-​market disruptions. March 14–​16, 2008: Fed rescues Bear Stearns. JPMorgan Chase agreed to buy Bear Stearns, with the Fed agreeing to pay JPMorgan Chase up to $29 billion in case Bear Stearns’s losses turned out to be larger than anticipated. By promising to bear the burden of unanticipated losses, the Fed “bailed out” Bear Stearns’s creditors. That action established a presumption that the Fed would continue to bail out other distressed financial institutions. June 2, 2008: Trichet celebrates euro’s first decade.


pages: 302 words: 86,614

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja, Myron Scholes, Mohamed El-Erian

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Alan Greenspan, Asian financial crisis, asset allocation, asset-backed security, backtesting, Bear Stearns, Bernie Madoff, book value, Bretton Woods, business process, call centre, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, en.wikipedia.org, family office, financial engineering, fixed income, global macro, high net worth, high-speed rail, impact investing, interest rate derivative, Isaac Newton, Jim Simons, junk bonds, Long Term Capital Management, managed futures, Marc Andreessen, Mark Zuckerberg, merger arbitrage, Michael Milken, Myron Scholes, NetJets, oil shock, pattern recognition, Pershing Square Capital Management, Ponzi scheme, proprietary trading, quantitative easing, quantitative trading / quantitative finance, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, Savings and loan crisis, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, stock buybacks, systematic bias, systematic trading, tail risk, two and twenty, zero-sum game

Treasury bonds, gold, and the yen. The first big payoff for Bridgewater’s “D-process” (research on deleveragings and financial crises) came in the spring of 2008. The risk metric for credit-default spreads clicked on, triggering Bridgewater to exit its entire position in several banks like Lehman Brothers and Bear Stearns (the week before Bear Stearns imploded). While most funds were down close to 20 percent that year, Bridgewater’s process led the fund to positions that weren’t tied to the performance of the stock market. Bridgewater was able to segregate risky investments, safer investments, and degrees of risk, causing the fund to clock in a 12 percent gain by the end of the year.

In fact, in the late 1990s, Leon and affiliated foundations became the largest investors in his hedge funds. Paulson felt fortunate to land a job as an associate at Bear Stearns in 1984 right when M&A was taking off. He says: “I felt very lucky to be there, when Ace Greenberg was at the helm running Bear. They didn’t have a lot of people in M&A but had a lot of business. So I worked very hard and advanced fairly rapidly. Associate vice president, limited partner, then managing director all within the span of four years.” Bear Stearns was the perfect place for Paulson to grow at his own supercharged pace. They placed no limits on how quickly he could climb the ladder or how long he had to remain at each level.

“Once I got to the point where I had gained the experience advising in mergers, negotiating merger agreements, underwriting common stock, preferred stock, subordinated debt, and senior debt offerings, and having a Rolodex full of capital providers, I felt then I was ready to move back to the principal side. My experience at Bear gave me the building blocks that I needed to act as principal.” In the late 1980s, Gruss Partners and Bear Stearns together made a large gain on the sale of Anderson Clayton Company and Paulson became close with Marty Gruss, son of Joseph Gruss, the founder of Gruss Partners and the current senior partner. The firm was founded in 1938 and had built an enviable long-term track record in risk arbitrage. Paulson left Bear Stearns in 1988 to become a general partner at Gruss Partners. At that point, the merger business was slowing as Drexel failed and the economy dropped into a recession.


pages: 584 words: 187,436

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

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, automated trading system, bank run, barriers to entry, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency peg, deal flow, do well by doing good, Elliott wave, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, full employment, German hyperinflation, High speed trading, index fund, Jim Simons, John Bogle, John Meriwether, junk bonds, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, machine translation, margin call, market bubble, market clearing, market fundamentalism, Market Wizards by Jack D. Schwager, Mary Meeker, merger arbitrage, Michael Milken, money market fund, moral hazard, Myron Scholes, natural language processing, Network effects, new economy, Nikolai Kondratiev, operational security, pattern recognition, Paul Samuelson, pre–internet, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Mercer, rolodex, Savings and loan crisis, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, survivorship bias, tail risk, technology bubble, The Great Moderation, The Myth of the Rational Market, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule

“Investors who sought to take advantage of the inimitable risk management reputation of Bear Stearns found themselves in a highly complex hedge fund investment program that relied on overworked junior personnel to manage a conflict reporting process required by federal law.” Administrative complaint against Bear Stearns Asset Management filed by the Commonwealth of Massachusetts, quoted in Cohan, House of Cards, p. 302. 17. Hedge fund subsidiaries of other banks also fared poorly. UBS’s Dillon Read Capital Management and Royal Bank of Scotland’s Greenwich Capital were both wound down in 2007 following losses on subprime securities. Much as happened at Bear Stearns, UBS injected capital into its failed funds, took their losses onto its balance sheet, and then found itself in need of a government bailout.

Even in 2006 and 2007, when the mortgage bubble was bursting, many banks were too sluggish to adjust. They sold John Paulson billions of dollars of mortgage insurance via the new ABX index, but they did not stop to ask themselves what Paulson’s buying might tell them. The contrast between banks and hedge funds was summed up by the story of Bear Stearns, even though there was a twist to it. Bear Stearns had a reputation as a vigilant manager of its trading risks; it was exactly the kind of institution that would not be expected to buy poisonous mortgage securities. But by the mid-2000s, Bear had emerged as the number one packager of mortgage-backed securities on Wall Street, up from the third slot in 2000; and to keep the sausage factory going, Bear had bought up subsidiaries that made subprime loans directly to home buyers, both in the United States and in Britain.

One hedge fund had imploded, threatening to start a systemic fire. Another hedge fund had swooped in, acting as the fireman. Almost immediately, a new fire started. THE NEXT FRIDAY, AUGUST 3, A RATINGS AGENCY ANNOUNCED that Bear Stearns’s debt might be downgraded. It was the first time a Wall Street firm’s financial health had been questioned in the crisis, and Bear Stearns’s stock fell so hard that its bosses convened a conference call in an attempt to calm investors. More than two thousand people dialed in, but there was no calming effect at all. Bear’s chief financial officer blurted out that the credit markets were behaving in the most extreme manner he had witnessed in his long career; “he fucking blew the market up,” Bear’s treasurer said sweetly.24 On CNBC a few hours afterward, the financial pundit Jim Cramer fanned the flames.


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

affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, Bear Stearns, behavioural economics, 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, Future Shock, 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, junk bonds, Long Term Capital Management, loss aversion, market bubble, market clearing, mental accounting, Michael Milken, 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, Phillips curve, plutocrats, Post-Keynesian economics, price stability, profit maximization, public intellectual, purchasing power parity, random walk, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, seminal paper, 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, W. E. B. Du Bois, We are all Keynesians now, working-age population, Y2K, Yom Kippur War

In the words of one prominent Wall Street lawyer: “This is like waking up in summer with snow on the ground.”13 The Fed had acted as the midwife to the deal; it gave JPMorgan a $30 billion line of credit, backed by the collateral from Bear Stearns.14 Commentators seemed as surprised by the role played by the Fed as by the collapse of Bear Stearns. In 2008 Ben Bernanke related to the Senate Committee on Banking, Housing, and Urban Affairs his fears of the potential consequences of a failure of Bear Stearns: Our financial system is extremely complex and interconnected, and Bear Stearns participated extensively in a range of critical markets. The sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence.

They may have been fully solvent before the flight to liquidity began, but in a liquidity crisis they may not be able to afford the higher rates required for continued borrowing.12 Bear Stearns and Long Term Capital Management The interactions between the Fed and Bear Stearns in 2008, and between the Fed and Long Term Capital Management in 1998, are illustrative of the Fed’s concern about the shadow banking system and the possibility that failures there would lead to a financial panic. On a Monday morning in March 2008 the public was stunned to discover that over the weekend Bear Stearns, a leading investment bank, had been merged with JPMorgan Chase at the bargain-basement price of $2 per share.

The sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence. The company’s failure could also have cast doubt on the financial positions of some of Bear Stearns’ thousands of counterparties and perhaps of companies with similar businesses. Given the exceptional pressures on the global economy and the financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain.15 But the history of the Federal Reserve and the original intent of the discount window suggest exactly why the Fed helped broker such a deal. Federal Reserve Chairman Ben Bernanke, one of the leading historians of monetary crises and the role the Fed has played in them, understood the original intent of the founders of the Fed.


pages: 305 words: 69,216

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression by Richard A. Posner

Alan Greenspan, Andrei Shleifer, banking crisis, Bear Stearns, Bernie Madoff, business cycle, collateralized debt obligation, collective bargaining, compensation consultant, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, diversified portfolio, equity premium, financial deregulation, financial intermediation, Glass-Steagall Act, Home mortgage interest deduction, illegal immigration, laissez-faire capitalism, Long Term Capital Management, low interest rates, market bubble, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, oil shock, Ponzi scheme, price stability, profit maximization, proprietary trading, race to the bottom, reserve currency, risk tolerance, risk/return, Robert Shiller, savings glut, shareholder value, short selling, statistical model, subprime mortgage crisis, too big to fail, transaction costs, very high income

The result was a glut of unsold houses and a drastic reduction in the amount of home building, as well as a great many nonperforming mortgages. Two mortgage hedge funds owned by the investment bank Bear Stearns went broke in the summer of 2007, along with American Home Mortgage Corporation and three investment funds owned by the French bank BNP Paribas. Countrywide Financial Corporation, the nation's largest mortgage lender, narrowly averted bankruptcy. The recession was overtaken by a financial crisis in March 2008, when Bear Stearns itself collapsed. The crisis became acute in mid-September, when the bankruptcy of Lehman Brothers, the distress sale of Merrill Lynch, the near collapse and ensuing government takeover of Fannie Mae and Freddie Mac (giant buyers and insurers of residential mortgages), and the bailout of American International Group, the nation's largest insurance company, triggered a sharp drop in the stock market and a worldwide credit freeze.

I am not suggesting that executives, especially at the highest level of a major company, seek to maximize their current income knowing that in a year or two the company will go broke and they will be fired. With or without explicit backloading of compensation, CEOs tend to be heavily invested in stock of their firm. Senior management in firms like Lehman Brothers and Bear Stearns lost heavily when their firms went belly-up. But the greater the gains are from taking risks that enable very high short-term profits, and the better cushioned the executive is by his severance package against the cost of losing his job, the more risks he rationally will take. And recall the earlier point that financial catastrophes, like other types of catastrophe, tend to be rare events.

A particularly sharp warning against the Federal Reserve's policy of allowing asset-price bubbles to expand in the belief that the consequences could always be handled by flooding the economy with money—a warning that actually invoked the Great Depression—was issued by the prestigious Bank for International Settlements in June 2007; it was ignored too. There had been many other warnings as well, especially after Bear Stearns' collapse in March 2008, and, almost a year earlier, after two mortgage hedge funds operated by Bear Sterns and three by the French bank BNP Paribas collapsed. The biggest warning sign of all had appeared much earlier—when Long-Term Capital Management faltered in 1998, was taken over by its creditors in a deal arranged by the Federal Reserve, and then expired.


pages: 459 words: 118,959

Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff by Christine S. Richard

activist fund / activist shareholder / activist investor, Alan Greenspan, Asian financial crisis, asset-backed security, banking crisis, Bear Stearns, Bernie Madoff, Blythe Masters, book value, buy and hold, Carl Icahn, cognitive dissonance, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, electricity market, family office, financial innovation, fixed income, forensic accounting, glass ceiling, Greenspan put, Long Term Capital Management, market bubble, money market fund, moral hazard, old-boy network, Pershing Square Capital Management, Ponzi scheme, profit motive, Savings and loan crisis, short selling, short squeeze, statistical model, stock buybacks, subprime mortgage crisis, white flight, zero-sum game

If Dinallo was going to bully the banks into helping to fix the bond-insurer problem, he was going to have to do it alone. THE BANKS, HOWEVER, HAD big problems of their own. On Sunday, March 16, JPMorgan announced it would buy Bear Stearns for $236 million, or $2 a share, saving the firm from collapse. JPMorgan’s purchase of Bear Stearns was conditioned on the Federal Reserve System assuming losses on $30 billion of Bear’s assets after JPMorgan absorbed the first $1 billion of losses. Although the collapse of Bear Stearns took the attention off the bond insurers, it also turned up the attention on short sellers, particularly those who placed their bets using credit-default swaps (CDSs).

It was the shortest meeting Katzovicz ever remembers attending. It was certainly the shortest presentation Ackman had ever given on MBIA, but it was a success. “We’ll hold hearings this fall,” Frank said. On June 13, 2007, word began to circulate about problems at Bear Stearns. The firm had been trying to sell $3 billion of highly rated mortgage-backed securities. Apparently, Merrill Lynch had called in a loan to the Bear Stearns High-Grade Structured Credit Enhanced Leverage Fund, a hedge fund run by the firm’s star mortgage trader, which invested in double- and triple-A-rated mortgage-backed securities and CDOs. These sales were testing market demand for the securities, and the results were not encouraging.

No one wanted to touch securities tainted by subprime, no matter how high the rating. On June 20, 2007, J. G. Kosinski of Kore Capital e-mailed Ackman to tell him MBIA credit-default swaps had jumped. “The Street is using it as a proxy hedge for the Bear Stearns CDO-squared fire sale.” CDO-SQUAREDS are securities largely backed by other CDOs, which are high risk and extraordinarily complex to analyze. On June 25, Deutsche Bank held a conference call to address investor concerns about the Bear Stearns funds, CDOs, and the subprime market. Investors bought triple-A-rated securities because they didn’t want to worry about credit issues; now these securities had become the focus of the market’s fears.


pages: 348 words: 99,383

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope by John A. Allison

Affordable Care Act / Obamacare, Alan Greenspan, American ideology, bank run, banking crisis, Bear Stearns, Bernie Madoff, business cycle, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, Greenspan put, high net worth, housing crisis, inverted yield curve, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, money market fund, moral hazard, negative equity, obamacare, open immigration, Paul Samuelson, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, subprime mortgage crisis, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, Tyler Cowen, yield curve, zero-sum game

One of the most significant mistakes made by government regulators took place early in the process, when they decided to save Bear Stearns (on March 17, 2008) by negotiating a privileged sale to JPMorgan Chase while reducing Chase’s downside risk. The sale could not have taken place without the support of the U.S. Treasury and the Federal Reserve, as the latter bought $30 billion in bad assets for cash. What is particularly interesting is that the shareholders of Bear Stearns actually received compensation, admittedly at a low price. Therefore, the U.S. taxpayers were protecting shareholders! In previous bailouts, at least the shareholders almost always experienced total losses. The Bear Stearns bailout was a terrible message to the capital market.

In other words, in a number of cases, failing institutions were not just illiquid, they were insolvent (a much more significant problem). Bernanke, being an expert on the Great Depression, treated the recent crisis as if it were a liquidity issue instead of a solvency problem. For example, the Fed saved Bear Stearns under the theory that Bear was solvent, but illiquid. However, it now appears that Bear was in fact not just illiquid, but also insolvent. The Fed’s handling of Bear Stearns provided an extremely misleading message to the market, which we will discuss later. The protection that is provided to the creditors of banks (including depositors) is the shareholders’ capital investment in the bank.

It became possible for sophisticated traders to legally have an impact on the market and make substantial profits. For example, there were CDSs on Bear Stearns’s bond obligations. Since the market was very thin, it was relatively easy for traders to drive down the value of Bear CDSs (which drives up the cost of insuring Bear’s bonds). The rising insurance rate on Bear’s bonds makes it appear that Bear is more risky. It is also fairly easy to reinforce the rumors about Bear’s financial problems. At the same time you are purchasing the CDSs (driving up the price to insure), you short Bear Stearns stock. When the market sees Bear’s CDS price moving (its insurance cost rising), it assumes that this reflects financial problems, and Bear’s stock price falls.


pages: 304 words: 99,836

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

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

. ——— On March 16, 2008, I was watching my TiVo-ed recording of Meet the Press when I saw the news on my BlackBerry that JPMorgan Chase had bought Bear Stearns for $2 a share. At first I thought the number was a typo. As late as January 2007, Bear Stearns had been trading at $172 a share, and at $93 just the month before, in February 2008. The firm had recently erected a shiny new tower on Madison Avenue; the building itself was worth $5 a share. But it wasn’t a typo. The background was that the Federal Reserve Bank of New York was making a $30 billion loan to JPMorgan Chase (still collateralized by Bear Stearns’s unencumbered assets) to buy the firm at $2 a share, 7 percent of its market value before the weekend.

People put two and two together and immediately realized the reason behind the fire-sale price: the assets on Bear Stearns’s balance sheet were so toxic that JPMorgan was actually taking on billions of dollars in immediate losses. But the deal had a sweetheart fragrance about it, and soon the financial world was accusing the Federal Reserve of giving Bear Stearns to JPMorgan on the cheap because of the latter firm’s robust balance sheet. Ultimately, Jamie Dimon of JPMorgan raised the purchase price to $10 a share: still pretty sweet. Even then, though, with the subprime mortgage market teetering, the official view was that the fall of Bear Stearns had just been a glitch. On the Goldman trading floor that Monday, the consensus was that Bear was a firm that had gotten a little over its skis.

It felt as if we were in a movie. I remember saying that night that if you had told me a few years ago that Bear Stearns and Lehman Brothers could both vaporize within months of each other, I would have called you crazy. This was the stuff of the weirdest science-fiction movie any of us could think of. Things would get stranger. Over that weekend of September 13 and 14, Merrill Lynch and Lehman Brothers—both of which turned out to have been as badly exposed in the subprime mortgage market as Bear Stearns—toppled. On Sunday, Merrill Lynch was acquired by Bank of America, and in the early hours of Monday morning, Lehman Brothers filed for Chapter 11 bankruptcy.


Stock Market Wizards: Interviews With America's Top Stock Traders by Jack D. Schwager

Asian financial crisis, banking crisis, barriers to entry, Bear Stearns, beat the dealer, Black-Scholes formula, book value, commodity trading advisor, computer vision, East Village, Edward Thorp, financial engineering, financial independence, fixed income, implied volatility, index fund, Jeff Bezos, John Meriwether, John von Neumann, junk bonds, locking in a profit, Long Term Capital Management, managed futures, margin call, Market Wizards by Jack D. Schwager, money market fund, Myron Scholes, paper trading, passive investing, pattern recognition, proprietary trading, random walk, risk free rate, risk tolerance, risk-adjusted returns, short selling, short squeeze, Silicon Valley, statistical arbitrage, Teledyne, the scientific method, transaction costs, Y2K

One useful piece of advice he gave me, which summarized the philosophy of Bear Stearns was: Never make a bet you can't afford to lose. My extreme aversion to risk traces back to Bear Stearns. To this day, I am deeply appreciative of the opportunity they gave me and for what I learned at the firm. Why did you leave Bear Stearns? Kidder made me a great offer. It was really hard to leave. My initial intentions were to stay at Bear Stearns for my whole career. A L P H D N S E " B U D D Y " FLTTCHER J R . Was this the proverbial deal you couldn't refuse? Yes. Did Bear Stearns try to counteroffer? I met with Ace Greenberg, Bear Stearns's CEO at that time, over the course of two days, but his only real response was advice.

Oh well, I guess there is A L P H O N S E " B U D D Y " F L E T C H E R JR no reason to expect prejudice to be logical. How did you go about starting your own firm when you left Kidder? I went back to Ace Greenberg. Bear Stearns set me up with an office and gave me access to its very supportive clearance department, which provided financing and brokerage services for professional investors. What did Bear Stearns get out of this deal? I still had very friendly relationships with the people at Bear Stearns. To some extent, they just wanted to help me out. But it was also beneficial to them because they gained a customer. Based on their previous experience with me, I'm sure they assumed that I would generate significant brokerage business for them.

Otherwise he would have known better than to try to generate consistent high returns, with hardly any losing months, as he has done since placing his first trade thirteen years ago. Fletcher began his financial career at Bear Stearns as a researcher and trader of the firm's own funds. After two very successful years, he was lured away to a similar position at Kidder Peabody* Although he loved working at Bear Stearns and was very reluctant to leave, Kidder's job offer was just too lucrative to turn down. In addition to his salary, Kidder promised Fletcher a 20 to 25 percent bonus on his trading profits. In his first year at Kidder, Fletcher made over $25 million for the firm.


pages: 309 words: 95,495

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe by Greg Ip

Affordable Care Act / Obamacare, Air France Flight 447, air freight, airport security, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, behavioural economics, Boeing 747, book value, break the buck, Bretton Woods, business cycle, capital controls, central bank independence, cloud computing, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Daniel Kahneman / Amos Tversky, diversified portfolio, double helix, endowment effect, Exxon Valdez, Eyjafjallajökull, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, foreign exchange controls, full employment, global supply chain, hindsight bias, Hyman Minsky, Joseph Schumpeter, junk bonds, Kenneth Rogoff, lateral thinking, Lewis Mumford, London Whale, Long Term Capital Management, market bubble, Michael Milken, money market fund, moral hazard, Myron Scholes, Network effects, new economy, offshore financial centre, paradox of thrift, pets.com, Ponzi scheme, proprietary trading, quantitative easing, Ralph Nader, Richard Thaler, risk tolerance, Ronald Reagan, Sam Peltzman, savings glut, scientific management, subprime mortgage crisis, tail risk, technology bubble, TED Talk, The Great Moderation, too big to fail, transaction costs, union organizing, Unsafe at Any Speed, value at risk, William Langewiesche, zero-sum game

Firms began to limit their use of unsecured commercial paper and instead touted their use of secured loans backed with collateral such as Treasury bonds. Bear Stearns, for example, boasted in its 2006 annual financial report that it made “extensive use of secured funding.” Bear Stearns’s secured financing consisted of so-called repo loans. “Repo” probably makes you think of a man in a bad suit repossessing your car, and a repo loan isn’t that different. An investment bank like Bear Stearns would borrow for a few days or a week from a money market mutual fund and secure the loan with securities such as Treasury bonds. Secured funding was supposed to be a foolproof way to support more lending without making the financial system more dangerous.

Because banks are at the core of the financial system, they were already backstopped by the government via deposit insurance and the Fed’s lender-of-last-resort authority. Thus, Volcker felt they deserved different treatment than the rest of the financial system. But in March of 2008 regulators crossed that line as well. Bear Stearns, the fifth-largest of the stand-alone investment banks (Lehman was fourth), had been days away from collapse as lenders refused to roll over their short-term repo loans. One of them was Reserve. The fund had lent “repo” money to Bear Stearns, but after its managers saw the company’s CEO unpersuasively seek to reassure investors on television on March 12, the company decided to pull out. Just a few days later, the Fed took the unprecedented step of lending Bear enough money to stay afloat until it could be sold intact to J.P.

Yet at the time, it is also clear that some officials thought letting it fail would serve a useful purpose: it would purge the financial system of the moral hazard that the rescue of Bear Stearns had created and that had drawn reproof from many quarters. Over the course of the summer, Treasury had tried to make it clear that no similar rescue would await Lehman. Inside the Fed, feelings were more conflicted; Tim Geithner, president of the New York Fed, was adamant that the Fed should keep the bailout option open, but some staffers agreed that bankruptcy was better than a bailout. One staffer said the Fed must not contribute its own money to assist a takeover of Lehman as it had with Bear Stearns because the “moral hazard and reputation cost is too high.”


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Alan Greenspan, Albert Einstein, algorithmic trading, Andy Kessler, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, BRICs, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, carbon credits, Carl Icahn, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, deal flow, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Dr. Strangelove, Dutch auction, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial engineering, financial independence, financial innovation, financial thriller, fixed income, foreign exchange controls, full employment, Glass-Steagall Act, global reserve currency, Goldman Sachs: Vampire Squid, Goodhart's law, Gordon Gekko, greed is good, Greenspan put, happiness index / gross national happiness, haute cuisine, Herman Kahn, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", job automation, Johann Wolfgang von Goethe, John Bogle, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Michael Milken, Mikhail Gorbachev, Milgram experiment, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Phillips curve, planned obsolescence, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, Reminiscences of a Stock Operator, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk free rate, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, stock buybacks, survivorship bias, tail risk, Teledyne, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

By the Bootstraps LBOs are synonymous with KKR (Kohlberg, Kravis, and Roberts) and their $31.1 billion LBO of RJR Nabisco, chronicled in the 1990 book Barbarians at the Gate: The Fall of RJR Nabisco. In 2006 and 2007, larger LBOs were completed although, after adjustment for inflation, none surpassed RJR Nabisco. While at investment bank Bear Stearns, Jerome Kohlberg, Jr. and his protégés Henry Kravis and George Roberts, a cousin of Kravis, purchased businesses for financial buyers using large amounts of debt. After strategic disagreements, the three left Bear Stearns, creating KKR in 1976. LBOs were not new. After the Second World War there were bootstrap acquisitions where financial buyers bought businesses, using the acquired company’s assets and cash flows to pay for the purchase.

Merrill Lynch had no “eye deer” that Rubin had taken on so much risk. Old-fashioned stockbrokers with minimal understanding of risk and complex financial products, William Schreyer and Dan Tully, the heads of Merrill Lynch, announced that “the ship will sail closer to shore.”6 Rubin was fired but went on to a successful career at Bear Stearns. Ace Greenberg, the head of Bear Stearns, believed in “second chances” and thought Rubin “can make a real contribution.” Merrill tended to be in the thick of trouble and calamity. In 1994, Merrill was involved in the Orange County derivative losses. In 2001, when the Internet bubble burst, Merrill was there front and center.

Forced selling set off of a new round of price falls, restarting the entire cycle. At Bear Stearns, Ralphie’s Funds owned AAA and AA-rated MBSs funded by $600 million in equity and $10 billion in short-term borrowings. In good times, the leverage ensured good returns but now it worked in reverse. A 1 percent fall in the value of the fund assets was roughly equivalent to a loss of $100 million (about 16 percent of the equity). A 6 percent move wiped out all equity investors. A 24 percent fall in the value of the underlying bonds translated into a $1.8 billion loss for the lending banks. Bear Stearns agreed, under pressure, to provide a $1.6 billion loan (over 10 percent of the firm’s equity) to the less leveraged High Grade Structured Credit Fund, letting its more leveraged sibling fail.


pages: 537 words: 144,318

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

Albert Einstein, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bear Stearns, Bernie Madoff, Black Swan, bond market vigilante , book value, Bretton Woods, BRICs, British Empire, business cycle, business process, buy and hold, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, commoditize, commodity super cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, equity risk premium, family office, fiat currency, fixed income, follow your passion, full employment, George Santayana, global macro, Greenspan put, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, inverted yield curve, invisible hand, junk bonds, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, market microstructure, Minsky moment, moral hazard, Myron Scholes, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, proprietary trading, purchasing power parity, quantitative easing, random walk, Reminiscences of a Stock Operator, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, SoftBank, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, stocks for the long run, stocks for the long term, survivorship bias, tail risk, The Great Moderation, Thomas Bayes, time value of money, too big to fail, Tragedy of the Commons, transaction costs, two and twenty, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game

Our financial system is extremely complex and interconnected, and Bear Stearns participated extensively in a range of critical markets. With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence. The company’s failure could also have cast doubt on the financial positions of some of Bear Stearns’ thousands of counterparties and perhaps of companies with similar businesses. Given the current exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain.

I do not think they realized it until it happened, but if AIG went under, everyone would have gone under. You could not pretend there was any way of isolating AIG. They could misunderstand Lehman and think it was isolated. Bernanke on Bear Stearns The Primary Dealer Credit Facility was put in place in the wake of the near-failure of Bear Stearns, a large investment bank. On March 13, Bear Stearns advised the Federal Reserve and other government agencies that its liquidity position had significantly deteriorated and that it would have to file for Chapter 11 bankruptcy the next day unless alternative sources of funds became available.

Moreover, the adverse effects would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability. To prevent a disorderly failure of Bear Stearns and the unpredictable but likely severe consequences of such a failure for market functioning and the broader economy, the Federal Reserve, in close consultation with the Treasury Department, agreed to provide funding to Bear Stearns through JPMorgan Chase. Over the following weekend, JPMorgan Chase agreed to purchase Bear Stearns and assumed Bear’s financial obligations. SOURCE: Federal Reserve System, www.federalreserve.gov, April 2, 2008. I am really looking forward to reading the book that tells what really happened the week of the Lehman collapse, because there are stories that Hank Paulson called up all his friends at the broker-dealers and asked, “If Lehman goes under are you okay?”


pages: 597 words: 172,130

The Alchemists: Three Central Bankers and a World on Fire by Neil Irwin

"World Economic Forum" Davos, Alan Greenspan, Ayatollah Khomeini, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Sanders, break the buck, Bretton Woods, business climate, business cycle, capital controls, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency peg, eurozone crisis, financial engineering, financial innovation, Flash crash, foreign exchange controls, George Akerlof, German hyperinflation, Google Earth, hiring and firing, inflation targeting, Isaac Newton, Julian Assange, low cost airline, low interest rates, market bubble, market design, middle-income trap, Money creation, money market fund, moral hazard, mortgage debt, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, Paul Samuelson, price stability, public intellectual, quantitative easing, rent control, reserve currency, Robert Shiller, Robert Solow, rolodex, Ronald Reagan, Savings and loan crisis, savings glut, Socratic dialogue, sovereign wealth fund, The Great Moderation, too big to fail, union organizing, WikiLeaks, yield curve, Yom Kippur War

And the firm had left itself little room for maneuver: It had $398 billion in total assets on its books, but also owed $387 billion in debts. That meant it wouldn’t take much of a dip in the value of mortgage securities for Bear Stearns to become insolvent. On the evening of Thursday, March 13, the lenders didn’t show up: They refused to give the firm the overnight money that was its lifeblood. Bear Stearns was functionally bankrupt, and Bernanke had a predicament. The Fed had long acted as lender of last resort—but only to traditional banks. Bear Stearns may have acted like a traditional bank in many ways, but it was a different sort of animal. It wasn’t regulated by the Fed. It didn’t obey capital rules set by the Fed.

Whereas more traditional U.S. banks like Bank of America or J.P. Morgan fund themselves in large part with deposits from individuals and businesses—money that tends to stay put—investment banks like Bear Stearns rely on faster money. They fund their operations to a large degree in the “triparty repo market”—effectively depending, every single evening, on lenders being willing to extend them credit against solid collateral. It was usually a steady source of funds. After all, Bear Stearns had been around since 1923, surviving eighty-five years’ worth of crises without its lenders having lost any money. Even on March 13, 2008, long after the firm’s business of packaging mortgages into securities had begun falling apart, shares of its stock were worth a combined $8 billion.

It didn’t obey capital rules set by the Fed. It had no access to emergency lending by the Fed. Bernanke had no obligation to do anything but watch Bear Stearns go bankrupt and try to clean up any damage to the economy afterward. Among the key lessons of Bernanke’s academic work on the Great Depression, however, was that when financial institutions are allowed to fail, they can bring an entire economy down with them. In terms of size, Bear Stearns was less than three times as large as Northern Rock. But in terms of importance—how deeply intertwined it was with the rest of the financial system—it was far more consequential.


pages: 240 words: 73,209

The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment by Guy Spier

Albert Einstein, Atul Gawande, Bear Stearns, Benoit Mandelbrot, big-box store, Black Swan, book value, Checklist Manifesto, classic study, Clayton Christensen, Daniel Kahneman / Amos Tversky, Exxon Valdez, Gordon Gekko, housing crisis, information asymmetry, Isaac Newton, Kenneth Arrow, Long Term Capital Management, Mahatma Gandhi, mandelbrot fractal, mirror neurons, Nelson Mandela, NetJets, pattern recognition, pre–internet, random walk, Reminiscences of a Stock Operator, risk free rate, Ronald Reagan, South Sea Bubble, Steve Jobs, Stuart Kauffman, TED Talk, two and twenty, winner-take-all economy, young professional, zero-sum game

Over breakfast, I read on the front page that Bear Stearns was teetering on the brink of insolvency. My fund was a brokerage client of Bear Stearns, and the firm held all of our assets in various accounts. I remember my wife, Lory, exploding at me because I was so distracted and had been totally ignoring my family. I turned to her and said: “Don’t you get it? All of Aquamarine’s money is in Bear Stearns. It could all disappear tomorrow.” I spent much of that weekend in my office, researching the names of experts who, come Monday, could advise me on what it would mean for the fund if Bear Stearns went bankrupt. I needed to know what would happen to our accounts, whether it was possible that they could be frozen for years while a bankruptcy trustee sifted through the rubble of the firm.

All of a sudden, my Bloomberg monitor came to life, lighting up with a news flash that JPMorgan Chase had decided to acquire Bear Stearns. I reached for the phone and called my father to share the news. Later that evening, I dialed into a conference call and listened with overwhelming relief to Jamie Dimon’s assurance that JPMorgan “stands behind Bear Stearns . . . guaranteeing [its] counter-party risk.” Never have such prosaic words meant so much to me. Even as I write this, I feel a wave of emotion. The Bear Stearns bullet, which I had not even known to exist until a few days earlier, had come appallingly close. But we had been saved.

As a conservative, risk-averse investor, I had intentionally placed all of our securities in Bear Stearns cash accounts that were fully owned by our fund. I knew that borrowing money and investing on margin can be catastrophic since a brokerage firm can then take control of the assets in a margin account and sell them at the worst possible moment. This is effectively what had happened years earlier to Long-Term Capital Management. I had been maniacally focused on avoiding such risks, acutely aware that I needed to protect our assets, and I didn’t have a single cent of leverage or debt—either personally or in the fund. Bear Stearns was simply our custodian, which meant that our cash accounts were theoretically not vulnerable at all.


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

Alan Greenspan, AOL-Time Warner, Asian financial crisis, asset allocation, backtesting, banking crisis, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, 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, currency risk, Daniel Kahneman / Amos Tversky, Deng Xiaoping, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk 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, Glass-Steagall Act, housing crisis, Hyman Minsky, implied volatility, income inequality, index arbitrage, index fund, indoor plumbing, inflation targeting, invention of the printing press, Isaac Newton, it's over 9,000, John Bogle, joint-stock company, London Interbank Offered Rate, Long Term Capital Management, loss aversion, machine readable, market bubble, mental accounting, Minsky moment, Money creation, 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, proprietary trading, purchasing power parity, quantitative easing, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Gordon, 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, Tyler Cowen: Great Stagnation, uptick rule, Vanguard fund

Yet 2008 brought no relief from subprime troubles. Bear Stearns, which had to take an increasing volume of subprime mortgages back on its own balance sheets, began to experience funding problems, and the price of its shares plummeted. On March 17, 2008, the Federal Reserve, in an effort to shield Bear from imminent bankruptcy, arranged an emergency sale of all of Bear Stearns’s assets to JPMorgan at a price of $2 (later raised to $10) a share, almost 99 percent below its high of $172.61 reached in January of the prior year. Beginning of the End for Lehman Brothers But Bear Stearns was only the appetizer for this bear market, and the main dish was not far behind.

In 1932 Congress amended the original Federal Reserve Act of 1913 by adding Section 13 (3), which stated: In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, . . . to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when [they] are secured to the satisfaction of the Federal Reserve bank: Provided, that before discounting . . . the Federal Reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions.32 There is no doubt that on the weekend before Lehman Brothers declared bankruptcy, it qualified for Fed lending, as Lehman was clearly “unable to secure adequate credit accommodations from other banking institutions.” The reason that the Fed did not bail out Lehman was more about politics than economics. Earlier government bailouts of Bear Stearns, Fannie Mae, and Freddie Mac garnered considerable criticism from the public and particularly Republicans. After the March bailout of Bear Stearns, the word went out from the Bush administration: “No More Bailouts.” Secretary of Treasury Henry Paulson told Lehman Brothers shortly after the Bear bailout that it should get its house in order and that it should not expect help from the Fed.

Fed historian Allan Meltzer, an economics professor at Carnegie-Mellon University, claimed that the Fed blundered by setting up expectations that it would bail out systemic institutions, such as Bear Stearns, whose failure threaten the financial system, but then standing aside and letting Lehman collapse.36 This is echoed by Charles Plosser, president of the Federal Reserve Bank of Philadelphia, who believed that a Bear Stearns failure in March could have been absorbed by the market and would have prompted other firms to increase their liquidity, stemming further damage. But I believe that it is far more likely that had Bear been allowed to fail, it would have greatly accelerated the run on Lehman, precipitating the crisis in March rather than September.


pages: 291 words: 91,783

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

addicted to oil, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Bear Stearns, Bernie Sanders, Bretton Woods, buy and hold, carried interest, classic study, clean water, collateralized debt obligation, collective bargaining, computerized trading, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, desegregation, diversification, diversified portfolio, Donald Trump, financial innovation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Greenspan put, illegal immigration, interest rate swap, laissez-faire capitalism, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, medical malpractice, military-industrial complex, money market fund, moral hazard, mortgage debt, Nixon triggered the end of the Bretton Woods system, obamacare, passive investing, Ponzi scheme, prediction markets, proprietary trading, prudent man rule, quantitative easing, reserve currency, Ronald Reagan, Savings and loan crisis, Sergey Aleynikov, short selling, sovereign wealth fund, too big to fail, trickle-down economics, Y2K, Yom Kippur War

And $75 billion was more like a hundredth, or perhaps one two-hundredth, the size of the overall bailout of Wall Street, which included not just the TARP but a variety of Fed bailout programs, including the rescues of AIG and Bear Stearns and massive no-interest loans given to banks via the discount window and other avenues. The Tea Partiers deny it today, but they were mostly quiet during all of those other bailout efforts. Certainly no movement formed to oppose them. The same largely right-wing forces that would stir up the Tea Party movement were quiet when the Fed gave billions to JPMorgan to buy Bear Stearns. Despite their natural loathing for all things French/European, they were even quiet when foreign companies like the French bank Société Générale were given billions of their dollars through the AIG bailout.

In its place was a system in which mergers and bankruptcies were brokered not by the market, but by government officials like Paulson and Geithner and Bernanke, and prices of assets were determined not by what investors were willing to pay, but by the level of political influence of the company’s leaders. At the outset of 2008, the five biggest investment banks in America were Morgan Stanley, Goldman, Bear Stearns, Lehman Brothers, and Merrill Lynch; by the end of the year, Morgan and Goldman had been rescued by late-night conversions to commercial bank status, Bear Stearns had been hand-delivered to JPMorgan Chase, bastard child Merrill Lynch and its billions in gambling losses had been forced on sorry-ass Bank of America, and Lehman Brothers had been allowed to die by Hank Paulson.

Like most reporters, I’ve had to expend all the energy I have just keeping track of who compared whom to Bob Dole, whose minister got caught griping about America on tape, who sent a picture of whom in African ceremonial garb to Matt Drudge … and because of this I’ve made it all the way to this historic Palin speech tonight not having the faintest idea that within two weeks from this evening, the American economy will implode in the worst financial disaster since the Great Depression. Like most Americans, I don’t know a damn thing about high finance. The rumblings of financial doom have been sounding for months now—the first half of 2008 had already seen the death of Bear Stearns, one of America’s top five investment banks, and a second, Lehman Brothers, had lost 73 percent of its value in the first six months of the year and was less than two weeks away from a bankruptcy that would trigger the worldwide crisis. Within the same two-week time frame, a third top-five investment bank, Merrill Lynch, would sink to the bottom alongside Lehman Brothers thanks to a hole blown in its side by years of reckless gambling debts; Merrill would be swallowed up in a shady state-aided backroom shotgun wedding to Bank of America that would never become anything like a major issue in this presidential race.


pages: 356 words: 116,083

For Profit: A History of Corporations by William Magnuson

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Airbnb, bank run, banks create money, barriers to entry, Bear Stearns, Big Tech, Black Lives Matter, blockchain, Bonfire of the Vanities, bread and circuses, buy low sell high, carbon tax, carried interest, collective bargaining, Cornelius Vanderbilt, corporate raider, creative destruction, disinformation, Donald Trump, double entry bookkeeping, Exxon Valdez, fake news, financial engineering, financial innovation, Ford Model T, Ford paid five dollars a day, Frederick Winslow Taylor, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Ida Tarbell, Intergovernmental Panel on Climate Change (IPCC), invisible hand, joint-stock company, joint-stock limited liability company, junk bonds, Mark Zuckerberg, Menlo Park, Michael Milken, move fast and break things, Peter Thiel, power law, price discrimination, profit maximization, profit motive, race to the bottom, Ralph Waldo Emerson, randomized controlled trial, ride hailing / ride sharing, scientific management, Sheryl Sandberg, Silicon Valley, Silicon Valley startup, slashdot, Snapchat, South Sea Bubble, spice trade, Steven Levy, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tim Cook: Apple, too big to fail, trade route, transcontinental railway, union organizing, work culture , Y Combinator, Yom Kippur War, zero-sum game

He had joined Bear Stearns’s corporate finance group because he thought it gave him a chance to help companies grow, to work alongside them as a trusted advisor and not just a piggybank: “I liked the long-term thinking,” Kohlberg explained. “I liked working with management and bringing more than just financial legerdemain.” Outside work, his favorite things were his children, his trumpet, his books, and his tennis game (his son, James, became a professional tennis player).3 Bear Stearns was an odd place for a man of Kohlberg’s ilk to work. Even in the high-octane world of Wall Street, Bear Stearns stood out for its aggressive culture.

IN THE EARLY 1970S, THEN IN HIS mid-forties, he had risen to the heights of investment banking as the head of Bear Stearns’s prestigious corporate finance group. He had already had an illustrious career marked by an uncommon degree of prudence and principle. He had studied at Swarthmore as an undergraduate and been so taken by the Quaker ethos that he liked to call himself a “Jewish Quaker.” He later earned an MBA from Harvard and a law degree from Columbia. After a short stint as a law clerk, he joined Bear Stearns, where he remained for twenty years. Nearly everyone who met him was struck by one thing: his remarkable sense of ethical duty, of a commitment to doing things the right way, to putting the interest of his clients first.

In college at Claremont, he spent his free time typing out letters to Fortune 500 CEOs on his Hermes typewriter and suggesting potential takeovers in return for a small finder’s fee for his trouble. None took him up on the offer. After college, he attended the University of California, Hastings College of the Law and then went to work for Bear Stearns, where he met Kohlberg. Soon, the two were working closely together. When he eventually transferred to Bear Stearns’s San Francisco office, he convinced Kohlberg to choose his cousin Henry Kravis as his replacement in New York. On paper, Kravis looked very similar to Roberts. Like Roberts, he was the son of an oilman. Like Roberts, he spent time at a boarding school and attended college at Claremont.


pages: 362 words: 108,359

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street by Jonathan A. Knee

AOL-Time Warner, barriers to entry, Bear Stearns, book value, Boycotts of Israel, business logic, call centre, cognitive dissonance, commoditize, corporate governance, Corrections Corporation of America, deal flow, discounted cash flows, fear of failure, fixed income, Glass-Steagall Act, greed is good, if you build it, they will come, iterative process, junk bonds, low interest rates, market bubble, market clearing, Mary Meeker, Menlo Park, Michael Milken, new economy, Ponzi scheme, pre–internet, proprietary trading, risk/return, Ronald Reagan, shareholder value, Silicon Valley, SoftBank, technology bubble, young professional, éminence grise

They wanted to use the opportunity to get closer to their client base, win or lose, and at this point in the cycle they had as much clout as anyone. In the end, we were offered and accepted the appointment as coadvisor to RHD alongside Bear Stearns, which had been one of the few firms that had bothered to actively cover the company. Bear Stearns is a midtier firm with an uneven history and reputation, but like all such firms, Bear Stearns has its areas of strength—in their case particularly on the trading side.4 In 2001, the legendary trader, 73-year-old chairman “Ace” Greenberg, handed over his title to 67-year-old CEO “Jimmy” Cayne, although Greenberg remains on the board and acts as chair of the Executive Committee.

I understood that a young wiseacre like me, with little experience and a lot of opinions, could be quickly dismissed as an oddball if I were from a lesser institution. But the Goldman business card gave me a huge benefit of the doubt with clients. Whereas a CEO might have thought, “he’s got to be kidding” after submitting himself to one of my performances if I were from say, Bear Stearns, as it was I more often got a bemused look that said “Well, he’s from Goldman so there must be something here.” But from a brand perspective, Morgan Stanley was a reasonably close second. And Morgan was offering me a chance to try to actually go out and build a business as a real live relationship officer, the only job left in investment banking that I was interested in trying.

And as the sound of my bonus hitting my bank account was still ringing in my ears, the firm had absolutely no leverage to make me sign anything. “Why would I sign this?” I asked. The functionary seemed genuinely shocked. “Everyone does,” he said as if he were stating the obvious. There may be some truth to this. I later called Alan Mnuchin, another former Goldman banker then at Bear Stearns, to laugh about the fact that they really seemed to think I would just agree to this. “Just sign it,” Mnuchin said. “You don’t want these people mad at you.” I scanned the page filled with small print and lots of legalese. The document did not just focus on confidential client information or even confidential information about Goldman’s business.


pages: 199 words: 64,272

Money: The True Story of a Made-Up Thing by Jacob Goldstein

Alan Greenspan, Antoine Gombaud: Chevalier de Méré, back-to-the-land, bank run, banks create money, Bear Stearns, Berlin Wall, Bernie Sanders, bitcoin, blockchain, break the buck, card file, central bank independence, collective bargaining, coronavirus, COVID-19, cryptocurrency, David Graeber, Edmond Halley, Fall of the Berlin Wall, fiat currency, financial innovation, Fractional reserve banking, full employment, German hyperinflation, Glass-Steagall Act, index card, invention of movable type, invention of writing, Isaac Newton, life extension, M-Pesa, Marc Andreessen, Martin Wolf, Menlo Park, Mikhail Gorbachev, mobile money, Modern Monetary Theory, money market fund, probability theory / Blaise Pascal / Pierre de Fermat, Ronald Reagan, Ross Ulbricht, Satoshi Nakamoto, Second Machine Age, side hustle, Silicon Valley, software is eating the world, Steven Levy, the new new thing, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, transaction costs

The central bank was pouring money into the shadow bank run, acting as lender of last resort. The loan allowed Bear to open for business on Friday. That weekend, in a shotgun wedding, JPMorgan Chase bought Bear Stearns outright. As part of the deal, the Fed agreed to buy $30 billion in mortgage bonds from Bear Stearns. And then Bear Stearns ceased to exist. The bonds, in the end, were fine. The Fed eventually got its money back, with interest. A few months later, the bank run came for another investment bank: Lehman Brothers. Lehman was Bear Stearns but bigger. The company owned an enormous quantity of crappy mortgage-backed securities. It had borrowed so, so much money. In September 2008, approximately everybody who had been parking their money with Lehman decided they wanted it back.

But instead of 5,000 people with deposits of a few thousand dollars each, it was 50 institutions with deposits of hundreds of millions each. Bear had taken the borrowed money and used it to buy billions of dollars in mortgage-backed bonds. Now nobody wanted to buy those bonds. Bear Stearns’ depositors—including the money-market funds—wanted their money back, and Bear Stearns didn’t have it. Bear Stearns wasn’t a commercial bank. It didn’t hold deposits for regular people and wasn’t supposed to be able to borrow from the Fed. But the Fed invoked a legal provision that said it could lend to anyone in “unusual and exigent circumstances,” and loaned $13 billion to Bear.

He later described that moment in an April 2010 speech titled “After the Crisis: Planning a New Financial Structure Learning from the Bank of Dad,” the transcript of which is posted on PIMCO’s website. The Ricks quote is from his book The Money Problem: Rethinking Financial Regulation. Ricks also spoke with me in an interview. The details on the fall of Bear Stearns come from the Financial Crisis Inquiry Report, published by the Financial Crisis Inquiry Commission. Bear Stearns and Lehman Brothers were both largely borrowing in the repo market. The “sound night’s sleep” quote from Bent is from the Wall Street Journal article “Father of Money Funds Raps His Creation,” by Daisy Maxey. The annual report was published on May 31, 2008.


pages: 545 words: 137,789

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

Abraham Wald, Alan Greenspan, Albert Einstein, An Inconvenient Truth, Andrei Shleifer, anti-communist, AOL-Time Warner, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black-Scholes formula, Blythe Masters, book value, Bretton Woods, British Empire, business cycle, capital asset pricing model, carbon tax, Carl Icahn, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Garrett Hardin, George Akerlof, Glass-Steagall Act, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Nixon triggered the end of the Bretton Woods system, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, Ponzi scheme, precautionary principle, price discrimination, price stability, principal–agent problem, profit maximization, proprietary trading, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Tax Reform Act of 1986, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, Two Sigma, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

postversion=2008111303. 312 “The housing market was trapped . . .”: Zandi, Financial Shock, 172. 314 “There is absolutely no truth . . .”: For these and other details of Bear’s demise, see, for example, Kate Kelly, “Fear, Rumors Touched Off Fatal Run on Bear Stearns,” Wall Street Journal, May 28, 2008; and Roddy Boyd, “The Last Days of Bear Stearns,” Fortune, March 31, 2008. 315 “As the week progressed . . .”: Alan Schwartz, testimony before the U.S. Senate Banking Committee, April 3, 2008, available at http://banking.senate.gov/public/_files/SchwartzStmt4308.pdf. 23. SOCIALISM IN OUR TIME 317 “All of the other bankers . . .”: Andrew G.

Wall Street traders were on the lookout for other cash streams to securitize, and subprime mortgages, which are generally regarded as loans issued to borrowers with a FICO rating below 640, offered an attractive opportunity. The high interest rates these loans carried would translate into high-yielding bonds, which would be irresistible to investors. That was the theory, anyway, and when firms such as Prudential Securities, Lehman Brothers, and Bear Stearns tried it out, it worked. The investment banks lent money at a rate of 6 or 7 percent to mortgage companies such as ContiMortgage and Long Beach Mortgage, which passed on the money to subprime borrowers, charging them a substantially higher rate—10 percent, or even more. Once the loan agreements had been signed, the mortgage company sold the loans to a Wall Street firm, often the same one that had extended it credit in the first place, for securitization.

Once the credit bubble got started, the men who ran the biggest financial institutions in the country were determined to surf it, regardless of the risks involved. From where they sat, and given the financial incentives they faced, pursuing any other strategy would have been irrational. In 2006, James E. Cayne, the CEO of Bear Stearns, was paid $33.85 million, including a $17.1 million cash bonus, $14.8 million in restricted stock, and $1.7 million in options. At the end of the year, Cayne owned about 7 million shares in Bear and about 800,000 options; his overall stake in the company was worth about $1.1 billion. In 2006, Richard S.


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

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, 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, cross-border payments, currency peg, currency risk, 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, Glass-Steagall Act, Herman Kahn, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, Japanese asset price bubble, joint-stock company, junk bonds, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Mary Meeker, Michael Milken, 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, short selling, Silicon Valley, South Sea Bubble, special drawing rights, Suez canal 1869, 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

The thrust of Chapter 13 – a new chapter for the sixth edition – is the severity of the credit crisis that began in September 2008 – after the US government decided not to provide the financial assistance that would have allowed Lehman Brothers to remain a viable concern. In February the US Treasury and the Federal Reserve made an arrangement for JPMorgan Chase by agreeing that Morgan could put up to $29 billion of ‘toxic securities’ with the Fed. Shareholders of Bear Stearns received $10 a share – many of the shareholders were employees of Bear and this price was viewed as a retention bonus. During the first week of September Fannie Mae and Freddie Mac, the US government-sponsored lenders that accounted for more than 50 percent of the credit risk on home mortgages, were taken over by the US Treasury – both institutions were bankrupt and the owners of their common shares and their preferred shares lost virtually all of their money.

This is a neat trick: always come to the rescue, in order to prevent needless deflation, but always leave it uncertain whether rescue will arrive in time or at all, so as to instill caution in other speculators, banks, cities or countries. The economic implosion triggered by the failure of Lehman Brothers could have been avoided if the firm had been acquired by another private firm much as Bear Stearns or if the government had taken over ownership of the firm. In Voltaire’s Candide, the head of a general was cut off ‘to encourage the others’. A sleight of hand may be necessary to ‘encourage’ the others (without, of course, cutting off actual heads) to participate in lender-of-last-resort activities because the alternative is likely to have very expensive consequences for the economic system.

Government policies play a vital role in the formation of expectations. Can the government head off a financial crisis by dampening the expectations that develop in the euphoria? Should the government seek to moderate the impacts of the decline in prices of stocks and real estate and commodities after the bubble has imploded? Bear Stearns, Fannie Mae and Freddie Mac, and Lehman Brothers One of the first signs of adjustment in the United States to the extraordinary increase in home prices and the large excess supply of homes that began in 2002 was a surge in the bankruptcies of mortgage brokers that started in the last few months of 2006; these firms were ‘middlemen’ and wholesalers who acquired mortgages from home buyers, after having indicated the terms of the mortgages that they would acquire.


pages: 269 words: 83,307

Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits by Kevin Roose

activist fund / activist shareholder / activist investor, Basel III, Bear Stearns, Carl Icahn, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, deal flow, discounted cash flows, Donald Trump, East Village, eat what you kill, eurozone crisis, financial engineering, fixed income, forward guidance, glass ceiling, Goldman Sachs: Vampire Squid, hedonic treadmill, information security, Jane Street, jitney, junk bonds, Kevin Roose, knowledge worker, Michael Milken, new economy, Occupy movement, off-the-grid, plutocrats, proprietary trading, Robert Shiller, selection bias, shareholder value, side project, Silicon Valley, Skype, Steve Jobs, tail risk, The Predators' Ball, too big to fail, two and twenty, urban planning, We are the 99%, work culture , young professional

“The most famous example was Sidney Weinberg”: More on Weinberg’s rise to the top of Goldman Sachs can be found in Malcolm Gladwell’s New Yorker article, “The Uses of Adversity,” published November 10, 2008. “there had been a Lebanese-American executive who had gone to Pace University”: After Bear Stearns crumbled, this executive, Fares D. Noujaim, landed at Bank of America Merrill Lynch, where he became executive vice chairman of Global Corporate & Investment Banking. See: Landon Thomas, Jr., “A Bear Stearns Refugee Gets a New Start at Merrill,” New York Times, June 2, 2008. “Even Citigroup’s CEO, Vikram Pandit, was an Indian-born outsider”: For more on Pandit’s rise at the bank (which was later interrupted by a management coup in October 2012), see Joe Hagan’s “The Most Powerless Powerful Man on Wall Street,” New York, March 1, 2009.

(The game became so popular in its first location, the BBC reported, that the worn-out mallets had to be replaced.) Watching Wall Street incur the world’s wrath, I often found myself wondering how the financial crisis was affecting young bankers and traders—the people my age who started their jobs in 2009 and 2010. They had nothing to do with the crash, of course. They had been in college while banks like Bear Stearns were loading up their books with mortgage-backed securities and increasing their leverage to dangerous levels. Still, as a result of the work they’d chosen, they were experiencing the financial industry’s pariah status right along with their elders. Being young on Wall Street has always been a bizarre combination of glamour and masochism.

He secured a junior-year internship at Lehman, and he did well enough that at the end of the summer, he was offered a full-time job beginning after his graduation. His recruiter told him, sotto voce, that he had been the only Fordham student to get an offer from Lehman that year. During Arjun’s internship, things began to go south. Ever since the Bear Stearns collapse earlier that year, industry watchers had been speculating that Lehman would be the next bank to fail. The firm’s stock price had tumbled, thousands of workers had gotten laid off, and one well-regarded hedge fund manager jolted Wall Street that summer by proclaiming that Lehman wasn’t properly accounting for its real estate investments.


pages: 598 words: 169,194

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

accounting loophole / creative accounting, airport security, Albert Einstein, AOL-Time Warner, banking crisis, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, break the buck, British Empire, buy and hold, centralized clearinghouse, collapse of Lehman Brothers, computerized trading, corporate raider, diversified portfolio, Donald Trump, dumpster diving, Edward Thorp, financial deregulation, financial engineering, financial thriller, fixed income, forensic accounting, Gordon Gekko, index fund, locking in a profit, low interest rates, mail merge, merger arbitrage, messenger bag, money market fund, payment for order flow, plutocrats, Ponzi scheme, Potemkin village, proprietary trading, random walk, Renaissance Technologies, riskless arbitrage, Ronald Reagan, Savings and loan crisis, short selling, short squeeze, Small Order Execution System, source of truth, sovereign wealth fund, too big to fail, transaction costs, traveling salesman

Bernie and Ruth Madoff have good friends among senior Bear Stearns executives. When the Wall Street division of the American Jewish Committee honoured Madoff at a fund-raising event at the Harmonie Club in 1999, the reception was hosted by Bear Stearns chairman Alan C. Greenberg. For Marcia Beth Cohn, though, the threat is more than academic. She is president of Cohmad Securities, the tiny brokerage firm that shares office space with Madoff’s firm but clears its small volume of stock trades through Bear Stearns. Despite her wry tone, she seems genuinely frightened. What if some of her customer orders get caught in Bear Stearns’s collapse?

He gives the small group around her a quiet but reassuring lecture on the safety net that protects customer accounts on Wall Street. He is confident that Bear Stearns will find its footings once today’s panic ebbs. But federal regulators are already scrambling to find a buyer for Bear Stearns before the Asian markets open on Sunday evening. At the last moment, JPMorgan Chase will agree to buy the firm, after being promised substantial loan guarantees from the Fed. But it will offer only $2 a share—for Bear Stearns stock that closed today at $30 a share. The bank will ultimately raise its bid, but the damage will have been done. Investors will bail out of the financial sector, fearing that failures once considered unthinkable no longer are.

Earlier today, the Federal Reserve extended an emergency line of credit to the Bear Stearns brokerage house, which was caught in an old-fashioned “run on the bank”. It is the first time in history that the Fed, a bank regulator, had stepped in to rescue a brokerage firm. Rumours of unrecognized mortgage losses are shaking people’s faith in other giant Wall Street firms, too—the shares of Morgan Stanley and Lehman Brothers were swept into the downdraft that cut Bear’s stock price in half today. The Dow closed down nearly two hundred points. There is probably no brokerage house on Wall Street with closer ties to Madoff’s firm than Bear Stearns. It has been a client of Madoff’s trading desk for years.


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, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, bond market vigilante , 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, currency risk, disintermediation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, endowment effect, financial deregulation, financial independence, floating exchange rates, foreign exchange controls, Glass-Steagall Act, guns versus butter model, Hyman Minsky, index fund, intangible asset, interest rate swap, inverted yield curve, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", joint-stock company, junk bonds, labour market flexibility, large denomination, London Interbank Offered Rate, Long Term Capital Management, low interest rates, merger arbitrage, Michael Milken, money market fund, moral hazard, mortgage debt, negative equity, Nick Leeson, Northern Rock, pattern recognition, proprietary trading, 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

But it has also brought them to the heart of the global financial system. It was significant in March 2008 that the US Federal Reserve felt obliged to help with the rescue of Bear Stearns, an investment bank. The bank had no retail depositors. There would have been no queues of worried consumers, as there were at the British bank Northern Rock. Neverthless, Bear Stearns was deemed too big to fail (TBTF in the jargon), or even TCTF (too complex to fail). Bear Stearns was a participant in a multitude of complex deals, in which investors and companies took positions on everything from exchange-rate movements through commodity prices to the possibility of corporate failure.

Bear Stearns was a participant in a multitude of complex deals, in which investors and companies took positions on everything from exchange-rate movements through commodity prices to the possibility of corporate failure. Had it defaulted, it could have taken ages to sort out the mess because markets are so interconnected. Some banks might, for example, have taken a position betting on a rising dollar with Bear Stearns and then hedged that by betting on a falling dollar with someone else. The failure of Bear Stearns would thus have given such banks a currency exposure they did not desire. While everyone involved tried to work out their exposure, the markets could have been frozen. When the US authorities changed tack in September 2008 and allowed Lehman Brothers to fail over a weekend, the consequences were immediate.

Investment banking is only part of the activities of the likes of Merrill Lynch and Goldman Sachs, which are also known as broker-dealers, and larger banking groups such as Citigroup or Union Bank of Switzerland have their own investment banking arms. The key change of the last twenty to thirty years has been that investment banks no longer depend on fee income for the bulk of their profits. Now they put their capital at risk through trading and underwriting. This has hugely increased their importance and, as we saw with Bear Stearns and Lehman Brothers in 2008, the risk they pose both to their own financial health and to the system. Broadly speaking, the investment banks earn their money from four areas: advising clients on everything from takeovers to how to handle currency risk; broking (connecting buyers and sellers in return for a fee); trading in the markets; and asset management (looking after other people’s money).


pages: 435 words: 127,403

Panderer to Power by Frederick Sheehan

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, book value, Bretton Woods, British Empire, business cycle, buy and hold, California energy crisis, call centre, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversification, financial deregulation, financial innovation, full employment, Glass-Steagall Act, Greenspan put, guns versus butter model, inflation targeting, interest rate swap, inventory management, Isaac Newton, John Meriwether, junk bonds, low interest rates, margin call, market bubble, Mary Meeker, McMansion, Menlo Park, Michael Milken, money market fund, mortgage debt, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, Norman Mailer, Northern Rock, oil shock, Paul Samuelson, place-making, Ponzi scheme, price stability, reserve currency, rising living standards, Robert Solow, rolodex, Ronald Reagan, Sand Hill Road, Savings and loan crisis, savings glut, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, stock buybacks, stocks for the long run, supply-chain management, supply-chain management software, The Great Moderation, too big to fail, transaction costs, trickle-down economics, VA Linux, Y2K, Yom Kippur War, zero-sum game

Grant’s Interest Rate Observer thought the “rating agencies seem curiously detached” from the discrepancy between market prices and book values.25 The cocoon ruptured in the early summer of 2007. Bear Stearns slowly revealed that two of its aggressively managed hedge funds were worth very little. This was during June and July 2007. On June 15, 2007, Merrill Lynch, which had lent money to Bear Stearns (so that Bear Stearns could leverage its hedge funds), announced that it was seizing $400 million in collateral from the fund.26 After Merrill demanded its money back, some of the investors in Bear Stearns’s funds wanted to take their money out.27 What should they be paid? Since the value was calculated from a model and not from transactions, Bear Stearns did not know.28 The Financial Times reported: “These elaborately constructed securities … are designed to yield juicy returns while also carrying high credit ratings. . . .

On March 16 the Fed announced an “overnight loan facility” that would provide “funding to primary dealers.”44 In a flash, the Fed had increased its mandate to fund brokers and dealers, not just banks. Bernanke’s Fed opened this facility when Bear Stearns could not borrow. Investment banks needed constant government borrowing support just to exist. The Fed arranged a wedding between JP Morgan Chase and Bear Stearns to save the latter. It was now obvious the derivatives that Greenspan still extolled (credit derivative swaps) had concentrated risk in financial institutions rather than spreading risk among parties. His record for wrongheadedness remained intact.

Commercial bank borrowing of government securities leapt from $30 billion in 1989 to over $100 billion in 1991 and 1992.15 In both these latter years, commercial banks reduced both commercial and consumer credit lending.16 The investment banks had gone beyond underwriting and now acted as an alternative source of credit. They expanded their balance sheets, leveraging the capital that stood behind their solvency. They were extending more credit to the brokers and hedge funds that were buying the profitable derivative products created by the investment banks. Bear Stearns was one investment bank that lent to speculating hedge funds. William Michaelcheck, a senior managing director of the firm, analyzed the market: “We think that there has got to be $100 billion to $200 billion of this right now, of investment partnerships, going from the biggest to the smallest, buying one-, two-and three-year Treasuries and financing them day to day, speculating on interest rates.


pages: 77 words: 18,414

How to Kick Ass on Wall Street by Andy Kessler

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

Lehman Brothers, before heading off to the great trading room in the sky, was a classic Wall Street success story. Inside and outside, it was a meritocracy. They wanted to one up Goldman Sachs - everyone has Goldman envy. Lehman needed to generate as good a return on equity and earnings growth so they could win the meritocracy game and get paid in spades. How dare the Bear Stearns CEO make more than ours, let alone Goldman’s! Let’s lever this sucker up with mortgage backeds and create a trillion dollar balance sheet. If not us, who? And by the way, very few people at Lehman really understood how upper management was playing this meritocracy game with the rest of Wall Street with the rank and files’ careers.

You’ve got to use top 1% percentile smarts and win. If you don’t, you’re toast, so you’ll work harder, think harder, and of course play harder with your winnings that everyone else. The outside meritocracy downside became the inside meritocracy homicide. It’ll happen again. Hopefully not at your firm. Lehman and Bear Stearns and an independent Merrill Lynch are gone, sure, but Wall Street and the meritocracy lives on. Use it to your advantage. * * * One of the biggest concerns you’ll have when you start on Wall Street is how to deal with the people you work with. Are they looking out for your best interest?

With the Fed forcing low interest rates, the higher the yield of these funky new securities, the better. Sub-prime home mortgages, because of higher risk (ooh, don’t say that word) had high yields and moved to the top of the list. When not enough of these loans could be bought from banks, firms like Bear Stearns and Lehman set up entire loan origination subsidiaries, and in true Wall Street style, were aggressive and quickly rose to the top of the market share tables. If you want to know why Wall Street CEOs made so much, it wasn’t from trading your 1000 shares of McDonalds. Still, those profits weren’t enough.


pages: 385 words: 118,901

Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street by Sheelah Kolhatkar

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "World Economic Forum" Davos, Bear Stearns, Bernie Madoff, Carl Icahn, Donald Trump, Fairchild Semiconductor, family office, fear of failure, financial deregulation, hiring and firing, income inequality, junk bonds, light touch regulation, locking in a profit, margin call, Market Wizards by Jack D. Schwager, medical residency, Michael Milken, mortgage debt, p-value, pets.com, Ponzi scheme, proprietary trading, rent control, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, Skype, The Predators' Ball

Rather, they were acknowledged only by those who were open to the possibility that their rapid accumulations of wealth hadn’t made them infallibly brilliant. In May, two hedge funds owned by Bear Stearns that were heavily invested in subprime mortgage bonds started to plummet in value. Each had been worth more than $20 billion—and then, in a matter of weeks, no one in the market wanted anything to do with the mortgage securities they owned. Bear Stearns management tried to support the funds, but the value of the securities continued to plunge. On July 18, Bear announced that the hedge funds were essentially worthless and that it was shutting them down, leading to billions of dollars in losses.

Or refuse what was certainly the crappy end of a transaction—taking the opposite side of a trade with Cohen—and risk alienating one of the firm’s most valuable customers. In all likelihood, Bear Stearns would buy the stock, and Cohen’s trader would report back to his boss: “Sold 500 Nextel.” “You get the best price you could get?” Cohen would ask. Yes, the trader would say, he got the best price. Great, Cohen would say, now go short 500,000 more. Then Cohen’s trader had a dilemma. “Do you call Bear Stearns again?” said a trader at a rival fund who was familiar with the strategy. “No, ’cause they’re going to ask what the fuck you’re doing. So you call Morgan Stanley.”

To work at a hedge fund was a liberating experience for a certain kind of trader, a chance to test one’s skills against the market and, in the process, become spectacularly rich. Hedge fund jobs became the most coveted in finance. The immense fortunes they promised made a more traditional Wall Street career—climbing the hierarchy at an established investment bank such as Bear Stearns or Morgan Stanley—look far less interesting. In 2006, the same year that Lloyd Blankfein, the CEO of Goldman Sachs, was paid $54 million—causing outrage in some circles—the lowest-paid person on the list of the twenty-five highest-paid hedge fund managers made $240 million. The top three made more than a billion dollars each.


pages: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

Alan Greenspan, algorithmic trading, Asian financial crisis, bank run, banking crisis, Basel III, battle of ideas, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, book value, Bretton Woods, British Empire, business cycle, buy and hold, capital controls, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, currency peg, Doha Development Round, facts on the ground, Fall of the Berlin Wall, financial deregulation, floating exchange rates, full employment, Glass-Steagall Act, Greenspan put, hiring and firing, housing crisis, inflation targeting, junk bonds, Just-in-time delivery, Kenneth Rogoff, liberal capitalism, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, market bubble, Martin Wolf, moral hazard, oil shale / tar sands, oil shock, price stability, prisoner's dilemma, profit maximization, quantitative easing, race to the bottom, random walk, reserve currency, Robert Shiller, Rubik’s Cube, Savings and loan crisis, savings glut, technology bubble, The Great Moderation, The Myth of the Rational Market, the payments system, The Wisdom of Crowds, too big to fail, trade liberalization, transaction costs, value at risk

The regulated and shadow banks were increasingly linked through mortgage-backed securities issued by the two main housing government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, whose assets quadrupled compared to the economy over the 1990s. These markets and institutions all played major roles in the North Atlantic financial crisis. The prices of mortgage-backed securities plummeted after US house prices started to crumble in 2007. The investment bank groups included Bear Stearns and Lehman Brothers, the two major shadow banks that collapsed in 2008. The market for repurchase agreements froze after Lehman Brothers went bankrupt, depriving the North Atlantic banking system of a major source of cash, while Fannie Mae and Freddie Mac were put into receivership as the crisis unfolded.

A discount on the initial selling price of the treasury (called a haircut) provided added security that the depositor would not lose money by making it more likely that the value of the treasury would exceed the value of the cash that had been loaned. The freezing of the repo market after the bankruptcy of Bear Stearns was a crucial driver in the North Atlantic crisis. The migration of deposits into uninsured deposits led to a massive expansion in the size of investment banks, the institutions at the heart of the shadow banking system, while limiting the size of the regulated banking sector. The regulated banks responded by selling increasing amounts of the loans that they made to their clients to shadow banks rather than keeping them on their books.

At the same time, however, the sector was becoming more diverse as US and European universal banks entered after the repeal of the Glass–Steagall prohibition on regulated banks owning investment banks. Competition was putting pressure on the smaller independent investment banks. While Morgan Stanley and (at the time) Merrill Lynch were much larger than their rivals, the smaller independent investment banks (Goldman Sachs, Bear Stearns, and Lehman Brothers) were competing with the investment banking arms of the two major US universal banks and similar offshoots of several European universal banks (such as Deutsche Bank from Germany and Barclays from the United Kingdom, as well as Credit Suisse and UBS from Switzerland) that were backed by large commercial banking operations.


pages: 733 words: 179,391

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

Alan Greenspan, Albert Einstein, Alfred Russel Wallace, algorithmic trading, Andrei Shleifer, Arthur Eddington, Asian financial crisis, asset allocation, asset-backed security, backtesting, bank run, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, bitcoin, Bob Litterman, Bonfire of the Vanities, bonus culture, break the buck, Brexit referendum, Brownian motion, business cycle, business process, butterfly effect, buy and hold, capital asset pricing model, Captain Sullenberger Hudson, carbon tax, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, confounding variable, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, democratizing finance, Diane Coyle, diversification, diversified portfolio, do well by doing good, double helix, easy for humans, difficult for computers, equity risk premium, Ernest Rutherford, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Fractional reserve banking, framing effect, Glass-Steagall Act, global macro, Gordon Gekko, greed is good, Hans Rosling, Henri Poincaré, high net worth, housing crisis, incomplete markets, index fund, information security, interest rate derivative, invention of the telegraph, Isaac Newton, it's over 9,000, James Watt: steam engine, Jeff Hawkins, Jim Simons, job satisfaction, John Bogle, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, language acquisition, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, Louis Pasteur, mandelbrot fractal, margin call, Mark Zuckerberg, market fundamentalism, martingale, megaproject, merger arbitrage, meta-analysis, Milgram experiment, mirror neurons, money market fund, moral hazard, Myron Scholes, Neil Armstrong, Nick Leeson, old-boy network, One Laptop per Child (OLPC), out of africa, p-value, PalmPilot, paper trading, passive investing, Paul Lévy, Paul Samuelson, Paul Volcker talking about ATMs, Phillips curve, Ponzi scheme, predatory finance, prediction markets, price discovery process, profit maximization, profit motive, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, RAND corporation, random walk, randomized controlled trial, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Robert Shiller, Robert Solow, Sam Peltzman, Savings and loan crisis, seminal paper, Shai Danziger, short selling, sovereign wealth fund, Stanford marshmallow experiment, Stanford prison experiment, statistical arbitrage, Steven Pinker, stochastic process, stocks for the long run, subprime mortgage crisis, survivorship bias, systematic bias, Thales and the olive presses, The Great Moderation, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Triangle Shirtwaist Factory, ultimatum game, uptick rule, Upton Sinclair, US Airways Flight 1549, Walter Mischel, Watson beat the top human players on Jeopardy!, WikiLeaks, Yogi Berra, zero-sum game

After the regulatory change, broker-dealers like Bear Stearns (which had collapsed in March) could use complex mathematical models to calculate their capital requirements, and the SEC apparently couldn’t keep up. According to Pickard: The alternative approach also requires substantial SEC resources for complex oversight, which apparently are not always available.… If, however, Bear Stearns and other large broker-dealers had been … under the traditional standards, they would not have been able to incur their high debt leverage without substantially increasing their capital base. The losses incurred by Bear Stearns and other large broker-dealers were not caused by “rumors” or a “crisis of confidence,” but rather by inadequate net capital and the lack of constraints on the incurring of debt.10 In short, Pickard argued that the SEC’s rule change in 2004 allowed the collapse of Bear Stearns.

It’s the broker-dealers—financial firms which function as brokers, trading on behalf of customers, and as dealers, trading for themselves—that are notorious for extremely high bonuses. For example, in 2006, Bear Stearns’s legendary CEO Jimmy Cayne received a base salary of $250,000: substantial, but not much higher than the average salary of a family doctor in the United States. However, Cayne received a bonus of $34 million in 2006, with $17 million in cash, $15 million in restricted stock, and $2 million in options. 2006 was a very good year for Cayne and for Bear Stearns. This seems like a rather open-and-shut example of cause and effect. However, when Kevin Murphy—a financial economist at the University of Southern California’s Marshall School of Business—looked at executive compensation data more closely, he discovered something surprising.7 The top five executives at traditional banks in the S&P 500, excluding broker-dealers, were not paid vastly more than the top five executives at industrial firms in the S&P 500.

Murphy concluded that at the top levels of Wall Street firms, there was no evidence for additional risk-taking among banking executives, not even among high-flying broker-dealers. Top executives in those firms received proportional bonuses compared to top executives in nonfinancial firms; their financial incentives were aligned no differently than other executives in the S&P 500. We can see how this played out in practice with Bear Stearns’s CEO Jimmy Cayne. When Bear Stearns collapsed in March 2008, Cayne’s 2006 stock bonus had fallen to a meager 6 percent of its original value, and his 2006 option bonus expired, worthless. This is exactly how Wall Street bonus culture is intended to work. However, Murphy’s conclusion comes with an important caveat.


pages: 455 words: 138,716

The Divide: American Injustice in the Age of the Wealth Gap by Matt Taibbi

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alan Greenspan, banking crisis, Bear Stearns, Bernie Madoff, book value, butterfly effect, buy and hold, collapse of Lehman Brothers, collateralized debt obligation, company town, Corrections Corporation of America, Credit Default Swap, credit default swaps / collateralized debt obligations, Edward Snowden, ending welfare as we know it, fake it until you make it, fixed income, forensic accounting, Glass-Steagall Act, Gordon Gekko, greed is good, illegal immigration, information retrieval, London Interbank Offered Rate, London Whale, Michael Milken, naked short selling, off-the-grid, offshore financial centre, Ponzi scheme, profit motive, regulatory arbitrage, Savings and loan crisis, short selling, social contagion, telemarketer, too big to fail, two and twenty, War on Poverty

The federal government pushed exactly one single criminal prosecution against individuals at a major bank for crimes related to the financial crisis, a fraud case involving two testosterone-jacked Bear Stearns hedge funders who had told investors in their subprime-laden fund that they were “comfortable with where they are” just days after one of them privately confided to his wife that “the subprime market is toast.” That fund later imploded, helping cause the collapse of Bear Stearns, which in turn helped trigger the financial crisis. Despite a seeming abundance of damning emails and text messages, a jury acquitted, and the Justice Department never stepped to the plate again.

Normally it could simply roll the same loans over and over again, but as its cash needs grew, it began to get more and more desperate, pushing ethical boundaries left and right. First it lied about the quality of its collateral, and then it came to the ultimate counterfeit collateral scheme. In the wake of the collapse of Bear Stearns, Lehman’s leaders decided to try a sort of financial publicity stunt called a “liquidity pool”: they would show the world they weren’t as broke as Bear Stearns by announcing the existence of a giant pile of liquid assets that they could call on in an emergency to pay their bills. In June 2008 their CFO, Ian Lowitt, announced in a conference call that Lehman had a big stack of $45 billion in assets, a reserve fund that was “never stronger.”

This was Chase’s second sweetheart deal in less than a year. Six months before, in March 2008, Chase had “rescued” the imploding investment banking giant Bear Stearns, buying the venerable firm with the aid of $29 billion in guarantees extended by the New York branch of the Federal Reserve—whose chairman of the board of directors at the time was, get this, JPMorgan Chase CEO Jamie Dimon. That means that six months after Jamie Dimon was the lucky recipient of his own Federal Reserve bailout in order to acquire Bear Stearns, his bank was given another $25 billion in cash by the state to go on another shopping spree, cash he used, among other things, to buy Washington Mutual.


pages: 278 words: 82,069

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

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

In mid-March, after anguished discussions between Federal Reserve officials and Wall Street moguls, the Fed agreed to provide $400 billion in new cash loans to banks and investment firms. Days later came the shock of eighty-five-year-old Bear Stearns going belly up. In an unprecedented deal, the Fed immediately lent JPMorgan Chase the money to buy Bear Stearns, taking suspect mortgage-backed paper as collateral. Bear’s stockholders had already taken a hosing when the stock crashed. The big winners were the company’s creditors and insurers, who were saved from the consequences of their bad business judgment. We are now staring into the abyss. The Bear Stearns bailout has created a presumption of a safety net under any major stockbroker, in addition to any major bank.

MELTDOWN This page intentionally left blank Part One Seeds of Disaster ĭ ĭ ĭ This page intentionally left blank Wall Street and Washington: How the Rules of the Game Have Changed S T E V E F R A S E R September 19, 2008 What is washington to doas the financial system collapses? Clearly, stark differences in approach as well as in public policy have already emerged. Bail out Bear Stearns and pump up the brokerage and investment business with new lines of credit. Nationalize Fannie Mae and Freddie Mac on the backs of the taxpayer—but let Lehman drown. Tell the financial community to save itself, after which Bank of America salutes and buys Merrill Lynch. Then, the Fed gets cold feet and decides it can’t let an institution the size of the insurance giant AIG go under as well.

Despite free-market/anti-big-government rhetoric, real-life Washington has tacitly acknowledged the degree to which our national economy has become dependent on the financial sector (Finance, Insurance and Real Estate—or FIRE). It will do whatever it takes to keep it afloat. This applies not only to particular institutions like Bear Stearns, or even to mortgage mega-firms like Fannie and Freddie, but to finance in general. When it seemed necessary, public monies were indeed funneled in the general direction of the banking/brokerage community to shore up the whole rickety structure. This allowed one burst bubble—the dot-com debacle—to be replaced by another, namely our late, lamented mortgage/collateralized-debt-obligation bonanza, just now dramatically going down the tubes.


pages: 261 words: 103,244

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

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

—Warren Buffett, 2009 James Cayne’s most important qualification for his later job as chief executive officer (CEO) of a large investment bank was a career as a professional card player. This enabled him to befriend other bridge aficionados at the helm of Bear Stearns. Firmly installed at the top, he felt completely free to pursue his own interests. In the summer of 2007, he was incommunicado at a bridge tournament in Nashville while two Bear Stearns hedge funds suffered a severe crisis. In the following spring, he was unreachable again for days at a bridge tournament while Bear Stearns was at the brink of bankruptcy (Altaner 2007). CEOs do not necessarily have an inner urge to do what is in the interest of shareholders, as this example shows.

Bill Gross, the bond manager’s co-chief investment officer said in 2008 that Greenspan’s “brilliance in terms of forecasting the potential for exactly what happened was a big money saver for us, he’s made and saved billions of dollars for Pimco already” (Bhaktavatsalam 2008). Even the top executives of the worst-hit investment banks Bear Stearns and Lehman Brothers made a fortune in the run-up to the crisis. This made it easy for them to forget about the loss in value of their remaining shares when their companies were sold in a fire sale or went bankrupt respectively. For the top five Bear Stearns executives, the total proceeds from sales of stocks and options in the years 2000–2008, which came on top of cash salaries, was US$1.1 billion; for the top five at Lehman Brothers it was US$850 million.

“Without derivatives, leveraged bets on subprime mortgage loans could not have spread so far or so fast,” claims Frank Partnoy (1997/2009), a law professor at the University of San Diego and a former derivative structurer at investment banks Morgan Stanley and CS First Boston. Without derivatives, the complex risks that destroyed Bear Stearns, Lehman Brothers and Merrill Lynch and decimated dozens of banks and insurance companies, including AIG, could not have been hidden from view. Yet regulators, most infamously Alan Greenspan and treasury secretary Robert Rubin, with bankers like Hank Paulson and their lobbyists, worked and fought hard to make sure that no rules or restrictions would be applied to derivatives.


pages: 236 words: 77,735

Rigged Money: Beating Wall Street at Its Own Game by Lee Munson

affirmative action, Alan Greenspan, asset allocation, backtesting, barriers to entry, Bear Stearns, Bernie Madoff, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, call centre, Credit Default Swap, diversification, diversified portfolio, estate planning, fear index, fiat currency, financial engineering, financial innovation, fixed income, Flash crash, follow your passion, German hyperinflation, Glass-Steagall Act, global macro, High speed trading, housing crisis, index fund, joint-stock company, junk bonds, managed futures, Market Wizards by Jack D. Schwager, Michael Milken, military-industrial complex, money market fund, moral hazard, Myron Scholes, National best bid and offer, off-the-grid, passive investing, Ponzi scheme, power law, price discovery process, proprietary trading, random walk, Reminiscences of a Stock Operator, risk tolerance, risk-adjusted returns, risk/return, Savings and loan crisis, short squeeze, stocks for the long run, stocks for the long term, too big to fail, trade route, Vanguard fund, walking around money

Why not just pick up on what the other guys were doing, since some big place already did the work for us, right? It was when I moved to Bear Stearns, a major firm with its own research department, that I finally got the big picture. (Yes, that Bear Stearns.) During my first day on the job I was greeted by a visit from my new manager. “What are you pitching?” he asked me. I told him some ticker symbol that had a good story and was working to open new accounts. His response was stone cold. “Where is the firm’s research report?” My blank stare betrayed my ignorance of the question. He said, “No, no way, you are here to do one thing—sell Bear Stearns research.” I was floored. Nobody had ever explained the basis for my existence so clearly before.

I don’t give you all the answers, but I will tell you how to prevent Wall Street from getting you off track. Learn how Wall Street gives you answers to questions that you didn’t ask. Why Did I Write This Book? April 1, 2001: An article was published on that April Fools’ Day by the New York Observer. The guy who sat next to me at Bear Stearns had a buddy named George Gurley. I had hung out with George mostly drinking with a group of guys for a few months before he asked me if I wanted to do an article with him describing the crazy world of Wall Street. It was never my intention to have my name in it, but as a wiser person today, I should have known better.

But what about those who made it possible to write the book on a bigger scale? First and foremost, thank you to Stephen Schwartz, Mark Ronda, and the crew at Prime Charter in the late 1990s. I could not have asked for a better place to spend my first four years in the business. I want to thank the management at Bear Stearns for realizing we were a bad fit right off the bat. It couldn’t have happened to a better batch of people. I also want to thank all of the producers at CNBC who gave me a shot to be myself and coached me along the way, especially Dan Holland. Special thanks to Larry Kudlow for teaching me to grab hold of my idea and not let go.


pages: 482 words: 149,351

The Finance Curse: How Global Finance Is Making Us All Poorer by Nicholas Shaxson

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Airbnb, airline deregulation, Alan Greenspan, anti-communist, bank run, banking crisis, Basel III, Bear Stearns, benefit corporation, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, British Empire, business climate, business cycle, capital controls, carried interest, Cass Sunstein, Celtic Tiger, central bank independence, centre right, Clayton Christensen, cloud computing, corporate governance, corporate raider, creative destruction, Credit Default Swap, cross-subsidies, David Ricardo: comparative advantage, demographic dividend, Deng Xiaoping, desegregation, Donald Trump, Etonian, export processing zone, failed state, fake news, falling living standards, family office, financial deregulation, financial engineering, financial innovation, forensic accounting, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global supply chain, Global Witness, high net worth, Ida Tarbell, income inequality, index fund, invisible hand, Jeff Bezos, junk bonds, Kickstarter, land value tax, late capitalism, light touch regulation, London Whale, Long Term Capital Management, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, megaproject, Michael Milken, Money creation, Mont Pelerin Society, moral hazard, neoliberal agenda, Network effects, new economy, Northern Rock, offshore financial centre, old-boy network, out of africa, Paul Samuelson, plutocrats, Ponzi scheme, price mechanism, proprietary trading, purchasing power parity, pushing on a string, race to the bottom, regulatory arbitrage, rent-seeking, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, Savings and loan crisis, seminal paper, shareholder value, sharing economy, Silicon Valley, Skype, smart grid, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, special economic zone, Steve Ballmer, Steve Jobs, stock buybacks, Suez crisis 1956, The Chicago School, Thorstein Veblen, too big to fail, Tragedy of the Commons, transfer pricing, two and twenty, vertical integration, Wayback Machine, wealth creators, white picket fence, women in the workforce, zero-sum game

You could submit your hundreds of pages of documents in a funds prospectus at 3 p.m. and have the authorisation to start business the next day. Nobody in Ireland, it seemed, had been checking anything. When the US investment banking giant Bear Stearns collapsed in 2008, it turned out to have had several dodgy investment vehicles listed on the Irish Stock Exchange and three subsidiaries located in the IFSC owned by an Irish holding company, Bear Stearns Ireland Limited. Professor Jim Stewart of Trinity College, Dublin, among the only people in Ireland to have exposed the IFSC’s shenanigans, found that by 2007 Bear Stearns Ireland Limited. was operating with gargantuan leverage, where each dollar of equity was propping up $119 of gross assets.

Professor Jim Stewart of Trinity College, Dublin, among the only people in Ireland to have exposed the IFSC’s shenanigans, found that by 2007 Bear Stearns Ireland Limited. was operating with gargantuan leverage, where each dollar of equity was propping up $119 of gross assets. A deterioration in value of those assets of less than 1 per cent could wipe it out. And it did.35 The Bear Stearns case illustrates a profound truth about offshore race-to-the-bottom finance and regulation. The trick is so often to drape your company across several jurisdictions and then to get each place to say, ‘This thing is regulated elsewhere.’ US company accounts said Bear Stearns Ireland Limited and its subsidiaries were regulated by the Irish regulator, yet the Irish regulator said its remit extended only to banks headquartered in Ireland. So this ultra-high-risk entity was regulated elsewhere – which effectively meant nowhere.36 And the ‘elsewhere, nowhere’ concept has close parallels in tax.

The industry properly got going in the 1960s when Jerome Kohlberg Junior, a senior official at the US investment bank Bear Stearns, began urging his employers to stop merely advising companies and helping them raise money, and start buying them. And he proposed some interesting ways to juice up the profits. He persuaded the bank to set up a new division that would focus on buying up good, strong companies with healthy cash flows and then – here’s the first trick – to get the companies it had acquired (called portfolio companies) to themselves borrow something like 90 per cent of the purchase price, then channel most if not all of this back to the new owner. Bear Stearns and its management could then take the profits from that portfolio company if things went well, and could also offset the interest payment costs on the new borrowing against the portfolio company’s tax bill.


I Love Capitalism!: An American Story by Ken Langone

activist fund / activist shareholder / activist investor, Bear Stearns, Berlin Wall, Bernie Madoff, Bernie Sanders, business climate, corporate governance, East Village, fixed income, glass ceiling, income inequality, Paul Samuelson, Ronald Reagan, short selling, Silicon Valley, single-payer health, six sigma, VA Linux, Y2K, zero-sum game

It was time to expand beyond Georgia. We had our eye on Florida. And opening more stores meant that we needed more money. I went to the typical players, Drexel and Merrill Lynch and Bear Stearns. Drexel turned me down out of hand. I had a relationship with Bear Stearns, but they were hesitant. They wouldn’t get off the dime until I told them—it was pretty much true—that Merrill Lynch was interested. (Merrill Lynch would eventually bail.) I finally got Bear Stearns to agree to underwrite a $6 million equity offering. Half of the money would redeem the initial investors’ preferred stock; the other half would go into Home Depot’s business operations.

There was a restaurant in Great Neck called Maude Craig’s. And Alan Schwartz (he was single at the time) got a job there as a busboy and waiter at night so he could stay at Pressprich. He turned out to be one of the most talented and able men I’ve ever known in this business: he went on to become CEO of Bear Stearns and is now executive chairman of Guggenheim Partners. Back to the crisis at R. W. Pressprich. The lease on the three floors the firm occupied at 80 Pine Street was a substantial expense in itself, but the partners did some quick calculations and realized that with a smaller staff we could fit all our operations onto a single floor.

The economy was in a recession; the market was in the crapper. Ronald Reagan had just become president, but Reaganomics hadn’t yet worked its magic. Inflation was still through the roof; Paul Volcker and the Fed were pushing interest rates higher. And the week before the deal was set to get done, Bear Stearns told me it only had orders for $3 million of the $6 million. We simply couldn’t raise enough money to redeem the preferred shares. I didn’t have a cocktail napkin this time, but I did have another idea. I went back to the original group one more time. “Look,” I said. “We’ve got a simple decision here.


pages: 367 words: 110,161

The Bond King: How One Man Made a Market, Built an Empire, and Lost It All by Mary Childs

Alan Greenspan, asset allocation, asset-backed security, bank run, Bear Stearns, beat the dealer, break the buck, buy and hold, Carl Icahn, collateralized debt obligation, commodity trading advisor, coronavirus, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, diversification, diversified portfolio, Edward Thorp, financial innovation, fixed income, global macro, high net worth, hiring and firing, housing crisis, Hyman Minsky, index card, index fund, interest rate swap, junk bonds, Kevin Roose, low interest rates, Marc Andreessen, Minsky moment, money market fund, mortgage debt, Myron Scholes, NetJets, Northern Rock, off-the-grid, pneumatic tube, Ponzi scheme, price mechanism, quantitative easing, Robert Shiller, Savings and loan crisis, skunkworks, sovereign wealth fund, stem cell, Steve Jobs, stocks for the long run, The Great Moderation, too big to fail, Vanguard fund, yield curve

Pimco traded with many banks and other firms; when those trades made money for Pimco, it relied on those counterparties to pay up. It was unimaginable that an institution like Morgan Stanley or Goldman or Lehman wouldn’t have the money. But who knew anymore? Bear Stearns couldn’t pay, at least not without JPMorgan’s and the Fed’s help. Pimco’s counterparties were thinking the same thing: no one trusted anyone, and counterparties who had once relied on confidence in each other now demanded ready cash. So, in case counterparties demanded payment, Pimco stockpiled $50 billion. “Bear Stearns has made it obvious that things have gone too far,” Gross said. The chaos reached Pimco’s trading tricks. The magic that had helped the firm outperform for decades—Ben Trosky remembers one or two influential consultants who did not understand the magic calling its results “Gross cash”—required functioning markets, and these were increasingly hard to pull off as the outside world cramped with fear.

If the money ran out before then, so be it; the last tranche was the riskiest slice by design. But it was becoming clear that losses would be far worse than the ratings companies had calculated, the money running out far sooner, way higher up on the structure than expected. Moody’s and Standard & Poor’s would start frantically cutting their ratings. The investment bank Bear Stearns noticed a growing problem in two of its hedge funds, invested in CDOs backed by subprime mortgages. Declines in those markets were carving huge holes in the funds. In June, Bear poured $3.2 billion into one, hoping to fill in the hole. Things were getting scary. Just what Pimco had been waiting for.

The day after Bernanke’s testimony, the Dow closed above 14,000 for the first time ever, as traders took his “before they get better” to mean that housing demand would, probably, stabilize, and decided not to worry. But in credit markets, Bernanke’s delicate phrasing did little to soften his message: subprime was leaking. Paul McCulley’s horrible vision—those rotten roots spread underneath the markets, the economy, everywhere—was beginning to come into focus. In July 2007, Bear Stearns told clients that its troubled hedge funds held “effectively no value.” The extra compensation that investors demand to hold high-yield corporate debt instead of Treasuries had hit a record low in June and then climbed; now it went vertical. That “spread” over Treasuries, which moves 0.01 percent at a time, surged almost a full percentage point, to 4.3 percent, by August 1.


pages: 202 words: 66,742

The Payoff by Jeff Connaughton

Alan Greenspan, algorithmic trading, bank run, banking crisis, Bear Stearns, Bernie Madoff, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, desegregation, Flash crash, Glass-Steagall Act, locking in a profit, London Interbank Offered Rate, London Whale, Long Term Capital Management, naked short selling, Neil Kinnock, plutocrats, Ponzi scheme, proprietary trading, risk tolerance, Robert Bork, Savings and loan crisis, short selling, Silicon Valley, TED Talk, too big to fail, two-sided market, uptick rule, young professional

We had barely ordered dinner when the developer said he had just returned from New York City where he was involved with the loan committees of Merrill Lynch and Lehman Brothers. “Both companies are technically insolvent.” Startled, I put down my glass. “What? I don’t believe it.” This was two months before Bear Stearns began to falter and fail. “If that’s true we’re all in a world of shit,” I said. I remember my words exactly. I couldn’t believe what the man was saying. I’d been trained in business and law school to believe that corporate governance worked. Even though I knew Wall Street held Washington in a perpetual half nelson, I still believed our laws would prevent hidden catastrophes and blatant fraud.

This man had just stepped off a plane from New York, where he was connected at the heart of the world’s financial center, and he was telling me that we were headed toward an economic disaster. Rather than take the tip and modify my investments, I argued with him that it couldn’t be true. My own stock portfolio was globally diversified, and I thought, at worst, the market might face a 10 percent correction. Then Bear Stearns failed in March 2008. The markets began to gyrate. Still, our government leaders continued to make reassuring statements. I came to believe that the economy and stock market might be heading for a significant pullback, but considered it nothing to lose sleep over. I should’ve known that the legal and regulatory system meant to protect us had rotted away.

But would front-line prosecutors get the time and investigative resources they needed to “drill down” into Wall Street, as Attorney General Holder had put it? The situation was further complicated by a recent jury verdict. In the fall of 2008, the U.S. Attorney’s Office for the Eastern District of New York had lost a case against two Bear Stearns defendants who had been charged with securities fraud for lying to investors about the strength of their hedge fund, which was filled with toxic mortgage-backed securities. The jury’s swift not-guilty verdict in the first criminal case stemming from the financial crisis may have had a chilling effect on line prosecutors and their superiors.


pages: 274 words: 81,008

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

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, antiwork, barriers to entry, Bear Stearns, Berlin Wall, call centre, Carl Icahn, carried interest, collective bargaining, company town, corporate governance, corporate raider, Credit Default Swap, diversification, eat what you kill, Fall of the Berlin Wall, family office, financial engineering, fixed income, Goldman Sachs: Vampire Squid, Gordon Gekko, housing crisis, income inequality, junk bonds, Kevin Roose, late capitalism, margin call, Menlo Park, Michael Milken, military-industrial complex, Occupy movement, place-making, proprietary trading, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Rubik’s Cube, San Francisco homelessness, Sand Hill Road, Savings and loan crisis, shareholder value, side project, Silicon Valley, sovereign wealth fund, two and twenty

Even with Kravis’s “deep bench,” there is simply no way any one person, or pair, will bring exactly what the cousins do. For a couple of guys under six feet tall, they cast long shadows. Leaving Bear Stearns also made the founders focus on the type of firm they wanted to run. On what would be his last day at the firm, Kravis showed up from a business trip to find his office locked, with a guard posted outside. Kohlberg’s resignation earlier, and the announcement that Kravis and Roberts were leaving as well, triggered Bear Stearns to clear out Kravis’s desk and retain his files. Thirty-five years on, he still told the story with some indignation, and in detail, right down to the accent of the security guard.

At the firm’s first meeting for its public shareholders in 2011 he and Roberts, along with Nuttall and most every executive who spoke, repeated the phrase “one-firm approach.” Part of making the case for teamwork was to remind each employee of the firm’s pay structure. Kravis described the experience at Bear Stearns as formative in a number of ways, including how the founders decided they would pay their employees. Like many Wall Street firms, Bear Stearns had an “eat what you kill” culture whereby your compensation was largely based on what business you brought in. Kravis described a culture where you locked your office or your desk when you went home at night so no one took clients or business ideas.

Ten months later, and only weeks after Lehman Brothers filed for bankruptcy, throwing the U.S. and global markets into turmoil, Blackstone’s Schwarzman showed up at the second-annual event, along with Kravis. Schwarzman—wrongly—declared the end of the credit crisis that had taken deep root with the collapse of Bear Stearns earlier in the year, praising U.S. regulators for their swift action. And at that moment, Dubai and its neighbors in the Gulf were at least removed from the troubles back in the U.S., and potentially a safe haven of real growth as the West stumbled. Carlyle, given its penchant for covering the world through a combination of Rubenstein visits and local executives, in 2007 opened an outpost in the Dubai International Financial Centre, becoming the first large U.S. firm to set up an office there.


pages: 318 words: 99,524

Why Aren't They Shouting?: A Banker’s Tale of Change, Computers and Perpetual Crisis by Kevin Rodgers

Alan Greenspan, algorithmic trading, bank run, banking crisis, Basel III, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black-Scholes formula, buy and hold, buy low sell high, call centre, capital asset pricing model, collapse of Lehman Brothers, Credit Default Swap, currency peg, currency risk, diversification, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, fixed income, Flash crash, Francis Fukuyama: the end of history, Glass-Steagall Act, Hyman Minsky, implied volatility, index fund, interest rate derivative, interest rate swap, invisible hand, John Meriwether, latency arbitrage, law of one price, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, Minsky moment, money market fund, Myron Scholes, Northern Rock, Panopticon Jeremy Bentham, Ponzi scheme, prisoner's dilemma, proprietary trading, quantitative easing, race to the bottom, risk tolerance, risk-adjusted returns, Silicon Valley, systems thinking, technology bubble, The Myth of the Rational Market, The Wisdom of Crowds, Tobin tax, too big to fail, value at risk, vertical integration, Y2K, zero-coupon bond, zero-sum game

Morgan’, Chris Isidore, CNN Money, 13 September 2000, http://money.cnn.com/2000/09/13/deals/chase_morgan/ 31 ‘Chase and Chemical in $300bn merger’, Michael Marray, Independent, 29 August 1995, http://www.independent.co.uk/news/business/chase-and-chemical-in-300bn-merger-1598520.html 32 ‘S&P/Case-Schiller Home Price Indices’, us.spindices.com. 33 ‘Nightmare Mortgages’, Businessweek, 10 September 2006, http://www.bloomberg.com/bw/stories/2006-09-10/nightmare-mortgages 34 All the Devils Are Here, Bethany McLean and Joe Nocera, Portfolio / Penguin, November 2010, Chapter 18. 35 Lehman Brothers Annual Report 2007, https://www.zonebourse.com/NB-PRIV-EQ-PARTN-56192/pdf/87896/NB%20PRIV%20EQ%20PARTN_Rapport-annuel.pdf 36 Bear Stearns Annual Report 2006, http://www.slideshare.net/QuarterlyEarningsReports3/bear-stearns-annual-report-2006 37 ‘Risk Off’, paper by Andrew G. Haldane, Bank of England, August 2011, http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2011/speech513.pdf 38 Deutsche Bank Roadshow, Dr Clemens Börsig, CFO, 1 September 2004, Slide 6, https://www.db.com/ir/en/download/Roadshow_Boston_Dr_Boersig_1_Sep_2004.pdf 39 Deutsche Bank Annual Report, 2008, https://www.db.com/ir/en/annual-reports.htm#tab_2009-2007 40 Ibid. 41 Ibid.

If they fail to function, banks and companies struggle for cash and shortly thereafter begin to thrash around like a scuba diver with a blockage in his air pipe. This, according to David, was exactly what was about to happen. A few weeks earlier, two troubled hedge funds that had invested $20 billion in instruments linked to sub-prime mortgages (and which were operated by the bank Bear Stearns) had been bailed out with a multibillion-dollar loan from their parent. ‘That’s just the start!’ said David with a manic, almost gleeful giggle that I learned, during frequent meetings with him in the long months ahead, to associate with imminent terrible news. If Greg’s views were right, David said, more and more funds would hit the rocks.

Disastrously for people the world over, both Greg and David were soon proved completely correct. That very day, as we were happily watching the Rolling Stones, credit rating agencies in the US were issuing the first mass downgrades of investment products linked to mortgages. By 20 July, the rescue of the Bear Stearns funds was unravelling as investors rushed to get their money out and the lenders looked to seize the funds’ assets to cover loans. Shortly afterwards, both entities were declared bankrupt. On 6 August, the American Home Mortgage Investment Corporation (a retail mortgage lender) also went bankrupt.


pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Bear Stearns, Bernie Madoff, book value, break the buck, centre right, collapse of Lehman Brothers, collateralized debt obligation, commoditize, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, disintermediation, diversification, Donald Trump, energy security, eurozone crisis, financial innovation, financial intermediation, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, Future Shock, Glass-Steagall Act, government statistician, high net worth, High speed trading, illegal immigration, income inequality, interest rate swap, invention of agriculture, junk bonds, light touch regulation, Long Term Capital Management, low earth orbit, low interest rates, mega-rich, money market fund, moral hazard, mortgage debt, negative equity, Neil Armstrong, Northern Rock, obamacare, offshore financial centre, oil shock, pensions crisis, plutocrats, Ponzi scheme, price anchoring, price stability, proprietary trading, purchasing power parity, quantitative easing, risk tolerance, Robert Shiller, Ronald Reagan, tail risk, too big to fail, trickle-down economics, value at risk, yield curve

Forbes estimated the value of his stock in Bear Stearns at $966 million in 2007. What Cayne said about Geithner is too obscene to reprint but the endnotes point you to a source where you can find it. 7 For Fuld’s non-apology, see ‘Dick Fuld testimony: no apologies here,’ Wall Street Journal, Sept. 1, 2010. For Fuld’s compensation, see Brian Ross and Alice Gomstyn, ‘Lehman Brothers boss defends $484 million in salary, bonus,’ ABC News, Oct. 6, 2008. I’m not going to reprint Cayne’s outburst here, but unshockable readers can expand their vocabulary by checking out Heidi Moore, ‘Bear Stearns’ Jimmy Cayne’s profane tirade against Treasury’s Geithner,’ Wall Street Journal, March 4, 2009.

You can defy financial gravity for months (if you’re Charles Ponzi) or for years (if you’re Bernie Madoff), but gravity will always claim you in the end. The first phase of the collapse of our global Ponzi scheme came on September 15, 2008, when Lehman Brothers filed for bankruptcy protection under Chapter 11 of the US Bankruptcy Code. (The earlier failure of Bear Stearns was a warning of cataclysm, but not yet the cataclysm itself.) In Lehman’s filing, the bank reported assets worth $639 billion. It owed $768 billion. The bank was insolvent to the tune of approximately $130 billion. In the weeks and months that followed, horrified newspaper readers became inured to ever greater shocks, ever greater oceans of red ink.

Wall Street banks have the smartest, best-funded, best-resourced quantitative analysts (‘quants’) in the business, yet when it came to the first credit crisis, they simply didn’t know the value of the stuff they carried on their balance sheets. They didn’t know, that is, until the market ripped their bogus assumptions into a million small pieces, obliterating two leading firms (Bear Stearns and Lehman) and leaving all the other brokerages in fear of their lives‌—‌and on government life support. When the ground opened up in front of Citigroup, when the collapse in the mortgage market started to generate huge losses, the firm barely understood what had hit it. Financial Times journalist Gillian Tett, in her book Fool’s Gold, reports one senior Citi manager saying bitterly: ‘Perhaps there were a dozen people in the bank who really understood all this before‌—‌I doubt it was more.’10 That Citi manager was wrong.


pages: 421 words: 128,094

King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone by David Carey

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, asset allocation, banking crisis, Bear Stearns, Bonfire of the Vanities, business cycle, Carl Icahn, carried interest, collateralized debt obligation, corporate governance, corporate raider, credit crunch, deal flow, diversification, diversified portfolio, financial engineering, fixed income, Future Shock, Gordon Gekko, independent contractor, junk bonds, low interest rates, margin call, Menlo Park, Michael Milken, mortgage debt, new economy, Northern Rock, risk tolerance, Rod Stewart played at Stephen Schwarzman birthday party, Sand Hill Road, Savings and loan crisis, sealed-bid auction, Silicon Valley, sovereign wealth fund, Teledyne, The Predators' Ball, éminence grise

TV perennial Barbara Walters was there, Donald and Melania Trump, media diva Tina Brown, Cardinal Egan of the Archdiocese of New York, Sir Howard Stringer, the head of Sony, and a few hundred other luminaries, including the chief executives of some of the nation’s biggest banks: Jamie Dimon of JPMorgan Chase, Stanley O’Neal of Merrill Lynch, Lloyd Blankfein of Goldman Sachs, and Jimmy Cayne of Bear Stearns. Inside the cavernous armory hung “a huge indoor canopy … with a darkened sky of sparkling stars suspended above a grand chandelier,” mimicking the living room in Schwarzman’s $30 million apartment nearby, the New York Post reported the next day. The decor was copied, the paper observed, “even down to a grandfather clock and Old Masters paintings on the wall.”

Notwithstanding the controversy over the new wave of buyouts and the brouhaha over Schwarzman’s birthday party, Blackstone succeeded in going public. By then, however, Schwarzman and others at Blackstone were nervous that the markets were heading for a fall. The very day Blackstone’s stock started trading, June 22, 2007, there was an ominous sign of what was to come. Bear Stearns, a scrappy investment bank long admired for its trading prowess, announced that it would bail out a hedge fund it managed that had suffered catastrophic losses on mortgage securities. In the months that followed, that debacle reverberated through the financial system. By the autumn, the lending machine that had fueled the private equity boom with hundreds of billions of dollars of cheap debt had seized up.

But the scent of profit always draws in new capital, and soon new operators were sprouting up. KKR, which opened its doors in 1976, was the most prominent. KKR’s doyen at the time was the sober-minded, bespectacled Jerry Kohlberg, who began dabbling in buyouts in 1964 as a sidelight to his main job as corporate finance director of Bear Stearns, a Wall Street firm better known for its stock and bond trading than for arranging corporate deals. In 1969 Kohlberg hired George Roberts, the son of a well-heeled Houston oilman, and later added a second young associate, Roberts’s cousin and friend from Tulsa, Henry Kravis. Kravis, whose father was a prosperous petroleum engineer, was a resourceful up-and-comer, small of stature, with a low golf handicap and a rambunctious streak.


pages: 443 words: 51,804

Handbook of Modeling High-Frequency Data in Finance by Frederi G. Viens, Maria C. Mariani, Ionut Florescu

algorithmic trading, asset allocation, automated trading system, backtesting, Bear Stearns, Black-Scholes formula, book value, Brownian motion, business process, buy and hold, continuous integration, corporate governance, discrete time, distributed generation, fear index, financial engineering, fixed income, Flash crash, housing crisis, implied volatility, incomplete markets, linear programming, machine readable, mandelbrot fractal, market friction, market microstructure, martingale, Menlo Park, p-value, pattern recognition, performance metric, power law, principal–agent problem, random walk, risk free rate, risk tolerance, risk/return, short selling, statistical model, stochastic process, stochastic volatility, transaction costs, value at risk, volatility smile, Wiener process

Finally, we study high frequency data corresponding to the Bear Stearns crash. On Friday, March 14, 2008, at about 9:14 a.m., JP Morgan Chase together with the Federal Reserve Bank of New York announced an emergency loan to Bear Stearns (about 29 billion, terms undisclosed) to prevent the firm from becoming insolvent. This bailout was declared to prevent the very likely crash of the market as a result of the fall of one of the biggest investment banks at the time. This measure proved to be insufficient for keeping the firm alive, and two days later, on Sunday March 16, 2008, Bear Stearns signed a merger agreement with JP Morgan Chase essentially selling the company for $2 a share (price revised on March 24 to $10/share).

We consider the VIX from CBOE and the following index variants: cpVIX, VIX , cVIX-b, and pVIX-b. TABLE 5.3 Important Events That Happened During January 2007 to February 2009 Period Central banks increase money supply Countywide job slashes Bush calls for economic stimulus package Central European banks plan emergency cash infusion Bear Stearns gets emergency funds J.P. Morgan to acquire Bear Stearns Federal Reserve cuts rates by 0.75 IMF may sell 400 tons of gold Citigroup anticipates a giant loss, Fed cuts rate again US backs lending firms US inflation at 26-year high Mortgage firms bail out Lehman Brothers files for bankruptcy Bush hails the financial rescue plan $700 billion package failed House backs the bail-out plan Plans to buy 125 billion stakes in banks Citigroup cuts 75,000 jobs Citigroup gets US Treasury lifeline 800 billion stimulus package announced Bank of America cuts 30,000 jobs Madoff 50 billion scandal Auto industry bail-out US financial sector stocks decline sharply New bank bail-out August 10, 2007 September 7, 2007 January 18, 2008 March 11, 2008 March 14, 2008 March 16, 2008 March 18, 2008 April 8, 2008 April 30, 2008 July 13, 2008 July 16, 2008 September 7, 2008 September 14, 2008 September 19, 2008 September 29, 2008 October 3, 2008 October 14–29, 2008 November 17, 2008 November 23, 2008 November 25, 2008 December 11, 2008 December 13, 2008 December 19, 2009 January 20, 2009 February 10, 2009 108 CHAPTER 5 Construction of Volatility Indices For each of these variants, we calculate the rate of change and we estimate the conditional probability that S&P500 is moving in the opposite direction.

See also Board balanced scorecards (BSCs); BSC entries; Enterprise BSC; Executive BSC Ball solution, 391–399 Banach spaces, 349, 350, 351, 386, 387–388, 389 Bandwidth choices, 269 Barany, Ernest, xiii, 119, 327 Bartlett-type kernels, 261, 263 Base learner, 48 Bear Stearns crash, high-frequency data corresponding to, 121, 131–132 Bear Stearns crash week, high-frequency data from, 148–160 Beccar Varela, Maria Pia, xiii, 119, 327 Bernoulli LRT, 191. See also Likelihood ratio test (LRT) Bernoulli MLE, 190. See also Maximum likelihood estimation (MLE) Index Bernoulli(p) distribution, 190 Bessel function, 9, 376 Bessel function of the third kind, modified, 166 Best practices, 51 Bias, 253–254 estimated, 258, 259 of the Fourier covariance estimator, 264–266 Bias-corrected estimator, 261 Bid/ask orders, 29 Bid-ask price behavior, 236 Bid-ask spreads, 228, 229, 236, 238–239, 240 Big values, asymptotic behavior for, 338 Binary prediction problems, 48 Black–Litterman model, 68 Black–Scholes analysis, 383–384 Black–Scholes equation, 352, 400 Black–Scholes formula, 114, 115 Black–Scholes model(s), 4, 6–7, 334 boundary condition for, 354–355 in financial mathematics, 352 with jumps, 375 option prices under, 219 volatility and, 400 Black–Scholes PDE, 348.


pages: 444 words: 151,136

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

Alan Greenspan, Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, Black Swan, bond market vigilante , book value, Branko Milanovic, bread and circuses, break the buck, Bretton Woods, BRICs, business climate, business cycle, capital asset pricing model, carbon tax, commoditize, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, foreign exchange controls, Fractional reserve banking, full employment, German hyperinflation, Great Leap Forward, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, land bank, land reform, liquidity trap, Long Term Capital Management, lost cosmonauts, low interest rates, McMansion, mega-rich, military-industrial complex, Money creation, money market fund, moral hazard, mortgage tax deduction, naked short selling, negative equity, offshore financial centre, Ponzi scheme, price stability, proprietary trading, pushing on a string, quantitative easing, RAND corporation, rent control, rent stabilization, reserve currency, risk free rate, riskless arbitrage, Ronald Reagan, Savings and loan crisis, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, stocks for the long run, Tax Reform Act of 1986, The Great Moderation, the scientific method, time value of money, too big to fail, Two Sigma, upwardly mobile, War on Poverty, Yogi Berra, young professional

Today the average salary in Downtown Manhattan is $115,000, and this mixes in everyone: from the brigade of 20-something women with vampish nails from Staten Island who commute by ferry to their first jobs as adults, to the tired older men who squeeze in and out of the Lex subway line in perspiration on a T 3 4 ENDLESS MONEY hot July day or wearing rain-drenched pinstripes. One wonders if they might still be working from joy of doing battle with the market or because they lost nearly everything at Drexel Burnham, Bear Stearns, or if it were in the days of yore, that they “took a loss with Auchincloss.” For years, the best and the brightest from Harvard, Stanford, Amos Tuck, and other elite graduate business schools came here alongside the pugnacious of Brooklyn or Jersey who might simply pass a Series 7 exam, all in the quest for profit and a better life.

Peyton Young, of the Wharton School and Oxford University, respectively, documented a basic methodology that could be practiced by hedge fund managers that could reliably produce “fake alpha.”3 In its simplest form it entails making a bet that a small degree of outperformance, perhaps 7 percent to 8 percent will result about 90 percent of the time, with the downside being a loss of everything in the other 10 percent of cases. There are no known cases of hedge funds deploying this strategy, but its mechanics are identical to what happens when a fund manager uses derivatives to boost current income that is uncorrelated with the market at the expense of suffering a major loss due to default. Might not the managers of Bear Stearns, who banked large bonuses each year, been inspired to do this because they could reshape financial contracts to produce high yields through option-like structures, with the consequences of their excess seemingly never to be felt due to the salutary effects of inflation, or deferred to some indistinct future moment?

The 10 largest players in credit derivatives control 90 percent of the trading volume; assuming the global value of contracts is $530 trillion, this is 17 times the size of world GDP.5 The industry’s gross credit exposure before netting is estimated at $12.7 trillion and after netting is only $2.7 trillion.6 The forced marriage of J.P. Morgan and Bear Stearns in March 2008, the two top holders of derivatives, pooled together $77 trillion and $13.4 trillion of derivatives, respectively. If derivatives are so large and so involved in disguising risk and return among market participants, then why is there so little transparency in their disclosure? They are merely a line item footnote.


pages: 279 words: 87,875

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

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", activist fund / activist shareholder / activist investor, Airbnb, Bear Stearns, business cycle, call centre, Carl Icahn, Cesare Marchetti: Marchetti’s constant, cloud computing, collateralized debt obligation, company town, coronavirus, corporate raider, COVID-19, Credit Default Swap, credit default swaps / collateralized debt obligations, data science, deep learning, Donald Trump, Home mortgage interest deduction, housing crisis, interest rate swap, low interest rates, margin call, McMansion, mortgage debt, mortgage tax deduction, negative equity, opioid epidemic / opioid crisis, pill mill, rent control, rolodex, Savings and loan crisis, sharing economy, sovereign wealth fund, transaction costs

As it happened, I was standing in the middle of the jungle. In 2007, the worst economic disaster since the Great Depression roared to life. The collapse of the U.S. housing market wiped out some $11 trillion in household wealth and wreaked havoc on Wall Street. It sank household-name financial institutions Lehman Brothers, Bear Stearns, and Merrill Lynch. The mortgage industry became a ward of the state, and an unprecedented taxpayer bailout was needed to stop the nation’s banks from bleeding out. Almost eight million people would lose homes to foreclosure. At its depths, more than twelve million Americans were “underwater,” meaning their homes were worth less than the balances remaining on their mortgages.

Many were unable or unwilling to make much higher mortgage payments. Countrywide, New Century Financial, and other lenders that had fueled the housing boom with suspect loans were buckling under mounting losses. In June 2007, a dozen anxious creditors gathered at a Park Avenue office tower to meet with executives from Bear Stearns, the venerable Wall Street investment bank. The creditors were worried about the faltering performance of two of Bear’s hedge funds, which had bet more than $20 billion on mortgages granted to home buyers with poor credit. Bear had launched one of the hedge funds in 2003 to invest primarily in collateralized debt obligations, or CDOs, which pooled large numbers of individual mortgages into single securities.

When the funds’ assets dropped below their collateral value, the banks that had lent the funds billions to buy CDOs called the debts due. Selling assets to repay the banks meant dumping these complex mortgage-backed securities into the market and pushing prices even lower. Representatives from the troubled funds’ lenders were given an eleven-page handout when they arrived for the meeting with Bear Stearns executives. The handout detailed the funds’ troubles and listed the margin calls it faced from lenders. Bear wasn’t going to bail out the funds. Instead, the investment bank asked creditors to impose a sixty-day moratorium on margin calls while the situation was straightened out. Attendees were stunned.


pages: 1,066 words: 273,703

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

"there is no alternative" (TINA), "World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Apple's 1984 Super Bowl advert, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bond market vigilante , book value, Boris Johnson, bread and circuses, break the buck, Bretton Woods, Brexit referendum, BRICs, British Empire, business cycle, business logic, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, company town, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, dark matter, deindustrialization, desegregation, Detroit bankruptcy, Dissolution of the Soviet Union, diversification, Doha Development Round, Donald Trump, Edward Glaeser, Edward Snowden, en.wikipedia.org, energy security, eurozone crisis, Fall of the Berlin Wall, family office, financial engineering, financial intermediation, fixed income, Flash crash, forward guidance, friendly fire, full employment, global reserve currency, global supply chain, global value chain, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, high-speed rail, housing crisis, Hyman Minsky, illegal immigration, immigration reform, income inequality, interest rate derivative, interest rate swap, inverted yield curve, junk bonds, Kenneth Rogoff, large denomination, light touch regulation, Long Term Capital Management, low interest rates, margin call, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, military-industrial complex, mittelstand, money market fund, moral hazard, mortgage debt, mutually assured destruction, negative equity, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shale / tar sands, old-boy network, open economy, opioid epidemic / opioid crisis, paradox of thrift, Peter Thiel, Ponzi scheme, Post-Keynesian economics, post-truth, predatory finance, price stability, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, race to the bottom, reserve currency, risk tolerance, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, Steve Bannon, structural adjustment programs, tail risk, The Great Moderation, Tim Cook: Apple, too big to fail, trade liberalization, upwardly mobile, Washington Consensus, We are the 99%, white flight, WikiLeaks, women in the workforce, Works Progress Administration, yield curve, éminence grise

The belief in the ability to manage risk inspired by the new derivative instruments, combined with access to the institutional cash pools, enabled them to scale up their size, creating the “New Wall Street.”31 Firms like Goldman Sachs, Morgan Stanley and Merrill Lynch went from obscurity to star status. Originally built as partnerships, the huge scaling up of trading activity and the derivatives business meant that they needed to issue shares and go public. Merrill Lynch had done so already in 1971. Bear Stearns followed in 1985, Morgan Stanley in 1986. Goldman Sachs was the last to launch its IPO in May 1999.32 With Robert Rubin a classic exponent of this new Wall Street, the investment banks even had their man in government. Goldman Sachs began to earn its nickname as “government Sachs.” Since the 1980s the investment banks had built their businesses on navigating uncertainty.

By the early 2000s, after two decades of dramatic growth, Wall Street was facing a political and regulatory backlash and urgently needed the “next big thing.” Given the expertise of the investment banks in bond trading and their role in the securitization of mortgages on behalf of the GSEs, it was not hard to foresee where scrappy investment banks like Lehman and Bear Stearns would look next. For the commercial banks, the post-Volcker age was tougher. They lost deposits. They lost mortgage business. Might they go the way of the savings and loans?35 To reestablish profitability in the 1990s America’s high street banks underwent spectacular consolidation. The top ten banks increased their share of total assets from 10 to 50 percent between 1990 and 2000.

Rather than organizing their mortgage business around the GSEs, they set out to build integrated mortgage securitization businesses. Countrywide expanded from origination to securitization. A giant bank like Citi could envision itself as a provider at every stage, originating, securitizing, selling, holding and dealing in MBS. Even more remarkable was the evolution of investment banks like Lehman and Bear Stearns that had previously defined themselves through their remoteness from ordinary retail customers. Already in the 1990s Bear added the mortgage originator and servicer EMC to its portfolio and Lehman added four small mortgage lenders to its investment bank. By the early 2000s the corporate strategies centered on private mortgage securitization were fully in place.


pages: 180 words: 61,340

Boomerang: Travels in the New Third World by Michael Lewis

Apollo 11, Bear Stearns, Berlin Wall, Bernie Madoff, Carmen Reinhart, Celtic Tiger, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, fiat currency, financial engineering, financial thriller, full employment, German hyperinflation, government statistician, Irish property bubble, junk bonds, Kenneth Rogoff, Neil Armstrong, offshore financial centre, pension reform, Ponzi scheme, proprietary trading, Ronald Reagan, Ronald Reagan: Tear down this wall, South Sea Bubble, subprime mortgage crisis, the new new thing, Tragedy of the Commons, tulip mania, women in the workforce

Bass was a native Texan in his late thirties who had spent the first years of his career, seven of them at Bear Stearns, selling bonds for Wall Street firms. In late 2006 he’d taken half of the $10 million he had saved from his Wall Street career, raised another $500 million from other people, created his hedge fund, and made a massive wager against the subprime mortgage bond market. Then he’d flown to New York to warn his old friends that they were on the wrong side of a lot of stupid bets. The traders at Bear Stearns had no interest in what he had to say. “You worry about your risk management. I’ll worry about ours,” one of them had told him.

I’ll worry about ours,” one of them had told him. By the end of 2008, when I went to Dallas to see Bass, the subprime mortgage bond market had collapsed, taking Bear Stearns with it. He was now rich and even, in investment circles, a little famous. But his mind had moved on from the subprime mortgage bond debacle: having taken his profits, he had a new all-consuming interest, governments. The United States government was just then busy taking on to its own books the subprime loans made by Bear Stearns and other Wall Street banks. The Federal Reserve would wind up absorbing the risk, in one form or another, associated with nearly $2 trillion in dodgy securities.

Staff dressed in black, incomprehensible art on the walls, unread books about fashion on unused coffee tables—everything to heighten the social anxiety of a rube from the sticks but the latest edition of the New York Observer. It’s the sort of place bankers stay because they think it’s where the artists stay. Bear Stearns convened a meeting of British and American hedge fund managers here, in January 2008, to figure out how much money there was to be made betting on Iceland’s collapse. (A lot.) The hotel, once jammed, is now empty, with only six of its thirty-eight rooms occupied. The restaurant is empty, too, and so are the small tables and little nooks that once led the people who weren’t in them to marvel at those who were.


pages: 549 words: 147,112

The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History by Kirsten Grind

"World Economic Forum" Davos, Alan Greenspan, asset-backed security, bank run, banking crisis, Bear Stearns, big-box store, call centre, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, financial engineering, fixed income, fulfillment center, Glass-Steagall Act, housing crisis, junk bonds, low interest rates, Maui Hawaii, money market fund, mortgage debt, naked short selling, NetJets, Savings and loan crisis, shareholder value, short selling, Shoshana Zuboff, Skype, too big to fail, Y2K

The bank had discovered that it was far more lucrative to cut out the middleman—the investment banks—and bundle securities on its own, opening an office in New York to handle the trading. In just three years, WaMu’s mortgage-backed-security volume doubled to $73 billion, earning it the number-two position of all companies nationwide churning out high-risk bonds. WaMu even outpaced the investment banks: Lehman, Bear Stearns, Goldman Sachs, and JPMorgan Chase. Only Countrywide would best WaMu in this practice. The bulk of WaMu’s securities received stellar grades from the rating agencies, which were tasked with measuring their riskiness. The bank counted Fannie Mae and Freddie Mac, the government-sponsored entities that had earlier bought Long Beach bonds, among its largest customers.

But instead, he waited for the meeting to end. Then he discreetly suggested to his team: “Maybe we should slow this down a little and see what happens next.” Jenne and his team stalled. Several weeks later, in late July 2007, the subprime market collapsed. Fear had been growing for months, and now the failure of two hedge funds run by Bear Stearns terrified investors. The hedge funds had bet on subprime loans.40 The effect of their collapse was dramatic. The rating agencies downgraded subprime securities like those made by Long Beach. Long Beach accounted for only 6 percent of the securities issued in 2006, but it received 14 percent of the downgrades.

WaMu’s faux funeral for the mortgage lender had been right on the mark. Financial companies that bought securities backed by mortgages had suffered a collective $180 billion in write-downs. Wachovia, Fannie Mae, Freddie Mac, Lehman Brothers—all had raised, or were trying to raise, billions of dollars in capital. Only weeks earlier Bear Stearns, the once-mighty investment bank, had nearly collapsed. JPMorgan Chase bought the company for just $2 a share* in a deal backed by the government. The purchase price was a fraction of what the stock had been worth twenty years earlier. The press had used adjectives such as “stunning” and “shocking” and “watershed” to describe the monumental event.


pages: 363 words: 98,024

Keeping at It: The Quest for Sound Money and Good Government by Paul Volcker, Christine Harper

Alan Greenspan, anti-communist, Ayatollah Khomeini, banking crisis, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, Bretton Woods, business cycle, central bank independence, corporate governance, Credit Default Swap, Donald Trump, fiat currency, financial engineering, financial innovation, fixed income, floating exchange rates, forensic accounting, full employment, Glass-Steagall Act, global reserve currency, income per capita, inflation targeting, liquidationism / Banker’s doctrine / the Treasury view, low interest rates, margin call, money market fund, Nixon shock, oil-for-food scandal, Paul Samuelson, price stability, proprietary trading, quantitative easing, reserve currency, Right to Buy, risk-adjusted returns, Ronald Reagan, Rosa Parks, Savings and loan crisis, secular stagnation, Sharpe ratio, Silicon Valley, special drawing rights, too big to fail, traveling salesman, urban planning

The Fed, I said, had acted at the “very edge of its lawful and implied powers” in its rescue of Bear Stearns. Then, and now, I didn’t want to encourage indiscriminate use of such untraditional authority. I went on to sketch out some needed reforms in the system. The financial markets settled down again after the Bear Stearns affair, but I was increasingly uneasy. Given our past experience, former Bush Treasury secretary Nick Brady and I would, from time to time, put our heads together. We were both concerned that Bear Stearns would be only the leading edge of the gathering crisis. The two big mortgage agencies, Fannie Mae and Freddie Mac, were under pressure.

An essential element to the deal was a truly extraordinary commitment by the Federal Reserve to guarantee some $30 billion of assets from Bear Stearns’s mortgage desk. A supermajority vote by the board was required to support an emergency loan to a nonbank under Section 13(3) of the Federal Reserve Act, a provision that had long been a virtual dead letter. In particular, I was well aware that use of Section 13(3) lending had been refused to a near-bankrupt New York City in 1975. The point was that the Fed should not be looked to as lender of last resort beyond the banking system. Just weeks after the Bear Stearns rescue I spoke at the Economic Club of New York. One line in my speech attracted the most attention, not least of all by Tim, who was seated beside me.

In my first meeting with Ben Bernanke after he assumed the chair of the Federal Reserve Board in February 2006, I half jokingly mentioned my casual five-year forecast. There were just a few years to go! He politely smiled. It was two years later when Tim Geithner, the president of the Federal Reserve Bank of New York and a former Treasury Department under secretary, visited my apartment. Bear Stearns was collapsing, struggling to fund itself amid growing market doubts about the value of subprime mortgages. A failure of one of Wall Street’s Big Five investment banks clearly would have serious implications. My only advice, perhaps obvious, was that he’d better find a merger partner quick. It took a strenuous weekend’s work for Tim, Ben, and Treasury Secretary Hank Paulson to complete a complicated takeover by JPMorgan Chase.


pages: 224 words: 13,238

Electronic and Algorithmic Trading Technology: The Complete Guide by Kendall Kim

algorithmic trading, automated trading system, backtesting, Bear Stearns, business logic, commoditize, computerized trading, corporate governance, Credit Default Swap, diversification, en.wikipedia.org, family office, financial engineering, financial innovation, fixed income, index arbitrage, index fund, interest rate swap, linked data, market fragmentation, money market fund, natural language processing, proprietary trading, quantitative trading / quantitative finance, random walk, risk tolerance, risk-adjusted returns, short selling, statistical arbitrage, Steven Levy, transaction costs, yield curve

This estimate seems optimistic, with the Aite Group estimating that figure to be closer to $10 billion USD for securities lending and about $5 billion USD for derivative transactions.4 In 2004, Goldman Sachs earned $1.3 billion USD in securities service; for 2005, this estimate increases to $1.7 billion USD or about 10% of all global hedge fund prime brokerage service (see Exhibit 14.5). In comparison, Bear Stearns’ 2004 revenues for Global Clearing Services were $921 million USD (see Exhibit 14.6). Bear Stearns’ revenue for 2005 is estimated to be over $1 billion USD or 7% of the industry. IT spending within fund administrators and prime brokerage is currently around $140 million and estimated to increase to $250 million by 2008, according to the TowerGroup.

Sang Lee, ‘‘Shaking Up Prime Brokerage: Unbundling Securities Lending, Financing, and Derivatives Transactions,’’ Aite Group Report 200510171 (October 2005): 12–14. 162 Electronic and Algorithmic Trading Technology Bear Stearns Revenue 3 US $B 2.5 2 1.5 1 Global Clearing Services Exhibit 14.6 Q3 2005 Q2 2005 Q1 2005 Q4 2004 Q3 2004 Q2 2004 Q1 2004 Q4 2003 Q3 2003 Q2 2003 Q1 2003 Q4 2002 Q3 2002 Q2 2002 0 Q1 2002 0.5 Total Bear Stearns revenues 2002–2005. Source: Aite Group. advantage of one prime broker versus another is the ability to provide a broad product range of services efficiently in different asset classes.

Veronica Belitski, ‘‘Brokerages Strive to Stand Out Amid Algo Glut,’’ Electronic Trading Outlook, Wall Street Letter, June 2006, http://www.rblt.com/documents/hybridsupplement. pdf. 150 Electronic and Algorithmic Trading Technology IT Spending by Broker-Dealers JP Morgan Morgan Stanley Merrill Lynch & Co. Citigroup Global Markets Holding Goldman Sachs & Co. Lehman Brothers Holdings Fidelity Brokerage Services Bear, Stearns & Co. Credit Suisse 2004 2005 Charles Schwab & Co. 0 Exhibit 13.2 0.5 1 1.5 2 2.5 U.S. $Billions 3 3.5 Source: Company filings, interviews, Aite Group. potentially use algorithmic orders for their own purposes, going against the buy-side execution (see Exhibit 13.3). Agency-only brokers may pose less of a risk than large broker-dealers, given that many do not have proprietary trading desks trading firm capital on behalf of the bank.


pages: 239 words: 70,206

Data-Ism: The Revolution Transforming Decision Making, Consumer Behavior, and Almost Everything Else by Steve Lohr

"World Economic Forum" Davos, 23andMe, Abraham Maslow, Affordable Care Act / Obamacare, Albert Einstein, Alvin Toffler, Bear Stearns, behavioural economics, big data - Walmart - Pop Tarts, bioinformatics, business cycle, business intelligence, call centre, Carl Icahn, classic study, cloud computing, computer age, conceptual framework, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, Danny Hillis, data is the new oil, data science, David Brooks, driverless car, East Village, Edward Snowden, Emanuel Derman, Erik Brynjolfsson, everywhere but in the productivity statistics, financial engineering, Frederick Winslow Taylor, Future Shock, Google Glasses, Ida Tarbell, impulse control, income inequality, indoor plumbing, industrial robot, informal economy, Internet of things, invention of writing, Johannes Kepler, John Markoff, John von Neumann, lifelogging, machine translation, Mark Zuckerberg, market bubble, meta-analysis, money market fund, natural language processing, obamacare, pattern recognition, payday loans, personalized medicine, planned obsolescence, precision agriculture, pre–internet, Productivity paradox, RAND corporation, rising living standards, Robert Gordon, Robert Solow, Salesforce, scientific management, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley startup, SimCity, six sigma, skunkworks, speech recognition, statistical model, Steve Jobs, Steven Levy, The Design of Experiments, the scientific method, Thomas Kuhn: the structure of scientific revolutions, Tony Fadell, unbanked and underbanked, underbanked, Von Neumann architecture, Watson beat the top human players on Jeopardy!, yottabyte

Hammerbacher likes to describe his career as a matter of repeatedly following the smartest people in search of the best problem. His first stop after he graduated was finance. “All these math people who I felt were a lot smarter than I was were going to Wall Street,” he recalls. In 2008, Bear Stearns collapsed and was sold in a fire sale to JPMorgan Chase, a prelude to the full-blown financial crisis that erupted later that year. Yet in the summer of 2005, Bear Stearns was thriving and hiring. The investment bank’s headquarters occupied a new Madison Avenue office tower, and its pulsing moneymaking engines were its eight trading floors, each several times the size of a basketball court.

Given his family background, Hammerbacher was more sensitive than most to just how rarified a slice of the nation’s economic life is Wall Street, and the concentration of wealth it generates. “I spent my days there sitting next to very large pools of capital,” he says. “On a single mortgage hedge, we made or lost more in a day than my father made in a lifetime.” Hammerbacher stayed at Bear Stearns less than a year before moving on. He did not leave because of any particular misgivings about Wall Street. But he decided to take his quantitative talents elsewhere. Better problems were on the horizon. An episode on the trading floor one day got him thinking. Suddenly, the data feed—price quotes, bid and ask offers, financial news, everything—into the trading floor stopped.

Hammerbacher had been happily modeling away, day in and day out, but none of that work mattered without the data. The data, he decided, was more important than the models. And Wall Street, it seemed to him, had it wrong. “Our whole goal was to make the models more complex,” he recalls. “It was a really bad use of quantitative skills.” The day the data stopped at Bear Stearns left a lasting impression. Hammerbacher calls it an “educational moment,” a lightbulb switching on. It marked a shift in his thinking toward what he and others call a “data first” approach to knowledge discovery and decision making—start with the data, this digital power tool for observing and understanding.


pages: 237 words: 50,758

Obliquity: Why Our Goals Are Best Achieved Indirectly by John Kay

Andrew Wiles, Asian financial crisis, Bear Stearns, behavioural economics, Berlin Wall, Boeing 747, bonus culture, British Empire, business process, Cass Sunstein, computer age, corporate raider, credit crunch, Daniel Kahneman / Amos Tversky, discounted cash flows, discovery of penicillin, diversification, Donald Trump, Fall of the Berlin Wall, financial innovation, Goodhart's law, Gordon Gekko, greed is good, invention of the telephone, invisible hand, Jane Jacobs, junk bonds, lateral thinking, Long Term Capital Management, long term incentive plan, Louis Pasteur, market fundamentalism, Myron Scholes, Nash equilibrium, pattern recognition, Paul Samuelson, purchasing power parity, RAND corporation, regulatory arbitrage, shareholder value, Simon Singh, Steve Jobs, Suez canal 1869, tacit knowledge, Thales of Miletus, The Death and Life of Great American Cities, The Predators' Ball, The Wealth of Nations by Adam Smith, ultimatum game, urban planning, value at risk

In the twenty-first century, the mantle of Salomon, Drexel and Bankers Trust was assumed by Bear Stearns and Lehman. Bear Stearns faced collapse in the spring of 2008 and was absorbed into JPMorgan Chase with substantial assistance from the U.S. taxpayer. Lehman famously went bankrupt in September 2008, its CEO, Dick Fuld, justifying his three-hundred-million-dollar remuneration to the end and beyond.14 In this chapter and the last, I’ve described the most spectacular exemplars of the era of corporate and financial-sector greed—Citigroup, Bear Stearns and Lehman, before them Salomon, Drexel and Bankers Trust. The common feature of every one of these companies is that huge sums of money were made by individuals in them but the business itself ultimately incurred massive losses of money, reputation or both.

The difficulties of pursuing happiness begin with the difficulty of knowing what it is we pursue. A heartwarming film, The Pursuit of Happyness (sic)9 stars Will Smith in a rags-to-riches story. Loosely based on an account by Chris Gardner,10 it tells of an African American kid who rises from homelessness through the brokerage firms Dean Witter and Bear Stearns to become chief executive of a securities trading business. For Gardner, the pursuit of happiness begins when he sees a broker in a red Ferrari in a hospital parking lot. From then on, drive and ambition take him directly to the top. Eventually Gardner himself acquires a red Ferrari. But this story tells us more about modern American life and values than about happiness.

Igor anthologies, literary anthropomorphization anti-inflammatory drugs Apple Apprentice, The arbitrage Archimedes architecture Aristotle Arrow, Kenneth art Art of the Deal, The (Trump) art experts artificial intelligence Asian financial crisis (1997) aspirin assets authority Autobiography (Mill) aviation industry Balboa, Vasco de Bankers Trust banking industry Barnevik, Percy Basel agreements (1987) basic goals Bear Stearns Beckham, David Bell, Alexander Graham bell curve Bengal Bentonville, Ark. Berlin, Isaiah Berlin Wall beta-blockers Black, James “blind watchmaker” Boeing Boeing 737 airliner Boeing 747 airliner Boeing 777 airliner Boesky, Ivan bonuses Borges, Jorge Luis Borodino, Battle of Boston Consulting Group brain damage brain teasers Brando, Marlon Brasília Brave New World (Huxley) Brin, Sergey British empire brokerage firms Bruck, Connie Brunelleschi, Filippo Buffett, Warren Built to Last (Collins and Porras) Burke, Edmund Burns, Robert Bush, George W.


pages: 413 words: 117,782

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

activist fund / activist shareholder / activist investor, algorithmic trading, Bear Stearns, Berlin Wall, Bob Litterman, bonus culture, book value, BRICs, business process, buy and hold, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, commoditize, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, diversification, eat what you kill, Emanuel Derman, financial innovation, fixed income, friendly fire, Glass-Steagall Act, Goldman Sachs: Vampire Squid, high net worth, housing crisis, junk bonds, London Whale, Long Term Capital Management, merger arbitrage, Myron Scholes, new economy, passive investing, performance metric, proprietary trading, radical decentralization, risk tolerance, Ronald Reagan, Saturday Night Live, Satyajit Das, shareholder value, short selling, sovereign wealth fund, subprime mortgage crisis, systems thinking, The Nature of the Firm, too big to fail, value at risk

Ellis notes, “The persistent demand to meet or beat both internal and external expectations of excellence [is one of the] penalties of industry leadership.” 18 Traditionally, firms want to meet or exceed expectations, believing it demonstrates how well they are run. I analyzed Bear Stearns, Goldman, Lehman, Merrill Lynch, and Morgan Stanley’s ability to meet or beat analyst EPS and revenue published expectations from 1999 (when Goldman went public) to 2008 (the credit crisis). There was a statistically significant difference between the firms. Bear Stearns and Lehman more consistently met or exceeded analyst expectations and showed the highest correlations, implying that they were “managing to analyst models.” Obviously those two firms failed.

Weinberg, “Wall Street Needs More Skin in the Game,” Wall Street Journal, September 30, 2009, http://online.wsj.com/article/SB10001424052748704471504574443591328265858.html. 6. Bear Stearns recently agreed to settle a 2009 class action suit brought by its shareholders, who lost most of their investments when the firm started to collapse, the value of their shares falling from more than $170 per share to as little as $2, although J.P. Morgan paid them $10 per share when it bought Bear Stearns. According to Tom Braithwaite and Tracy Alloway of the Financial Times, the $275 million settlement, agreed upon without any admission of wrongdoing, is “a rare example of senior Wall Street figures being held accountable for allegations of misconduct.”

Some at Goldman have even claimed that having many alumni in important positions has “disadvantaged” the firm.10 For example, a Goldman spokesman was quoted in a 2009 Huffington Post article as saying, “What benefit do we get from all these supposed connections? I would say we were disadvantaged from having so many alumni in important positions. Not only are we criticized—sticks and stones may break my bones but words do hurt, they really do—but we also didn’t get a look-in when Bear Stearns was being sold and with Washington Mutual. We were runner-ups in the auction for IndyMac, in the losing group for BankUnited. If all these connections are supposed to swing things our way, there’s just one bit missing in the equation.” The spokesman added that government agencies have bent over backward to avoid any perception of impropriety, explaining that when the firm’s executives would meet with then-Treasury Secretary Paulson, “it was impossible to have a conversation with him without it being chaperoned by the general counsel of Treasury.”11 The vast majority of the employees, who joined Goldman decades after the original principles were written, do not really know the original meaning of the principles.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Alan Greenspan, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, bond market vigilante , 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, currency risk, 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, Goodhart's law, Greenspan put, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, junk bonds, Kenneth Rogoff, Kickstarter, labour market flexibility, Les Trente Glorieuses, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, market clearing, Martin Wolf, Minsky moment, Money creation, 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, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, Suez crisis 1956, 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

The prices of CDO tranches plunged. There were no buyers so they were impossible to sell. No one knew who owned what or how much each bank was exposed. It was tempting to assume the worst. Bear Stearns, a US investment bank, had run two high-profile funds that invested in the sub-prime mortgage market (one had the amazing name of the High-Grade Structured Credit Enhanced Leverage Fund); when they got into trouble, Bear Stearns propped up the funds to avoid the embarrassment of client losses. Lehman Brothers, another investment bank, had been aggressively expanding into property lending. Such banks were dependent on funding from the wholesale market; in other words, from other banks and institutions.

Chuck Prince, the former head of Citigroup, once said that ‘When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.’21 For Prince and his ilk, failure to generate enough profit in the short term would simply lead to the sack. The likes of Dick Fuld at Lehman Brothers and Jimmy Cayne at Bear Stearns lost hundreds of millions of their own money when their banks collapsed. So why weren’t they more cautious, as Greenspan’s theories suggested they should be? Part of the reason is psychological – the type of people who rise to the top of investment banks will inevitably be those who are used to taking risks.

It was assumed by regulators that private businesses would have every incentive to control their risks, particularly as other banks would be trading with them every day, and thus be watching for signs of weakness. The ever-efficient market would supply the discipline. Indeed in 2004, the Securities and Exchange Commission, the leading US regulator, removed the caps on the amount of leverage that the leading broker-dealers (a category that included Bear Stearns and Lehman Brothers) could use. There were thus no constraints on the ability of the investment banks to bet the franchise. The system was not just huge, it was complex. The big banks were each conducting millions of transactions with each other every day, some that involved loans, some that involved trades of shares or bonds, some that involved derivative instruments such as options and swaps.


pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

air freight, Alan Greenspan, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, break the buck, Bretton Woods, business cycle, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, foreign exchange controls, forward guidance, Fractional reserve banking, full employment, Glass-Steagall Act, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, Les Trente Glorieuses, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, proprietary trading, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, subprime mortgage crisis, tail risk, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen, Tyler Cowen: Great Stagnation, vertical integration, very high income, winner-take-all economy, zero-sum game

But it carried out the classic banking functions of financing long-term, relatively risky and illiquid assets from short-term, relatively safe and liquid liabilities. 11. Francesco Guerrera and Henny Sender, ‘JP Morgan Buys Bear Stearns for $2 a Share’, Financial Times, 16 March 2008. 12. Ben White, ‘Buoyant Bear Stearns Shrugs Off Subprime Woes’, Financial Times, 16 March 2007. 13. Martin Wolf, ‘The Rescue of Bear Stearns Marks Liberalisation’s Limit’, Financial Times, 25 March 2008. 14. Paulson, On the Brink, p. 170, and Krishna Guha, Chris Giles, Saskia Scholtes and Joanna Chung, ‘US Takes Control of Fannie and Freddie’, Financial Times, 8 September 2008. 15.

The label stuck.10 Both these lessons – the widespread distribution of opaque securitized assets (the bundling of debts into marketable securities) and the reliance of so many intermediaries on funding from wholesale markets – turned out to have great relevance as the crisis worsened in 2008. Then, on 16 March 2008, the Financial Times reported: ‘JP Morgan Buys Bear Stearns for $2 a Share’.11 The Federal Reserve provided backup funding of $30bn for this operation, taking some of the credit risk in the process. Just a year before that calamity the Financial Times had reported: ‘Bear Stearns yesterday became the latest Wall Street bank to report strong earnings and insist that it does not see much lasting impact from the crisis in the subprime mortgage market.’12 It would say that, wouldn’t it?

With the exception of the savings and loan debacle, these disruptions generally focused on a single organization, such as the hedge fund Long-Term Capital Management in 1998. The crisis that began in 2007 was far more severe, and the risks to the economy and the American people much greater. Between March and September 2008, eight major US financial institutions failed – Bear Stearns, IndyMac, Fannie Mae, Freddie Mac, Lehman Brothers, AIG, Washington Mutual, and Wachovia – six of them in September alone. And the damage was not limited to the US. More than 20 European banks, across 10 countries, were rescued from July 2007 through February 2009. This, the most wrenching financial crisis since the Great Depression, caused a terrible recession in the US and severe harm around the world.


pages: 655 words: 156,367

The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era by Gary Gerstle

2021 United States Capitol attack, A Declaration of the Independence of Cyberspace, affirmative action, Affordable Care Act / Obamacare, air traffic controllers' union, Airbnb, Alan Greenspan, Alvin Toffler, anti-communist, AOL-Time Warner, Bear Stearns, behavioural economics, Bernie Sanders, Big Tech, Black Lives Matter, blue-collar work, borderless world, Boris Johnson, Brexit referendum, British Empire, Broken windows theory, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, collective bargaining, Cornelius Vanderbilt, coronavirus, COVID-19, creative destruction, crony capitalism, cuban missile crisis, David Brooks, David Graeber, death from overwork, defund the police, deindustrialization, democratizing finance, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, Donald Trump, Electric Kool-Aid Acid Test, European colonialism, Ferguson, Missouri, financial deregulation, financial engineering, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, future of work, Future Shock, George Floyd, George Gilder, gig economy, Glass-Steagall Act, global supply chain, green new deal, Greenspan put, guns versus butter model, Haight Ashbury, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Ida Tarbell, immigration reform, informal economy, invention of the printing press, invisible hand, It's morning again in America, Jeff Bezos, John Perry Barlow, Kevin Kelly, Kitchen Debate, low interest rates, Lyft, manufacturing employment, market fundamentalism, Martin Wolf, mass incarceration, Menlo Park, microaggression, Mikhail Gorbachev, military-industrial complex, millennium bug, Modern Monetary Theory, money market fund, Mont Pelerin Society, mortgage debt, mutually assured destruction, Naomi Klein, neoliberal agenda, new economy, New Journalism, Northern Rock, obamacare, Occupy movement, oil shock, open borders, Peter Thiel, Philip Mirowski, Powell Memorandum, precariat, price stability, public intellectual, Ralph Nader, Robert Bork, Ronald Reagan, scientific management, Seymour Hersh, sharing economy, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, social distancing, Steve Bannon, Steve Jobs, Stewart Brand, Strategic Defense Initiative, super pumped, technoutopianism, Telecommunications Act of 1996, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, Uber and Lyft, uber lyft, union organizing, urban decay, urban renewal, War on Poverty, Washington Consensus, We are all Keynesians now, We are the 99%, white flight, Whole Earth Catalog, WikiLeaks, women in the workforce, Works Progress Administration, Y2K, Yom Kippur War

In September 2007 a British bank (Northern Rock) involved in mortgage securitization failed. In March 2008 the American investment house Bear Stearns itself stood at the edge of collapse, saved only by J. P. Morgan Chase’s decision to purchase it at a bargain basement price. The Bear Stearns balance sheet was so toxic that J. P. Morgan Chase demanded and received a $13 billion loan from the US Treasury and a commitment from the Fed to take on $30 billion of Bear Stearns’s worst assets.64 Soon after, word began reaching secretary of the treasury Henry Paulson that Fannie Mae and Freddie Mac might soon be facing a Bear Stearns–like reckoning. Despite opposition from hardline neoliberals in the GOP opposed to any bailout, Paulson secured authorization from Congress in late July to do what was necessary to save these two mammoth lending institutions.

They had no use for Bush’s cosmopolitanism, his vision of an America strengthened by its diversity. And they were coming to despise Bush and Paulson for their willingness to court the votes of “cosmopolitan” Democrats to get their bailout packages through Congress.65 Paulson’s more immediate problem, however, was that neither the Bear Stearns bailout nor the emerging Fannie Mae–Freddie Mac package seemed to be righting America’s financial ship. By mid-September, two more major US investment houses, Lehman Brothers and Merrill Lynch, stood at the edge of collapse. Wall Street expected that a buyer, likely Bank of America, would save Lehman, the fourth biggest investment bank in the United States.

An AIG implosion would be the equivalent of what one Wall Street insider described as an “extinction-level” event.67 It could not be allowed to happen. On Tuesday, September 16, 2008, the Fed, at the instruction of Ben Bernanke, Greenspan’s replacement as Fed chair, rushed in with an $85 billion rescue package similar in size to what it had offered Bear Stearns in March.68 This dramatic intervention settled markets momentarily, but both Bernanke and Paulson, as well as their close collaborator, Timothy Geithner, head of the New York branch of the Federal Reserve, knew that more had to be done. Money market funds—a system used globally by millions of consumers as savings accounts and by businesses to park temporarily hundreds of billions in cash—were edging toward default.


pages: 381 words: 101,559

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

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, bank run, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, deal flow, Deng Xiaoping, diversification, diversified portfolio, Dr. Strangelove, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, Great Leap Forward, guns versus butter model, high net worth, income inequality, interest rate derivative, it's over 9,000, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, power law, price mechanism, price stability, private sector deleveraging, proprietary trading, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, short squeeze, sovereign wealth fund, special drawing rights, special economic zone, subprime mortgage crisis, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, vertical integration, War on Poverty, Washington Consensus, zero-sum game

Yet in a sense they were, because economics is ultimately the study of human decision making with regard to goods in conditions of scarcity. The sociologists cast a bright light on these decision-making processes. Former Bear Stearns CEO Alan Schwartz can attest to the power of Merton’s self-fulfilling prophecy. On March 12, 2008, Schwartz told CNBC, “We don’t see any pressure on our liquidity, let alone a liquidity crisis.” Forty-eight hours later Bear Stearns was headed to bankruptcy after frightened Wall Street banks withdrew billions of dollars of credit lines. For Bear Stearns, this was a real-life version of Merton’s thought experiment. A breakthrough in the impact of social psychology on economics came with the work of Daniel Kahneman, Amos Tversky, Paul Slovic and others in a series of experiments conducted in the 1950s and 1960s.

During the first part of the depression that began in 2007, sovereign wealth funds were the primary source of bailout money. In late 2007 and early 2008, SWFs invested over $58 billion to prop up Citigroup, Merrill Lynch, UBS and Morgan Stanley. China was considering an additional $1 billion investment in Bear Stearns in early 2008 that was abandoned only when Bear Stearns neared collapse in March of that year. When these investments were decimated in the Panic of 2008 the U.S. government had to step in with taxpayer money to continue the bailouts. The sovereign wealth funds lost vast fortunes on these early investments, yet the stock positions and the influence that came with them remained.

In that crisis, the heads of the “fourteen families,” the major banks at the time, came together with no template, except possibly the Panic of 1907, and in seventy-two hours put together a $3.6 billion all-cash bailout to save capital markets from collapse. In 2008, Geithner, then president of the New York Fed, revived the use of convening power as the U.S. government employed ad hoc remedies to resolve the failures of Bear Stearns, Fannie Mae and Freddie Mac from March to July of that year. When the Panic of 2008 hit with full force in September, the principal players were well practiced in the use of convening power. The first G20 leaders’ meeting, in November 2008, can be understood as Geithner’s convening power on steroids.


pages: 662 words: 180,546

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"there is no alternative" (TINA), Adam Curtis, Alan Greenspan, Alvin Roth, An Inconvenient Truth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, bond market vigilante , bread and circuses, Bretton Woods, Brownian motion, business cycle, capital controls, carbon credits, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, democratizing finance, disinformation, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, Flash crash, full employment, George Akerlof, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Phillips curve, Ponzi scheme, Post-Keynesian economics, precariat, prediction markets, price mechanism, profit motive, public intellectual, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, savings glut, school choice, sealed-bid auction, search costs, Silicon Valley, South Sea Bubble, Steven Levy, subprime mortgage crisis, tail risk, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, tontine, too big to fail, transaction costs, Tyler Cowen, vertical integration, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

The net result turned out to be an infusion of surplus public confusion in an already chaotic situation. This is what agnotology in the crisis looks like. The plan to run an auction for toxic assets originated in the immediate aftermath of the March 2008 Bear Stearns collapse, and from the conviction among market participants and some Treasury and Fed staff that it would be wise to have a plan to “pull off the shelf” in the case of another Bear Stearns–type emergency. Following several rounds of discussion between staff at the Treasury and the New York and D.C. Feds, Neel Kashkari and Phillip Swagel drafted a memo entitled “Break the Glass: Bank Recapitalization Plan.”120 In this memo, Kashkari and Swagel identified alternative emergency measures, argued in favor of using asset auctions to remove mortgage-related assets from bank balance sheets, and set forth a timeline for completing the asset purchases.

In the midst of the downdraft of 2008–9, I remember people saying to me: Yes, it’s been awful, but maybe the trial by fire will cleanse as well as sear. As Jenny Turner reminisced in the London Review of Books, “People imagined that a crash, when it came, would act like Occam’s Razor, cutting out the hedge funds and leaving the world a little saner . . .” Who among us back then did not suspect that the collapse of Bear Stearns, Lehman Brothers, AIG, Northern Rock, Lloyd’s Bank, Anglo Irish Bank, Kaupthing, Landsbanki, Glitnir (and a parade of lesser institutions) would at least cut through the smarmy triumphalism of those who claimed to fully comprehend the workings of the globalized economy? Such a simultaneous worldwide collapse, first of finance, then of the rest of economic activity, had up till then been the hallmark of conspiracy theorists, apocalypse mongers, and some unreconstructed historical materialists.

Lesson 2: Economists lost control of the discussion of the shape of the crisis early on Exhibit #1 demonstrating that the economics profession was caught unawares by the meltdown in 2008 was the fact that it rapidly lost any control over how the crisis was discussed in public that year. From the failure of Bear Stearns forward, journalists scrambled to understand how it could be that problems in one sector would ramify and amplify into other sectors, such that the entire financial system seemed poised on the brink of utter failure. There had been bankruptcies and dodgy financial deals before: What was so different this time around?


pages: 190 words: 61,970

Life You Can Save: Acting Now to End World Poverty by Peter Singer

accounting loophole / creative accounting, Bear Stearns, Branko Milanovic, Cass Sunstein, clean water, do well by doing good, end world poverty, experimental economics, Garrett Hardin, illegal immigration, Larry Ellison, Martin Wolf, microcredit, Monkeys Reject Unequal Pay, Peter Singer: altruism, pre–internet, purchasing power parity, randomized controlled trial, Richard Thaler, Silicon Valley, subprime mortgage crisis, Thomas Malthus, Tyler Cowen, ultimatum game, union organizing

That view was echoed by Michele Segalla, then a senior managing director, who found that the policy “gets you to do what you want to do anyways.” Segalla also pointed out that people at Bear Stearns talked more about giving than those at another financial firm where she had previously worked. There, it would have been awkward to raise the topic, because you never knew whether your coworkers gave at all. At Bear Stearns, however, directors sent one another memos about their favorite causes, forming a network that made giving more effective.11 In an example of how a culture of giving can change, just four days after an article on Bear Stearns’s policy of mandatory charitable donations appeared in The New York Times, its rival Goldman Sachs announced that it was setting up a new charitable fund called Goldman Sachs Gives, and that the partners had agreed to give a part of their earnings to it.

If their employer instead automatically enrolls them, giving them the choice of opting out, participation jumps dramatically10 The lesson is that often it doesn’t take much of a nudge to overcome the apathy that gets in the way of our doing what we know would be best for us. The right kind of nudge— whether it comes from government, corporations, voluntary organizations, or even ourselves—can also help us do what we know we really ought to do. The investment bank and securities trader Bear Stearns— before its sale to JPMorgan Chase during the 2008 subprime mortgage crisis—made sure that neither apathy nor selfishness prevented its leaders from doing the right thing. One of the guiding principles listed on its website was a commitment to philanthropy, based on the belief that a personal commitment to charity is an underpinning of good citizenship and fosters a more-rounded individual.

Instead of having to spend money to keep up appearances because otherwise people will think you can’t afford to buy new clothes or a new car, or to renovate your home, you now have a good reason for keeping the things that you find perfectly comfortable and serviceable: You have a better use for the money. And you could even end up happier, because taking part in a collective effort to help the world’s poorest people would give your life greater meaning and fulfillment. As we have seen, people at Bear Stearns found their giving gratifying, and many members of the 50% League, including some who are by no means rich, feel that their giving has brought meaning and purpose to their lives. It can do the same for you. Not long ago, at a dinner with the president of a university where I had given a talk, I found myself seated next to Carol Koller, a fund-raiser for the university.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

active measures, Alan Greenspan, AOL-Time Warner, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business climate, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, declining real wages, deindustrialization, Easter island, endogenous growth, eurozone crisis, financial engineering, financial innovation, first-past-the-post, full employment, Glass-Steagall Act, Great Leap Forward, guns versus butter model, Hyman Minsky, industrial robot, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market fundamentalism, Mexican peso crisis / tequila crisis, military-industrial complex, Money creation, money market fund, mortgage debt, Myron Scholes, negative equity, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, paper trading, Paul Samuelson, planetary scale, post-oil, price stability, quantitative easing, reserve currency, rising living standards, Ronald Reagan, special economic zone, Steve Jobs, structural adjustment programs, Suez crisis 1956, systematic trading, too big to fail, trickle-down economics, urban renewal, War on Poverty, WikiLeaks, Yom Kippur War

Chronicle of a Crash foretold: Credit Crunch, bailouts and the socialization of nearly everything 2007 – The canaries in the mine April – New Century Financial, a mortgage company that had issued a great number of sub-prime mortgages, goes under, with reverberations throughout the sector. July – Bear Stearns, the respected merchant bank, announces that two of its hedge funds will not be able to pay their investors their dues. The new chairman of the Fed, Ben Bernanke (who had only recently replaced Alan Greenspan) announces that the sub-prime crisis is serious and its cost may rise to $100 billion. August – French merchant bank BNP-Paribas makes a similar announcement to that of Bear Stearns concerning two of its hedge funds. Its explanation? That it can no longer value its assets. In reality, this is an admission that its coffers are full of CDOs, the demand for which has fallen to precisely zero, thus making it impossible to price them.

The bankers paid the credit rating agencies to extend triple-A status to the CDOs that they issued; the regulating authorities (including the central bank) accepted these ratings as kosher; and the up-and-coming young men and women who had secured a badly paid job with one of the regulating authorities soon began to plan a career move to Lehman Brothers or Moody’s. Overseeing all of them was a host of treasury secretaries and finance ministers who had either already served for years at Goldman Sachs, Bear Stearns, etc. or were hoping to join that magic circle after leaving politics. In an environment that reverberated with the popping of champagne corks and the revving of gleaming Porsches and Ferraris; in a landscape where torrents of bank bonuses flooded into already wealthy areas (further boosting the real estate boom and creating new bubbles from Long Island and London’s East End to the suburbs of Sydney and the high-rise blocks of Shanghai); in that ecology of seemingly self-propagating paper wealth, it would take a heroic – a reckless – disposition to sound the alarm bells, to ask the awkward questions, to cast doubt on the pretence that triple-A rated CDOs carried zero risk.

February – The Fed lets it be known that it is worried about the insurance sector, while the G7 (the representatives of the seven leading developed countries) forecast the cost of the sub-prime crisis to be in the region of $400 billion. Meanwhile the British government is forced to nationalize Northern Rock. Wall Street’s fifth-largest bank, Bear Stearns (which in 2007 was valued at $20 billion) is wiped out, absorbed by JPMorgan Chase, which pays the paltry sum of $240 million for it, with the taxpayer throwing in a subsidy in the order of $30 billion. April – It is reported that more than 20 per cent of mortgage ‘products’ in Britain are being withdrawn from the market, along with the option of taking out a 100 per cent mortgage.


pages: 310 words: 85,995

The Future of Capitalism: Facing the New Anxieties by Paul Collier

"Friedman doctrine" OR "shareholder theory", accounting loophole / creative accounting, Airbnb, An Inconvenient Truth, assortative mating, bank run, Bear Stearns, behavioural economics, Berlin Wall, Bernie Sanders, bitcoin, Bob Geldof, bonus culture, business cycle, call centre, central bank independence, centre right, commodity super cycle, computerized trading, corporate governance, creative destruction, cuban missile crisis, David Brooks, delayed gratification, deskilling, Donald Trump, eurozone crisis, fake news, financial deregulation, full employment, George Akerlof, Goldman Sachs: Vampire Squid, greed is good, income inequality, industrial cluster, information asymmetry, intangible asset, Jean Tirole, Jeremy Corbyn, job satisfaction, John Perry Barlow, Joseph Schumpeter, knowledge economy, late capitalism, loss aversion, Mark Zuckerberg, minimum wage unemployment, moral hazard, negative equity, New Urbanism, Northern Rock, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, race to the bottom, rent control, rent-seeking, rising living standards, Robert Shiller, Robert Solow, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, sovereign wealth fund, The Wealth of Nations by Adam Smith, theory of mind, too big to fail, trade liberalization, urban planning, web of trust, zero-sum game

This was to commit the company to transactions on which the employee received a bonus, but which exposed the company to the hidden risk of a future loss. This behaviour of its employees duly bankrupted the company. Its name was Bear Stearns, and its bankruptcy triggered the financial crisis of 2008–9 that inflicted global costs on a scale only matched by the world wars.* The cost to the USA alone is estimated to have been around $10 trillion. The fates of ICI and Bear Stearns illustrate a crucial point: a company needs a sense of purpose. CEOs can use their position to build that sense of shared purpose. It is indeed a core responsibility and competence of senior management.

The evidence suggests that job satisfaction is actually considerably higher in the private sector; for example, people are far less likely to use illness as a reason for not going to work. So, there is nothing intrinsically dirty about capitalism. Profit is the constraint that forces discipline on a firm, rather than defining its purpose. But the stories of Bear Stearns, ICI and GM indicate that something has gone seriously wrong. What is it? WHO CONTROLS THE FIRM? The answer is that the power of control has become lodged with the wrong people. Capitalism gets its name because ownership of the firm is assigned to the people who provide it with risk capital.

Once the common interest recognizes the principle of maintaining competition, it can use it to repel each specific vested interest heist. The opponents of competition plead that it is unfair, destructive and ignores some imagined benefit provided by the incumbent. Behind these arguments there lurks self-interest: it is motivated reasoning. It was the market, not public intervention that disciplined GM and Bear Stearns. But nevertheless, sometimes competition will not be sufficient. For these tougher circumstances, we need active public policies. While vested interests try to create artificial impediments to competition, in some sectors of the economy there are technological impediments due to atypically powerful economies of scale.


pages: 358 words: 106,729

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

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

A seemingly irrational frenzy may be a product of all-too-rational calculations by financial firms. Risk Taking on the Front Lines A well-managed financial firm takes calculated and limited risks, risks that will make money for the firm if they pay off but will not destroy the firm if they do not. Firms like AIG, Bear Stearns, Citigroup, and Lehman Brothers took risks that were virtually unbounded, albeit low in probability. The most obvious factor driving this behavior seems to be the compensation system, which typically paid hefty bonuses when employees made profits but did not penalize them significantly when they incurred losses.

An obvious answer is that they, like their traders, were taking one-way bets. However, an intriguing study suggests that bank CEOs in some of the worst-hit banks did not lack for incentives to manage their banks well.8 Richard Fuld at Lehman owned about $1 billion worth of Lehman stock at the end of fiscal year 2006, and James Cayne of Bear Stearns owned $953 million. These CEOs lost tremendous amounts when their firms were brought down by what were effectively modern-day bank runs. Indeed, the study shows that banks in which CEOs owned the most stock typically performed the worst during the crisis. These CEOs had substantial amounts to lose if their bets did not play out well (no matter how rich they otherwise were).

But before we attribute too much or too little foresight to CEOs, let us consider the findings of another sobering recent study, which looks at total top-management pay across financial institutions before the crisis and its relationship with subsequent performance.18 The study finds that some firms tended to pay their top management a lot more aggressively in the period 1998–2000, correcting for obvious factors like the size of the bank (big banks pay more because they tend to attract, and need, better talent). Aggressive payers included the usual suspects like Bear Stearns, Lehman, Citigroup, and AIG, whereas more conservative paymasters included firms like JP Morgan. The study finds that those who paid the most aggressively before the crisis were also those who had the worst stock-return performance during the period 2001–2008, the highest stock-return volatility, the highest exposure to subprime mortgages, and, by some counts, the highest leverage.


pages: 338 words: 106,936

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

Alan Greenspan, Albert Einstein, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Apollo 11, Asian financial crisis, bank run, Bear Stearns, beat the dealer, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Bonfire of the Vanities, book value, Bretton Woods, Brownian motion, business cycle, butterfly effect, buy and hold, capital asset pricing model, Carmen Reinhart, Claude Shannon: information theory, coastline paradox / Richardson effect, collateralized debt obligation, collective bargaining, currency risk, dark matter, Edward Lorenz: Chaos theory, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, Financial Modelers Manifesto, fixed income, George Akerlof, Gerolamo Cardano, Henri Poincaré, invisible hand, Isaac Newton, iterative process, Jim Simons, John Nash: game theory, junk bonds, Kenneth Rogoff, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, Market Wizards by Jack D. Schwager, martingale, Michael Milken, military-industrial complex, Myron Scholes, Neil Armstrong, new economy, Nixon triggered the end of the Bretton Woods system, Paul Lévy, Paul Samuelson, power law, prediction markets, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk free rate, risk-adjusted returns, Robert Gordon, Robert Shiller, Ronald Coase, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical arbitrage, statistical model, stochastic process, Stuart Kauffman, The Chicago School, The Myth of the Rational Market, tulip mania, Vilfredo Pareto, volatility smile

The quant crisis, and its reverberations later in 2007, were just the beginning. The next casualty was the eighty-five-year-old investment bank Bear Stearns, in March 2008. Bear Stearns had been a major player in the shadow banking system, producing many of the securitized loans that served as collateral. When the underlying mortgages started to see ever-higher default rates, Bear Stearns’s depositors started to get edgy. Starting in the middle of the month, some of Bear Stearns’s biggest customers asked for their money back at the same time. First was Renaissance, James Simons’s firm, which wanted its $5 billion.

Still, even Medallion had felt the August heat. As 2008 dawned, the quants hoped the worst was behind them. It wasn’t. I began thinking about this book during the fall of 2008. In the year since the quant crisis, the U.S. economy had entered a death spiral, with century-old investment banks like Bear Stearns and Lehman Brothers imploding as markets collapsed. Like many other people, I was captivated by the news of the meltdown. I read about it obsessively. One thing in particular about the coverage jumped out at me. In article after article, I came across the legions of quants: physicists and mathematicians who had come to Wall Street and changed it forever.

The danger comes when we use ideas from physics, but we stop thinking like physicists. There’s one shop in New York that remembers its roots. It’s Renaissance, the financial management firm that doesn’t hire finance experts. The year 2008 hammered a lot of banks and funds. In addition to Bear Stearns and Lehman Brothers, the insurance giant AIG as well as dozens of hedge funds and hundreds of banks either shut down or teetered at the precipice, including quant fund behemoths worth tens of billions of dollars like Citadel Investment Group. Even the traditionalists suffered: Berkshire Hathaway faced its largest loss ever, of about 10% book value per share — while the shares themselves halved in value.


pages: 252 words: 70,424

The Self-Made Billionaire Effect: How Extreme Producers Create Massive Value by John Sviokla, Mitch Cohen

Bear Stearns, Blue Ocean Strategy, business cycle, Cass Sunstein, Colonization of Mars, corporate raider, Daniel Kahneman / Amos Tversky, driverless car, eat what you kill, Elon Musk, Frederick Winslow Taylor, game design, global supply chain, James Dyson, Jeff Bezos, John Harrison: Longitude, Jony Ive, loss aversion, Mark Zuckerberg, market design, megaproject, old-boy network, paper trading, RAND corporation, randomized controlled trial, Richard Thaler, risk tolerance, scientific management, self-driving car, Sheryl Sandberg, Silicon Valley, smart meter, Steve Ballmer, Steve Jobs, Steve Wozniak, tech billionaire, Tony Hsieh, Toyota Production System, Virgin Galactic, young professional

Would Redken have been the first hair care brand to explode the market for salon-quality hair products if John Paul Mitchell Systems cofounder John Paul DeJoria had not been fired for his unconventional sales leadership style? Would Miles Laboratories have succeeded if it had pursued the idea posed by Michael Jaharis, then a young lawyer in its ranks, to proactively brand and market acetaminophen years before Tylenol became a household name? What if Salomon Brothers had kept Michael Bloomberg, or Bear Stearns had exploited the inventive ideas of Stephen Ross? Jobs, Case, DeJoria, Jaharis, Bloomberg, and Ross, as well as Broadcast.com founder Mark Cuban, Celtel founder Mo Ibrahim, oil-and-gas magnate T. Boone Pickens, and scores of other extreme entrepreneurs all worked for established corporations before they struck out on their own.

When he was in his midtwenties he relocated to New York from his native Detroit to work for the investment bank Laird, Inc. His job at the time was to structure affordable housing deals for clients seeking investments to use as tax shelters. But Ross had been in New York only a year when he lost his job in a leadership coup. Ross quickly found a home in the real estate division at Bear Stearns, but there too he met with problems. Though Ross knew his market, he was too junior to close deals on his own. Real estate was a niche area of investment banking at the time and considered very high risk. Ross needed his boss at the table to make deals happen but, according to Ross, his boss treated him in a disrespectful and condescending manner.

Drawing again on the lessons from behavioral science, Producers seem overwhelmingly able to accept the risk of short-term loss or sacrifice in order to increase the odds of generating enormous value in the future.26 Producers can take the relative view because they have a very clear understanding of the best alternative acceptable to them within that larger, more relative context. For unsatisfied employees like Stephen Ross the best alternative they can see is working for a boss or a company who doesn’t “get” them and who doesn’t see the world and the opportunities it presents. At worst, they can be unemployed. Having left Bear Stearns, Ross was already unemployed, so he had little to lose as he worked to create a business as a real estate developer. He had written up a business plan for a company while still with Laird, and he wondered if he could launch it. Ross was thinking big and using Empathetic Imagination based on his existing knowledge: he imagined a company that married all of the component parts of affordable housing development, including developing new properties, financing mortgages, syndicating existing developments, and obtaining government subsidies for housing and urban development.


pages: 484 words: 136,735

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

"World Economic Forum" Davos, Alan Greenspan, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, classic study, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, eat what you kill, Edward Glaeser, electricity market, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, foreign exchange controls, full employment, geopolitical risk, George Akerlof, global rebalancing, Goodhart's law, Great Leap Forward, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, long and variable lags, Long Term Capital Management, low interest rates, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, military-industrial complex, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, Paul Volcker talking about ATMs, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, seminal paper, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, systems thinking, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

Capital and labor were shifting out of housing and consumption into the technology and industrial sectors, reducing America’s enormous trade deficits and creating the conditions for an export-led growth model previously associated with Germany and Japan.14 A further reason for calm, even less widely recognized outside the financial markets, was the gradual deleveraging in banking that followed the government-assisted sale of Bear Stearns to J.P. Morgan. This deleveraging was doing less damage to the nonfinancial economy than generally expected for a reason suggested in Chapter 7: The really dangerous financial excesses were not in the debts taken on by homeowners and consumers but in the astronomical mutual obligations run up between the financial institutions themselves. After the winding-up of Bear Stearns in March 2008 and the regulatory forbearance offered by the New York insurance commissioner to the municipal bond insurers, these mutual debts in the financial sector were starting to be cancelled out in a fairly nondisruptive way.

But a proper understanding of the difference between financial and nonfinancial leverage still held out hope of protecting the nonfinancial economy from the worst effects of a credit collapse. Deleveraging within the financial sector was proceeding rapidly after the rescue of Bear Stearns in March 2008. But if a single link in the debt-chains between financial institutions were broken, chaos would ensue. The risk of such breakdowns had been recognized by both regulators and bankers in the early days of the credit crunch and had been successfully handled (albeit at huge cost to bank shareholders) in 2007, when the mortgage-oriented hedge funds and Special Investment Vehicles set up by Bear Stearns, Citibank, UBS, HSBC, and many other major banks were bailed out by their sponsoring institutions.

These bailouts were expensive to the bank shareholders but prevented systemic collapse by maintaining the integrity of all the links in the chain of mutual obligations in the financial system. This was a crucial lesson of the early phase of the credit crunch that the U.S. Treasury and the Fed recognized in the Bear Stearns deal but, in the autumn of 2008, decided to recklessly ignore. It was only on September 15, when Lehman Brothers went bankrupt, that the world suddenly suffered a near-fatal cardiac arrest. As Mervyn King said six months later:16 “The world economy changed after the events of Lehman, but it wasn’t the failure of Lehman’s as such.


pages: 457 words: 143,967

The Bank That Lived a Little: Barclays in the Age of the Very Free Market by Philip Augar

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Bonfire of the Vanities, bonus culture, book value, break the buck, business logic, call centre, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, family office, financial deregulation, financial innovation, fixed income, foreign exchange controls, Glass-Steagall Act, high net worth, hiring and firing, index card, index fund, interest rate derivative, light touch regulation, loadsamoney, Long Term Capital Management, long term incentive plan, low interest rates, Martin Wolf, money market fund, moral hazard, Nick Leeson, Northern Rock, offshore financial centre, old-boy network, out of africa, prediction markets, proprietary trading, quantitative easing, risk free rate, Ronald Reagan, shareholder value, short selling, Sloane Ranger, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, too big to fail, vertical integration, wikimedia commons, yield curve

Diamond and Steel spoke regularly during the crisis, updating each other on what was happening in the markets. During one of those conversations, in late March, Diamond had asked Steel whether there had been any other interest in Bear Stearns at the time it was rescued by J. P. Morgan. It was a calculated question, because talk was that, with an emergency loan from the New York Federal Reserve Bank to Bear Stearns and background help from the Treasury, J. P. Morgan had got a bargain. It was a polite way of saying: ‘Look, if that happens again, don’t forget us.’ Like most other bankers at the time, Diamond was still working on the assumption that the pre-crisis investment banking model – highly leveraged on a thin capital base – would remain the way forward.

On 2 April 2007, the acquisition was completed at a price of $76 million, a third of the original price.13 The same day, New Century Financial, a US mortgage lender specializing in the sub-prime sector, filed for bankruptcy, and a few days later Countrywide Financial, the largest US mortgage lender, reported a slump in sub-prime profits. In June, the investment bank Bear Stearns suspended investors’ right to redeem their money from two of its hedge funds that had invested heavily in sub-prime. In July, the chairman of the US Federal Reserve, Ben Bernanke, in evidence to the US Congress, warned that the crisis in sub-prime could cost financial institutions up to $100 billion, a figure he described as ‘fairly significant’.

In March HSBC announced $17 billion in impairment charges – write-downs to reflect the likelihood of borrowers defaulting – following a disastrous $16 billion acquisition in 2002 of Household International, a US bank that specialized in second mortgage lending. The same month, in a US government-sponsored deal, J. P. Morgan Chase bought the failed investment bank Bear Stearns for a song after it sustained huge losses in the mortgage markets. Any semblance of order in the global financial system had gone. Central bank intervention, including a $200 billion Fed injection into markets in March 2008 and a Bank of England special liquidity scheme in the following month that enabled banks to swap securities for bonds issued by the government, was required to keep the system functioning.


pages: 312 words: 93,836

Barometer of Fear: An Insider's Account of Rogue Trading and the Greatest Banking Scandal in History by Alexis Stenfors

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, bonus culture, capital controls, collapse of Lehman Brothers, credit crunch, Credit Default Swap, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, fixed income, foreign exchange controls, game design, Gordon Gekko, inflation targeting, information asymmetry, interest rate derivative, interest rate swap, London Interbank Offered Rate, loss aversion, mental accounting, millennium bug, Nick Leeson, Northern Rock, oil shock, Post-Keynesian economics, price stability, profit maximization, proprietary trading, regulatory arbitrage, reserve currency, Rubik’s Cube, Snapchat, Suez crisis 1956, the market place, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, work culture , Y2K

The stigma attached to being perceived as a bank with funding problems gives all LIBOR banks an incentive to submit relatively low quotes to distance themselves from the others. For instance, when the US investment bank Bear Stearns was heading for a collapse in March 2008 (and was ultimately bought by JPMorgan Chase), the money markets were exceptionally choppy and illiquid. Looking back, it was probably the closest warning we got of what would happen if a bank the size of Lehman Brothers went under. Bear Stearns was more than just a tremor. It was an earthquake. LIBORs should have gone to the moon. But which banks were prepared to wave a white flag and honestly admit that they were having difficulties getting hold of cash?

When I got into the dealing room, it was as if someone had died. But this was not a sudden or unexpected death; rather, it was a slow and painful process that had reached an inevitable outcome. No matter how fierce the competition between Merrill Lynch, Lehman Brothers, Morgan Stanley, Goldman Sachs and Bear Stearns had been, there remained a sense of respect and togetherness among the US investment banks. Everything would change from that day on. With Lehman Brothers declared bankrupt, Merrill Lynch would not have survived another day had Bank of America not stepped in and rescued us at the very last minute.

At first, some asset-backed securities markets that hardly anyone had heard of ran into trouble. The virus then spread to markets that had traditionally been seen as relatively safe. The crisis kept on coming closer to traders such as myself, and soon substantial losses were reported by names we were familiar with: the UBS hedge fund Dillon Read, two hedge funds run by Bear Stearns, and the US home loan lender Countrywide.4 The money market began to dry up and did so quickly. Then, when the German bank IKB reported that they had rollover problems, we knew that the crisis had spread from the US across the Atlantic. More and more hedge funds reported losses, forcing them to sell assets to raise cash and to post more collateral to their brokers.


pages: 272 words: 19,172

Hedge Fund Market Wizards by Jack D. Schwager

asset-backed security, backtesting, banking crisis, barriers to entry, Bear Stearns, beat the dealer, Bernie Madoff, Black-Scholes formula, book value, British Empire, business cycle, buy and hold, buy the rumour, sell the news, Claude Shannon: information theory, clean tech, cloud computing, collateralized debt obligation, commodity trading advisor, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, diversification, diversified portfolio, do what you love, Edward Thorp, family office, financial independence, fixed income, Flash crash, global macro, hindsight bias, implied volatility, index fund, intangible asset, James Dyson, Jones Act, legacy carrier, Long Term Capital Management, managed futures, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, merger arbitrage, Michael Milken, money market fund, oil shock, pattern recognition, pets.com, Ponzi scheme, private sector deleveraging, proprietary trading, quantitative easing, quantitative trading / quantitative finance, Reminiscences of a Stock Operator, Right to Buy, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Rubik’s Cube, Savings and loan crisis, Sharpe ratio, short selling, statistical arbitrage, Steve Jobs, systematic trading, technology bubble, transaction costs, value at risk, yield curve

I understand that your specific positions changed, but did you maintain an unwavering commitment to the bearish side, even during the significant rebound in the second quarter of 2008? The reason the market bounced in the second quarter of 2008 was that people felt that the Bear Stearns bailout in March 2008 had solved the problem. What did you think? I thought that was clearly wrong. The big mistake people were making, and still make, was to confuse liquidity with solvency. People were acting on the premise that Bear Stearns and the banking system were solvent. They thought there was a liquidity crisis, which was just a matter of lack of confidence. The reality was that the banking system didn’t have a liquidity problem; it had a liquidity problem because it had a solvency problem.

So we asked, “How could you issue a CDO at 70 basis points that you are unwilling to assume the risk on at 300?” They said they would have to get back to us. Of course, they never did. In the meantime, our counterparty, Bear Stearns, is marking our CDO positions at cost. The ABX fell 30 percent, and our CDOs were still being marked at cost. Were you arguing with them about the marks? Not so much. We were more concerned about the integrity of the financial system. We bought a ton of puts and CDS on Bear Stearns because we thought they would go bankrupt. Was there collusion among the dealers to keep CDO prices unchanged, even in the face of collapsing prices of the MBS that made up the CDOs?

You could say it was the beginning of the housing price decline in 2006, although there was no market response to that at the time. In fact, even Countrywide, who was the poster child for toxic mortgage issuers, went on to set new stock price highs well after that point. Alternatively, you could say it was the collapse of Bear Stearns, although the market rebounded after that event as well. So, I’ll ask you again: “When did it start?” Well, that’s a squishy question. Well, since you’re refusing to give me any kind of answer [he laughs], I’ll give you my answer. Fundamentally, housing prices started to go down in 2006, which didn’t start the crisis, but provided a reason for one.


The Global Money Markets by Frank J. Fabozzi, Steven V. Mann, Moorad Choudhry

asset allocation, asset-backed security, bank run, Bear Stearns, Bretton Woods, buy and hold, collateralized debt obligation, credit crunch, currency risk, discounted cash flows, discrete time, disintermediation, Dutch auction, financial engineering, fixed income, Glass-Steagall Act, high net worth, intangible asset, interest rate derivative, interest rate swap, land bank, large denomination, locking in a profit, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, money market fund, moral hazard, mortgage debt, paper trading, Right to Buy, short selling, stocks for the long run, time value of money, value at risk, Y2K, yield curve, zero-coupon bond, zero-sum game

Treasury Market,” July 1999, working paper. 34 THE GLOBAL MONEY MARKETS EXHIBIT 3.5 List of the Primary Government Securities Dealers Reporting to the Market Reports Division of the Federal Reserve Bank of New York ABN AMRO Incorporated Banc of America Securities LLC Banc One Capital Markets, Inc. Barclays Capital Inc. Bear, Stearns & Co., Inc. BMO Nesbitt Burns Corp. BNP Paribas Securities Corp. CIBC World Markets Inc. Credit Suisse First Boston Corporation Daiwa Securities America Inc. Deutsche Banc Alex Brown Inc. Dresdner Kleinwort Wasterstein Securities Fuji Securities Inc. Goldman, Sachs & Co. Greenwich Capital Markets, Inc.

Certainly this is not 9 Ian Makovec, “1999 Year in Review and 2000 Outlook: Up, Up and Away— AUSSIE ABCP Programs are Here to Stay,” Moody’s Investors Services, 1999. 82 THE GLOBAL MONEY MARKETS descriptive of MTNs since they have been issued with maturities from 9 months to 30 years, and even longer. The focus in this section is on shortterm MTNs with maturities of one year or less. Borrowers have flexibility in designing MTNs to satisfy their own needs. They can issue fixed- or floating-rate debt. As an illustration, consider a floating-rate MTN issued by Bear Stearns on January 18, 2001 and matures on January 18, 2002. Exhibit 5.11 presents the Bloomberg Security Description screen for this security. The coupon formula is the prime rate minus 286 basis points and the security delivers cash flows quarterly. Note in the “ISSUE SIZE” box in the center of the screen, the minimum piece is $100,000 with $1,000 increments thereafter.

The coupon formula is 3-month sterling LIBOR flat (i.e., without a spread) with the payments made quarterly. Note on the left-hand side of the screen that the day count convention is Actual/365 which is the day count basis for the UK money market. EXHIBIT 5.11 Bloomberg Security Description Screen of a Bear Stearns Medium-Term Note Source: Bloomberg Financial Markets Medium-Term Notes 83 EXHIBIT 5.12 Bloomberg Security Description Screen of a GE Capital Medium-Term Note Source: Bloomberg Financial Markets A corporation that desires an MTN program will file a shelf registration with the SEC for the offering of securities.


pages: 429 words: 120,332

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens by Nicholas Shaxson

Asian financial crisis, asset-backed security, bank run, battle of ideas, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, collapse of Lehman Brothers, computerized trading, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, Double Irish / Dutch Sandwich, export processing zone, failed state, financial deregulation, financial engineering, financial innovation, Fractional reserve banking, full employment, Glass-Steagall Act, Global Witness, Golden arches theory, high net worth, income inequality, Kenneth Rogoff, laissez-faire capitalism, land reform, land value tax, light touch regulation, Londongrad, Long Term Capital Management, low interest rates, Martin Wolf, Money creation, money market fund, New Journalism, Northern Rock, offshore financial centre, oil shock, old-boy network, out of africa, passive income, plutocrats, Ponzi scheme, race to the bottom, regulatory arbitrage, reserve currency, Ronald Reagan, shareholder value, Suez crisis 1956, The Spirit Level, too big to fail, transfer pricing, vertical integration, Washington Consensus

Perhaps most alluring of all Dublin’s lures, Stewart said, is its “light touch regulation.”42 In June 2007 two Bear Stearns hedge funds incorporated in the Cayman Islands announced huge losses, presaging its collapse. Bear Stearns had two investment funds and six debt securities listed on the Irish Stock Exchange and operated three subsidiaries in the Dublin IFSC through a holding company, Bear Stearns Ireland Ltd., for which every dollar of equity financed $119 of gross assets—an exceedingly high and dangerous ratio. The accounts of Bear Stearns Ireland Ltd. state that it was regulated by the Irish Financial Services Regulatory Authority, and EU directives state that the host country—Ireland, in this case—is responsible for regulation.

The U.S. has firm rules to curb the abuses, but London does not—so ahead of the latest crisis, Wall Street investment banks simply went off to London where they could do it without limit. A little-noticed IMF paper in July 2010 estimated that by 2007 the seven largest players in the market—Lehman Brothers, Bear Stearns, Morgan Stanley, Goldman Sachs, Merrill/BoA, Citigroup, and JPMorgan—had shifted $4.5 trillion off their balance sheets in this way. So this London-based practice injected trillions more debt into the financial system than would otherwise have been the case.17 The City of London and Wall Street banks got rich off this—and ordinary Americans will pay for it for years to come.

The accounts of Bear Stearns Ireland Ltd. state that it was regulated by the Irish Financial Services Regulatory Authority, and EU directives state that the host country—Ireland, in this case—is responsible for regulation. Yet in an interview, the Irish regulator said he considered his remit to extend to “Irish banks”: It was effectively regulated nowhere. The Irish regulator did not feature in any media analysis of Bear Stearns’s insolvency; Stewart cited nineteen funds in difficulties in the crisis and added that “almost always, the IFSC link is not discussed.” Several German banks that got into trouble also had funds quoted in Dublin. These included IKB, which got €7.8 billion in German state aid; and Sachsen, which got €17.8 billion of emergency funding and €2.8 billion in state aid.


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, low-wage service sector, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

He had highlighted the connections between violent financial crises and fire sales of assets accompanied by a general decline in both aggregate demand and the price level. He, therefore, would have probably approved of the bailout of the investment bank Bear Stearns in March 2008, which meant that a series of defaults and asset price falls were not initiated as the bank went into liquidation. Would a bailout of Lehman Brothers just a few months later have helped to avoid the global financial crisis altogether? Ben Bernanke, Fed chairman at the time, didn’t believe that Lehman posed the same systemic risk as Bear Stearns. Fisher would probably have asked whether rescuing this bank would have prevented a series of defaults which could have served as a trigger for the financial crisis.

Hayek would have objected to central banks believing that they can successfully intervene in the economic cycle. What would Hayek have advised during the global financial crisis itself? Since, for him, recessions were not necessarily pleasant but better for long-term health, he would not have in principle opposed the liquidation of the investment banks Bear Stearns and Lehman Brothers, or the government-supported lenders Fannie Mae and Freddie Mac. In theory, his work through the years points to a ready acceptance that insolvent institutions, or those that lent badly, should be allowed to go bust. What is not clear is whether he would have felt the need to bail these institutions out in order to prevent the systemic failure of otherwise sound businesses that their collapse might instigate.

However, the purchase of mortgage-backed securities in his mind might have been conceived as a bailout of a troubled asset. His prescription for the Great Depression was for the Fed to provide liquidity, not bailouts. The Fed’s response to the crisis also involved the direct rescue of certain financial institutions deemed too systemically important to fail. The investment bank Bear Stearns was particularly exposed to the US mortgage market and in 2008 was rescued by JPMorgan in a move strongly backed by the Federal Reserve. This was justified by the risk posed by Bear, the collapse of which could have brought down the entire banking system. In July 2008 the US Treasury bailed out and part-nationalized the government-supported enterprises at the heart of the crisis, Fannie Mae and Freddie Mac.


pages: 598 words: 172,137

Who Stole the American Dream? by Hedrick Smith

Affordable Care Act / Obamacare, Airbus A320, airline deregulation, Alan Greenspan, anti-communist, asset allocation, banking crisis, Bear Stearns, Boeing 747, Bonfire of the Vanities, British Empire, business cycle, business process, clean water, cloud computing, collateralized debt obligation, collective bargaining, commoditize, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Deng Xiaoping, desegregation, Double Irish / Dutch Sandwich, family office, financial engineering, Ford Model T, full employment, Glass-Steagall Act, global supply chain, Gordon Gekko, guest worker program, guns versus butter model, high-speed rail, hiring and firing, housing crisis, Howard Zinn, income inequality, independent contractor, index fund, industrial cluster, informal economy, invisible hand, John Bogle, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, laissez-faire capitalism, Larry Ellison, late fees, Long Term Capital Management, low cost airline, low interest rates, manufacturing employment, market fundamentalism, Maui Hawaii, mega-rich, Michael Shellenberger, military-industrial complex, MITM: man-in-the-middle, mortgage debt, negative equity, new economy, Occupy movement, Own Your Own Home, Paul Samuelson, Peter Thiel, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, Powell Memorandum, proprietary trading, Ralph Nader, RAND corporation, Renaissance Technologies, reshoring, rising living standards, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, Savings and loan crisis, shareholder value, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Solyndra, Steve Jobs, stock buybacks, tech worker, Ted Nordhaus, The Chicago School, The Spirit Level, too big to fail, transaction costs, transcontinental railway, union organizing, Unsafe at Any Speed, Vanguard fund, We are the 99%, women in the workforce, working poor, Y2K

Probably the most egregiously distorted pay packages went to the Wall Street bosses at Bear Stearns and Lehman Brothers, who drove their companies to extinction in 2008. A Harvard University study documented how the top five executives at these two banks piled up private fortunes worth $2.4 billion in stock option profits and cash bonuses, even as they left stockholders with next to nothing. From 2000 to 2008, the study reported, Lehman CEO Richard Fuld cashed out $461 million in stock options—more than $160 million in the final months. Bear Stearns CEO James Cayne cashed out $289 million in stock options, much of it as Bear Stearns went into its death spiral.

The damage was all the more colossal because the multitrillion-dollar market in derivatives was unregulated, which meant there was nothing to stop banks from overplaying their risks even when they had inadequate reserves to cover their losses. And there was no Glass-Steagall wall shielding commercial banking and the deposits of ordinary customers from the disastrous collapse of high-rolling investment banks like Bear Stearns and Lehman Brothers. All the big banks were linked to one another, as vulnerable as dominoes. Wall Street maimed itself with self-inflicted wounds, and when Bear Stearns and Lehman Brothers went under and other firms like Merrill Lynch had to be rescued by rivals, the taxpayers were stuck with the bill—not only for the reckless greed on Wall Street, but also for the myopia of the Wall Street gurus who were making policy in Washington.

The secondary market turned the New Mortgage Game into a game of musical chairs that was destined for disaster. Because of the financial disconnect, it worked like a multitrillion-dollar Ponzi scheme. The secondary market grew so enormous that it constantly needed new money to cover losses and to keep the game going. But when the music stopped, the game brought down Bear Stearns, Lehman Brothers, Washington Mutual, Countrywide, and hundreds of regional banks, and it left millions of average Americans foreclosed out of their homes and millions more vastly poorer—$9 trillion poorer—from both equity stripping and plunging home values. The Legislative Seeds of Crisis The New Mortgage Game and the enormous loss of wealth by middle-class Americans were the direct consequences of new policies in Washington—New Economy policies that wiped out laws and regulations that had worked well for decades.


pages: 831 words: 98,409

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

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Alan Greenspan, Anthropocene, assortative mating, bank run, barriers to entry, Bear Stearns, Bernie Sanders, Black Swan, Blythe Masters, Bretton Woods, butterfly effect, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, commoditize, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, digital divide, diversification, Dunbar number, East Village, eat what you kill, Elon Musk, eurozone crisis, fake it until you make it, family office, financial engineering, financial repression, Gini coefficient, glass ceiling, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Google bus, Gordon Gekko, haute cuisine, high net worth, hindsight bias, income inequality, index fund, intangible asset, Jaron Lanier, Jim Simons, John Meriwether, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Roose, knowledge economy, London Whale, Long Term Capital Management, longitudinal study, Mark Zuckerberg, mass immigration, McMansion, mittelstand, Money creation, money market fund, Myron Scholes, NetJets, Network effects, no-fly zone, offshore financial centre, old-boy network, Parag Khanna, Paul Samuelson, peer-to-peer, performance metric, Peter Thiel, plutocrats, Ponzi scheme, power law, public intellectual, quantitative easing, Renaissance Technologies, rent-seeking, reserve currency, risk tolerance, Robert Gordon, Robert Shiller, rolodex, Satyajit Das, search costs, shareholder value, Sheryl Sandberg, Silicon Valley, social intelligence, sovereign wealth fund, Stephen Hawking, Steve Jobs, subprime mortgage crisis, systems thinking, tech billionaire, The Future of Employment, The Predators' Ball, The Rise and Fall of American Growth, too big to fail, Tyler Cowen, women in the workforce, young professional

Perception is reality, and the line between favorable reporting, spinning, and outright manipulation is blurry. Another currency in financial markets is misinformation. Spreading rumors to induce others to trade has long been a tool of market manipulation and profiteering. A prime example is the fall of Lehman Brothers. Rumormongers, mostly short sellers, spread whispers that Lehman would be the next Bear Stearns, which led to a self-fulfilling prophecy: a run on the bank, a precipitous fall in share price, and the institution’s eventual demise. Today, rumors are ever more prevalent, with many more outlets and much faster travel routes. In a complex environment and crisis atmosphere, distinguishing fact from fiction can prove near-impossible, especially when there is a good chance—as in the case of Lehman—that enough fiction over time will be perceived as fact.

A profile in Vanity Fair described him as charismatic and handsome,2 and noted bank critic and former FDIC chief Sheila Bair characterized him in her book Bull by the Horns as the smartest executive in the room with towering height as well as leadership ability.3 A New York Times article headlined “America’s Least-Hated Banker”4 pointed out that many of his counterparts did not survive the crisis, such as James Cayne of Bear Stearns, John Thain and Stanley O’Neal of Merrill Lynch, Chuck Prince of Citigroup, and Richard Fuld of Lehman Brothers, among others. By his own account, he has emerged from the financial crisis “battered and bruised but still standing and fighting.”5 Under Dimon, JPMorgan became one of the biggest financial institutions in the world with $2.4 trillion in assets and a quarter of a million employees.

Dimon even got into a physical scuffle with one of his top lieutenants at a black tie dinner when the latter supposedly snubbed a colleague’s wife.6 And he has no problem snapping at his peers in front of fellow CEOs: When Tim Geithner and Dimon cohosted a conference call to discuss JPMorgan’s takeover of Bear Stearns, Vikram Pandit, the CEO of Citigroup, delivered a barrage of highly technical questions, which prompted an annoyed Dimon to bark, “Stop being such a jerk.” He added snippily that Citigroup should be grateful that JPMorgan came to the rescue.7 Such a public snub of a fellow CEO was unheard of and prompted jaws on Wall Street to drop.


pages: 314 words: 101,452

Liar's Poker by Michael Lewis

barriers to entry, Bear Stearns, Bonfire of the Vanities, business cycle, Carl Icahn, cognitive dissonance, corporate governance, corporate raider, disinformation, financial independence, financial innovation, fixed income, Glass-Steagall Act, Home mortgage interest deduction, interest rate swap, Irwin Jacobs, John Meriwether, junk bonds, London Interbank Offered Rate, low interest rates, margin call, Michael Milken, mortgage tax deduction, nuclear winter, Ponzi scheme, risk free rate, The Predators' Ball, yield curve

Wolf Nadoolman, Nathan Cornfeld, Nathan Low, Bill Esposito, Eric Bibler, and Ravi Joseph are senior mortgage traders for, respectively, Security Pacific, Shearson Lehman, Bear Stearns, Greenwich Capital markets, Merrill Lynch, and Morgan Stanley. That is a handful of the most visible Salomon mortgage traders on Wall Street. Beneath them in their corporations are thousands of people who now make their living in mortgage bonds. Of course, the most curious of all former Salomon Brothers mortgage traders is Howie Rubin. Soon after being fired by Merrill Lynch, Rubin was hired by Bear Stearns. Rumor had it that Bear Stearns called him the morning that news of his $250 million loss hit the Wall Street Journal.

As it was the best job on the Salomon Brothers trading floor in 1985, it was also quite possibly the best job on Wall Street since the Salomon trading floor dominated Wall Street. After two years of trading at Salomon, a young mortgage trader basked in a steady flow of offers from Merrill Lynch, Bear Stearns, Goldman Sachs, Drexel Burnham, and Morgan Stanley, all of which were desperate to bottle the Salomon Brothers mortgage magic. These offers guaranteed at least a half million dollars a year plus a cut of trading profits. Matty was a first-year trader. By his fourth year, if he were good at his job, he would be making a million dollars before taxes.

A member of the arb group recalls that "it got so we'd come in in the morning and say, 'Oh, we made another two million dollars on the lOs. Guess Smith will take that, too.' " Later, much later, Smith would be severely reprimanded in Gutfreund's office for what he had done. But that would be too little too late. Cornfeld quit and joined Shearson Lehman. Low quit and went to work for Bear Stearns. Even Larry Stein, whom Smith had introduced to the mortgage department, quit in disgust. For a brief time there were calls from around the firm for Smith's head, but that ended when the rest of the mortgage trading department was fired. Where had Lewie been? Although it was not widely known, while Smith was poaching profits from the mortgage arbitrage books, Ranieri was, in his mind anyway, no longer officially in charge of mortgage trading.


pages: 471 words: 124,585

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

Admiral Zheng, Alan Greenspan, An Inconvenient Truth, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Bear Stearns, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, classic study, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, equity risk premium, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, Future Shock, German hyperinflation, Greenspan put, Herman Kahn, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, Nelson Mandela, Nick Bostrom, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, rolling blackouts, Ronald Reagan, Savings and loan crisis, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, subprime mortgage crisis, tail risk, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, transaction costs, two and twenty, undersea cable, value at risk, W. E. B. Du Bois, Washington Consensus, Yom Kippur War

The liquidity crisis that some commentators had been warning about for at least a year struck in August 2007, when American Home Mortgage filed for bankruptcy, BNP Paribas suspended three mortgage investment funds and Countrywide Financial drew down its entire $11 billion credit line. What scarcely anyone had anticipated was that defaults on subprime mortgages by low-income households in cities like Detroit and Memphis could unleash so much financial havoc:aw one bank (Northern Rock) nationalized; another (Bear Stearns) sold off cheaply to a competitor in a deal underwritten by the Fed; numerous hedge funds wound up; ‘write-downs’ by banks amounting to at least $318 billion; total anticipated losses in excess of one trillion dollars. The subprime butterfly had flapped its wings and triggered a global hurricane.

A latecomer to the party was another Swiss bank, UBS.79 The minimum investment was $10 million. As compensation, the partners would take 2 per cent of the assets under management and 25 per cent of the profits (most hedge funds now charge 2 and 20, rather than 2 and 25).80 Investors would be locked in for three years before they could exit. And another Wall Street firm, Bear Stearns, would stand ready to execute whatever trades Long-Term wanted to make. In its first two years, the fund managed by LTCM made mega-bucks, posting returns (even after its hefty fees) of 43 and 41 per cent. If you had invested $10 million in Long-Term in March 1994, it would have been worth just over $40 million four years later.

According to a forecast by Morgan Stanley, within fifteen years they could end up with assets of $27 trillion - just over 9 per cent of total global financial assets. Already in 2007, Asian and Middle Eastern sovereign wealth funds had moved to invest in Western financial companies, including Barclays, Bear Stearns, Citigroup, Merrill Lynch, Morgan Stanley, UBS and the private equity firms Blackstone and Carlyle. For a time it seemed as if the sovereign wealth funds might orchestrate a global bail-out of Western finance; the ultimate role reversal in financial history. For the proponents of what George Soros has disparaged as ‘market fundamentalism’, here was a painful anomaly: among the biggest winners of the latest crisis were state-owned entities.bi And yet there are reasons why this seemingly elegant, and quintessentially Chimerican, resolution of the American crisis has failed to happen.


pages: 713 words: 203,688

Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough, John Helyar

Alan Greenspan, Bear Stearns, Black Monday: stock market crash in 1987, buy and hold, buy low sell high, Carl Icahn, corporate raider, Donald Trump, financial engineering, Gordon Gekko, junk bonds, margin call, Michael Milken, Ronald Reagan, Rubik’s Cube, shareholder value, South Sea Bubble

After attending Culver Military Academy in Indiana, he had been a year ahead of Kravis at Claremont. When George was twenty-one, Ray Kravis had landed him a summer job at Bear Stearns, the big Wall Street trading house. Arriving most mornings before his peers, Roberts—quiet, steady, hardworking—struck up a friendship with the head of the firm’s corporate finance department, Jerome Kohlberg. After law school at the University of California-Hastings he went to work for Kohlberg full-time. Bear Stearns was a cutthroat place, even by Wall Street standards. Run by its hard-charging chief, Salim (“Cy”) Lewis, Bear was essentially a loose group of private fiefdoms.

As Kohlberg and the two young cousins spent more time on their buyouts, it took them away from the bread-and-butter business of corporate finance, prompting grumbling among many at Bear Stearns, including their boss, Cy Lewis. “Cy was a legend,” says Bob Pirie. “Legendarily difficult.” Lewis was also a trader, and traders are notoriously short-term oriented. Decisions on the trading floor are made in a split second, profits on fractions of a point. Kohlberg’s buyout business, in contrast, was based on returns that took three, four, five years to realize, an eternity to Bear’s dominant trading culture. “Overnight was long-term for Bear Stearns,” Kravis liked to say. Cy Lewis thought Kohlberg was spending far too much on his silly buyout sideline.

Cy Lewis hit the roof when he found a Bear Stearns partner running a sputtering direct-mail outfit instead of producing income for the firm. “What the hell are you doing up there?” Lewis demanded in a phone call. “Goddamn it, you should be at home drumming up new business. Forget this deal. We’ve got our fee, let’s go on with the next deal.” “But Cy,” Kravis protested, “that’s not the way it works. You’ve got to stick with it a while.” Kravis stuck with it long enough to unload his backers’ $200,000 investment for half that. Advo was a nightmare for him. If his losses weren’t bad enough, Bear Stearns and several Bear partners, including Lewis, had invested alongside them in the deal, further widening the gulf between Kohlberg and his colleagues.


pages: 248 words: 57,419

The New Depression: The Breakdown of the Paper Money Economy by Richard Duncan

Alan Greenspan, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Ben Bernanke: helicopter money, Bretton Woods, business cycle, currency manipulation / currency intervention, debt deflation, deindustrialization, diversification, diversified portfolio, fiat currency, financial innovation, Flash crash, Fractional reserve banking, Glass-Steagall Act, income inequality, inflation targeting, It's morning again in America, Joseph Schumpeter, laissez-faire capitalism, liquidity trap, low interest rates, market bubble, market fundamentalism, mass immigration, megaproject, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, Nixon triggered the end of the Bretton Woods system, private sector deleveraging, quantitative easing, reserve currency, risk free rate, Ronald Reagan, savings glut, special drawing rights, The Great Moderation, too big to fail, trade liberalization

When Lehman Brothers failed and Goldman’s liquidity dried up in September 2008, the investment bank converted itself into a bank holding company overnight so that it could borrow money from the central bank. Morgan Stanley followed suit. Goldman Sachs and Morgan Stanley survived as bank holding companies. Merrill Lynch was acquired by Bank of America. Bear Stearns had already disappeared as the result of a government-assisted rescue and takeover by JP Morgan earlier in the year. Lehman’s inability to repay its debt destroyed a great deal of capital. Its default revealed just how poor the quality of much of the financial system’s capital actually is. There is a limit to how much debt an economy can bear.

In the first quarter of 2008, the Fed started extending credit to brokers and dealers through a new program called the primary dealer credit facility (PDCF). That lending program peaked at $200 billion in the third quarter of 2008. From the following quarter, the Fed began providing funding through a number of facilities to help rescue Bear Stearns and AIG, mostly through vehicles named Maiden Lane I, II, and III. These peaked at $118 billion in the first quarter of 2009. Next, during the third quarter of 2008, came a $100 billion credit line through the Asset-Backed Commercial Paper Money Mutual Market Fund Liquidity Facility (AMLF).

Finally, in the fourth quarter of 2008, the Fed extended $333 billion in credit through the Commercial Paper Funding Facility (CPFF), while providing $554 billion in U.S. dollar liquidity to other central banks through currency swaps. This barrage of emergency lending by the Fed was necessary to prevent the financial system from melting down altogether. So many financial institutions were in crisis—Bear Stearns, AIG, Lehman Brothers, Fannie Mae, and Freddie Mac—or rumored to be (almost all the rest of the industry) that any institution that did have liquidity available to lend was afraid to do so. Had the Fed not stepped in and made funds available, the system would not have survived. In a report published in 2011, the Government Accountability Office wrote: On numerous occasions in 2008 and 2009, the Federal Reserve Board invoked emergency authority under the Federal Reserve Act of 1913 to authorize new broad-based programs and financial assistance to individual institutions to stabilize financial markets.


pages: 317 words: 84,400

Automate This: How Algorithms Came to Rule Our World by Christopher Steiner

23andMe, Ada Lovelace, airport security, Al Roth, algorithmic trading, Apollo 13, backtesting, Bear Stearns, big-box store, Black Monday: stock market crash in 1987, Black-Scholes formula, call centre, Charles Babbage, cloud computing, collateralized debt obligation, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, Donald Trump, Douglas Hofstadter, dumpster diving, financial engineering, Flash crash, G4S, Gödel, Escher, Bach, Hacker News, High speed trading, Howard Rheingold, index fund, Isaac Newton, Jim Simons, John Markoff, John Maynard Keynes: technological unemployment, knowledge economy, late fees, machine translation, Marc Andreessen, Mark Zuckerberg, market bubble, Max Levchin, medical residency, money market fund, Myron Scholes, Narrative Science, PageRank, pattern recognition, Paul Graham, Pierre-Simon Laplace, prediction markets, proprietary trading, quantitative hedge fund, Renaissance Technologies, ride hailing / ride sharing, risk tolerance, Robert Mercer, Sergey Aleynikov, side project, Silicon Valley, Skype, speech recognition, Spread Networks laid a new fibre optics cable between New York and Chicago, transaction costs, upwardly mobile, Watson beat the top human players on Jeopardy!, Y Combinator

Other Wall Street players include David Einhorn, the manager of Greenlight Capital, who placed eighteenth in the 2009 World Series of Poker and brought home $659,730, a staggering pile of money for almost anybody (except a successful hedge fund founder).2 Even better, Steven Begleiter, the former head of corporate strategy at the now-defunct Bear Stearns, won $1.6 million in the same tournament. Wall Street’s attention to poker was amplified by the game’s general popularity spike that culminated in a purse at the 2011 World Series of Poker topping $64 million. Just like markets, poker involves parries, fakes, smart traders, dumb traders, inside information, and, among thousands of other factors, the ever-threatening prospect of human irrationality.

On September 15, Lehman Brothers, the international white-shoe investment bank—and a place that employed legions of quants—filed for bankruptcy. The Dow dropped 3,000 points in the next three weeks and most of Wall Street’s elite firms teetered near insolvency. Merrill Lynch sold itself to Bank of America, Goldman Sachs secured $5 billion from Warren Buffett, and Bear Stearns disappeared forever. In less than a year—sparked by the bankruptcy of one company, Lehman Brothers—the vector of the U.S. economy was changed forever. Before this event, the financial sector had been rising as a percentage of GDP at an accelerating rate. Even during the 1960s, a time in which the stock market romped on a long bull run and when Wall Street jobs began gaining a smidge of glamour, the financial sector accounted for less than 4 percent of GDP.

These companies had not only stopped hiring, they had also begun slashing payroll on a scale never before seen. In 2008, Citigroup cut seventy-three thousand people; Merrill Lynch and Bank of America dropped thirty-five thousand; all of Lehman’s twenty-three thousand people were left jobless; nine thousand of Bear Stearns’s employees weren’t picked up by J.P. Morgan, which bought the investment bank for a pittance and eliminated another ten thousand jobs within its own house. The difference for Conway was staggering. Where he once had to battle for each and every interview with a top-notch recruit, now he had a large pool of interested students.


pages: 398 words: 105,917

Bean Counters: The Triumph of the Accountants and How They Broke Capitalism by Richard Brooks

"World Economic Forum" Davos, accounting loophole / creative accounting, Alan Greenspan, asset-backed security, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, blockchain, BRICs, British Empire, business process, Charles Babbage, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Strachan, Deng Xiaoping, Donald Trump, double entry bookkeeping, Double Irish / Dutch Sandwich, energy security, Etonian, eurozone crisis, financial deregulation, financial engineering, Ford Model T, forensic accounting, Frederick Winslow Taylor, G4S, Glass-Steagall Act, high-speed rail, information security, intangible asset, Internet of things, James Watt: steam engine, Jeremy Corbyn, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, junk bonds, light touch regulation, Long Term Capital Management, low cost airline, new economy, Northern Rock, offshore financial centre, oil shale / tar sands, On the Economy of Machinery and Manufactures, Ponzi scheme, post-oil, principal–agent problem, profit motive, race to the bottom, railway mania, regulatory arbitrage, risk/return, Ronald Reagan, Savings and loan crisis, savings glut, scientific management, short selling, Silicon Valley, South Sea Bubble, statistical model, supply-chain management, The Chicago School, too big to fail, transaction costs, transfer pricing, Upton Sinclair, WikiLeaks

The bean counters’ priorities were unfortunately somewhat different, as their presence at one industry event showed. At the annual Issuers’ and Investors’ Summit on CDOs/Credit Derivatives in New York in March 2006, senior accountants from all the Big Four firms sat alongside bankers from Merrill Lynch, Barclays, Bear Stearns, Goldman Sachs and other big Wall Street names. While the traders and investment professionals discussed the market’s towering prospects in sessions such as ‘CDOs for safe haven, CDOs for outperformance’, the bean counters might have been expected to sound a note of caution. But their sponsorship of the event and pitches in the conference programme gave away other intentions.

A draft announcement, produced a couple of days before the final version, had addressed the point head on. Estimated losses would be ‘4.3bn net of tax . . . from write-downs in respect of credit market exposures in 2008’, i.e., the whole year. This was more than a little misleading. The bank was then just three and a half months into what was always going to be a torrid year. US investment bank Bear Stearns had been bailed out by J. P. Morgan the month before, and RBS’s own capital plans already anticipated further write-downs exceeding the £4.3bn. So Deloitte’s lead partner on RBS, Steve Almond, responded to the draft by deleting ‘in 2008’. The wording, he emailed, ‘implies there will be nothing more [i.e., no further write-downs] in the next 8 months’.

The chief accountant at the US Securities and Exchange Commission, who oversees the Public Company Accounting Oversight Board (PCAOB), has for twenty-five years been a former top partner at one of the (now) Big Four firms. Since the financial crisis, the job has alternated between veterans of Ernst & Young (of Lehman infamy) and Deloitte (auditor of bailed-out Bear Stearns, Washington Mutual and Fannie Mae during the subprime crisis). Although the PCAOB has long been aware of the firms’ shortcomings, reporting annually on a host of anonymized ‘audit deficiencies’, it too shied away from investigating the Big Four’s performance in the financial crisis or any of its key episodes.


pages: 368 words: 32,950

How the City Really Works: The Definitive Guide to Money and Investing in London's Square Mile by Alexander Davidson

accounting loophole / creative accounting, algorithmic trading, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bear Stearns, Big bang: deregulation of the City of London, buy and hold, capital asset pricing model, central bank independence, corporate governance, Credit Default Swap, currency risk, dematerialisation, discounted cash flows, diversified portfolio, double entry bookkeeping, Edward Lloyd's coffeehouse, Elliott wave, equity risk premium, Exxon Valdez, foreign exchange controls, forensic accounting, Glass-Steagall Act, global reserve currency, high net worth, index fund, inflation targeting, information security, intangible asset, interest rate derivative, interest rate swap, inverted yield curve, John Meriwether, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market fundamentalism, Nick Leeson, North Sea oil, Northern Rock, pension reform, Piper Alpha, price stability, proprietary trading, purchasing power parity, Real Time Gross Settlement, reserve currency, Right to Buy, risk free rate, shareholder value, short selling, The Wealth of Nations by Adam Smith, transaction costs, value at risk, yield curve, zero-coupon bond

At about this time Floridabased United Capital Asset Management suspended redemption in its Horizon funds, which were significantly invested in US sub-prime mortgage assets. Two hedge funds owned by US bank Bear Stearns came close to collapse because they failed to meet margin calls on CDOs made up of risky US subprime mortgages. Some banks that were their creditors threatened to sell off at auction the underlying sub-prime mortgages that they had held as collateral but it became clear that a quick sale would fetch poor returns. In June 2007, it was announced that Bear Stearns had agreed an emergency $3.2 billion (£1.6 billion) loan for one of the funds. The crisis at the Bear Stearns hedge funds has led to widespread concerns about how CDOs of asset-backed securities are priced.

It can be cheaper to use an index for hedging bonds than it would be to use a variety of CDSs for the purpose. Unfortunately, like any free-ranging financial instrument, the CDS is not always a reliable hedge. In the two Bear Stearns hedge funds that came close to collapse in mid-2007, as discussed earlier, credit default swaps, mainly through an index, were used as a hedge, and should have provided some protection against a decline in the value of bonds held, but in March of that year, both the bonds and hedges deteriorated at the same time, according to a Bear Stearns note to investors. The CDS market is so liquid that it is now seen to provide a market price for the credit risk of the reference entity and so it influences the bond market.

Index 419 fraud 204 9/11 terrorist attacks 31, 218, 242, 243, 254, 257 Abbey National 22 ABN AMRO 103 accounting and governance 232–38 scandals 232 Accounting Standards Board (ASB) 236 administration 17 Allianz 207 Alternative Investment Market (AIM) 44–45, 131, 183, 238 Amaranth Advisors 170 analysts 172–78 fundamental 172–74 others 177–78 Spitzer impact 174–75 technical 175–77 anti-fraud agencies Assets Recovery Agency 211–13 City of London Police 209 Financial Services Authority 208 Financial Crime and Intelligence Division 208 Insurance Fraud Bureau 209 Insurance Fraud Investigators Group 209 International Association of Insurance Fraud Agencies 207, 210, 218 National Criminal Intelligence Service 210 Serious Fraud Office 213–15 Serious Organised Crime Agency 210–11 asset finance 24–25 Association of Investment Companies 167 backwardation 101 bad debt, collection of 26–28 Banco Santander Central Hispano 22 Bank for International Settlements (BIS) 17, 27, 85, 98, 114 bank guarantee 23 Bank of Credit and Commerce International (BCCI) 10, 214 Bank of England 6, 10–17 Court of the 11 credit risk warning 98 framework for sterling money markets 81 Governor 11, 13, 14 history 10, 15–16 Inflation Report 14 inflation targeting 12–13 interest rates and 12 international liaison 17 lender of last resort 15–17 Market Abuse Directive (MAD) 16 monetary policy and 12–15 Monetary Policy Committee (MPC) 13–14 Open-market operations 15, 82 repo rate 12, 15 role 11–12 RTGS (Real Time Gross Settlement) 143 statutory immunity 11 supervisory role 11 Bank of England Act 1988 11, 12 Bank of England Quarterly Model (BEQM) 14 Banking Act 1933 see Glass-Steagall Act banks commercial 5 investment 5 Barclays Bank 20 Barings 11, 15, 68, 186, 299 Barlow Clowes case 214 Barron’s 99 base rate see repo rate Basel Committee for Banking Supervision (BCBS) 27–28 ____________________________________________________ INDEX 303 Basel I 27 Basel II 27–28, 56 Bear Stearns 95, 97 BearingPoint 97 bill of exchange 26 Bingham, Lord Justice 10–11 Blue Arrow trial 214 BNP Paribas 145, 150 bond issues see credit products book runners 51, 92 Borsa Italiana 8, 139 bps 90 British Bankers’ Association 20, 96, 97 building societies 22–23 demutualisation 22 Building Societies Association 22 Capital Asset Pricing Model (CAPM) see discounted cash flow analysis capital gains tax 73, 75, 163, 168 capital raising markets 42–46 mergers and acquisitions (M&A) 56–58 see also flotation, bond issues Capital Requirements Directive 28, 94 central securities depository (CSD) 145 international (ICSD) 145 Central Warrants Trading Service 73 Chancellor of the Exchequer 12, 13, 229 Chicago Mercantile Exchange 65 Citigroup 136, 145, 150 City of London 4–9 Big Bang 7 definition 4 employment in 8–9 financial markets 5 geography 4–5 history 6–7 services offered 4 world leader 5–6 clearing 140, 141–42 Clearing House Automated Payment System (CHAPS) 143 Clearstream Banking Luxembourg 92, 145 commercial banking 5, 18–28 bad loans and capital adequacy 26–28 banking cards 21 building societies 22–23 credit collection 25–26 finance raising 23–25 history 18–19 overdrafts 23 role today 19–21 commodities market 99–109 exchange-traded commodities 101  fluctuations 100 futures 100 hard commodities energy 102 non-ferrous metals 102–04 precious metal 104–06 soft commodities cocoa 107 coffee 106 sugar 107 Companies Act 2006 204, 223, 236 conflict of interests 7 consolidation 138–39 Consumer Price Index (CPI) 13 contango 101 Continuous Linked Settlement (CLS) 119 corporate governance 223–38 best practice 231 Cadbury Code 224 Combined Code 43, 225 compliance 230 definition 223 Directors’ Remuneration Report Regulations 226 EU developments 230 European auditing rules 234–35 Greenbury Committee 224–25 Higgs and Smith reports 227 International Financial Reporting Standards (IFRS) 237–38 Listing Rules 228–29 Model Code 229 Myners Report 229 OECD Principles 226 operating and financial review (OFR) 235– 36 revised Combined Code 227–28 Sarbanes–Oxley Act 233–34 Turnbull Report 225 credit cards 21 zero-per-cent cards 21 credit collection 25–26 factoring and invoice discounting 26 trade finance 25–26 credit derivatives 96–97 back office issues 97 credit default swap (CDS) 96–97 credit products asset-backed securities 94 bonds 90–91 collateralised debt obligations 94–95 collateralised loan obligation 95 covered bonds 93 equity convertibles 93 international debt securities 92–93  304 INDEX ____________________________________________________ junk bonds 91 zero-coupon bonds 93 credit rating agencies 91 Credit Suisse 5, 136, 193 CREST system 141, 142–44 dark liquidity pools 138 Debt Management Office 82, 86 Department of Trade and Industry (DTI) 235, 251, 282 derivatives 60–77 asset classes 60 bilateral settlement 66 cash and 60–61 central counterparty clearing 65–66 contracts for difference 76–77, 129 covered warrants 72–73 futures 71–72 hedging and speculation 67 on-exchange vs OTC derivatives 63–65 options 69–71 Black-Scholes model 70 call option 70 equity option 70–71 index options 71 put option 70 problems and fraud 67–68 retail investors and 69–77 spread betting 73–75 transactions forward (future) 61–62 option 62 spot 61 swap 62–63 useful websites 75 Deutsche Bank 136 Deutsche Börse 64, 138 discounted cash flow analysis (DCF) 39 dividend 29 domestic financial services complaint and compensation 279–80 financial advisors 277–78 Insurance Mediation Directive 278–79 investments with life insurance 275–76 life insurance term 275 whole-of-life 274–75 NEWICOB 279 property and mortgages 273–74 protection products 275 savings products 276–77 Dow theory 175 easyJet 67 EDX London 66 Egg 20, 21 Elliott Wave Theory 176 Enron 67, 114, 186, 232, 233 enterprise investment schemes 167–68 Equiduct 133–34, 137 Equitable Life 282 equities 29–35 market indices 32–33 market influencers 40–41 nominee accounts 31 shares 29–32 stockbrokers 33–34 valuation 35–41 equity transparency 64 Eurex 64, 65 Euro Overnight Index Average (EURONIA) 85 euro, the 17, 115 Eurobond 6, 92 Euroclear Bank 92, 146, 148–49 Euronext.liffe 5, 60, 65, 71 European Central Bank (ECB) 16, 17, 84, 148 European Central Counterparty (EuroCCP) 136 European Code of Conduct 146–47, 150 European Exchange Rate Mechanism 114 European Harmonised Index of Consumer Prices 13 European Union Capital Requirements Directive 199 Market Abuse Directive (MAD) 16, 196 Market in Financial Instruments Directive (MiFID) 64, 197–99 Money Laundering Directive 219 Prospectus Directive 196–97 Transparency Directive 197 exchange controls 6 expectation theory 172 Exxon Valdez 250 factoring see credit collection Factors and Discounters Association 26 Fair & Clear Group 145–46 Federal Deposit Insurance Corporation 17 Federation of European Securities Exchanges 137 Fighting Fraud Together 200–01 finance, raising 23–25 asset 24–25 committed 23 project finance 24 recourse loan 24 syndicated loan 23–24 uncommitted 23 Financial Action Task Force on Money Laundering (FATF) 217–18 financial communications 179–89 ____________________________________________________ INDEX 305 advertising 189 corporate information flow 185 primary information providers (PIPs) 185 investor relations 183–84 journalists 185–89 public relations 179–183 black PR’ 182–83 tipsters 187–89 City Slickers case 188–89 Financial Ombudsman Service (FOS) 165, 279–80 financial ratios 36–39 dividend cover 37 earnings per share (EPS) 36 EBITDA 38 enterprise multiple 38 gearing 38 net asset value (NAV) 38 price/earnings (P/E) 37 price-to-sales ratio 37 return on capital employed (ROCE) 38 see also discounted cash flow analysis Financial Reporting Council (FRC) 224, 228, 234, 236 Financial Services Act 1986 191–92 Financial Services Action Plan 8, 195 Financial Services and Markets Act 2001 192 Financial Services and Markets Tribunal 94 Financial Services Authority (FSA) 5, 8, 31, 44, 67, 94, 97, 103, 171, 189, 192–99 competition review 132 insurance industry 240 money laundering and 219 objectives 192 regulatory role 192–95 powers 193 principles-based 194–95 Financial Services Compensation Scheme (FSCS) 17, 165, 280 Financial Services Modernisation Act 19 financial services regulation 190–99 see also Financial Services Authority Financial Times 9, 298 First Direct 20 flipping 53 flotation beauty parade 51 book build 52 early secondary market trading 53 grey market 52, 74 initial public offering (IPO) 47–53 pre-marketing 51–52 pricing 52–53 specialist types of share issue accelerated book build 54  bought deal 54 deeply discounted rights issue 55 introduction 55 placing 55 placing and open offer 55 rights issues 54–55 underwriting 52 foreign exchange 109–120 brokers 113 dealers 113 default risk 119 electronic trading 117 exchange rate 115 ICAP Knowledge Centre 120 investors 113–14 transaction types derivatives 116–17 spot market 115–16 Foreign Exchange Joint Standing Committee 112 forward rate agreement 85 fraud 200–15 advanced fee frauds 204–05 boiler rooms 201–04 Regulation S 202 future regulation 215 identity theft 205–06 insurance fraud 206–08 see also anti-fraud agencies Fraud Act 2006 200 FTSE 100 32, 36, 58, 122, 189, 227, 233 FTSE 250 32, 122 FTSE All-Share Index 32, 122 FTSE Group 131 FTSE SmallCap Index 32 FTSE Sterling Corporate Bond Index 33 Futures and Options Association 131 Generally Accepted Accounting Principles (GAAP) 237, 257 gilts 33, 86–88 Giovanni Group 146 Glass-Steagall Act 7, 19 Global Bond Market Forum 64 Goldman Sachs 136 government bonds see gilts Guinness case 214 Halifax Bank 20 hedge funds 8, 77, 97, 156–57 derivatives-based arbitrage 156 fixed-income arbitrage 157 Hemscott 35 HM Revenue and Customs 55, 211 HSBC 20, 103 Hurricane Hugo 250  306 INDEX ____________________________________________________ Hurricane Katrina 2, 67, 242 ICE Futures 5, 66, 102 Individual Capital Adequacy Standards (ICAS) 244 inflation 12–14 cost-push 12 definition 12 demand-pull 12 quarterly Inflation Report 14 initial public offering (IPO) 47–53 institutional investors 155–58 fund managers 155–56 hedge fund managers 156–57 insurance companies 157 pension funds 158 insurance industry London and 240 market 239–40 protection and indemnity associations 241 reform 245 regulation 243 contingent commissions 243 contract certainty 243 ICAS and Solvency II 244–45 types 240–41 underwriting process 241–42 see also Lloyd’s of London, reinsurance Intercontinental Exchange 5 interest equalisation tax 6 interest rate products debt securities 82–83, 92–93 bill of exchange 83 certificate of deposit 83 debt instrument 83 euro bill 82 floating rate note 83 local authority bill 83 T-bills 82 derivatives 85 forward rate agreements (FRAs) 85–86 government bonds (gilts) 86–89 money markets 81–82 repos 84 International Financial Reporting Standards (IFRS) 58, 86, 173, 237–38 International Financial Services London (IFSL) 5, 64, 86, 92, 112 International Monetary Fund 17 International Securities Exchange 138 International Swap Dealers Association 63 International Swaps and Derivatives Association 63 International Underwriting Association (IUA) 240 investment banking 5, 47–59 mergers and acquisitions (M&A) 56–58 see also capital raising investment companies 164–69 real estate 169 split capital 166–67 venture capital 167–68 investment funds 159–64 charges 163 investment strategy 164 fund of funds scheme 164 manager-of-managers scheme 164 open-ended investment companies (OEICs) 159 selection criteria 163 total expense ratio (TER) 164 unit trusts 159 Investment Management Association 156 Investment Management Regulatory Organisation 11 Johnson Matthey Bankers Limited 15–16 Joint Money Laundering Steering Group 221 KAS Bank 145 LCH.Clearnet Limited 66, 140 letter of credit (LOC) 23, 25–26 liability-driven investment 158 Listing Rules 43, 167, 173, 225, 228–29 Lloyd’s of London 8, 246–59 capital backing 249 chain of security 252–255 Central Fund 253 Corporation of Lloyd’s 248–49, 253 Equitas Reinsurance Ltd 251, 252, 255–56 Franchise Performance Directorate 256 future 258–59 Hardship Committee 251 history 246–47, 250–52 international licenses 258 Lioncover 252, 256 Member’s Agent Pooling Arrangement (MAPA) 249, 251 Names 248, one-year accounting 257 regulation 257 solvency ratio 255 syndicate capacity 249–50 syndicates 27 loans 23–24 recourse loan 24 syndicated loan 23–24 London Interbank Offered Rate (LIBOR) 74, 76 ____________________________________________________ INDEX 307 London Stock Exchange (LSE) 7, 8, 22, 29, 32, 64 Alternative Investment Market (AIM) 32 Main Market 42–43, 55 statistics 41 trading facilities 122–27 market makers 125–27 SETSmm 122, 123, 124 SETSqx 124 Stock Exchange Electronic Trading Service (SETS) 122–25 TradElect 124–25 users 127–29 Louvre Accord 114 Markets in Financial Instruments Directive (MiFID) 64, 121, 124, 125, 130, 144, 197–99, 277 best execution policy 130–31 Maxwell, Robert 186, 214, 282 mergers and acquisitions 56–58 current speculation 57–58 disclosure and regulation 58–59 Panel on Takeovers and Mergers 57 ‘white knight’ 57 ‘white squire’ 57 Merrill Lynch 136, 174, 186, 254 money laundering 216–22 Egmont Group 218 hawala system 217 know your client (KYC) 217, 218 size of the problem 222 three stages of laundering 216 Morgan Stanley 5, 136 multilateral trading facilities Chi-X 134–35, 141 Project Turquoise 136, 141 Munich Re 207 Nasdaq 124, 138 National Strategy for Financial Capability 269 National Westminster Bank 20 Nationwide Building Society 221 net operating cash flow (NOCF) see discounted cash flow analysis New York Federal Reserve Bank (Fed) 16 Nomads 45 normal market share (NMS) 132–33 Northern Rock 16 Nymex Europe 102 NYSE Euronext 124, 138, 145 options see derivatives Oxera 52  Parmalat 67, 232 pensions alternatively secured pension 290 annuities 288–89 occupational pension final salary scheme 285–86 money purchase scheme 286 personal account 287 personal pension self-invested personal pension 288 stakeholder pension 288 state pension 283 unsecured pension 289–90 Pensions Act 2007 283 phishing 200 Piper Alpha oil disaster 250 PLUS Markets Group 32, 45–46 as alternative to LSE 45–46, 131–33 deal with OMX 132 relationship to Ofex 46 pooled investments exchange-traded funds (ETF) 169 hedge funds 169–71 see also investment companies, investment funds post-trade services 140–50 clearing 140, 141–42 safekeeping and custody 143–44 registrar services 144 settlement 140, 142–43 real-time process 142 Proceeds of Crime Act 2003 (POCA) 211, 219, 220–21 Professional Securities Market 43–44 Prudential 20 purchasing power parity 118–19 reinsurance 260–68 cat bonds 264–65 dispute resolution 268 doctrines 263 financial reinsurance 263–64 incurred but not reported (IBNR) claims insurance securitisation 265 non-proportional 261 offshore requirements 267 proportional 261 Reinsurance Directive 266–67 retrocession 262 types of contract facultative 262 treaty 262 retail banking 20 retail investors 151–155 Retail Prices Index (RPI) 13, 87 264  308 INDEX ____________________________________________________ Retail Service Provider (RSP) network Reuters 35 Royal Bank of Scotland 20, 79, 221 73 Sarbanes–Oxley Act 233–34 securities 5, 29 Securities and Futures Authority 11 self-regulatory organisations (SROs) 192 Serious Crime Bill 213 settlement 11, 31, 140, 142–43 shareholder, rights of 29 shares investment in 29–32 nominee accounts 31 valuation 35–39 ratios 36–39 see also flotation short selling 31–32, 73, 100, 157 Society for Worldwide Interbank Financial Telecommunications (SWIFT) 119 Solvency II 244–245 Soros, George 114, 115 Specialist Fund Market 44 ‘square mile’ 4 stamp duty 72, 75, 166 Sterling Overnight Index Average (SONIA) 85 Stock Exchange Automated Quotation System (SEAQ) 7, 121, 126 Stock Exchange Electronic Trading Service (SETS) see Lloyd’s of London stock market 29–33 stockbrokers 33–34 advisory 33 discretionary 33–34 execution-only 34 stocks see shares sub-prime mortgage crisis 16, 89, 94, 274 superequivalence 43 suspicious activity reports (SARs) 212, 219–22 swaps market 7 interest rates 56 swaptions 68 systematic internalisers (SI) 137–38 Target2-Securities 147–48, 150 The Times 35, 53, 291 share price tables 36–37, 40 tip sheets 33 trading platforms, electronic 80, 97, 113, 117 tranche trading 123 Treasury Select Committee 14 trend theory 175–76 UBS Warburg 103, 136 UK Listing Authority 44 Undertakings for Collective Investments in Transferable Securities (UCITS) 156 United Capital Asset Management 95 value at risk (VAR) virtual banks 20 virt-x 140 67–68 weighted-average cost of capital (WACC) see discounted cash flow analysis wholesale banking 20 wholesale markets 78–80 banks 78–79 interdealer brokers 79–80 investors 79 Woolwich Bank 20 WorldCom 67, 232 Index of Advertisers Aberdeen Asset Management PLC xiii–xv Birkbeck University of London xl–xlii BPP xliv–xlvi Brewin Dolphin Investment Banking 48–50 Cass Business School xxi–xxiv Cater Allen Private Bank 180–81 CB Richard Ellis Ltd 270–71 CDP xlviii–l Charles Schwab UK Ltd lvi–lviii City Jet Ltd x–xii The City of London inside front cover EBS Dealing Resource International 110–11 Edelman xx ESCP-EAP European School of Management vi ICAS (The Inst. of Chartered Accountants of Scotland) xxx JP Morgan Asset Management 160–62 London Business School xvi–xviii London City Airport vii–viii Morgan Lewis xxix Securities & Investments Institute ii The Share Centre 30, 152–54 Smithfield Bar and Grill lii–liv TD Waterhouse xxxii–xxxiv University of East London xxxvi–xxxviii


pages: 369 words: 107,073

Madoff Talks: Uncovering the Untold Story Behind the Most Notorious Ponzi Scheme in History by Jim Campbell

algorithmic trading, Bear Stearns, Bernie Madoff, currency risk, delta neutral, family office, fear of failure, financial thriller, fixed income, forensic accounting, full employment, Gordon Gekko, high net worth, index fund, Jim Simons, margin call, merger arbitrage, money market fund, mutually assured destruction, offshore financial centre, payment for order flow, Ponzi scheme, proprietary trading, Renaissance Technologies, risk free rate, riskless arbitrage, Robinhood: mobile stock trading app, Sharpe ratio, short selling, sovereign wealth fund, time value of money, two and twenty, walking around money

As Madoff explained to me, after suffering IPO losses in 1962, he decided just going long in the market didn’t make sense and was too risky. He sought out arbitrage opportunities that offered essentially risk-free income: “With the help of some major Jewish leaders of Wall Street, Salim “Cy” Lewis of Bear Stearns, Gus Levy of Goldman Sachs, and Joe Gruss of Gruss & Sons, I entered the small community of convertible bond arbitrage as a market maker. At this time all arbitrage was handled by these people and was performed strictly for their firms’ account, meaning no retail business. These same individuals did not want to be bothered with trading small amounts of bonds, known as odd lots, or orders of less than 100 shares.

He likened the riskless trading to “bending down and picking up nickels; there was zero risk.”8 The business came together, allowing Madoff to become the lead firm on the Street for small lots of convertibles. It became the first product in the initial, smaller-scale version of the Ponzi scheme. The Wall Street legends ribbed Madoff: “Both Cy Lewis of Bear Stearns and Gus Levy of Goldman Sachs teased me about this no end. They would say, ‘Bernie loves to pick up the crumbs.’”9 Madoff moved into other hedges, including stock options, which would become a key part of the scaled-up version of the Ponzi scheme. Hedges were another way of limiting risk. Madoff got into what he described as “call option covered writes.”

The key to a hedged trade is that these two positions MUST be different securities to avoid the wash sale rule, where there is no real market risk and the trade is essentially a sham to avoid capital gains taxes. What was important to my U.S. clients was that this strategy replaced TAX STRADDLE trading, using commodities straddles. They were previously executing these trades through Bear Stearns and Hutton and were disallowed by the IRS since there was no real market risk. The IRS was calling them SHAM trades.”5 The positions were predicated on Madoff’s understanding that he would never be forced to liquidate the trade prematurely, particularly in times of extreme market duress, with exposure to massive losses.


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

He had highlighted the connections between violent financial crises and fire sales of assets accompanied by a general decline in both aggregate demand and the price level. He, therefore, would have probably approved of the bailout of the investment bank Bear Stearns in March 2008, which meant that a series of defaults and asset price falls were not initiated as the bank went into liquidation. Would a bailout of Lehman Brothers just a few months later have helped to avoid the global financial crisis altogether? Ben Bernanke, Fed chairman at the time, didn’t believe that Lehman posed the same systemic risk as Bear Stearns. Fisher would probably have asked whether rescuing this bank would have prevented a series of defaults which could have served as a trigger for the financial crisis.

Hayek would have objected to central banks believing that they can successfully intervene in the economic cycle. What would Hayek have advised during the global financial crisis itself? Since, for him, recessions were not necessarily pleasant but better for long-term health, he would not have in principle opposed the liquidation of the investment banks Bear Stearns and Lehman Brothers, or the government-supported lenders Fannie Mae and Freddie Mac. In theory, his work through the years points to a ready acceptance that insolvent institutions, or those that lent badly, should be allowed to go bust. What is not clear is whether he would have felt the need to bail these institutions out in order to prevent the systemic failure of otherwise sound businesses that their collapse might instigate.

However, the purchase of mortgage-backed securities in his mind might have been conceived as a bailout of a troubled asset. His prescription for the Great Depression was for the Fed to provide liquidity, not bailouts. The Fed’s response to the crisis also involved the direct rescue of certain financial institutions deemed too systemically important to fail. The investment bank Bear Stearns was particularly exposed to the US mortgage market and in 2008 was rescued by JPMorgan in a move strongly backed by the Federal Reserve. This was justified by the risk posed by Bear, the collapse of which could have brought down the entire banking system. In July 2008 the US Treasury bailed out and part-nationalized the government-supported enterprises at the heart of the crisis, Fannie Mae and Freddie Mac.


pages: 422 words: 113,830

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

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

Risk,” calling the shots at Treasury, would focus the Bush administration’s 2008 economic “rescue” policies not on the broad national interest but on bailing out the “Frankenstein Fifteen” top U.S. financial institutions—the big five investment firms (Morgan Stanley, Goldman Sachs, Merrill Lynch, Lehman Brothers, and Bear Stearns), the five largest commercial banks (Citigroup, JPMorgan Chase, Bank of America, Wells Fargo, and Wachovia), the four mortgage gamesters (FNMA, FRMC, Washington Mutual, and Countrywide), and American International Group, the high-rolling insurance giant. Along with the barely regulated hedge funds, these were the big firms that borrowed huge sums, overleveraged, merged grandiosely, experimented with all “the exotic derivatives and other securities,” and led the multitrillion-dollar metastasis through which finance ballooned to take over domination of the U.S. economy.

Throughout the twelve months of the crisis, it is difficult to avoid the impression that the Fed is too close to the financial markets and leading financial institutions, and too responsive to their special pleadings, to make the right decisions for the economy as a whole.”34 Nor was there any coincidence about Paulson’s March timing with respect to proposing expanded Fed authority. That month, Paulson and Bernanke had to put aside other concerns, particularly the troubles of the two mortgage giants, Fannie Mae and Freddie Mac, to deal with an immediate crisis—a liquidity squeeze and mounting desperation at Bear Stearns, the fifth largest New York investment bank. Over the weekend of March 17-18, the two officials, through the good offices of the New York Federal Reserve Bank and a $29 billion Fed loan, arranged a bailout in the form of a shotgun marriage between JPMorgan Chase and the hapless Bear. The latter was not too big in size to fail.

A related ruling by the Internal Revenue Service and the Treasury Department on September 30 gave banks a special merger-related provision that would facilitate such acquisitions but potentially cost taxpayers $100 billion.45 This made potential acquisitors receiving a Treasury imprimatur even bigger winners. As for the separate lending mechanisms set up by the Federal Reserve in the wake of the Bear Stearns bailout, these—unlike the $700 billion to be spent under TARP—were not obliged by actual disclosure requirements. So although heavy Fed lending topped $2 trillion by early November, an increase of $1.172 trillion just in the seven weeks since the Fed’s September 14 relaxation of its collateral standards, details were withheld.


pages: 193 words: 11,060

Ethics in Investment Banking by John N. Reynolds, Edmund Newell

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, banking crisis, Bear Stearns, collapse of Lehman Brothers, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, financial independence, Glass-Steagall Act, index fund, invisible hand, junk bonds, light touch regulation, margin call, Michael Milken, moral hazard, Nick Leeson, Northern Rock, proprietary trading, quantitative easing, shareholder value, short selling, South Sea Bubble, stem cell, the market place, The Wealth of Nations by Adam Smith, too big to fail, two and twenty, zero-sum game

Whether or not that can be construed as greed or as a sensible strategy in terms of potential lifetime earnings is unclear. One of the results of the financial crisis was that some investment bankers who had accumulated substantial equity holdings in their employers saw this wealth almost entirely obliterated. Many senior investment bankers (including the CEOs of Lehman and Bear Stearns, two of the high-profile investment banks to fail during the crisis) themselves lost considerable sums during the crisis. Were they the victims of their own – or institutional – greed? Opinions differ. A consequence of greed is that it can cloud judgement and rational thinking. This is important in the context of the financial crisis as it has been argued that greed led to investment bankers taking undue risks.

Ethical problems and the financial crisis Despite their strategic importance to the economy, investment banks have faced hostility and come under particular scrutiny during the recent financial crisis, in which three of the largest and best-known went out of business. The collapse of Lehman Brothers in September 2008 sent shock waves around the world and proved to be the tipping point of the “credit 16 Ethics in Investment Banking crunch”, which also saw the fall of Bear Stearns (acquired by JP Morgan with US Government support) and Merrill Lynch (which was bought by the Bank of America). During the financial crisis and in its aftermath, commentators, the press and politicians highlighted a series of shortcomings common across a number of investment banks. These can be summarised briefly as a combination of management failure, greed and hubris – the Greek term for when people believe they have god-like qualities.

Interestingly, despite the UK’s economic reliance on rating agencies, the UK did not carry out a similar detailed review, and still does not regulate rating agencies. Given that there were only limited changes in ratings practice following the Enron/WorldCom defaults and the SEC review, it should not have come as a surprise that – at some stage – there was another systemic problem in calculating credit ratings. Both Lehman and Bear Stearns carried investment grade credit ratings right up until they failed, although it should be noted that some smaller rating agencies and ratings research organisations had already downgraded them to sub-investment grade status (a “downgrade” refers to a reduction in the recommended credit rating applied to the company).


pages: 507 words: 145,878

The Predators' Ball: The Inside Story of Drexel Burnham and the Rise of the JunkBond Raiders by Connie Bruck

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alvin Toffler, Bear Stearns, book value, Carl Icahn, corporate raider, diversified portfolio, Edward Thorp, financial independence, fixed income, Future Shock, Glass-Steagall Act, Irwin Jacobs, junk bonds, Michael Milken, mortgage debt, offshore financial centre, Oscar Wyatt, paper trading, profit maximization, Tax Reform Act of 1986, The Predators' Ball, yield management, Yogi Berra, zero-coupon bond

As Hickman had noted, “Corporate bonds were typically undervalued in the market at or near the date of default. As a result, investors selling at that time suffered large losses, while those purchasing obtained correspondingly large gains.” This was not an original concept. The renowned trader Salim “Cy” Lewis of Bear, Stearns had made a fortune buying the bonds of bankrupt railroads in the forties. Milken would follow in Lewis’ footsteps by buying Penn Central bonds, on which he and his clients made killings. Milken, however, bought not just in one industry as Lewis had but across the whole landscape of troubled companies; as default was thought to be near and bondholders panicked, Milken was there to pick up the distress-sale merchandise, often at ten and twenty and thirty cents on the dollar.

Then, according to the registration statements in Los Angeles County (where some but by no means all were filed), Milken and his brother, Lowell, started one partnership, GLJ, in August 1978, immediately after he had moved to L.A. According to Milken’s testimony in an SEC deposition in 1982, both Otter Creek and GLJ had accounts not only with Drexel but with Bear, Stearns. A National Association of Securities Dealers (NASD) rule stipulates that any employee of a broker-dealer who has a brokerage account at another firm must disclose its existence, and make its records available, to officers of his firm. There was no indication that Milken had not done this. In later years, Drexel would institute a policy forbidding employees from maintaining such outside accounts.

According to one investment banker who visited Posner in Miami, his phone had a series of buttons for direct lines; the first was to Jefferies, the Los Angeles stock-brokerage firm, and the second was to Milken. By February 1985, Posner must not have felt that Drexel was his special friend. He is said by one source to have gone to Bear, Stearns for financing and been turned down. First vice-president Paul Yang of E. F. Hutton, who was already working on some matters for Posner, said later that an associate of Posner called him in mid-February, to talk about Hutton’s raising money for Posner to do the acquisition of National Can. Yang then spoke with Posner, who said that he felt “Hutton deserved a try.”


pages: 467 words: 154,960

Trend Following: How Great Traders Make Millions in Up or Down Markets by Michael W. Covel

Albert Einstein, Alvin Toffler, Atul Gawande, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, Black Swan, buy and hold, buy low sell high, California energy crisis, capital asset pricing model, Carl Icahn, Clayton Christensen, commodity trading advisor, computerized trading, correlation coefficient, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, diversification, diversified portfolio, Edward Thorp, Elliott wave, Emanuel Derman, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, fiat currency, fixed income, Future Shock, game design, global macro, hindsight bias, housing crisis, index fund, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John Nash: game theory, linear programming, Long Term Capital Management, managed futures, mandelbrot fractal, margin call, market bubble, market fundamentalism, market microstructure, Market Wizards by Jack D. Schwager, mental accounting, money market fund, Myron Scholes, Nash equilibrium, new economy, Nick Leeson, Ponzi scheme, prediction markets, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Feynman, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, shareholder value, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, survivorship bias, systematic trading, Teledyne, the scientific method, Thomas L Friedman, too big to fail, transaction costs, upwardly mobile, value at risk, Vanguard fund, William of Occam, zero-sum game

It was Fred Hochenberger from the Barings Hong Kong office. “Are you sitting down?” Hochenberger asked a sleepy Killian. “No, I’m lying down.” It is not unusual to see people frame market wins and losses as a morality tale. These types of questions are designed to absolve the guilt of the market losers for their bad strategies (i.e. Amaranth, Bear Stearns, Bernard Madoff, etc.). The market is no place for political excuses or social engineering. No law changes human nature. If you don’t like losing, examine the strategy of the winners. The performance histories of trend followers during the 2008 market crash, 2000–2002 stock market bubble, the 1998 LongTerm Capital Management (LTCM) crisis, the Asian contagion, the Barings Bank bust in 1995, and the German firm Metallgesellschaft’s collapse in 1993, answer that all important question: “Who won?”

After Merton, Scholes, and Meriwether had Wall Street convinced that the markets were a nice, neat, and continuous normal distribution, and there was no risk worth worrying about, LTCM began using mammoth leverage for supposedly risk-free big returns. Approximately 55 banks gave LTCM financing, including Bankers Trust, Bear Stearns, Chase Manhattan, Goldman Sachs, J.P. Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, and Dean Witter. Eventually, LTCM would have $100 billion in borrowed assets and more than $1 trillion worth of exposure in markets everywhere. This type of leverage was not a problem initially or so it seemed.

Then we are judged on how well we can regurgitate that information back to whomever offered it in the first place. When it comes time to taking responsibility for our decision making, we are constantly waiting for someone else to tell us what to do or checking to see what others are doing. Curiosity has been pulled from us. For example, Alan “Ace” Greenberg, former CEO of Bear Stearns (before it imploded), in his book Memos from the Chairman, told his employees that, “Our first desire is to promote from within. If somebody with an MBA degree applies for the job, we will certainly not hold it against them, but we are really looking for people with PSD (“a poor, smart, and deep desire to be rich degree”) degrees.


pages: 543 words: 147,357

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

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

Chief executive Sir Fred Goodwin lavished £350 million on an extravagant corporate HQ outside Edinburgh, in tribute to the new possibilities of finance.13 When, in October 2008, it suffered a run that very nearly bankrupted both it and the British banking system, its assets were worth £1.9 trillion, more than the GDP of the UK. Its leverage – the ratio of its borrowings to its capital – was more than 25:1. Finance’s chains had been truly sundered. RBS’s leverage was the highest of any of the mainstream banks, but the five largest US investment banks – Goldman Sachs, Morgan Stanley, Bear Stearns, Lehman Brothers and Merrill Lynch – all had leverage ranging from 35:1 to 50:1. All had to refinance their entire balance sheets every few months – a giant exercise in maintaining investor confidence. Their New York and London offices had become interdependent arms operating a financial axis that, for all practical purposes, was one market, with London permitting lightly regulated trading in derivatives and a network of tax havens that was second to none.

There had been financial collapses over the previous forty years – the Herstatt Bank in Germany, Crédit Lyonnais in France, Continental Illinois in the States – but financial power had been distributed more evenly around the network, so the system could handle the shock. By mid-2007, as the sub-prime crisis started to shake Wall Street, Bear Stearns and Paribas closed their hedge funds and the network suddenly seemed much less resilient. When Lehman Brothers fell in September 2008, after the US government was unable to find a rescuer without itself guaranteeing the bank’s liabilities, the shock waves radiated around the US domestic and global financial systems.

It happened for all the same reasons and had the same threat of contagion from bad banks to good.22 The system had grown gargantuan, with a scale of borrowing short to lend long on assets of dubious quality that was mind-boggling. William Cohan gives a flavour of how the market operated, citing a senior banker at Bear Stearns: ‘Our guys would borrow $75bn a day, something in that neighbourhood, most of it daily. It’s not like you’re dialling strangers. You’re calling the guy who loaned you money yesterday and going “You OK with it today? What’s the rate today? Okay great. Thanks.” You tweak it up and down as you buy or sell collateral.


pages: 428 words: 121,717

Warnings by Richard A. Clarke

"Hurricane Katrina" Superdome, active measures, Albert Einstein, algorithmic trading, anti-communist, artificial general intelligence, Asilomar, Asilomar Conference on Recombinant DNA, Bear Stearns, behavioural economics, Bernie Madoff, Black Monday: stock market crash in 1987, carbon tax, cognitive bias, collateralized debt obligation, complexity theory, corporate governance, CRISPR, cuban missile crisis, data acquisition, deep learning, DeepMind, discovery of penicillin, double helix, Elon Musk, failed state, financial thriller, fixed income, Flash crash, forensic accounting, friendly AI, Hacker News, Intergovernmental Panel on Climate Change (IPCC), Internet of things, James Watt: steam engine, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge worker, Maui Hawaii, megacity, Mikhail Gorbachev, money market fund, mouse model, Nate Silver, new economy, Nicholas Carr, Nick Bostrom, nuclear winter, OpenAI, pattern recognition, personalized medicine, phenotype, Ponzi scheme, Ray Kurzweil, Recombinant DNA, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Ronald Reagan, Sam Altman, Search for Extraterrestrial Intelligence, self-driving car, Silicon Valley, smart grid, statistical model, Stephen Hawking, Stuxnet, subprime mortgage crisis, tacit knowledge, technological singularity, The Future of Employment, the scientific method, The Signal and the Noise by Nate Silver, Tunguska event, uranium enrichment, Vernor Vinge, WarGames: Global Thermonuclear War, Watson beat the top human players on Jeopardy!, women in the workforce, Y2K

By that point, Whitney had “emerged as a key voice of concern in this year’s increasingly serious credit market crisis.” As right and strong as she was, the critics may have muzzled another critical warning from Whitney: Bear Stearns was going to collapse too. New York magazine noted she was “convinced that Bear Stearns was insolvent during the week leading up to the company’s emergency sale to JPMorgan in March 2008. She’d been cowed by the reaction to her Citigroup report, however, and decided not to publish a piece about Bear.”9 The author of a book on the collapse of Bear Stearns quotes her as saying, “It was a conscious choice not to write anything. Because I thought it was such a tenuous situation that I was going to get in serious trouble.”10 She told us that she grew cautious after receiving “such vicious backlash from the Citi call” and having experienced “good clients turn against me.”

“It’s not like I don’t add value to a conversation.”1 The host of the event was Gary Crittenden, the chief financial officer of Citigroup. At the time, Wall Street was being rocked by the unraveling of hedge funds, the meltdown of the mortgage industry, and problems with trusted investments like money market funds and previously secure firms like Bear Stearns. As the analysts chatted with Crittenden, one of the highest ranked analysts on Wall Street said he had given up trying to analyze Citigroup because it was too difficult. Hearing that, Whitney said, “I fell back on my heels.” Why should it be harder to analyze the largest bank in the world than any other financial institution?

Many were not only defective, but fraudulent, and Bowen reportedly tried to rouse the board via weekly reports and other communications. Before Whitney’s downgrade, in April 2007, Citigroup announced a restructuring to cut costs and bolster its underperforming stock that would require eliminating seventeen thousand jobs. Yet even after securities and brokerage firm Bear Stearns ran into serious trouble in the summer of 2007, Citigroup excluded its CDOs from its risk assessment, saying that their share of the bank’s business was small (less than a hundredth of 1 percent). On October 15, 2007, a little more than two weeks before Whitney made her call, Bloomberg reported that Citigroup’s net profit had fallen 57 percent on fixed-income losses during its third quarter and announced that mortgage delinquencies would increase and consumer lending would deteriorate for the rest of the year.


pages: 316 words: 117,228

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

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

When Long Term Capital Management, the hedge fund that boasted several Nobel Prize laureates among its founders and managers, tumbled in 1998, for example, the US Federal Reserve organized a private bailout; and in March 2008, the New York Fed provided a substantial dowry when Bear Stearns was forced into a shotgun marriage with JP Morgan Chase. As a wedding present, the Fed lent $30 billion to Chase to purchase Bear Stearns and waived the obligation to pay back these loans should Bear Stearns’s own assets prove to be insufficient.37 In Lehman’s case, the calculus that the Fed would always stand by as the rescuer of last resort for large financial intermediaries did not work out. Only after Lehman’s demise triggered a near standstill of global financial markets did governments come to the rescue.38 In the United States, investment banks were allowed to morph into holding banks, which gave them access to the Fed’s discount window and thus to cash liquidity; and in October 2008, the governments in the leading market economies, including the United States, injected billions of dollars in fresh capital into the largest banks—the “toobig” and the “too-interconnected-to-fail.”

By 2004, this number had increased to 46 percent.14 The risk that these practices created for the chain of intermediaries that participated in the minting of debt is reflected in the fate of the intermediaries that were involved in the NC2 deal. Almost everyone suffered severe financial distress in the financial crisis, not caused by NC2 alone, but by the business practices for which NC2 was emblematic. New Century filed for bankruptcy already in the spring of 2007. Bear Stearns was forced into a shotgun marriage with JP Morgan Chase in the spring of 2008, as discussed in chapter 3. And Citigroup received several capital 84 c h a P te r 4 injections, first from the sovereign wealth funds of foreign nations (Qatar and Singapore in particular) and eventually from the US government.15 So much for the basic structure of NC2, which is more complex than the trusts we encountered earlier, but the basic structure is still the same.

Investors who did not exit fast enough had to watch their fortunes tumble. Worse, securitization deals no longer had a reliable acquirer of tranches nobody else wanted; with the fall from grace of the CDOs, the securitization market came to a grinding halt. This in turn precipitated the fall of the financial intermediaries that had created this market, the Bear Stearns and Lehman Brothers of this world along with their peers. The financial system, which had been based on assumptions about future returns that were dressed up by the modules of the code of capital, fell apart like a house of cards. It is possible to dress up any claims by placing them into trusts or corporate entities and garnish them with alphabet soup labels, such as SPVs, MBS, CDOs and their squared, cubed, or even synthetic variants.


pages: 313 words: 101,403

My Life as a Quant: Reflections on Physics and Finance by Emanuel Derman

Bear Stearns, Berlin Wall, bioinformatics, Black-Scholes formula, book value, Brownian motion, buy and hold, capital asset pricing model, Claude Shannon: information theory, Dennis Ritchie, Donald Knuth, Emanuel Derman, financial engineering, fixed income, Gödel, Escher, Bach, haute couture, hiring and firing, implied volatility, interest rate derivative, Jeff Bezos, John Meriwether, John von Neumann, Ken Thompson, law of one price, linked data, Long Term Capital Management, moral hazard, Murray Gell-Mann, Myron Scholes, PalmPilot, Paul Samuelson, pre–internet, proprietary trading, publish or perish, quantitative trading / quantitative finance, Sharpe ratio, statistical arbitrage, statistical model, Stephen Hawking, Steve Jobs, stochastic volatility, technology bubble, the new new thing, transaction costs, volatility smile, Y2K, yield curve, zero-coupon bond, zero-sum game

Stan was a true pioneer in embedding financial models in portfolio trading systems, and a good decade ahead of his time in understanding the importance of professional software engineering in this endeavor. Later, after leaving Goldman Sachs in 1985, he built AutoBond, an early mortgage portfolio valuation system at Bear Stearns. Today he runs Polypaths, a company that produces fixed-income portfolio analysis software. Nowadays, the cosmos of trading systems is very different. PCs are ubiquitous, spreadsheets are easy to use, and risk management software is increasingly available from tens of companies selling everything from building blocks to turnkey systems.

I got little response-the headhunter seemed to have lost his touch with personnel at Goldman, and was unable to get me an interview. Time passed. I grew impatient and one day I called Ravi in FSG directly. He remembered me and brought me in, and after a full day there I was once again offered a job to work on software. During the year-and-a-half that had passed, Stan had unfortunately left Goldman for Bear Stearns. This time I didn't agonize too much and accepted the job. In November 1985 I left the Labs for Goldman. At my farewell party Larry and Mark gave warm speeches. My closest friends there, they were both secretly on their way out, too. Larry, like me close to 40 years old, was enviably in the midst of deciding that, after having been a physicist and an AT&T business analyst, he would rather be a medical doctor, and was taking biology courses in the evenings and preparing for the MCAT.

Several of Diller's senior strategists in FSG had already left, and now more of them continued out the door. Dennis Adler left for Dillon Reed and eventually ended up at Salomon Brothers, both firms that no longer exist as independent entities as a result of the enormous consolidation in financial services over the past fifteen years. Diller called me once to invite me to join him at Bear Stearns, but, disturbed though I was by Ravi's abrupt departure, it was much too soon for me to leave a place where I had just arrived. Instead, I put my head down and concentrated on work. The bond options traders who were using Bosco began asking for many enhancements, and so, sometime in mid-1986, they authorized Dave Griswold and me to build them a more advanced trading system.


pages: 1,242 words: 317,903

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

airline deregulation, airport security, Alan Greenspan, Alvin Toffler, Andrei Shleifer, anti-communist, Asian financial crisis, balance sheet recession, bank run, barriers to entry, Bear Stearns, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, bond market vigilante , book value, Bretton Woods, business cycle, central bank independence, centralized clearinghouse, classic study, collateralized debt obligation, conceptual framework, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Dr. Strangelove, energy security, equity premium, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, forward guidance, full employment, Future Shock, Glass-Steagall Act, Greenspan put, Hyman Minsky, inflation targeting, information asymmetry, interest rate swap, inventory management, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", junk bonds, Kenneth Rogoff, Kickstarter, Kitchen Debate, laissez-faire capitalism, Lewis Mumford, Long Term Capital Management, low interest rates, low skilled workers, market bubble, market clearing, Martin Wolf, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, Neil Armstrong, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, Northern Rock, paper trading, paradox of thrift, Paul Samuelson, Phillips curve, plutocrats, popular capitalism, price stability, RAND corporation, Reminiscences of a Stock Operator, rent-seeking, Robert Shiller, Robert Solow, rolodex, Ronald Reagan, Saturday Night Live, Savings and loan crisis, savings glut, secular stagnation, short selling, stock buybacks, subprime mortgage crisis, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tipper Gore, too big to fail, trade liberalization, unorthodox policies, upwardly mobile, We are all Keynesians now, WikiLeaks, women in the workforce, Y2K, yield curve, zero-sum game

“I welcomed this call, the first of many, from the tall, quiet stranger,” Walters recorded in her memoir.87 Alan and Barbara embarked on a romance, though it was not without its complications. Barbara was already involved with a different financial Alan: Alan “Ace” Greenberg, the husky, bald trader who was not yet quite the chief executive of Bear Stearns, and not yet quite divorced from his first wife. Having two Alans pursuing her became a source of confusion for Barbara’s assistants, especially because Greenspan and Greenberg had the habit of leaving only their first names when they telephoned. “Even if they asked either gentleman to please leave his last name, it was not much help,” Walters wrote later.

Now, as Geithner tried to build more robust buffers into the financial system, this lack of objective criteria became a problem. He could form his own judgment about the right amount of capital, and attempt to force it on the banks that came under his jurisdiction. But then borrowing and lending would migrate to institutions that lay outside the Fed’s purview: to investment houses such as Bear Stearns; to Fannie and Freddie; to myriad “shadow banks”—money-market funds, auto-loan providers, and so on. Because it was hard to demonstrate conclusively how much capital these players required, nobody was going to stop them from carrying on as they were: the difficulty in specifying bright-line rules combined with the fragmentation of the regulatory system to frustrate Geithner’s quest for resiliency.

But the fun of pitting Greenspan against Bush could not obscure the flashing signs from the economy. Now that house prices were falling and interest rates were higher, the option of refinancing was gone and almost one in six subprime mortgages was delinquent.16 In turn, dozens of subprime lenders had filed for bankruptcy; and, in July 2007, two hedge funds operated by the investment bank Bear Stearns had collapsed under the weight of subprime investments. At the Fed, the new chairman and his allies hoped that this shock would prove fleeting.17 But just as Greenspan was out flacking his book, the questions were accumulating. Greenspan seemed unsure how best to answer them. In a speech in London on October 1, 2007, he stated that he had long regarded the housing market as “an accident waiting to happen.”


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

3D printing, Alan Greenspan, bank run, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Glass-Steagall Act, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, market bubble, market clearing, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, Phillips curve, Post-Keynesian economics, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, subprime mortgage crisis, 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, Tobin tax, too big to fail, women in the workforce

Northern Rock was not the only UK bank to experience trouble, but it was the first UK bank to experience a bank run in over a century. The crisis deepened in March 2008 when the 80-year-old American investment bank Bear Stearns also found itself in trouble. It had exposed itself in the securitized mortgage market and as the prices fell, its exposure increased and the Fed could not rescue it. It had assets of $400 billion but a debt of $33 per each dollar of its capital. Bear Stearns had already fired its CEO in January. It had to be sold at the low price of $10 per share compared to its recent peak of $133 to JPMorgan Chase, another US bank. This was followed by the collapse of Lehman Brothers in September of that same year: the fourth largest investment firm in the US went bankrupt after the US government refused to bail it out.

When the music stopped, each was left holding a parcel and did not know what the parcel contained. The risks, instead of being diversified, multiplied through interconnections. Interbank lending seized up. When a company goes bankrupt, one is bound to ask: Did the efficient market or the participants with rational expectations foresee this? How can equity in Bear Stearns be worth $110 one day and be sold soon after for $10? Is it the case that far from all information being public as the efficient market hypothesis assumes, accounting can hide problems? On the eve of its bankruptcy, three different potential purchasers were trying to read the accounts of Lehman Brothers and were none the wiser as to its asset/liabilities situation.

abolition of slavery (i) absolute poverty (i) accelerator principle (i) accounting, concealing problems (i) accumulation, of profit (i) adaptive expectations (i), (ii) Adelman, Frank and Irma (i) aggregate demand curve (i), (ii) equation (i) price (i) aggregate effective demand (i), (ii) aggregate supply curve (i), (ii) equation (i) price (i) aggressive lending (i) agrarian unrest (i) agricultural prices (i) alternative narrative long perspective (i) merits (i) optimism/pessimism (i) overview (i) America, post-revolution (i) see also United States American Keynesianism (i), (ii) American Revolution (i) Anglo-French War (i), (ii), (iii), (iv) animal spirits (i), (ii) anti-communism (i) Arab-Israeli War, 1973 (i) Aristotle, view of money (i) Arrow, Kenneth (i) Asian countries, foreign exchange (i) Asian Crisis, 1997 (i), (ii) Attwood, Thomas (i) August 15, 2007 (i), (ii) Austrian capital theory (i) Austro-Hungarian Empire (i) average costs (i) Baby Boom (i) bank credit access to (i) as driver of investment (i) Bank of England (i), (ii), (iii) Bank of International Settlements (BIS), warnings of crisis (i) Bank of the United States (i) banking (i) deregulation (i) growth in (i), (ii) political debate (i) banking system, as root of cycles (i) banknotes convertibility (i), (ii) excess (i) issuing (i) non-convertible (i) bankruptcy, prediction of (i) banks Great Depression (i) Great Recession (i) lending (i) recapitalization (i) regulation (i) rescue programs (i) run on (i) Baring Brothers (i), (ii) Bastard Keynesianism (i), (ii) Battle of Beachy Head (i) Battle of Waterloo (i) Bear Stearns (i), (ii) bell-shaped distribution (i) Berlin Wall (i) Bernanke, Ben (i) Big Bang (i) Black, Fisher (i), (ii), (iii) Black Swan event (i) Black Thursday (i) Board of Trade (i) Böhm-Bawerk, Eugene (i) bonds (i), (ii), (iii) boom and bust (i), (ii), (iii) boom, post–World War II (i) borrowing (i), (ii) beyond capacity (i) brokers (i) as cause of recession (i) as response to recession (i) bourgeoisie (i) Brazil (i) bread, production and supply (i) Bretton Woods system (i), (ii), (iii) BRICS countries (i) Britain post-war status (i) see also United Kingdom Brookings-SSRC Econometric Model of the US Economy (i) Brown, Gordon (i), (ii) Bryan, William Jennings (i) bubbles (i) budget deficit, US (i) built-in stabilizers (i) bull run (i) Bullion Report (i) Bundesbank (i) Burns, Arthur (i), (ii) business attracting capital (i) dependence on credit (i) Butler, R.


pages: 300 words: 78,475

Third World America: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream by Arianna Huffington

Alan Greenspan, American Society of Civil Engineers: Report Card, Apollo 13, Bear Stearns, Bernie Madoff, Bernie Sanders, call centre, carried interest, citizen journalism, clean water, collateralized debt obligation, Cornelius Vanderbilt, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, do what you love, extreme commuting, Exxon Valdez, full employment, Glass-Steagall Act, greed is good, Greenspan put, guns versus butter model, high-speed rail, housing crisis, immigration reform, invisible hand, knowledge economy, laissez-faire capitalism, late fees, low interest rates, market bubble, market fundamentalism, Martin Wolf, medical bankruptcy, microcredit, military-industrial complex, Neil Armstrong, new economy, New Journalism, offshore financial centre, Ponzi scheme, post-work, proprietary trading, Report Card for America’s Infrastructure, Richard Florida, Ronald Reagan, Rosa Parks, Savings and loan crisis, single-payer health, smart grid, The Wealth of Nations by Adam Smith, Timothy McVeigh, too big to fail, transcontinental railway, trickle-down economics, winner-take-all economy, working poor, Works Progress Administration

“That said, the year before had been an unsettling one where every morning we came in, we said to each other: ‘We are still here!’ ” Chalian, who has a master’s degree from the London School of Economics, worked for Bear Stearns before he was hired by JPMorgan. “I managed relationships with some of the top independent research firms in the country,” he says. “A lot of changes occurred in the last year, but we thought our jobs were secure. I was laid off on the last day Bear Stearns’ severance was in place.” Chalian considers himself luckier than most: His former company has an in-house career center for displaced workers for up to one year. He has access to career counselors on a weekly basis, and the center offers classes on networking, speaking, and interviewing skills.

Indeed, a federal inspector was at the Upper Big Branch mine hours before it blew up.28 Similarly, there are plenty of financial regulatory agencies.29 In fact, before the economic meltdown there were dozens of federal regulators dedicated to keeping an eye on each of the big banks—in many cases, with offices inside the premises of the banks themselves. Fannie Mae and Freddie Mac had the Office of Federal Housing Enterprise Oversight dedicated to them, and the SEC, which monitored their securities filings, provided an additional layer of oversight.30 And, after Bear Stearns crashed, the New York Fed had a team of examiners at Lehman Brothers every day.31 And yet they still missed the impending economic collapse. Regulations are “very difficult to comply with,” and “so many of the laws” are “nonsensical,” in the words of Don Blankenship, the chief executive officer of Massey Energy, the company that owns the Upper Big Branch mine, which just happens to have a shocking history of safety violations.32 The Wall Street Journal cites the arguments of oil industry executives and regulators who claim “that offshore operations have become so complicated that regulators ultimately must rely on the oil companies and drilling contractors to proceed safely.”33 “There has been a very good record in deep water [drilling],” said Lars Herbst, head of the MMS’s Gulf of Mexico region, “up until the point of [the Deepwater Horizon] accident.”34 Other than that, Mrs.

Lee, “Oynes to Resign in Wake of Oil Leak,” 17 May 2010, www.politico.com. 27 Elizabeth Birnbaum, the head of MMS, was forced out: Tom Raum and Jennifer Loven, “Elizabeth Birnbaum Quits Under Pressure: MMS Director Is Pushed Out After Gulf Spill,” Associated Press, 27 May 2010. 28 Indeed, a federal inspector was at the Upper Big Branch mine: Michael Cooper, Gardiner Harris, and Eric Lipton, “In Mine Safety, a Meek Watchdog,” 10 Apr. 2010, www.nytimes.com. 29 Similarly, there are plenty of financial regulatory agencies: Craig Torres, “Fed Says Capital at Some Major Banks Is ‘Substantially Reduced,’ ” 24 Apr. 2009, www.bloomberg.com. 30 Fannie Mae and Freddie Mac had the Office of Federal Housing Enterprise Oversight: Jonathan J. Miller, “The Federal Housing Finance Agency: Regulators Awaken!” 19 Nov. 2008, www.nytimes.com. 31 And, after Bear Stearns crashed, the New York Fed: Andrew Ross Sorkin, “At Lehman, Watchdogs Saw It All,” 15 Mar. 2010, www.nytimes.com. 32 Regulations are “very difficult to comply with”: Jason Linkins, “Massey CEO Blankenship Has Complained About ‘Nonsensical’ Regulation,” 9 Apr. 2010, www.huffingtonpost.com. 33 The Wall Street Journal cites the arguments: Russell Gold and Stephen Power, “Oil Regulator Ceded Oversight to Drillers,” 7 May 2010, www.wsj.com. 34 “There has been a very good record in deep water [drilling]”: Ibid. 35 Similarly, the reason the financial industry can’t be regulated: Shahien Nasiripour and Ryan McCarthy, “Greenspan Testifies to Financial Crisis Commission, Blames Fannie, Freddie for Subprime Crisis,” 7 Apr. 2010, www.huffingtonpost.com. 36 Massey offers a textbook—and in this case tragic—example: Michael Hupp, “Reports Critical of Massey, Other Mining Operations,” 22 Apr. 2010, www.statejournal.com. 37 In 2009, its Upper Big Branch mine was ordered: Daniel Malloy, “Upper Big Branch Mine Forced to Shut Before,” 9 Apr. 2010, www.post-gazette.com. 38 That same year, the mine was cited for 515 violations: “Miners’ Families Cling to ‘Sliver of Hope,’ ” Associated Press, 7 Apr. 2010. 39 In 2010, by the time of the explosion: Emily C.


pages: 244 words: 79,044

Money Mavericks: Confessions of a Hedge Fund Manager by Lars Kroijer

activist fund / activist shareholder / activist investor, Bear Stearns, Bernie Madoff, book value, capital asset pricing model, corporate raider, diversification, diversified portfolio, equity risk premium, family office, fixed income, forensic accounting, Gordon Gekko, hiring and firing, implied volatility, index fund, intangible asset, Jeff Bezos, Just-in-time delivery, Long Term Capital Management, Mary Meeker, merger arbitrage, NetJets, new economy, Ponzi scheme, post-work, proprietary trading, risk free rate, risk-adjusted returns, risk/return, shareholder value, Silicon Valley, six sigma, statistical arbitrage, Vanguard fund, zero-coupon bond

So we decided to chance it and both meet with one potential prime broker months before I would leave. Brian felt that his contact at Bear Stearns had seemed reliable and that Bear was a good, albeit second-tier, choice as a prime brokerage firm. We did not risk losing too valuable a counterparty if we came across as hopeless beginners for our first meeting, but Bear was also serious enough that we could use it as our prime broker if we really hit it off. For our meeting with Bear Stearns, Brian had arranged to borrow a room in the offices of a friend’s internet company in a dark street off King’s Cross. Rather than taking time off, I had arranged for the meeting to be at 7pm and arrived 30 minutes early to strategise with Brian.

I hoped we would look good in comparison. Tom was head of prime brokerage sales at Bear and was unfazed by the location. ‘Don’t worry,’ he said calmly. ‘The last meeting I had like this took place in a leaking houseboat.’ A master at selling, Tom quickly made us comfortable. ‘Obviously,’ he said, ‘I am here to sell you on Bear Stearns and I would not be working there if I didn’t think the offering we had was very good [soon afterwards he quit the firm], but you guys are not going to have a problem. There are so many banks that see Europe as the next large hedge-fund growth area. At this stage there are not many people starting funds with résumés as good as yours, so everyone will be willing to take you on as a client.

Index Abramovich, Roman Absolute Returns for Kids (ARK) added value, 2nd, 3rd, 4th, 5th Africa poverty alleviation projects Aker Yards, 2nd, 3rd, 4th, 5th, 6th alpha and beta, 2nd, 3rd AP Fondet arbitrage, merger 2nd asset-stripping assets under management (AUM), 2nd, 3rd, 4th, 5th background checking bank bailouts 2008–09 Bank of Ireland Bear Stearns Berkeley Square, 2nd, 3rd Berkshire Hathaway Bezos, Jeff Black-Scholes-Merton option-pricing formula Blair, Tony Bloomberg, 2nd bonds corporate, 2nd government, 2nd, 3rd zero-coupon bonuses, 2nd, 3rd British Airways Buffett, Warren Bure burn-out Busson, Arpad capital gross invested, 2nd, 3rd regulatory seed, 2nd capital asset pricing model (CAPM) cascade effect, 2nd cash deposits, 2nd insurance The Children’s Investment Fund Management (TCI) churning Collery, Peter compensation structures, 2nd, 3rd, 4th see also bonuses competitive edge, 2nd, 3rd, 4th, 5th Conti, Massimo, 2nd corporate bonds, 2nd correlation, market, 2nd, 3rd, 4th, 5th, 6th, 7th country indices Credit Suisse, 2nd, 3rd Cuccia, Enrico Dagens Industry debt crises (2011) debt investments derivative trading discounted fees, 2nd discounts to net asset value diversification, 2nd, 3rd, 4th dividends, 2nd early investors edge, competitive, 2nd, 3rd, 4th, 5th efficient market frontier Enskilda Baken entertainment events entrepreneurship, 2nd equity redistribution Eurohedge, 2nd, 3rd European Fund Manager of the Year Award event assessment, 2nd exchange traded funds (ETFs), 2nd, 3rd, 4th expenses firm, 2nd, 3rd, 4th, 5th fund-related, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th family life, 2nd fees see incentive fees; management fees; performance fees Fidelity Financial Times firm costs, 2nd, 3rd, 4th, 5th Ford, Tom Fresenius FSA (Financial Services Authority), 2nd, 3rd, 4th, 5th fundamental value analysis funds of funds, 2nd, 3rd, 4th, 5th, 6th futures gearing, 2nd, 3rd, 4th, 5th, 6th Gentry, Baker, 2nd, 3rd Goldman Sachs, 2nd government bonds, 2nd, 3rd gross invested capital, 2nd, 3rd Gross, Julian Grosvenor Square HBK Investments, 2nd, 3rd headhunting health, 2nd hedge funds collapse of, 2nd expenses see expenses fees see incentive fees; management fees; performance fees industry growth, 2nd, 3rd mid-cap/large-cap bias nature of operational planning opportunities for young managers ownership structures partnership break-ups short-term performance staff recruitment, 2nd starting up top managers value generated by Henkel herd mentality, 2nd Hohn, Chris holding company discounts incentive fees, 2nd, 3rd, 4th index funds, 2nd, 3rd, 4th, 5th, 6th insurance, cash deposit insurance sector, 2nd interviews investor activism Italian finance JP Morgan Keynes, John Maynard Korenvaes, Harlen, 2nd Lage, Alberto, 2nd, 3rd large-cap bias Lazard Frères, 2nd, 3rd, 4th, 5th Lebowitz, Larry leverage, 2nd Liechtenstein, Max liquidity London bombings (7 July 2005) long run, 2nd, 3rd long securities Long Term Capital Management (LTCM) Lyle, Dennis Macpherson, Elle managed accounts management fees, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th discounted, 2nd funds of funds, 2nd mutual funds tracker funds Mannesmann market capitalisation, 2nd, 3rd market correlation, 2nd, 3rd, 4th, 5th, 6th, 7th market exposure, 2nd, 3rd, 4th, 5th, 6th market neutrality, 2nd mean variance optimisation Mediobanca merger arbitrage, 2nd Merrill Lynch Merton, Robert mid-cap bias Montgomerie, Colin Morgan Stanley, 2nd, 3rd, 4th, 5th, 6th, 7th TMT (telecom, media and technology) conferences Morland, Sam, 2nd, 3rd MSCI World index, 2nd, 3rd mutual funds NatWest Nelson, Jake net asset-value (NAV), 2nd Nokia Norden O’Callaghan, Brian, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th, 12th, 13th Och, Dan oil tanker companies oilrig sector, 2nd options trading out-of-the-money put options ownership structure partnership break-ups pension funds, 2nd performance fees, 2nd, 3rd, 4th Perry, Richard personal networks Philips, David portfolio theory poverty alleviation prime brokerage private jet companies Ramsay, Gordon Rattner, Steve recruitment, 2nd redemption notices regulatory capital returns, 2nd rights issues risk, 2nd, 3rd risk profile, 2nd, 3rd, 4th, 5th, 6th, 7th Rohatyn, Felix Ronaldo Rosemary Asset Management Rothschild, Mayer Royal Bank of Scotland Rubenstein, David rump (stub) trades salaries see compensation structures Samson, Peter SAS airline SC Fundamental seed capital, 2nd shipping companies short securities short-term performance six-stigma events Smith Capital Partners, 2nd softing special situations stakeholders Standard & Poor’s 500 index, 2nd, 3rd, 4th standard deviation, 2nd, 3rd, 4th star managers Start-up of the Year awards Stern, Dan stub trades Superfos Svantesson, Lennart talent introduction groups tax, 2nd, 3rd, 4th Telefonica Moviles time horizon for investments, 2nd, 3rd Torm Totti, David tracker funds trade commission trade sourcing trade theses US market value investing Vanguard index fund, 2nd VIX index, 2nd Vodafone warrants, 2nd, 3rd Westbank Wien, Byron Wilson, Susan world indices, 2nd zero-coupon bonds Zilli, Aldo PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE Tel: +44 (0)1279 623623 Fax: +44 (0)1279 431059 Website: www.pearson.com/uk First published in Great Britain in 2010 Second edition 2012 Electronic edition published 2012 © Pearson Education Limited 2012 (print) © Pearson Education Limited 2012 (electronic) The right of Lars Kroijer to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988.


pages: 247 words: 74,612

For the Love of Money: A Memoir by Sam Polk

Bear Stearns, carried interest, Credit Default Swap, eat what you kill, fixed income, food desert, hiring and firing, Northern Rock, nuclear winter, Rosa Parks, SimCity

In the first quarter of 2008, Countrywide (the largest US mortgage company), Northern Rock (the largest UK finance company), and Bear Stearns (a major US investment bank) all failed. It’s difficult to explain how surreal it was when Bear ­Stearns went down. Bear Stearns was one of the most prestigious, well-respected institutions on Wall Street; it dissolved over a single week. At the same time, a headline announced that Eliot Spitzer, New York’s moralizing governor, was part of a prostitution ring. Is the world going mad? Things got really crazy when Lehman Brothers went down. Lehman was much bigger than Bear Stearns, as powerful as Goldman Sachs, a derivatives behemoth.


pages: 318 words: 77,223

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

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, balance sheet recession, bank run, barriers to entry, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, break the buck, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, collapse of Lehman Brothers, corporate governance, currency peg, disruptive innovation, driverless car, Erik Brynjolfsson, eurozone crisis, fear index, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, friendly fire, full employment, future of work, geopolitical risk, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, inflation targeting, Jeff Bezos, Kenneth Rogoff, Khan Academy, liquidity trap, low interest rates, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Norman Mailer, oil shale / tar sands, price stability, principal–agent problem, quantitative easing, risk tolerance, risk-adjusted returns, risk/return, Second Machine Age, secular stagnation, sharing economy, Sheryl Sandberg, sovereign wealth fund, The Great Moderation, The Wisdom of Crowds, too big to fail, University of East Anglia, yield curve, zero-sum game

Most important, the whiteboards detailed three possible scenarios for the run-up to Monday’s market open. We had assigned the biggest probability to a repeat of the March 2008 Bear Stearns experience—namely that a fragile and failing Lehman would be taken over by a bank with a strong balance sheet. A default would be avoided, and the system would dodge a bullet that would have entailed systemic disruptions. This was our baseline. The relatively high probability we attached to it was reinforced by news out of New York and London that Barclays was indeed considering to play the role that J.P.Morgan had played with Bear Stearns six months earlier. But we did not focus just on this possibility. We also asked ourselves the following two questions: Assuming that we made a prediction mistake, what could that mistake look like?

Internally, they had started to play a game of catch-up with dangerous circumstances that gradually became increasingly obvious over the next year, culminating in cascading failures that very few policymakers and market participants will ever forget. The second big visible tremor hit in March 2008. Bear Stearns, once one of America’s most established and reputable investment banks, found itself on the verge of a total collapse. Once again, complex financial engineering and extremely leveraged positioning were at the heart of the problem, together with inadequate understanding, sloppy supervision, and lax accounting given the extreme risk taking that all this entailed.

And once again, dramatic central bank action—this time quarterbacked by the Federal Reserve under Chairman Bernanke—was needed to restore calm before things got really out of hand. Unlike the ECB’s emergency response seven months earlier involving liquidity injections, the Fed’s intervention made broader use of the public balance sheet. Importantly, it provided financial (loss-protected) backing for a shotgun wedding between failing Bear Stearns and solid-standing JPMorgan Chase. Central banks’ hope was that these two very sudden and disturbing shocks, together with the exceptional nature of the policy response, would entice banks to de-risk in an orderly manner. Instead, banks seemed beholden to what economists call “moral hazard”—that is, the inclination to take more risk because of the perceived backing of an effective and decisive insurance mechanism.


pages: 322 words: 77,341

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

Alan Greenspan, asset-backed security, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Black-Scholes formula, Blythe Masters, Celtic Tiger, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, diversified portfolio, double entry bookkeeping, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, fixed income, George Akerlof, Glass-Steagall Act, greed is good, Greenspan put, hedonic treadmill, hindsight bias, housing crisis, Hyman Minsky, intangible asset, interest rate swap, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jane Jacobs, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, junk bonds, Kickstarter, laissez-faire capitalism, light touch regulation, liquidity trap, Long Term Capital Management, loss aversion, low interest rates, 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, off-the-grid, Own Your Own Home, Ponzi scheme, quantitative easing, reserve currency, Right to Buy, risk-adjusted returns, Robert Shiller, Ronald Reagan, Savings and loan crisis, shareholder value, South Sea Bubble, statistical model, Tax Reform Act of 1986, The Great Moderation, the payments system, too big to fail, tulip mania, Tyler Cowen, value at risk

In a meeting on April 2004,10 the SEC agreed to allow the five big banks to cut the amount of capital they had to hold in reserve against potential losses in its investments. The banks involved were Merrill Lynch, Goldman Sachs, Lehman Brothers, JPMorgan Chase, and Bear Stearns. Three of those banks no longer exist, and the other two had to end (temporarily, it turned out) their status as investment banks; none of that would have happened if the SEC had not changed the rules that day. The change allowed the banks to increase their leverage hugely—Bear Stearns, for instance, increased its leverage to the point where it had $33 in debt for every $1 in equity. There was supposed to be a quid pro quo for the change.

Perhaps we can also experience a twinge of nostalgia at the fact that at the time of its nationalization a few months later, the £25 billion Northern Rock bailout was the biggest sum any government anywhere in the world had ever given to a private company. Such, such were the days … the really serious wave of bailouts and collapses began with Bear Stearns in March 2008 and then went to the next level with the “conservatorship” of Fannie Mae and Freddie Mac on September 7, the largest nationalization in the history of the world. It was followed eight days later by the largest bankruptcy in the history of the world, when the investment bank Lehman Brothers went into Chapter 11, the American form of receivership.

., 36–37, 39–40, 43, 63–71, 73, 75, 77–78, 84, 116, 120–21, 127, 150, 152, 163, 183, 185, 190, 195, 204, 211–12, 219–20, 225, 227–28 wish list of, 186–87, 195 zombie, 43, 229 banking-and-credit crisis, 192–96, 215–21, 225–28, 231 aftermath of, 215–17 bases of, 201–2 causes of, 182–83, 186, 196, 205–7, 217 economists on, 192–94 failure in forecasting of, 193–94, 211 journalists on, 192–93 profits in, 78, 227–28 and regulation, 182–83, 194–96, 202, 205, 211, 225–26 and risk, 192–95, 202, 205–7, 216 Bank of America, 39 Bank of England, 36, 52, 102, 167, 177–78, 206 and banking-and-credit crisis, 194–95 and interest rates, 178, 180 and regulation, 180–81, 195 Barclays, Barclays Bank, 11, 35–36, 77, 146, 227 Baring, Peter, 52 Barings Bank, 51–52, 54, 180 Barofsky, Neil, 219 Basel rules, 154, 208 derivatives and, 67–68, 120, 183 Bear Stearns, 39, 190 Belair-Edison Community Association, 127 Belgium, 40 Bell, Madison Smartt, 89 bell curve, 154–56, 160 Berlin Wall, fall of, 12, 16, 18, 23 Bernstein, Peter, 149 “Big Bang,” 22, 195–96, 200–201 Bitner, Richard, 124–27, 131 Black, Conrad, 59 Black, Fischer, 45, 47–48, 147 Black-Scholes formula, 48, 54, 116–17, 151 Blank, Victor, 40 BNP Paribas, 36, 77 bond market, bonds, 20, 22–23, 58–59, 73, 107–12 Broad Index Secured Trust Offering (BISTRO), 70–71, 121 corporate, 154, 210 derivatives and, 58, 63–67, 112, 114, 118–19, 210–11 of governments, 29–30, 61–62, 103, 109, 118, 144, 176–77, 208 incentives and, 209–11 investing and, 62–63, 102–3, 107–8, 111, 208–9 investment grade, 62 junk, 42, 62, 208 prices and, 61, 63, 102–3, 108–10, 144 in raising capital, 59, 61–63, 102–3 ratings of, 61–63, 114, 118–19, 208–11 risk and, 61–63, 103, 118, 144, 154, 208 Russia’s default and, 55–56, 162, 164–65 bonuses, 19, 37, 76–78, 207, 218, 224, 228 Bradford & Bingley, 40 Bragason, Valgarður, 10–11 British Airways, 199 Brown, Gordon, 12, 33, 88, 178 Buffett, Warren, 150 credit rating of, 123, 125 derivatives and, 56–57, 78 Bush, George W., 2, 78, 99, 142, 203, 219 regulation and, 19–20, 191, 195 businesses, 15, 58–63, 105–6, 187, 198–99, 221 balance sheets of, 29–34, 37, 106 banks and, 195, 229 bonds and, 59, 61–63, 102–3, 154, 208, 210 derivatives and, 112, 114, 153 lending to, 41–42, 60, 108 offshore, 70, 72 regulation and, 183, 195 risk and, 37, 145, 150–51, 153–54, 195 Canada, banks of, 116, 211–12 capitalism, 12–19, 116 banks and, 19, 25, 182–83, 202, 218, 228, 231 communism vs., 12, 16–17 failure of, 228, 230 free-market, 13–19, 21, 23–24, 96, 105n, 143, 173–75, 184, 192, 196, 202–4, 230–32 in Hong Kong, 13–14 laissez-faire, 142–43, 173, 182–83, 189, 191, 195–96, 202, 211–12 Marxist analysis of, 15–16 regulation and, 182, 192 as secular religion, 202–4 success and spread of, 14–15, 18–19, 21, 23–24 Carville, James, 22–23 cash ratios, 25 Cassano, Joseph, 201 check-clearing systems, 33 Chicago Board Options Exchange, 48 Chicago Mercantile Exchange, 47 China, People’s Republic of, 115, 124 economic boom in, 3–4, 14, 108–9 Hong Kong and, 13–14 U.S. investment of, 109, 176–77 Cisneros, Henry, 99 Citigroup, 120, 163, 219–20, 227 Citron, Robert, 51 City of London, 32, 195–97, 199–202, 217–18 and banking-and-credit crisis, 205–6 and Big Bang, 195–96, 200–201 derivatives and, 56–57, 79, 201 and financial vs. industrial interests, 197, 199 ideological hegemony of, 21–23 Wimbledonization of, 195–96 Civil Justice Network, 85, 128–29, 131 Cleveland, Ohio, 83 Clinton, Bill, 22, 43, 107 housing and, 99–100 regulation and, 19–20 Coggan, Philip, 25 cognitive illusions, 141–42 Cold War, 201–2 end of, 16, 18, 21, 164 collateralized debt obligations (CDOs), 183, 201, 210–12 bonds and, 112, 114, 118–19, 210–11 of CDOs, 119, 206 Gaussian copula function and, 116–17, 157–60, 163 mathematics and, 115–16 mortgages and, 75–76, 112–22, 132, 157, 159–60, 172, 210 risk and, 114–15, 117–22, 158–60, 163, 167, 212 securitization and, 113–14, 11719, 122 shortage of borrowers for, 121–22 tranching and, 117–18, 122 commodities, 227 derivatives and, 47, 49n, 51–52, 184 prices of, 3–4, 107–8, 148–49 Commodity Futures Modernization Act, 184 communism, 12, 16–18, 23 competition, 58, 96, 105n, 203, 226–27 regulation and, 187–88, 226 Confessions of a Subprime Lender (Bitner), 124, 127 Congress, U.S., 77, 100, 204 regulation and, 184–86 risk and, 142–43, 164–66 conservatism, housing and, 98 correlation, correlations: CDOs and, 115–16, 158, 167 risk and, 74, 148–49, 158–59, 165, 167 credit, 8, 169–73 banks and, 24–26, 37, 41, 43, 209, 211 bubbles in, 42, 60, 109, 170, 176, 216–17, 221, 223 CDOs and, 114–15, 119–20, 172 crunch in, 37, 41, 43, 54n, 77, 84–86, 92–93, 94n, 136, 163–64, 169, 171–73, 182, 193, 201–2, 215–16, 218–19 histories and ratings on, 85, 100, 123–26, 158, 163, 165, 208–11 housing and, 84–86, 92–93, 94n, 100, 109, 112, 125, 129–30, 132, 163–64 Iceland’s economic crisis and, 10–12 interest rates and, 172–73, 175, 209 risk and, 136, 158, 165 see also banking-and-credit crisis Crédit Agricole, 36 credit cards, 27, 217 credit ratings and, 123–24 Iceland’s economic crisis and, 9, 11–12 risk and, 158–59, 163 credit default swaps (CDSs), 20, 63, 65–80, 117, 158–59, 183–86 AIG and, 75–78, 201 attractive aspects of, 72–74 examples of, 57–58 Exxon deal and, 67–70, 121 over-the-counter trading of, 184–85, 201 regulation and, 68, 70, 73, 184–86 risk and, 58, 66–70, 72–75, 78–80, 212 securitized bundles of, 69–70, 74 streamlining and industrializing of, 68–69 unfortunate side effect of, 74–75 Credit Suisse, 36, 227 Cuomo, Andrew, 99 Cutter family, 126–27 Darling, Alistair, 172, 220 debt, debts, 27–29, 34, 59–63, 118, 172n, 179, 216, 229 in balance sheets, 27–28, 30–31 benefits of, 59–61 bonds and, 59, 61–63, 208, 210 credit and, 123–26, 221 derivatives and, 52, 67, 69–72 housing and, 93, 100, 132, 176 paying the bill and, 220–22 personal, 221–22 regulation and, 181, 190 Russian default on, 55–56, 162, 164–65 see also collateralized debt obligations default, defaults, default rates, 162–65 CDOs and, 114–15 on mortgages, 159–60, 163, 165, 229 risk and, 154, 159–60, 163 of Russia, 55–56, 162, 164–65 see also credit default swaps Demchak, William, 69 democracy, democracies, 15–18, 108–9, 179, 213 free-market capitalism and, 15, 17, 23 housing and, 87, 98 DePastina, Anthony, 85 Depository Institutions Deregulation and Monetary Control Act (DIDMCA), 100 deregulation, see regulation, deregulation derivatives, 45–58, 63–80, 86, 210–12 in balance sheets, 30–31, 70 banks and, 20, 51–54, 57–58, 63–71, 74–75, 77, 79, 115–17, 120–21, 132, 183–84, 200, 205–6, 211 Black-Scholes formula and, 48, 54, 116–17, 151 bonds and, 58, 63–67, 112, 114, 118–19, 210–11 Buffett and, 56–57, 78 and City of London, 56–57, 79, 201 complexity of, 52–54, 56–57 Enron and, 56, 105–6, 185 futures and, 46–47, 49n, 51–52, 54, 184 Greenspan on, 166, 183–84 in history, 45–48, 147 mathematics and, 47–48, 52–54, 115–17, 166 offshore companies and, 70, 72 options and, 46–47, 50–52, 151, 174, 184 over-the-counter trading of, 184–85, 201, 205–6 prices and, 38, 46–52, 54, 56, 75, 158–59, 166 regulation and, 68, 70, 73, 153, 183–86, 200–201 risk and, 46–47, 49–52, 54–55, 57–58, 66–75, 78–80, 114–15, 117–22, 151, 153, 158–60, 163, 166–67, 184–85, 205, 212 size of market in, 48, 56, 80, 117, 201 see also collateralized debt obligations; credit default swaps Detroit, Mich., 81–82 Deutsche Bank, 36, 77, 83, 227 diversification, 146–48, 177 dividends, 101, 147–48 Doctorow, E.


pages: 373 words: 80,248

Empire of Illusion: The End of Literacy and the Triumph of Spectacle by Chris Hedges

Albert Einstein, AOL-Time Warner, Ayatollah Khomeini, Bear Stearns, Cal Newport, clean water, collective bargaining, corporate governance, creative destruction, Credit Default Swap, Glass-Steagall Act, haute couture, Herbert Marcuse, Honoré de Balzac, Howard Zinn, illegal immigration, income inequality, Joseph Schumpeter, Naomi Klein, offshore financial centre, Plato's cave, power law, Ralph Nader, Ronald Reagan, scientific management, Seymour Hersh, single-payer health, social intelligence, statistical model, uranium enrichment

“The low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking,” he said of our oligarchic class:These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns, and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy ended up only making it easier for me to find people stupid enough to take the other side of my trades. God bless America. . . . “On the issue of the U.S. Government, I would like to make a modest proposal,” he went on:First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have [reined] in the predatory lending practices of now mostly defunct institutions.

In an interview with Jim Cramer, who hosts a show called Mad Money on CNBC, Stewart asked his guest why, during all the years he advised viewers about investments, he never questioned the mendacious claims from CEOs and banks that unleashed the financial meltdown—or warned viewers about the shady tactics of short-term selling and massive debt leverag ing used to make fortunes for CEOs out of the retirement and savings accounts of ordinary Americans.5 STEWART: This thing was ten years in the making. . . . The idea that you could have on the guys from Bear Stearns and Merrill Lynch and guys that had leveraged 35 to 1 and then blame mortgage holders, that’s insane. . . . CRAMER: I always wish that people would come in and swear themselves in before they come on the show. I had a lot of CEOs lie to me on the show. It’s very painful. I don’t have subpoena power. . . .

CRAMER: But Dick Fuld, who ran Lehman Brothers, called me in—he called me in when the stock was at forty—because he was saying: “Look, I thought the stock was wrong, thought it was in the wrong place”—he brings me in and lies to me, lies to me, lies to me. STEWART [feigning shock]: The CEO of a company lied to you? CRAMER: Shocking. STEWART: But isn’t that financial reporting? What do you think is the role of CNBC? . . . CRAMER: I didn’t think that Bear Stearns would evaporate overnight. I knew the people who ran it. I thought they were honest. That was my mistake. I really did. I thought they were honest. Did I get taken in because I knew them before? Maybe, to some degree. . . . It’s difficult to have a reporter say, “I just came from an interview with Hank Paulson, and he lied his darn-fool head off.”


pages: 504 words: 139,137

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

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

Also, hedge funds often have negative skewness and excess kurtosis, meaning that they sometimes have extreme returns, especially on the downside. Indeed, hedge funds, especially the small ones, have a high attrition rate, and the industry has been marked by some large blowups, including the failures of Long-Term Capital Management (LTCM), Bear Stearns’ credit funds, and Amaranth. Rather than looking at the performance of actual hedge funds, we can circumvent some of the issues discussed above by cutting to the chase and studying the actual trading strategies that hedge funds pursue as we do in this book. As we will see, the core strategies have worked more often than not over long time periods and worked for economic reasons of efficiently inefficient markets. 1.3.

Since all long and short positions must be funded, a hedge fund must have enough capital to fund the sum of all positions: Failing to meet this requirement has led to spectacular hedge fund collapses. In fact, any financial institution must be able to fund its positions, and what brought down AIG, Lehman Brothers, and Bear Stearns was failing this inequality, that is, not being able to fund their positions. • Mark to market profit and loss (P&L). Each day, a hedge fund’s positions are marked to market, meaning that the value of each security is reassessed. Then the margin accounts are credited or debited for any price changes, as well as for interest payments on the borrowed capital and interest credits due on cash assets.

Founded in 1994, Paulson & Co. has received numerous awards and became widely known for the successful bet against the subprime market in a trade that has been called “The Greatest Trade Ever.” Paulson graduated from New York University in 1978 and received his MBA from Harvard Business School in 1980. Before forming his investment management firm, he was a general partner of Gruss Partners and a managing director in mergers and acquisitions at Bear Stearns. LHP: How did you originally get interested in event-driven investment? JAP: I first learned about risk arbitrage when I was a student at NYU and I signed up for a seminar-type course taught by Gustave Levy. He was the Chairman of Goldman Sachs and a graduate of NYU, and he had previously run the risk arb desk at Goldman Sachs.


pages: 601 words: 135,202

Limitless: The Federal Reserve Takes on a New Age of Crisis by Jeanna Smialek

Alan Greenspan, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Sanders, bitcoin, Black Lives Matter, blockchain, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, Colonization of Mars, coronavirus, COVID-19, crowdsourcing, cryptocurrency, decarbonisation, distributed ledger, Donald Trump, Fall of the Berlin Wall, fiat currency, financial engineering, financial innovation, financial intermediation, Fractional reserve banking, full employment, George Akerlof, George Floyd, Glass-Steagall Act, global pandemic, Henri Poincaré, housing crisis, income inequality, inflation targeting, junk bonds, laissez-faire capitalism, light touch regulation, lockdown, low interest rates, margin call, market bubble, market clearing, meme stock, Modern Monetary Theory, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Nixon shock, offshore financial centre, paradox of thrift, price stability, quantitative easing, race to the bottom, risk tolerance, Robinhood: mobile stock trading app, Ronald Reagan, secular stagnation, short squeeze, social distancing, sovereign wealth fund, The Great Moderation, too big to fail, trade route, Tragedy of the Commons, working-age population, yield curve

The Fed had relatively few tools to neatly address the growing vulnerabilities, some of which fell under the purview of other regulators, and it had been slow to use those it did have. It did not want to choke off business needlessly and it did not recognize the extent of the problem until too late. It had been quick, however, to save the system as the mortgage debt piles began to crumble, working with the elected government to roll out rescue programs for the bank Bear Stearns and the insurer American International Group. Under Ben Bernanke’s leadership, the Fed had dusted off its emergency lending powers to backstop an array of markets, and it enacted three massive bond-buying programs between 2008 and 2014. The policies propped up asset prices and kept the wheels of credit creation turning in an attempt first to soothe markets and later to prevent economic stagnation.

After the 1930s, the Fed had gained broader powers to act as a “lender of last resort” in times of crisis, authorities that by 2007 allowed it to provide backup funding to a wide variety of financial market counterparties. Bernanke and his lawyers made unprecedented use of those emergency lending powers to keep markets functioning—rolling out commercial paper,[*4] money market, and even credit card and auto loan backstops. It also used them to enable rescues for the investment bank Bear Stearns and the insurance giant American International Group. By contrast, the government allowed Lehman Brothers to fail, citing its own legal limitations—although some lawyers and academics have argued in the time since that it was politics and caution, not strict rules, that drove the decision. The emergency programs came in addition to monetary policy moves aimed at cushioning the entire economy.

He said at a news conference that year that the Occupy Wall Street movement’s criticisms were based on a misconception of what the Fed had done, and while “a very simplistic interpretation” of the bank bailouts was that the Fed wanted to preserve banker salaries, “that is obviously not the case.”[27] Nor did it help that the Fed’s programs to rescue American International Group and Bear Stearns had involved after-the-fact reporting, with transactions released to the public only much later, and closed-door decision-making. Lawmakers made political hay out of bashing the Fed. Some of that might have been purely opportunistic. The Fed is a punching bag that cannot hit back, because it avoids getting drawn into the political fray.


pages: 361 words: 107,461

How I Built This: The Unexpected Paths to Success From the World's Most Inspiring Entrepreneurs by Guy Raz

Airbnb, AOL-Time Warner, Apple II, barriers to entry, Bear Stearns, Ben Horowitz, Big Tech, big-box store, Black Monday: stock market crash in 1987, Blitzscaling, business logic, call centre, Clayton Christensen, commoditize, Cornelius Vanderbilt, Credit Default Swap, crowdsourcing, data science, East Village, El Camino Real, Elon Musk, fear of failure, glass ceiling, growth hacking, housing crisis, imposter syndrome, inventory management, It's morning again in America, iterative process, James Dyson, Jeff Bezos, Justin.tv, Kickstarter, low cost airline, Lyft, Marc Andreessen, Mark Zuckerberg, move fast and break things, Nate Silver, Paul Graham, Peter Thiel, pets.com, power law, rolodex, Ronald Reagan, Ruby on Rails, Salesforce, Sam Altman, Sand Hill Road, side hustle, Silicon Valley, software as a service, South of Market, San Francisco, Steve Jobs, Steve Wozniak, subprime mortgage crisis, TED Talk, The Signal and the Noise by Nate Silver, Tony Hsieh, Uber for X, uber lyft, Y Combinator, Zipcar

It was a move that is generally understood to be the falling domino that tipped markets officially into recession and the world into financial crisis. We cannot point to naive imprudence or delusional exuberance as explanations for these collapses in the same way we might for more recent failures like the blood-testing company Theranos or the e-commerce startup Fab. Bear Stearns was not a young, overzealous giant like the modern-day tech unicorns that operate with mantras such as “Move fast and break things.” Bear Stearns was founded in 1923. Lehman Brothers had been around in some form for more than 150 years. In many ways, you could argue that they helped finance the building of America into the strongest, wealthiest nation the world has ever known, that there was a real purpose behind the services they offered.

That has been the destination all along. Knowing that, and recognizing when you’ve reached it, is when the rewards truly begin to accrue. 19 It Can’t Be All About the Money Over the course of little more than a week in March 2008, the fifth-largest investment bank in the United States, Bear Stearns, finally collapsed under the weight of its massive bets on mortgage-backed securities. Six months later, the fourth-largest investment bank in the country, Lehman Brothers, filed for bankruptcy for similar reasons. It was a move that is generally understood to be the falling domino that tipped markets officially into recession and the world into financial crisis.

The participants acted more like gamblers than investors or money managers—taking bigger risks in search of bigger paydays, regardless of what it took to place those bets, which in this case meant getting lenders to increase the number of mortgages they granted to increasingly uncreditworthy borrowers, just so they had more chips to play with. Between them, Bear Stearns and Lehman Brothers had survived the American Civil War, the Great Depression, both World Wars, and dozens of financial panics. They had helped hundreds of companies and made thousands of millionaires. Yet neither of these venerable firms, in the end, could survive their own greed. The Beatles told us that money can’t buy you love.


pages: 287 words: 81,970

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments by Charles Goyette

Alan Greenspan, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Madoff, Bretton Woods, British Empire, Buckminster Fuller, business cycle, buy and hold, California gold rush, currency manipulation / currency intervention, Deng Xiaoping, diversified portfolio, Elliott wave, fiat currency, fixed income, Fractional reserve banking, housing crisis, If something cannot go on forever, it will stop - Herbert Stein's Law, index fund, junk bonds, Lao Tzu, low interest rates, margin call, market bubble, McMansion, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, National Debt Clock, oil shock, peak oil, pushing on a string, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Saturday Night Live, short selling, Silicon Valley, transaction costs

Although risking being tagged “alarmist,” one could have seen in the early events of the year a foreshadowing of what became clearly visible later as the Panic of 2008. It was January when Bank of America bought the nation’s largest mortgage lender, troubled Countrywide Financial. In March, investment bank Bear Stearns, having suffered the collapse of its subprime mortgage hedge funds, was taken over by JPMorgan in a deal engineered with a $29 billion advance from the Federal Reserve. When a midsummer run started on IndyMac Bank, a California thrift deep in the mortgage loan business, police had to be called in to maintain order at a branch in Encino.

The impact of the burgeoning debt on America’s creditworthiness and on the value of the dollar are among those costs. Timothy Geithner, soon to be named President Obama’s new treasury secretary, was the president of the Federal Reserve Bank of New York at the time. He had solemnly explained the prior April that but for the Fed’s bailout, the failure of Bear Stearns would have led to falling stock prices and downward pressure on real estate prices. Such a failure, said Geithner, would have led to “a greater probability of widespread insolvencies, severe and protracted damage to the financial system and, ultimately, to the economy as a whole.” This, of course, is precisely what happened after the bailout.

They do not represent any kind of ownership interest in a commodity or stock. ETNs are notes backed by the credit and solvency of the issuing bank, and thus have a layer of risk not found in ETFs. The credit rating of the issuer is a part of the valuation of the ETN. Although the issuer is typically a large and formidable financial institution, so too were Bears Stearns and AIG at one time. Indeed Lehman Brothers was the issuer of three ETNs, including both a raw materials and an agricultural one. The ETNs ended up being delisted and worthless in the unfolding demise of Lehman. The advantage of the ETN is the access it provides to participating in the performance of a market benchmark, less investor fees.


pages: 303 words: 84,023

Heads I Win, Tails I Win by Spencer Jakab

Alan Greenspan, Asian financial crisis, asset allocation, backtesting, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, book value, business cycle, buy and hold, collapse of Lehman Brothers, correlation coefficient, crowdsourcing, Daniel Kahneman / Amos Tversky, diversification, dividend-yielding stocks, dogs of the Dow, Elliott wave, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, fear index, fixed income, geopolitical risk, government statistician, index fund, Isaac Newton, John Bogle, John Meriwether, Long Term Capital Management, low interest rates, Market Wizards by Jack D. Schwager, Mexican peso crisis / tequila crisis, money market fund, Myron Scholes, PalmPilot, passive investing, Paul Samuelson, pets.com, price anchoring, proprietary trading, Ralph Nelson Elliott, random walk, Reminiscences of a Stock Operator, risk tolerance, risk-adjusted returns, Robert Shiller, robo advisor, Savings and loan crisis, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, subprime mortgage crisis, survivorship bias, technology bubble, transaction costs, two and twenty, VA Linux, Vanguard fund, zero-coupon bond, zero-sum game

If you’ve been paying attention, for example, then you should be asking why at least three events that shouldn’t have happened even once since the Big Bang have occurred in the past three decades alone. It’s because even the most sophisticated traders make poor predictions. When people with pointy heads and absolute conviction in models that claim to do so are united with billions of dollars of borrowed money, trouble often ensues. See Long Term Capital Management, Bear Stearns, and Lehman Brothers. You won’t blow up the global financial system, but you could blow a big hole in your nest egg by dipping in and out of the market. If you have done so successfully in the past (I plead guilty to a few naïve attempts), then it involved at least some luck. Sitting out for any length of time will be costly because missing bad days usually means missing some really good ones too.

But in BusinessWeek’s annual investment outlook for 2008, a year when stocks would suffer horrific losses, Garzarelli didn’t just recommend a 100 percent allocation to stocks but named the specific ones that wound up doing the worst. “Garzarelli is advising investors to buy some of the most beaten-down stocks, including those of giant financial institutions such as Lehman Brothers, Bear Stearns, and Merrill Lynch. What would cause her to turn bearish? Not much. ‘Our indicators are extremely bullish.’”4 Oops. I could go on for a long time naming dozens of false financial prophets, but I don’t want to beat a dead horse. And since all of the evidence I’ve mustered against the value of market seers is anecdotal, it’s a matter of my stories against theirs.

As for taking comfort from the fact that some or even many analysts continue to recommend the stock, well, I hope I’ve put that misconception to rest. On February 7, 2007, all hell broke loose when the company reported an unexpected fourth-quarter loss and said it would restate its financials for the previous three quarters. The stock fell by over a third. There was still time to get out, though. A Bear Stearns analyst upgraded New Century on March 1, a week before it plunged another 90 percent and trading was halted. (His own firm would need rescuing a year later, also a victim of the subprime loan crisis.) All investors, but particularly those such as people living on a fixed income who can’t easily bounce back from a reduction in principal, have an irrational aversion to realizing a loss.


pages: 198 words: 53,264

Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick

activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, AOL-Time Warner, asset allocation, Bear Stearns, behavioural economics, bitcoin, Bretton Woods, buy and hold, buy low sell high, Carl Icahn, cognitive bias, cognitive dissonance, Credit Default Swap, cryptocurrency, Daniel Kahneman / Amos Tversky, endowment effect, financial engineering, financial innovation, fixed income, global macro, hindsight bias, index fund, initial coin offering, invention of the wheel, Isaac Newton, Jim Simons, John Bogle, John Meriwether, Kickstarter, Long Term Capital Management, loss aversion, low interest rates, Market Wizards by Jack D. Schwager, mega-rich, merger arbitrage, multilevel marketing, Myron Scholes, Paul Samuelson, Pershing Square Capital Management, quantitative easing, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Thaler, Robert Shiller, short squeeze, Snapchat, Stephen Hawking, Steve Jobs, Steve Wozniak, stocks for the long run, subprime mortgage crisis, transcontinental railway, two and twenty, value at risk, Vanguard fund, Y Combinator

We're a financial‐technology company.”7 The minimum investment at LTCM was $10 million and their management fees were 2 and 25, above the standard industry practice of 2 and 20. The high minimum and above average fees did not deter investors. The smartest minds attracted the smartest and biggest clients, “including David Komansky, head of Merrill Lynch; Donald Marron, chief executive of Paine Webber; and James Cayne, chief executive of Bear Stearns.”8 They also took money from giant institutions like the Bank of Taiwan, the Kuwaiti pension fund, and the Hong Kong Land & Development Authority. Even Italy's central bank, which notoriously did not invest in hedge funds, forked over $100 million.9 Long‐Term Capital Management opened their doors in February 1994 with $1.25 billion, the largest hedge fund opening ever up until that point in time.

And wanting to experience the feel of the rush again, we keep pushing as we hope that lightning will strike twice. Investors can learn a great lesson from John Paulson, who struck lightning like nobody else before or since. John Paulson started his hedge fund, Paulson & Co., with $2 million of his own money in 1994. He previously spent time at the investment bank Bear Stearns, where he specialized in merger arbitrage. This strategy involves simultaneously buying and selling short the stocks of two merging companies. The trade is executed based on the likelihood that the deal will close. But merger arbitrage is a relatively boring slice of the hedge fund world, and this strategy is not what put John Paulson on the map.

The largest mortgage guys including Vranos at Ellington, one of the gods of the market, were far more positive on subprime.”12 But Paulson didn't care about all that. He just kept buying credit default swaps like there was no tomorrow. Other traders thought Paulson was crazy and that this could be the folly that shuts him down. Interested in hearing from housing experts, Paulson brought in an analyst from Bear Stearns who assured them that they used sound models to predict mortgage solvency and housing prices. They had been carefully studying the market for two decades, and they were untroubled by Pellegrini's assessment of the housing bubble. Paulson was confident that his team's analysis was correct, but how did he know he was right?


pages: 535 words: 158,863

Superclass: The Global Power Elite and the World They Are Making by David Rothkopf

"World Economic Forum" Davos, airport security, Alan Greenspan, anti-communist, asset allocation, Ayatollah Khomeini, bank run, barriers to entry, Bear Stearns, Berlin Wall, Big Tech, Bob Geldof, Branko Milanovic, Bretton Woods, BRICs, business cycle, carried interest, clean water, compensation consultant, corporate governance, creative destruction, crony capitalism, David Brooks, Doha Development Round, Donald Trump, fake news, financial innovation, fixed income, Francis Fukuyama: the end of history, Gini coefficient, global village, high net worth, income inequality, industrial cluster, informal economy, Internet Archive, Jeff Bezos, jimmy wales, John Elkington, joint-stock company, knowledge economy, Larry Ellison, liberal capitalism, Live Aid, Long Term Capital Management, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, Marshall McLuhan, Martin Wolf, mass immigration, means of production, Mexican peso crisis / tequila crisis, Michael Milken, Mikhail Gorbachev, military-industrial complex, Nelson Mandela, old-boy network, open borders, plutocrats, Ponzi scheme, price mechanism, proprietary trading, Savings and loan crisis, shareholder value, Skype, special economic zone, Steve Jobs, Thorstein Veblen, too big to fail, trade liberalization, trickle-down economics, upwardly mobile, vertical integration, Vilfredo Pareto, Washington Consensus, William Langewiesche

Federal Reserve chairman Alan Greenspan called a “once-in-a-century” financial meltdown. As once powerful financial institutions such as Lehman Brothers, Merrill Lynch,Bear Stearns, AIG, and U.S. mortgage lenders Fannie Mae and Freddie Mac were wiped away, rendered unrecognizable or brought under the wing of the U.S. government, much was revealed not only about the deep flaws in the global financial system but about this important segment of the superclass…and by extension about the nature, power, and importance of the superclass as a whole. When Bear Stearns went into its tailspin in March 2008, it was made clear not only that today’s global markets operated far beyond the reach and understanding of national regulators but also that those same regulators were no longer in the position that they once were to manage crises on their own.

New York Federal Reserve Bank president Timothy Geithner and his colleagues grappled with the crisis by convening a select group of the financial superclass in the conference rooms at the Fed, or in conference calls that included Treasury Secretary Hank Paulson or Greenspan’s successor, Ben Bernanke, because only with the voluntary cooperation of the private sector’s most important leaders could the financial bloodletting be stopped. When, at the time of that crisis, J.P. Morgan CEO Jamie Dimon stepped in to lead the acquisition of the remaining assets of Bear Stearns and facilitate a “soft landing” for the dying firm, it echoed an intervention more than a century earlier when J. P. Morgan himself procured over $65 million in gold for the U.S. federal government to help stem a run on financial markets. Thus, not only was the ascendant and central role of the financial superclass in today’s global markets revealed but so, too, was it underscored that there have always been superelites with a special role to play, the evolution to today’s group primarily reflected in its global nature.

Further, the role of military leaders among international elites receded as the cost of modern warfare became too high. The financial crises of 2008 also revealed the volatility of the superclass. If I had included a list of superclass members in the original edition of the book, the heads of Bear Stearns, Lehman, and Merrill would have certainly made the cut. No longer. Some have asked if such volatility means that the group is not really a class. But I have relied on the definition of class that means a group that shares common characteristics. Their interests do not always align. In fact, great differences can come between members of the group.


pages: 287 words: 92,118

The Blue Cascade: A Memoir of Life After War by Mike Scotti

Bear Stearns, call centre, collateralized debt obligation, Donald Trump, fixed income, friendly fire, index card, information security, London Interbank Offered Rate, military-industrial complex, rent control

I have to hold the goddamn business card right up next to the screen every time I type it and look back and forth like three times to make sure I’ve got it right.” He laughed. “Did you hear what Allison did?” I asked him. “No.” “It was the night when we had the double firmwide presentations. Last Tuesday, I think it was. Bear Stearns and Goldman. Well, she did a cut-and-paste with her thank-you e-mails and forgot to change the name of the bank when she sent them. So she sent out like twenty thank-yous to people at Bear Stearns saying that she enjoyed learning about Goldman Sachs. I’ll bet they loved that.” “Damn.” “Yeah. And now tonight we’ve got another double firmwide. I think they schedule two in one night just to fuck with us.

It was shown to potential investors to get them interested. The teaser worked nicely during informational interviews—my way of blowing the door off once I’d pried it open a bit. Sitting on the cold metal seat between two traders at two p.m. on a Wednesday afternoon at Deutsche Bank or Merrill Lynch or Lehman Brothers or Bear Stearns or Credit Suisse. The results always the same. “So, tell me about your military service. You have a hell of a résumé.” I would run through the two-minute version of the elevator pitch of my life, then finish by telling them about the film. “Do you want to take a look at the trailer? It’s on the website.”

How long until that single day during bonus season when the whale hunting was good? When it became worth it for a few moments and the bank paid you for the year of your life you’d spent sitting there. Just a few months before, in July 2007, things had begun to collapse in the financial world. Two hedge funds at Bear Stearns failed. Then Standard and Poor’s started downgrading a lot of bonds that were backed by mortgages. A disaster for the owners of the trillions of dollars of mortgage-backed securities throughout the world. One of our instructors in the new-hire training program that summer had told us ominously in his English accent, “I think we are on the edge of something here.”


pages: 409 words: 125,611

The Great Divide: Unequal Societies and What We Can Do About Them by Joseph E. Stiglitz

"World Economic Forum" Davos, accelerated depreciation, accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Alan Greenspan, Asian financial crisis, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, carried interest, classic study, clean water, collapse of Lehman Brothers, collective bargaining, company town, computer age, corporate governance, credit crunch, Credit Default Swap, deindustrialization, Detroit bankruptcy, discovery of DNA, Doha Development Round, everywhere but in the productivity statistics, Fall of the Berlin Wall, financial deregulation, financial innovation, full employment, gentrification, George Akerlof, ghettoisation, Gini coefficient, glass ceiling, Glass-Steagall Act, global macro, global supply chain, Home mortgage interest deduction, housing crisis, income inequality, income per capita, information asymmetry, job automation, Kenneth Rogoff, Kickstarter, labor-force participation, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market fundamentalism, mass incarceration, moral hazard, mortgage debt, mortgage tax deduction, new economy, obamacare, offshore financial centre, oil shale / tar sands, Paul Samuelson, plutocrats, purchasing power parity, quantitative easing, race to the bottom, rent-seeking, rising living standards, Robert Solow, Ronald Reagan, Savings and loan crisis, school vouchers, secular stagnation, Silicon Valley, Simon Kuznets, subprime mortgage crisis, The Chicago School, the payments system, Tim Cook: Apple, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Turing machine, unpaid internship, upwardly mobile, urban renewal, urban sprawl, very high income, War on Poverty, Washington Consensus, We are the 99%, white flight, winner-take-all economy, working poor, working-age population

Even though the crisis had long been in the making, and even though there had been ample warnings, those in charge, both at the Fed and in the administration, seemed surprised, and I believe genuinely were—a remarkable testament to the ability to close one’s senses to information that one finds unpleasant and contradicts one’s preconceptions. After all, the housing bubble had broken in 2006, the economy had plunged into recession in 2007, the Fed had been supplying unprecedented funds to banks in 2007 and 2008, and there had been a very expensive rescue of Bear Stearns in March 2008. Virtually any economist who did not blindly believe in the virtues of the free and unregulated markets, their efficiency and stability, saw the writing on the wall. Yet the Fed chair Ben Bernanke would blithely claim that the risks were “contained.”13 The precipitating event that plunged the country from the recession that began in December 2007 (which Bush’s policies—another tax cut for the rich in February 2008—had done little to end) into a deep recession, the worst since the Great Depression, was the collapse of Lehman Brothers on September 15, 2008.

The originators of these problem mortgages had already sold them to others, who packaged them, in a nontransparent way, with other assets, and passed them on once again to unidentified others. When the problems became apparent, global financial markets faced real tremors: it was discovered that billions in bad mortgages were hidden in portfolios in Europe, China, and Australia, and even in star American investment banks such as Goldman Sachs and Bear Stearns. Indonesia and other developing countries—innocent bystanders, really—suffered as global risk premiums soared, and investors pulled money out of these emerging markets, looking for safer havens. It will take years to sort out this mess. Meanwhile, we have become dependent on other nations for the financing of our own debt.

Of course, the current problems with our financial system are not solely the result of bad lending. The banks have made mega-bets with one another through complicated instruments such as derivatives, credit-default swaps, and so forth. With these, one party pays another if certain events happen—for instance, if Bear Stearns goes bankrupt, or if the dollar soars. These instruments were originally created to help manage risk—but they can also be used to gamble. Thus, if you felt confident that the dollar was going to fall, you could make a big bet accordingly, and if the dollar indeed fell, your profits would soar.


pages: 394 words: 124,743

Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry by Steven Rattner

activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, bank run, banking crisis, Bear Stearns, business cycle, Carl Icahn, centre right, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, creative destruction, credit crunch, David Brooks, David Ricardo: comparative advantage, declining real wages, Ford Model T, friendly fire, hiring and firing, income inequality, Joseph Schumpeter, low skilled workers, McMansion, Mikhail Gorbachev, moral hazard, Ronald Reagan, Saturday Night Live, shareholder value, subprime mortgage crisis, supply-chain management, too big to fail

Every morning for months, Jimmy had a standing meeting with his team to strategize and plan their next move. With me, he became even more relentless, issuing frequent reminders that JPMorgan had not caused the financial crisis; on the contrary, it had bought Bear Stearns at the government's urging to try to help. Tim had instructed me not to be taken in but to maintain strict neutrality. I was not to demand anything of JPMorgan just because it had received an infusion of TARP money; nor was I to show it favor because of Bear Stearns or anything else. I just kept reciting my arguments about liquidation value, the lenders' freedom to seize Chrysler if they wanted, and so on. Matt kept a back-channel dialogue going with Jimmy's lawyer, Peter Pantaleo, inching toward the settlement that I always believed was inevitable.

As the crisis developed, I contributed opeds on housing, on the likely emergence of better-capitalized banks, on what to do with Fannie Mae and Freddie Mac, on the future of private equity, and on the state of the economy (about which I was way too optimistic). For many months, Wall Street was in a muddle about what it wanted Washington to do. In March 2008, when the Fed saved Bear Stearns, many in the financial community were dismayed. "Moral hazard!" they cried. "Poorly run institutions must be allowed to fail!" For the next few months, markets continued to erode only gradually, with the acute pain confined to those in the subprime mortgage arena. But then came the crisis of September 2008.

Instead we zeroed in on their principal challenges. For GM, management was the issue; for Chrysler, sheer survival. Chrysler's creditors had been pressing us for weeks for a chance to make their case. Their anxiety was easy to understand. In May 2007, at the height of the private equity bubble, JPMorgan, Citibank, Bear Stearns, Goldman Sachs, and Morgan Stanley had agreed to lend $10 billion to Cerberus to help fund its purchase of Chrysler and Chrysler Financial. It was one of those Rube Goldberg financings that private equity guys and aggressive lenders dream up when times are flush. For a little under a year, all seemed to go well—Chrysler even paid down about $3 billion of the debt.


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, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, Cornelius Vanderbilt, corporate governance, Credit Default Swap, cross-subsidies, currency risk, dematerialisation, disinformation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Growth in a Time of Debt, Ida Tarbell, 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, it is difficult to get a man to understand something, when his salary depends on his not understanding it, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jim Simons, John Meriwether, junk bonds, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, M-Pesa, market design, Mary Meeker, megaproject, Michael Milken, millennium bug, mittelstand, Money creation, 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, Paul Volcker talking about ATMs, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, reality distortion field, regulatory arbitrage, Renaissance Technologies, rent control, risk free rate, risk tolerance, road to serfdom, Robert Shiller, Ronald Reagan, Schrödinger's Cat, seminal paper, 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, vertical integration, Washington Consensus, We are the 99%, Yom Kippur War

The stock market reacted favourably to the announcement of its changed objectives, but less favourably to the subsequent reality. ICI’s share price peaked in early 1997, and the decline thereafter was relentless. In 2007 what remained of the once great business was acquired by a Dutch company. The company whose objective was solely ‘to maximise value for shareholders’ was not successful even in achieving that. Bear Stearns, which famously proclaimed ‘we make nothing but money’, was an early casualty of the global financial crisis. The paradox that the most profit-oriented companies are not necessarily the most profitable is the subject of my book Obliquity.36 At the beginning of the last decade of the twentieth century ICI was Britain’s largest industrial company, but GEC was number two.

But as the sector became more aggressive and competitive such co-operation diminished. Perhaps the last great co-ordinated rescue operation – which involved much official twisting of private-sector arms – was the support package for the racy and absurdly named hedge fund Long-Term Capital Management in 1998. (The foul-mouthed Jimmy Cayne, of Bear Stearns, who refused to participate, would receive his comeuppance a decade later when the Federal Reserve took pleasure in forcing a fire-sale of his failing business to J.P. Morgan.) But the concerns about banks that paralysed the USA in 1933, or which brought the global financial system close to collapse in 2008, were not like that.

Before the global financial crisis, governments (strictly speaking, the deposit protection schemes they sponsored) were known to stand behind deposits, up to a limit: but in principle larger depositors, and other bank creditors, were at risk. But not in reality. The collateral for trading activities provided by the retail deposit base proved crucial in 2007–8, when three of the five major independent investment banks failed – Lehman falling into bankruptcy, and Bear Stearns and Merrill Lynch into the arms of large retail banks – while the other two, Goldman Sachs and Morgan Stanley, survived only because they reconfigured themselves as bank-holding companies so that the Federal Reserve could open to them the channels to liquidity available to troubled retail banks.


pages: 288 words: 16,556

Finance and the Good Society by Robert J. Shiller

Alan Greenspan, Alvin Roth, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, benefit corporation, Bernie Madoff, buy and hold, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, cognitive dissonance, collateralized debt obligation, collective bargaining, computer age, corporate governance, Daniel Kahneman / Amos Tversky, democratizing finance, Deng Xiaoping, diversification, diversified portfolio, Donald Trump, Edward Glaeser, eurozone crisis, experimental economics, financial engineering, financial innovation, financial thriller, fixed income, full employment, fundamental attribution error, George Akerlof, Great Leap Forward, Ida Tarbell, income inequality, information asymmetry, invisible hand, John Bogle, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, loss aversion, Louis Bachelier, Mahatma Gandhi, Mark Zuckerberg, market bubble, market design, means of production, microcredit, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, Occupy movement, passive investing, Ponzi scheme, prediction markets, profit maximization, quantitative easing, random walk, regulatory arbitrage, Richard Thaler, Right to Buy, road to serfdom, Robert Shiller, Ronald Reagan, selection bias, self-driving car, shareholder value, Sharpe ratio, short selling, Simon Kuznets, Skype, social contagion, Steven Pinker, tail risk, telemarketer, Thales and the olive presses, Thales of Miletus, The Market for Lemons, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, Vanguard fund, young professional, zero-sum game, Zipcar

Shadow banks are merely nancial institutions that manage to escape banking regulation by designing themselves so that they do not t the de nition of commercial banks. They do not literally accept deposits, but instead get the money they lend in slightly different ways. Examples of shadow banks include the now-failed Bear Stearns and Lehman Brothers, which were called investment banks but were not regulated as commercial banks, since they did not accept deposits. They became shadow banks when they began to act like commercial banks. Another example is the structured investment vehicle (SIV), which was created by commercial banks before the nancial crisis of 2007; they hoped to escape regulation by putting some of their business into the SIVs, which were considered separate (and unregulated) entities.

Because the general public does not usually deal directly with investment bankers, the bankers are largely invisible to them and therefore do not usually elicit as much public hostility as other nancial professionals—until there is a crisis that spotlights their activities. In the current nancial crisis, major investment banking rms—such as Bear Stearns, Goldman Sachs, and Lehman Brothers—became objects of loathing for some. But in fact investment bankers are really responsible for the origins of our securities markets, including stock markets. Without them, we would not have these markets. The stock market is a wonderful invention. It is important that companies be able to sell shares to the public, for that process engages a large number of people in their economic undertakings.

Until 1970 the New York Stock Exchange required member rms to be partnerships because of the members’ belief in the superiority of this form of organization (and probably for anticompetitive reasons as well).14 Eventually, however, changes in the technology of business that encouraged large-scale enterprises led the exchange to relax this rule, and after the rule change there was a wholesale move away from the partnership structure in finance. Donaldson, Lufkin & Jenrette changed its partnership structure and went public in 1970. It was followed by Merrill Lynch in 1971, Lehman Brothers in 1984 when it was acquired by Shearson / American Express and then spun o , Bear Stearns in 1985, Morgan Stanley in 1986, and Goldman Sachs in 1999. Among major Wall Street rms in the United States, only Brown Brothers Harriman retains the partnership structure, with its partners still suffering the burdens and risks of that structure. In a traditional partnership, the partners’ investment in their business is highly illiquid: they cannot easily get out, and its value is opaque, as shares are not traded minute by minute.


pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

affirmative action, Alan Greenspan, Albert Einstein, Andrei Shleifer, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Boeing 747, Bretton Woods, business cycle, buy and hold, capital controls, carbon tax, Cass Sunstein, central bank independence, classic study, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency risk, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, fixed income, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, Great Leap Forward, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, John Markoff, Joseph Schumpeter, junk bonds, Kenneth Rogoff, libertarian paternalism, low interest rates, low skilled workers, Malacca Straits, managed futures, market bubble, microcredit, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, school vouchers, seminal paper, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, tech worker, The Market for Lemons, the rule of 72, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional, zero-sum game

The Federal Reserve urged commercial banks to borrow directly from the Fed via the discount window, gave banks the ability to borrow anonymously (so that it would not send signals of weakness to the market), and offered longer term loans. The Fed also loaned funds directly to an investment bank (Bear Stearns) for the first time ever; when Bear Stearns ultimately faced insolvency, the Fed loaned JPMorgan Chase $30 billion to take over Bear Stearns, sparing the market from the chaos that later followed the Lehman bankruptcy. In cases where institutions already had access to Fed capital, the rules for collateral were changed so that the borrowers could pledge illiquid assets like mortgage-backed securities—meaning that when grandma asked for her $500 loan, she could pledge all that stuff in the attic as collateral, even if it was not obvious who would want to buy it or at what price.

He describes options as “managerial heroin,” because they create an incentive for managers to seek short-term highs while doing enormous long-term damage.10 Studies have found that companies with large options grants are more likely to engage in accounting fraud and more likely to default on their debt.11 Meanwhile, CEOs (with or without options) have their own monitoring headaches. Investment banks like Lehman Brothers and Bear Stearns were literally destroyed by employees who took huge risks at the firm’s expense. This is a crucial link in the chain of causality for the financial crisis; Wall Street is where a bad problem became disastrous. Banks across the country could afford to feed the real estate bubble with reckless loans because they could quickly bundle these loans together, or “securitize” them, and sell them off to investors.

The most serious moment came when the investment bank Lehman Brothers recognized that it could not meet its short-term debt obligations—meaning that without some infusion of outside capital, the firm would have to declare bankruptcy. The U.S. Treasury and the Federal Reserve were unable, or unwilling, to save Lehman. (Earlier in the year they had saved Bear Stearns, another troubled investment bank, by arranging a takeover by JPMorgan Chase.) When Lehman declared bankruptcy, leaving all of its creditors high and dry, the global financial system essentially seized up. A Treasury official described the cascade of panic to The New Yorker: “Lehman Brothers begat the Reserve collapse [a money-market fund], which begat the money-market run, so the money-market funds wouldn’t buy commercial paper [short-term loans to corporations like GE].


pages: 1,797 words: 390,698

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

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

In mid-June, however, the two governors announced that the World Trade Center would not be sold. Drawing on the results of the Bear Stearns study, which concluded that the complex “currently has greater value to the states and the port under continued public ownership than under private ownership,” the governors said the big real estate asset should be used to generate $1.2 billion for major construction projects throughout the region. Reversing the recommendations of the earlier report and bi-state panel and angering New York City officials, the Bear Stearns report revealed a political reality: The Port Authority was still the only game in town when it came to funding big-ticket capital projects.

“Sweet Deal, Sour Price,” said the Daily News.5 As could be expected, Larry Silverstein went on record saying the bank’s decision was a “tremendous addition to the new Downtown.”6 It validated his unshakable belief in the area’s resurgence, yet the euphoria of the announcement was short-lived. Less than a year later, in May 2008, two months after the bank’s $240 million buyout of Bear Stearns Co., J. P. Morgan Chase CEO James “Jamie” Dimon told attendees at a financial conference that the bank would be able to save $3 billion because it no longer needed to build a new lower Manhattan headquarters for its investment bankers; instead, it would move into Bear Stearns’s Manhattan headquarters at 383 Madison Avenue (completed in 2002) in midtown—a tower valued at approximately $1.5 billion or six times what J. P. Morgan Chase paid for the venerable but credit-starved eighty-five-year-old securities firm wiped out by mortgage-related losses that were similarly decimating many Wall Street banks.7 The aspiration for a market-validating corporate commitment—gone.

Between 1929, when downtown first experienced competition from midtown Manhattan as a choice location for corporate business, and 1993, nine major studies analyzed downtown’s competitive problems, seeking solutions to stem fears of a permanent eclipse.26 As an office district, downtown was hard pressed to compete with midtown Manhattan’s deep economic base, superior commuter transportation, and compelling social infrastructure of amenities—the restaurants, retail shops, pedestrian-filled streets, small public spaces, and entertainment venues facilitating business networks and an intense level of activity. Midtown was where the city’s largest financial firms—Bear Stearns, Citigroup, J. P. Morgan, Morgan Stanley, and DLJ, among them—had been moving for decades. Many firms, including Merrill Lynch, Goldman Sachs, Lehman Brothers, AIG, Deutsche Bank, and Standard & Poor’s, had remained downtown. The two business districts represented geographic poles of competition for corporate tenants, midtown being the preferred location except when the supply of office space tightened and its attendant rent spikes widened the rent differential between these two districts and gave downtown a temporary edge, especially among rent-sensitive tenants.


Global Financial Crisis by Noah Berlatsky

"World Economic Forum" Davos, accounting loophole / creative accounting, Alan Greenspan, asset-backed security, banking crisis, Bear Stearns, Bretton Woods, capital controls, Celtic Tiger, centre right, circulation of elites, collapse of Lehman Brothers, collateralized debt obligation, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, Doha Development Round, energy security, eurozone crisis, financial innovation, Food sovereignty, George Akerlof, Glass-Steagall Act, God and Mammon, Gordon Gekko, housing crisis, illegal immigration, income inequality, low interest rates, market bubble, market fundamentalism, mass immigration, Money creation, moral hazard, new economy, Northern Rock, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Ronald Reagan, Savings and loan crisis, shareholder value, social contagion, South China Sea, structural adjustment programs, subprime mortgage crisis, too big to fail, trade liberalization, transfer pricing, working poor

Much of the banks’ money was invested in mortgages that were now shown to be bad debts. To make matters worse, the banks had in many cases promised to pay other investors through credit default swaps if these loans went bad. The resulting strain caused a series of catastrophic failures of large banks in the United States. Bear Stearns, a large investment bank, first noted publicly that it was having trouble because of subprime 17 The Global Financial Crisis loans in July 2007. On September 7, 2008, Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), the two largest mortgage lenders in the United States, had to be bailed out by the U.S. government.

Lord Turner has also supported the argument that the most dangerous forms of risk-taking in banking institutions can be limited by paying bonuses not in cash but in stock, redeemable after a period of years. As stock prices are depressed and the capital gains tax payable is only 18 per cent, any halfsober City trader will have worked out he should be doing this in any event. But it is not a silver bullet—the bosses at both Lehman Brothers and Bear Stearns had huge equityrelated incentives, and look where they are today. These issues require pause for thought: there are bigger regulatory battles shaping up. One concerns the proposal to establish a clearing house for complex financial derivatives so that they can be traded, netted and regulated. Properly regulated, these activities can spread risk and, in a general sense, add to stability.

See Credit risks 45, 87, 88–90, 178, 208, 211– 212 Bad debt Iceland, 18, 102–106 Japan, 1990s, 207 249 The Global Financial Crisis Islamic insulation, 164–169 Philippines, 151–153 regulation repeals/blockages as cause of crisis, 42–52, 205– 206 subprime mortgage dealings, 17–18 See also Bailouts; Bank nationalization; Capital ratios; Guaranteed deposits; Liquidity crises Barclays Capital bank, 44, 46, 47–48 Basis Capital, 88 Baugur, 105 Bear Stearns, 17–18, 49 Bernanke, Ben, 54, 173, 177 Boeri, Tito, 53–58 Bolivarian Alternative for the Americas, 184, 196 Bolivia, 161 Bonds corporate, within crisis, 175– 176, 220 Islamic banks, 167–168, 169 Japanese market, 214 suggestion for EU, 97, 99–100 Bonuses, executives, 29, 43, 45, 46, 49 Boom and bust cycles, 59, 61 “Boom thinking,” as cause of crisis, 32–41 Booth, Jenny, 22–26 Brazil, 161–162 BRIC meetings, 146–147 free trade, 180, 184 trade partners, 144, 184 BRIC summits, 146–147 Britain.


pages: 195 words: 63,455

Damsel in Distressed: My Life in the Golden Age of Hedge Funds by Dominique Mielle

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", activist fund / activist shareholder / activist investor, airline deregulation, Alan Greenspan, banking crisis, Bear Stearns, Black Monday: stock market crash in 1987, blood diamond, Boris Johnson, British Empire, call centre, capital asset pricing model, Carl Icahn, centre right, collateralized debt obligation, Cornelius Vanderbilt, coronavirus, COVID-19, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, family office, fear of failure, financial innovation, fixed income, full employment, glass ceiling, high net worth, hockey-stick growth, index fund, intangible asset, interest rate swap, John Meriwether, junk bonds, Larry Ellison, lateral thinking, Long Term Capital Management, low interest rates, managed futures, mega-rich, merger arbitrage, Michael Milken, Myron Scholes, Northpointe / Correctional Offender Management Profiling for Alternative Sanctions, offshore financial centre, Paul Samuelson, profit maximization, Reminiscences of a Stock Operator, risk free rate, risk tolerance, risk-adjusted returns, satellite internet, Savings and loan crisis, Sharpe ratio, Sheryl Sandberg, SoftBank, survivorship bias, Tesla Model S, too big to fail, tulip mania, union organizing

Meanwhile, my contractor, an affable and highly competent man who can hold a long and lively conversation about cement, was allowed to borrow beyond his credit score and at one point owned seven income properties before he had to file for bankruptcy in 2009. Was there a moral responsibility that lenders not take advantage of these conditions? In addition, did that standard apply equally to the CEOs of Bear Stearns, Lehman Brothers or Merrill Lynch, who jeopardized the entire banking system, and the homeowner who fabricated the income on his loan application? Should the former be held to a higher standard? My husband proposed this apt analogy: If you build a settlement on an earthquake fault line, and a monstrous tremor destroys the entire city, whose responsibility is it?

My colleague Jeff redirected our business throughout July and August, diligently unwinding the strings that connected us to Lehman, so that when they filed, we had virtually no exposure. But he pointed out that given the speed at which one investment bank after another could melt toward bankruptcy—first Bear Stearns, then Lehman, then Morgan Stanley, Merrill Lynch, and Goldman Sachs—he would run out of possible counterparties before year-end. Still, at the beginning of September, with Lehman’s stock still hanging around $10 per share, market participants firmly expected the government to step in and arrange for a hasty merger between Lehman and a healthier financial institution, with a tidy fulfillment of its obligations to follow.

On September 24, 2008, we settled at the posh Four Seasons resort in Santa Barbara. Companies were collapsing at lightning speed. Lehman had filed on September 15. AIG had been taken over by the government through an $85 billion bailout on September 16, and Goldman Sachs had been thrown an equity infusion lifeline by Berkshire Hathaway on September 23. March 2008, when Bear Stearns was sold for $2 a share to JP Morgan to avoid bankruptcy by a hair’s breadth, seemed an eternity away. Markets were generally going in the same direction around the world: tanking. After a heavy agenda on the first day, we were scheduled to dine al fresco. We all walked out on to the lush garden, richly landscaped and perfectly manicured, at last breathing in fresh air and enjoying the light of day.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

accounting loophole / creative accounting, active measures, airline deregulation, Alan Greenspan, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Big bang: deregulation of the City of London, bilateral investment treaty, book value, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon credits, Carmen Reinhart, central bank independence, classic study, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, democratizing finance, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, foreign exchange controls, full employment, Gini coefficient, Glass-Steagall Act, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, Kickstarter, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, military-industrial complex, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, proprietary trading, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, Savings and loan crisis, scientific management, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, stock buybacks, structural adjustment programs, subprime mortgage crisis, Tax Reform Act of 1986, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, vertical integration, very high income, Washington Consensus, We are all Keynesians now, Works Progress Administration, zero-coupon bond, zero-sum game

Both the Treasury and Federal Reserve staff also continued to work through the President’s Working Group on Financial Markets (established after the stock market crash of 1987) to coordinate their firefighting activities with the Securities Exchange Commission and the Commodity Futures Trading Commission.38 At the beginning of 2008 insurers of US municipal bonds were in deep trouble, and stock markets in Asia and Europe were shaken at the prospect of a serious American recession.39 The Fed made a large emergency cut in interest rates, and soon followed this by supplying other central banks with even more dollars.40 By March, just as the Treasury was about to issue a “Blueprint for a Modernized Financial Regulatory Structure” designed to enhance the Fed’s regulatory authority over the whole financial system, two Bear Stearns hedge funds went bust. The Fed directed, oversaw, and guaranteed to the tune of $30 billion, J. P. Morgan’s takeover of Bear Stearns, which was so highly leveraged that it was borrowing as much as $70 billion in overnight markets. (Ironically, Bear Stearns was the lone major investment bank which had refused to cooperate with the Fed-engineered bailout of Long Term Capital Management a decade before.) The Fed placed examiners inside each of Wall Street’s investment banks (thereby compensating for the SEC’s failure to do so).

Monolines guaranteed about $2.5 trillion worth of public and private bonds (100 to 150 times the size of their capital base), allowing banks to create additional liabilities—including a parallel, highly leveraged market of swap contracts. 40 The Fed’s new Primary Dealers Credit Facility, which immediately made $200 billion available to investment banks, was also designed to ensure the continued functioning of the long-established system whereby two major Wall Street “clearing banks” (Bank of New York Mellon and J. P. Morgan Chase) spread the Fed’s liquidity to other banks in the US and abroad. 41 In the months following the Bear Stearns collapse, the Fed used its new programs to accept $219 billion in risky assets from financial institutions. And on one day in mid May alone, the Fed not only provided J. P. Morgan with $10 billion as part of its revolving credit line for its takeover of Bear Stearns, but also provided Bank of New York Mellon with over $4 billion to support Barclays in the UK, as well as Countrywide in the US. This data is derived from “Primary, Secondary and Other Credit Extensions Outstanding on Friday, May 16, 2008 by Remaining Term,” one of the 29,000 documents the Fed made available under court order in the spring of 2011. 42 Willem Buiter, “The Fed as the Market Maker of Last Resort: Better Late than Never,” Financial Times, March 12, 2008. 43 See Chris Giles, “Central Banks Become Lender of Only Resort,” Financial Times, October 3, 2008; Ben Bernanke, “Addressing Weaknesses in the Global Financial Markets: The Report of the President’s Working Group on Financial Markets,” speech given to World Affairs Council of Greater Richmond, April 10, 2008; and “Board of Governors of the Federal Reserve System: Press Releases,” September 14, 2008. 44 Fannie and Freddie were put under a government “conservatorship” directed by the new Federal Housing Finance Agency, with their obligations uploaded to the Treasury’s balance sheet.

Financial Crisis Inquiry Report, p. 355. 46 Geithner had been more successful three years earlier, in September 2005, when he had summoned the fourteen largest Wall Street banks to a meeting at the New York Fed for the first time since the 1998 LTCM crisis, and was able to get them all to agree to overhaul their back-office procedures for confirming trades on credit derivatives. See Timothy Geithner, Callum McCarthy, and Annette Nazareth, “Safer Strategy for Credit Products Explosion,” Financial Times, September 27, 2006. In September 2008, under heavy pressure from the US Treasury, Barclays was on the verge of absorbing Lehman’s as Morgan had done with Bear Stearns, but it drew back in the face of the British Financial Services Authority’s refusal to allow Barclay’s to assume Lehman’s obligations and the US Treasury’s refusal to allow the Fed to guarantee that it would cover them. See Tett, Fool’s Gold, pp. 186–8. 47 Financial Crisis Inquiry Report, p. 354. 48 Over the previous year, Goldman Sachs in particular had not only stopped buying mortgage-backed securities on its own account while still reaping fees by selling them to others (in a manner reminiscent of its behaviour in the 1970 commercial paper crisis), but had also demanded that AIG put up massive amounts of collateral to back up its credit default swaps with Goldman.


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

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, benefit corporation, Black Swan, blood diamond, 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, company town, compensation consultant, 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 engineering, financial innovation, fixed income, Ford Model T, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Glass-Steagall Act, Gordon Gekko, Greenspan put, hiring and firing, Ida Tarbell, income inequality, independent contractor, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, Money creation, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, Paul Volcker talking about ATMs, pension reform, performance metric, Pershing Square Capital Management, pirate software, plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, prosperity theology / prosperity gospel / gospel of success, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, rolling blackouts, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, stock buybacks, subprime mortgage crisis, The Chicago School, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

Recall they concluded that shareholders in acquiring firms consistently fared poorly from [Mark] Hurd-like merger activity.99 Deferring option payouts for some years is no solution, and proved a failure during the 2000s, as evidenced by firms such as Lehman Brothers and Bear Stearns. While driving their firms bankrupt with risky behavior, Bear Stearns CEO James E. Cayne, Lehman CEO Fuld, and their top four lieutenants cashed out over $2.4 billion from 2000–2008, according to the Program on Corporate Governance at Harvard Law School.100 Much was deferred for a few years, reports Louise Story of the New York Times, but this failed to prevent bankruptcy.101 Moreover, internal reform of the options system is unlikely because boards are in denial: 83 percent of US boards believe that options improve executive performance, according to a 2010 PricewaterhouseCoopers survey.

Now consider the financial sector as a whole: it is again hard either to distinguish skill from luck or to align the interests of management, staff, shareholders, and the public. It is in the interests of insiders to game the system by exploiting the returns from higher probability events. This means that businesses will suddenly blow up when the low probability disaster occurs, as happened spectacularly at Northern Rock and Bear Stearns.”44 The syndrome is generalized across the entire American economy, and certainly not restricted to the financial sector. Indeed, a host of studies have caused compensation experts to conclude that much of the rise in executive pay across all sectors in recent decades is unjustified by performance.

Elimination of the firewall between banks and investment activities was an important milestone that occurred with abolition of the Glass-Steagall Act during the Clinton administration. That enabled banks whose deposits were insured by taxpayers to speculate on stocks, derivatives, and virtually anything else. Another important milestone was Greenspan’s abandonment of the Net Capitalization Rule in 2004. This so-called “Bear Stearns exemption” abolished the 1977 12:1 leverage cap requiring the five biggest investment banks to maintain $1 of reserves for every $12 invested.17 With the cap lifted, leverage at these giant financial firms jumped as high as 33:1, meaning a scant 3 percent rise in investment return doubles profits.


pages: 575 words: 171,599

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

"World Economic Forum" Davos, airport security, Asian financial crisis, asset allocation, Bear Stearns, Bernie Madoff, Boeing 747, British Empire, business intelligence, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, delayed gratification, estate planning, Etonian, glass ceiling, high net worth, junk bonds, kremlinology, Larry Ellison, locking in a profit, Long Term Capital Management, Marc Andreessen, mass immigration, McMansion, medical residency, Menlo Park, new economy, old-boy network, Ponzi scheme, risk tolerance, rolodex, Ronald Reagan, short selling, Silicon Valley, sovereign wealth fund, stem cell, technology bubble, too big to fail

“So I’ll tell you how to play, it’s very straightforward,” said Kumar, taking an irritatingly didactic tone. He was clearly oblivious to the mounting investing pressures his friend was facing in the spring of 2008. Rajaratnam had just come off one of the most stressful weeks of trading in his life. A week before, Bear Stearns & Co., the fifth-largest investment bank in the United States, had all but collapsed under the weight of a bad bet that two of its hedge funds made on shoddy subprime loans. Bear had stumped up $3 billion the previous summer to rescue the funds, but by March, investors pummeled its stock, betting the company was effectively insolvent.

The markets were so unpredictable that fundamental forces that normally drove individual stocks were no longer a factor, superseded by the market’s seemingly capricious moves—down one day, up another. Chiesi worked for New Castle Partners, and only four months earlier, she’d seen the unforgiving nature of Wall Street up close. Bear Stearns, which owned New Castle, nearly imploded. Many of Chiesi’s friends found themselves out of work after JPMorgan Chase took over Bear. The lucky ones, the ones who had managed to hang on to their jobs, saw a lifetime’s worth of savings vanish in weeks. Bear was the sort of firm where many employees didn’t diversify and had the lion’s share of their retirement savings in company stock—a stock that plummeted from nearly $93 in February 2008 to less than $5 a share in March.

One of the reasons Cohn was going to Galleon that day was to address the growing concern among Galleon executives about the safety of their assets during the 2008 financial crisis. Galleon, like many hedge funds, held assets at securities firms. Goldman had about $600 million of Galleon assets in custody. The near collapse of Bear Stearns a few months before had focused investors on a growing risk: the failure of a securities firm would likely result in investor assets being frozen. Galleon had about $200 million of investor assets at Bear, and had the firm been forced to file for bankruptcy protection, a surety if J.P. Morgan and the US government didn’t back up the bank, Galleon would have been one company in a long line of creditors.


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

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

Lindsey is president and CEO of the Callcott Group, LLC, where he is responsible for directing research activities and advisory services. He is the Chairman of the International Association of Financial Engineers. For eight years, Dr. Lindsey was president of Bear, Stearns Securities Corporation and a member of the Management Committee of The Bear Stearns Companies, Inc. Before joining Bear Stearns, Dr. Lindsey served as the Director of Market Regulation for the U.S. Securities and Exchange Commission (SEC) and as the Chief Economist of the SEC. He was a finance professor at the Yale School of Management before joining the SEC.

I learned a lot during those three-and-a-half years, including that it is important to have the right balance between a general and a bespoke approach for any individual project. By mid 2003, media criticisms of the CEO of Commerzbank Securities were intensifying and rumour had it that he might be planning an exit strategy in order to set up his own hedge fund. Around that time, Olivier van Eyseren left the firm to pursue a new career with Bear Stearns. My colleague Carl Seymour and I were appointed coheads of the Financial Engineering team. For the first six months, we worked JWPR007-Lindsey May 18, 2007 21:24 Peter Jäckel 175 even harder than before, trying to sort out all the things that may have been slightly neglected towards the end of Olivier’s reign, and trying extra hard to win over senior management that what they have in their analytics library and Financial Engineering group is really better than they could ever hope for.

Bjorn Flesaker is a senior quant at Bloomberg L.P., where his current research is focused on the pricing and risk management of credit derivatives. Before joining Bloomberg in 2006, Dr. Flesaker spent the previous thirteen years managing quant, analytics and technology groups for a number of financial institutions, including Merrill Lynch, Bear Stearns, Gen Re Securities and MBIA Inc. Starting out his career as an assistant professor of finance at the University of Illinois at Urbana-Champaign, he has written a number of papers related to derivatives pricing, most notably “Positive Interest,” which he published with Lane Hughston in Risk in 1996.


pages: 391 words: 97,018

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

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

The dispensation with ideology in the face of crisis stands in stark contrast to the more orthodox approaches taken by European and British policymakers in 2010 and 2011. As Wall Street imploded, the Federal Reserve and the Treasury Department engaged in a range of expensive and unprecedented moves. In March 2008 they helped JPMorgan Chase take over an ailing Bear Stearns, with the Fed lending $30 billion to a newly created investment partnership that would acquire dodgy assets from the listing Bear. It was called Maiden Lane I, after the narrow street in lower Manhattan that runs near the Fed’s New York branch.2 In the long, hot summer of 2008 Treasury and the Fed rushed to the aid of AIG, the massive insurer whose reckless extension of credit insurance on mortgage debt threatened to sink it, its counterparties, and the global financial system.

It’s little known or reported, but virtually all the blanket guarantees offered by the Fed, the Treasury Department, and the FDIC were lifted without being used. The overwhelming majority of the liabilities they assumed melted away. In March 2008 the Fed lent $30 billion to Maiden Lane, the vehicle created to acquire junky Bear Stearns assets at panic-level prices. As credit markets reflated, Maiden Lane recovered sufficient value and income from those assets to pay down the debt—and turn a profit for the Federal Reserve. By the end of 2011 the $30 billion loan had been reduced to $4 billion, and Maiden Lane still had assets worth about $7.2 billion.

Rather than entering into a phase of decline, the U.S. private sector reconstituted itself—payment by payment, default by default, restructuring by restructuring. In the process, excessive debt, the cause of the crisis, was driven out of big chunks of the global private financial system. In the United States the species of unregulated investment bank capable of amassing hundreds of billions of dollars in debt has become extinct. Lehman Brothers and Bear Stearns are gone, and the rest of the precrisis big five (Merrill Lynch, Goldman Sachs, and Morgan Stanley) evolved into staid commercial banks with much higher capital levels. Citi, the bank formerly known as Citigroup, once sported a trillion-dollar balance sheet teetering on a phyllo-thin equity layer.


pages: 364 words: 99,613

Servant Economy: Where America's Elite Is Sending the Middle Class by Jeff Faux

air traffic controllers' union, Alan Greenspan, back-to-the-land, Bear Stearns, benefit corporation, Bernie Sanders, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, call centre, centre right, classic study, cognitive dissonance, collateralized debt obligation, collective bargaining, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, David Brooks, David Ricardo: comparative advantage, disruptive innovation, falling living standards, financial deregulation, financial innovation, full employment, Glass-Steagall Act, guns versus butter model, high-speed rail, hiring and firing, Howard Zinn, Hyman Minsky, illegal immigration, indoor plumbing, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kevin Roose, Kickstarter, lake wobegon effect, Long Term Capital Management, low interest rates, market fundamentalism, Martin Wolf, McMansion, medical malpractice, Michael Milken, military-industrial complex, Minsky moment, mortgage debt, Myron Scholes, Naomi Klein, new economy, oil shock, old-boy network, open immigration, Paul Samuelson, plutocrats, price mechanism, price stability, private military company, public intellectual, radical decentralization, Ralph Nader, reserve currency, rising living standards, Robert Shiller, rolodex, Ronald Reagan, Savings and loan crisis, school vouchers, Silicon Valley, single-payer health, Solyndra, South China Sea, statistical model, Steve Jobs, Suez crisis 1956, Thomas L Friedman, Thorstein Veblen, too big to fail, trade route, Triangle Shirtwaist Factory, union organizing, upwardly mobile, urban renewal, War on Poverty, We are the 99%, working poor, Yogi Berra, Yom Kippur War, you are the product

It’s not fair to blame us for not predicting the unthinkable.”4 The CEO of J.P. Morgan explained away the loss of billions from betting in the subprime mortgage market with the observation that the housing market’s direction is notoriously unpredictable.5 “I wasn’t good enough to tell you what was going to happen,” said Jimmy Cayne, the ex-CEO of Bear Stearns who had driven his company into oblivion.6 Unpredictable, incredible, and unbelievable were the words used in the fall of 2008 to describe the economic crisis by newspaper columnists, TV talking heads, and caption writers for newspaper photos of slumping floor traders with their heads in their hands.

When the day of reckoning arrived, like water cascading through widening cracks in a dam, the money gushed out faster than it had come in, draining the financial lake behind and exposing the dried-up wreckage of the fraudulent loans and worthless collateral that lay at the bottom. The rest is history: the crash of Bear Stearns, the bankruptcy of Lehman Brothers, and the panicked response of the Republican White House and a Democratic Congress to pour massive amounts of money into the banks, investment companies, and insurance firms that were deemed “too big to fail.” Although there undoubtedly were challenged intellects among the public and business leaders who were most responsible for the economic crisis, David Brooks’s stupidity explanation does not fit.

Bush’s Council of Economic Advisers as well as the Federal Reserve chairman. At the Treasury Department, Geithner’s three chief counselors were all Rubin protégés: Gene Sperling, who the year before had made $887,727 consulting for Goldman Sachs and $158,000 for speeches mostly to financial companies; Lee Sachs, formerly with Bear Stearns, who made more than three million dollars as a partner at Mariner Investment Group; and Lewis Alexander, who had been the chief economist at Citicorp. Geithner’s deputy was Neil Wolin, yet another Rubin acolyte, who had been CEO of Hartford Financial Services. Herb Allison, a former CEO of Merrill Lynch, was made head of TARP to replace the outgoing Neel Kashkari, who had been Paulson’s protégé at Goldman Sachs.


pages: 261 words: 64,977

Pity the Billionaire: The Unexpected Resurgence of the American Right by Thomas Frank

Affordable Care Act / Obamacare, Alan Greenspan, bank run, Bear Stearns, big-box store, bonus culture, business cycle, carbon tax, classic study, collateralized debt obligation, collective bargaining, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Deng Xiaoping, false flag, financial innovation, General Magic , Glass-Steagall Act, housing crisis, invisible hand, junk bonds, Kickstarter, low interest rates, money market fund, Naomi Klein, obamacare, Overton Window, payday loans, profit maximization, profit motive, road to serfdom, Robert Bork, Ronald Reagan, shareholder value, strikebreaker, The Chicago School, The Myth of the Rational Market, Thorstein Veblen, too big to fail, union organizing, Washington Consensus, white flight, Works Progress Administration

Every time we checked, the value of our retirement fund had fallen by another third; friends lost their jobs; industries like construction and auto manufacturing came to a standstill; and we discovered, with a sickening feeling, that we owed far more on our mortgage than our house was worth. The landmark institutions of middle-class life were crumbling around us. General Motors and Chrysler declared bankruptcy; Merrill Lynch, broker to the common man, desperately sold itself one weekend in 2008; IndyMac, Wachovia, Washington Mutual, Bear Stearns, and Lehman Brothers disappeared. It looked like society itself was disintegrating, and for the first time in our comfortable suburban lives, we felt the atavistic touch of panic. For our parents and grandparents, however, these events may have seemed a little more familiar. The country went down virtually the same road in the years 1929–33, with stock markets crashing, banks failing, factories closing, and foreclosures mounting.

Having let the louts in the nation’s financial industry do as they chose for decades, Washington suddenly swung into action when it became clear that those selfsame louts had sold one another trillions of dollars of booby-trapped investments. In March of 2008, the Federal Reserve facilitated the takeover of Bear Stearns by JP Morgan. In September, after Lehman Brothers was allowed to fail and financial markets began to panic, the Fed and the Treasury Department began bailing with both hands. They put together an emergency package for AIG, an unregulated hedge fund grafted onto an insurance company; they took over Fannie Mae and Freddie Mac, the mortgage companies; they rode to the rescue of the nation’s money-market funds and organized the distress-takeover of the huge Wachovia bank.

See also bailouts; investment banks; mortgage industry; Wall Street crisis of 2008 and depositors and Depression and deregulation of FDIC and free market rhetoric of incentives for bad loans by minority lending and recast as victims regulations and Beale, Howard (fictional character) Bear Stearns Beck, Glenn on bailouts on capitalism vs. government children’s literature and on crisis as leftist plot Depression culture and doomsday warnings and rise of entrepreneurship and on Europeans health-care bill and Howard Beale and left mimicked by Meet John Doe and MLK and small business and on Soros targeting by Becker, Gary Beck University Belgium Bernanke, Ben Bernstein, Irving Bexley, Bruce big business Big Business Watch Big Short, The (Lewis) Bill of Rights bipartisanship Black, William K.


pages: 224 words: 64,156

You Are Not a Gadget by Jaron Lanier

1960s counterculture, Abraham Maslow, accounting loophole / creative accounting, additive manufacturing, Albert Einstein, Bear Stearns, call centre, cloud computing, commoditize, crowdsourcing, death of newspapers, different worldview, digital Maoism, Douglas Hofstadter, Extropian, follow your passion, General Magic , hive mind, Internet Archive, Jaron Lanier, jimmy wales, John Conway, John Perry Barlow, John von Neumann, Kevin Kelly, Long Term Capital Management, Neal Stephenson, Network effects, new economy, packet switching, PageRank, pattern recognition, Ponzi scheme, Project Xanadu, Ray Kurzweil, Richard Stallman, Savings and loan crisis, Silicon Valley, Silicon Valley startup, slashdot, social graph, stem cell, Steve Jobs, Stewart Brand, Stuart Kauffman, synthetic biology, technological determinism, Ted Nelson, telemarketer, telepresence, the long tail, The Wisdom of Crowds, trickle-down economics, Turing test, Vernor Vinge, Whole Earth Catalog

Silicon Valley has actively proselytized Wall Street to buy into the doctrines of open/free culture and crowdsourcing. According to Chris Anderson, for instance, Bear Stearns issued a report in 2007 “to address pushback and other objections from media industry heavyweights who make up a big part of Bear Stearns’s client base.” What the heavyweights were pushing back against was the Silicon Valley assertion that “content” from identifiable humans would no longer matter, and that the chattering of the crowd with itself was a better business bet than paying people to make movies, books, and music. Chris identified his favorite quote from the Bear Stearns report: For as long as most can recall, the entertainment industry has lived by the axiom “content is king.”


The Permanent Portfolio by Craig Rowland, J. M. Lawson

Alan Greenspan, Andrei Shleifer, asset allocation, automated trading system, backtesting, bank run, banking crisis, Bear Stearns, Bernie Madoff, buy and hold, capital controls, correlation does not imply causation, Credit Default Swap, currency risk, diversification, diversified portfolio, en.wikipedia.org, fixed income, Flash crash, high net worth, High speed trading, index fund, inflation targeting, junk bonds, low interest rates, margin call, market bubble, money market fund, new economy, passive investing, Ponzi scheme, prediction markets, risk tolerance, stocks for the long run, survivorship bias, technology bubble, transaction costs, Vanguard fund

The fact that they were held in custodial accounts that someone should have been on top of only further complicates the issue and makes it even more concerning.”1 Figure 14.1 MF global marketing brochure about separation of customers' assets. Bear Stearns and Lehman Brothers During the credit crisis and market panic of 2008, there were some very notable failures among prominent financial institutions. Following the failure of Bear Stearns earlier in the year, the 160-year-old firm Lehman Brothers folded almost overnight as many bad investments seemed to turn sour all at once. Investors exposed to Bear Stearns and Lehman Brothers debt took tremendous losses, while customers with accounts at these institutions faced a variety of risks and sleepless nights as events unfolded.

See also specific companies cash investments in central (see Central banks) certificates of deposit from foreign or international (see International investments) fund manager risks in gold buying and storage at institutional diversification among multiple safe deposit boxes of Basler Kantonbank Bear Stearns Belgium, economy and investments in Black Monday BMO: BMO Dow Jones Canada Titans 60 ETF BMO Long Federal Bond ETF BMO Short Federal Bond ETF Bogle, Jack Bonds: 25/75 portfolio including 50/50 portfolio including 60/40 portfolio strategy including 75/25 portfolio including asset class correlations with benefits of bond risk matrix bonds to avoid buying methods for capital gains from cash investment in corporate costs associated with economic conditions impacting expectations about financial safety of implementation of strategy including interest rate inverse correlation to international junk or high-yield mortgage municipal owning performance of Permanent Portfolio including recommended bonds to buy retirement plans including risks related to secondary market for tax considerations with Treasury Inflation-Protected Securities as U.S. savings bonds U.S.


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, Alan Greenspan, altcoin, Alvin Toffler, asset allocation, asset-backed security, autonomous vehicles, Bear Stearns, bitcoin, Bitcoin Ponzi scheme, blockchain, Blythe Masters, book value, business cycle, business process, buy and hold, capital controls, carbon tax, 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, Dogecoin, Donald Trump, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, fiat currency, financial engineering, financial innovation, fixed income, Future Shock, general purpose technology, George Gilder, Google Hangouts, high net worth, hype cycle, information security, initial coin offering, it's over 9,000, Jeff Bezos, Kenneth Rogoff, Kickstarter, Leonard Kleinrock, litecoin, low interest rates, 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, quantum cryptography, RAND corporation, random walk, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ross Ulbricht, Salesforce, Satoshi Nakamoto, seminal paper, Sharpe ratio, Silicon Valley, Simon Singh, Skype, smart contracts, social web, South Sea Bubble, Steve Jobs, transaction costs, tulip mania, Turing complete, two and twenty, Uber for X, Vanguard fund, Vitalik Buterin, WikiLeaks, Y2K

THE FINANCIAL CRISIS OF 2008 For financial titans, 2008 proved a slowly unfolding nightmare. In March of that year, the first major Wall Street institution—Bear Stearns—acquiesced to its demons. After weathering every type of market for 85 years, Bear Stearns was finally dragged under by a slumping housing market. On March 16, JPMorgan Chase & Co. bought it for $2 a share, about 1 percent of the value of its $170 per share price from a year prior.9 To catalyze the deal, the Federal Reserve agreed to facilitate the purchase of $29 billion in distressed assets from Bear Stearns.10 Yet disturbingly, a month after the buyout, John Mack and Lloyd Blankfein, CEOs of Morgan Stanley and Goldman Sachs Group Inc., respectively, told shareholders the housing market crisis was going to be short-lived and nearing a close.11 Much of this crisis was born of irresponsible lending, known as subprime loans, to Americans who couldn’t repay their debts.

See also specific assets classification of, 108 correlation and, 74 credit and, 143 decentralization and, 189–193 governance of, 112–113 information on, 173 issuers of, 159–162 as misleading, 156 of networks, 174 as overvalued, 180 prices for, 95, 208 supply of, 183 Support and resistance lines for, 206–207 volatility of, 94 AT&T, 99 volatility and, 95, 96 Augur, 64 Auroracoin, 44–45 Autonomous organization, 274 Azar, David, 235 Back, Adam, 46 Bad actors, 155 Bank of England, 25 Bankruptcy, 223, 240 of Lehman Brothers, 3, 6 Banks, 281. See also Central banks Barron’s magazine, 244 Barter trade, 34 Bats Exchange, 237 Beamish, Brian, 207 Bear Stearns, 4 Bell curve, 72 Bellamy, Edward, xxi Berger, David, 243 Berners-Lee, Tim, xxii BIT. See Bitcoin Investment Trust BitAngels, 261 Bitcoin, xiii, 118 allocation of, 104, 105 appreciation of, 99, 145–147 blockchain technology as, xxiii–xxiv, 3, 11–20 bubbles and, 145–148 China and, 126–128 code for, 197 correlations and, 133 digital siblings of, 31, 38, 182–183 Dollar, U.


pages: 274 words: 93,758

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller

Andrei Shleifer, asset-backed security, Bear Stearns, behavioural economics, Bernie Madoff, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, collapse of Lehman Brothers, compensation consultant, corporate raider, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, desegregation, en.wikipedia.org, endowment effect, equity premium, financial intermediation, financial thriller, fixed income, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kenneth Arrow, Kenneth Rogoff, late fees, loss aversion, market bubble, Menlo Park, mental accounting, Michael Milken, Milgram experiment, money market fund, moral hazard, new economy, Pareto efficiency, Paul Samuelson, payday loans, Ponzi scheme, profit motive, publication bias, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, stock buybacks, the new new thing, The Predators' Ball, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, Vilfredo Pareto, wage slave

Our real per capita GDP can go up five-and-a-half-fold again, and then do it again; we will still be in the same predicament. TWO Reputation Mining and Financial Crisis The story of the 2008–9 world financial crisis has been written and rewritten hundreds, if not thousands, of times. Much of this reporting takes the form of books focusing on one firm or government agency—be it J. P. Morgan Chase, Goldman Sachs, Bear Stearns, Lehman Brothers, Bank of America, Merrill Lynch, the Federal Reserve, the Treasury, or Fannie Mae and Freddie Mac—with the implicit message that “my institution” was at the heart of the crisis.1 A silver lining of the financial crisis is the golden age of financial journalism that it spawned.

Cohan, Money and Power: How Goldman Sachs Came to Rule the World (New York: Doubleday, 2011); Greg Farrell, Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America (New York: Crown Business, 2010); Kate Kelly, Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street (New York: Penguin, 2009); Michael Lewis, Boomerang: Travels in the New Third World (New York: W. W. Norton, 2011) and The Big Short: Inside the Doomsday Machine (New York: W. W. Norton, 2010), on financial speculation; Lawrence G. McDonald, with Patrick Robinson, A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers (New York: Crown Business, 2009); Gretchen Morgenson and Joshua A.

Carl Shapiro, “Consumer Information, Product Quality, and Seller Reputation,” Bell Journal of Economics 13, no. 1 (1982): 20–35. 3. Tobias Adrian and Hyun Song Shin, “Liquidity and Leverage,” Journal of Financial Intermediation 19, no. 3 (July 2010): 418–37. Adrian and Shin calculated average balance sheets from sometime in the 1990s (varying by the bank) to the first quarter of 2008 for the five leading investment banks: Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley. They held total assets averaging $345 billion; had average liabilities of $331 billion, with average equity of $13.3 billion. See table 2, “Investment Bank Summary Statistics.” 4. See Paulson, On the Brink, and Blinder, After the Music Stopped, among many others. 5.


pages: 383 words: 108,266

Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions by Dan Ariely

air freight, Al Roth, Alan Greenspan, Bear Stearns, behavioural economics, Bernie Madoff, Burning Man, butterfly effect, Cass Sunstein, collateralized debt obligation, compensation consultant, computer vision, corporate governance, credit crunch, Daniel Kahneman / Amos Tversky, David Brooks, delayed gratification, endowment effect, financial innovation, fudge factor, Gordon Gekko, greed is good, housing crisis, IKEA effect, invisible hand, John Perry Barlow, lake wobegon effect, late fees, loss aversion, market bubble, Murray Gell-Mann, payday loans, Pepsi Challenge, placebo effect, price anchoring, Richard Thaler, second-price auction, Silicon Valley, Skinner box, Skype, subprime mortgage crisis, The Wealth of Nations by Adam Smith, Upton Sinclair

In turn, the CDO crisis accelerated the deflation of the housing market bubble, creating a reinforcing cycle of decreasing valuations. It also brought to light some questionable practices of various players in the financial services industry. In March 2008, JP Morgan Chase acquired Bear Stearns at two dollars per share, the low valuation resulting from the fact that Bear Stearns was under investigation for CDO-related fraud. On July 17, major banks and financial institutions that had bet heavily on CDOs and other mortgage-backed securities posted a loss of almost $500 billion. Eventually 26 banks and financial institutions would be under investigation for questionable practices relating to their handling of CDOs.

And of course, let’s not forget the behavior of the bankers themselves, from minor issues such as costly office decorations (Merrill Lynch’s CEO John Thain spent more than $1 million to decorate his office), to more substantial issues such as the compensation of the CEOs at Lehman Brothers, Fannie Mae, Freddie Mac, AIG, Wachovia, Merrill Lynch, Washington Mutual, and Bear Stearns—establishing new records for CEO pay. Imagine how different things would have looked if the banks and the government had understood the importance of trust from the get-go. Had that been the case, they would have worked harder to explain more clearly what went wrong and how the bailout would be used to clean up the mess.

oil changes and, 60–61 relativity problem and, 2, 19, 21 value in owner’s eyes and, 129, 134, 135 B bailout plan, 280, 304–6, 310–11 bonus controversy and, 319–20 Bank of America, 280 bankers, 291–96 bailout plan and, 280, 304–6, 310–11 calculating appropriate salaries for, 319–24 collapse of financial institutions and, 280–81, 314 conflicts of interest and, 291, 294–96, 311 erosion of public trust in, 305–6, 309–11 inherent fuzziness of financial world and, 294–95 mortgage policies and, 283–84, 288–90, 303 public outcry over compensation of, 306, 310, 311, 319–20 punitive practices of, 283–84, 301–3, 304 transparency issues and, 311, 324 bankruptcy, 305 Bargh, John, 170 Barlow, John Perry, 86 Bear Stearns, 280, 310 Beatles, 85 Becker, Gary, 291–92 beer: expectations’ impact on taste of, 157–59, 161–62, 163–64, 172 ordering process and enjoyment of, 231–36 behavioral economics: conventional economics vs., xxviii–xxx, 239–40, 328–29 free lunches from perspective of, 240–43 practical usefulness of, xvi see also specific topics Bell, Joshua, 270–73, 274 Benartzi, Shlomo, 242 Bender, Walter, 92 benefits (compensation): goodwill created by, 83 recent cuts in, 82 stating financial value of, 254 see also bonuses Berkeley, University of California at, 91 arousal experiment at, 91–97, 98–99 Bertini, Marco, 159–60, 335–36 Bible, 208, 215 blogging, about overspending and debt problems, 122–23 bonuses: cash vs. gift as, 253–54 erosion of public trust and, 306 morally outraged taxpayers and, 319–20 relationship between job performance and, 320–21, 322–24 variable reinforcement schedule and, 257 brain: brand associations of Coke and Pepsi and, 166–68 honesty and reward centers in, 203, 208 revenge center in, 308 brand associations, taste of Coke vs.


pages: 375 words: 105,067

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry by Helaine Olen

Alan Greenspan, American ideology, asset allocation, Bear Stearns, behavioural economics, Bernie Madoff, buy and hold, Cass Sunstein, Credit Default Swap, David Brooks, delayed gratification, diversification, diversified portfolio, Donald Trump, Elliott wave, en.wikipedia.org, estate planning, financial engineering, financial innovation, Flash crash, game design, greed is good, high net worth, impulse control, income inequality, index fund, John Bogle, Kevin Roose, London Whale, longitudinal study, low interest rates, Mark Zuckerberg, Mary Meeker, money market fund, mortgage debt, multilevel marketing, oil shock, payday loans, pension reform, Ponzi scheme, post-work, prosperity theology / prosperity gospel / gospel of success, quantitative easing, Ralph Nader, RAND corporation, random walk, Richard Thaler, Ronald Reagan, Saturday Night Live, Stanford marshmallow experiment, stocks for the long run, The 4% rule, too big to fail, transaction costs, Unsafe at Any Speed, upwardly mobile, Vanguard fund, wage slave, women in the workforce, working poor, éminence grise

The saga of MGM International is not an unusual event. A highlights reel could be put together of Cramer’s massive misses. Cramer’s post–hedge fund successful stock picking career is more bluster than reality. Jon Stewart on the Daily Show might have gone to town with Cramer’s pronouncement that “Bear Stearns is not in trouble!” and “No! No! No! Bear Stearns is fine! Do not take your money out!” less than a week before the firm collapsed into ignominy, but there’s much, much more where this comes from. His explanation for why Countrywide Finance CEO Angelo Mozilo, a guest on the show, was selling off shares in his own firm in 2007 as the housing market was imploding?

Doom, economist Nouriel Roubini, is a former Clinton administration official (Roubini, unlike most other members of this cohort, does not offer specific investment advice). Media treatment also differs. Schiff is still something of a joke to many, but others, like Roubini, who predicted a major bank collapse just weeks before Bear Stearns went under, and Swiss-born Hong Kong–residing investment manager Marc Faber who, demonstrating his sly sense of humor, named his investment newsletter the Gloom Boom & Doom Report, are well-respected by most of the establishment. Needless to say, bad times are almost always good times for anyone predicting economic Armageddon.

EverFi gives its financial literacy materials to schools for free—provided, that is, they can find a corporation or nonprofit to sponsor the offering. Those attending Fordham Leadership Academy need any help they can get. Almost 90 percent of school students are eligible for a free lunch, and less than half ever graduate. The school so reeked of neglect and disinterest that, on the day of my visit in 2011, I saw a banner announcing a Bear Stearns–sponsored mentoring program, even though the firm had collapsed in 2008. (Subsequent to my visit, the school’s principal was replaced, and New York City put the school in something called turnaround, which involved closing it as is and renaming it. The current principal would stay on, as would the students.)


pages: 356 words: 105,533

Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market by Scott Patterson

Alan Greenspan, algorithmic trading, automated trading system, banking crisis, bash_history, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, butterfly effect, buttonwood tree, buy and hold, Chuck Templeton: OpenTable:, cloud computing, collapse of Lehman Brothers, computerized trading, creative destruction, Donald Trump, financial engineering, fixed income, Flash crash, Ford Model T, Francisco Pizarro, Gordon Gekko, Hibernia Atlantic: Project Express, High speed trading, information security, Jim Simons, Joseph Schumpeter, junk bonds, latency arbitrage, Long Term Capital Management, machine readable, Mark Zuckerberg, market design, market microstructure, Michael Milken, military-industrial complex, pattern recognition, payment for order flow, pets.com, Ponzi scheme, popular electronics, prediction markets, quantitative hedge fund, Ray Kurzweil, Renaissance Technologies, seminal paper, Sergey Aleynikov, Small Order Execution System, South China Sea, Spread Networks laid a new fibre optics cable between New York and Chicago, stealth mode startup, stochastic process, three-martini lunch, Tragedy of the Commons, transaction costs, uptick rule, Watson beat the top human players on Jeopardy!, zero-sum game

Roller-coastering tech stocks could deliver a trip to day-trader heaven—or hell. Traders talked of grinding, the go-nowhere stocks floating directionless all day long; of head fakes, the deadly swings made by large traders—the bastard hedge funds, the oh-fuck-me banks like Morgan, Goldman, and Bear Stearns—looking to fool the market before whip-sawing everyone in the opposite direction and triggering the animal fear of panicked herds bailing out of positions, the bug-eyed gut-rush of scared money. Tens of thousands could be lost in minutes, made back the next. No one blinked when a chalk-faced guy doubled over a garbage pail and puked violently, never leaving his seat and trading right through the puke.

“We have found substantial evidence of coercion and other misconduct in this industry.” It had been a two-year investigation, one aided behind the scenes by SOES bandits such as Harvey Houtkin and Shelly Maschler. Firms named in the settlement (none of whom ever admitted their guilt) included Wall Street titans Lehman Brothers, Goldman Sachs, Bear Stearns, Morgan Stanley, Smith Barney, and PaineWebber. A class-action lawsuit swiftly followed, resulting in a $1 billion settlement. It was the largest antitrust settlement in history at the time. Soon after the Justice Department issued its findings, the SEC lowered the boom. Released on August 7, 1996, the SEC’s report was a fatal blow, the result of Leo Wang’s tireless investigation into Nasdaq’s shady operations.

Big money—the biggest money—was rolling into the pools like monster waves on Hawaii’s North Shore. Giants such as Charles Schwab, Lehman Brothers, and Bank of America backed REDIBook. Goldman was gearing up to plunge millions into Jerry Putnam’s Archipelago. Madoff had deep-pocketed backers across Wall Street. Other ECN investors included Bear Stearns, Morgan Stanley, Salomon Smith Barney, PaineWebber, and Credit Suisse First Boston. Wall Street’s giants, the very firms that ran the biggest Nasdaq market-making operations, were pumping hundreds of millions into the upstart trading networks. The electronic pools, aided by the Order-Handling Rules, were clearly changing the game.


pages: 349 words: 104,796

Greed and Glory on Wall Street: The Fall of the House of Lehman by Ken Auletta

Bear Stearns, book value, business climate, classic study, corporate governance, financial independence, fixed income, floating exchange rates, Herman Kahn, interest rate swap, junk bonds, New Journalism, profit motive, proprietary trading, Ronald Reagan, Saturday Night Live, scientific management, traveling salesman, zero-coupon bond

To maintain a distribution and sales force or offices overseas demands a reservoir of capital. Similarly, as a firm moves away from a fee-related business to gambling its own money on companies and products it believes in—the way Lehman and the merchant banks of another era did, or firms like Allen & Company, Oppenheimer or Bear Stearns do today—it needs added capital. Traders, who daily wager on the direction the market or interest rates will bounce, need capital to risk, as do the arbitrageurs, who speculate in rising and falling markets. To satisfy the institutions—pension funds, mutual funds, banks, insurance companies—that now control more than $1 trillion in savings and an estimated 60 percent of corporate stocks and bonds, requires capital.

They were men of considerable financial acumen and, in their world, notoriety, The pack included Thomas Strauss, a senior partner and member of the executive committee of Salomon; Bruce Wasserstein, co-head of the mergers and acquisitions department at First Boston; Martin Gruss, who works with his father, Joseph, at Gruss & Company, a potent arbitrage and private investment firm; Kenneth Lipper, a former partner at Lehman and Salomon; Steve Robert, chairman of Oppenheimer; Jeff Kyle, president of Republic Bank; Mickey Tarnopol, head of international banking at Bear Stearns; arbitrageur Jeff Tarr of Junction Partners; Melville Strauss, a partner at the money management firm of Weiss, Peck & Greer; Richard Lefrak, of the real estate colossus that bears his family name; Rick Reiss, a partner at the money management firm of CumberLand Partners. Although Cohen was an operations executive, a manager, he was a member of this group of go-go bankers and entrepreneurs whose names often streaked across the business pages, who put together the megabuck deals and leveraged buyouts and who had become, unlike bankers of another era, celebrities.

Yet when Wall Street was soaring—between 1981 and 1983—no major investment banks merged. When business slid in 1984, Lehman merged with Shearson/American Express, A. G. Becker with Merrill Lynch, Donaldson, Lufkin & Jenrette with Equitable. In an effort to replenish its capital base and join the ranks of the top ten securities companies, in mid-1985 Bear, Stearns & Company announced that it would go public after sixty-two years as a private partnership. And after rejecting a merger offer, L. F. Rothschild, Unterberg, Towbin announced that it, too, would soon convert from a partnership to a public corporation. Each is following the First Boston pattern in which a percentage of shares are sold to the public and the remainder are retained by the partners.


pages: 341 words: 107,933

The Dealmaker: Lessons From a Life in Private Equity by Guy Hands

Airbus A320, banking crisis, Bear Stearns, British Empire, Bullingdon Club, corporate governance, COVID-19, credit crunch, data science, deal flow, Etonian, family office, financial engineering, fixed income, flag carrier, high net worth, junk bonds, lockdown, Long Term Capital Management, low cost airline, Nelson Mandela, North Sea oil, old-boy network, Paul Samuelson, plutocrats, proprietary trading, Silicon Valley, South Sea Bubble, sovereign wealth fund, subprime mortgage crisis, traveling salesman

The weather on 21 May 2007 was wet and windy. While Gus O’Donnell’s colleagues in the UK Treasury hadn’t spotted anything untoward, in the US financial storm clouds were beginning to form. As June wore on it started to become apparent that US credit markets were drying up and the willingness of banks to make loans was plummeting. Bear Stearns put up $3.2 billion to bail out two hedge funds it had created to invest in subprime mortgages. Then in July 2007, they had to inform their clients that the two hedge funds contained very little or effectively no value for investors. In August, both funds filed for bankruptcy. Together, at their peak, the funds had controlled over $20 billion of assets and had been sold to a broad investor base.

Unfortunately, the relationship between the two firms was coming under huge strain as Citigroup – one of the biggest subprime lenders in the US – started to suffer from the developing credit crunch. The news coming out of the financial markets was grim. Mortgage-related issues were threatening funds at Bear Stearns, the German bank WestLB, BNP Paribas and even Goldman’s Global Equity Opportunities Fund. It was starting to look less and less likely that we would be able to securitise the reliable future earnings that came from the publishing arm. All in all, it was not the deal we hoped it would be. I have never worked out whether Citigroup were nervous about this deal specifically or the market in general.

For a group that bought and sold $90 billion worth of residential mortgages annually, this lack of risk assessment seems surprising. At the time Bowen warned the board that at least 60 per cent of Citigroup’s mortgages were defective in some way. Within a year that initial figure had been revised upwards to 80 per cent. He was ignored. Even after Bear Stearns nearly went under in summer 2007, Citigroup believed that the likelihood of trouble with its CDOs was so tiny that it excluded them from its risk analysis. The Terra Firma team as a whole remained very confident that we would be able to sell down at least two thirds of our investment in EMI. I was becoming less sure by the day.


pages: 357 words: 107,984

Trillion Dollar Triage: How Jay Powell and the Fed Battled a President and a Pandemic---And Prevented Economic Disaster by Nick Timiraos

"World Economic Forum" Davos, Alan Greenspan, asset-backed security, banking crisis, Bear Stearns, Bernie Sanders, bitcoin, Black Monday: stock market crash in 1987, Bonfire of the Vanities, break the buck, central bank independence, collapse of Lehman Brothers, collective bargaining, coronavirus, corporate raider, COVID-19, credit crunch, cryptocurrency, Donald Trump, fear index, financial innovation, financial intermediation, full employment, George Akerlof, George Floyd, global pandemic, global supply chain, Greta Thunberg, implied volatility, income inequality, inflation targeting, inverted yield curve, junk bonds, lockdown, Long Term Capital Management, low interest rates, managed futures, margin call, meme stock, money market fund, moral hazard, non-fungible token, oil shock, Phillips curve, price stability, pushing on a string, quantitative easing, Rishi Sunak, risk tolerance, rolodex, Ronald Reagan, Savings and loan crisis, secular stagnation, Skype, social distancing, subprime mortgage crisis, Tesla Model S, too big to fail, unorthodox policies, Y2K, yield curve

But after the collapse of Lehman Brothers in September 2008 plunged the financial system into its worst crisis since the Great Depression, Bernanke moved quickly and creatively to prevent a rerun of 1929. The Fed deployed scarcely used emergency-lending authorities—first to rescue the investment bank Bear Stearns, and later the insurance giant American International Group—to stem a financial panic. But these tools weren’t enough. Congress was pressured in October 2008 to approve what became a $700 billion bill to recapitalize the nation’s banking sector. Bernanke’s initial response to the economic turmoil was a standard monetary tool: reducing the federal-funds rate.

The emergency-lending programs had been controversial during and after the 2008 crisis—so much so that Congress, in the 2010 Dodd-Frank financial regulatory overhaul, had slapped new curbs on the Fed’s ability to use them. Never again could the Fed use its “unusual and exigent” powers to bail out individual banks or financial institutions, as it had done with Bear Stearns and AIG. Congress instead required such lending to be broadly based, meaning any terms had to apply to at least five institutions. Lawmakers also required the Treasury secretary to sign off on any new 13(3) programs. In addition, because the Fed believed it was not allowed to sustain lending losses, the Fed was likely to seek assurances that the Treasury would cover losses if it purchased securities or loans that weren’t already government-guaranteed, including corporate bonds or auto and credit-card debts that had been bundled and resold as securities.

The original “unusual and exigent” authority stayed in place, but the Fed wouldn’t break the glass on its emergency lending authority again until March 11, 2008, when Lorie Logan and her colleagues at the New York Fed launched a securities-lending operation to address the funding riptide that was bringing down investment bank Bear Stearns. Even then, markets were so raw that the Fed didn’t even publicize the fact that the board had unanimously invoked the “unusual and exigent circumstances” clause. Public knowledge that such an extreme weapon was being deployed for the first time in seventy-two years might simply have exacerbated market convulsions.


pages: 514 words: 152,903

The Best Business Writing 2013 by Dean Starkman

Alvin Toffler, Asperger Syndrome, bank run, Basel III, Bear Stearns, call centre, carbon tax, clean water, cloud computing, collateralized debt obligation, Columbine, computer vision, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, Erik Brynjolfsson, eurozone crisis, Evgeny Morozov, Exxon Valdez, Eyjafjallajökull, factory automation, fixed income, fulfillment center, full employment, Future Shock, gamification, Goldman Sachs: Vampire Squid, hiring and firing, hydraulic fracturing, Ida Tarbell, income inequality, jimmy wales, job automation, John Markoff, junk bonds, Kickstarter, late fees, London Whale, low interest rates, low skilled workers, Mahatma Gandhi, market clearing, Maui Hawaii, Menlo Park, Occupy movement, oil shale / tar sands, One Laptop per Child (OLPC), Parag Khanna, Pareto efficiency, price stability, proprietary trading, Ray Kurzweil, San Francisco homelessness, Silicon Valley, Skype, sovereign wealth fund, stakhanovite, Stanford prison experiment, Steve Jobs, Stuxnet, synthetic biology, tail risk, technological determinism, the payments system, too big to fail, Vanguard fund, wage slave, warehouse automation, warehouse robotics, Y2K, zero-sum game

Case Against Bear and JPMorgan Provides Little Cheer Reuters Bethany McLean wonders how you can have fraud without fraudsters, writing about how the state and federal authorities who have sued Wall Street banks for fleecing customers can’t seem to find any individual bankers to blame. The case in question here is particularly egregious: Bear Stearns pocketed refunds owed to its customers after knowingly selling them fraudulent mortgages. Yet almost half a decade after the financial crisis began, no executive on Wall Street has been held accountable. McLean, who made her name helping uncover the Enron fraud, asks why and uses the Bear Stearns case to examine possible reasons, none of which look good for the concept of justice. Last week, New York attorney general Eric Schneiderman, who is the cochairman of the Residential Mortgage-Backed Securities Working Group—which President Obama formed earlier this year to investigate who was responsible for the misconduct that led to the financial crisis—filed a complaint against JPMorgan Chase.

Last week, New York attorney general Eric Schneiderman, who is the cochairman of the Residential Mortgage-Backed Securities Working Group—which President Obama formed earlier this year to investigate who was responsible for the misconduct that led to the financial crisis—filed a complaint against JPMorgan Chase. The complaint, which seeks an unspecified amount in damages (but says that investors lost $22.5 billion), alleges widespread wrongdoing at Bear Stearns in the run-up to the financial crisis. JPMorgan Chase, of course, acquired Bear in 2008. Apparently, this is just the beginning of a Schneiderman onslaught. “We do expect this to be a matter of very significant liability, and there are others to come that will also reflect the same quantum of damages,” Schneiderman said in an interview with Bloomberg Television.

The prevailing opinion seems to be, Yay! Someone is finally making, or at least trying to make, the banks pay for their sins. But while there is one big positive to the complaint, overall I don’t think there’s any reason to cheer. Schneiderman’s case clearly lays out the alleged bad behavior at the old Bear Stearns. Although Bear promised investors it was doing due diligence on the mortgages it purchased, it wasn’t. Defendants “systematically failed to fully evaluate the loans, largely ignored the defects that their limited review did uncover, and kept investors in the dark about both the inadequacy of their review procedures and the defects in the underlying loans,” alleges the complaint.


pages: 585 words: 151,239

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

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 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, Alan Greenspan, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Bear Stearns, Berlin Wall, Blitzscaling, Bonfire of the Vanities, book value, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, Cornelius Vanderbilt, corporate governance, corporate raider, cotton gin, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, driverless car, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fairchild Semiconductor, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, full employment, general purpose technology, George Gilder, germ theory of disease, Glass-Steagall Act, global supply chain, Great Leap Forward, guns versus butter model, hiring and firing, Ida Tarbell, 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, junk bonds, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, land bank, Lewis Mumford, Louis Pasteur, low interest rates, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, McDonald's hot coffee lawsuit, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Michael Milken, military-industrial complex, 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, Phillips curve, plutocrats, pneumatic tube, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, public intellectual, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Robert Solow, Ronald Reagan, Sand Hill Road, savings glut, scientific management, 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, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, vertical integration, 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

The financial services industry developed lots of ways of allowing people to borrow money so that they could acquire and transform underperforming companies: leveraged buyouts, or LBOs (which used debt to fund reorganizations); management buyouts, or MBOs (which were often used to sell off a proportion of the company); and “junk bonds.” The greatest champions of leverage were Kohlberg Kravis Roberts (KKR) and Drexel Burnham Lambert. In 1976, three young bankers with Bear Stearns, Henry Kravis, Jerome Kohlberg, and George Roberts, came up with the idea of a new kind of organization, a partnership that created a succession of investment funds, took positions in companies, and then sold them off after a fixed period of time. KKR thrived because it combined two rare skills: the ability to put together deals and the ability to manage the companies that they took over by making managers think and act like owners.

But a ruling in 1970 by the New York Stock Exchange that allowed broker-dealers to incorporate and gain permanent capital helped to create a fashion for leverage. Over the 1980s and 1990s, the big investment banks all transformed themselves from partnerships into public companies. To be sure, the senior officers of Bear Stearns and Lehman Brothers lost hundreds of millions of dollars from the collapse of their stocks. But these losses did not extend to their personal wealth: nobody was forced to declare personal bankruptcy and most had enough money to continue living like kings. Wall Street was also hypnotized by ever more complex financial products that offered the promise of reducing risk by breaking it down and scattering it among a large number of buyers: inverse IOs, inverse POs, and forward-inverse IOs.

They were also skilled enough to make the best of their advantages: the Federal Reserve and the Treasury worked together smoothly to respond to emerging problems quickly and concoct practical but innovative solutions. Policy makers used three policies to keep the crisis from doing even more damage: lowering short-term interest rates to boost the economy and provide liquidity to stabilize the system; rescuing major institutions, including Bear Stearns and AIG, to prevent contagions; and applying stress tests to uncover weaknesses in the system. The Fed and the Treasury purchased shares in endangered institutions to keep them afloat. These shares were nonvoting shares to prevent the appearance of a government takeover of the banking system but also preferred shares so that the government (i.e., the public) would be first in line to receive dividends ahead of common shareholders.


pages: 554 words: 158,687

Profiting Without Producing: How Finance Exploits Us All by Costas Lapavitsas

Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, borderless world, Branko Milanovic, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, computer age, conceptual framework, corporate governance, credit crunch, Credit Default Swap, David Graeber, David Ricardo: comparative advantage, disintermediation, diversified portfolio, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, false flag, financial deregulation, financial independence, financial innovation, financial intermediation, financial repression, Flash crash, full employment, general purpose technology, Glass-Steagall Act, global value chain, global village, High speed trading, Hyman Minsky, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, job satisfaction, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, London Interbank Offered Rate, low interest rates, low skilled workers, M-Pesa, market bubble, means of production, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, Network effects, new economy, oil shock, open economy, pensions crisis, post-Fordism, Post-Keynesian economics, price stability, Productivity paradox, profit maximization, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Solow, savings glut, Scramble for Africa, secular stagnation, shareholder value, Simon Kuznets, special drawing rights, Thales of Miletus, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, total factor productivity, trade liberalization, transaction costs, union organizing, value at risk, Washington Consensus, zero-sum game

During the bubble both had engaged in riskier investment banking, including subprime mortgages, thus becoming weaker and forcing the US state to intervene to support them. At the same time, Lehman Brothers, another giant US investment bank, found itself in a similar position to Bear Stearns. Unlike Bear Stearns, however, the US authorities allowed Lehman Brothers to go bankrupt, entailing losses for both shareholders and creditors. This was a colossal blunder because it showed that the state was not consistent in dealing with banks in difficulties: Lehman Brothers’s creditors faced losses whereas Bear Stearns’s creditors were spared this predicament. Differential treatment by the state destroyed all remaining vestiges of trust among banks in the money markets, leading to a freeze in lending.

The crisis went through two major peaks in 2008 resulting from the interaction between liquidity and solvency in the financial system. The first was the collapse of Bear Stearns in March 2008, a giant US investment bank that found it impossible to obtain funds privately in the money market, while its holdings of problematic mortgage-backed assets made it insolvent. The Federal Reserve together with the US Treasury managed the collapse of Bear Stearns by forcing a take-over by the investment bank JP Morgan, which received a concessionary public loan for the purpose. The second peak occurred in August–October 2008, representing a rare episode in the history of banking.


pages: 243 words: 77,516

Straight to Hell: True Tales of Deviance, Debauchery, and Billion-Dollar Deals by John Lefevre

airport security, Bear Stearns, blood diamond, buy and hold, colonial rule, credit crunch, fixed income, Goldman Sachs: Vampire Squid, high net worth, income inequality, jitney, junk bonds, lateral thinking, market clearing, Occupy movement, Sloane Ranger, the market place

During my interview with Lazard Frères, a prestigious boutique investment bank and one of the last true partnerships on Wall Street, I almost passed out from vertigo staring out the window from the mere fifty-seventh floor of 30 Rockefeller Plaza. Then, after a final-round interview superday with Bear Stearns, I inadvertently sent a thank-you email to the head of emerging markets, telling him how much I wanted to work for JPMorgan. During a Goldman Sachs interview, some asshole asked me who, living or dead, I would most like to have dinner with. I guess he wasn’t particularly impressed that I named Tupac Shakur ahead of Marcus Aurelius or Alexander Hamilton.

The State Bank of India is a well-known name, and there are enough similar bonds out there that the success of this deal is simply a function of price—the premium that the investor will receive on top of where comparable bonds are trading. Markets have generally been constructive, and when we announce the deal, it looks like we have a clear execution window. However, just after we release the official price guidance, rumors begin to circulate about possible massive subprime CDO-related losses at a couple of Bear Stearns hedge funds (Lehman and BNP are also wrapped up in the rumors). No one’s panicking, but there’s definitely a sense of skittishness. As a result, the market tone turns instantly cautious, credit spreads widen, and risk appetite diminishes, especially for new issues. In the face of rumors and uncertainty, many investors move to the sidelines, put their hands in their pockets, and wait for clarity.

By the next week, we’re guessing that figure has grown to $2 million, or more. The following week, he gets fired. The news of his demise is met with cheers across the close-knit community of syndicate and sales bankers. “You got the Duke shit-canned? Allow me to be the first to buy you a drink.” This deal, and the fact that the rumors about Bear Stearns are true, closes the Asian public bond market for four months, until October, when we reopen it with a jumbo US$ benchmark for an Indian bank. It takes a while, but Roo is eventually fired a couple of years later. It would have been much, much sooner, except that she keeps getting pregnant.


pages: 280 words: 73,420

Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market Into a Casino by Jim McTague

Alan Greenspan, algorithmic trading, automated trading system, Bear Stearns, Bernie Madoff, Bernie Sanders, Black Monday: stock market crash in 1987, Bretton Woods, buttonwood tree, buy and hold, computerized trading, corporate raider, creative destruction, credit crunch, Credit Default Swap, financial innovation, fixed income, Flash crash, High speed trading, housing crisis, index arbitrage, junk bonds, locking in a profit, Long Term Capital Management, machine readable, margin call, market bubble, market fragmentation, market fundamentalism, Myron Scholes, naked short selling, Nixon triggered the end of the Bretton Woods system, pattern recognition, Ponzi scheme, proprietary trading, quantitative trading / quantitative finance, Renaissance Technologies, Ronald Reagan, Sergey Aleynikov, short selling, Small Order Execution System, statistical arbitrage, technology bubble, transaction costs, uptick rule, Vanguard fund, Y2K

Stocks had become so predictable that people forgot the risks. They forgot that stock market returns were not guaranteed and that the market was not a place to sink money that they could ill afford to lose. Few people had foreseen the catastrophic collapse of the mortgage markets that would bring down well-known investment banks such as Bear Stearns and Lehman Brothers and that would trigger a credit draught and, consequently, the loss of more than 8 million jobs, which raised the total number of unemployed to 15 million persons. Just before the downturn, the public mood was optimistic. The economy appeared to be booming. The unemployment rate was at 4.7%, and the rate had been below 5% for 23 consecutive months.

Kaufman harangued from the Senate floor on the evening of March 16. He had a strong voice and the populist’s gift for projecting outrage. He urged the SEC to reinstate the Uptick Rule. Critics like Kaufman blamed naked short selling for the precipitous drop in the share prices of major financial firms like Bear Stearns and Lehman Brothers in 2007 and 2008, claiming the bearish investors had helped sink the firms, wrecking the economy. Kaufman stayed on point. In June 2009, he urged Obama’s SEC Chairman Schapiro to crack down. In January 2007, 550 million shares failed to deliver. By January 2008, 1.1 billion shares failed to deliver, and in July 2008, more than 2 billion shares failed to deliver, he said.

He recognized that this sector of the market was wild and unregulated, and he was determined to force the regulators to shine a spotlight on it. Here was an opportunity to protect the public from another financial blowup. Lack of transparency and regulation in the credit default markets had contributed to the blowup that had brought down AIG and Bear Stearns and Lehman Brothers. Wall Street had taken huge, idiotic risks to get rich quick. Kaufman sensed that the same dynamic of fast money, lax regulation, and risk-taking was at play in the HFT corner of the market. The SEC alarmed Kaufman, too. The agency seemed complacent about the big change in the stock market.


pages: 275 words: 77,017

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

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

A scramble to mollify concerns finally convinced people that the panic was unjustified, but the episode was a shock to law enforcement and overseers of the currency. And not just in Taiwan, although there was strangely little public discussion of the matter in the United States, other than testimony from one or two officials who had been closely tracking the supernote situation. A run! When stocks of Bear Stearns crashed on March 13, 2008, the details of the firm’s financials mattered little. What mattered that day was the rush—the herd’s evaporating confidence in the stock and the contagious fear about being stuck with worthless shares. It’s not crazy to think that a few miscalculations and miscommunications in Taipei could have led to more widespread doubts about the $100 bill, and similar runs elsewhere.28 COUNTERFEITING AND ANTICOUNTERFEITING efforts have all kinds of hidden costs.

See also Cash: cash transactions on planes Airtel and Aircel Amazon.com American Council of the Blind American Red Cross Anonymity Apps Argentina Ariely, Dan ATMs cash deposits into Australia Azerbaijan Bahrain Bancor currency Bangladesh Bank of England Bank Museum Bankruptcy Banks bailouts bank robberies central banks (see also individual central banks) confidence in cost of bank transactions failures Free Banking Era international banks investment bankers issuances of notes by mobile banking origin of modern banking participation in banking (see also Cellphones: used for money transactions) on strike in Ireland and toxic assets Barclays Barcodes Bartering. See Swapping BBC Bear Stearns Behavioral economics Belgium BEP. See United States: Bureau of Engraving and Printing BerkShare currency Bernanke, Ben Bhat currency BHP Billiton Biases Bible Bill and Melinda Gates Foundation Bill of Rights Bills of credit Biometric devices Birch, Dave Bitcoin Black market Blind/visually impaired Americans Bling.

The two men had an unsatisfactory meeting, he says, although since then, according to von NotHaus they have dined among the same company on three different occasions. You can also find a picture online of Paul, looking less than thrilled, standing next to von NotHaus, who is dressed in Revolutionary War–era garb, pointing a sword at the camera. q When investment giant Bear Stearns went under and thousands of Wall Street traders were sent packing, just-fired employees walked out onto the streets of Manhattan and were shocked to see all the people strolling and shopping—simply going about their daily lives as if they had no clue of the catastrophe underway. (“Wall Street Vérité,” The New Yorker, October 11, 2010) r One measure of the phone’s potential impact is how intensely the poor spend on communication technologies.


pages: 244 words: 76,192

Execution: The Discipline of Getting Things Done by Larry Bossidy

Albert Einstein, Bear Stearns, business process, complexity theory, financial engineering, Iridium satellite, Long Term Capital Management, megaproject, NetJets, old-boy network, shareholder value, six sigma, social software, Socratic dialogue, supply-chain management

Stronger, faster companies can detect and pounce on opportunities, for instance, to take advantage of the downturn by snapping up assets at bargain prices and snatching market share out from under their competitors. Good execution reveals flaws in outmoded or wrong strategies sooner and allows time to change direction. Those who fail to see the errors in their strategies or who fail to execute the correct strategies quickly and effectively will face the fate that confronted GM, Chrysler, Bear Stearns, AIG, and Lehman Brothers as the economic and financial crises unfolded. Governments around the world will take new roles in their economies and business environments. There will be a new regulatory environment and each government will carry it out in different ways, some as partners to business, others as adversaries.

Leaders must be sensitive to when a strategy has run its course and needs to be changed and have the flexibility to act quickly to make the change. The consequences of not doing so can be fatal. For example, Richard Fuld, the chairman of Lehman Brothers, stubbornly held onto his strategy of high leverage for months after the Bear Stearns bankruptcy revealed its flaws. Fuld simply failed to see how the collapsing mortgage market would affect the company in time to do anything about it. Failure was the result, a failure that jeopardized the global financial order. Competition for the best leaders will be intense. One way to ensure that you have the right people in the right jobs in this rapidly shifting environment is by writing job descriptions for the kind of people you need in each job as it will exist tomorrow, then match those descriptions against the talents and abilities of the peole holding those jobs today.

The stage thus was set for these two financial behemoths to plunge into the biggest and most wrenching financial crisis to hit the big banks since the Great Depression. The strategy, people, and operations at JPMorgan Chase met the challenge. Dimon was even able to take advantage of the crisis to buy up the assets of the failing Bear Stearns and Washington Mutual for pennies on the dollar, expanding his company’s scope and market share. CitiGroup, however, was unable to cope as the global financial system teetered on the verge of collapse. The toxic assets on CitiGroup’s balance sheet quickly became overwhelming and on November 4, 2007, Prince resigned.


pages: 183 words: 17,571

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

Alan Greenspan, banking crisis, banks create money, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, bond market vigilante , Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, compensation consultant, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency risk, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, Glass-Steagall Act, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, junk bonds, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, market bubble, market clearing, Martin Wolf, means of production, Michael Milken, mobile money, Money creation, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nixon triggered the end of the Bretton Woods system, Paul Volcker talking about ATMs, Ponzi scheme, profit motive, proprietary trading, prudent man rule, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, Savings and loan crisis, seigniorage, shareholder value, Silicon Valley, SoftBank, Solyndra, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

As the solvency of one large institution after another came into question, the markets pushed them quickly toward failure by cutting off liquidity and credit. Each case, starting with Bear Stearns, was essentially handled ad hoc, and this very seat-of-the-pants crisis management unnerved already panic-stricken markets. Oddly, it also emboldened the managers of some highly regarded firms to hang tough, especially Lehman. If the authorities rescued Bear Stearns, a distinctly down-market franchise deep in the mortgage mire, surely they would not let Lehman fail. Of course, the US government did let Lehman fail, partially because the Federal Reserve did not have the authority it needed to bail out an investment bank.

The Great Panic: Cause and Effect Much 20/20 hindsight lavished on the financial market meltdown revolves around the collapse of Lehman Brothers and the market freefall that ensued. What made the event so shocking was that the Great Moderation had taught the global financial economy that a large market player with huge obligations to and from other key players would somehow be saved. Certainly Lehman’s management must have made this assumption. After all, Bear Stearns, a far less important house with more to answer for in the mortgage securities bubble, had been rescued. Surely, the authorities could see the domino effect that would occur if they let Lehman go down? Economists use the term moral hazard to describe what happens when the consequences of bad decisions are eliminated.


pages: 289 words: 77,532

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

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

(The latter, which was thought to be a bastardized version of the nineteenth-century stock-trading term “continuation,” meaning to keep a short-term hold on a trading account from one finalization date to the next, was exotic compared to its less imaginative opposite.) The trade was a huge score. Around the office, though, there were no high fives or champagne popping. Andurand was waiting for things to turn. By the early summer of 2008, Brent futures were trading at stratospheric prices. Meanwhile, the U.S. markets were in distress. Bear Stearns had collapsed into JPMorgan Chase’s arms, Lehman Brothers was flirting with failure, and housing in the U.S. was tumbling downward. No matter how great the demand out of China, the breathless pace of commodities prices would have to slow. BlueGold’s partners told investors their optimism had cooled.

Banking industry denizens made a show of being appalled by that sort of rhetoric—and some actually may have been, given the scarcity of such threats in Washington’s regulatory circles. Financial lobbyists were used to overseers like Securities and Exchange chairman Christopher Cox, a former corporate lawyer who had been out of reach at a birthday party the night JPMorgan’s emergency purchase of Bear Stearns was being finalized in March 2008 and was attacked roundly for missing the warning signs at that poorly managed, overly indebted bank that prompted the financial crisis. Or like Walter Lukken, the CFTC chairman who had issued a press release defending commodity speculation mere weeks after convening a task force intended to make a thorough study of the issue.

Gensler went to see the CFTC’s newly appointed head of swaps, Gary Barnett, after the meeting. “Just make sure you send staff on site” at MF Global, he said. “They’ve got one role: to make sure customer money is secure.” Barnett dispatched monitors to the brokerage’s New York and Chicago offices within twenty-four hours. Over the next several days MF, like Bear Stearns and Lehman Brothers before it, was pounded by negative rumors, causing its stock to drop precipitously. By the end of the week, the company had lost two-thirds of its value, and was looking for a suitor who could salvage it from bankruptcy. Central to the market’s concerns was the notion that Corzine, who had made his name as a bond trader at Goldman during the 1990s, had gotten in over his head with overoptimistic bets on European credit.


The Fix: How Bankers Lied, Cheated and Colluded to Rig the World's Most Important Number (Bloomberg) by Liam Vaughan, Gavin Finch

Alan Greenspan, asset allocation, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Sanders, Big bang: deregulation of the City of London, buy low sell high, call centre, central bank independence, collapse of Lehman Brothers, corporate governance, credit crunch, Credit Default Swap, eurozone crisis, fear of failure, financial deregulation, financial innovation, fixed income, interest rate derivative, interest rate swap, Kickstarter, light touch regulation, London Interbank Offered Rate, London Whale, low interest rates, mortgage debt, Neil Armstrong, Northern Rock, performance metric, Ponzi scheme, Ronald Reagan, social intelligence, sovereign wealth fund, subprime mortgage crisis, urban sprawl

The article’s author was Carrick Mollenkamp, a veteran business reporter from the Deep South who had been detailed to London to cover the financial crisis. Mollenkamp’s sources told him that banks were paying much more for cash than they were letting on.1 They feared if they were honest they could go the same way as Bear Stearns, the 85-year-old New York securities firm that had collapsed the previous month. The big flaw in Libor was that it relied on banks to tell the truth but encouraged them to lie. When the 150 variants of the benchmark were released each day, the banks’ individual submissions were also published, giving the world a snapshot of their relative creditworthiness.

They were prevented from deviating too far from the truth because their fellow market participants knew what rates they were really being charged. Over the previous few months, that had changed. Banks had stopped lending to each other for periods of longer than a few days, preferring to stockpile their cash. After Bear Stearns there was no guarantee they would get it back. With so much at stake, lenders had become fixated on what their rivals were inputting. Any outlier at the higher—that is, riskier—end Anything With Four Legs 41 was in danger of becoming a pariah, unable to access the liquidity it needed to fund its balance sheet.

Finch lives with his wife, Cece, and two boys, Oscar and Milo, in Brighton. 193 The Fix: How Bankers Lied, Cheated and Colluded to Rig the World’s Most Important Number By Liam Vaughan and Gavin Finch © 2017 Liam Vaughan and Gavin Finch Index 4 p.m. fix 171–2 Aarons, Lee 64–5 ABC News 107 ABN Amro 93 Adoboli, Kweku 154–5 Adolph, Guillaume 84, 117, 129, 151 Agius, Kate 140 Agius, Marcus 95, 137, 138–9, 140–1, 142, 143–4, 145 Ainsworth, Sarah 10, 61 Allen & Overy 126, 127 Alykulov, Mirhat 80, 124–6, 130, 148 American Electric 42 American International Group 57 Arcuri, Jennifer 132 Argus 41 Armstrong, Lance xii Armstrong, Neil 13 Atlas Mara 170 Audit Bureau of Circulation 42 Bailey, Andrew 142, 143, 144 Ball, Matthew 148 Bank for International Settlements 43, 54–5 Bank of America 47, 103 Bank of England xi, 16, 53, 54, 56–8, 60, 89–91, 94–100, 105–7, 139, 141–6, 163 Bank of Japan 22 Bank of Scotland 163 Barclays Capital 47, 90, 92, 142 Barclays Global Investors (BGI) 108 Barclays xi, 46, 47, 51, 76, 87–8, 90, 92–9, 101, 104, 106–8, 126, 128, 133–43, 145, 146, 149, 170, 172, 174 Barings 92 basis swaps 10 basis trade 23 BBA Libor see LIBOR Bear Stearns 40 195 196 IN DEX Bermingham, David 154 “Big Bang” financial deregulation program (1986) (U.K.) 16, 92 Black Wednesday 54 Blair, Tony 92 Blankfein, Lloyd 137 Bloomberg 46, 51, 171 Blue Index 159 BNP Paribas 49, 163 Bond, Tim 46–7 Born, Brooksley 71 Bowles, Stan 152 Brasserie Roque 28 Breuer, Lanny 103, 104, 149 Bribery Act (2011) (U.S.) 66 British Bankers’ Association (BBA) 16, 42, 49–51, 54, 56, 59, 60, 75, 93, 105, 161–3, 167 “Understanding the Construction and Operation of Libor—Strengthening for the Future” 58 brokers relationship 27 relationship with traders 27 role of 26–7 technical 27 Brown, Gordon 96, 105 BT Group 144 Calyon Securities 10 Cameron, David 28, 137 Cantwell, Maria 71 Caplin, David 31 Casterton, David 68 Cazenove 92 Cecere, Chris 81–2, 83, 112, 113, 114, 115, 120, 121, 124, 130 Cela, Phyllis 109 Celtik, Burak 113, 115, 118, 119, 120 CFTC 17, 39–40, 41, 44–7, 57, 58, 67, 70, 73–6, 87–90, 99, 101–2, 104, 105, 107–9, 115, 117, 119, 126, 128, 129, 133, 135, 136, 139, 140, 152, 157, 163, 168, 169, 173 CGMJ 124 Chadwick, Matthew 148 Chance, Clifford 108 Chawla, Mukul 158–9, 160, 163, 165, 169 Chicago Mercantile Exchange (CME) 17, 46 Chicago Sun-Times 42 Christofferson, Robb & Co. 17 Citibank 57 Citigroup x, 43, 46, 47, 57, 62, 75, 81–3, 92, 103, 104, 111–16, 118–24, 126, 130, 148, 161, 164, 172, 174 Clark, Robin 66 Clinton, Bill 103 administration 70 Clinton, Hillary 70, 169 Cole, Margaret 105–6, 107 Commodity Exchange Act 45 Commodity Futures Modernization Act (2000) (U.S.) 71 Commodity Futures Trading Commission see CFTC Compton, Steve 116 Confederation of British Industry 144 Contogoulas, Stylianos 88 Cooke, Jeremy 158, 164, 168 Corney & Barrow 9 Cornthwaite, Richard 155 Covington & Burling 103 Cravath Swaine & Moore 107 credit default swap prices 46 Credit Suisse 139 Credit Suisse First Boston 91 Criminal Cases Review Commission 168 Cryan, Noel 78–9, 85, 123, 168, 169 Dallas Morning News, The 42 Danieli, Francesca 72 Daniels, Eric 95 Index Danziger, Neil 7, 64, 65–6, 129, 148 Darin, Roger 33, 34–5, 80, 81, 82, 86, 126, 149, 152 Davies, Brent 118, 123, 148 Dearlove, Mark 89, 90, 93, 99 Del Missier, Jerry 89, 97, 98–9, 134, 141–2, 143, 145 Department of Justice 41–2, 67, 101–3, 104, 108, 125–6, 128, 133, 134, 139, 149, 150, 152, 168, 174 Deutsche Bank 84, 117, 119, 129, 134, 135, 151 Dewar, Sally 106 Diamond, Anne 90 Diamond, Robert Edward, Jr.


pages: 399 words: 114,787

Dark Towers: Deutsche Bank, Donald Trump, and an Epic Trail of Destruction by David Enrich

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, anti-globalists, Asian financial crisis, banking crisis, Bear Stearns, Berlin Wall, buy low sell high, collateralized debt obligation, commoditize, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Donald Trump, East Village, estate planning, Fall of the Berlin Wall, financial innovation, forensic accounting, high net worth, housing crisis, interest rate derivative, interest rate swap, Jeffrey Epstein, junk bonds, London Interbank Offered Rate, low interest rates, Lyft, Mikhail Gorbachev, NetJets, obamacare, offshore financial centre, post-materialism, proprietary trading, Quicken Loans, Ralph Waldo Emerson, Renaissance Technologies, risk tolerance, Robert Mercer, rolodex, SoftBank, sovereign wealth fund, Steve Bannon, too big to fail, transcontinental railway, Vision Fund, yield curve

They’ll do everything possible to maximize within the word of the contract,” a senior Wall Street banker told the journalist William Cohan in 2013. “Donald doesn’t necessarily live up to the word of the contract.” Even Trump’s friends would go to considerable lengths to avoid lending him money. Trump once approached a banker at Bear Stearns, seeking $150 million. The banker knew that Trump was pals with Ace Greenberg, one of the firm’s top executives, and so he agreed to a meeting. Trump’s pitch wasn’t awful, but the idea of doing business with a default-prone circus barker was less than enticing. After the meeting, the banker stopped returning Trump’s phone calls, figuring that he would get the message and go away.

The crowd consisted almost entirely of men, and they weren’t about to dance with each other, so they awkwardly tapped their feet and nodded their heads to the music as Mick Jagger pranced onstage. At this year’s event, the focus was the fast-approaching financial storm. Two hedge funds run by the investment bank Bear Stearns had just collapsed, early tremors in what would become a global financial earthquake. One hot night, Anshu and a few colleagues attended a dinner with a group of leading hedge fund managers and private equity executives. “The talk was all about how to avoid the oncoming train,” a Deutsche executive would recount.

Broeksmit and, 184–85, 186, 188, 263, 293–94 international banking rules, 165 Libor scandal, 263–64 Menke’s letter, 263–65 Val’s investigation, 249, 296, 332 BakerHostetler, 330–33 Banca Monte dei Paschi di Siena, 154–56 BaFin investigation, 208 Broeksmit’s warnings about, 295–97, 301, 326 collapse, 193–94, 208 Deutsche derivatives scheme, 155–56, 193–94, 295 Italian investigation, 193–94 Val and Goracci, 301–304 Val and Justice Department, 320–21, 358 Bankers Trust Deutsche Bank acquisition, 63–67, 68, 93, 147, 154 Trump loans, 64, 68, 74 Bank Leumi, 167, 169, 312 Bank of America, 28, 168–69, 312 Bank of Cyprus, 338–39 Bank of England, 209 Bannon, Steve, 305–306, 325 Bänziger, Hugo, 106–108, 161, 183 background of, 106–107 BaFin and Broeksmit, 184–85 Sewing and, 259, 348–49 sexual harassment allegations, 107–108, 108n Barclays, 92 Baron, Stefan, 100 Barrack, Tom, 272 Barry, Maryanne Trump, 174 Bartmann, Flavio, 85–86, 204 Bean, Stephen, 88–89 Bear Mountain, 89 Bear Stearns, 74–75, 134 Beatles, the, 2 Belamar Hotel (Los Angeles), 279, 280, 281 Belton, Catherine, 321–22, 322n Ben-Artzi, Eric, 159–62, 180, 195, 261 Ben-Artzi, Jonathan, 159–60 Benson, Harry, 2 Berlin Wall, 24, 42 Berman, Geoffrey, 344–45 Bernanke, Ben, 164 Big Bang (financial markets), 24 Big Short, The (movie), 138n Bikini Robot Army (band), 218–19, 254–55, 283 Bittar, Christian, 128–30 background of, 129 compensation, 152, 264, 290, 291 investigation, 195–96, 264, 290–91 Libor scheme, 151–52, 195–96, 261, 290–91 Bloomberg, Michael, 99 BMW 8 Series, 47, 48 BMW X5, 181 Bogart, Humphrey, 20–21 Boies, David, 255 Bowers, Tom, 169, 170–75, 354 Brand, Jacques “Jack,” 4–7 DBTCA and, 187–88, 205–206 Trump loans and, 5–6, 7, 306 Breit, John, 38, 39, 40, 185, 206 Breitbart News, 238, 325 Breuer, Rolf-Ernst, 63–67, 82–83, 93 Bridge School, 244–45 Broeksmit, Alessa, 189–90, 207, 216, 223, 224, 285 Broeksmit, Alla, 156, 188 background of, 213–15 Bänziger’s fiftieth birthday party, 184 Bill’s burial, 244 Bill’s memorial service, 229–30 Bill’s retirement, 204, 210 Bill’s suicide, 3–4, 221–22, 224, 225, 227–28 Brooklin home, 39–40, 190, 244 move to London, 50, 83–84 Park Avenue apartment, 123 in Short Hills, New Jersey, 33–34 Val and, 213–20, 221–22, 242–44, 280, 281–82, 283–84, 300, 351–53 Virgin Gorda vacation, 207–208 wrongful-death lawsuit considerations, 243–44 Broeksmit, Bill background of, 30–32 at Continental Illinois, 32–33 drinking and partying of, 32, 123–24 memorial service for, 229–30 at Merrill Lynch, 33–41, 48–49, 123, 126–27 Mitchell’s death and, 89–90, 122–23 Scott Mitchell and, 188–90 suicide of, 1–4, 221–30, 251–52, 287–89, 292, 341, 359–60 suicide notes, 223–24, 227, 229, 246–47, 280, 284–86 Val and, 39, 215–22 World Economic Forum and, 209 Broeksmit, Bill, at Deutsche Bank, 8, 51–52, 54, 83–84, 157 BaFin and, 184–85, 186, 188, 263, 293–94 Banca Monte dei Paschi scheme, 295–97, 301, 326 DBTCA and, 186–88, 191, 192, 204, 205–208, 223, 233, 241–42, 256, 285, 293–94, 317, 326–27, 358 Dixon and, 158–59, 326 ethical standards of, 58–59, 207, 359–61 hiring, 48–50 Libor scheme, 196, 288–94 offer of chief risk officer job, 183–85 retirements, 84–86, 85, 122–24, 204, 210 return as consultant, 135–37, 156 Senate investigation, 237–38 Val’s investigation, 279–86, 289–95, 298–304 Broeksmit, Bob, 31, 229–30 Broeksmit, Jack, 30–31 Broeksmit, Jane, 30–31 Broeksmit, Katarina, 207, 216, 223, 224, 244, 285 Broeksmit, Valentin “Val,” 213–21 author’s contacts with, 247–50, 252, 257, 279 Banca Monte dei Paschi investigation, 295–97, 301–304, 320–22 Deutsche Bank investigation, 279–86, 289–90, 298–304 drug rehab, 242–45, 248 drug use, 219, 282, 283, 300, 330, 331 early life of, 39, 213–17 education of, 50, 216, 217–18 father and Mitchell’s death, 89–90 father’s files, 225–26, 225n, 246–47, 249–50, 256–57, 300, 322, 355–56, 357–59 father’s memorial service, 230, 242 father’s retirement, 204 father’s suicide, 1–4, 222, 223–26, 227–29, 245, 252 father’s suicide notes, 223–24, 246–47, 280, 284–86 John Moscow and, 330–33 Justice Department and, 320–21, 357–59 Marie and, 351–53, 355, 359 mother’s computer files, 281–82, 283–84, 292–93 Senate investigation and Roach, 329–30 Senate report, 237 Simpson and, 324–27, 333, 333n Sony Pictures hack, 253–55 Trump and The Art of the Deal, 123 Brooklin, Maine, 39–40, 190, 244 Browder, Bill, 331 Brown University, 69 Buffalo Bills, 270, 271 Buffett, Warren, 75 Bush, George W., 162, 164 Business Executives for National Security, 334–35 BuzzFeed, 324 Byrne, Richard, 114–16, 119, 175–77, 274–75 Callable interest rate swaps, 34 Capital ratio, 182–83, 192 Carbon-emissions permits, 150–51, 191–92 Carney, Mark, 209 Casablanca (movie), 20–21 CDOs (collateralized debt obligations), 127, 136–37, 138–40, 154 Central Presbyterian Church (New York City), 229 Cerberus Capital Management, 347 Charles de Gaulle Airport, 300 Cherednichenko, Alexander, 213–15, 216–17 Chicago Mercantile Exchange, 194 Chicago Sun-Times, 214 Chrysler Building (New York City), 76 Cicero (magazine), 263 Citigroup (Citicorp), 74, 120, 147, 167–68, 270 Citron, Robert, 40–41 Claremont McKenna College, 31, 31n Clarke, Stuart, 174 Cleopatra (movie), 254 Climate change, 150–51 Clinton, Bill, 164 Clinton, Hillary, 307, 309 Cloete, Alan, 129, 262, 262n Cohan, William, 74, 275 Cohen, Michael, 357 Cohn, Gary, 320 Cohrs, Michael, 92, 102–103 Colby College, 27 Collateralized debt obligations (CDOs), 127, 136–37, 138–40, 154 Colony Capital, 272–73 Columbia Business School, 69 Commerzbank, 82, 347–48 Commodity Futures Trading Commission, 194 Concorde, 45, 47, 88 Consumer Financial Protection Bureau, 343 Continental Illinois, 32–33 Cook County Juvenile Court, 214, 215 Cooper Horowitz, 75–76 Coppola, Francis Ford, 254 Craig, Sue, 307–308, 308n Credit Suisse, 97, 106–107 Croatia, 122–23 Crossman, Alex, 142 Crow Indians, 13 Cryan, John, 298–99 appointment as CEO, 266–68 background of, 267 replacement as CEO, 345 Trump and, 307–308, 314 Cypriot banking, 231–33, 338–39 Daimler-Benz, 23 Daisy (dog), 4, 123, 220, 221, 223, 225, 230, 243, 286 Dartmouth College, 28 Davis, Sidney, 244 Davis, Steven, 105, 105n DB Pace Acquisitions, 275 DBTCA.


pages: 387 words: 119,244

Making It Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy by Iain Martin

Alan Greenspan, asset-backed security, bank run, Basel III, Bear Stearns, beat the dealer, Big bang: deregulation of the City of London, Bletchley Park, call centre, central bank independence, computer age, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, deindustrialization, deskilling, Edward Thorp, Etonian, Eugene Fama: efficient market hypothesis, eurozone crisis, falling living standards, financial deregulation, financial engineering, financial innovation, G4S, Glass-Steagall Act, high net worth, interest rate swap, invisible hand, joint-stock company, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, long term incentive plan, low interest rates, moral hazard, negative equity, Neil Kinnock, Nick Leeson, North Sea oil, Northern Rock, old-boy network, pets.com, proprietary trading, Red Clydeside, shareholder value, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, value at risk, warehouse robotics

Within weeks he was forced to rethink, as it became evident that he would have to try to reassure the markets to withstand the escalating crisis. On 14 March, the Wall Street investment bank Bear Stearns had to be saved by the American authorities. It was sold to J. P. Morgan, with a loan facilitated by the Federal Reserve. In the aftermath, with the markets chaotic, other British banks came under pressure too. Four days after Bear Stearns the share price of HBOS fell 17 per cent. RBS found that liquidity became even more problematic. Cameron was looking at the CDO index, which kept a running score of what they were worth, and he told Goodwin it was a horror show.

., ref 1, ref 2 Agnew, Jonathan, ref 1 AIG, ref 1 Alemany, Ellen, ref 1 Allan, Iain, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 and CDOs, ref 1, ref 2, ref 3, ref 4 Antonveneta, ref 1 Argus, Don, ref 1 Argyll, 2nd Duke of, ref 1 Armitstead, Louise, ref 1 Arsenal FC, ref 1 Arthur Andersen, ref 1, ref 2 asset-backed securities (ABSs), ref 1, ref 2 AstraZeneca, ref 1, ref 2 Aviva, ref 1 Ayr Bank, ref 1, ref 2 BAA, ref 1 Bailey, Andrew, ref 1, ref 2, ref 3 Bailie Gifford, ref 1 Balfour Beatty, ref 1 Balls, Ed, ref 1, ref 2, ref 3 Bank of America, ref 1 Merrill Lynch sold to, ref 1 Bank Bosses are Criminals, ref 1 Bank of China, ref 1, ref 2 Bank of Credit and Commerce International (BCCI), ref 1, ref 2, ref 3 Bank of England: and banking supervision, see banks: regulation of; Financial Services Authority and County NatWest, ref 1 culpability of, ref 1 Darling reassurance to RBS concerning, ref 1 founding of, ref 1, ref 2 Gieve role in, ref 1 house prices ignored by, ref 1 independence of, ref 1, ref 2, ref 3, ref 4, ref 5 King becomes governor of, ref 1, ref 2 Monetary Policy Committee of, ref 1, ref 2, ref 3 and RBS collapse, ref 1, ref 2 and RBS privatisation, ref 1 and Scottish banks’ own notes, ref 1 and tripartite regulation, ref 1, ref 2, ref 3, ref 4, ref 5; see also Financial Services Authority Bank of Scotland, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6 founding of, ref 1, ref 2 as joint stock-bank, ref 1 modern British banking pioneered by, ref 1 national networks developed by, ref 1 and NatWest, ref 1, ref 2, ref 3, ref 4, ref 5 RBS early rivalry with, ref 1 ‘sues for peace’, ref 1 Whigs distrust, ref 1 see also Halifax; HBOS bankers: accountants versus, ref 1 ‘“canny” Scottish’, ref 1 Labour honours and ennobles, ref 1 large remuneration of, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11, ref 12, ref 13 prosecution avoided by, ref 1 banks: auditing of, ref 1; see also banks: regulation/supervision of bailouts of, ref 1, ref 2, ref 3, ref 4, ref 5 passim, ref 1 and Basel regulation, ref 1 and Big Bang, ref 1, ref 2, ref 3, ref 4 Brown wish for competition among, ref 1 Darling promises support for, ref 1 Darling meeting with CEOs of, ref 1 deregulation of, ref 1 foreign investment, presence of, in UK, ref 1 globalised nature of, ref 1 growing profits of, ref 1 innovative activities embraced by, ref 1; see also individual banks and interest rates, ref 1, ref 2, ref 3, ref 4, ref 5 lighter scrutiny of, ref 1; see also Financial Services Authority more credit offered by, ref 1 proposed ring fence for, ref 1, ref 2 regulation/supervision of, ref 1, ref 2, ref 3; see also banks: auditing of; Basel; Financial Services Authority reluctance of, to deal with RBS, ref 1 remodelling of, ref 1 revelations about conduct of, ref 1 ‘too big to fail’, ref 1 tripartite regulation of, ref 1, ref 2, ref 3, ref 4, ref 5; see also Basel; Financial Services Authority UK, balance sheets of, ref 1, ref 2, ref 3, ref 4 UK, clearing, balance sheets of (since 1960), ref 1 UK, growth of, ref 1 UK, steady fall in number of, ref 1 and Value at Risk (VaR), ref 1, ref 2 see also City of London Banque de France, ref 1 Barclays, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9 and ABN Amro, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8 FG hates, ref 1 fines paid by, ref 1 growing profits of, ref 1 Barclays Capital, ref 1, ref 2 Barings, ref 1, ref 2 Basel, ref 1 Bear Stearns, ref 1 Better Regulation Action Plan, ref 1 see also banks: regulation of Better Regulation Task Force, ref 1 Big Bang, ref 1, ref 2, ref 3, ref 4, ref 5 Birmingham and Midshires, ref 1 Black, Joseph, ref 1 Blair, Cherie, ref 1 Blair, Tony, ref 1, ref 2, ref 3 and 1997 election, ref 1 and bank regulation, ref 1 bankers fêted by, ref 1 Brown wants to oust, ref 1 FG Chequers meal with, ref 1 and Gaddafi, ref 1 leadership won by, ref 1 Blank, Victor, ref 1 Bloomberg, ref 1 Blue Arrow affair, ref 1 Blunkett, David, ref 1 BNP Paribas, ref 1, ref 2 boom and bust, ‘end’ of, ref 1, ref 2, ref 3, ref 4, ref 5 Botín, Emilio, ref 1, ref 2, ref 3, ref 4 BP, ref 1 Bradford & Bingley, ref 1, ref 2 Braveheart, ref 1, ref 2, ref 3 Briault, Clive, ref 1, ref 2 Brown, Andrew, ref 1 Brown, Gordon, ref 1, ref 2 passim and 1997 election, ref 1 ‘appalled’ by RBS crisis, ref 1 and bank bailouts, ref 1, ref 2, ref 3 and bank regulation, ref 1, ref 2, ref 3 bankers fêted by, ref 1 becomes Chancellor, ref 1 and BoE independence, ref 1, ref 2, ref 3 boom–bust conference speech of, ref 1 and boom and bust, ‘end’ of, ref 1, ref 2, ref 3, ref 4, ref 5 Chancellorship aspirations of, ref 1 Darling joint press conference with, ref 1 economic growth under, ref 1 father influence on, ref 1 FG compared to, ref 1 and Greenspan, see Greenspan, Alan house prices rise under, ref 1 and interest-rate control, ref 1, ref 2 King relationships with, ref 1 last Mansion House speech of, ref 1 leadership bid lost by, ref 1 and Lloyds–HBOS, ref 1 RBS bailout announced by, ref 1, ref 2 and RBS collapse, ref 1, ref 2 Smith influence on, ref 1 and socialism, ref 1 at university, ref 1 and US politics, ref 1, ref 2 Brown, John, ref 1 Brown, John Ebenezer, ref 1, ref 2 Buccleuch, Duke of, ref 1 Buchan, Colin, ref 1, ref 2, ref 3, ref 4, ref 5 Buffet, Warren, ref 1 Burlington Resources, ref 1 Burns, Robert, ref 1 Burns, Terry, ref 1 Burnside, Howard, ref 1 Burt, Peter, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6 Bush, George H.W., ref 1, ref 2 Bush, George W., ref 1, ref 2, ref 3 Bush, Laura, ref 1 Butler, Lord, ref 1 Cable, Vince, ref 1 Caledonia, naming of, ref 1 Cameron, Donald, ref 1 Cameron, Johnny, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 passim, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9 passim, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 and ABN Amro, ref 1, ref 2, ref 3, ref 4 FG stands by, ref 1 FSA investigates, ref 1, ref 2 at Gogarburn opening, ref 1 and hedging exposure, ref 1 and worsening liquidity situation, ref 1 Camerons of Locheal, ref 1, ref 2, ref 3, ref 4 Campbell, Archibald, see Ilay, Earl of Campbell, John, ref 1, ref 2, ref 3 Canary Wharf, ref 1 Caplan, Rick, ref 1, ref 2, ref 3, ref 4, ref 5 Carpenter, Ben, ref 1, ref 2, ref 3 Charles, Prince of Wales, ref 1, ref 2, ref 3 Charter One, ref 1, ref 2 Chase, ref 1 Chirac, Jacques, ref 1 Chisholm, Andy, ref 1 Churchill, ref 1, ref 2 Churchill, Winston, ref 1 Cicutto, Frank, ref 1, ref 2, ref 3 Citibank, ref 1 Citigroup, ref 1, ref 2, ref 3 Citizens Bank, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11, ref 12 and Mellon, ref 1 new CEO for, ref 1 City of Glasgow Bank, ref 1 City of London, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11, ref 12, ref 13, ref 14, ref 15 modernisation of, ref 1 see also banks Clarke, Charles, ref 1 Clarke, Ken, ref 1 Clinton, Bill, ref 1, ref 2, ref 3 Clydesdale Bank, ref 1, ref 2, ref 3, ref 4, ref 5 away days of, ref 1 celebrations at, as FG leaves, ref 1 FG becomes CEO of, ref 1 Cochrane, Alan, ref 1 Cole-Hamilton, Richard, ref 1 Coleman, David, ref 1, ref 2 collateralised debt obligations (CDOs), ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11 index of, ref 1 varieties of, ref 1 see also sub-prime mortgages Commonwealth Bancorp, ref 1 Community Bancorp, ref 1 Compagnie Bancaire, ref 1 Company of Scotland, ref 1 founding of, ref 1 ‘Competition in UK Banking’, ref 1 Connolly, John, ref 1, ref 2, ref 3, ref 4, ref 5 ConocoPhillips, ref 1 Conservatives, see Tories consumer debt, ref 1 Conti, Tom, ref 1 Cooper, Yvette, ref 1, ref 2 Corbett, R.Y., ref 1 Cornwall, Duchess of, ref 1 Countrywide Financial, ref 1 County NatWest, ref 1, ref 2 Coutts, ref 1, ref 2, ref 3, ref 4, ref 5 Cox, Archie, ref 1 credit crunch, see financial crisis credit default swaps (CDSs), ref 1 Crosby, James, ref 1, ref 2, ref 3, ref 4, ref 5 knighthood lost by, ref 1 Crowe, Brian, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11, ref 12 and CDOs, ref 1 and hedging exposure, ref 1 moved to ABN Amro, ref 1 ordination of, ref 1, ref 2 withdrawn from ABN Amro, ref 1 and worsening liquidity situation, ref 1 Crowe, Russell, ref 1 Cruickshank, Don, ref 1 Crutchley, John-Paul, ref 1 Cryan, John, ref 1, ref 2 Cummings, Peter, FSA fines, ref 1 Cummins, John, ref 1 Currie, Jim, ref 1 Daily Telegraph, ref 1, ref 2 Daniels, Eric, ref 1 Darien Scheme, ref 1, ref 2, ref 3, ref 4 Caledonia emerges from, ref 1 Darling, Alistair, ref 1, ref 2 and bank bailouts, ref 1, ref 2, ref 3 banks’ CEOs meet with, ref 1 and Brown–George spat, ref 1 Brown joint press conference with, ref 1 at ECOFIN meeting, ref 1 and FG knighthood, ref 1 and FG pension, ref 1, ref 2, ref 3 FSA and BoE meet with, ref 1 at Gogarburn opening, ref 1 Goodwin meets (2007), ref 1 King follows plan of, ref 1 King relationships with, ref 1 memoirs of, ref 1 MPs briefed on financial crisis by, ref 1 RBS bailout announced by, ref 1, ref 2 and RBS collapse, ref 1 Treasury meeting called by, ref 1 UK banks supported by, ref 1 Darroch, Kim, ref 1 Davidson, Joanna, ref 1, ref 2 Davies, Howard, ref 1, ref 2 Davos, ref 1 de la Renta, Oscar, ref 1 deficit, sharp rise in, ref 1 Deloitte & Touche, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 Deutsche Bank, ref 1, ref 2 Dewar, Donald, ref 1 Diamond, Bob, ref 1, ref 2, ref 3 forced out of post, ref 1 Dickinson, Alan, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11, ref 12, ref 13 Dime Bancorp, ref 1 Direct Line, ref 1, ref 2, ref 3 District Bank, ref 1 Dixon Motors, ref 1 Dixon, Paul, ref 1 Dixon, Simon, ref 1 dotcom bubble, ref 1 Dow Jones, ref 1 Drake-Brockman, Symon, ref 1 Dresdner Kleinwort Wasserstein, ref 1, ref 2 ‘Drivers for Growth’ conference, ref 1 Drummond Bank, ref 1, ref 2, ref 3 Dundas, Lawrence, ref 1 Dundee Banking Company, ref 1 Dutch Central Bank, ref 1 Duthie, Robin, ref 1 East India Company, ref 1 Economic and Financial Affairs Council (ECOFIN), ref 1, ref 2 Economist, ref 1, ref 2 Eden, James, ref 1, ref 2 Elizabeth II, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 emerging economies, ref 1 Emirates Stadium, ref 1 Enron, ref 1, ref 2 Equitable Life, ref 1 Equivalent Company, ref 1 Ernst & Young, ref 1 euro, see single currency Exchange Rate Mechanism (ERM), ref 1, ref 2 ‘failure of the Royal Bank of Scotland, The’ (FSA), ref 1, ref 2 Fastow, Andy, ref 1 Federal Reserve, ref 1, ref 2, ref 3 Ferguson, Adam, ref 1 Ferguson, Alex, ref 1 Ferguson, William, ref 1 Ferrovial, ref 1 Fidelity, ref 1 Fildes, Christopher, ref 1 Financial Conduct Authority., ref 1 financial crisis: beginning of, ref 1 Darling updates Commons on, ref 1 government spending at start of, ref 1 insurers crack under weight of, ref 1 recessions follow, ref 1 spreads to UK high street, ref 1 studies and reports of, ref 1 Financial Services Authority (FSA), ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11, ref 12 ‘Arrow’ reports of, ref 1 and auditors, ref 1 and RBS collapse, ref 1 RBS on watch-list of, ref 1 self-investigation by, ref 1 successors to, ref 1 and tripartite regulation, ref 1, ref 2, ref 3, ref 4, ref 5; see also Bank of England Financial Times, ref 1, ref 2 First Active, ref 1 Fish, Larry, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9 chairs RBS Americas, ref 1 criticised, ref 1 pension of, ref 1 Fisher, Mark, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 at Gogarburn opening, ref 1 moved to ABN Amro, ref 1 Fitch Ratings, ref 1, ref 2 Fleming, Ian, ref 1 Fletcher, Andrew, ref 1 Forbes, ref 1 foreign exchange, ref 1, ref 2 Formula 1, ref 1, ref 2 Fortis, ref 1, ref 2, ref 3 Fountain Workshop, ref 1 Franklyn Resources, ref 1 Freshfields, ref 1 Friedrich, Bill, ref 1, ref 2 Fuld, Dick, ref 1 Gaddafi, Muammar, ref 1 Gartmore, ref 1 GE, ref 1 George II, ref 1 George, Eddie, ref 1, ref 2, ref 3, ref 4 Gibson, Mel, ref 1, ref 2 Gieve, John, ref 1 Giles, Chris, ref 1 Gladiator, ref 1 Glass–Steagall Act, ref 1 global financial crisis, see financial crisis Global Transaction Services, ref 1, ref 2 Glyn, Mills & Co., ref 1, ref 2 Goldman Sachs, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9 Goodwin, Andrew (brother), ref 1 Goodwin, Dale (sister), ref 1 Goodwin, Fred: affair of, ref 1, ref 2, ref 3, ref 4 after RBS, ref 1 and away days, ref 1, ref 2 bailout terms heard by, ref 1 Barclays hated by, ref 1 becomes Clydesdale CEO, ref 1 becomes RBS CEO, ref 1 birth of, ref 1 Brown compared to, ref 1 Brown likes, ref 1 Bush dinner guest, ref 1 and car dealership, ref 1 CDO presentation by, ref 1 at CEOs–Darling meeting, ref 1 at CEOs meeting, ref 1 Chequers invitation to, ref 1 ‘classic bully’, ref 1 cleanliness campaigns of, ref 1 at Clydesdale, see Clydesdale Bank colleagues testify to abilities of, ref 1 cult status of, ref 1 at Darling 2008 meeting, ref 1 Darling visited by (2007), ref 1 document criticises management of, ref 1 early life of, ref 1, ref 2 extraordinary general meeting appearance of, ref 1 face-to-face firing disliked by, ref 1, ref 2, ref 3 first job of, ref 1 fixation on detail by, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6 and Forbes, ref 1 ‘Fred the Shred’ nickname of, ref 1, ref 2, ref 3, ref 4 and FSA, ref 1, ref 2 at Gogarburn opening, ref 1 Harvard study on, ref 1, ref 2 ‘has shut out the world’, ref 1 Hester view of, ref 1 ‘I want to be bigger than J.

., ref 1 Herries, Michael, ref 1, ref 2, ref 3, ref 4 Heseltine, Michael, ref 1 Hester, Stephen, ref 1, ref 2, ref 3, ref 4, ref 5 Brown hires, as RBS CEO, ref 1 departs RBS, ref 1 on RBS collapse, ref 1, ref 2 Higgins, Benny, ref 1, ref 2, ref 3, ref 4 Hinton, Les, ref 1 Hong, Victor, ref 1, ref 2 Hornby, Andy, ref 1, ref 2, ref 3 Hourican, John, ref 1, ref 2, ref 3 house prices, see property prices HSBC, ref 1, ref 2, ref 3 RBS in secret talks with, ref 1 scandal concerning, ref 1 Huertas, Thomas, ref 1 Hume, David, ref 1 Hunter, Archie, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 Hutton, Deirdre, ref 1, ref 2 IBM, ref 1 Iceland, banking collapse in, ref 1 Ilay, Earl of, ref 1 Industrial and Commercial Finance Corporation, ref 1 Industrial Revolution, ref 1, ref 2 inflation, ref 1, ref 2, ref 3, ref 4, ref 5 asset-price, ref 1 in house prices, see property prices Insight Investment Management, ref 1 Institutional Investor, ref 1 interest rates, ref 1, ref 2, ref 3, ref 4, ref 5 swaps, ref 1 International Aviation Management, ref 1 International Financial Reporting Standards, ref 1 Internet, ref 1 Issenberg, Sasha, ref 1 J. P. Morgan, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11, ref 12, ref 13, ref 14 Bear Stearns bought by, ref 1 Jacobite rebellion, ref 1, ref 2 James VI/I, ref 1 Jardine Matheson, ref 1, ref 2 Jevons, William, ref 1 Jin, Bruce, ref 1, ref 2, ref 3, ref 4 Kay, John, ref 1 King, Mervyn, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10 on bailouts, ref 1 becomes BoE governor, ref 1, ref 2 RBS bailout preference of, ref 1 Kingman, John, ref 1, ref 2, ref 3, ref 4 Kinnock, Neil, ref 1 Kirwan, Frank, ref 1 Koch, Charles, ref 1, ref 2 Kong, Janis, ref 1, ref 2 KPMG, ref 1, ref 2 Kravis, Henry, ref 1 Kruger, Konrad ‘Chip’, ref 1 Kyle, Chris, ref 1 Labour: 1983 defeat of, ref 1 1987 defeat of, ref 1 1992 defeat of, ref 1 1997 victory of, ref 1, ref 2 2001 victory of, ref 1 2005 victory of, ref 1 bankers honoured by, ref 1, ref 2 Blair gains leadership of, ref 1 and BoE, see Bank of England: and banking supervision Brown ‘boom–bust’ speech to, ref 1 not blameless, ref 1 Scottish, ref 1 and spin-doctoring, ref 1 see also Brown, Gordon LaSalle, ref 1, ref 2, ref 3, ref 4 Law, John, ref 1 Lawson, Lord (Nigel), ref 1, ref 2 Leeson, Nick, ref 1, ref 2 Legal & General, ref 1, ref 2 Lehman Brothers, ref 1, ref 2, ref 3, ref 4 Levine, Howard, ref 1 Levine, Jay, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9 and hedging exposure, ref 1 leaves RBS, ref 1 remuneration of, ref 1, ref 2 Levine, Tammy, ref 1, ref 2 Lewis, Will, ref 1, ref 2 Libor scandal, ref 1, ref 2 Lilley, Peter, ref 1 Linklaters, ref 1 Lippens, Maurice, ref 1, ref 2 Lloyds, ref 1, ref 2, ref 3 Lloyds TSB, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10 growing profits of, ref 1 Location, Location, Location, ref 1 Lombard, ref 1, ref 2 London Stock Exchange, ref 1, ref 2 and 1987 crash, ref 1 trading suspended twice by, ref 1 Long-Term Capital Management, ref 1, ref 2 Love, Charles, ref 1 M&G, ref 1 McCain, John, ref 1 McCarthy, Callum, ref 1, ref 2, ref 3, ref 4 McCarthy, Cormac, ref 1 McConnell, Jack, ref 1, ref 2 McDonald, Sheena, ref 1 McGinnis, Bob, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 MacHale, Joe, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8 McInnes, Bob, ref 1 McKillop, Tom, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11, ref 12, ref 13, ref 14 and ABN Amro, ref 1, ref 2, ref 3, ref 4, ref 5 apology of, ref 1 bailout terms heard by, ref 1 board views sought by, ref 1 confirmed as RBS chairman, ref 1 and FG possible departure, ref 1 and FG tenure, ref 1 and FSA, ref 1 RBS arrival of, ref 1 RBS chairmanship assumed by, ref 1 and RBS collapse, ref 1, ref 2, ref 3 and RBS losses, ref 1 removal of, from RBS, ref 1 Telegraph story on, ref 1 McKinsey, ref 1, ref 2, ref 3 McLaughlin, Andrew, ref 1 McLean, Miller, ref 1, ref 2, ref 3, ref 4, ref 5 MacLeod, Catherine, ref 1, ref 2 McLuskie, Norman, ref 1, ref 2 McPhail, Cameron, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6 MacPherson, Nick, ref 1, ref 2, ref 3 Major, John, ref 1, ref 2 Masterson, Gavin, ref 1 Matera, Fred, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6 Mathewson, George, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11, ref 12 passim, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 and bank HQ, ref 1 becomes deputy group chief executive, ref 1 FG compared with, ref 1 FG wooed by, ref 1 FG moving on denied by, ref 1 FG rows with, ref 1, ref 2 FSA complains to, ref 1 at Gogarburn opening, ref 1 and HSBC secret talks, ref 1 knighthood of, ref 1 large office of, ref 1 losses of, ref 1 and NatWest, ref 1, ref 2, ref 3 portrait of, ref 1 prepares for retirement, ref 1 passim private jet used by, ref 1 RBS arrival of, ref 1 and RBS rights issue, ref 1 as Salmond adviser, ref 1 stands aside, ref 1 and Tosca, ref 1, ref 2 see also Royal Bank of Scotland Maxton, James, ref 1 Medford Bancorp, ref 1 Mellon Financial, ref 1 Mercury Asset Management (MAM), ref 1 Merrill Lynch, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9 banking and insurance conference of, ref 1, ref 2, ref 3 Meyer, Anthony, ref 1 Michael Laird, ref 1 Midland Bank, ref 1 Miliband, Ed, ref 1 Milton, Lord, ref 1 Monaco Grand Prix, ref 1 Money and the Mechanism of Exchange (Jevons), ref 1 Monopolies and Mergers Commission, ref 1 Moody, Howard, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8 Moody, ref 1, ref 2, ref 3 Moore, Paul, ref 1 Morgan Grenfell, ref 1 Morgan Stanley, ref 1 Morrison, Peter, ref 1 Mosson, Mike, ref 1 Motson, John, ref 1 Mozilo, Angelo, ref 1 Murray, Andy, ref 1 Myners, Lord (Paul), ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 NASDAQ, ref 1 Nathaniel, Peter, ref 1 National Audit Office, ref 1 National Australia Bank, ref 1, ref 2, ref 3, ref 4, ref 5 National Bank, ref 1 National Commercial, ref 1, ref 2 National Health Service, Brown seeks to protect, ref 1 National Provincial, ref 1 Nationwide, ref 1 NatWest, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11 and Enron, ref 1 and Fastow deal, ref 1 FG assurance to staff of, ref 1 integration of, ref 1, ref 2, ref 3 RBS launches hostile bid for, ref 1 RBS wins battle for, ref 1, ref 2, ref 3 Neale, James, Fordyce and Downe, ref 1 New Century Financial Corporation, ref 1 New Edinburgh, founding of, ref 1 New Labour, see Labour News International, ref 1 Newsweek, ref 1 Nicklaus, Jack, ref 1 9/11, ref 1 Noble Grossart, ref 1 Norman, Montagu, ref 1 North Sea oil, ref 1 Northern Rock, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8 battle-hardening effect of, ref 1 Obama, Barack, ref 1 Open Championship, ref 1 Orcel, Andrea, ref 1 O’Roarke, John, ref 1 Osborne, George, ref 1, ref 2, ref 3 Panama Canal, ref 1 Paterson, William, ref 1, ref 2, ref 3, ref 4, ref 5 Paulson, Hank, ref 1 Paulson, John, ref 1 payment-protection insurance (PPI), ref 1, ref 2, ref 3, ref 4, ref 5 Pell, Gordon, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10 personal debt, ref 1 Peston, Robert, ref 1, ref 2, ref 3, ref 4 Philip, Prince, Duke of Edinburgh, ref 1 Phillips & Drew, ref 1 Phillips, Peter, ref 1 Phillips, Zara, ref 1 Pickford, Steve, ref 1 Port Financial Corporation, ref 1 Prince Trust, ref 1 Project Columbus, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 property prices, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11 see also sub-prime mortgages Prudential Regulation Authority, ref 1, ref 2 ‘Prufrock’, ref 1 Punta Escocés (Scottish Point), ref 1 Purves, Willie, ref 1, ref 2 Putin, Vladimir, ref 1 PWC, ref 1, ref 2 Rafferty, Jim, ref 1 Randall, Jeff, ref 1 RBS, see Royal Bank of Scotland RBS Americas, ref 1, ref 2, ref 3 RBS Greenwich, ref 1, ref 2, ref 3, ref 4 new premises of, ref 1 see also Greenwich Capital RBS Insurance, ref 1 Reagan, Nancy, ref 1 Reagan, Ronald, ref 1 Rebonato, Riccardo, ref 1, ref 2 Reid, John, ref 1 Rell, Jodi, ref 1 Retail Direct, ref 1 Richardson, Gordon, ref 1 Rick, Steve, ref 1, ref 2 Rob Roy, ref 1 Robert Fleming & Co., ref 1 Robertson, Iain, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6 Robertson, Leith, ref 1, ref 2, ref 3, ref 4, ref 5 Robson, Steve, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10 FG recklessness worries, ref 1 Roden, Neil, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6 Roosevelt, Theodore, ref 1 Rosenfield, Dan, ref 1, ref 2, ref 3, ref 4 Rosyth Dockyard, ref 1 Rowland, David, ref 1, ref 2, ref 3, ref 4 Roxborough Manayunk Bank, ref 1 Royal Bank Group, ref 1 Royal Bank International, ref 1 Royal Bank of Scotland (RBS): and ABN Amro, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9 acquisitions of, ref 1, ref 2, ref 3, ref 4, ref 5 aggressive targets set at, ref 1 auditing of, ref 1, ref 2 away days of, ref 1, ref 2 bailouts of, ref 1, ref 2, ref 3 passim, ref 1, ref 2 balance sheets of, ref 1, ref 2, ref 3 Bank of Scotland early rivalry with, ref 1 becomes Scotland biggest, ref 1 bets against, ref 1 bicentenary of, ref 1 bids for Birmingham and Midshires, ref 1 and car dealership, ref 1 cash-credit system refined by, ref 1 Christmas lunches at, ref 1 and Citizens Bank, see Citizens Bank City editors’ meeting with, ref 1 compensation claim against, ref 1 confused reporting lines in, ref 1 Corporate Banking and Financial Markets (CBFM) within, ref 1, ref 2, ref 3 Corporate Banking and Financial Markets within, ref 1, ref 2 corporate carnage in, ref 1 depositors move money out of, ref 1, ref 2, ref 3 early Edinburgh premises of, ref 1 early rivals of, ref 1 Edinburgh booms because of, ref 1 and ‘efficient capital’, ref 1 exposure of, ref 1, ref 2, ref 3, ref 4, ref 5 extraordinary general meeting of, ref 1 falling share price of, ref 1, ref 2 FG arrives at, ref 1 FG becomes CEO of, ref 1 FG first year at, ref 1 financial monster, ref 1 fines paid by, ref 1 first governor of, ref 1 and Forbes, ref 1 founding of, ref 1, ref 2, ref 3, ref 4 and FSA, ref 1, ref 2 on FSA watch-list, ref 1 FSA failure to investigate, ref 1, ref 2 FSA post-collapse meeting with, ref 1 Global Banking & Markets (GBM) within, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10, ref 11, ref 12, ref 13, ref 14, ref 15, ref 16, ref 17, ref 18, ref 19, ref 20 Gogarburn premises of, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6 growing profits of, ref 1 Hampton verdict on, ref 1 Harvard study on, ref 1, ref 2 Hester becomes CEO of, ref 1 Hester verdict on, ref 1, ref 2 history of (20C), ref 1 passim; see also Royal Bank of Scotland: originsand early history of horrific annual results of (2009), ref 1 HSBC in secret talks with, ref 1 investment-banking division of, ref 1 and Irish banks’ meltdown, ref 1 as joint stock-bank, ref 1 lagging share price of, ref 1 lay-offs from, ref 1 liquidity concerns of, ref 1, ref 2, ref 3, ref 4, ref 5 losses of, ref 1, ref 2, ref 3 McKillop arrives at, ref 1 McKillop assumes chairmanship of, ref 1 McKillop confirmed as chairman of, ref 1 ‘Make it Happen’ slogan of, ref 1, ref 2 market turbulence worries, ref 1 Mathewson arrives at, ref 1 Mathewson invites FG to, ref 1 modern British banking pioneered by, ref 1 morning meetings at, ref 1, ref 2, ref 3 and NatWest, ref 1, ref 2, ref 3, ref 4, ref 5 and NatWest integration, ref 1, ref 2, ref 3 new Bishopsgate offices of, ref 1 new chairman sought by, ref 1 New York office of, ref 1 opens for business, ref 1 origins and early history of, ref 1; see also Royal Bank of Scotland: history of (20C) overdraft invented by, ref 1 overextension of (1830s), ref 1 privatisation of, ref 1, ref 2 profits rises of, ref 1, ref 2, ref 3, ref 4, ref 5 profits warning by, ref 1 and Project Columbus, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7 promotion for women in, ref 1 in Queen Gogarburn speech, ref 1 ratings agencies’ downgrading of, ref 1 ‘RBS’ becomes preferred name of, ref 1 reconstruction of, ref 1 rights issue of, ref 1, ref 2, ref 3 sports sponsorship by, ref 1 sub-prime mess entered by, ref 1 ‘sues for peace’, ref 1 tier 1 capital of, ref 1, ref 2 twice-suspended shares of, ref 1, ref 2 wholesale reorganisation of, ref 1 widening funding gap of, ref 1 Younger becomes chairman of, ref 1 Younger enters, ref 1 see also Goodwin, Fred; Mathewson, George; RBS Americas; RBS Greenwich; RBS Insurance Rumsfeld, Donald, ref 1 Salmond, Alex, ref 1, ref 2, ref 3, ref 4 Salomon Brothers, ref 1, ref 2 Samuels, Simon, ref 1 Sandler, Ron, ref 1 Santander, ref 1, ref 2, ref 3, ref 4, ref 5 Sants, Hector, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6 Schofield, Tony, ref 1, ref 2 Scholar, Tom, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6 Schroders, ref 1 Scotsman, ref 1, ref 2, ref 3 Scott, Bob, ref 1, ref 2, ref 3, ref 4, ref 5 bailout terms heard by, ref 1 Scottish Development Agency (SDA), ref 1 Scottish Enlightenment, ref 1, ref 2, ref 3 Scottish National Party (SNP), ref 1 Scottish Parliament, opening of, ref 1 Scottish Point (Punta Escocés), ref 1 Scottish Reformation, ref 1 Securities and Investments Board (SIB), ref 1 S.G.


pages: 706 words: 206,202

Den of Thieves by James B. Stewart

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Bear Stearns, Black Monday: stock market crash in 1987, book value, Carl Icahn, corporate raider, creative destruction, deal flow, discounted cash flows, diversified portfolio, fixed income, fudge factor, George Gilder, index arbitrage, Internet Archive, Irwin Jacobs, junk bonds, margin call, Michael Milken, money market fund, Oscar Wyatt, Ponzi scheme, rolodex, Ronald Reagan, Savings and loan crisis, shareholder value, South Sea Bubble, Tax Reform Act of 1986, The Predators' Ball, walking around money, zero-coupon bond

"We'll put a fund together like KKR and you'll run it," Milken oflfered. They raised $1 billion, and Winnick launched Pacific Asset Holdings. Winnick was soon disabused of the illusion that he'd escaped Milken. When Bear, Stearns brought him a potential LBO that interested him, Ackerman called from Drexel to tell him to forget about doing any deal that didn't come from Milken. "It's our fund," Acker-man said arrogantly. "We won't let you invest" in the Bear, Stearns deal. Winnick's capital simply became another pool for Milken to manipulate for his own ends. Others also complained after warrants from the Beatrice deal were cashed in. The proceeds turned out to be far less than expected, and some of the employees summoned the courage to complain at a department meeting.

But colleagues say it was Seema who fell in love with and tracked after Boesky after meeting him in June 1960. A relative of hers, a federal district court judge, hired him for a one-year clerkship. Boesky and Seema were married soon after and had their first child, Billy. When a Cranbrook wrestling teammate working at Bear, Stearns in New York told Boesky about arbitrage, he decided to make his fortune on Wall Street. Colleagues recall Boesky's feeling that Detroit was too small and confined for his ambitions. Boesky's father-in-law installed Ivan and Seema in an elegant Park Avenue apartment. Boesky landed a job as a trainee at L.

Boesky called Mulheren, convinced that Mulheren was talking to his friend Pickens. "What's going on?" Boesky demanded. "I don't have any idea," Mulheren replied, the deal far from his mind. Boesky yelled, insisting that Mulheren was in contact with Pickens. Other Wall Streeters called Mulheren regularly, urging him to return to work. Alan C. ("Ace") Greenberg, the head of Bear, Stearns & Co., made a strenuous effort to hire Mulheren. But Mulheren turned them all down, preferring to dabble in real estate and cavort with Springsteen. When Springsteen started to prepare for his 1985 "Born in the U.S.A." tour, however, Mulheren started getting restless. Springsteen would soon be out of town and unavailable.


pages: 309 words: 85,584

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

Alan Greenspan, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, Brexit referendum, British Empire, capital controls, congestion charging, deindustrialization, Donald Trump, Etonian, eurozone crisis, Fall of the Berlin Wall, financial engineering, financial innovation, financial thriller, floating exchange rates, foreign exchange controls, full employment, gig economy, inflation targeting, Jeremy Corbyn, Just-in-time delivery, light touch regulation, liquidity trap, low interest rates, Martin Wolf, military-industrial complex, moral hazard, negative equity, Neil Kinnock, Nixon triggered the end of the Bretton Woods system, 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, Suez crisis 1956, The Chicago School, transaction costs, tulip mania, Winter of Discontent, Yom Kippur War

Indeed, the crisis had not begun with Northern Rock in August 2007. Although there were plenty of post-mortems and recriminations about the deficiencies of the British tripartite regulatory model, Brown, Darling and King were not responsible for the way that the US sub-prime crisis and the bursting of the US housing bubble led to the onset of the Bear Stearns collapse on 17 July 2007 and the ramifications in Europe. I myself first became aware of the international repercussions when on holiday at our annual retreat in Puyméras, the heart of Côtes du Rhône country, near Gigondas and Chateauneuf du Pape. On 9 August, the French bank BNP Paribas froze three of its investment funds.

Of all the quotes I have waded through in thousands of pages on the crisis, the one that seemed to capture it most was by the Conservative MP for Hereford, Jesse Norman: ‘I can tell you precisely what was responsible for the crash. It was because bank leverage, which was twenty times capital in 2000, went up to fifty times in seven years.’ The big development after Bear Stearns was that the financial markets seized up. Nobody trusted anybody: if those in charge of one vulnerable organisation knew about their problem, they naturally assumed – unfortunately, with good reason – that others were in the same boat. The culture of risk-taking at RBS was astonishing. So too was the level of arrogance and ignorance.

INDEX ‘Abacus’ column 1 Abedi, Agha Hasan 1 ABN Amro 1 Adonis, Andrew 1 The Affluent Society 1, 2 Age of Austerity 1 Aitken, Ian 1 All Change in the City 1 Allen, Sir Douglas 1, 2, 3 Alliance Building Society 1 Alton, Roger 1 Anderson, Robert O. 1 Archer, Jeffrey 1 Armstrong, Robert 1 Armstrong, Sir William 1, 2, 3, 4 Astor, David 1, 2 Atatürk, Kemal 1 Atlantic Richfield 1, 2, 3 Attlee, Clement 1, 2, 3, 4 austerity policies 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 impact on EU referendum result 1, 2, 3 balance of payments 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 Balli Group 1, 2 Balls, Ed 1, 2, 3, 4, 5 Balogh, Thomas 1, 2, 3 Bank for International Settlements 1, 2 Bank of England 1, 2, 3, 4, 5, 6, 7 austerity policies 1, 2, 3 Black Wednesday 1, 2, 3, 4 devaluation crisis 1, 2 ERM entry 1, 2, 3, 4, 5 financial crisis 1, 2, 3 granted independence 1, 2, 3, 4, 5, 6 IMF crisis 1, 2, 3, 4, 5 Keegan at 1, 2, 3, 4, 5, 6 monetarism 1, 2, 3 secondary banking crisis 1, 2 Barber, Anthony 1, 2, 3, 4, 5, 6, 7 Barings 1, 2 Barnier, Michel 1 BBC 1, 2, 3 BCCI (Bank of Credit and Commerce International) 1, 2 Bear Stearns 1, 2 Bell, Martin 1 Benn, Tony 1, 2, 3, 4, 5 Bérégovoy, Pierre 1 Berrill, Sir Kenneth 1, 2 Bevis, Donald 1 Beyond the Fringe 1 Birch, Nigel 1 Bispham, John 1 Black Wednesday (1992) 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15 Blair, Tony 1, 2, 3, 4, 5, 6, 7 Iraq War 1, 2, 3, 4 relationship with Brown 1, 2, 3, 4 Bloomberg, Michael 1 Blunden, Sir George 1 Blunt, Sir Anthony 1 BNP Paribas 1 Board of Trade 1, 2, 3 Bootle, Roger 1 Bow Group 1 Bower, Tom 1 Boyle, Andrew 1 Bretton Woods system 1, 2, 3, 4, 5, 6, 7 Brexit 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 Brexit: How Britain Will Leave Europe 1 Britain Without Oil 1 Brittan, Sir Samuel 1, 2, 3, 4, 5, 6, 7 Brown, George 1 Brown, Gordon 1, 2, 3, 4, 5, 6, 7, 8, 9 Bank of England independence 1, 2, 3, 4, 5 financial crisis 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 Healey on 1, 2, 3, 4 Lawson on 1, 2 proposed IMF candidature 1, 2 relationship with Blair 1, 2, 3, 4 single currency 1, 2, 3 Brown, Richard 1 BSA (Birmingham Small Arms) 1 Budd, Sir Alan 1, 2 Buiter, Willem 1 Bundesbank 1, 2, 3, 4, 5, 6, 7, 8, 9 Burke, Edmund 1 Burnet, Alastair 1 Burns, Sir Terence 1, 2, 3 Bush, George W. 1, 2, 3 Butler, Sir Robin 1 Byrne, Liam 1 Cairncross, Sir Alec 1, 2, 3, 4 Callaghan, James 1, 2, 3, 4, 5, 6, 7, 8, 9 becomes PM 1 decimalisation 1, 2 devaluation crisis 1, 2, 3, 4, 5, 6 IMF crisis 1, 2, 3, 4, 5, 6, 7 Winter of Discontent 1 ‘Cambridge Five’ 1 Cameron, David 1, 2, 3 austerity policies 1, 2, 3, 4 EU referendum 1, 2, 3, 4, 5, 6, 7, 8 relationship with Osborne 1, 2 Carney, Mark 1, 2 Castle, Barbara 1, 2 CBI (Confederation of British Industry) 1, 2 Centre for Policy Studies 1 Chambers, Sir Paul 1 The Chancellors: A History of the Chancellors of the Exchequer 1, 2, 3 The Chancellors’ Tales 1, 2 Chote, Robert 1, 2 Chronicle 1 Churchill, Winston 1, 2 Clarke, Kenneth 1, 2, 3, 4, 5, 6, 7, 8 Observer interview 1 Clegg Awards 1, 2 Clegg, Nick 1 Cockfield, Lord 1 Cole, John 1, 2, 3 Collin, Bob 1 ‘Competition and Credit Control’ 1 Cook, Robin 1 Corbyn, Jeremy 1, 2, 3 Cork Weekly Examiner 1, 2, 3 Crawford, Malcolm 1, 2 Crockett, Andrew 1 Cromer, Lord 1, 2, 3, 4 Crosland, Tony 1, 2, 3 customs union 1, 2, 3, 4, 5 Daily Herald 1 Daily Mail 1, 2, 3, 4 Dale, Reginald 1, 2 Darling, Alistair 1, 2, 3, 4 ‘dash for growth’ 1, 2, 3, 4, 5, 6 Davies, John 1, 2 Davis, David 1, 2 Day, Alan 1 Day, Sir Robin 1 DCE (domestic credit expansion) 1 DEA (Department of Economic Affairs) 1, 2 Dean, Marjorie 1 decimalisation 1 Decline to Fall 1 Dell, Edmund 1, 2, 3, 4 Delors, Jacques 1 devaluation crisis (1967) 1, 2, 3, 4, 5, 6, 7 Dicks-Mireaux, Leslie 1 Dobb, Maurice 1 Donoughue, Bernard 1, 2 Douglas-Home, Alec 1 Dow, Christopher 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 The Drinking Man’s Diet 1 Drogheda, Lord 1 Economic Affairs Committee 1 The Economist 1 Eden, Sir Anthony 1, 2 EEC (European Economic Community) 1, 2, 3, 4, 5, 6, 7, 8, 9 Eisenhower, Dwight D. 1 Emminger, Otmar 1, 2 EMS (European Monetary System) 1, 2, 3, 4, 5 EMU (economic and monetary union) 1 ERM (exchange rate mechanism) 1, 2, 3, 4, 5, 6, 7, 8 Black Wednesday 1, 2 Lawson 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16 Major 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 Thatcher 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16 EU referendum 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 impact of austerity policies 1, 2, 3 European Central Bank 1, 2 European Commission 1, 2, 3 Evans, Alun 1 ‘Expansionary Fiscal Contraction’ 1, 2 Fabra, Paul 1 Falklands War (1982) 1, 2, 3 The Fall of Heath 1 Fannie Mae 1 Farage, Nigel 1 Fay, Stephen 1, 2 FCO (Foreign and Commonwealth Office) 1 Federal Reserve 1, 2, 3, 4 Fildes, Christopher 1, 2 financial crisis (2007–09) 1, 2, 3, 4, 5, 6 Financial Times 1, 2, 3, 4, 5 austerity policies 1, 2 devaluation crisis 1, 2 financial crisis 1, 2, 3 IMF crisis 1, 2, 3 job offers 1, 2 Keegan at 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 Fisher, Fredy 1, 2, 3 ‘five tests’ 1, 2 Foot, Michael 1, 2, 3, 4 Foot, Paul 1 Ford, Gerald 1, 2, 3 Freddie Mac 1 French, Philip 1 Friedman, Milton 1, 2, 3, 4 From Bevan to Blair 1 Fry, Richard 1, 2, 3 FSA (Financial Services Authority) 1, 2, 3, 4, 5 Galbraith, J.


pages: 285 words: 86,174

Twilight of the Elites: America After Meritocracy by Chris Hayes

"Hurricane Katrina" Superdome, "World Economic Forum" Davos, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, carried interest, circulation of elites, Climategate, Climatic Research Unit, collapse of Lehman Brothers, collective bargaining, creative destruction, Credit Default Swap, dark matter, David Brooks, David Graeber, deindustrialization, Fall of the Berlin Wall, financial deregulation, fixed income, full employment, George Akerlof, Gunnar Myrdal, hiring and firing, income inequality, Jane Jacobs, jimmy wales, Julian Assange, Kenneth Arrow, Mark Zuckerberg, mass affluent, mass incarceration, means of production, meritocracy, meta-analysis, military-industrial complex, money market fund, moral hazard, Naomi Klein, Nate Silver, peak oil, plutocrats, Ponzi scheme, post-truth, radical decentralization, Ralph Waldo Emerson, rolodex, Savings and loan crisis, The Spirit Level, too big to fail, University of East Anglia, Vilfredo Pareto, We are the 99%, WikiLeaks, women in the workforce

And yet, as The Daily Show’s Jon Stewart famously pointed out, this didn’t prevent Cramer from missing the single most important story on Wall Street, the unsustainable securitization machine that pumped up the housing bubble and led to the crisis. In the spring of 2007, seven weeks before Bear Stearns began its slide toward oblivion, Cramer told his audience “to buy Bear Stearns.” He continued: CRAMER: I just think that this one has a very big upside, very limited downside. I think that that last quarter they’ve staunched the losses—they’re very good at cutting their losses at Bear. But Bear I believe is for sale and there are many buyers.

Mance, “Employment Loss and the 2007-2009 Recession: An Overview,” Monthly Labor Review, April 2011, pp. 3-12, http://www.bls.gov/opub/mlr/2011/04/art1full.pdf, accessed January 9, 2012. 9 Ken Lewis of Bank of America: See Colin Barr, “BofA CEO: $53 Million Retirement Score,” CNNMoney, October 2, 2009, http://money.cnn.com/2009/10/01/news/newsmakers/lewis.payout.fortune/index.htm, accessed January 9, 2012. 10 Even Dick Fuld: See Lucian A. Bebchuk et al., “The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000–2008,” Yale Journal on Regulation 27 (2010): 257–82. This article estimates that Fuld earned $461 million from the sale of more than 12 million shares of Lehman stock. 11 America incarcerates a larger percentage of its citizens … With less than 5 percent of the world’s population, we account for nearly 25 percent of the world’s prison population: Cited in Adam Liptak, “Inmate Count in U.S.


pages: 481 words: 120,693

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

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, algorithmic trading, assortative mating, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, behavioural economics, Bernie Madoff, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Black Swan, Boris Johnson, Branko Milanovic, Bretton Woods, BRICs, Bullingdon Club, business climate, call centre, carried interest, Cass Sunstein, Clayton Christensen, collapse of Lehman Brothers, commoditize, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Deng Xiaoping, disruptive innovation, don't be evil, double helix, energy security, estate planning, experimental subject, financial deregulation, financial engineering, financial innovation, Flash crash, Ford Model T, Frank Gehry, Gini coefficient, Glass-Steagall Act, global village, Goldman Sachs: Vampire Squid, Gordon Gekko, Guggenheim Bilbao, haute couture, high net worth, income inequality, invention of the steam engine, job automation, John Markoff, joint-stock company, Joseph Schumpeter, knowledge economy, knowledge worker, liberation theology, light touch regulation, linear programming, London Whale, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Max Levchin, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, NetJets, new economy, Occupy movement, open economy, Peter Thiel, place-making, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, postindustrial economy, Potemkin village, profit motive, public intellectual, purchasing power parity, race to the bottom, rent-seeking, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, self-driving car, seminal paper, Sheryl Sandberg, short selling, Silicon Valley, Silicon Valley billionaire, Silicon Valley startup, Simon Kuznets, sovereign wealth fund, starchitect, stem cell, Steve Jobs, TED Talk, the long tail, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tony Hsieh, too big to fail, trade route, trickle-down economics, Tyler Cowen: Great Stagnation, wage slave, Washington Consensus, winner-take-all economy, zero-sum game

Under his stewardship, JPMorgan, which is essentially a creature of Dimon’s deal-making genius, deftly avoided many of the most toxic assets that wrecked the balance sheets of other Wall Street firms. Dimon’s JPMorgan was strong enough to help Tim Geithner, then head of the New York Fed, in March 2008 by saving Bear Stearns (admittedly at a fire sale price); Dimon even left his own star-studded fifty-second birthday party to make the transaction happen. Dimon insisted from the start that his bank took the TARP bailout money only as a favor to the Treasury, which worried that unless the rescue was collective it would further stigmatize Wall Street’s weakest players.

“The Fed listens to Wall Street and believes what it hears” Willem H. Buiter, “Central Banks and Financial Crises,” Federal Reserve Bank of Kansas City’s Maintaining Stability in a Changing Financial System symposium, Jackson Hole, Wyoming, August 23, 2008. Dimon even left his own star-studded fifty-second Kate Kelly, “Inside the Fall of Bear Stearns,” Wall Street Journal, May 9, 2009. President Obama’s favorite banker Jackie Calmes and Louise Story, “In Washington, One Bank Chief Still Holds Sway,” New York Times, July 18, 2009. “Most of the bad actors are gone” “What Dimon Told Bernanke,” New York Times Dealbook, June 8, 2011. “My daughter called me from school one day” Sewell Chan, “Voices That Dominate Wall Street Take a Meeker Tone on Capitol Hill,” New York Times, January 13, 2010.

“Jobs and Income Growth of the Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data.” Working paper. April 2012. Bartels, Larry M. Unequal Democracy: The Political Economy of the New Gilded Age. Princeton University Press, 2008. Bebchuk, Lucian A., Alma Cohen, and Holger Spamann. “The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000–2008.” Yale Journal on Regulation 27 (2010). pp. 257–82. Bebchuk, Lucian A., and Yaniv Grinstein. “The Growth of Executive Pay.” Oxford Review of Economic Policy 21:2 (2005). pp. 283–303. Beckert, Sven. The Monied Metropolis: New York City and the Consolidation of the American Bourgeoisie, 1850–1896.


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

Bear Stearns, Bernie Sanders, Black Monday: stock market crash in 1987, call centre, centralized clearinghouse, computerized trading, Credit Default Swap, Downton Abbey, eat what you kill, electricity market, Flash crash, Glass-Steagall Act, Goldman Sachs: Vampire Squid, information asymmetry, interest rate derivative, interest rate swap, London Interbank Offered Rate, London Whale, Long Term Capital Management, Michael Milken, Navinder Sarao, Nick Leeson, Northern Rock, Occupy movement, performance metric, profit maximization, proprietary trading, Savings and loan crisis, tulip mania, work culture , zero-sum game

In the United States, a law imposed in the wake of the Great Depression that prohibited commercial banks from partaking in investment banking activity was repealed, paving the way for the creation of megabanks like Citigroup whose trillion-dollar balance sheets allowed the placement of massive wagers with the banks’ (or, more precisely, its investors’ and customers’) own money. Another factor was that, over the past couple of decades, many old Wall Street partnerships—firms like Goldman Sachs, Bear Stearns, Lehman Brothers, and Morgan Stanley, which had been owned by a small group of their uppermost, longest-serving employees—had converted into publicly traded companies. That allowed the firms’ partners to cash in on their ownership stakes, catapulting some of them to near-billionaire status. But it also meant that the companies became accountable to a new class of owners, many of whom demanded to see profits grow quarter after quarter, year after year.

It was a rare moment of recognition by Hayes of his job’s connection to the real world of ordinary people and their bank accounts. Hayes’s father, too, came calling, seeking counsel for his new pastime as an amateur investor. There were few things Tom Hayes was happier to talk about, and he happened to have a bright idea: Hayes had a friend who worked at Bear Stearns. Its longtime CEO, the pot-smoking, bridge-playing Jimmy Cayne, had gambled on instruments linked to the U.S. housing market, and the friend was convinced that his firm was circling the drain. His analysis struck Hayes as persuasive, so he told his dad to place a bet that Bear’s shares had further to fall.

For the past several months, Peng had been picking up unsettling chatter about problems with the interest-rate benchmark. The financial crisis was intensifying, banks were paying more to borrow money, and yet Libor wasn’t budging. That didn’t make any sense—those borrowing costs were what the benchmark was supposed to be measuring. At that point, the market gossip was nothing more than hearsay. Then, in March, Bear Stearns collapsed. Central banks in several countries launched aggressive plans to try to stabilize the teetering financial system. One weapon in the Federal Reserve’s arsenal was doling out billions of dollars in loans to cash-strapped banks. The banks had to bid for the loans, and the prices they paid were made public.


pages: 297 words: 91,141

Market Sense and Nonsense by Jack D. Schwager

3Com Palm IPO, asset allocation, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Brownian motion, buy and hold, collateralized debt obligation, commodity trading advisor, computerized trading, conceptual framework, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, fixed income, global macro, high net worth, implied volatility, index arbitrage, index fund, Jim Simons, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, managed futures, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, merger arbitrage, negative equity, pattern recognition, performance metric, pets.com, Ponzi scheme, proprietary trading, quantitative trading / quantitative finance, random walk, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, selection bias, Sharpe ratio, short selling, statistical arbitrage, statistical model, subprime mortgage crisis, survivorship bias, tail risk, transaction costs, two-sided market, value at risk, yield curve

Stewart then proceeded to play a sequence of CNBC clips highlighting some of the most embarrassingly erroneous forecasts and advice made by multiple CNBC commentators, each followed by a white type on black screen update. The segments included: Jim Cramer, the host of Mad Money, answering a viewer’s question by emphatically declaring, “Bear Stearns is fine! Keep your money where it is.” A black screen followed: “Bear Stearns went under six days later.” A Power Lunch commentator extolling the financial strength of Lehman Brothers saying, “Lehman is no Bear Stearns.” Black screen: “Lehman Brothers went under three months later.” Jim Cramer on October 4, 2007, enthusiastically recommending, “Bank of America is going to $60 in a heartbeat.” Black screen: “Today Bank of America trades under $4.”


pages: 262 words: 93,987

The Buy Side: A Wall Street Trader's Tale of Spectacular Excess by Turney Duff

asset-backed security, Bear Stearns, Berlin Wall, buy low sell high, collateralized debt obligation, fixed income, Gordon Gekko, high net worth, proprietary trading, urban sprawl, white picket fence

He smiles and nods a lot. He has a thick brown mustache and eyes to match. I doubt he got many chicks at all. “I hear orange is the new black,” Vinnie says, pumping my hand. “Great to finally meet you.” Over the next few hours I talk with people from all over the Street: Goldman, Morgan, Citi, Credit Suisse, Bear Stearns, Lehman, and on and on. And every conversation goes just about the same as the sales pitch I’m getting from Vinnie: “We have the best execution … We’re on the floor next to the Big Pharma specialists … We can do this … We can do that …” After a while, it all folds into one squawking disharmony.

He’d rather sell the market after it’s already down a percent or two than try to be a hero and call the top. In July we get short and Countrywide Financial, the biggest U.S. mortgage lender for single-family homes, reveals their delinquency rate has nearly doubled to almost 25 percent. As the housing prices plummet, more and more loans sink under sea level. Then, at the end of July, Bear Stearns announces that nearly all the value of two subprime hedge funds has vanished. The news is startling. It’s one thing when an overseas bank, such as HSBC, has problems, but another thing altogether when a firm on the Street has them. It’s like the SARS epidemic in Hong Kong. You feel sorry for the Chinese, but you’d feel a whole lot different if your neighbors started wearing surgical masks.

I order my first porn movie with the remote. I light up a cigarette. I snort the entire line and the rush immediately flushes to my head and then all over my body. It’s maybe a few days later, I can’t be sure. I’m at work, though, and I get an email from Gus. It’s a picture of a two-dollar bill taped above the Bear Stearns logo at their corporate headquarters. That’s how much J. P. Morgan paid for Bear’s stock, a stock that was worth $171 just a year before. I look around our office. The analysts are sitting silently, glued to their screens. Heather, the other trader, has a worried look on her face as she slumps low in her chair.


pages: 318 words: 91,957

The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America—and How to Undo His Legacy by David Gelles

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 3D printing, accounting loophole / creative accounting, Adam Neumann (WeWork), air traffic controllers' union, Alan Greenspan, Andrei Shleifer, Bear Stearns, benefit corporation, Bernie Sanders, Big Tech, big-box store, Black Monday: stock market crash in 1987, Boeing 737 MAX, call centre, carbon footprint, Carl Icahn, collateralized debt obligation, Colonization of Mars, company town, coronavirus, corporate governance, corporate raider, corporate social responsibility, COVID-19, Credit Default Swap, credit default swaps / collateralized debt obligations, disinformation, Donald Trump, financial deregulation, financial engineering, fulfillment center, gig economy, global supply chain, Gordon Gekko, greed is good, income inequality, inventory management, It's morning again in America, Jeff Bezos, junk bonds, Kaizen: continuous improvement, Kickstarter, Lean Startup, low interest rates, Lyft, manufacturing employment, Mark Zuckerberg, Michael Milken, Neil Armstrong, new economy, operational security, profit maximization, profit motive, public intellectual, QAnon, race to the bottom, Ralph Nader, remote working, Robert Bork, Ronald Reagan, Rutger Bregman, self-driving car, shareholder value, side hustle, Silicon Valley, six sigma, Social Responsibility of Business Is to Increase Its Profits, Steve Ballmer, stock buybacks, subprime mortgage crisis, TaskRabbit, technoutopianism, Travis Kalanick, Uber and Lyft, uber lyft, warehouse robotics, Watson beat the top human players on Jeopardy!, We are the 99%, WeWork, women in the workforce

But in time, remuneration for bankers and traders would skyrocket. And with money came talent. As Wall Street became the country’s new economic center of gravity, bright graduates from top universities no longer aspired to be doctors or lawyers. Instead, they wanted to join the pin-striped army and work at a company like Goldman Sachs, Lehman Brothers, Bear Stearns, or GE Capital. Near the end of Welch’s reign, Money magazine took stock of GE’s influence on the markets. “GE is exceptionally good at managing earnings, arguably better than any other company,” it wrote. “But it is hardly alone. On the contrary, managing earnings—and expectations—has become standard operating procedure in corporate America.

Just months before the economy’s darkest days he proclaimed, “Our financial businesses should do well in a year like 2008.” The next month, Immelt fielded questions from investors, and confidently assured them that—as always—the company was on track to meet or beat expectations when it reported earnings. But just three days later, the investment bank Bear Stearns collapsed, sending the first serious convulsions through the broader financial markets. In April 2008, GE reported first quarter profits far below Wall Street’s expectations. GE missed its target by $700 million—a catastrophic failure. “I was on the train, and I almost fell out of my seat,” said a top analyst who covered the company.

., 79–80, 176–78, 219 in stakeholder capitalism, 219 Antitrust Paradox, The (Bork), 38 Apple, 214 Apprentice, The (NBC TV program), 121, 135, 195 Arctic Cat, 77 Armco, 66–67 Armstrong, Neil, 22 Arpey, Gerard, 153 Arthur Andersen, 124 AT&T, 71, 169, 175–76, 177, 182, 221, 223 Avakian, Stephanie, 225 Baker, George Fisher, 184 Baldwin, Alec, 140 Ballmer, Steve, 102, 171 Bank of America, 144, 149, 214 Barra, Mary, 199 B Corp movement, 212–13 Bear Stearns, 67, 143–44 Beasley, Jane, 118–20 Belichick, Bill, 221 Bennett, Steve, 105–6 Bennett, William, 95 Bennis, Warren, 132 Bergers, David, 147–48 Berkshire Hathaway, 222 Berle, Adolf A., Jr., 24–25, 212 Bertelsmann, 51 Bethlehem Steel, 165 Bezos, Jeff, 134, 171–74, 184, 185, 222–23 Bezos Academy, 134 Bill and Melinda Gates Foundation, 133–34 Bin Hussain, Muath, 135 Black Monday (October 19, 1987), 53 BlackRock, 213–14 Blitzer, Wolf, 90–91 Bloomberg, Michael, 132–33 Blumenthal, Richard, 82 Blystone, John, 105 Boeing, 9, 75, 77, 86–90, 126–30, 137, 186–94, 203 bailout, 224 Business Jet Project, 102, 119 Dave Calhoun as CEO, 189, 190–94, 224 Congressional investigations of 737 Max, 156, 189, 194 Covid-19 pandemic and, 224 Ethiopian Airlines Flight 302 crash (2019), 187–89, 190, 194 headquarters relocation to Chicago, 88–89, 219 Leadership Center (near St.


pages: 165 words: 48,594

Democracy at Work: A Cure for Capitalism by Richard D. Wolff

asset-backed security, Bear Stearns, Bernie Madoff, business cycle, collective bargaining, Credit Default Swap, declining real wages, feminist movement, financial intermediation, Glass-Steagall Act, green new deal, Howard Zinn, income inequality, John Maynard Keynes: technological unemployment, laissez-faire capitalism, means of production, military-industrial complex, moral hazard, mortgage debt, Occupy movement, Ponzi scheme, profit maximization, quantitative easing, race to the bottom, Ronald Reagan, too big to fail, trickle-down economics, wage slave, women in the workforce, Works Progress Administration

Therefore, the owners of mortgage-backed securities (MBS) and other asset-backed securities (ABS) faced not only their declining values but also great uncertainty about what price they might fetch if and when a holder tried to sell them to anyone else. Uncertainty can destabilize markets even more than rapid price declines. Two huge investment banks, long active in the MBS market and large owners of MBS, collapsed in 2008. Bear Stearns was forced into a massively discounted handover of its assets to JPMorgan Chase, and Lehman Brothers was forced to declare bankruptcy. Their creditors, fearing the implications of the declining values of such investment banks’ ABS assets, demanded repayment of their loans and in other cases said they would not renew loans that were coming due.

As leading Keynesian economists kept lamenting, expansionary deficits were too little and too late. Therefore a disproportionate share of the burden of overcoming the crisis fell to monetary policy and to the Fed. Its chairman, Ben Bernanke, bemoaned that burden repeatedly. In March 2008, the Fed provided funds to JPMorgan Chase to buy out the investment bank Bear Stearns at a subsidized price. In September 2008, the Fed provided an $85 billion loan to AIG in return for an 80 percent stake in the company. This was crucial to reassure owners of CDS (insurance policies on ABS holdings) and all other participants in credit markets that the debts underlying ABS would be paid.


Risk Management in Trading by Davis Edwards

Abraham Maslow, asset allocation, asset-backed security, backtesting, Bear Stearns, Black-Scholes formula, Brownian motion, business cycle, computerized trading, correlation coefficient, Credit Default Swap, discrete time, diversified portfolio, financial engineering, fixed income, Glass-Steagall Act, global macro, implied volatility, intangible asset, interest rate swap, iterative process, John Meriwether, junk bonds, London Whale, Long Term Capital Management, low interest rates, margin call, Myron Scholes, Nick Leeson, p-value, paper trading, pattern recognition, proprietary trading, random walk, risk free rate, risk tolerance, risk/return, selection bias, shareholder value, Sharpe ratio, short selling, statistical arbitrage, statistical model, stochastic process, systematic trading, time value of money, transaction costs, value at risk, Wiener process, zero-coupon bond

Angela Edwards William Fellows Colin Edwards Matt Davis Barbara Sapienza Haseeb Khawaja Dan Gustafson Andrew Coleman Clint Carlin Alexander Abraham John Vickers Varun Chavali Andrew Dunn Kirat Dhillon Ken Parrish Iordanis Karagiannidis Contents Preface ix CHAPTER 1 Trading and Hedge Funds 1 CHAPTER 2 Financial Markets 33 CHAPTER 3 Financial Mathematics 61 CHAPTER 4 Backtesting and Trade Forensics 95 CHAPTER 5 Mark to Market 121 CHAPTER 6 Value-at-Risk 141 CHAPTER 7 Hedging 177 CHAPTER 8 Options, Greeks, and Non-Linear Risks 199 CHAPTER 9 Credit Value Adjustments (CVA) 237 vii viii CONTENTS Afterword 267 Answer Key 269 About the Author 299 Index 301 Preface I started learning about trading strategies and managing trading risk while working on statistical arbitrage trading desks at two investment banks— first at JP Morgan and later Bear Stearns. The core of the job was converting some type of analysis into an action. In other words, I had to use data to make a decision and think through the effects of those decisions. Over time, that most risk management is focused on analysis rather than making decisions. In most risk management texts, there is very little discussion on what decisions are made as the result of analysis.

This report was to be short—something that could be conveyed in a minute. It should be something that could be compared to the previous day’s report to indicate whether risk was rising or falling. But, mostly it had to concisely give information to business leaders to make trading decisions. When I was later managing a trading desk at Bear Stearns, and even later as a consultant, the intuition behind that first report—a concise summary designed to help managers make specific decisions—is contrasted against the analysis that I often observe being used—lengthy analysis not linked to any action steps. In one extreme case, I reviewed a daily risk management report that was more than 200 pages long.

EDWARDS, FRM, ERP, is a senior manager in Deloitte & Touche’s National Securities Pricing Center managing energy derivatives valuation. Prior to joining Deloitte, he was division director of credit risk at Macquarie Bank and senior managing director on the statistical arbitrage trading desk at Bear Stearns. He is a regular speaker on the topic of financial modeling and mathematics applied to real world problems. He is the author of the books Energy Trading and Investingg and Energy Investing Demystified. d Davis is director of the Houston chapter of the Global Association of Risk Professionals. 299 Index A ABS.


pages: 370 words: 102,823

Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato

Alan Greenspan, balance sheet recession, banking crisis, basic income, Bear Stearns, Bernie Sanders, Bretton Woods, business climate, business cycle, carbon tax, Carmen Reinhart, central bank independence, circular economy, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, degrowth, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, endogenous growth, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, Ford Model T, forward guidance, full employment, G4S, general purpose technology, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet of things, investor state dispute settlement, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, low interest rates, low skilled workers, Martin Wolf, mass incarceration, military-industrial complex, Modern Monetary Theory, Money creation, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, ocean acidification, paradox of thrift, Paul Samuelson, planned obsolescence, Post-Keynesian economics, price stability, private sector deleveraging, quantitative easing, QWERTY keyboard, railway mania, rent-seeking, road to serfdom, savings glut, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Solyndra, Steve Jobs, stock buybacks, systems thinking, the built environment, The Great Moderation, The Spirit Level, Thorstein Veblen, too big to fail, total factor productivity, Tragedy of the Commons, transaction costs, trickle-down economics, universal basic income, vertical integration, very high income

In the financial sector even more than in other industries, executive compensation in the aftermath of the crisis provided convincing evidence against marginal productivity theory as an explanation of wages at the top: the bankers who had brought their firms and the global economy to the brink of ruin continued to receive high rates of pay—compensation which in no way could be related either to their social contribution or even their contribution to the firms for which they worked (both of which were negative). For instance, a study that focused on Bear Sterns and Lehman Brothers in 2000–2008 has found that the top executive managers of these two giants had brought home huge amounts of ‘performance-based’ compensations (estimated at around $1 billion for Lehman and $1.4 billion for Bear Stearns), which were not clawed back when the two firms collapsed.32 Still another piece of evidence supporting the importance of rent-seeking in explaining the increase in inequality is provided by those studies that have shown that increases in taxes at the very top do not result in decreases in growth rates.

For a different view, see United States Government Accountability Office, Large Bank Holding Companies: Expectations of Government Support, 2014, GAO-14-621, Washington, DC, United States General Accounting Office, which argues that funding advantages existed before the recent financial crash but disappeared afterwards. 32 See L. Bebchuk, A. Cohen and A. Spamaan, ‘The wages of failure: executive compensation at Bear Stearns and Lehman 2000–2008’, Yale Journal on Regulation, vol. 27, 2010, pp. 257–82. 33 Philippon and Reshef, ‘Wages and human capital’. 34 This section is based on J. E. Stiglitz, New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals, 2015, NBER Working Paper 21191. 35 Ibid. 36 Though they may be reflected in GDP, and may be related in particular to the value of housing services. 37 See C.

Index A Acts of Parliament Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014 AIG Apple ARPA-E austerity policies Australia top earners B balanced budgets Bank of England banks bailouts banking crisis central emergency loans to investment loans by regulation rents reserves ‘shadow’ state investment banks Barro, Robert BBC Bear Stearns Bernanke, Ben biotechnology venture capitalists BNDES Bretton Woods agreements Brown, Gordon Buffett, Warren Bush, George, Jr C Canada average real wage index top earners unemployment capital, patient Capita Carney, Mark Cave, Tamsin Cheung, Steven N. S. China Development Bank (CDB) circular economy citizenship goods climate change and capitalism and economics and politics Paris Accord policy Club of Rome Cold War collective goods Compaq compensation contracts competition Japanese law limits perfect competition protected firms and sectors consumerism consumers behaviour benefits choice debt demand protection welfare corporate sector accountability debt financialisation Fortune 500 companies Fortune 1000 companies governance new public management (NPM) organisational models resource allocation D DARPA debt consumer corporate household hysteria private public short-term sovereign debt-to-GDP ratios decarbonisation and structural change democracy and capitalism election campaigns post-democratic politics Department of Defense Department of Energy Department of health developing countries devolution discrimination anti-discrimination laws displacement of peoples Dosi, Giovanni Draghi, Mario E economic and monetary union (EMU) economic growth and inequality and innovation and technology environmental concerns green growth zero growth economic policy and capitalism consensus-building macroeconomic policy monetary expansion reshaping economic theory economic models model of the firm neoclassical orthodox post-Keynesian education access to and skills efficiency employment growth ‘non-standard’ work energy sector storage technologies environmental impacts environmental risk damage degradation sustainability technologies euro zone debt-to-GDP ratio economic policy fiscal policy GDP growth government lending investment macroeconomic conditions private investment productivity growth recession southern countries sovereign debt unemployment European Central Bank (ECB) role European Exchange Rate Mechanism (ERM) European Investment Bank (EIB) proposed new European Fund for Investment European Regional Development Fund (ERDF) European Stability Mechanism European Union (EU) competition law debt-to-GDP ratio de-industrialisation GDP growth government lending Growth Compact investment-led recovery macroeconomic conditions monetary expansion policy framework private investment productivity growth Stability and Growth Pact unemployment executive pay F Federal Reserve financial crash of 1929 financial crash of 2008 financial markets borrowing discrimination efficient markets hypothesis mispricing short-termism systemic risks financial regulation Finland public innovation research and development universal basic income firms business models in perfect competition productive firm First World War fiscal austerity fiscal compact fiscal consolidation fiscal deficits fiscal policy fiscal tightening food insecurity Forstater, Matthew Fortune 500 companies Fortune 1000 firms fossil fuels fracking France average real wage index labour productivity growth private debt public deficit unemployment Freeman, Chris Friedman, Milton G G4S Gates, Bill Germany average real wage index GDP green technology investment state investment bank unemployment wages global financial system globalisation and welfare state asymmetric first golden age Godley, Wynne Goldman Sachs Goodfriend, Marvin Google governments and innovation deficits failures intervention by modernisation of risk-taking Graham, Benjamin Great Depression Greece austerity bailouts debt problems GDP investment activity public deficit unemployment green technology green direction for innovation greenhouse gas emissions Greenspan, Alan Grubb, Michael H Hatzius, Jan health and climate change older people Hirschman, Albert history Integration with theory home mortgage specialists household income housing purchases value I IBM income distribution industrial revolution inequality adverse effects and economic performance China ethnicity explanation for income international trend OECD countries opportunities redistributive policies reinforcement reversing rise taxation UK wealth inflation information and communications technologies (ICT) consumer demand green direction internet of things online education planned obsolescence innovation and climate change and companies and government and growth innovative enterprise path-dependence public sector institutions European financial role Intel interest rates and quantitative easing Intergovernmental Panel on Climate Change (IPCC) International Bank for Reconstruction and Development (IBRD) International Energy Agency (IEA) International Labour Organization (ILO) International Monetary Fund (IMF) Studies investment and theory of the firm crowding out decline in investment in innovation private private vs publicly owned firms public public–private investment partnerships investment-led growth Ireland debt problems investment activity Public deficit Israel public venture capital fund research and development Italy average real wage index debt problems GDP Income inequality unemployment J Japan average real wage index competitive advantage over US GDP wages Jobs, Steve Juncker, Jean-Claude K Kay Review Keynes, John Maynard KfW Knight, Frank Koo, Richard Krueger, Alan Krugman, Paul L labour markets insecurity of regulation structures United States labour productivity and wages declining growth public deficit unemployment Lehman Brothers Lerner, Abba liquidity crisis Lloyd George, David lobbying corporate M Maastricht Treaty Malthus, Thomas market economy theory markets behaviour failure uncertainty Marshall, Alfred Marx, Karl McCulley, Paul Merrill Lynch Mill, John Stuart Minsky, Hyman mission oriented investment monetary policy money and fiscal policy and macroeconomic policy bank money electronic transactions endogenous exogenous fiat money government bonds IOUs modern money theory quantity theory theories monopolies monopoly rents natural Moore, Gordon N NASA nanotechnology National Health Service (NHS) National Institutes of Health (NIH) national savings neoliberalism corporate Newman, Frank Newton, Isaac O Obama, Barack P patents patient capital patient finance see patient capital Penrose, Edith Piketty, Thomas PIMCO Pisano, Gary Polanyi, Karl Portugal austerity bailout debt problems GDP investment activity unemployment privatisation productivity marginal productivity theory productive firm unproductive firm – see also labour productivity public deficits public goods public organisations and change public policy and change evaluation role public service outsourcing public spending public–private investment partnerships Q quantitative easing quarterly capitalism R Reagan, Ronald recessions Reinhart, Carmen renewable energy policy rents and banks increase rent-seeking research and development (R&D) state organisations Ricardo, David risk-taking – mitigation of risk role of the state Rogoff, Kenneth Roosevelt, Franklin D.


pages: 289 words: 95,046

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis by Scott Patterson

"World Economic Forum" Davos, 2021 United States Capitol attack, 4chan, Alan Greenspan, Albert Einstein, asset allocation, backtesting, Bear Stearns, beat the dealer, behavioural economics, Benoit Mandelbrot, Bernie Madoff, Bernie Sanders, bitcoin, Bitcoin "FTX", Black Lives Matter, Black Monday: stock market crash in 1987, Black Swan, Black Swan Protection Protocol, Black-Scholes formula, blockchain, Bob Litterman, Boris Johnson, Brownian motion, butterfly effect, carbon footprint, carbon tax, Carl Icahn, centre right, clean tech, clean water, collapse of Lehman Brothers, Colonization of Mars, commodity super cycle, complexity theory, contact tracing, coronavirus, correlation does not imply causation, COVID-19, Credit Default Swap, cryptocurrency, Daniel Kahneman / Amos Tversky, decarbonisation, disinformation, diversification, Donald Trump, Doomsday Clock, Edward Lloyd's coffeehouse, effective altruism, Elliott wave, Elon Musk, energy transition, Eugene Fama: efficient market hypothesis, Extinction Rebellion, fear index, financial engineering, fixed income, Flash crash, Gail Bradbrook, George Floyd, global pandemic, global supply chain, Gordon Gekko, Greenspan put, Greta Thunberg, hindsight bias, index fund, interest rate derivative, Intergovernmental Panel on Climate Change (IPCC), Jeff Bezos, Jeffrey Epstein, Joan Didion, John von Neumann, junk bonds, Just-in-time delivery, lockdown, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, Mark Spitznagel, Mark Zuckerberg, market fundamentalism, mass immigration, megacity, Mikhail Gorbachev, Mohammed Bouazizi, money market fund, moral hazard, Murray Gell-Mann, Nick Bostrom, off-the-grid, panic early, Pershing Square Capital Management, Peter Singer: altruism, Ponzi scheme, power law, precautionary principle, prediction markets, proprietary trading, public intellectual, QAnon, quantitative easing, quantitative hedge fund, quantitative trading / quantitative finance, Ralph Nader, Ralph Nelson Elliott, random walk, Renaissance Technologies, rewilding, Richard Thaler, risk/return, road to serfdom, Ronald Reagan, Ronald Reagan: Tear down this wall, Rory Sutherland, Rupert Read, Sam Bankman-Fried, Silicon Valley, six sigma, smart contracts, social distancing, sovereign wealth fund, statistical arbitrage, statistical model, stem cell, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, systematic trading, tail risk, technoutopianism, The Chicago School, The Great Moderation, the scientific method, too big to fail, transaction costs, University of East Anglia, value at risk, Vanguard fund, We are as Gods, Whole Earth Catalog

Mindful of earthquakes, Spitznagel chose a relatively small bow-trussed building with a loft for his private office and a conference room overlooking the trading floor below. Universa launched to little fanfare in February 2007. Nearly all of its cash came from just two investors, an endowment, and a pension fund. Months later, a pair of hedge funds at Bear Stearns bloated with billions in subprime-mortgage assets imploded. It was the opening salvo of the Global Financial Crisis that would rock the world’s economy. * * * Spitznagel was wondering if he’d made a big mistake. He’d been taking lessons in qinna, an ancient Chinese martial art technique focused on locking an opponent’s joints and muscles so that they couldn’t move.

What are the odds that a devastating event—a Black Swan—could bankrupt a massive company like Tesla or Apple? What are the existential risks for Fortune 500 companies? What kind of events can have a deep, irreversible impact on a company’s balance sheet? It might be impossible to imagine Tesla or Apple suddenly going bankrupt. In 2008, it was also impossible to imagine Bear Stearns or Lehman Brothers or AIG going bust. “There are systemic risks,” Schmalbach told me. “Cyber, pandemics, climate change. So we defined that and developed risk as an asset class.” Looking across the insurance industry for a comparable approach to onetime devastating risks, he knew of only one company that provided such policies: Lloyd’s of London, the storied centuries-old British insurer.

Ackman, Bill, 1–7, 114, 176 Adhanom, Tedros, 2 Aérospatiale, 84 Allianz Global Investors, 168–69, 260 Allianz SE, 168 Alpha Futures, 42–43, 44 Amaranth Advisors, 68 Amundi Group, 224 Antifragile (Taleb), 12, 16, 32, 143, 190, 192, 207, 218 Aon PLC, 266 Appaloosa Management, 140 AQR Asset Management, 172–77, 227 Arab Spring, 204 Ariane rockets, rupture analysis of, 84, 85, 86, 87, 202 arXiv database, 131, 208 Asian Contagion (1997), 13 Asness, Cliff, 172, 173–74, 176–77, 228–29 Atwood, Margaret, 244 Austrian School of Economics, 120–21, 136 Bachelier, Louis, 74–75 Baggesen, Eric, 153, 157, 158, 159–60 Baldwin, Thomas (Tom), 46–47, 48, 49 Bankers Trust, 55 Bank for International Settlements, 224 Bankman-Fried, Sam, 280–81, 282, 284 Bank of America, 153, 250 Bank of England, 111 Banque de France, 224 Barclays Capital, 127, 128 Baron, Ron, 178 Barron’s, 147, 155, 273 Bar-Yam, Yaneer, 18, 19, 20–23, 36, 164, 193, 196 Bayer, 215 Beckstead, Nick, 283 Bear market fund, 13 Bear Stearns, 98, 261 Bed of Procrustes, The (Taleb), 218 behavioral finance, 79 Bendell, Jem, 245–46, 248 Berenson, Alex, 79–80 Berkshire Hathaway, 2–3, 4, 156 Bernanke, Ben, 34–35, 99, 120, 122 Bezos, Jeff, 104, 124, 281 Biden, Joe, 33–34, 238, 249–50, 251, 255, 280, 285, 287, 290 bitcoin, 105, 179, 280 Black, Fischer, 227–28 Black Monday (1987), 13, 15, 20, 38 Black Swan, The (Taleb), 12, 16, 19, 76, 82, 91, 103–4, 106, 107, 124, 129, 144, 218, 261 Black Swan funds, 24, 113, 130, 134 Black Swan Protection Protocol, 14, 15, 154–55 Black Swan Protection Protocol Fund CalPERS’s investment in, 157–58 global market response to Covid-19 spread and, 12, 14–15 investor initial reaction to, 98–99, 100, 108 Spitznagel’s founding of, 12 success of, 110, 112, 155 trading strategy of, 14, 15, 98–99, 110, 154–55 Black Swans definition of, 13 Empirica’s trading strategy and, 13 global market response to Covid-19 spread as, 14 Lloyd’s of London’s interest in, 266–67 Mandelbrot’s influence on theory of, 76 March 2020 events and, 14, 169 pandemics and, 16, 20 precautionary principle and, 37 Sornette’s criticism of, 91, 132, 144–45, 146, 288 Taleb’s coining of term, 13 Universa’s trading strategy against, 14, 25–26, 97, 274 Bloomberg, 108, 134, 165, 175, 232, 287 BNP Paribas, 58 Bob Rubin trade, 141–42, 218 Bohn, Jeffrey, 32–33 Bostrom, Nick, 281–82, 283, 284 Bouazizi, Mohamed, 204 Bouchaud, Jean-Philippe, 85 Bourqui, Elisabeth, 157, 158 Boyd, Ian, 216 Bradbrook, Gail, 187, 188 Brand, Stewart, 124, 193–94, 212, 217 Bremmer, Ian, 252 Bridgewater Associates, 250 Brin, Sergey, 124 Brockman, John, 123–24, 190, 193 Bronson, Rachel, 235–36 Brookings Institution, 252 Brown, Aaron, 15, 23, 68, 96, 106, 217 Brown, Margaret, 171–72 Buchanan, Patrick, 42 Buckley, William, 41, 42 Buffett, Warren, 2–3, 41, 66, 121, 155–56, 176, 274, 275 Bulletin of Atomic Scientists, 163–64, 235–36, 285 Burry, Michael, 113–14 Bush, George W., 72, 78, 102, 107, 179, 204 California Public Employees’ Retirement System (CalPERS), 232 investment in Universa by, 151–54, 156–58 Meng’s review of Universa’s tail-hedge strategy with, 158–59, 175 Meng’s strategy for, 171–73 termination of Universa’s management of, 159–60, 171–72, 175–76 Callan, Trevor, 111 Cantor Fitzgerald, 64 Capital Fund Management, 85 Carbon Engineering, 251 Carbon Tracker, 241 Case, Greg, 266 CBOE Volatility Index (the VIX), 110, 154, 163, 167, 168 CBOT.


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

Alan Greenspan, Albert Einstein, bank run, banking crisis, Bear Stearns, Black Swan, book value, Bretton Woods, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Carmen Reinhart, central bank independence, classic study, commoditize, conceptual framework, Cornelius Vanderbilt, corporate governance, corporate raider, creative destruction, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Ford Model T, Fractional reserve banking, full employment, Glass-Steagall Act, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, land bank, liquidity trap, low interest rates, means of production, military-industrial complex, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, oil shock, Paul Samuelson, payday loans, plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, Savings and loan crisis, special drawing rights, Suez canal 1869, Suez crisis 1956, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

Eldridge, a friend and classmate of financier Morgan, the Knickerbocker Trust came to be one of the largest trust banks of its day. The Panic of 1907, which began with a selloff in the stock market, eventually caused a fatal deposit run on the banks. This run was not unlike the run on institutional sources of funding that would destroy Bear, Stearns & Co. and Lehman Brothers a century later. Terrence Checki, executive vice president of the Federal Reserve Bank of New York, observed about the 2008 financial crisis in a December 2009 speech: “Our system evolved from one funded by intermediaries, to one largely financed by markets. The traditional ties between borrower and creditor were weakened as credit risk became just another commodity to be traded and distributed.”22 And this was precisely the same situation that existed in March of 1907, albeit on a far smaller scale.

He was one of the most visible and unapologetic advocates of the prerogatives of big business in modern American history.25 The disappointment of the Progressives in the period leading to the creation of the Fed was so fierce that it lingers even today. The Progressive complaints of a century ago echo in the issues raised by the Fed’s bailout of Wall Street starting in 2008, most notably with the rescue of Bear, Stearns & Co. and American International Group, but including all of the largest banks. No surprise then that the support from the banking industry for currency “reform” in the 1900s was focused on the needs of bankers, not farmers. The Republicans were smart enough to pay lip service to the needs of the agrarians, but the agenda was already set by the politicians allied with the interests of Morgan and Rockefeller.

Treasury, in a decade, is the largest unconsidered impact of the current crisis.8 Jobs versus Inflation One of the major themes to take away from this book is that Americans need to develop new models and frameworks for distinguishing between real economic growth and the illusion of growth created by inflation and credit-driven speculation. Since the collapse of Bear, Stearns & Co. and Lehman Brothers in 2008, the Fed has kept interest rates at zero, ostensibly to help the banking sector recover from record credit losses. Since then, Fed interest rate policies have transferred trillions of dollars from savers to the shareholders of banks through low interest rates.


pages: 477 words: 144,329

How Money Became Dangerous by Christopher Varelas

activist fund / activist shareholder / activist investor, Airbnb, airport security, barriers to entry, basic income, Bear Stearns, Big Tech, bitcoin, blockchain, Bonfire of the Vanities, California gold rush, cashless society, corporate raider, crack epidemic, cryptocurrency, discounted cash flows, disintermediation, diversification, diversified portfolio, do well by doing good, Donald Trump, driverless car, dumpster diving, eat what you kill, fiat currency, financial engineering, fixed income, friendly fire, full employment, Gordon Gekko, greed is good, initial coin offering, interest rate derivative, John Meriwether, junk bonds, Kickstarter, Long Term Capital Management, low interest rates, mandatory minimum, Mary Meeker, Max Levchin, Michael Milken, mobile money, Modern Monetary Theory, mortgage debt, Neil Armstrong, pensions crisis, pets.com, pre–internet, profit motive, proprietary trading, risk tolerance, Saturday Night Live, selling pickaxes during a gold rush, shareholder value, side project, Silicon Valley, Steve Jobs, technology bubble, The Predators' Ball, too big to fail, universal basic income, zero day

Since the aerospace and defense industry was seeing a lot of consolidation in the mid-1990s, the core of our relationship was to provide guidance on all things M&A: whether to acquire other companies and if so, which ones; how to react to overtures made by others; and whether to sell the company. The aerospace industry was highly secretive. To avoid conflicts of interest and to protect confidentiality, each bank partnered with one of the major aerospace firms. Salomon, for example, represented Northrop, while Bear Stearns was the banker for Martin Marietta. Goldman Sachs was the one firm that seemed to skirt this system, ending up advising one side or the other on nearly every aerospace deal. My first exposure to high-level negotiations was between my boss, Michael Carr, and Gene “Tiger” Sykes from Goldman. They were discussing a potential deal involving Northrop and another aerospace firm, McDonnell Douglas, which Tiger Sykes represented.

One of my Salomon colleagues who also worked on the merger, Petros Kitsos, talked to Northrop’s Kent Kresa about what it was like to face the other Conquistadores after having launched a hostile and thwarted Martin Marietta bid for Grumman. “Kent had to decide if he was going to go to the ranch and be apologetic,” Petros said, “or he could blame the whole thing on Goldman Sachs and Bear Stearns [the bankers for Grumman and Martin Marietta, respectively] and say, ‘Look, we are industrialists. They are just service people. They’re looking for a fee, and we’re looking to restructure the industry.’ He went through the whole mental analysis, but he didn’t feel he had to explain his intentions or provide justification.”

Meanwhile, he picked up odd jobs, bumming around New York until a fortunate encounter one day in 1955, described here in a San Francisco Chronicle profile, determined his path: “Sandy stumbled into the world of finance when he passed by a brokerage firm that was bustling with energy. He asked his father about the business and got a lead on a job at Bear Stearns. He started in the back office, earning $150 a month, and spent his lunch break taking in the ‘large bullpen’ where brokers worked. He was hooked, and soon took the next step and became a broker. In May 1960, he and a neighbor branched off and opened their own firm.” That firm became Shearson Loeb Rhoades, which he and his partners developed into a securities brokerage powerhouse and sold to American Express in 1981 for almost $1 billion.


pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

Airbus A320, Alan Greenspan, Albert Einstein, Albert Michelson, algorithmic trading, anti-fragile, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Bear Stearns, behavioural economics, Benoit Mandelbrot, bitcoin, Black Swan, Boeing 737 MAX, Bonfire of the Vanities, Brexit referendum, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, DeepMind, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, Dutch auction, easy for humans, difficult for computers, eat what you kill, Eddington experiment, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Goodhart's law, Hans Rosling, Helicobacter pylori, high-speed rail, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Jim Simons, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Kōnosuke Matsushita, Linda problem, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, military-industrial complex, Money creation, Moneyball by Michael Lewis explains big data, Monty Hall problem, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, nudge theory, oil shock, PalmPilot, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Phillips curve, Pierre-Simon Laplace, popular electronics, power law, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, reality distortion field, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Solow, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Suez crisis 1956, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, world market for maybe five computers, World Values Survey, Yom Kippur War, zero-sum game

EVOLUTION AND DECISION-MAKING 1 Sterling et al. (2015). 2 And is a metaphor, or story, rather than an empirical claim about the world. 3 Hamilton (1964) p. 16. 4 See Evans-Pritchard (1940) p. 140 for an example of a tribe which explained that they would – and in his case did – offer wilfully misleading directions to someone not well known to them. The anecdote is striking because our expectations are so different. 5 Alchian (1950). 6 He calls this ‘consilience’ (Wilson 1999). 7 Maynard Smith (1964). 8 Bear Stearns refused to join the syndicate which bailed out Long Term Capital Management. When Bear Stearns itself ran into trouble ten years later, no one was willing to help them – see Taft (2012). 9 Gilman (1996). 10 Aktipis et al. (2011) p. 132. 11 Maddison Project Database, version 2018; Office for National Statistics (2015). 12 Wrangham (2019). 13 This is the cooperative principle of linguistics, which recognises that statements are part of conversations and derive their meaning from the background to those conversations. 14 Mercier and Sperber (2017), from the book description. 15 In the words of the Harvard evolutionary biologist Joseph Henrich (Henrich 2017). 16 Ortiz-Ospina and Roser (2019). 17 Ferguson (1782) p. 205. 18 Smith (1776b) p. 35. 19 Upton and George (2010). 20 Sometimes ascribed to Aesop, but first sourced to Orson Welles’ Mr Arkadin (1955); see also The Crying Game . 21 The two points of view are represented by Plomin (2018) and Pinker (2003), respectively. 22 The quotation is attributed to the American comedian George Burns. 23 Whately (1854) p. 127. 24 For example Cosmides and Tooby (1989) and Cosmides (1989); for a summary of criticisms, in particular those of Sperber, see Atran (2001). 25 Taleb (2018), chapter 19. 26 There is a wide range of estimates of the extent of mortality in the Black Death but there were certainly many locations in which a majority of the population died. 27 The MIT economist Andrew Lo has developed an extended example to reinforce the point (Lo 2017, chapter 6). 28 Scott (1998), Part I. 29 Gráda and Mokyr (1984). 30 And later vice presidential candidate in Ross Perot’s quixotic bid for the US presidency in 1992. 31 Collins (2001) p. 85. 32 HC Deb (4 June 1940), Vol. 361, cc. 787–98. 33 Isaacson (2011) pp. 107–8. 34 Lohr (2011). 35 Bower’s characteristically unsympathetic biographies are controversial. 36 Bower (2001) p. 25. 37 See for example Keren and Schul (2009), Keren (2013), Kruglanski and Gigerenzer (2011), and Mercier and Sperber (2017). 38 Libet et al. (1983). 39 Damasio (1995), chapter 3. 40 See Henrich (2017) for further analysis of this point. 41 Of course, at most one player can win.

And so the genes for niceness would spread. But the British mathematical geneticist John Maynard Smith showed that sometimes nastiness rather than niceness might flourish within groups. 7 Events in the 2007–08 financial crisis illustrate the problem, while also hinting at its solution. Investment banking groups Bear Stearns and Lehman Brothers made money for the nasty (their employees) at the expense of the nice (their customers), until nastiness within the groups themselves, and their earlier nastiness towards other groups, led to their collapse when they received little sympathy or support in their hour of need. 8 And numerous other firms would not have survived the 2007–08 financial crisis if survival of the fittest had not been so weakly applied to financial institutions.

INDEX 10 (film, 1979), 97 737 Max aircraft, 228 9/11 terror attacks, 7 , 74–6 , 202 , 230 Abbottabad raid (2011), 9–10 , 20 , 26 , 44 , 71 , 102 , 118–19 , 120 , 174–5 ; reference narrative of, 122–3 , 277 , 298 ; role of luck in, 262–3 ; and unhelpful probabilities, 8–19 , 326 abductive reasoning, 138 , 147 , 211 , 388 , 398 ABN AMRO, 257 Abraham (biblical character), 206 Abrahams, Harold, 273 Abramovich, Roman, 265 accountancy, 409 aeronautics, 227–8 , 352–6 , 383 Agdestein, Simen, 273 AIDS, 57 , 230 , 375–6 Airbus A380, 40 , 274–6 , 408 Akerlof, George, 250–1 , 252 , 253 , 254 , 382 Alchian, Armen, 158 alien invasion narratives, 295–6 Allais, Maurice, 134–5 , 136 , 137 , 437 , 440–3 Allen, Bill, 227–8 Allen, Paul, 28 , 29 Altair desktop, 28 Amazon, 289 , 309 Anderson, Roy, 375 ant colonies, 173 anthropology, 160 , 189–91 , 193–4 , 215–16 antibiotics, 40 , 45 , 284 , 429 Antz (film, 1998), 274 apocalyptic narratives, 331–2 , 335 , 358–62 Appiah, Anthony, 117–18 Apple, 29–30 , 31 , 169 , 309 Applegarth, Adam, 311 arbitrage, 308 Archilochus (Greek poet), 222 Aristotle, 137 , 147 , 303 Arrow, Kenneth, 254 , 343–5 , 440 artificial intelligence (AI), xvi , 39 , 135 , 150 , 173–4 , 175–6 , 185–6 , 387 ; the ‘singularity’, 176–7 Ashtabula rail bridge disaster (1876), 33 Asimov, Isaac, 303 asteroid strikes, 32 , 71–2 , 238 , 402 astrology, 394 astronomical laws, 18–19 , 35 , 70 , 373–4 , 388 , 389 , 391–2 , 394 AT&T, 28 auction theory, 255–7 Austen, Jane, 217 , 224–5 , 383 autism, 394 , 411 aviation, commercial, 23–4 , 40 , 227–8 , 274–6 , 315 , 383 , 414 axiomatic rationality: Allais disputes theory, 134–5 , 136 , 137 ; Arrow– Debreu world, 343–5 ; assumption of transitivity, 437 ; and Becker, 114 , 381–2 ; and behavioural economics, 116 , 135–6 , 141–9 , 154–5 , 167–8 , 386–7 , 401 ; capital asset pricing model (CAPM), 307–8 , 309 , 320 , 332 ; completeness axiom, 437–8 ; consistency of choice axiom, 108–9 , 110–11 ; continuity axiom, 438–40 ; definition of rationality, 133–4 , 137 , 436 ; definition of risk, 305 , 307 , 334 , 420–1 ; efficient market hypothesis, 252 , 254 , 308–9 , 318 , 320 , 332 , 336–7 ; efficient portfolio model, 307–8 , 309 , 318 , 320 , 332–4 , 366 ; and evolutionary rationality, 16 , 152–3 , 154–5 , 157 , 158 , 166–7 , 171–2 , 386–7 , 407 ; and ‘expectations’ concept, 97–8 , 102–3 , 121–2 , 341–2 ; extended to decision-making under uncertainty, xv , 40–2 , 110–14 , 133–7 , 257–9 , 420–1 ; and Friedman, 73–4 , 111–12 , 113–14 , 125 , 257–9 , 307 , 399–400 , 420 , 437 ; hegemony of over radical uncertainty, 40–2 , 110–14 ; implausibility of assumptions, xiv–xv , 16 , 41–4 , 47 , 74–84 , 85–105 , 107–9 , 111 , 116–22 , 344–9 , 435–44 ; independence axiom, 440–4 ; as limited to small worlds, 170 , 309–10 , 320–1 , 342–9 , 382 , 400 , 421 ; and Lucas, 36 , 92 , 93 , 338–9 , 341 , 345 , 346 ; and Markowitz, 307 , 308 , 309–10 , 318 , 322 , 333 ; maximising behaviour, 310 ; ‘pignistic probability’, 78–84 , 438 ; and Popperian falsificationism, 259–60 ; Prescott’s comparison with engineering, 352–6 ; ‘rational expectations theory, 342–5 , 346–50 ; and Samuelson, xv , 42 , 110–11 , 436 ; and Savage, 111–14 , 125 , 257–9 , 309 , 345 , 400 , 435 , 437 , 442–3 ; shocks and shifts discourse, 42 , 346 , 347 , 348 , 406–7 ; Simon’s work on, 134 , 136 , 149–53 ; triumph of probabilistic reasoning, 15–16 , 20 , 72–84 , 110–14 ; Value at risk models (VaR), 366–8 , 405 , 424 ; von Neumann–Morgenstern axioms, 111 , 133 , 435–44 ; see also maximising behaviour Ballmer, Steve, 30 , 227 Bank of England, xiii , 45 , 103–5 , 286 , 311 Barclays Bank, 257 Barings Bank, 411 Basel regulations, 310 , 311 Bay of Pigs fiasco (1961), 278–9 Bayes, Reverend Thomas, 60–3 , 66–7 , 70 , 71 , 358 , 431 Beane, Billy, 273 Bear Stearns, 158–9 Becker, Gary, 114 , 381–2 Beckham, David, 267–8 , 269 , 270 , 272–3 , 414 behavioural economics, 116 , 145–8 , 154 , 386–7 ; and Allais paradox, 442 ; ‘availability heuristic’, 144–5 ; biases in human behaviour, 16 , 136 , 141–8 , 154 , 162 , 165 , 167–8 , 170–1 , 175–6 , 184 , 401 ; and evolutionary science, 154–5 , 165 ; Kahneman’s dual systems, 170–1 , 172 , 271 ; Kahneman–Tversky experiments, 141–7 , 152 , 215 ; ‘noise’ (randomness), 175–6 ; nudge theory, 148–9 Bentham, Jeremy, 110 Berkshire Hathaway, 153 , 319 , 324 , 325–6 Berlin, Isaiah, 222 Bernoulli, Daniel, 114–16 , 199 Bernoulli, Nicolaus, 199 , 442 Bertrand, Joseph, 70 Bezos, Jeff, 289 big data, 208 , 327 , 388–90 billiard players, 257–8 bin Laden, Osama, 7 , 8–10 , 21 , 44 , 71 , 118–19 , 120 , 122–3 , 262–3 , 326 Bismarck, Otto von, 161 Bitcoin, 96 , 316 Black Death, 32 , 39–40 BlackBerry, 30 , 31 blackjack, 38 Blackstone, Sir William, 213 BNP Paribas, 5 , 6 BOAC, 23–4 Boas, Franz, 193 Boeing, 24 , 227–8 Boer War, 168 Bolt, Usain, 273 bonobos, 161–2 , 178 Borges, Jorge Luis, 391 Borodino, battle of (1812), 3–4 , 433 Bortkiewicz, Ladislaus, 235–6 Bower, Tom, 169–70 Bowral cricket team, New South Wales, 264 Box, George, 393 Boycott, Geoffrey, 264–5 Bradman, Don, 237 , 264 Brahe, Tycho, 388–9 Brånemark, Per-Ingvar, 387 , 388 Branson, Richard, 169–70 Brearley, Michael, 140–1 , 264–5 Breslau (now Wrocław), 56 Brexit referendum (June 2016), 241–2 ; lies told during, 404 bridge collapses, 33 , 341 Brownian motion, 37 Brunelleschi, Filippo, 143 , 147 Buffett, Warren, 83 , 152 , 179 , 319–20 , 324 , 335 , 336–7 Burns, Robert, 253 Bush, George W., 295 , 407 , 412 business cycles, 347 business history (academic discipline), 286 business schools, 318 business strategy: approach in 1970s, 183 ; approach in 1980s, 181–2 ; aspirations confused with, 181–2 , 183–4 ; business plans, 223–4 , 228 ; collections of capabilities, 274–7 ; and the computer industry, 27–31 ; corporate takeovers, 256–7 ; Lampert at Sears, 287–9 , 292 ; Henry Mintzberg on, 296 , 410 ; motivational proselytisation, 182–3 , 184 ; quantification mistaken for understanding, 180–1 , 183 ; and reference narratives, 286–90 , 296–7 ; risk maps, 297 ; Rumelt’s MBA classes, 10 , 178–80 ; Shell’s scenario planning, 223 , 295 ; Sloan at General Motors, 286–7 ; strategy weekends, 180–3 , 194 , 296 , 407 ; three common errors, 183–4 ; vision or mission statements, 181–2 , 184 Buxton, Jedediah, 225 Calas, Jean, 199 California, 48–9 Cambridge Growth Project, 340 Canadian fishing industry, 368–9 , 370 , 423 , 424 cancer, screening for, 66–7 Candler, Graham, 352 , 353–6 , 399 Cardiff City Football Club, 265 Carlsen, Magnus, 175 , 273 Carnegie, Andrew, 427 Carnegie Mellon University, 135 Carré, Dr Matt, 267–8 Carroll, Lewis, Through the Looking-Glass , 93–4 , 218 , 344 , 346 ; ‘Jabberwocky’, 91–2 , 94 , 217 Carron works (near Falkirk), 253 Carter, Jimmy, 8 , 119 , 120 , 123 , 262–3 cartography, 391 Casio, 27 , 31 Castro, Fidel, 278–9 cave paintings, 216 central banks, 5 , 7 , 95 , 96 , 103–5 , 285–6 , 348–9 , 350 , 351 , 356–7 Central Pacific Railroad, 48 Centre for the Study of Existential Risk, 39 Chabris, Christopher, 140 Challenger disaster (1986), 373 , 374 Chamberlain, Neville, 24–5 Chandler, Alfred, Strategy and Structure , 286 Chariots of Fire (film, 1981), 273 Charles II, King, 383 Chelsea Football Club, 265 chess, 173 , 174 , 175 , 266 , 273 , 346 Chicago economists, 36 , 72–4 , 86 , 92 , 111–14 , 133–7 , 158 , 257–8 , 307 , 342–3 , 381–2 Chicago Mercantile Exchange, 423 chimpanzees, 161–2 , 178 , 274 China, 4–5 , 419–20 , 430 cholera, 283 Churchill, Winston: character of, 25–6 , 168 , 169 , 170 ; fondness for gambling, 81 , 168 ; as hedgehog not fox, 222 ; on Montgomery, 293 ; restores gold standard (1925), 25–6 , 269 ; The Second World War , 187 ; Second World War leadership, 24–5 , 26 , 119 , 167 , 168–9 , 170 , 184 , 187 , 266 , 269 Citibank, 255 Civil War, American, 188 , 266 , 290 Clapham, John, 253 Clark, Sally, 197–8 , 200 , 202 , 204 , 206 Clausewitz, Carl von, On War , 433 climate systems, 101–2 Club of Rome, 361 , 362 Coase, Ronald, 286 , 342 Cochran, Johnnie, 198 , 217 Cochrane, John, 93 coffee houses, 55–6 cognitive illusions, 141–2 Cohen, Jonathan, 206–7 Colbert, Jean-Baptiste, 411 Cold War, 293–4 , 306–7 Collier, Paul, 276–7 Columbia disaster (2003), 373 Columbia University, 117 , 118 , 120 Columbus, Christopher, 4 , 21 Colyvan, Mark, 225 Comet aircraft, 23–4 , 228 communication: communicative rationality, 172 , 267–77 , 279–82 , 412 , 414–16 ; and decision-making, 17 , 231 , 272–7 , 279–82 , 398–9 , 408 , 412 , 413–17 , 432 ; eusociality, 172–3 , 274 ; and good doctors, 185 , 398–9 ; human capacity for, 159 , 161 , 162 , 172–3 , 216 , 272–7 , 408 ; and ill-defined concepts, 98–9 ; and intelligibility, 98 ; language, 98 , 99–100 , 159 , 162 , 173 , 226 ; linguistic ambiguity, 98–100 ; and reasoning, 265–8 , 269–77 ; and the smartphone, 30 ; the ‘wisdom of crowds’, 47 , 413–14 Community Reinvestment Act (USA, 1977), 207 comparative advantage model, 249–50 , 251–2 , 253 computer technologies, 27–31 , 173–4 , 175–7 , 185–6 , 227 , 411 ; big data, 208 , 327 , 388–90 ; CAPTCHA text, 387 ; dotcom boom, 228 ; and economic models, 339–40 ; machine learning, 208 Condit, Phil, 228 Condorcet, Nicolas de, 199–200 consumer price index, 330 , 331 conviction narrative theory, 227–30 Corinthians (New Testament), 402 corporate takeovers, 256–7 corporations, large, 27–31 , 122 , 123 , 286–90 , 408–10 , 412 , 415 Cosmides, Leda, 165 Cretaceous–Paleogene extinction, 32 , 39 , 71–2 Crick, Francis, 156 cricket, 140–1 , 237 , 263–5 crime novels, classic, 218 crosswords, 218 crypto-currencies, 96 , 316 Csikszentmihalyi, Mihaly, 140 , 264 Cuba, 278–80 ; Cuban Missile Crisis, 279–81 , 299 , 412 Custer, George, 293 Cutty Sark (whisky producer), 325 Daily Express , 242–3 , 244 Damasio, Antonio, 171 Dardanelles expedition (1915), 25 Darwin, Charles, 156 , 157 Davenport, Thomas, 374 Dawkins, Richard, 156 de Havilland company, 23–4 Debreu, Gerard, 254 , 343–4 decision theory, xvi ; critiques of ‘American school’, 133–7 ; definition of rationality, 133–4 ; derived from deductive reasoning, 138 ; Ellsberg’s ‘ambiguity aversion’, 135 ; expected utility , 111–14 , 115–18 , 124–5 , 127 , 128 – 30 , 135 , 400 , 435–44 ; hegemony of optimisation, 40–2 , 110–14 ; as unable to solve mysteries, 34 , 44 , 47 ; and work of Savage, 442–3 decision-making under uncertainty: and adaptation, 102 , 401 ; Allais paradox, 133–7 , 437 , 440–3 ; axiomatic approach extended to, xv , 40–2 , 110–14 , 133–7 , 257–9 , 420–1 ; ‘bounded rationality concept, 149–53 ; as collaborative process, 17 , 155 , 162 , 176 , 411–15 , 431–2 ; and communication, 17 , 231 , 272–7 , 279–82 , 398–9 , 408 , 412 , 413–17 , 432 ; communicative rationality, 172 , 267–77 , 279–82 , 412 , 414–16 ; completeness axiom, 437–8 ; continuity axiom, 438–40 ; Cuban Missile Crisis, 279–81 , 299 , 412 ; ‘decision weights’ concept, 121 ; disasters attributed to chance, 266–7 ; doctors, 184–6 , 194 , 398–9 ; and emotions, 227–9 , 411 ; ‘evidence-based policy’, 404 , 405 ; excessive attention to prior probabilities, 184–5 , 210 ; expected utility , 111–14 , 115–18 , 124–5 , 127 , 128–30 , 135 , 400 , 435–44 ; first-rate decision-makers, 285 ; framing of problems, 261 , 362 , 398–400 ; good strategies for radical uncertainty, 423–5 ; and hindsight, 263 ; independence axiom, 440–4 ; judgement as unavoidable, 176 ; Klein’s ‘primed recognition decision-making’, 399 ; Gary Klein’s work on, 151–2 , 167 ; and luck, 263–6 ; practical decision-making, 22–6 , 46–7 , 48–9 , 81–2 , 151 , 171–2 , 176–7 , 255 , 332 , 383 , 395–6 , 398–9 ; and practical knowledge, 22–6 , 195 , 255 , 352 , 382–8 , 395–6 , 405 , 414–15 , 431 ; and prior opinions, 179–80 , 184–5 , 210 ; ‘prospect theory’, 121 ; public sector processes, 183 , 355 , 415 ; puzzle– mystery distinction, 20–4 , 32–4 , 48–9 , 64–8 , 100 , 155 , 173–7 , 218 , 249 , 398 , 400–1 ; qualities needed for success, 179–80 ; reasoning as not decision-making, 268–71 ; and ‘resulting’, 265–7 ; ‘risk as feelings’ perspective, 128–9 , 310 ; robustness and resilience, 123 , 294–8 , 332 , 335 , 374 , 423–5 ; and role of economists, 397–401 ; Rumelt’s ‘diagnosis’, 184–5 , 194–5 ; ‘satisficing’ (’good enough’ outcomes), 150 , 167 , 175 , 415 , 416 ; search for a workable solution, 151–2 , 167 ; by securities traders, 268–9 ; ‘shock’ and ‘shift’ labels, 42 , 346 , 347 , 348 , 406–7 ; simple heuristics, rules of thumb, 152 ; and statistical discrimination, 207–9 , 415 ; triumph of probabilistic reasoning, 20 , 40–2 , 72–84 , 110–14 ; von Neumann– Morgenstern axioms, 111 , 133 , 435–44 ; see also business strategy deductive reasoning, 137–8 , 147 , 235 , 388 , 389 , 398 Deep Blue, 175 DeepMind, 173–4 The Deer Hunter (film, 1978), 438 democracy, representative, 292 , 319 , 414 demographic issues, 253 , 358–61 , 362–3 ; EU migration models, 369–70 , 372 Denmark, 426 , 427 , 428 , 430 dentistry, 387–8 , 394 Derek, Bo, 97 dermatologists, 88–9 Digital Equipment Corporation (DEC), 27 , 31 dinosaurs, extinction of, 32 , 39 , 71–2 , 383 , 402 division of labour, 161 , 162 , 172–3 , 216 , 249 DNA, 156 , 198 , 201 , 204 ‘domino theory’, 281 Donoghue, Denis, 226 dotcom boom, 316 , 402 Doyle, Arthur Conan, 34 , 224–5 , 253 Drapers Company, 328 Drescher, Melvin, 248–9 Drucker, Peter, Concept of the Corporation (1946), 286 , 287 Duhem–Quine hypothesis, 259–60 Duke, Annie, 263 , 268 , 273 Dulles, John Foster, 293 Dutch tulip craze (1630s), 315 Dyson, Frank, 259 earthquakes, 237–8 , 239 Eco, Umberto, The Name of the Rose , 204 Econometrica , 134 econometrics, 134 , 340–1 , 346 , 356 economic models: of 1950s and 1960s, 339–40 ; Akerlof model, 250–1 , 252 , 253 , 254 ; ‘analogue economies’ of Lucas, 345 , 346 ; artificial/complex, xiv–xv , 21 , 92–3 , 94 ; ‘asymmetric information’ model, 250–1 , 254–5 ; capital asset pricing model (CAPM), 307–8 , 309 , 320 , 332 ; comparative advantage model, 249–50 , 251–2 , 253 ; cost-benefit analysis obsession, 404 ; diversification of risk, 304–5 , 307–9 , 317–18 , 334–7 ; econometric models, 340–1 , 346 , 356 ; economic rent model, 253–4 ; efficient market hypothesis, 252 , 254 , 308–9 , 318 , 320 , 332 , 336–7 ; efficient portfolio model, 307–8 , 309 , 318 , 320 , 332–4 , 366 ; failure over 2007–08 crisis, xv , 6–7 , 260 , 311–12 , 319 , 339 , 349–50 , 357 , 367–8 , 399 , 407 , 423–4 ; falsificationist argument, 259–60 ; forecasting models, 7 , 15–16 , 68 , 96 , 102–5 , 347–50 , 403–4 ; Goldman Sachs risk models, 6–7 , 9 , 68 , 202 , 246–7 ; ‘grand auction’ of Arrow and Debreu, 343–5 ; inadequacy of forecasting models, 347–50 , 353–4 , 403–4 ; invented numbers in, 312–13 , 320 , 363–4 , 365 , 371 , 373 , 404 , 405 , 423 ; Keynesian, 339–40 ; Lucas critique, 341 , 348 , 354 ; Malthus’ population growth model, 253 , 358–61 , 362–3 ; misuse/abuse of, 312–13 , 320 , 371–4 , 405 ; need for, 404–5 ; need for pluralism of, 276–7 ; pension models, 312–13 , 328–9 , 405 , 423 , 424 ; pre-crisis risk models, 6–7 , 9 , 68 , 202 , 246–7 , 260 , 311–12 , 319 , 320–1 , 339 ; purpose of, 346 ; quest for large-world model, 392 ; ‘rational expectations theory, 342–5 , 346–50 ; real business cycle theory, 348 , 352–4 ; role of incentives, 408–9 ; ‘shift’ label, 406–7 ; ‘shock’ label, 346–7 , 348 , 406–7 ; ‘training base’ (historical data series), 406 ; Value at risk models (VaR), 366–8 , 405 , 424 ; Viniar problem (problem of model failure), 6–7 , 58 , 68 , 109 , 150 , 176 , 202 , 241 , 242 , 246–7 , 331 , 366–8 ; ‘wind tunnel’ models, 309 , 339 , 392 ; winner’s curse model, 256–7 ; World Economic Outlook, 349 ; see also axiomatic rationality; maximising behaviour; optimising behaviour; small world models Economic Policy Symposium, Jackson Hole, 317–18 economics: adverse selection process, 250–1 , 327 ; aggregate output and GDP, 95 ; ambiguity of variables/concepts, 95–6 , 99–100 ; appeal of probability theory, 42–3 ; ‘bubbles’, 315–16 ; business cycles, 45–6 , 347 ; Chicago School, 36 , 72–4 , 86 , 92 , 111–14 , 133–7 , 158 , 257–8 , 307 , 342–3 , 381–2 ; data as essential, 388–90 ; division of labour, 161 , 162 , 172–3 , 216 , 249 ; and evolutionary mechanisms, 158–9 ; ‘expectations’ concept, 97–8 , 102–3 , 121–2 , 341–2 ; forecasts and future planning as necessary, 103 ; framing of problems, 261 , 362 , 398–400 ; ‘grand auction’ of Arrow and Debreu, 343–5 ; hegemony of optimisation, 40–2 , 110 – 14 ; Hicks–Samuelson axioms, 435–6 ; market fundamentalism, 220 ; market price equilibrium, 254 , 343–4 , 381–2 ; markets as necessarily incomplete, 344 , 345 , 349 ; Marshall’s definition of, 381 , 382 ; as ‘non-stationary’, 16 , 35–6 , 45–6 , 102 , 236 , 339–41 , 349 , 350 , 394–6 ; oil shock (1973), 223 ; Phillips curve, 340 ; and ‘physics envy’, 387 , 388 ; and power laws, 238–9 ; as practical knowledge, 381 , 382–3 , 385–8 , 398 , 399 , 405 ; public role of the social scientist, 397–401 ; reciprocity in a modern economy, 191–2 , 328–9 ; and reflexivity, 35–6 , 309 , 394 ; risk and volatility, 124–5 , 310 , 333 , 335–6 , 421–3 ; Romer’s ‘mathiness’, 93–4 , 95 ; shift or structural break, 236 ; Adam Smith’s ‘invisible hand’, 163 , 254 , 343 ; social context of, 17 ; sources of data, 389 , 390 ; surge in national income since 1800, 161 ; systems as non-linear, 102 ; teaching’s emphasis on quantitative methods, 389 ; validity of research findings, 245 ‘Economists Free Ride, Does Anyone Else?’


How to Be a Liberal: The Story of Liberalism and the Fight for Its Life by Ian Dunt

4chan, Alan Greenspan, Alfred Russel Wallace, bank run, battle of ideas, Bear Stearns, Big bang: deregulation of the City of London, Boris Johnson, bounce rate, Brexit referendum, British Empire, Brixton riot, Cambridge Analytica, Carmen Reinhart, centre right, classic study, David Ricardo: comparative advantage, disinformation, Dominic Cummings, Donald Trump, eurozone crisis, experimental subject, fake news, feminist movement, Francis Fukuyama: the end of history, full employment, Glass-Steagall Act, Growth in a Time of Debt, illegal immigration, invisible hand, John Bercow, Kenneth Rogoff, liberal world order, low interest rates, Mark Zuckerberg, mass immigration, means of production, Mohammed Bouazizi, Northern Rock, old-boy network, Paul Samuelson, Peter Thiel, Phillips curve, price mechanism, profit motive, quantitative easing, recommendation engine, road to serfdom, Ronald Reagan, Saturday Night Live, Scientific racism, Silicon Valley, Silicon Valley billionaire, Steve Bannon, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Winter of Discontent, working poor, zero-sum game

In the US, the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act removed regional limitations on bank growth, allowing banks to merge and expand. Between 1998 and 2007, the assets of the five largest retail banks – Bank of America, Citigroup, JP Morgan, Wachovia, and Wells Fargo – more than tripled. The assets of the five largest investment banks – Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns – quadrupled. In 1996, the Economic Growth and Regulatory Paperwork Reduction Act required federal regulators to review their rules every decade and solicit comments on ‘outdated, unnecessary, or unduly burdensome’ requirements. It created an obsessive zeal for slashing regulation, even among regulators themselves.

The machine thrummed away, converting loans into highly prized investment assets, in which the financial rewards of risky lending came with none of the downsides. Banks started to get involved in every stage of the securitisation process. Using the freedom offered to them by the end of Glass-Steagall, investment banks like Bear Stearns and Lehman Brothers started offering consumer-facing mortgage services. Commercial banks went in the other direction, graduating from mortgage origination to securitisation, collateralisation and tranching. They also used the securities for a different process, which would prove decisive in the events to come.

It seemed like a replay of the Great Depression, when lack of confidence in banks had pulverised the economy. But in fact, 80 per cent of Northern Rock’s funding had nothing to do with the queueing depositors. It wasn’t even particularly exposed to subprime lending. Its problem was that it relied on the money markets for funding. And they were closing down. Bear Stearns, the smallest of America’s five big investment banks, followed. It had a stake in every stage of the mortgage business, from loan origination through to securitisation and sale. In late 2007, Bear Sterns lost access to the commercial paper market, so it started replacing it with repo borrowing.


pages: 202 words: 58,823

Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bear Stearns, behavioural economics, Bernie Madoff, Brexit referendum, capital asset pricing model, cognitive bias, collapse of Lehman Brothers, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, delayed gratification, diversification, diversified portfolio, effective altruism, endowment effect, Eratosthenes, experimental subject, family office, George Akerlof, index fund, information asymmetry, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, loss aversion, market bubble, market clearing, money market fund, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, Philippa Foot, principal–agent problem, profit maximization, profit motive, Richard Thaler, search costs, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, trolley problem, ultimatum game

A small airport in Kent, England, claimed that Thanet would interfere with its radar and demanded compensation in the form of extravagant new equipment. The fishermen’s association tried to hold us up, claiming that it, too, needed compensation, even though the project was far out to sea, the cables would be buried deep underground, and the footprint of the towers was inconsequential. I was nervous. In March 2008, Bear Stearns collapsed, and the financial crisis deepened. By June, I had a constant worry in the pit of my stomach. So we decided to get out while the getting was good. We hired an investment bank to put Thanet back on the market in early summer 2008. We received three nonbinding bids from credible buyers, any one of which would have delivered a spectacular profit.

See also mercy ambiguity effect, 24 American Work-Sports (Zarnowski), 191 Anaximander, 190 anchoring, 168 angel investors, 212–213n1 “animal spirits,” 169 Antipater of Tarsus, 134–135, 137 “anxious vigilance,” 73, 82 arbitrage, 70, 78 Aristotle, 200, 220n24 Asian financial crisis (1997–1998), 13 asset-backed securities, 93–95 asset classes, 75 astrology, 67 asymmetric information, 96, 210n2 authenticity, 32–37, 114 of challenges, 176–179 autism, 58, 59 auto safety, 139 Bank of New York Mellon, 61 Battle of Waterloo, 71, 205 Bear Stearns, 85 Becker, Gary, 33, 108–109 behavioral economics, 4, 10, 198–199 assumptions underlying, 24 insights of, 24–25 rational choice complemented by, 6 Belgium, 191 beliefs: attachment to, 51 defined, 50 evidence inconsistent with, 54, 57–58 formation of, 53, 92 persistence of, 26–28, 54 transmissibility of, 92–93, 95–96 Bentham, Jeremy, 127, 197–198 “black swans,” 62–64 blame aversion, 57, 72 brain hemispheres, 161 Brexit, 181–185 “bull markets,” 78 capital asset pricing model, 64 care altruism, 38, 104, 108–114, 115, 120, 135, 201 Casablanca (film), 120, 125 The Cask of Amontillado (Poe), 126–127 challenges, 202–203 authenticity of, 176–179 staying in the game linked to, 179–181 changes of mind, 147–164 charity, 40, 45–46, 119, 128 choice: abundance of, 172–174 intertemporal, 149–158, 166 purposeful vs. rational, 22–23 Christofferson, Johan, 83, 86, 87, 88 Cicero, 133–134 Clark, John Bates, 167 cognitive bias, 6, 23, 51, 147–148, 167, 198–199 confirmation bias, 200 experimental evidence of, 10–11, 24 for-itself behavior disguised as, 200–201 gain-loss asymmetry, 10–11 hostile attribution bias, 59 hyperbolic discounting as, 158 lawn-mowing paradox and, 33–34 obstinacy linked to, 57 omission bias, 200 rational choice disguised as, 10–11, 33–34, 199–200 salience and, 29, 147 survivor bias, 180 zero risk bias, 24 Colbert, Claudette, 7 Columbia University, 17 commitment devices, 149–151 commodities, 80, 86, 89 commuting, 26, 38–39 competitiveness, 11, 31, 41, 149, 189 complementary skills, 71–72 compound interest, 79 confirmation bias, 57, 200 conspicuous consumption, 31 consumption planning, 151–159 contrarian strategy, 78 cooperation, 104, 105 coordination, 216n15 corner solutions, 214n8 cost-benefit analysis: disregard of, in military campaigns, 117 of human life, 138–143 credit risk, 11 crime, 208 Dai-Ichi Kangyo Bank (DKB), 12–14, 15, 17, 87, 192–193 Darwin, Charles, 62–63 depression, psychological, 62 de Waal, Frans, 118 Diogenes of Seleucia, 134–135, 137 discounting of the future, 10, 162–164 hyperbolic, 158, 201 disjunction effect, 174–176 diversification, 64–65 divestment, 65–66 Dostoevsky, Fyodor, 18 drowning husband problem, 6–7, 110, 116, 123–125 effective altruism, 110–112, 126, 130, 135–136 efficient market hypothesis, 69–74, 81–82, 96 Empire State Building, 211–212n12 endowment effect, 4 endowments, of universities, 74 entrepreneurism, 27, 90, 91–92 Eratosthenes, 190 ethics, 6, 104, 106–108, 116, 125 European Union, 181–182 experiential knowledge, 59–61 expert opinion, 27–28, 53, 54, 56–57 extreme unexpected events, 61–64 fairness, 108, 179 family offices, 94 Fear and Trembling (Kierkegaard), 53–54 “felicific calculus,” 197–198 financial crisis of 2007–2009, 61, 76, 85, 93–94, 95 firemen’s muster, 191 flow, and well-being, 201–202 Foot, Philippa, 133–134, 135 for-itself behavior, 6–7, 19, 21, 27, 36, 116, 133–134, 204–205, 207–208 acting in character as, 51–53, 55–56, 94–95, 203 acting out of character as, 69, 72 analyzing, 20 authenticity and, 33–35 charity as, 39–40, 45–46 comparison and ranking lacking from, 19, 24, 181 consequences of, 55–64 constituents of, 26–31 defined, 23–24 difficulty of modeling, 204 expert opinion and, 57 extreme unexpected events and, 63–64 flow of time and, 30 free choice linked to, 169–172 in groups, 91–100 incommensurability of, 140–143 in individual investing, 77–78 in institutional investing, 76 intertemporal choice and, 168, 175, 176 job satisfaction as, 189 mercy as, 114 misclassification of, 42, 44, 200–201 out-of-character trading as, 68–69 purposeful choice commingled with, 40–43, 129, 171 rationalizations for, 194–195 in trolley problem, 137 unemployment and, 186 France, 191 Fuji Bank, 14 futures, 80–81 gain-loss asymmetry, 10–11 Galperti, Simone, 217n1 gambler’s fallacy, 199 gamifying, 177 Garber, Peter, 212n1 Germany, 191 global equity, 75 Good Samaritan (biblical figure), 103, 129–130, 206 governance, of institutional investors, 74 Great Britain, 191 Great Depression, 94 Greek antiquity, 190 guilt, 127 habituation, 201 happiness research (positive psychology), 25–26, 201–202 Hayek, Friedrich, 61, 70 hedge funds, 15–17, 65, 75, 78–79, 93, 95 herd mentality, 96 heroism, 6–7, 19–20 hindsight effect, 199 holding, of investments, 79–80 home country bias, 64–65 Homer, 149 Homo ludens, 167–168 hostile attribution bias, 59 housing market, 94 Huizinga, Johan, 167–168 human life, valuation of, 138–143 Hume, David, 62, 209n5 hyperbolic discounting, 158, 201 illiquid markets, 74, 94 index funds, 75 individual investing, 76–82 Industrial Bank of Japan, 14 information asymmetry, 96, 210n2 innovation, 190 institutional investing, 74–76, 82, 93–95, 205 intergenerational transfers, 217n1, 218n4 interlocking utility, 108 intertemporal choice, 149–159, 166 investing: personal beliefs and, 52–53 in start-ups, 27 Joseph (biblical figure), 97–99 Kahneman, Daniel, 168 Kantianism, 135–136 Keynes, John Maynard, 12, 58, 167, 169, 188–189 Kierkegaard, Søren, 30, 53, 65, 88 Knight, Frank, 145, 187 Kranton, Rachel E., 210–211n2 labor supply, 185–189 Lake Wobegon effect, 4 lawn-mowing paradox, 33–34, 206 Lehman Brothers, 61, 86, 89, 184 leisure, 14, 17, 41, 154, 187 Libet, Benjamin, 161 life, valuation of, 138–143 Life of Alexander (Plutarch), 180–181 Locher, Roger, 117, 124 long-term vs. short-term planning, 148–149 loss aversion, 70, 199 lottery: as rational choice, 199–200 Winner’s Curse, 34–36 love altruism, 104, 116, 123–125, 126, 203 lying, vs. omitting, 134 Macbeth (Shakespeare), 63 MacFarquhar, Larissa, 214n6 Madoff, Bernard, 170 malevolence, 125–127 Malthus, Thomas, 212n2 manners, in social interactions, 104, 106, 107, 116, 125 market equilibrium, 33 Markowitz, Harry, 65 Marshall, Alfred, 41, 167 Mass Flourishing (Phelps), 189–191 materialism, 5 merchant’s choice, 133–134, 137–138 mercy, 104, 114–116, 203 examples of, 116–120 inexplicable, 45–46, 120–122 uniqueness of, 119, 129 mergers and acquisitions, 192 “money pump,” 159 monks’ parable, 114, 124 Montaigne, Michel de, 114, 118 mortgage-backed securities, 93 Nagel, Thomas, 161 Napoleon I, emperor of the French, 71 neoclassical economics, 8, 10, 11, 22, 33 Nietzsche, Friedrich, 21, 43, 209n5 norms, 104, 106–108, 123 Norway, 66 Nozick, Robert, 162 observed care altruism, 108–112 Odyssey (Homer), 149–150 omission bias, 200 On the Fourfold Root of the Principle of Sufficient Reason (Schopenhauer), 209n5 “on the spot” knowledge, 61, 70, 80, 94, 205 Orico, 13 overconfidence, 57, 200 “overearning,” 44–45 The Palm Beach Story (film), 7 The Paradox of Choice (Schwartz), 172 parenting, 108, 141, 170–171 Pareto efficiency, 132–133, 136, 139–140 Peirce, Charles Sanders, 53–54, 67, 94 pension funds, 66, 74–75, 93, 95 permanent income hypothesis, 179 Pharaoh (biblical figure), 97–99 Phelps, Edmund, 17, 189–191 Philip II, king of Macedonia, 181 planning, 149–151 for consumption, 154–157 long-term vs. short-term, 148–149 rational choice applied to, 152–158, 162 play, 44–45, 167, 202 pleasure-pain principle, 18 Plutarch, 180–181 Poe, Edgar Allan, 126 pollution, 132–133 Popeye the Sailor Man, 19 portfolio theory, 64–65 positive psychology (happiness research), 25–26, 201–202 preferences, 18–19, 198 aggregating, 38–39, 132, 164 altruism and, 28, 38, 45, 104, 110, 111, 116 in behavioral economics, 24, 168 beliefs’ feedback into, 51, 55 defined, 23 intransitive, 158–159 in purposeful behavior, 25, 36 risk aversion and, 51 stability of, 33, 115, 147, 207, 208 “time-inconsistent,” 158, 159, 166, 203 present value, 7, 139 principal-agent problem, 72 Principles of Economics (Marshall), 41 prisoner’s dilemma, 105 private equity, 75 procrastination, 3, 4, 19, 177–178 prospect theory, 168 protectionism, 185–187 Prussia, 191 public equities, 75 punishment, 109 purposeful choice, 22–26, 27, 34, 36, 56, 133–134, 204–205 altruism compatible with, 104, 113–114, 115–116 commensurability and, 153–154 as default rule, 43–46 expert opinion and, 57 extreme unexpected events and, 62–63 flow of time and, 30 for-itself behavior commingled with, 40–43, 129, 171 mechanistic quality of, 68 in merchant’s choice, 135, 137–138 Pareto efficiency linked to, 132 rational choice distinguished from, 22–23 regret linked to, 128 social relations linked to, 28 stable preferences linked to, 33 in trolley problem, 135–136 vaccination and, 58–59 wage increases and, 187.


pages: 372 words: 107,587

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

3D printing, agricultural Revolution, Alan Greenspan, Anthropocene, Apollo 11, back-to-the-land, banking crisis, banks create money, Bear Stearns, biodiversity loss, 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, degrowth, 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, Glass-Steagall Act, global village, green transition, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, intentional community, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jevons paradox, Kenneth Rogoff, late fees, liberal capitalism, low interest rates, mega-rich, military-industrial complex, Money creation, 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, rolling blackouts, Ronald Reagan, short selling, special drawing rights, systems thinking, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, WikiLeaks, working poor, world market for maybe five computers, zero-sum game

Thus, in theory, price movements of particular securities that reflect overall market activity are cancelled out, or “hedged.” Hedge funds promise (and often produce) high returns through extreme leverage. But because of the enormous sums at stake, critics say this poses a systemic risk to the entire economy. This risk was highlighted by the near-collapse of two Bear Stearns hedge funds, which had invested heavily in mortgage-backed securities, in June 2007.19 FIGURE 9. Amounts Outstanding of Over the Counter (OTC) Derivatives since 1998 in G10 Countries and Switzerland. “Notional value” refers to the total value of a leveraged position’s assets. The term is commonly used in the options, futures, and currency markets when a small amount of invested money controls a large position (and has a large consequence for the trader).

The Commission called this a “pivotal failure to stem the flow of toxic mortgages” and “the prime example” of government negligence. • Federal Reserve Chairman (2006-present) Ben Bernanke’s failure to foresee the crisis. • The Bush administration’s “inconsistent response” in saving one financial giant — Bear Stearns — while allowing another — Lehman Brothers — to fail; this “added to the uncertainty and panic in the financial markets.” • Bush Treasury Secretary Henry Paulson Jr.’s failure to understand the magnitude of the problem with subprime mortgages. • The Clinton White House’s (and Treasury Secretary Lawrence Summers’s) crucial error in shielding over-the-counter derivatives from regulation in the Commodity Futures Modernization Act; this constituted “a key turning point in the march toward the financial crisis

Actions By, and New Powers of, the Federal Reserve While the US government stimulus packages were enormous in scale, the actions of the Federal Reserve dwarfed them in terms of dollar amounts committed. During the past three years, the Fed’s balance sheet has swollen to more than $2 trillion through its buying of bank and government debt. Actual expenditures included $29 billion for the Bear Stearns bailout; $149.7 billion to buy debt from Fannie Mae and Freddie Mac; $775.6 billion to buy mortgage-backed securities, also from Fannie and Freddie; and $109.5 billion to buy hard-to-sell assets (including MBSs) from banks. However, the Fed committed itself to trillions more in insuring banks against losses, loaning to money market funds, and loaning to banks to purchase commercial paper.


pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

Alan Greenspan, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, call centre, capital asset pricing model, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, creative destruction, credit crunch, David Graeber, en.wikipedia.org, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Hyman Minsky, inflation targeting, invention of writing, invisible hand, Irish bank strikes, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, land bank, Michael Milken, mobile money, moral hazard, mortgage debt, new economy, Northern Rock, Occupy movement, Paul Volcker talking about ATMs, plutocrats, private military company, proprietary trading, public intellectual, Republic of Letters, Richard Feynman, Robert Shiller, Savings and loan crisis, Scientific racism, scientific worldview, seigniorage, Silicon Valley, smart transportation, South Sea Bubble, supply-chain management, The Wealth of Nations by Adam Smith, too big to fail

Parliament’s Treasury Select Committee in a desperate attempt to shut the stable door, “should be allowed to ‘fail’ so as to preserve market discipline on financial institutions.”14 But the horse had already bolted. Only the most terrifying warning might chase it back in again. So it was that when Bear Stearns, the fifth-largest U.S. securities dealer, ran into trouble in March 2008, the U.S. authorities made it clear that liquidity support alone would be forthcoming. When it emerged that Bear Stearns was on the brink of failure, it was a private investor—the universal bank, J. P. Morgan—that stepped in to buy its equity. The policy-makers were encouraged. Perhaps the horse had been scared back into its stable.

When a second major U.S. investment bank, Lehman Brothers, began to suffer a catastrophic run almost a year to the day after the run on Northern Rock, the emboldened U.S. authorities held their nerve. Alas, the horse was not back in the stable after all. “They can shoot a Bear,” was the gag doing the rounds in the financial markets on Friday, 12 September 2008, “but they can’t shoot the Brothers.” Despite the stand on Bear Stearns, bankers and their investors remained convinced that the policy-makers would fold. The strength of their conviction was measured by the sheer panic which ensued when on Monday, 15 September, credit support from the sovereign was refused, and Lehman Brothers filed for bankruptcy. The collateral damage to the financial sector and the real economy caused by the failure of Lehman Brothers was beyond all expectations.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"there is no alternative" (TINA), accounting loophole / creative accounting, Alan Greenspan, balance sheet recession, bank run, banking crisis, Bear Stearns, Black Swan, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Greenspan put, Growth in a Time of Debt, high-speed rail, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, low interest rates, market bubble, market clearing, Martin Wolf, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, Phillips curve, Post-Keynesian economics, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Solow, savings glut, short selling, structural adjustment programs, tail risk, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, Two Sigma, unorthodox policies, value at risk, Washington Consensus, zero-sum game

As Walter Bagehot noted over 100 years ago in his book Lombard Street, the moment a big bank has to say that its “money good,” it isn’t; or at least you can no longer assume that it is, so lending to the bank dries up: it gets hit with a “liquidity crunch.” In the case of Bear Stearns, as house prices fell and mortgage defaults increased, the value of its investments fell, and its “collateral calls” (what the people it borrowed from would accept to continue lending to the company) rose. As a consequence, Bear Stearns’ reputation fell and so did its capacity to borrow, which was a disaster given how much it was levered-up (how much debt it carried relative to its assets). Leverage is how banks make such absurd sums of money.

If you were using mortgage securities as collateral for loans in the repo market, you needed to find more collateral (which people were increasingly less willing to hold) or higher-quality collateral (alternative assets that were in short supply), or you would have to take a “haircut” (a discount) on what you would get back, all of which affected your bottom line. Now, if a big player in these markets, Bear Stearns or Lehman Brothers, for example, has problems “posting collateral” because the value of what it holds and can offer has fallen, it may be forced to reassure its investors by announcing publicly that there is no problem with the firm. Unfortunately, doing so is deadly for a major financial firm.


pages: 414 words: 108,413

King Icahn: The Biography of a Renegade Capitalist by Mark Stevens

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Bear Stearns, book value, Carl Icahn, classic study, company town, corporate governance, corporate raider, Donald Trump, financial engineering, flag carrier, Gordon Gekko, Irwin Jacobs, junk bonds, laissez-faire capitalism, low interest rates, Michael Milken, old-boy network, Ponzi scheme, profit motive, shareholder value, yellow journalism

Still, determined to lock up the voting power that the KKR block represented, Icahn spoke with Canadian investors Sam and Marc Belzberg. Quickly they hatched a plan whereby the Belzbergs would form an investment group to buy the Bear Stearns block. This was done with the assumption that the Belzberg group would support Icahn if he was successful in snaring the shares. As Kingsley said at the time, “We knew that Belzberg was in our camp.” But with the Belzberg, determined to play hardball in negotiations and with Bear Stearns equally determined to hold the line on price, the deal fell apart over 1/8 of a point per share, a disappointment that left Icahn fuming. Icahn says he made a last-ditch attempt to buy the shares directly from Henry Kravis.

Most of the proxies had already been received and most hands recognized that Texaco would win, having convinced the institutions that management would act decisively to sell assets and otherwise restructure the company. Still, the margin was known to be close and a wild card hung in the balance. Icahn’s only chance was to control a block of stock owned by Kohlberg, Karvis & Roberts. Before the annual meeting, Alan Greenberg, chairman of Bear Stearns, KKR’s broker, had called Icahn to tell him that a 4.95 percent block of Texaco’s shares were for sale. Although Greenberg failed to identify the owners, Icahn—who had studied the whereabouts of virtually every share of Texaco was registered, which required that a buyer acquiring 15 percent of a company had to rapidly boost his stake to 85 percent or be barred from merging the company or selling its assets for a three-year period.


pages: 559 words: 169,094

The Unwinding: An Inner History of the New America by George Packer

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Apple's 1984 Super Bowl advert, bank run, Bear Stearns, big-box store, citizen journalism, clean tech, collateralized debt obligation, collective bargaining, company town, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, DeepMind, deindustrialization, diversified portfolio, East Village, El Camino Real, electricity market, Elon Musk, Fairchild Semiconductor, family office, financial engineering, financial independence, financial innovation, fixed income, Flash crash, food desert, gentrification, Glass-Steagall Act, global macro, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, high-speed rail, housing crisis, income inequality, independent contractor, informal economy, intentional community, Jane Jacobs, Larry Ellison, life extension, Long Term Capital Management, low skilled workers, Marc Andreessen, margin call, Mark Zuckerberg, market bubble, market fundamentalism, Maui Hawaii, Max Levchin, Menlo Park, military-industrial complex, Neal Stephenson, Neil Kinnock, new economy, New Journalism, obamacare, Occupy movement, off-the-grid, oil shock, PalmPilot, Patri Friedman, paypal mafia, peak oil, Peter Thiel, Ponzi scheme, proprietary trading, public intellectual, Richard Florida, Robert Bork, Ronald Reagan, Ronald Reagan: Tear down this wall, Savings and loan crisis, shareholder value, side project, Silicon Valley, Silicon Valley billionaire, Silicon Valley startup, single-payer health, smart grid, Snow Crash, Steve Jobs, strikebreaker, tech worker, The Death and Life of Great American Cities, the scientific method, too big to fail, union organizing, uptick rule, urban planning, vertical integration, We are the 99%, We wanted flying cars, instead we got 140 characters, white flight, white picket fence, zero-sum game

When he returned to Washington, Connaughton picked up a new book titled The Trillion Dollar Meltdown, by a former banker named Charles R. Morris. It argued that overleveraged banks and debt-strapped consumers with unaffordable mortgage payments were creating a credit bubble that would soon pop and create a global financial calamity. Connaughton read the book and tossed it aside. That March, Bear Stearns failed. Connaughton kept an eye on his stocks, where he had most of his wealth in a globally diversified portfolio. The markets were falling, but not precipitously. He expected at most a 10 percent correction. It was never easy to time getting out and back in just right. He stayed put as the Dow dropped toward 10,000.

The complaints were filed by such transparently named financial institutions as HSBC Bank USA, and EMC Mortgage Corporation, and BAC Home Loans Servicing, L.P., formerly known as Countrywide Home Loans Servicing, L.P., and LSF6 Mercury REO Investments Trust Series 2008-1, and Citibank, N.A., as Trustee for the Holders of Bear Stearns Alt-A Trust 2006-6 Mortgage Passthrough Certificates Series 2006-6, and Deutsche Bank Trust Company Americas f/k/a Banker’s Trust Company, as Trustee and Custodian for IXIS 2006-HE3 by: Saxon Mortgage Services, Inc. f/k/a Meritech Mortgage Services, Inc. as its Attorney-in-Fact. The complaints of these institutions were drafted by foreclosure mills such as Law Offices of David J.

He thought the world was going to bust three or four times before it finally did. The credit market was such a confidence game that when it started to wobble, everyone got really scared, because they knew it was too big for them to get out. The first wobble came in February 2007, when there was a collateral dispute between Merrill Lynch and a Bear Stearns hedge fund. The market shat itself for a week—you didn’t want to be the last guy in the swimming pool with a bunch of toasters. Kevin thought it was the beginning of the end and didn’t cover his short, but the market came roaring back for five months—he got it completely wrong. If he’d gotten it right he’d be living in twenty thousand square feet.


pages: 412 words: 113,782

Business Lessons From a Radical Industrialist by Ray C. Anderson

"Friedman doctrine" OR "shareholder theory", addicted to oil, Alan Greenspan, Albert Einstein, An Inconvenient Truth, banking crisis, Bear Stearns, biodiversity loss, business cycle, carbon credits, carbon footprint, carbon tax, centralized clearinghouse, clean tech, clean water, corporate social responsibility, Credit Default Swap, dematerialisation, distributed generation, do well by doing good, Easter island, energy security, Exxon Valdez, fear of failure, Gordon Gekko, greed is good, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), intermodal, invisible hand, junk bonds, late fees, Mahatma Gandhi, market bubble, music of the spheres, Negawatt, Neil Armstrong, new economy, off-the-grid, oil shale / tar sands, oil shock, old-boy network, peak oil, precautionary principle, renewable energy credits, retail therapy, shareholder value, Silicon Valley, six sigma, subprime mortgage crisis, supply-chain management, urban renewal, Y2K

Washington Mutual, the largest savings bank in the United States, is being gobbled up by JPMorgan Chase, out of the receivership of the Federal Deposit Insurance Corporation (FDIC). Bear Stearns, the first really big shoe to fall, is already being absorbed by JPMorgan Chase in a deal brokered by the U.S. Treasury Department over a weekend. Goldman Sachs and Morgan Stanley, for so long dominant forces in the investment banking world, have opted to change their very nature and become regulated commercial banks. They were the last of the mega–investment banks once Bear Stearns, Merrill Lynch, and Lehman Brothers were gone. Mitsubishi UFJ, a Japanese bank, is taking a $9 billion equity position in Morgan Stanley to shore up MS’s capital structure and prepare it for the role of acquirer in the turmoil ahead, portending more consolidation to come.

I do know a few things about business and industry. Bad as we might seem to some, industry hooked up to a free market is the most efficient engine for generating wealth that the world has ever seen. If you don’t believe it, just look at all the failed alternatives. Perhaps some might look at the global financial consternation set in motion by Bear Stearns’s demise, and say the jury is still out, but not me. It is an article of faith, bred into every industrialist’s DNA, that as technology improves we’ll get better and more efficient at supplying whatever the market demands. Did it really matter how many mouths we had to feed? The American farm was the envy of the world, and would surely respond.


pages: 402 words: 110,972

Nerds on Wall Street: Math, Machines and Wired Markets by David J. Leinweber

"World Economic Forum" Davos, AI winter, Alan Greenspan, algorithmic trading, AOL-Time Warner, Apollo 11, asset allocation, banking crisis, barriers to entry, Bear Stearns, Big bang: deregulation of the City of London, Bob Litterman, book value, business cycle, butter production in bangladesh, butterfly effect, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, Charles Babbage, citizen journalism, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, Craig Reynolds: boids flock, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Danny Hillis, demand response, disintermediation, distributed generation, diversification, diversified portfolio, electricity market, Emanuel Derman, en.wikipedia.org, experimental economics, fake news, financial engineering, financial innovation, fixed income, Ford Model T, Gordon Gekko, Hans Moravec, Herman Kahn, implied volatility, index arbitrage, index fund, information retrieval, intangible asset, Internet Archive, Ivan Sutherland, Jim Simons, John Bogle, John Nash: game theory, Kenneth Arrow, load shedding, Long Term Capital Management, machine readable, machine translation, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, market fragmentation, market microstructure, Mars Rover, Metcalfe’s law, military-industrial complex, moral hazard, mutually assured destruction, Myron Scholes, natural language processing, negative equity, Network effects, optical character recognition, paper trading, passive investing, pez dispenser, phenotype, prediction markets, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Reminiscences of a Stock Operator, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Metcalfe, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, semantic web, Sharpe ratio, short selling, short squeeze, Silicon Valley, Small Order Execution System, smart grid, smart meter, social web, South Sea Bubble, statistical arbitrage, statistical model, Steve Jobs, Steven Levy, stock buybacks, Tacoma Narrows Bridge, the scientific method, The Wisdom of Crowds, time value of money, tontine, too big to fail, transaction costs, Turing machine, two and twenty, Upton Sinclair, value at risk, value engineering, Vernor Vinge, Wayback Machine, yield curve, Yogi Berra, your tax dollars at work

Introduction I hope people think of this book as sort of a Hitchhiker’s Guide to Wired Markets. There are no robots parking cars for six million years, but there are robots trading millions of shares in six milliseconds, so maybe that’s close enough. In 2006, I got a call from another nerd on Wall Street (NOWS), Rich Lindsey. At the time, Rich was president of Bear Stearns Securities (Bear Stearns’ prime brokerage company) and a member of the board of the mother ship firm. I had met him nearly 10 years earlier when he was in charge of market surveillance at the New York Stock Exchange (NYSE). A former Yale professor, Rich is a veritable poster boy for nerdy Ph.D.’s who break out of the pure geek world to become general all-around Wall Street BSDs.1 He was putting together a book called How I Became a Quant: Insights from 25 of Wall Street’s Elite, and invited me to write a chapter.

We can wait perhaps 10 years or more for this to happen naturally, or we can seed the process immediately and save the country (and probably the world) from at least a decade of economic stagnation. 320 Nerds on Wall Str eet Not a Wild and Crazy Idea What we propose may initially seem drastic, overly ambitious, logistically difficult, or insensitive to the importance of current financial institutions. On further thought, however, it is no more drastic than a small cadre of Treasury officials directly managing $700 billion with no controls or oversight or real, overarching direction. Logistically, a government that can orchestrate the complex Bear Stearns, AIG, and Fannie Mae/Freddie Mac deals almost overnight should be able to quickly orchestrate the formation of new, clean banks and the transfer of operational assets into them. As far as the present institutions are concerned, nothing will work better to stop the writing-down of assets and to halt further financial bankruptcies than real lending from new institutions with the confidence to act.


pages: 354 words: 118,970

Transaction Man: The Rise of the Deal and the Decline of the American Dream by Nicholas Lemann

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, Abraham Maslow, Affordable Care Act / Obamacare, Airbnb, airline deregulation, Alan Greenspan, Albert Einstein, augmented reality, basic income, Bear Stearns, behavioural economics, Bernie Sanders, Black-Scholes formula, Blitzscaling, buy and hold, capital controls, Carl Icahn, computerized trading, Cornelius Vanderbilt, corporate governance, cryptocurrency, Daniel Kahneman / Amos Tversky, data science, deal flow, dematerialisation, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, Fairchild Semiconductor, financial deregulation, financial innovation, fixed income, future of work, George Akerlof, gig economy, Glass-Steagall Act, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Ida Tarbell, index fund, information asymmetry, invisible hand, Irwin Jacobs, Joi Ito, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, life extension, Long Term Capital Management, Mark Zuckerberg, Mary Meeker, mass immigration, means of production, Metcalfe’s law, Michael Milken, money market fund, Mont Pelerin Society, moral hazard, Myron Scholes, Neal Stephenson, new economy, Norman Mailer, obamacare, PalmPilot, Paul Samuelson, Performance of Mutual Funds in the Period, Peter Thiel, price mechanism, principal–agent problem, profit maximization, proprietary trading, prudent man rule, public intellectual, quantitative trading / quantitative finance, Ralph Nader, Richard Thaler, road to serfdom, Robert Bork, Robert Metcalfe, rolodex, Ronald Coase, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Snow Crash, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, TaskRabbit, TED Talk, The Nature of the Firm, the payments system, the strength of weak ties, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, transaction costs, universal basic income, War on Poverty, white flight, working poor

The investment banks had the potential to take down the whole financial system. The financial system had the potential to take down the economy, throwing millions of people all over the world out of work for year after painful year—often the same people who’d been the victims of high-pressure mortgage brokers in the first place. In March 2008 Bear Stearns, one of the big investment banks, collapsed because of its exposure to subprime mortgages. The Federal Reserve arranged for J.P. Morgan Chase to take it over at a bargain price. And six months after that, another big investment bank, Lehman Brothers, went bankrupt for the same reason. Suddenly it looked as if the entire investment banking business was about to dematerialize.

Absentee Ownership (Veblen) Addams, Jane advertising African Americans, see black Americans Agenda, The (Woodward) Airbnb airline regulation Allen & Company Alliance, The (Hoffman) alpha, as economic term Alphabet; see also Google Alsop, Joseph Aluminum Co. of America Amazon American Can Company American Capitalism (Galbraith) American Dream, An (Mailer) American Finance Association American Nazi Party American Telephone and Telegraph, see AT&T angel investors; see also venture capital Antitrust Paradox, The (Bork) antitrust suits, see trustbusting Apple Computer; funding of Arab Americans Arnold, Thurman Arrow, Kenneth artificial intelligence AT&T; job cuts at; research at auto dealers; associations of; franchise agreements of; online; see also General Motors automatic teller machines Automobile Dealer Economic Rights Restoration Act Baker, Kevin Baldwin, Robert Hayes Burns; changes made by; compensation of Bankers Trust banking; in auto industry; during Depression; deregulation of, see deregulation; local; regulation of; see also investment banking; Morgan Stanley; savings and loans Bank of America bankruptcy bank trust departments Barr, Michael Bartow, Jeff Bay of Pigs invasion Beard, Anson Beard, Charles and Mary Beard, Patricia Beard, Peter Bear Stearns Beck, Glenn behavioral economics “Being a Leader” (Jensen and Erhard) Bell, Daniel Bennington College Bentley, Arthur; on pluralism Berkshires Berle, Adolf Augustus, Jr.; airline regulation and; background of; at Columbia; corporations embraced by; critiques of; death of; ego of; on financial markets; marriage of; Modern Corporation by; pluralism and; post–Roosevelt administration career of; revival of ideas of; in Roosevelt campaign; as Roosevelt’s assistant secretary of state; in Roosevelt’s Brain Trust Berle, Adolf Augustus, Sr.

.; misleading information on factories Fairchild Semiconductor Fair Deal Fair Housing Act Fama, Eugene; efficient market hypothesis of; journal edited by fascism Fed, see Federal Reserve Board Federal Communications Commission Federal Deposit Insurance Corporation federal government; corporations regulated by; deficit of; deposits guaranteed by; finance deregulated by; liberal suspicion of; markets regulated by; in 2008 financial crisis; see also Congress; specific administrations and agencies Federal Housing Administration “Federalist Number 10” (Madison) Federal National Mortgage Association Federal Power Commission Federal Reserve Board; Bear Stearns and; under Bernanke; under Greenspan passim; New York branch of; time prior to; under Volcker Federal Savings and Loan Insurance Corporation Federal Trade Commission Feminine Mystique (Friedan) feminism Fidelity Investments Financial Crisis Inquiry Commission financial economics: critiques of; paradigm shift in; Wall Street’s marriage to financial institutions: closings of; competition for talent between; growth of; limitations on; in Silicon Valley; see banking; investment banking; savings and loans financial panic of 1907 Financial Services Modernization Act of 1999 financial systems: computerization of, see under computers; deregulation of, see deregulation; failures in see also 2008 financial crisis; fragility of; globalization of, see globalization; new techniques of; reregulation of; see also capitalism; investment banking; Jensen, Michael First Boston Fisher, Irving Fisher, Richard (Dick); as head of Morgan Stanley Fitzgerald, Jack fixed-income investments FOO (conference) Ford Ford, Henry foreclosures Fort, Jeff Fortune Fortune 500 foundation endowments 401(k) plans France, conglomerates from Frankfurter, Felix Franklin, Aretha free-market purism; defection from; liberal conversion to; pluralism and; see also Greenspan, Alan free trade Friedan, Betty Friedman, Milton Fujitsu Future of Industrial Man, The (Drucker) futures market Galbraith, John Kenneth; on corporations Galton, Francis gangs Gates, Bill Geithner, Timothy General Accounting Office (GAO) General Electric General Motors; acquisitions of; bankruptcy of; Berle and; credit company of; dealerships for; debt of; decentralized management of; Drucker embedded at; as immune to markets; Japanese competition with; management of; Morgan Stanley and; Organization Man at; other industries tied to; research lab at; safety and; size of; workers’ rights at; during WWII General Theory of Employment, Interest, and Money, The (Keynes) Germany G.


pages: 257 words: 64,763

The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street by Robert Scheer

Alan Greenspan, banking crisis, Bear Stearns, Bernie Madoff, Bernie Sanders, business cycle, California energy crisis, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, do well by doing good, facts on the ground, financial deregulation, fixed income, Glass-Steagall Act, housing crisis, invisible hand, Long Term Capital Management, low interest rates, mega-rich, mortgage debt, new economy, old-boy network, Ponzi scheme, profit motive, Ralph Nader, rolling blackouts, Ronald Reagan, Savings and loan crisis, too big to fail, trickle-down economics

When it arrived two years later, it clearly identified “significant gaps and weaknesses” in the government’s regulation of derivatives. At that time, in 1994, GAO leader Charles A. Bowsher in testimony before Markey’s committee warned of the potential danger of a liquidity crunch from a fall in the derivatives market—precisely what happened fourteen years later with the abrupt collapse of giant firms like Lehman Brothers, Bear Stearns, AIG, and Citigroup. “The sudden failure or abrupt withdrawal from trading of any of these large US dealers could cause liquidity problems in the markets and could also pose risks to others, including federally insured banks and the financial system as a whole,” said Bowsher, as reported in the New York Times.

Particularly troubling is the relationship between Geithner, who as head of the New York Fed had prime responsibility for monitoring companies like Goldman Sachs, and Paulson, that company’s former chair who was now supposedly, through the president, representing the national interest more broadly. On the contrary Paulson and Geithner, in the scamming to save failing institutions from Bear Stearns to AIG, shared the assumption that the survival of major investment houses, particularly Goldman Sachs and Morgan Stanley, was essential to the survival of the American economy. Lehman Brothers had been treated as exceptional because of the particular structuring of its portfolio problems, but others could not be allowed to follow the Lehman downfall, for which Paulson was being strongly criticized by many of his powerful Wall Street friends.


pages: 265 words: 70,788

The Wide Lens: What Successful Innovators See That Others Miss by Ron Adner

ASML, barriers to entry, Bear Stearns, Blue Ocean Strategy, book value, call centre, Clayton Christensen, Ford Model T, inventory management, iterative process, Jeff Bezos, Lean Startup, M-Pesa, minimum viable product, mobile money, new economy, RAND corporation, RFID, smart grid, smart meter, SoftBank, spectrum auction, Steve Ballmer, Steve Jobs, Steven Levy, supply-chain management, Tim Cook: Apple, transaction costs, vertical integration

Meanwhile, pharmaceutical rivals Eli Lilly, Novo Nordisk, and MannKind were running as hard as they could to get to market and capture some of the spoils. Wall Street analysts saw these limitations as well and incorporated them into their forecasts. These nominally objective critics pushed back against Pfizer’s estimates. Both Morgan Stanley and Bear Stearns believed that high manufacturing and education costs would be a problem and estimated $1.5 billion in Exubera sales by 2010. WestLB was even more guarded, projecting “only” $1.3 billion. Figure 4.6: Value blueprint characterizing Pfizer’s expected path to market for pulmonary insulin in 2005 as the company awaited regulatory approval (excludes pharmacies).

,” May 7, 2001. 102 device would garner $1 billion annually by 2007: Credit Suisse First Boston Equity Research, “Pfizer—Confirms European Filing of Exubera,” March 4, 2004. 102 “breakthrough medical advance”: Peter Brandt, Pfizer Q2 2006 earnings conference call, July 20, 2006, p. 3. 102 “Pfizer will have a blockbuster product on its hands”: Val Brickates Kennedy, “Firms to Vie for Inhaled-Insulin Sales,” MarketWatch, May 7, 2005, http://www.marketwatch.com/story/drug-rivals-to-vie-for-share-of-inhaled-insulin-market. 103 buy out Aventis’s share in Exubera for $1.3 billion: “Pfizer to Acquire Global Rights to an Insulin That Is Inhaled,” New York Times, January 13, 2006. 104 “a wealth of experience with not just the use of insulin”: Brandt, Pfizer conference call, p. 16. 105 estimated $1.5 billion in Exubera sales by 2010: Morgan Stanley, “Pfizer,” equity research report, February 12, 2006; Bear Stearns, “Pfizer—Enthusiasm Building Ahead of Exubera Launch,” equity research report, June 12, 2006. 105 projecting “only” $1.3 billion: West LB Equity Research, “Novo Nordisk,” equity research report, November 8, 2006. 106 launched its “full-court press”: “Kindler’s Honeymoon Over? Analysts Press Pfizer Execs on Series of Stumbles,” Pink Sheet, April 1, 2007. 106 would reach $2 billion, although perhaps not by 2010: “Pfizer Plans Exubera ‘Full Court Press’ in 2007 after 2006 Stumbles,” Pink Sheet, January 29, 2007. 106 sales “continued to be disappointing”: Cathy Dombrowski, “Lilly Expects Experience to Help Avoid Mistakes of Pfizer’s Exubera Launch,” Pink Sheet, September 1, 2007. 106 Exubera was dead: “As Pfizer Closes Door on Exubera, Has Window Opened for Others?


pages: 254 words: 68,133

The Age of Illusions: How America Squandered Its Cold War Victory by Andrew J. Bacevich

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, anti-communist, Bear Stearns, Berlin Wall, Bernie Sanders, clean water, Columbian Exchange, Credit Default Swap, cuban missile crisis, David Brooks, deindustrialization, Donald Trump, Fall of the Berlin Wall, Francis Fukuyama: the end of history, friendly fire, gig economy, Glass-Steagall Act, global village, Gordon Gekko, greed is good, Greenspan put, illegal immigration, income inequality, Jeff Bezos, Kickstarter, Marshall McLuhan, mass incarceration, Mikhail Gorbachev, military-industrial complex, Monroe Doctrine, Norman Mailer, obamacare, Occupy movement, opioid epidemic / opioid crisis, planetary scale, plutocrats, Potemkin village, price stability, Project for a New American Century, Ronald Reagan, Ronald Reagan: Tear down this wall, Saturday Night Live, school choice, Seymour Hersh, Silicon Valley, Steve Bannon, Thomas L Friedman, too big to fail, traumatic brain injury, trickle-down economics, We are all Keynesians now, WikiLeaks

Real estate prices plunged, leaving millions of Americans “under water”—the size of their mortgages exceeding the value of their homes. Mortgage default rates soared. The “Big Three” automobile makers, long a symbol of American industrial might, verged on bankruptcy, as did several storied investment banking firms, among them Lehman Brothers, Merrill Lynch, Goldman Sachs, Bear Stearns, AIG, and the Blackstone Group. Once in office, Obama and his team, helped by timely action undertaken by the Federal Reserve, pulled the economy out of its nosedive. Key initiatives included a massive $787 billion stimulus bill that Obama signed into law within a month of becoming president, a bailout package for the auto industry, a bit of tax relief for members of the working class, and reduction of the prime interest rate to essentially zero percent.

See also militarized global leadership Bush Jr. and “end of history” and imperialism and reframing as sole superpower Trump and American Revolutionary War America We Deserve, The (Trump) Anglo-Saxon Protestants Angstrom, Rabbit anti-Communism anti-Semitism Apprentice, The (TV show) arms race Art of the Deal, The (Trump) Asia assassinations assault weapons ban Atta, Mohamed automobile industry baby boomers Baldwin, James Balkans Baltic states banks. See also Wall Street Bannon, Steve Barber, Benjamin Baum, L. Frank Bear Stearns Berlin fall of Wall and Best Years of Our Lives, The (film) Bezos, Jeff Bible Bill of Rights, Second bin Laden, Osama death of birtherism Bismarck, Otto von Blackhawk Down Blackstone Group Blair, Tony Blitzer, Wolf Blow, Charles Boone City. See Cold War (Boone City) consensus Boorstin, Daniel Bosnia Boston Globe Brandeis, Louis Brokaw, Tom Brookings Institution Brooks, David Brown v.


pages: 602 words: 120,848

Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class by Paul Pierson, Jacob S. Hacker

accounting loophole / creative accounting, active measures, affirmative action, air traffic controllers' union, Alan Greenspan, asset allocation, barriers to entry, Bear Stearns, Bonfire of the Vanities, business climate, business cycle, carried interest, Cass Sunstein, clean water, collective bargaining, corporate governance, Credit Default Swap, David Brooks, desegregation, employer provided health coverage, financial deregulation, financial innovation, financial intermediation, fixed income, full employment, Glass-Steagall Act, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, John Bogle, knowledge economy, laissez-faire capitalism, Martin Wolf, medical bankruptcy, moral hazard, Nate Silver, new economy, night-watchman state, offshore financial centre, oil shock, Paul Volcker talking about ATMs, Powell Memorandum, Ralph Nader, Ronald Reagan, Savings and loan crisis, shareholder value, Silicon Valley, Tax Reform Act of 1986, The Wealth of Nations by Adam Smith, three-martini lunch, too big to fail, trickle-down economics, union organizing, very high income, War on Poverty, winner-take-all economy, women in the workforce

That year, five hedge fund managers made $1 billion or more, with the top three weighing in around $3 billion.59 In the two years before they began reporting losses that dwarfed the profits of prior years and brought many of their stockholders to ruin, the venerable firms of Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers, and Bear Stearns paid their employees bonuses of $65.6 billion.60 The home address of the winner-take-all economy has been neither Hollywood nor Silicon Valley, but Wall Street. Until a few years ago, high finance was depicted as the purest of markets. When politicians and analysts referenced the preferences of “Wall Street,” the phrase was taken (without irony) as a synonym for economic rationality itself, rather than as a set of specific interests.

We now know that the price tag for two decades of deregulatory excess will be unconscionably high. Yet in one respect the success of the deregulatory agenda remains undeniable and largely intact: the massive enrichment of an extremely thin slice of American society. In the eight years leading up to the collapse of Bear Stearns and Lehman Brothers in 2008, the top five executives at each firm cashed out a total of roughly $2.4 billion in bonuses and equity sales that were not lost or clawed back when the firms went under.67 As one postcrash exposé explained the game, “Here’s how it goes. You bet big with someone else’s money.

abortion, 145–46, 147, 179, 202, 235 Abramoff, Jack, 199 Adams, John, 77 advertising, 104, 105–6, 171, 176, 206, 251, 277, 283, 295 affirmative action, 181 AFL-CIO, 57, 97, 129, 140, 218, 276 agenda-setting, 123–26, 168–70, 179–80, 259–62, 268, 286–88 agribusiness, 280 agriculture, 84, 85, 108, 189, 246, 280 AIG, 261 airlines industry, 119, 184 air-traffic controllers strike (1981), 58–59, 186–87, 191 Alliance for Worker Retirement Security, 144 Almond, Gabriel, 144 Alternative Minimum Tax (AMT), 49–50, 215–18 Amar, Akhil, 76 amendments, constitutional, 86, 201, 266, 294 American Bankers Association, 124–25, 292 American Council for Capital Formation, 124–25 “American Democracy in an Age of Rising Inequality,” 150 American Enterprise Institute (AEI), 123 American Federation of Labor (AFL), 140 American Legion, 138, 143, 144 “American Option,” 266, 267, 302; see also DeMint, Jim American Petroleum Institute (API), 144, 274 American Political Science Association, 150 Americans for Financial Reform, 275, 285, 292 Americans for Limited Government, 284 Americans for Prosperity, 284 Americans for Tax Reform (ATR), 208, 209–10, 284 Americans with Disabilities Act (1990), 192 America’s Health Insurance Plans (AHIP), 275 antitrust regulation, 71, 80 approval ratings, 165, 258, 268, 282 Archey, William, 206 Armey, Dick, 190, 200, 201, 209, 210, 241, 283 Articles of Confederation, 297, 298–99 Association of State Democratic Chairs, 176 “Astroturf” organizations, 144, 274 Babbitt, Bruce, 181 Bai, Matt, 260 Balz, Daniel, 192 banking industry: bailouts of, 1–2, 71, 198, 226, 249–50, 254, 261 commercial, 69, 71, 197, 249–50, 275 deregulation of, 69, 185, 196, 197–98 government regulation of, 69, 71, 80, 185, 196, 197–98, 282 investment, 69, 71, 197, 229, 249–50 mortgages issued by, 2, 32–33, 197–98, 216, 301 risk management by, 1–2, 44, 45–46, 115 tax reforms opposed by, 89 Bartels, Larry, 110–12, 151–52, 160, 167, 234 Bartlett, Bruce, 267 Baucus, Max, 238–39, 245, 260, 267, 268, 273–74 Bayh, Evan, 239 Beane, Billy, 234 Bear Stearns, 67, 70 Bebchuk, Lucian, 63, 64 Beck, Glenn, 284, 294, 339n Beilenson, Tony, 128 Bernanke, Ben, 34, 267 Berry, Jeffrey, 145, 146 Biden, Joseph, 260 Billings, Robert, Sr., 203 bipartisanship, 100, 183, 185, 186–88, 190, 191–93, 212, 219, 230–31, 233, 259–62, 267–68, 293–300 Blankfein Lloyd C., 1, 2 Bloomberg, Michael, 225, 256 boards of directors, 63–64, 65 Boehner, John, 275, 292, 294 Bogle, John, 63, 229 Bok, Derek, 141 bonuses, 2, 67, 70 Born, Brooksley, 198, 249 Boxer, Barbara, 240, 247 “bracket creep,” 187, 216 Bradley, Bill, 243 Brandeis, Louis, 80–81 Breaux, John, 6, 181, 183, 184, 239, 245 “Broadland,” 15, 17, 24–25, 25, 26, 194, 290 Brock, William, 172–73, 174, 175, 176, 265–66 Brokaw, Tom, 156 Broockman, David, 269 Brookings Institution, 123, 124 Brooks, David, 147 Browder, Earl, 67 Browder, William, 67 Brown, Scott, 282, 284, 287 Brownstein, Ronald, 192 Bryan, William Jennings, 170–71 Buckley, William F., Jr., 221–22 Buffett, Warren, 229, 249 Bush, George H.


pages: 612 words: 179,328

Buffett by Roger Lowenstein

Alan Greenspan, asset allocation, Bear Stearns, book value, Bretton Woods, buy and hold, Carl Icahn, cashless society, collective bargaining, computerized trading, corporate raider, credit crunch, cuban missile crisis, Eugene Fama: efficient market hypothesis, index card, index fund, interest rate derivative, invisible hand, Jeffrey Epstein, John Meriwether, junk bonds, Long Term Capital Management, Michael Milken, moral hazard, Paul Samuelson, random walk, risk tolerance, Robert Shiller, Ronald Reagan, Savings and loan crisis, selection bias, Teledyne, The Predators' Ball, traveling salesman, Works Progress Administration, Yogi Berra, young professional, zero-coupon bond

This spartan style was part of a deliberate effort to minimize what Buffett termed “institutional dynamics.”37 he had hired a floor of traders, they would have found something to trade; lawyers, no doubt, would have found someone to sue. A compact organization lets all of us spend our time managing the business rather than managing each other.38 For a Wall Street investment banker, the trek to this citadel of capitalism was not easily forgotten. John Otto, a Bear Stearns man, got his first shock at the Red Lion. Otto had come with a client who was selling a company in the natural gas business. When he told the hotel doorman they were going to Berkshire Hathaway, the fellow gave him a blank stare. When they did manage to find Kiewit Plaza, Otto was surprised to see a “five-and-dime building” opposite a pizzeria.

The Wall Street Journal commented: “All the players seemed to fit-except one.”31 Buffett was putting $700 million—his biggest bet ever—into a firm of traders. His respect for Gutfreund figured heavily. “Charlie and I like, admire and trust John,”32 Buffett noted soon after. Moreover, the form of the security seemed safe. Ace Greenberg, the streetwise CEO of Bear Stearns, thought Buffett had made “a great deal for the shareholders of Berkshire Hathaway.” If Gutfreund had given away the store, that was his problem. Still, Buffett took some heat. Forbes’s Allan Sloan pointed out that Buffett’s financing had enabled Salomon to pay greenmail to Minorco.33 And Buffett’s fans felt let down that Buffett had joined forces with Wall Street.

One hundred employees defected in February alone. Of those who had been on the payroll in August, a third of the people in equities and a fourth of the bankers were gone.57 Even Denis Bovin, who had been Buffett’s banker in his first dealing with Salomon, in the early seventies, and who had been a fan of Buffett’s personally, jumped to Bear Stearns. As painful as such betrayals were, Buffett relentlessly insisted that Salomon was on track. When the dust settled, he maintained, Salomon would be stronger, in all areas, than ever. No one on the staff saw him waver, even in the slightest. This was Buffett’s essential virtue—the courage to stick to his course.


pages: 267 words: 72,552

Reinventing Capitalism in the Age of Big Data by Viktor Mayer-Schönberger, Thomas Ramge

accounting loophole / creative accounting, Air France Flight 447, Airbnb, Alvin Roth, Apollo 11, Atul Gawande, augmented reality, banking crisis, basic income, Bayesian statistics, Bear Stearns, behavioural economics, bitcoin, blockchain, book value, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, Cass Sunstein, centralized clearinghouse, Checklist Manifesto, cloud computing, cognitive bias, cognitive load, conceptual framework, creative destruction, Daniel Kahneman / Amos Tversky, data science, Didi Chuxing, disruptive innovation, Donald Trump, double entry bookkeeping, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Evgeny Morozov, flying shuttle, Ford Model T, Ford paid five dollars a day, Frederick Winslow Taylor, fundamental attribution error, George Akerlof, gig economy, Google Glasses, Higgs boson, information asymmetry, interchangeable parts, invention of the telegraph, inventory management, invisible hand, James Watt: steam engine, Jeff Bezos, job automation, job satisfaction, joint-stock company, Joseph Schumpeter, Kickstarter, knowledge worker, labor-force participation, land reform, Large Hadron Collider, lone genius, low cost airline, low interest rates, Marc Andreessen, market bubble, market design, market fundamentalism, means of production, meta-analysis, Moneyball by Michael Lewis explains big data, multi-sided market, natural language processing, Neil Armstrong, Network effects, Nick Bostrom, Norbert Wiener, offshore financial centre, Parag Khanna, payday loans, peer-to-peer lending, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price mechanism, purchasing power parity, radical decentralization, random walk, recommendation engine, Richard Thaler, ride hailing / ride sharing, Robinhood: mobile stock trading app, Sam Altman, scientific management, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley startup, six sigma, smart grid, smart meter, Snapchat, statistical model, Steve Jobs, subprime mortgage crisis, Suez canal 1869, tacit knowledge, technoutopianism, The Future of Employment, The Market for Lemons, The Nature of the Firm, transaction costs, universal basic income, vertical integration, William Langewiesche, Y Combinator

A number of investment banks responded by reinventing themselves as institutions of money, rather than information: they did this by abandoning partnerships and issuing listed shares, by merging and growing drastically in scale, and by dramatically increasing leverage. They turned themselves into highly leveraged banking institutions. When the subprime mortgage crisis hit in 2007, three of the world’s largest investment banks—Bear Stearns, Lehman Brothers, and Merrill Lynch—collapsed, and many merged with conventional banks, utterly remaking most of the sector. A few investment banks, however, had resisted that shift toward money. They remained information intermediaries and did well. More followed, and today a growing number of highly specialized boutique firms utilize the latest in digital technologies, working with big data analytics firms such as Contix and Kensho and utilizing machine learning systems to do what investment banking originally did: offer information rich with insight about optimal investment transactions to market participants.

See Daimler; Ford Motor Company; General Motors; Tesla Autopilot, 78 Autor, David, 195 Avant, 151 Bacon, Francis, 223 Baidu, 30, 151 Bank La Roche, 136 banks, 11, 12, 137, 138–140, 146–156 capital share of, 185, 186 central, 134–135, 149 choice expansion in, 215–216 cost cutting in, 146–148 crisis facing, 134–136 government loans to, 134 investment planning by, 150, 154–155 Italian merchant families in, 91 lending by, 150–151 payment businesses competing with, 146–147 poor insight of, 154 regulations affecting, 139–140 reinvention of from within, 146, 149–156 traditional role of, 138–139 Barclays, 215 Bardi family, 91 Barkai, Simcha, 194, 195 barter economy, 45 Bastani, Aaron, 221 Bauer, Florian, 55 Bear Stearns, 155 Beer, Staffors, 175–176 Bethlehem Steel, 95 Betterment, 151, 153 Bezos, Jeff, 68, 88, 89, 96, 106, 107, 130 Big Data, 77, 213, 219, 222 See also data-rich markets Bitcoin, 48, 147 BlaBlaCar, 3, 9, 65 blockchain, 147, 148 BMW, 120 book value, 172 bookkeeping, 92–93 bounded rationality, 104 Brezhnev, Leonid, 221 Bridgewater Associates, 114–115 Brookings Institution, 186 Brown, John Seely, 31 Brynjolfsson, Erik, 184, 220 Buick Motor Company, 98 cacao beans (as currency), 48 Canada, 191–192 capital, 15, 133–156 abundance of, 142–143, 194 banks’ shift from, 134–136, 138–140, 146–156 future role of, 11–12, 141 problems caused by decline of, 141–144 signaling with, 141–143 steady value of predicted, 144 See also money; price capital gains tax, 187 Capital in the Twenty-First Century (Piketty), 186 capital share, 185–186, 193–195, 197, 198 Carnegie Mellon University (CMU), 60 Case, Bob, 133–134 castells, 17–20 cell phones.


pages: 268 words: 74,724

Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank by John Tamny

Airbnb, Alan Greenspan, Apollo 13, bank run, Bear Stearns, Bernie Madoff, bitcoin, Bretton Woods, business logic, buy and hold, Carl Icahn, Carmen Reinhart, corporate raider, correlation does not imply causation, cotton gin, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Donald Trump, Downton Abbey, Fairchild Semiconductor, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, Glass-Steagall Act, Home mortgage interest deduction, Jeff Bezos, job automation, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kickstarter, Larry Ellison, liquidity trap, low interest rates, Mark Zuckerberg, market bubble, Michael Milken, Money creation, money market fund, moral hazard, mortgage tax deduction, NetJets, offshore financial centre, oil shock, peak oil, Peter Thiel, Phillips curve, price stability, profit motive, quantitative easing, race to the bottom, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Solyndra, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, Travis Kalanick, Uber for X, War on Poverty, yield curve

Others on both the Left and the Right pointed to the gradual erosion and near-total abolishment of the Glass-Steagall Act from the 1930s, which separated banking services from normal retail banking. If we ignore that it was the hybrid bank/investment banks that were the healthiest in 2008—and were in a position to acquire the failed Bear Stearns (J. P. Morgan), the failed Merrill Lynch (Bank of America), and the failed Wachovia (Wells Fargo)—we still can’t ignore what is obvious. Banks did not run into trouble because of their exposure to investment banking services or because of their underwriting or dealing in securities (banks are still prohibited from the doing latter).15 They imploded because of mortgage lending and exposure to mortgages, something they were already allowed to do before Glass-Steagall’s partial repeal.

INDEX Adapt (Harford), 32, 64–65 The Age of Reagan (Hayward), 49, 169 Allison, John, 119, 152, 172–73 Altig, David, 156 Amazon, 97–98, 108, 125, 143, 155 Ambassador Hotel, 34, 35–36 Apple Computer, 30–31, 125, 143 Apple Music, 9–10 Austin, Texas, 123, 148 Austrian School of economics, 79, 87, 88–89, 90, 91–95, 113–14, 141 See also von Mises, Ludwig Bain Capital, 126 Baker Hughes, 73 Baltimore, Maryland, 135, 139–40, 143 Baltimore Ravens, 17 The Baltimore Sun, 135 banking bank cash reserve and capital requirements, 98–102 federal deposit insurance, 101–2 housing boom and “easy credit,” 113–22 inability of banks to multiply money and credit, 86–92, 96 insolvent banks and necessity of the Fed, 164–65 interbank lending rates, 114–16, 156–58 lending practices, 86–90, 98–102, 109–10 necessity of traditional banks, 105–12 proposed Glass-Steagall reintroduction, 102–3 and Wall Street, 126, 129–31 Bank of America, 89, 103, 108, 120 Bank of Bird-in-Hand, 111 Bank of Japan, 152, 159 Bartley, Robert, 70, 71, 72 Bartley, Robert L., 157–58 The Battle of Bretton Woods (Steil), 95, 169 Bear Stearns, 120 Beatty, Warren, 23–24, 28 Beckworth, David, 138–39 Berkshire Hathaway, 62, 85 Bernanke, Ben, 41–47, 72, 106, 128, 149, 154, 164 Bezos, Jeff, 59, 97–98, 150 Biden, Joe, 59 billion-dollar “unicorn” companies, 28, 148 Biography of the Dollar (Karmin), 100 Bitcoin, 144 Blinder, Alan, 1 Bloomberg news organization, 42 Blumenthal, Michael, 117, 170 Bonnie & Clyde (film), 23 Brady, Tom, 16 Bretton Woods monetary conference, 95, 169 Brookes, Warren, 49, 50, 69, 72, 97 Brown, James, 25 Buffett, Warren, 59, 62, 78, 85, 150 Burns, Arthur, 169, 170 Bush, George W., 71, 72–73, 118–19, 121, 171 cab fares during periods of heavy demand, 11–12 Candy, John, 22 Capital City (Kessner), 30 capitalism credit and crowdsourcing, 110 failure as feature of, 58, 89, 100, 125 and filling of unmet needs, 112, 179 turning scarcity into abundance, 53–54, 81 car companies, 56–57 car manufacturing process, 65–66 Carroll, Pete, 18–20 Carter, Jimmy, 117, 170 Cassel, Gustav, 119 Cato Institute, 135 The CEO Tightrope (Trammell), 123–24 The Changed Face of Banking (Smith), 111, 129 Chinese economy, 94, 96, 118, 135–36, 137, 138 Chinese stock market, 152–53 Citadel hedge fund, 41, 42, 43 Citigroup, 128 Cleveland, Ohio, 137–38 Clinton, Bill, 51–52, 71, 72, 171 Clinton, Hillary, 48, 51–52, 59 coaching and recruiting of college athletes, 15–21, 78–79 Cochrane, John, 102 computer company failures, 57 Congress.


pages: 283 words: 77,272

With Liberty and Justice for Some: How the Law Is Used to Destroy Equality and Protect the Powerful by Glenn Greenwald

Alan Greenspan, Ayatollah Khomeini, banking crisis, Bear Stearns, Bernie Madoff, Clive Stafford Smith, collateralized debt obligation, Corrections Corporation of America, crack epidemic, Credit Default Swap, credit default swaps / collateralized debt obligations, David Brooks, deskilling, financial deregulation, full employment, high net worth, income inequality, Julian Assange, mandatory minimum, nuremberg principles, Ponzi scheme, Project for a New American Century, rolodex, Ronald Reagan, Seymour Hersh, too big to fail, Washington Consensus, WikiLeaks

In December 2010, ProPublic reporter Jesse Eisinger—who covered the financial crisis from the start—protested the lack of prosecutions in the New York Times, noting that even on Wall Street, “everyone is wondering: Where are the investigations related to the financial crisis?” Eisinger’s article summarized the shocking state of affairs: Nobody from Lehman, Merrill Lynch or Citigroup has been charged criminally with anything. No top executives at Bear Stearns have been indicted. All former American International Group executives are running free. No big mortgage company executive has had to face the law…. The world was almost brought low by the American banking system, and we are supposed to think that no one did anything wrong?…As a society, we have the bankers we deserve.

ABC News Abrams, Elliott Abu Ghraib prison Abzug, Bella ACLU Adams, Abigail Adams, John Addington, David Afghanistan war African Americans Alexander, Michelle Algeria al-Qaeda Alter, Jonathan American Civil Liberties Union American Enterprise Institute American International Group (AIG) Andrews, Bruce Answers to Monsieur de Meusnier’s Questions (Jefferson) Anti–Drug Abuse Acts (1986, 1988) antitrust laws Arar, Maher Argentina Armey, Dick Armitage, Richard Ash, Mimi Ashcroft, John Assange, Julian assassination of American citizens AT&T Atlantic Australia Austria auto company bailouts Awlaki, Anwar al- Bagram prison Balko, Radley bank holding company Bank of America bankruptcy laws banks accounting practices and deregulation of financial crisis and foreclosure fraud and Geithner and retroactive immunity and Barclays Capital Barnes, Fred Barofsky, Neil Barr, William Barry, John Bear Stearns Bechtel Corporation Beckett, Katherine BellSouth Berenson, Brad Bethune, Brian Biden, Joe Bill Moyers Journal (TV show) Bill of Rights Black, Bill Black, Charlie BlackRock Blagojevich, Rod Blankfein, Laura Blankfein, Lloyd Bloomberg news Blow, Charles Blue Dogs Democrats Blumenthal, Paul Blumenthal, Sidney Boehner, John Boeing Boland Amendment (1982) Booz Allen Borger, Gloria Boston Phoenix Boumediene ruling Bradbury, Steven Brennan, John Britain British International Criminal Court Act (2001) Broder, David Brooks, David Brown, Roy BSKH & Associates Buffett, Warren Bunch, Will Bureau of Corporations Bureau of Justice Statistics Burger, Warren Burton, Bill Bush, George H.


pages: 232 words: 71,965

Dead Companies Walking by Scott Fearon

Alan Greenspan, bank run, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, book value, business cycle, Carl Icahn, corporate raider, cost per available seat-mile, creative destruction, crony capitalism, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, Golden Gate Park, hiring and firing, housing crisis, index fund, it's over 9,000, Jeff Bezos, John Bogle, Joseph Schumpeter, Larry Ellison, late fees, legacy carrier, McMansion, moral hazard, multilevel marketing, new economy, pets.com, Ponzi scheme, Ronald Reagan, short selling, short squeeze, Silicon Valley, Snapchat, South of Market, San Francisco, Steve Jobs, survivorship bias, Upton Sinclair, Vanguard fund, young professional

In fact, the more iconoclastic an idea is, the more curious they are about it. Unfortunately, this attitude is exceedingly rare on Wall Street. I used to play a stock-picking game with about twenty different brokerage salesmen and Wall Street analysts. Most of them worked at well-known firms—Merrill Lynch, Alex Brown, Goldman Sachs, Bear Stearns. The rules of the game were simple: pick two longs and one short. You could only swap out picks at the end of each quarter. At the end of one year I mailed a gift to all the participants, a short but insightful book titled In the Shadows of Wall Street. Written by Cornell professor Paul Strebel, it analyzed how smaller-company stocks neglected by Wall Street often outperformed those rated as buys.

By early 2008, only a couple years after I’d signed over my 100K to him, my stake had more than tripled, at least on paper. I met up with my friend that summer, and I told him that while I was thrilled with his performance so far, I didn’t feel good about the direction of the markets. This was a few months after Bear Stearns had crashed and burned. Things were getting dire, and I urged him to start shorting stocks, something he had always been reluctant to do. “You’re running a hedge fund,” I said. “Now’s the time to start hedging.” He gave me a bashful smile and shook his head. “You’re right—the markets are looking iffy, Scott,” he said.


pages: 466 words: 127,728

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

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, BRICs, business climate, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Dr. Strangelove, Edward Snowden, eurozone crisis, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global macro, global reserve currency, global supply chain, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Herman Kahn, high-speed rail, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, junk bonds, Kenneth Rogoff, labor-force participation, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market design, megaproject, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shale / tar sands, open economy, operational security, plutocrats, Ponzi scheme, power law, price stability, public intellectual, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, Solyndra, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, undersea cable, uranium enrichment, Washington Consensus, working-age population, yield curve

The housing market collapse in 2007 destroyed the collateral value behind $1 trillion in subprime and other low-quality mortgages, and trillions of dollars more in derivatives based on those mortgages also collapsed in value. The Panic of 2008 forced financial firms and leveraged investors to sell assets in a disorderly fire sale to pay down debt. Other assets came on the market due to insolvencies such as Bear Stearns, Lehman Brothers, and AIG. The financial panic spread to the real economy as housing starts ground to a halt and construction jobs disappeared. Unemployment spiked, which was another boost to deflation. Inflation dropped to 1.6 percent in 2010, identical to the 1.6 percent rate that had spooked Greenspan in 2001.

The maturities of the WMPs are often short-term while the projects they invest in are long-term. The resulting asset-liability maturity mismatch would create a potential panic scenario if investors refused to roll over their WMPs when they mature. This is the same dynamic that caused the failures of Bear Stearns and Lehman Brothers in the United States in 2008. Bank sponsors of WMPs address the problems of nonperforming assets and maturity mismatches by issuing new WMPs. The new WMP proceeds are then used to buy the bad assets of the old WMPs at inflated values so the old WMPs can be redeemed at maturity.

., 74 backwardation, of gold futures contracts, 285 Bahrain, 58, 152 Baker, James, 177 Balko, Radley, 294 bank deposit risk, 218–19 bank failure risk, 218 Bank for International Settlements (BIS), 213, 276–78 banking risk, 11–12 Bank of England (BOE), 159–60, 161–62, 223, 230 Bank of Japan (BOJ), 160, 161–62 Bank of the United States, 199 barter, 254–55 Bear Stearns, 77, 103 Beijing Consensus, 118, 120–21 BELLs (Bulgaria, Estonia, Latvia, Lithuania), 140–146 economic responses to 2008–9 crisis and subsequent recovery in, 142–46 euro peg/conversion in, 141, 144–45 Berlin Consensus, 121–27 cooperative labor-management relations pillar of, 123–24 efficient labor pillar of, 124–25 innovation and technology pillar of, 122 low-corporate-tax-rates pillar of, 122 low-inflation pillar of, 122–23 positive business climate pillar of, 125–26 Bernanke, Ben, 262 cheap-dollar policy of, 129, 157–59 deflation and, 76, 77 information’s role in efficient markets, analysis of, 84, 85–86, 87 London speech of, 158–59 Tokyo speech of, 129, 157–58 bin Laden, Osama, 19–20, 37 bitcoin, 254 Black Death, 115 Black Monday, 270 Blackstone Group, 51–52 Bloomberg, Michael, 294–95 Bloomberg News, 101, 145 Boeing Corporation, 58–59 Boesky, Ivan, 18 bond markets, 180 Bosnia, 136 Brazil, 139.


pages: 476 words: 139,761

Kleptopia: How Dirty Money Is Conquering the World by Tom Burgis

active measures, Anton Chekhov, banking crisis, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Boris Johnson, Brexit referendum, British Empire, collapse of Lehman Brothers, coronavirus, corporate governance, COVID-19, credit crunch, Credit Default Swap, cryptocurrency, disinformation, do-ocracy, Donald Trump, energy security, Etonian, failed state, fake news, Gordon Gekko, high net worth, Honoré de Balzac, illegal immigration, invisible hand, Julian Assange, liberal capitalism, light touch regulation, lockdown, Mark Zuckerberg, Martin Wolf, Michael Milken, Mikhail Gorbachev, Mohammed Bouazizi, Northern Rock, offshore financial centre, Right to Buy, Ronald Reagan, Skype, sovereign wealth fund, trade route, WikiLeaks

And even at his darkest hour, there was still a place to which Mugabe, scourge of British imperialists, could turn for salvation: London. In Mayfair, the domain of the hedge funds, a pair of moneymen, one Australian and one American, had designs on Africa. On March 16, 2008, two weeks before the Zimbabwean election, the Australian prepared to set forth in furtherance of this endeavour. Two days earlier, Bear Stearns had died. Wall Streeters were mostly horrified. But Vanja Baros was brimming with possibilities. He emailed his boss, Michael L. Cohen, with the latest. Cohen was a young buck of Mayfair. He had not passed thirty when Daniel Och, the New York superstar financier, had sent him to London. Cohen had recently advanced his Anglofication by adding to his Bentley a $28 million country estate in Hampshire once owned by the Duke of Wellington and where Nigel Wilkins’ father used to preach in the nearby village chapel.

After public school in Brooklyn he had put himself through college at Pace University on Manhattan, studying accounting. A few blocks south of the campus lay Wall Street. This was the 1980s, the Wall Street of Gordon Gekko. Greed was good. Felix qualified as a broker and was soon making money at Bear Stearns, then at Lehman Brothers. He was still only twenty-five when, one night in 1991, as men of Wall Street do, he went out to a bar in Midtown – El Rio Grande – and drank too much. A fellow drinker got into an argument with Felix about a woman. Felix seized a margarita glass and smashed it into the man’s face.

., 365n Bank of New York scandal (1999), 179, 181, 314 banking and finance: compliance officers, 6; Big Four audit firms, 13, 105, 179; freedom under New Labour, 14, 25, 187; Thatcher’s big bang, 14, 187; anonymising of money, 26, 44, 70–1, 119, 179, 181, 186–7; Carl Levin’s Senate hearings (2008), 44–7, 58, 59, 349n; bankers’ secrecy tricks, 46, 58, 59, 70–1; pump-and-dump frauds, 75, 81, 82, 83, 85–6, 204, 313; mafia penetration of Wall Street, 83–4; tax evasion in USA, 171, 214, 240–1, 272, 373n, 394n; hold-mail accounts, 216–17, 240; pursuit of whistleblowers, 230–1, 390n; Lagarde List in Greece, 230 see also entries for individuals and institutions Banqueting House on Whitehall, 8–10, 12–13, 23–4 Barnwell, John, 408n Baros, Vanja, 54, 55–6, 282, 351n Barr, William, 317 Barrington, Robert, 239–40 bauxite, 10 Bayrock Group, 84–5, 110, 126–7, 199–200, 314, 315, 357n, 362n, 366–7n BDK Attorneys (Johannesburg), 350n Bean, Elise, 349n, 384n Bear Stearns, 54, 75 Behar, Richard, 368n, 376n Beketayev, Marat, 294, 295, 397n, 398n Bekker, Andre, 283, 308, 403–4n, 405n Belgium, 13–14, 112, 131–2, 155–6, 191, 223, 292–3, 304–6, 342n Ben Ali, Zine El Abidine, 120 Benex (front company), 376n, 377n Berezovsky, Boris, 35 Bermuda, 421–3n Bernanke, Ben, 170 Bethel, James, 284–7, 308–9, 406–7n Biden, Joe, 311, 317, 318, 4l4n Bin Laden, Osama, 82 Birkenfeld, Brad, 45, 47, 59, 349n Birshtein, Boris, 95–6, 97–100, 101–2, 131–2, 159, 174, 184, 222–3, 316, 331, 358–61n, 376n, 388n Black Cube, 294, 409n Blackwater (private military firm), 106, 274 Blair, Tony: support for City, 14, 25, 163, 187, 346n; Tim Allan as media strategist, 117; advises Nazarbayev, 154–5, 161, 163, 165, 166, 372n; consultancy work, 154–5, 161, 162–3, 165, 166, 372n; cancels Saudi corruption investigation, 161, 301, 372n Blakes (London solicitors), 177–8 Bloomberg, Michael, 289 Bo Xilai, 416–17n Bogatin, David, 179 Bogatin, Jacob, 179, 377n Boies Schiller (New York law firm), 246–7, 395n Bolsonaro, Jair, 337 Boston (USA), 86 Boston Consulting Group, 138, 369n Bouazizi, Mohamed, 120 Bourg, Nicolas, 247, 396n Boyarov, Evgeny, 276–7 BP, 16–23, 182, 285, 303, 342–5n Branson, Mark, 46 Brasco, Donnie (Joseph D.


pages: 689 words: 134,457

When McKinsey Comes to Town: The Hidden Influence of the World's Most Powerful Consulting Firm by Walt Bogdanich, Michael Forsythe

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Alistair Cooke, Amazon Web Services, An Inconvenient Truth, asset light, asset-backed security, Atul Gawande, Bear Stearns, Boris Johnson, British Empire, call centre, Cambridge Analytica, carbon footprint, Citizen Lab, cognitive dissonance, collective bargaining, compensation consultant, coronavirus, corporate governance, corporate social responsibility, Corrections Corporation of America, COVID-19, creative destruction, Credit Default Swap, crony capitalism, data science, David Attenborough, decarbonisation, deindustrialization, disinformation, disruptive innovation, do well by doing good, don't be evil, Donald Trump, double entry bookkeeping, facts on the ground, failed state, financial engineering, full employment, future of work, George Floyd, Gini coefficient, Glass-Steagall Act, global pandemic, illegal immigration, income inequality, information security, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, job satisfaction, job-hopping, junk bonds, Kenneth Arrow, Kickstarter, load shedding, Mark Zuckerberg, megaproject, Moneyball by Michael Lewis explains big data, mortgage debt, Multics, Nelson Mandela, obamacare, offshore financial centre, old-boy network, opioid epidemic / opioid crisis, profit maximization, public intellectual, RAND corporation, Rutger Bregman, scientific management, sentiment analysis, shareholder value, Sheryl Sandberg, Silicon Valley, smart cities, smart meter, South China Sea, sovereign wealth fund, tech worker, The future is already here, The Nature of the Firm, too big to fail, urban planning, WikiLeaks, working poor, Yogi Berra, zero-sum game

Trillions of those dollars would soon disappear. Weeks after Schumer and Bloomberg spoke at city hall, the unraveling became very public with the bankruptcy of New Century Financial, a subprime lender, followed in July 2007 by the collapse of two Bear Stearns hedge funds that invested in securitized mortgage debt. By the following March, Bear Stearns, America’s fifth-biggest investment bank, was absorbed by J. P. Morgan in a government-brokered fire sale. But the dam really broke in September when Lehman Brothers and Washington Mutual declared bankruptcy. The federal government had to bail out AIG—swamped with billions of dollars of claims for the “credit enhancements” that it couldn’t pay—to the tune of $182 billion.

See also financial industry; investment banks deregulation of, 172–81, 186, 189 executive salaries and, 33, 175, 180 matrix management and, 175–80 securitization and, 181–87 Banpu, 166 Barbarians at the Gate (Burrough and Helyar), 117 Barriball, Ed, 86–88 Barton, Dominic, 63, 86, 99, 101–2, 106, 165, 213–14, 238–39, 241, 257, 272, 279 Bate, Paul, 270 batteries, 158 Baucus, Max, 63, 64 Bear Stearns, 188 “Because Patients Can’t Wait” conference, 68–69 Beijing office, 95–96, 99 Bell Pottinger, 225 Belt and Road Initiative (BRI), 101–3 Bennett, David, 265, 267, 269, 271 Benni, Enrico, 252 Berardinelli, David J., 192–93, 197, 199 Bevan, Aneurin “Nye,” 258–59 BHP (formerly Broken Hill), 156 Bible, Geoffrey, 116 Biden, Joe, 93, 103 Big Thunder Mountain, 14–15 Biogen, 66–69 biopharmaceuticals, 102 Bivens, Josh, 41 Black, John, 266 Black smokers, 116–17 Blackstone, 256 Blair, Tony, 265 Bloomberg, Michael, 171–73, 188 Bloomberg Businessweek, 164 Bloomberg Markets, 199–200 Bloomberg News, 43, 149, 184, 190 Blue Cross and Blue Shield of Illinois, 55–56 Blue Cross Blue Shield of Arkansas, 60–61 BMW, 100 Boeing, 98, 100, 177 Boer, Kito de, 244 Bogdanich, Walt, 2n Boston Consulting Group (BCG), 156–57, 159, 181, 246, 248–49, 251, 256 Boston Globe, 148 Boston Red Sox, 217–18 Bower, Marvin, 19, 23, 32–33, 156, 159 BP, 163–64 Brady Kmantz, Shannon, 200–202 BrainGuide, 68 Brandeis University, 145 Brandt, Allan M., 111 Breaking Up the Bank (Bryan), 182 Bregman, Rutger, 150 Breja, Siddharth, 127 Bring, Murray H., 116 Britain, 258–75, 280 British Airways, 263 British American Tobacco, 113, 118, 120 British Columbia, 164 British Foreign Office, 18 British Gas, 263 British Parliament, 275 British Rail, 263 British Steel, 261 British Telecom, 263 Britton, Andrew C., 113 broadband market, 206 Broken Hill (later BHP), 156 Brookings Institution, 246 Brown, Gordon, 265 Brown, James, 116 Brown & Williamson, 113 Bryan, Lowell, 179–87, 189–90 Buckley, Chris, 104 Budlender, Geoff, 236–38 Buffett, Warren, 112 Burritt, David, 8, 9 Bush, George H.


pages: 521 words: 136,802

Unscripted: The Epic Battle for a Media Empire and the Redstone Family Legacy by James B Stewart, Rachel Abrams

activist fund / activist shareholder / activist investor, AOL-Time Warner, Apple's 1984 Super Bowl advert, Bear Stearns, Bernie Madoff, Black Lives Matter, company town, compensation consultant, corporate governance, corporate raider, Donald Trump, estate planning, high net worth, Jeff Bezos, junk bonds, Mark Zuckerberg, medical residency, Michael Milken, power law, shareholder value, Silicon Valley, Steve Jobs, stock buybacks, Tim Cook: Apple, vertical integration, éminence grise

Steven Sweetwood, Sumner’s stepnephew and a stockbroker who handled Viacom’s stock buybacks, decided the answer might be a woman from an entirely different milieu than Hollywood. Sweetwood set Sumner up on a blind date with an elementary school teacher in Manhattan named Paula Fortunato, a friend of a colleague of his at Bear Stearns. Fortunato, age thirty-eight, was living in a one-bedroom apartment on the Upper East Side. She’d never heard of Sumner Redstone or, for that matter, Viacom. Sumner was, by his own account, instantly smitten by the attractive brunette. After their first dinner, at Manhattan’s Il Postino restaurant, he had a messenger deliver a packet of press clippings about him.

Dauman told analysts he was confident Paramount had hits in the pipeline: Star Trek Beyond, a Teenage Mutant Ninja Turtles sequel, and a Brad Pitt spy vehicle, Allied, among them. Then an opportunity emerged that might rescue both Dauman and Viacom’s plummeting stock price. Investment banker Alan Schwartz, former chief executive of Bear Stearns, approached Dauman about selling a stake in Paramount to the Chinese property conglomerate Dalian Wanda, which also owned movie theaters in China and a stake in the AMC chain in the United States. Selling all or part of Paramount wasn’t exactly an original idea: several Wall Street analysts, including SpringOwl’s Jackson, had been pushing Dauman to unlock value by selling a stake.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z A Abrams, George: and conflict between Sumner and Shari, 33; and conflict over Paramount sale, 152–53, 156–57, 168–71, 175; and Dauman’s lawsuit settlement, 178; and Sumner’s divorce settlement, 19; and Sumner’s gifts to Holland and Herzer, 74; and Sumner’s retirement, 150 Abrams, Rachel, xi–xii Academy Awards, xiv, 15, 60 Access Hollywood, 200 Adult Protective Services (Los Angeles County), 99–101 Advancit Capital, 91, 224, 339 Aiello, Michael: and CBS’s investigation of Moonves, 234–39, 278, 309–12, 314–15, 318, 340, 353; and plan to dilute Redstone voting shares, 270; and publication of Moonves exposé, 298 Ailes, Roger, 200 Allen, Woody, 201 Allen & Company media summit (Sun Valley conference), 177, 342 Allied (film), 149, 179 Allred, Gloria, 321 Alpert, Herb, 106 Amazon, 127, 182, 223 Amazon Prime (streaming service), 341–42 Ambrosio, Anthony, 192, 246 AMC, 150 Andelin, Malia, 37–42, 46, 56, 59–67, 80, 337 Andelin, Vanessa, 61, 61n Andelman, David: and conflict over Paramount sale, 170–71; and corporate governance at CBS and Viacom, 192; and Holland and Herzer’s influence over Sumner’s affairs, 68–69, 73–76, 95, 132, 134; and Holland and Herzer’s litigation, 186; and plan to dilute Redstone voting shares, 273; and primary sources for book, 353; and Sumner’s divorce settlement, 19; and Vanity Fair investigation of Moonves, 306 Angell, Roger, 290 Annals of Internal Medicine, 250, 306 anti-Semitism, 342 Arbor (rehab facility), the, 108–9 AT&T, 183 Austin, Christopher, 261, 267, 270 B Bakish, Robert: and CBS’s investigation of Moonves, 240; and CBS/Viacom merger, 244–45, 251, 253, 331; and challenges of changing media environment, 130; and corporate governance at CBS and Viacom, 192; leadership of Viacom, 183–84, 339–41; and plan to dilute Redstone voting shares, 255; relationship with Shari, 229; strategic review of CBS’s position, 224 Bart, Peter, 342–43, 353 Bartoli, Elvira, 74 Bay, Michael, 3 Bear Stearns, 150 Beeple, 339 Bennett, Tony, 19, 64, 106 Bergen, Candice, 268 Berk, Blair, 209 Berkshire Hathaway, 192 Bezos, Jeff, 202 Bing, Stanley (pen name), 205. See also Schwartz, Gil Bishop, Leah: and changes to Sumner’s will, 121; and conflicts over access to Sumner, 97; and efforts to undermine Herzer’s influence, 132, 134–36; and elder abuse claims, 100–101; and Herzer’s control of Sumner’s affairs, 124; and Holland and Herzer’s litigation, 141, 155, 186, 336; and primary sources for book, 353; and Shari’s buyout negotiations, 91, 95; and Shari’s involvement in Sumner’s affairs, 137; and Shari’s view of legal profession, 340; and Sumner’s birthday celebrations, 106; and Sumner’s funeral arrangements, 98–99, 107; and Sumner’s gifts to Holland and Herzer, 73, 75, 77–78 Blockbuster, xiv, 32 Blum, Bennett, 186 Boies, David, 77, 139 Bouchard, Andre, 268, 269 Bowers, Billy, 283–84 Boyd, Philip, 243, 274 Bravo, 3, 45, 47, 49 Brown, Jerry, 219 Buchwald, Art, 139 Buffett, Warren, 62, 177, 192 Burke, Tarana, 200 Burrough, Bryan, 22 Butler, Tracie, 83 C Carr, David, 44 Carter, Graydon, 79 Carter Ledyard & Milburn (law firm), 72 CBS: and additional allegations against Moonves, 281–85, 325–29; and audition for Phillips, 242–43; and challenges of changing media environment, 128; and conflict over Paramount sale, 168, 175; controversy over succession of Sumner, 55; and corporate governance standards, 194–97; and Dauer’s promotion of clients, 213–214, 219–20; and efforts to undermine Herzer’s influence, 133; and extent of Redstone holdings, xiii; family conflicts over management, 34–36; and Holland and Herzer’s litigation, 187, 189; and Holland’s influence with Sumner, 53; and internal investigation of Moonves, 277–80, 303–5, 310, 315; Klieger’s addition to board, 197–98; Moonves’s departure from, 217, 331–33; and Moonves’s industry background, 21–22; and Moonves’s influence over casting, 222, 318; and Moonves’s life after scandal, 337–38; and New Yorker investigation into Moonves, 288–91, 293–95, 297, 300–301; and plan to dilute Redstone voting shares, 144, 255–62, 265–75; and pressure for Sumner to retire, 142–44; and primary sources for book, 353; private jet service, 37; and reporting on Sumner’s personal life, 23; responses to Moonves allegations, xiv–xv, 206–12, 226, 233–39, 250; response to Moonves rumors, 206–9; and Schwartz’s background, 205–6; settlement with Phillips, 337; and severance battle with Moonves, xi, 31, 246, 322, 329, 331–32, 351; shares gifted to Andelin, 61–62; Shari’s board membership at, 25; and Shari’s buyout negotiations, 95; Shari’s role at, 10; strategic review of market position, 223–24; streaming service, 196, 240, 252, 340; and Sumner’s declining health, 131; and Sumner’s divorce settlement, 18; and Sumner’s gifts to Holland and Herzer, 72–73, 75–76; and Sumner’s influence hiring and casting, 42–43, 57–58; and Sumner’s relationship with Andelin, 66; and Sumner’s resignation, 147–48; and Sumner’s treatment of executives, 30–31; and Sumner’s wealth and business empire, 14, 20, 70, 72–77, 99–100; and Sun Valley media summit, 177; “upfront” presentations, 268–69; and Viacom merger talks, 182–84, 190–92, 223–25, 228–30, 236–37, 240–41, 244–47, 251–56, 322–23, 331, 339–42 Centerview Partners, 223 Chamchoum, Bryan, 17 Chamchoum, Christina (Christy Cham), 17, 57, 118 Chapman, Georgina, 199 Charter Communications, 129, 184, 340 Chen, Julie (later Chen-Moonves): and CBS’s investigation of Moonves, 237, 325; and Dauer’s birthday celebration, 248; life after scandal, 338; marriage to Moonves, 23, 206; status at CBS, 253; and Sumner’s influence hiring and casting, 43; and support for Moonves at CBS, 295–96 Chester, Craig, 202 Chozick, Amy, 20, 55 Citizen Pilgrim (unpublished book), 2, 5, 82, 188, 334 C.K., Louis, 206 Cleary Gottlieb Steen & Hamilton (law firm), 261, 267, 270, 297, 300 Climate Reality Project, 57, 64 CNBC, 179, 230 CNN, 41, 209 Cohan, William D., 79, 102–3, 277, 306–8, 328, 353–54 Cohen, William S., 193, 244, 270, 300–301 Cohn, Arthur, 47 Colbert, Stephen, 128, 206 Coleman, Norman, 247 Columbia Pictures, 14 Comcast, 150, 183, 342 Comedy Central, xiii, 128, 179 Commission on Sexual Harassment and Advancing Equality in the Workplace, 212 confidentiality agreements, 101, 188, 199, 304, 333, 337 Consumer Electronics Show, 233 Cook, Tim, 177 Corona del Mar neighborhood, 60–61 Cosby, Bill, 66, 200–201 Cosmopolitan, 2 Costello, Julie, 216 Countryman, Gary L., 193, 244 Covey, Richard B., 72 Covington & Burling (law firm), 303, 310, 316, 322–23, 329, 331, 333, 337, 353 Cowan, David, 145, 154, 158, 160, 163, 165–66 Cruise, Tom, 23, 64, 106, 341 The Curious Case of Benjamin Button (film), 41 Currie-Wood, Wallis, 57 CW network, 243 D Daily Beast, 42–43 Daley, Jan, 248–49 Dalian Wanda (Wanda Group), 150, 175–76, 180 Dauer, Marv: attempt to silence Phillips, 308–9; background in talent management, 213–14; birthday celebration, 247–49; and CBS’s investigation of Moonves, 236, 316–18, 321–22, 324, 329; cultivation of relationship with Moonves, 221–22, 226, 230–31, 234, 241–43, 247–49, 256, 308–9, 337–38; and Hollywood “reinvention of self,” 334; and media investigation of Moonves, 214–15; and Moonves’s response to allegations, 227–28; and Phillips’s encounter with Moonves, 215–18, 280; and pressure for Moonves to retire, 252; and primary sources for book, 351–52; promotion of clients, 219, 242–43, 244, 274, 283–84, 291–92, 337; reconnection with Phillips, 219–21; and responses to New Yorker article, 296–97 Dauman, Philippe: and CBS’s investigation of Moonves, 304; and changes to Sumner’s will, 121; and conflict between Sumner and Shari, 33–35; and conflict over Paramount sale, 154–56, 168–71, 175–77; and efforts to undermine Herzer’s influence, 135–36; and fallout from Sumner’s retirement, 148–53; and Holland and Herzer’s litigation, 160, 185, 187; lawsuit contesting termination, 171–72, 177–80; and Paramount anniversary celebration, 54–56; and plan to dilute Redstone voting shares, 266; and pressure for Sumner to retire, 142–44; and stock options, 62; and Sumner’s birthday celebrations, 64–65, 106; and Sumner’s compensation packages, 100; and Sumner’s divorce settlement, 19; and Sumner’s gifts to Holland and Herzer, 75; and Sumner’s influence hiring and casting, 42–44; and Sumner’s reconciliation with family, 137–38, 141–42; and Sumner’s treatment of executives, 29; Sumner’s working relationship with, 20–22; and Sun Valley media summit, 177; and Viacom’s troubles, 127–31 David Geffen School of Medicine, 75 Davis, Marvin, 150 Deadline Hollywood, 214, 218, 222, 343 DealBook, 180, 184 Debevoise & Plimpton (law firm), 303, 310, 316, 322–23, 329, 331, 353 DeJoria, Eloise Broady, 108 DeMille, Cecil B., 230 DeVito, Danny, 64 Diller, Barry, 14, 55, 150 Disney+ (streaming service), 341 “The Disturbing Decline of Sumner Redstone” (Elkind), 354 Dooley, Thomas: and challenges of changing media environment, 128, 130–31; and conflict over Paramount sale, 176; and Dauman’s lawsuit settlement, 178, 179; departure from Viacom, 183–84; and pressure for Sumner to retire, 143; and Shari’s involvement in Sumner’s affairs, 137; and stock options, 62; and Sumner’s business acumen, 14 Douglas, Illeana, 200–201, 282, 293, 312 Douglas, Melvyn, 201 Downey, Robert, Jr., 3, 37 DreamWorks, 64, 128 E Eisner, Michael, 32, 64 Electric Barbarellas (group and TV series), 1, 43–44, 68 Elizabeth II, Queen of England, 339 Elkind, Peter, 354 Elmore, Taylor, 281 Elroy, Jim, 77, 80, 108 Emmy Awards, 127 Enchantment Resort, 80, 82, 93 Ender, Chris, 281, 282, 289 “Endless Sumner” (Cohan), 102 Esquire, 205 Evans, Phyllis, 64 Evans, Robert, 9, 15, 60, 64–65, 102, 106, 160, 173 Evercore, 224–25 F Facebook, 1, 3–4, 79, 230, 307 Fager, Jeff, 294 Farrow, Dylan, 201 Farrow, Mia, 201 Farrow, Ronan: background, 201; and CBS’s investigation of Moonves, 310; and CBS’s response to Moonves allegations, 233–34, 241, 282, 299, 307, 323; and Golden-Gottlieb’s allegations, 207–9, 320–21, 332; and Hollywood Reporter article on Moonves, 290–91, 293; interview with Marvin, 284, 287, 292; interview with Moonves, 290; and Jones’s allegations, 276–77; Klieger interview, 326–27; and leads on Moonves story, 200–202; and primary sources for book, 353–54; and publication of Moonves exposé, 293–94, 327–28; and Weinstein exposé, 199–200 Federal Bureau of Investigation (FBI), 214 Federal Communications Commission (FCC), 193 financial crisis of 2008, 35–36, 37, 70 Finke, Nikki, 22 First Republic Bank, 336 Folkenflik, David, 304 Folta, Carl, 14, 35, 44, 54–55, 58, 102, 104, 130, 175 Forbes, 14, 26, 35–36, 70 Fortunato, Paula, 18–19, 22–23, 32, 89, 157–58 Fortune, 140, 176, 205, 354 Freedman, Bryan, 70, 115–18, 119–20 Freston, Tom, 29–30, 179 Fricklas, Michael, 156 Friedman, Douglas, 102 G Gabelli, Mario, 142 Gabler, Ellen, 214, 220 Geffen, David, 128, 338 General Electric, 150 George, Eric, 318, 321 Gifford, Charles (Chad): and CBS board dynamics, 229, 242; and CBS’s response to Moonves allegations, 233–34; and CBS/Viacom merger, 190, 244–45, 253–54; conflict with Shari, 194–95, 237; and corporate governance at CBS and Viacom, 193, 196; and plan to dilute Redstone voting shares, 258–60, 266–67, 272; resignation from board, 323 Glaser, Patty, 120 The Godfather (film), 20, 22, 54, 160, 194, 261 Goldberg, Leonard, 131, 192, 270, 291 Golden, Peter: and additional allegations against Moonves, 283; and CBS’s investigation of Moonves, 309, 317–18; and Moonves’s influence over casting, 222, 242–43, 274, 280–81, 292 Golden Globe Awards, 226, 230 Golden-Gottlieb, Phyllis: allegations against Moonves, 206–7; and CBS’s investigation of Moonves, 310; and Farrow’s investigation of Moonves, 320–21, 323, 327, 332; police report on Moonves incident, 206–9, 235–36, 242, 310–12, 320, 325–26; and primary sources for book, 352; and statute of limitations on assault, 242 Goldman, Ron, 235 Google, 128 Gordon, Bruce S.: and CBS’s investigation of Moonves, 237–39, 278, 304–6, 310, 315–16; and CBS’s response to Moonves allegations, 233–34, 241–42; and CBS’s “upfront” presentations, 268–69; and CBS/Viacom merger, 190, 244–46, 253–54; and corporate governance at CBS and Viacom, 193; and plan to dilute Redstone voting shares, 255–56, 257–60, 266–67, 270–71, 273; and publication of Moonves exposé, 295, 298–99, 301–2; and strategic review of CBS’s position, 223 Gore, Al, 57, 64, 106 Grant, Cary, 54 Gray, Ashley, 291 Grazer, Brian, 22, 64 Grey, Brad, 55, 173 Griego, Linda: and CBS’s investigation of Moonves, 305, 315; and CBS’s response to Moonves allegations, 211, 233; and CBS/Viacom merger, 251, 341; and corporate governance at CBS and Viacom, 193; and plan to dilute Redstone voting shares, 260, 266; and publication of Moonves exposé, 302 Grubman, Allen, 338 H Hagey, Keach, 354 Hammer Museum, 336 Hansel, Larry, 17 Hay, Louise (later Louise Linton), 2, 3 Hearst, William Randolph, 2 Herzer, Bryan, 51, 57, 62, 107 Herzer, Carlos, 122, 134, 140 Herzer, Kathrine, 17, 56–58, 144 Herzer, Manuela: alliance with Dauman, 129, 171–72; and elder abuse claims, 100–101, 163, 185–87, 189, 333, 336–37; and Holland’s relationship with Pilgrim, 92; influence in Sumner’s affairs, 56–61, 95–101, 121–25, 131–36; litigation against Redstones, 138–42, 145–47, 154–61, 162–68, 185–89, 333–34; and overview of scandal and legal battle, 9–11; and payments to Sumner’s romantic interests, 42, 44; and Pilgrim’s litigation against Holland, 118–20; power dynamics with Holland, 81–82; and primary sources for book, 352–53; and Shari’s involvement in Sumner’s affairs, 137–38; spending sprees, 82–83; and Stanger’s matchmaking efforts, 51; and Sumner’s birthday celebrations, 63–71, 173; and Sumner’s death, 344; and Sumner’s declining health, 84–90; and Sumner’s funeral arrangements, 106–7; and Sumner’s influence over hiring decisions, 57–58, 144; Sumner’s marriage proposal, 17–18; and Sumner’s obsession with stock prices, 127; and Sumner’s relationship with Andelin, 56, 59–62; Sumner’s stock gifts to, 72–78; and Vanity Fair article on Sumner, 102–6 Hill, Anita, 212, 296 Hiltzik, Matthew, 283 Hiroshige, Ernest, 114 Hirschhorn, Jason, 129 Holbrook, Terry, 42, 122–23, 131, 133, 135–36, 165, 353 Holland, Alexandra Red, 3, 10, 67–68, 120, 124, 333 Holland, Cecil, 50–51 Holland, Harrison, 189 Holland, Liam, 189 Holland, Sydney: birth of daughter, 67–68; Bishop’s collaboration with, 137; Dauman’s alliance with, 129, 171–72; and elder abuse claims, 100–101, 333, 336; and Herzer’s control of Sumner’s affairs, 121–25, 131–36; influence in Sumner’s affairs, 58–60, 95–101; initial contact with Pilgrim, 1, 3–5; life after Redstone saga, 334–37; litigation against Pilgrim, 114–20; litigation against Redstones, 139–41, 163, 165, 185–89, 333; and overview of scandal and legal battle, 9–11; and Paramount anniversary celebration, 54; and Paramount sale talks, 152–53; power dynamics with Herzer, 81–82; and primary sources for book, 352–53; relationship with Pilgrim, 79–85, 92–94, 107–9, 113–14; and Stanger’s matchmaking efforts, 49–53; and Sumner’s birthday celebrations, 63–65, 173; and Sumner’s death, 344; and Sumner’s declining health, 84–90; and Sumner’s funeral arrangements, 98–99, 106–7; Sumner’s promise to care for, 70–71; and Sumner’s romantic interests, 56–57, 59–60, 62, 65–70; and Sumner’s stock gifts, 72–78; and Vanity Fair article on Sumner, 102–6 Hollywood Foreign Press Association, 226 Hollywood Reporter: on Farrow’s New Yorker exposé, 290, 293, 297; on Holland’s litigation, 1, 79; on Moonves’s wealth and status, xiii, 214; on Sumner’s personal life, 5, 16, 44; Weinstein exposé, 199–200 Holmes, Katie, 23 Hou, Victor, 267 Hueston Hennigan (law firm), 155 Hulu, 184 Hurd, Gale Anne, 277 I Ianniello, Joseph: and CBS’s investigation of Moonves, 311–12; and CBS/Viacom merger, 244–45, 251–52, 254; and corporate governance at CBS and Viacom, 192, 196–97; departure from CBS, 331–32; as Moonves’s replacement, 322; and plan to dilute Redstone voting shares, 144, 257, 260–61, 265–67, 270; and symbols of #MeToo movement, 233, 322 Iger, Bob, 212 The Information (website), 339 Inner Circle VIP Social Club, 50 Innovate Summit, 212 Irell & Manella (law firm), 155 J Jackson, Eric, 142–43, 150 Jagiello, Jeremy: and efforts to undermine Herzer’s influence, 132–35; and elder abuse claims, 97, 99–101; and Herzer’s control of Sumner’s affairs, 122–26; and Holland and Herzer’s influence, 56, 58–59; protectiveness of Sumner, 151; and Sumner’s birthday celebrations, 173; and Sumner’s declining health, 84, 95; and Sumner’s gifts to Holland and Herzer, 74; on Sumner’s obsession with fortune, 70; and Sumner’s reconciliation with family, 141; and Sumner’s translator, 134, 154–55 James, Meg, 320 Jankowski, Tad, 29, 169–70, 343–44 Jensen, Tim, 52 The Jewish Advocate, 25 John F.


pages: 526 words: 144,019

A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History by Diana B. Henriques

Alan Greenspan, asset allocation, bank run, banking crisis, Bear Stearns, behavioural economics, Bernie Madoff, Black Monday: stock market crash in 1987, break the buck, buttonwood tree, buy and hold, buy low sell high, call centre, Carl Icahn, centralized clearinghouse, computerized trading, Cornelius Vanderbilt, corporate governance, corporate raider, Credit Default Swap, cuban missile crisis, Dennis Tito, Edward Thorp, Elliott wave, financial deregulation, financial engineering, financial innovation, Flash crash, friendly fire, Glass-Steagall Act, index arbitrage, index fund, intangible asset, interest rate swap, It's morning again in America, junk bonds, laissez-faire capitalism, locking in a profit, Long Term Capital Management, margin call, Michael Milken, money market fund, Myron Scholes, plutocrats, Ponzi scheme, pre–internet, price stability, proprietary trading, quantitative trading / quantitative finance, random walk, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, stock buybacks, The Chicago School, The Myth of the Rational Market, the payments system, tulip mania, uptick rule, Vanguard fund, web of trust

His emergency plan, which would inevitably disrupt the spooze pit in Chicago, was a tacit admission that the new forces in the market could make it impossible for the Big Board to keep trading during an onslaught of high-speed selling. The article cited Phelan’s dilemma: Many of his member firms profited hugely from program trading. It quoted the outspoken CEO of Bear, Stearns and Company, Alan “Ace” Greenberg, who called Phelan’s concerns about a meltdown “totally ridiculous” and added, “Don’t fix things that aren’t broken.” Phelan acknowledged that, “theoretically, we ought to keep quiet about it,” but he believed that “public needs and the needs of the market have got to transcend the needs of the individual

He added, alarmingly, that a “senior Goldman official” later confided to him that if the firm had anticipated the “difficulties of the ensuing weeks, it would not have paid. And in future such crises, he suspected, Goldman would have second thoughts about making such unrequited payments.” sweeping the Street for rumors of firms slipping into failure: E.F. Hutton, John Shad’s former employer, was the first subject of these unfounded rumors, followed by Bear Stearns and Morgan Stanley. See an unbylined article, “Brokerage Stocks Fall; Large Losses Rumored,” New York Times, October 21, 1987, p. D20. The “total numbers are bad”: Ruder, “October 19–30 Notes,” p. 50. The overarching worry was that a major firm would fail: The market shared those fears: even in the afternoon market rally on Tuesday, October 20, some brokerage stocks fell even further than on Black Monday.

See also specific banks Black Monday and brokerage firms and commodities market and deregulation and Drysdale default and futures markets and Glass-Steagall and in-house traders interest rates and loans sold to other banks mergers and Mexican debt crisis and new businesses and payment system and Penn Square crisis and runs on S&P 500 index futures and silver crisis and size of swaps and bargain hunters Barron’s Batten, William M. “Mil” Bear, Stearns and Company bear markets of 1973–74 of 1981–82 of 1987 behavioral economics Bendix beta books Binns, W. Gordon, Jr. Birnbaum, Robert J. Black Monday (October 19, 1987) Brady Commission report on catastrophe averted by luck Chicago markets and days following efficient, rational markets and events of institutional investors and Lehman Monday of 2008 vs.


pages: 394 words: 85,252

The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit From Price Declines by Alexander Elder

Atul Gawande, backtesting, Bear Stearns, Boeing 747, buy and hold, buy low sell high, Checklist Manifesto, double helix, impulse control, low interest rates, paper trading, short selling, systematic trading, The Wealth of Nations by Adam Smith, uptick rule

I greatly respect Mr. Buffett, but respect does not mean mindless worship. Buffett has been hugely successful in the long run, but he does make mistakes. Not all his picks pan out well, and people always learn more from losses than from successes. The U.S. stock market was nearing a meltdown by the end of 2008. Bear Stearns had been sold for a song, essentially wiping out its investors; Lehman Brothers was told to go jump in a lake. There was a pervasive sense of doubt and fear—no company was safe. Everybody wondered which giant would implode next. You saw the chart of Freddie Mac. Figure 9.15 GE in a Bear Market GE weekly with two moving averages MACD-Histogram and MACD Lines Amidst this gloom and doom came a cheery announcement—Buffett was investing 3 billion dollars in General Electric (GE).

Occasionally, a decline would carry the weekly NH-NL below minus 4,000, but in the entire history of the U.S. stock market, this indicator has never fallen below minus 6,000. Then, in October 2008, the unprecedented happened—the weekly NH-NL crashed to minus 18,000. This downspike reflected an absolutely wild level of panic. Bear Stearns ceased to exist, sold for a price below the value of its downtown headquarters. As Lehman Brothers was forced into liquidation, the most often heard words on Wall Street became “counterparty risk.” Institutions were afraid to trade with each other for fear that the other party would not be able to deliver on its obligations.


pages: 258 words: 83,303

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization by Jeff Rubin

addicted to oil, air freight, banking crisis, Bear Stearns, big-box store, BRICs, business cycle, carbon footprint, carbon tax, collateralized debt obligation, collective bargaining, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, energy security, food miles, Ford Model T, hydrogen economy, illegal immigration, immigration reform, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Watt: steam engine, Jevons paradox, Just-in-time delivery, low interest rates, market clearing, megacity, megaproject, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit maximization, reserve currency, South Sea Bubble, subprime mortgage crisis, the market place, The Wealth of Nations by Adam Smith, trade liberalization, work culture , zero-sum game

Suddenly the whole world is bailing out. Not only has the real estate meltdown blown up the two pillars of the US mortgage market—venerable Fannie Mae and her brother, Freddie Mac—but it has taken down some of the largest and most famous financial institutions on Wall Street. Century-old stalwarts of American capitalism like Bear Stearns and Lehman Brothers have been wiped out. Even Merrill Lynch and its symbolic bull had to be rescued and in the process swallowed by Bank of America, which is now suffering a bad case of indigestion. How did Cleveland, once dubbed the mistake by the lake, get to pack so powerful a punch? The pundits will tell you about how subprime mortgages got bundled up and sold as fancy financial instruments with exotic names like “collateralized debt obligations” (CDOs), and how these came to be enormously leveraged on bank balance sheets.

Finally, the Federal Reserve Board has yet another compelling reason to hit the printing presses hard. Last, but by no means least, reflation helps to raise the value of all those financial market securities that have poisoned bank balance sheets. And some of the most toxic assets that blew up the likes of Bear Stearns and Lehman Brothers are now on the Federal Reserve Board’s own balance sheet as part of its monetary reserves. That was the price the Federal Reserve Board had to pay to keep Wall Street and probably the entire global financial system afloat. Higher inflation is bound to rub off on asset values, just as a rising tide lifts all ships.


pages: 302 words: 80,287

When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle by Scott Wapner

activist fund / activist shareholder / activist investor, AOL-Time Warner, asset allocation, Bear Stearns, Bernie Madoff, Carl Icahn, corporate governance, corporate raider, Credit Default Swap, deal flow, independent contractor, junk bonds, low interest rates, Mark Zuckerberg, Michael Milken, multilevel marketing, Pershing Square Capital Management, Ponzi scheme, price discrimination, Ronald Reagan, short selling, short squeeze, Silicon Valley, Tim Cook: Apple, unbiased observer

Spitzer began investigating MBIA’s accounting practices in 2004.4 One year later, the company would be forced to restate its earnings for an eight-year period, though the stock held up reasonably well during this process, which tested Ackman’s resolve. The investment finally paid off in 2007, when the onset of the financial crisis crushed stocks like MBIA under the weight of the subprime housing bust. Lehman Brothers and Bear Stearns would eventually go belly-up, and many wondered if companies like MBIA were next. Sure enough, MBIA shares did suffer. By December 2007, shares had fallen more than 56.3 percent, including more than 25 percent in a single day, as confidence in the sector quickly began to evaporate.5 It may have been a lucky break, but Ackman had finally received his bounty.

See consumer activists; shareholder activists Albright, Madeleine, 148 Alexander’s department store chain, 27 Allen, Claudia, 38 Allergan company, 169 Allied Capital, 62–63 Allied Financial, 58 American Airlines, 124 American Car and Foundry, 121–122 Amway, 44, 59, 66 Andry, Doran, 20, 79–80 AOL, 127 Apple, 1, 39, 184–188 buyback of Icahn’s stock, 184, 185, 186–188 arbitrage, game of, 118, 119 Auletta, Ken, 115 Automatic Data Processing Inc., 215 AXA Center on Seventh Avenue, 76, 78, 89, 111, 158, 159–162 Bank of England, 134, 139 bankruptcy, 10, 16, 27, 29, 31, 63, 125, 126 of Lehman Brothers, 64 Barbarians at the Gate, The, 126 Barnes and Noble, 37, 70 Bartz, Carol, 92 Bausch and Lomb, 169 BBC, 162 Bear Stearns, 11 Beckham, David, 53 Benoit, David, 197 Berkowitz, David, 27–29, 31, 33 Berkshire Hathaway, 171 Big Short, The (Lewis), 12 Biogen, 128 Boesky, Ivan F., 121, 125–126 Boies, Schiller firm, 97, 176 Borders Group, 70–71 Boston Market restaurant chain, 62 Botox, 169 Boyd, Roddy, 173 Brazil, 58 Brussels, Belgium, 19, 54 Buffett, Susan, 27 Buffett, Warren, 26, 27, 129, 171, 211 BurnLounge company, 14 Business Insider, 103, 109, 147 BuzzFeed News, 213 Calderon, José, 143 Canadian Pacific railway, 71, 72, 209 Carlisle, Tobias, 119 Carmona, Dr.


pages: 304 words: 80,965

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

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

Because the basket could fall, the eggs could break, and you would be left with no breakfast. Similarly, putting all your investment savings into a single stock, or even just a few, is risky. Even picking a great, well-known company is no defense. In the last few years, we have seen the fall of such titans as Merrill Lynch, Kodak, Bear Stearns, WorldCom, Enron, and Adelphia. Some were frauds, some were buffeted by change, some were mismanaged. But investors in all lost money, sometimes everything. The investors were subject to “idiosyncratic risk,” meaning factors that were specific to those companies rather than to the market as a whole.

See Advance Voting Instructions (AVI) AXA, 18, 82 Bank of Amsterdam, 211 Bank of England, 66, 68 Banks, 19 adequate equity and, 213, 214–16 as safe place for money, 20, 22, 211, 212, 216 characteristics needed in, 212–13 collapse of, 254n2 (See also Global financial crisis (2008)) commonsense, 211–12 costs of, 213 diversification and, 46–48 fees, 216 financing, 227 governance of, 216–17 growth for, 73–74 lending and, 17, 20–21, 22, 47, 74, 211–15, 267n31 payment system and, 16–17, 20, 22, 211–12 predicting bank failure, 125 purposes of, 211–12 regulation of, 128–29, 175, 259n47 services offered by, 20–21, 22 Basel rules, 152 Basel I, 125, 254n1 Basel II, 43 Basel III, 43, 125, 175, 254n1, 254n2 Bear Stearns, 44 Bebchuk, Lucian, 72–73 Becker, Gary, 257n28 Behavior, human motivation and, 182–83, 185–86 Behavioral economics, 142–45 Beihoffer, Eric, 180–81 Benchmarking executive compensation, 85–86 Benchmarks, institutional investor, 113–14 Bentham, Jeremy, 257n28 Berkshire Hathaway, 64 Beta, 49–50, 57, 242n57 smart, 241n36 Blackrock, 18, 77 Board of directors.


pages: 262 words: 83,548

The End of Growth by Jeff Rubin

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

After shelling out trillions to prop them up, taxpayers reasonably expected to see new safeguards put in place to keep us from tumbling into the same mess ever again. Well, guess again, because little has changed. The global financial system is still as interconnected and full of risk as ever. A few familiar players are missing, such as Bear Stearns and Lehman Brothers, but the cast of characters is otherwise intact. And once again we’re hearing ominous sounds from the financial markets. Only this time around, instead of the United States’ housing sector being shaky, the deepest rumblings are emanating from across the Atlantic. Europe is in the grip of a financial crisis.

At the same time, former executives from Goldman Sachs, such as Robert Rubin and Hank Paulson, were now running the Treasury Department. Not surprisingly, Wall Street got nearly anything it wanted in those days. What else would you expect when regulators are recruited from the ranks of the regulated? By the time Lehman Brothers and Bear Stearns blew up, their leverage had climbed to more than thirty times equity. At that level of debt, even small adverse market moves could send an investment bank into insolvency. After years of deregulation, no one should have been surprised. Give investment bankers all the financial incentive in the world to borrow money, strip away most of the rules and consequences, and the real question is how these brokerage houses stayed afloat as long as they did.


pages: 632 words: 159,454

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

accounting loophole / creative accounting, Alan Greenspan, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial engineering, financial innovation, fixed income, floating exchange rates, foreign exchange controls, Francisco Pizarro, full employment, German hyperinflation, Glass-Steagall Act, guns versus butter model, hiring and firing, income inequality, invisible hand, Isaac Newton, it's over 9,000, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, land bank, liberal capitalism, low interest rates, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, subprime mortgage crisis, Suez canal 1869, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

With respect to Lehman Brothers, investors had ‘become increasingly nervous about whether major financial institutions can recover from their losses’.21 Of all these major financial institutions, Lehman Brothers had been among the most heavily exposed to property lending. As the property market bubble started sharply to deflate, ‘Bear Stearns and Lehman Brothers were the smallest of the big investment banks and the most heavily exposed to the housing market.’22 Other banks, knowing the exposure of these two, became ‘reluctant to provide the short-term funding’ that the pair needed. Bear Stearns was an equally aggressive firm which had collapsed in March 2008. Lehman’s demise had wider repercussions, the reverberations of which were felt, and argued about, for years.

Index accountancy, 87 Acheson, Dean, 139 Ackley, Gardner, 204–5 Adams, Brooks, 61 Adams, John, 41 Addison, Lord, 150 Adenauer, Konrad, 182, 186–7 Afghanistan Soviet invasion, 227, 237 US invasion, 310, 321, 350 Aislabie, John, 35, 37 Akins, James, 224 Alsace-Lorraine, 120 Amato, Giuliano, 270 American Civil War, 50, 70–6, 80, 109, 135, 190, 214, 219, 333 American colonies and paper money, 5, 41–3, 46 and taxation, 39–40, 103 American Declaration of Independence, 41 American Revolution, 3, 6, 40–2, 50 ‘American System’, 70 American War of Independence, 40–3, 45, 66–7 ‘American Way of Life’, 153, 166 Amsterdam, 25, 28, 36 Andreotti, Giulio, 275 Anglo-American loan, 155–8, 160, 174, 179 Anglo-Egyptian Bank, 89 Anglo-Mexican Mining Association, 56 Annan, Lord, 172 Antwerp, 20, 22 ‘Spanish fury’, 12 Archivo General de Indias, 19 Argentina, 84–5 army, payments to, 26 Asian financial crisis, 289–93, 296 ‘assignats’, 5, 45–8, 50 Atahualpa, 15–17 atomic bombs, 153, 192 Attlee, Clement, 175 Attwood, Thomas, 54 austerity, 342–3, 356 auto manufacturers, 315 autobahns, 133 Aztecs, 13, 22 Bagehot, Walter, 62–5, 79, 99, 127, 164, 170 ‘bailouts’, 329 Baker, Howard, 250 ‘balance sheet recessions’, 129 balanced budgets, commitment to, 6–7, 234, 245, 296, 358 Japan and, 193–4 US and, 162–3, 168–70, 202–4, 207, 209, 333 Bancor, 140, 142 Bank Act, 59, 61, 64 bank bailouts, 331–3 bank failures, 56, 62–5, 127 Bank of Amsterdam, 28, 30 Bank of England Bagehot and, 64–5 bankruptcy of serving Governors, 57–8, 65 and Barings crisis, 85 compared with Bank of Japan, 195–6 conversion of dollar holdings, 217–18 conversion of government debt, 34 and devaluation, 178–81 election of directors, 64–5 and ERM departure, 270–2 establishment of, 3, 24–5, 28 and Gold Pool, 212 gold reserves, 85, 90, 92 as lender of last resort, 49 nationalization of, 171, 178 and outbreak of First World War, 92, 144 quantitative easing, 342–3 resumption of gold payments, 50–4 sole issuer of paper money, 59–60 and South Sea Bubble, 35 suspension of gold payments, 3, 48–50, 53, 61, 144 Bank of France, 48, 85, 272 Bank of Japan, 195–7, 199–200 Bank of Japan, 289 bank runs, 290 Bankers Trust, 121 banking regulation, 351 ‘Banking School’, 64 banking union, proposed European, 351 banks, Japanese, 195–6, 199–200 Banque Générale, 30, 33 Barclays Bank, 82 Baring, Sir Francis, 49–50, 79 Barings Bank, 49, 83–5, 91 Barnes, Fred, 311–12 Bear Stearns, 328 Beck, Sir Justus, 37 Belgium, 174, 280 Bell, Clive, 91 Berlin, Isaiah, 233 Berlin, post-war, 184–6 Berlin stock market, 122 Bernanke, Ben, 126–7, 327, 343 Bernstein, Edward, 139 Bethlehem Steel Corporation, 106–7 Bevin, Ernest, 183 Biddle, Nicholas, 68 ‘big government conservatism’, 311–12, 321 Bild, 275 ‘bimetallism’, 77 Birmingham manufactures, 50 Bischoffsheim and Goldschmidt, 89 Bizet, Georges, 19 ‘Black Friday’, 76, 259 Blackburn, Robin, 325 Blinder, Alan S., 304 Blodgett, Ralph, 160–1 Bodin, Jean, 20–1 Boehner, John, 349 Bolles, Albert, 42 Bonar Law, Andrew, 109 bond market, growth of, 317 bondholders, 52–3, 71–2, 172 Boothby, Robert, 141–2, 149 Bovard, James, 310 Bowie Bonds, 324–5 Bracegirdle, Anne, 27 ‘Bradburies’, 92 Brady, Nick, 269 Brand, Robert, 109 Brandon, Henry, 219–20 Brazil, 350 Bretton Woods Agreement, 2, 4, 138–5, 149–50, 155–6, 158–60, 216, 351 collapse of, 217, 219, 226, 234, 299, 356, 359 and dollar link to gold, 140–4, 149–50, 167–70, 208–12, 250–1 and European monetary union, 263, 273 and exchange rates, 140–4, 149–50 and ‘fundamental disequilibrium’, 140, 144 and Japan, 197, 200–1 Bridges, Sir Edward, 145, 174–5, 179 Bright, John, 246 Britain bubble of 1825, 54–7, 61 decline in world status, 145, 147, 176, 181 deflation, 54–5, 115 departure from gold standard, 129, 131–2, 206 Edwardian complacency, 82–3 ERM entry and departure, 266–72 and European monetary union, 263–4 First World War finance, 102–5, 108–9 food rationing, 182 gold reserves, 167, 227 move to paper money, 48–51, 53–4, 135 national debt, 6, 84, 93, 105, 108–9, 147–8, 295, 341–2, 352, 355 overseas investments, 101, 109, 171 overseas loans, 105, 107–8 PSBR, 244 quantitative easing, 342–3 return to gold standard, 109, 111–15, 118–19, 123, 142–3, 181 suspension of gold standard, 92–3, 98, 107–8, 144 war debt, 144–5 British Commonwealth, 156, 176 Brown, Gordon, 331–3, 351 Bryan, William Jennings, 77, 107 Buchanan, Patrick, 285–6 Buenos Ayres Water Works Company, 85 Bundesbank, 187, 264, 266–7, 270, 272–3 Burke, Edmund, 5, 45, 48–9 Burns, Arthur F., 215–16, 218, 233, 235, 239–41 Burns, Terry, 271 Bush, George H.


pages: 538 words: 147,612

All the Money in the World by Peter W. Bernstein

Albert Einstein, anti-communist, AOL-Time Warner, Bear Stearns, Berlin Wall, Bill Gates: Altair 8800, book value, call centre, Carl Icahn, Charles Lindbergh, clean tech, Cornelius Vanderbilt, corporate governance, corporate raider, creative destruction, currency peg, David Brooks, Donald Trump, estate planning, Fairchild Semiconductor, family office, financial engineering, financial innovation, George Gilder, high net worth, invisible hand, Irwin Jacobs: Qualcomm, Jeff Bezos, job automation, job-hopping, John Markoff, junk bonds, Larry Ellison, Long Term Capital Management, Marc Andreessen, Martin Wolf, Maui Hawaii, means of production, mega-rich, Menlo Park, Michael Milken, Mikhail Gorbachev, new economy, Norman Mailer, PageRank, Peter Singer: altruism, pez dispenser, popular electronics, Quicken Loans, Renaissance Technologies, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Sand Hill Road, school vouchers, Search for Extraterrestrial Intelligence, shareholder value, short squeeze, Silicon Valley, Silicon Valley billionaire, Silicon Valley startup, SoftBank, stem cell, Stephen Hawking, Steve Ballmer, Steve Jobs, Steve Wozniak, tech baron, tech billionaire, Teledyne, the new new thing, Thorstein Veblen, too big to fail, traveling salesman, urban planning, wealth creators, William Shockley: the traitorous eight, women in the workforce

A crusty but likable man of few words, Kohlberg, cohead of investment banking at Bear Stearns on Wall Street in the mid-1970s, had been tinkering with buying companies mostly for debt, taking them private, and streamlining them for resale five or six years later. Buying and selling companies, of course, was nothing new; but buying them with 90 percent plus debt was. Only if the target companies’ cash flow gushed sufficiently to meet that mountainous debt could a leveraged buyout turn a profit. At the time, burdening a company with 90 percent debt was viewed by many as financially unsound. After fifteen deals at Bear Stearns (only a few of which returned any money), Kohlberg, then age fifty but already a multimillionaire, left to perfect his idea with two younger colleagues, Henry Kravis and George Roberts.

* * * 2005 from the pages of Forbes Ronald Burkle, California supermarket magnate, ferries former president Bill Clinton around on his private jet, which Clinton has dubbed “Ron Air.” (2005 net worth: $2.3 billion) Harvey Chaplin, whose family fortune comes from wine and liquor, stuffs his office with Charlie Chaplin memorabilia—even though the legendary comedian is no relation. (2005 family net worth: $1.2 billion) Timber baron Timothy Blixseth writes songs for his own record label, which is distributed by Warner Bros. (2005 net worth: $1 billion) James E. Cayne, head of Bear Stearns investment house, was originally hired in part because of his card skills and is a ten-time national bridge champion. (2005 net worth: $900 million) * * * For some, not giving is based on philosophical, political, and sometimes very personal reasons. Some want to avoid the limelight and the constant solicitations it brings.


pages: 524 words: 155,947

More: The 10,000-Year Rise of the World Economy by Philip Coggan

accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Alan Greenspan, Andrei Shleifer, anti-communist, Apollo 11, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Bear Stearns, Berlin Wall, Black Monday: stock market crash in 1987, Bletchley Park, Bob Noyce, Boeing 747, bond market vigilante , Branko Milanovic, Bretton Woods, Brexit referendum, British Empire, business cycle, call centre, capital controls, carbon footprint, carbon tax, Carl Icahn, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Babbage, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, cotton gin, credit crunch, Credit Default Swap, crony capitalism, cross-border payments, currency peg, currency risk, debt deflation, DeepMind, Deng Xiaoping, discovery of the americas, Donald Trump, driverless car, Easter island, Erik Brynjolfsson, European colonialism, eurozone crisis, Fairchild Semiconductor, falling living standards, financial engineering, financial innovation, financial intermediation, floating exchange rates, flying shuttle, Ford Model T, Fractional reserve banking, Frederick Winslow Taylor, full employment, general purpose technology, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, Glass-Steagall Act, global supply chain, global value chain, Gordon Gekko, Great Leap Forward, greed is good, Greenspan put, guns versus butter model, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, hydroponic farming, Ignaz Semmelweis: hand washing, income inequality, income per capita, independent contractor, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Jon Ronson, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, Les Trente Glorieuses, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low interest rates, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, Modern Monetary Theory, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, Paul Volcker talking about ATMs, Phillips curve, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, savings glut, scientific management, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, Suez canal 1869, TaskRabbit, techlash, Thales and the olive presses, Thales of Miletus, 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 Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, Tragedy of the Commons, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, world market for maybe five computers, Yom Kippur War, you are the product, zero-sum game

Five days before it went bust, Lehman Brothers, an investment bank, had an official capital ratio that was almost three times the regulatory minimum.10 There was a rotten cherry on the top of this particular cake. In the 1930s, it had been retail depositors who had panicked and started to demand their money back, triggering a liquidity crisis. But the two big US banks that collapsed in 2008 – Bear Stearns and Lehman Brothers – were not retail banks at all. They borrowed in the wholesale markets, where other banks were among their biggest lenders. Once a bank was deemed to be in trouble, no other bank was keen to lend to it for fear of suffering the kind of losses that might destroy its own balance sheet.

Once a bank was deemed to be in trouble, no other bank was keen to lend to it for fear of suffering the kind of losses that might destroy its own balance sheet. The result was that the infection spread very quickly. Every bank for itself The crisis began in early 2007, when subprime mortgage lenders started to default as homeowners failed to repay. In April, New Century, the largest subprime lender, filed for bankruptcy. In June, Bear Stearns had to halt redemptions in two of the funds it managed; both invested in subprime securities. In August, BNP Paribas, a French bank, suspended trading in three similar funds. By this stage, the bad news was sufficiently worrying to prompt central banks to lend money to banks that were suffering from liquidity problems.

The Fed also cut interest rates by half a percentage point. September 2007 saw a run on Northern Rock, a British bank that had been one of the most aggressive lenders in the UK housing market and also depended on the wholesale markets for finance. If that was a bad year, 2008 was much worse. In March, Bear Stearns needed to be rescued by J. P. Morgan (shades of 1907). The deal needed back-up financing by the Federal Reserve, which agreed to be responsible for up to $30bn of losses. That was a very controversial move with the public. In early September, the government was forced to nationalise Fannie Mae and Freddie Mac, two of the bodies that guaranteed mortgage loans.


pages: 93 words: 24,584

Walk Away by Douglas E. French

Alan Greenspan, Bear Stearns, behavioural economics, business cycle, Elliott wave, forensic accounting, full employment, Home mortgage interest deduction, loss aversion, low interest rates, McMansion, mental accounting, mortgage debt, mortgage tax deduction, negative equity, New Journalism, Own Your Own Home, Richard Thaler, risk free rate, Robert Shiller, Savings and loan crisis, Tax Reform Act of 1986, the market place, transaction costs, unbiased observer, wealth creators

Fannie Mae and Freddie Mac began putting mortgages back to big lenders like Bank of America because the loan files didn’t meet representations and warranties. Bank analyst Chris Whalen surfaced another problem to Larry Kudlow on Kudlow’s CNBC show that aired October 18, 2010. Whalen’s supposition is that the mortgages that J. P. Morgan owns from its purchase of Bear Stearns were sold multiple times to different buyers. Whalen said that government policies made each bank in the United States a loan production office and that Bank of America would be forced to buy back $60 billion in mortgages from Fannie Mae and Freddie Mac for failing to meet representations and warranties.


pages: 295 words: 89,280

The Narcissist Next Door by Jeffrey Kluger

Albert Einstein, always be closing, Anthropocene, Apollo 11, Apollo 13, Apple's 1984 Super Bowl advert, Bear Stearns, Bernie Madoff, Columbine, dark triade / dark tetrad, delayed gratification, Donald Trump, Elon Musk, impulse control, Jony Ive, longitudinal study, meta-analysis, mirror neurons, plutocrats, Ponzi scheme, QWERTY keyboard, Ralph Nader, Ronald Reagan, Schrödinger's Cat, Stanford marshmallow experiment, Stephen Hawking, Steve Jobs, the scientific method, theory of mind, Triangle Shirtwaist Factory, twin studies, Walter Mischel, zero-sum game

Over the long term, his strip-the-workforce and boost-the-stock-price strategy didn’t even work. Sunbeam ultimately filed for bankruptcy, but not before Dunlap was forced out after playing loose with bookkeeping rules to improve quarterly sales reports. Jimmy Cayne, ex-head of the now defunct Bear Stearns, similarly helped wreck his own company, and was similarly guilty of exceeding conceit and an even more exceeding nastiness. When the chief of an investment firm introduced her eleven-year-old son to Cayne, he shook the boy’s hand and told the mother, “That kid’s got a rotten handshake. He’s going nowhere in life.”

He excelled at bridge, a game that indeed takes a keen and tactical mind, and he didn’t mind who knew it. “If you study bridge for the rest of your life, if you play with the best partners and achieve your potential, you will never play bridge like I play bridge,” a young Jimmy Cayne once said to Bear Stearns manager Alan Greenberg. And that was during his job interview. Carly Fiorina, whose six-year tenure at Hewlett-Packard ended in 2005 after she was pushed out by her board (but not before she was given $21 million in go-away money), was widely blamed for the failed merger between Compaq computer and HP’s own computer division.


pages: 344 words: 93,858

The Post-American World: Release 2.0 by Fareed Zakaria

"World Economic Forum" Davos, affirmative action, agricultural Revolution, airport security, Alan Greenspan, anti-communist, Asian financial crisis, battle of ideas, Bear Stearns, Berlin Wall, Bretton Woods, BRICs, British Empire, call centre, capital controls, central bank independence, centre right, collapse of Lehman Brothers, conceptual framework, Credit Default Swap, currency manipulation / currency intervention, delayed gratification, Deng Xiaoping, double entry bookkeeping, failed state, Fall of the Berlin Wall, financial innovation, global reserve currency, global supply chain, Great Leap Forward, illegal immigration, interest rate derivative, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, low interest rates, Mahatma Gandhi, Martin Wolf, mutually assured destruction, National Debt Clock, new economy, no-fly zone, oil shock, open economy, out of africa, Parag Khanna, postindustrial economy, purchasing power parity, race to the bottom, reserve currency, Ronald Reagan, Silicon Valley, Silicon Valley startup, South China Sea, Steven Pinker, Suez crisis 1956, The future is already here, The Great Moderation, Thomas L Friedman, Thomas Malthus, three-masted sailing ship, trade route, Washington Consensus, working-age population, young professional, zero-sum game

American culture reigned supreme everywhere from Latin America to China. And whatever anyone thought of George W. Bush, there was still a general feeling that America represented the world’s most advanced form of capitalism, run and regulated in a sophisticated fashion. The book was published in the middle of 2008, when the financial crisis had just begun. The Bear Stearns bailout, in March 2008, seemed to have stabilized the system, and the Dow Jones Industrial Average crept up to 13,000. That fall, the financial system collapsed and with it the American economy, which contracted by 6 percent in the last quarter and shed almost four million jobs in six months, the largest such decline since the 1930s.

., III, 39, 244 Bakiyev, Kurmanbek, 54 balance of power, 79 Bali bombings (2002), 11, 17 Balkans, 20, 29, 117–18, 245, 246, 247 Bangalore, 50 Bangladesh, 60, 159, 281 Ban Ki-moon, 30 banking industry, 36, 43–45, 81, 106, 107, 109, 110, 127, 139, 153, 157 Barma, Naazneen, 38 Barnett, Correlli, 262 “Base Structure Report” (2006), 262 Bay of Pigs invasion (1961), 20 BBC, 96, 120 Bear Stearns, xi Beijing, 71, 103, 105, 111, 137, 150, 211 “Beijing Consensus, The” (Ramo), 142–43 Beijing Olympic Games (2008), 5, 103, 105, 137 Belgium, 41 Berlin, 103 Berlin Wall, 24 Beveridge Plan, 197 Bharatiya Janata Party (BJP), 158–59, 160, 178, 179–80 Bhutan, 166 Bialik, Carl, 205 Bible, 172 bicycles, 192 bin Laden, Osama, 12, 13, 14–15, 85, 269–70 biological weapons, 18 biotechnology, 201–2, 215 bipolar order, 4 Bismarck, Otto von, 198, 257, 266–67 Blackwill, Robert, 177 Blair, Tony, 274 Blinder, Alan, 230–31 Bloomberg, Michael, 220–21 “blue card,” 224 blue jeans, 88, 89, 91 Boer War, 188–90, 261 Bollywood, 90, 94, 147, 153–55 Bono, 272 Boorstin, Daniel, 69 Bosnia, 272 Brahmans, 74 “brain drain,” 167 brand names, 203 Brazil, xii, 2, 3–4, 19, 23, 26, 28–29, 39, 48, 49, 53, 55, 60, 79, 95, 98, 257, 258, 259, 263 Bretton Woods Conference (1944), 253 British East India Company, 60, 80, 82–83 British Empire, 36, 37, 57, 60, 65, 79, 80–83, 84, 89, 94, 97–98, 151, 154, 156, 158–59, 161, 162–63, 164, 170, 173, 179, 184–99, 237, 261–63, 266, 268 British Guiana, 194n broadband service, 28, 224–25 Brookings, Robert, 235 Brookings Institution, 235 Brzezinski, Zbigniew, 36 Buck, Pearl, 100 Buddhism, 124, 171, 172 budget deficits, 219, 241–42, 244 Buffett, Warren, 45–46 Bulgaria, 182 Burma, 79, 121, 264, 273 Burns, Ken, 37 Buruma, Ian, 187 Bush, George H.


pages: 324 words: 90,253

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

Alan Greenspan, Albert Einstein, Apollo 11, Asian financial crisis, asset-backed security, banking crisis, Basel III, Bear Stearns, Berlin Wall, Bernie Madoff, bond market vigilante , British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, currency risk, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, Ford Model T, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, junk bonds, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, low interest rates, market clearing, mass immigration, Minsky moment, moral hazard, mortgage debt, Neil Armstrong, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, risk free rate, Savings and loan crisis, seminal paper, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

Underlying economic growth began to slow down even before the financial crisis materialized. The third period of disappointment – disaster is, frankly, a more accurate description – was the financial crisis itself. Northern Rock, Royal Bank of Scotland and HBOS were the three highest profile bank failures in the UK. In Europe, Fortis and Dexia grabbed the headlines. And, in the US, Bear Stearns, Washington Mutual, IndyMac, Lehman and AIG dominated the newswires. The underlying situation, however, was even worse. Between 2007 and 2012, approaching 500 US banks had failed (including the aptly named Cape Fear Bank in Wilmington, North Carolina). That compared with only 24 failures in the previous six years.17 Capital markets ultimately are responsible for linking savers with investors.

(i) Asian crisis (i) recovery from (i), (ii), (iii) asset prices (i) asset-backed securities (i) Audit Commission (i) austerity (i), (ii), (iii), (iv), (v) and political extremism (i) Statute of Labourers (i) versus stimulus (i) wartime (i), (ii) see also Snowden's budget Australia (i), (ii), (iii), (iv) Austria (i) baby boomers (i), (ii), (iii) bailouts (i), (ii) Balls, Ed (i) Bank Negara (i) Bank of England (i), (ii), (iii) economic growth forecasts (i) interest rates (i), (ii) and Libor (i) Bank of Japan (i) banking free (i), (ii) and protectionism (i) union (eurozone) (i) banks (i), (ii) bankers' rewards (i) failure (i), (ii) liquidity buffers (i), (ii) mortgage loan-to-value ratios (i) regulatory uncertainty (i) and savers (i) see also central banks Barclays Bank plc (i), (ii) Basel III regulations (i) Bean, Charlie (i), (ii) Bear Stearns (i) Belgium (i) Ben Ali, Zine al-Abidine (i) Benedetti, Count (i) benefits (i), (ii) see also social spending Bernanke, Ben (i), (ii) Beveridge, William (i) bimetallism (i) Bismarck, Otto von (i) Black Death (i), (ii) blame culture (i), (ii), (iii), (iv), (v) Blenheim Palace (i) bonds (i), (ii), (iii), (iv), (v) borrowers (i), (ii), (iii) borrowing, government borrower of last resort (i) heavy (i) international (i) and low interest rates (i), (ii) and the New Deal (i) to offset private saving (i) relative to national income (i), (ii) rising (i) see also credit: queues Botswana (i) Brazil (i), (ii), (iii) Britain see UK (United Kingdom) British Empire (i), (ii), (iii) Bryan, William Jennings (i) budget deficits (i), (ii), (iii), (iv), (v) France (i) Germany (i) Spain (i) UK (i), (ii), (iii) US (i), (ii), (iii) Buenos Aires (i) Business Week (i) Buxton, Thomas Fowell (i) California (i) Calonne, Charles-Alexandre de (i) Canada (i), (ii) capital adequacy ratios (i) controls (i), (ii), (iii), (iv) flight and the euro (i) foreign (i), (ii) immobile (i) markets (i), (ii) and the rise of living standards (i) Carr, Jimmy (i) Case-Shiller house price index (i) Catalonia (i) Central African Republic (i) central banks and bailouts (i) expansion of remit (i) and government debt (i) and illusory wealth (i) interest rates (i) and a new monetary framework (i) nominal GDP targeting (i) and politics (i), (ii), (iii) and redistribution (i) see also quantitative easing (QE) Chicago (i) China and commodity prices (i) financial systems (i) and globalization (i) income inequality (i), (ii) living standards (i) per capita incomes (i) and regional tensions (i) renminbi currency (i) silver standard (i), (ii) trading partners (i) and the US (i), (ii) Chinese Exclusion Act (i) Chrysi Avgi (i) Churchill, Winston (i) circuit breakers (i), (ii) Coinage Act (i) Committee on National Expenditure (i) commodity prices (i), (ii), (iii) conduits (i) Connecticut (i) consumer credit (i), (ii), (iii) contingent redistribution (i) credit consumer (i), (ii), (iii) derivation of word (i) expansion (i) and the property boom (i) and protectionism (i) queues (i), (ii), (iii), (iv) Creditanstalt (i) creditors creditor nations (i), (ii) and debtors (i), (ii), (iii), (iv), (v) foreign (i), (ii), (iii) home grown (i) Japan (i) cross-subsidization, of banking services (i) currencies (i), (ii) ‘currency wars’ (i), (ii) see also eurozone; renminbi; ringgit; sterling Darling, Alistair (i) debt and asset prices (i) and central banks (i) eurozone crisis (i), (ii) excessive (i), (ii) France (i) household (i), (ii), (iii) and inflation (i) Japan (i) and national incomes (i), (ii), (iii) and quantitative easing (QE) (i) repaying (i) debt deflation (i) debtors and creditors (i), (ii), (iii), (iv), (v) eurozone (i) home grown (i) deficient demand (i), (ii) deficit expansion (i) deficit reduction (i) deficits (i), (ii), (iii), (iv), (v) France (i) Germany (i) Korea (i) pension funds (i), (ii) Spain (i) and surpluses (i), (ii) UK (i), (ii), (iii) US (i), (ii), (iii) deflation (i), (ii) democratic deficit (i), (ii) Deng Xiaoping (i), (ii) Denmark (i) the Depression (i), (ii), (iii), (iv), (v) and the UK (i), (ii) Dexia (i) Diamond, Bob (i) Dickens, Charles (i) disaster-avoidance (i) District of Columbia (i) dollar standard (i) dotcom bubble (i) Draghi, Mario (i) economics profession (i), (ii), (iii) Edelman Trust Barometer (i) education (i) financial (i) literacy (i) training (i) Edward III (i) Egana, Amaia (i) emerging nations (i), (ii) employment (i) see also labour; unemployment enfranchisement (i), (ii) the Enlightenment (i), (ii), (iii) entitlement culture (i), (ii), (iii), (iv), (v), (vi) absent from Asia (i), (ii) need to reduce (i), (ii) equities (i), (ii) ethics (i) Ethiopia (i) European Central Bank (ECB) (i), (ii), (iii), (iv), (v) eurozone banking union (i) crisis (i), (ii) and the European Central Bank (i) northern creditors and southern debtors (i), (ii), (iii), (iv), (v), (vi) and trust (i) and the UK (i), (ii) variations in borrowing costs (i) exchange rates (i), (ii), (iii), (iv) executive pay (i) exports (i), (ii) extremism, political (i) Fannie Mae (i) Federal Reserve (i), (ii), (iii), (iv) and the Great Depression (i), (ii) Ferguson, Niall (i) Ferguson, Roger (i) feudalism (i) financial services (i) innovations (i), (ii), (iii) Financial Services Authority (FSA) (i) Finland (i) First World War (i), (ii) ‘fiscal club’ concept (i) fiscal policy (i), (ii), (iii), (iv), (v) fiscal trap (i) fiscal unions (i) Fisher, Irving (i), (ii) football (i) forecasting (i), (ii), (iii), (iv), (v) Fortis (i) France age-related expenditure (i) ancien régime and the Revolution (i) and Austria (i) benefits (i) budget deficit (i) exports (i) Latin monetary union (i) per capita incomes (i), (ii) and political extremism (i) and public spending (i) Franco-Prussian War (i) Frank, Barney (i) fraudulent acts (i) Freame, John (i) Freddie Mac (i) free banking (i), (ii) French Revolution, and the ancien régime (i) Freud, Sigmund (i) Friedman, Milton (i), (ii), (iii), (iv), (v) Fuld, Dick (i) GDP forecasts (i), (ii) targeting (i) General Strike (i) generational divide (i), (ii), (iii) see also ageing populations Germany ageing population (i), (ii), (iii) benefits (i) budget deficit (i) and the eurozone crisis (i), (ii), (iii), (iv), (v) exports (i) Franco-Prussian War reparations (i), (ii) government borrowing (i), (ii) interest rates (i) late 19th-century economy (i), (ii) living standards (i) national income (i) per capita incomes (i), (ii) and the Protestant work ethic (i) and public spending (i) surplus (i) Treaty of Versailles (i) unification (i) Weimar Republic (i), (ii) GfK/NOP Inflation Attitudes Survey (i) globalization (i), (ii), (iii), (iv), (v) Gold Standard (i) and Germany (i) and the UK (i), (ii), (iii), (iv), (v) and the US (i), (ii), (iii) gold standards (i), (ii) Golden Dawn Party (i) Goodwin, Fred (i) Gordon, Robert J.


pages: 328 words: 90,677

Ludicrous: The Unvarnished Story of Tesla Motors by Edward Niedermeyer

autonomous vehicles, barriers to entry, Bear Stearns, bitcoin, business climate, call centre, carbon footprint, Clayton Christensen, clean tech, Colonization of Mars, computer vision, crowdsourcing, disruptive innovation, Donald Trump, driverless car, Elon Musk, en.wikipedia.org, facts on the ground, fake it until you make it, family office, financial engineering, Ford Model T, gigafactory, global supply chain, Google Earth, housing crisis, hype cycle, Hyperloop, junk bonds, Kaizen: continuous improvement, Kanban, Kickstarter, Lyft, Marc Andreessen, Menlo Park, minimum viable product, new economy, off grid, off-the-grid, OpenAI, Paul Graham, peak oil, performance metric, Ponzi scheme, ride hailing / ride sharing, risk tolerance, Sand Hill Road, self-driving car, short selling, short squeeze, side project, Silicon Valley, Silicon Valley startup, Skype, smart cities, Solyndra, stealth mode startup, Steve Jobs, Steve Jurvetson, tail risk, technoutopianism, Tesla Model S, too big to fail, Toyota Production System, Uber and Lyft, uber lyft, union organizing, vertical integration, WeWork, work culture , Zipcar

When stock commentator and CNBC star Jim Cramer gave the newly listed stock a lukewarm welcome, pointing out that Tesla had lost some $290 million to date, Musk fired back at the entire financial establishment. “Yeah, sure, Jim . . . we’re not Bear Stearns,” he joked to another CNBC interviewer, invoking the investment bank whose failure had triggered the recent financial crisis. “Jim I think recommended Bear Stearns,” he continued, “so frankly he’s a contraindicator.” Not many CEOs would consider attacking the wisdom of the markets on the day that their company went public, but Musk had learned the value of doing things unconventionally.


pages: 90 words: 27,452

No More Work: Why Full Employment Is a Bad Idea by James Livingston

Affordable Care Act / Obamacare, Bear Stearns, business cycle, collective bargaining, delayed gratification, do what you love, emotional labour, full employment, future of work, Herbert Marcuse, Internet of things, John Maynard Keynes: Economic Possibilities for our Grandchildren, labor-force participation, late capitalism, Lewis Mumford, liberal capitalism, obamacare, post-work, Project for a New American Century, Ralph Waldo Emerson, Robert Gordon, Ronald Reagan, scientific management, Silicon Valley, surplus humans, TED Talk, The Future of Employment, Tyler Cowen, union organizing, warehouse automation, working poor

When I see that your income is completely out of proportion to your production of real value, of durable goods the rest of us can use and appreciate (and by “durable” I don’t mean just material things), I begin to doubt that character is a consequence of hard work. When I see, for example, that you’re making millions by laundering drug cartel money (HSBC), or pushing bad paper on mutual fund managers (AIG, Bear Stearns, Morgan Stanley, Citibank), or preying on low-income borrowers (Bank of America), or buying votes in Congress (all of the above)—just business as usual on Wall Street—while I’m barely making ends meet from the earnings of my full-time job, I realize that my participation in the labor market is irrational.


pages: 414 words: 101,285

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It by Ian Goldin, Mike Mariathasan

air freight, air traffic controllers' union, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, biodiversity loss, Bretton Woods, BRICs, business cycle, butterfly effect, carbon tax, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, digital divide, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, Eyjafjallajökull, failed state, Fairchild Semiconductor, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, Glass-Steagall Act, global pandemic, global supply chain, global value chain, global village, high-speed rail, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, precautionary principle, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, risk free rate, Robert Solow, scientific management, Silicon Valley, six sigma, social contagion, social distancing, Stuxnet, supply-chain management, systems thinking, tail risk, TED Talk, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, Tragedy of the Commons, transaction costs, uranium enrichment, vertical integration

We briefly consider five arguments intended to show that the repeal of the 1930s Glass-Steagall regulation contributed—at least partly—to the financial crisis. First, it has been suggested that the repeal of Glass-Steagall did not contribute to the crisis because the banks that failed (such as Bear Stearns and Lehman Brothers) had not combined with commercial banks. This argument appears to overlook the fact that these banks transmitted shocks from a small sector of the U.S. economy (the mortgage sector) to the entire financial system. In the absence of commercial banks engaging in risk lending, it would have been possible to contain the worst of the financial crisis.

See also securitization Athenian plague, 150 attribution problem, 3, 23, 60, 214 Aum Shinrikyo, 194 automobile industry, 77–78, 79, 80–81, 84–85, 96 automobile ownership, 183, 184f Axelrod, Robert, 211 Balarajan, Meera, 197 Bank for International Settlements (BIS), 61, 199 Bank of England, 49, 63 banks: bonuses paid by, 46, 47, 48f, 68; capital requirements of, 44, 45, 54; compensation systems of, 46–47, 67; debt of, 52; dividend payments by, 46, 47, 47f; failures of, 58, 59, 62; federal bailouts of, 47, 229n30; funding costs of, 51, 51f; herding behavior of, 58–59; Icelandic, 37, 38; implicit government guarantees (too big to fail), 41, 50–52, 51f, 66; interbank payment network, 16, 19f; investment correlations by, 57–58; leverage ratios of, 45–46, 46f, 68; liquidity ratios of, 97; market concentration of, 41; profits of, 46; risk management by, 54–55, 68. See also financial regulation; financial sector Basel Committee on Banking Supervision, 49, 54, 61 Basel III agreement, 54, 61, 66, 68, 204 Battiston, Stefano, 92 Bear Stearns, 52b Bell, David M., 164 Bhadra International, 104 biodiversity: decline in, 132–33, 137; globalization and, 137–38; value of, 132. See also ecosystem BioScience, 132–33 bioterrorism, risk of, 149, 194 bird flu (H5N1) virus, 24, 146, 149, 154–57, 165. See also influenza birds, West Nile virus in, 158 BIS.


pages: 371 words: 98,534

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

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

But they can and do fail when they become illiquid, and can’t raise deposits or borrow funds in the financial markets any more. This is precisely what happened to the British bank Northern Rock in 2007, which was one of the first financial institutions to fail in the build-up to the financial crisis. Other bigger institutions, such as Bear Stearns and Lehman Brothers, would later fail in the same way. The liabilities of the financial sector, then, are what we really need to focus on because banks are always vulnerable to so-called ‘funding shocks’, since their business revolves around mismatches in the maturities of their assets and liabilities.

Xu Huang and Michael Harris Bond, Edward Elgar Publishing, 2012 Yasheng Huang, Capitalism with Chinese Characteristics: Entrepreneurship and the State, MIT Press, 2008 INDEX Unattributed entries, for example geography, refer to the book’s metatopic, China. 1st Five-Year Plan (i) 1st Party Congress (Chinese Communist Party) (i) 5G networks (i) 9/11 (i) 11th Central Committee, third plenum (i) 11th Party Congress (i) 13th Five-Year Plan advanced information and digital systems (i) aims of (i) BRI incorporated into (i) manufacturing and technology (i) pension schemes (i) transport (i) 14th Party Congress (i) 15th Party Congress (i) 18th Party Congress (i), (ii) third plenum (i), (ii), (iii), (iv) 19th Party Congress ‘central contradiction’ restated (i) supply-side reforms (i) Xi addresses (i), (ii), (iii) 21st-Century Maritime Silk Road see Belt and Road Initiative 2000 Olympic Games (i) 2008 Olympic Games (i), (ii) Abe, Shinzō (i) Acemoglu, Daron (i) Action Plan (AI) (i) Addis Ababa (i), (ii) Africa Admiral Zheng (i) BRI concept and (i) Chinese interest in (i) colonialist criticism (i) Japan and (i) loans to (i) metal ore from (i) Silk Road (i) Sub-Saharan Africa (i) ageing trap (i) see also population statistics birth rate (i) consequences of ageing (i) demographic dividends (i), (ii) family structures (i) healthcare (i) ‘iron rice bowl’ (i) mortality rates (i) non-communicable disease (i) old-age dependency ratios (i), (ii), (iii) pensions (i) retirement age (i) Agricultural Bank of China (i) Agricultural Development Bank of China (i) agriculture (i), (ii), (iii) Agriculture and Rural Affairs, Ministry of (i) AI (i), (ii), (iii) AI Innovation and Development Megaproject (i) AI Potential Index (i) Air China (i) Airbus (i), (ii) Aixtron SE (i) Alibaba (i), (ii), (iii), (iv) Alphabet (i) AlphaGo (i), (ii) Alsace-Lorraine (i) Amoy (i) Anbang Insurance (i), (ii), (iii) Angola (i) Angus Maddison project (i) Ant Financial (i), (ii) anti-corruption campaigns 2014 (i) in financial sector (i) Ming dynasty (i) Xi launches (i), (ii), (iii) Apple (i), (ii), (iii) Arab Spring (i) Arabian Sea (i) Arctic (i) Argentina (i), (ii), (iii) Armenia (i) Article IV report (IMF) (i) see also IMF ASEAN (Association of South East Asian Nations) (i), (ii) Asia China the dominant power (i), (ii) Global Innovation Index (i) Obama tours (i) Paul Krugman’s book (i) ‘Pivot to Asia’ (i) state enterprises and intervention (i) Asia-Pacific Economic Cooperation (i) Asian Development Bank (i), (ii) Asian Financial Crisis (1997–98) (i), (ii), (iii), (iv) Asian Infrastructure Investment Bank (i), (ii), (iii), (iv) Asian Tiger economies (i), (ii), (iii), (iv) Atatürk, Mustafa Kemal (i) Australia Chinese investment in (i) Chinese seapower and (i) free trade agreement with (i) immigration rates and WAP (i) innovation statistics (i) pushing back against China (i), (ii) Renminbi reserves (i) Austria (i), (ii) Austria-Hungary (i) automobiles (i), (ii) Babylonia (i) bad debt see debt bad loans (i), (ii) Baidu (i), (ii) Balkans (i) Baltic (i) Baluchistan (i) Bandung (i), (ii) Bangladesh heavy involvement with (i) Indian sphere of influence (i) low value manufacturing moves to (i), (ii) Padma Bridge project (i) Bank of China (i), (ii) Bank for International Settlements (i) banks (i) see also debt and finance; WMPs (wealth management products) assets growth, effects of (i) bad loans problem (i) bank failures (i) central bank created (i) major banks see individual entries non-performing loans (i), (ii), (iii), (iv), (v), (vi) regulators step in (i) repo market (i), (ii) shadow banks (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix) n18 smaller banks at risk (i) Baoneng Group (i) Baosteel (i) BBC (i) Bear Stearns (i) Beijing see also Peking 1993 (i) central and local government (i), (ii), (iii) Mao arrives (i) Olympics (i) pollution (i) price rises (i) US delegation (i) water supply (i) Beijing-Hangzhou Grand Canal (i) Belarus (i) Belgrade (i) Bell (i) Belt and Road Initiative (BRI) (i) debt problems in recipient nations (i) description, size and nature (i) economic drivers (i) financing and funding (i), (ii) first Forum (i) geopolitical drivers and disputes (i) Marshall Plan and (i), (ii) project investment (i), (ii) reordering of Indo-Pacific (i) Silk Road and (i), (ii), (iii) ways of looking at (i), (ii) benevolent dictators (i) Bering Strait (i) big data (i) birth rate (i) see also population statistics Bloomberg (i) Bo Xilai (i) Boeing (i), (ii) bond markets (i) Bosphorus Strait (i) Boxers (i), (ii) Brazil BRICS (i), (ii), (iii) middle income, example of (i), (ii), (iii) US steel imports (i) Bretton Woods (i) Brexit (i), (ii) BRICS (i) ‘Building Better Global BRICs’ (Goldman Sachs) (i) BRICS Bank (i), (ii) Britain (i) Boxer Rebellion (i) Brexit (i), (ii) Hong Kong (i) new claims (i) Renminbi reserves (i) Broadcom (i) Brunei Darussalam (i), (ii), (iii) Brzezinski, Zbigniew (i) Budapest (i) budget constraints (i), (ii) Bulgaria (i) Bund, the (Shanghai) (i) Bundesbank (i) bureaucracy (i), (ii), (iii), (iv) Bush, George W.


pages: 336 words: 95,773

The Theft of a Decade: How the Baby Boomers Stole the Millennials' Economic Future by Joseph C. Sternberg

Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, American Legislative Exchange Council, Asian financial crisis, banking crisis, Basel III, Bear Stearns, Bernie Sanders, blue-collar work, centre right, corporate raider, Detroit bankruptcy, Donald Trump, Edward Glaeser, employer provided health coverage, Erik Brynjolfsson, eurozone crisis, financial engineering, future of work, gig economy, Gordon Gekko, hiring and firing, Home mortgage interest deduction, housing crisis, independent contractor, job satisfaction, job-hopping, labor-force participation, low interest rates, low skilled workers, Lyft, Marc Andreessen, Mark Zuckerberg, minimum wage unemployment, mortgage debt, mortgage tax deduction, Nate Silver, new economy, obamacare, oil shock, payday loans, pension reform, quantitative easing, Richard Florida, Ronald Reagan, Saturday Night Live, Second Machine Age, sharing economy, Silicon Valley, sovereign wealth fund, Steve Bannon, stop buying avocado toast, TaskRabbit, total factor productivity, Tyler Cowen, Tyler Cowen: Great Stagnation, uber lyft, unpaid internship, women in the workforce

The bank blamed slowing house-price growth and rising defaults.42 In retrospect, those two pages marked the moment the global financial system stepped over the cliff edge and began its plunge into the unknown. More signs of distress would appear in quick succession. Hedge funds run by the investment bank Bear Stearns to invest in US mortgages reported heavy losses. French bank BNP Paribas prevented investors from withdrawing money from its own mortgage hedge funds because trading in those assets on global markets had frozen. Then, on October 1, 2007, it became clear that this wouldn’t be any ordinary financial crunch.

On October 24, Merrill Lynch announced a quarterly loss of $2.3 billion. This was more than a modest blip now. America’s mortgage meltdown was going to inflict heavy losses on all major banks, and whether they’d survive the blows to their balance sheets was anyone’s guess. Some of the biggest names in American finance—Bear Stearns, Merrill Lynch, Washington Mutual, Countrywide Financial—didn’t. Mortgage giants Fannie Mae and Freddie Mac were put into receivership, a form of bankruptcy. And then there was Lehman Brothers, the venerable investment bank that just couldn’t be rescued. Markets that had barely maintained their composure for a year and a half went into meltdown when Lehman tipped into bankruptcy in September 2008, with stock prices plunging around the globe.


pages: 827 words: 239,762

The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite by Duff McDonald

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Albert Einstein, Apollo 13, barriers to entry, Bayesian statistics, Bear Stearns, Bernie Madoff, Bob Noyce, Bonfire of the Vanities, business cycle, business process, butterfly effect, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, Clayton Christensen, cloud computing, collateralized debt obligation, collective bargaining, commoditize, compensation consultant, corporate governance, corporate raider, corporate social responsibility, creative destruction, deskilling, discounted cash flows, disintermediation, disruptive innovation, Donald Trump, eat what you kill, Fairchild Semiconductor, family office, financial engineering, financial innovation, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, Glass-Steagall Act, global pandemic, Gordon Gekko, hiring and firing, Ida Tarbell, impact investing, income inequality, invisible hand, Jeff Bezos, job-hopping, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, Kōnosuke Matsushita, London Whale, Long Term Capital Management, market fundamentalism, Menlo Park, Michael Milken, new economy, obamacare, oil shock, pattern recognition, performance metric, Pershing Square Capital Management, Peter Thiel, planned obsolescence, plutocrats, profit maximization, profit motive, pushing on a string, Ralph Nader, Ralph Waldo Emerson, RAND corporation, random walk, rent-seeking, Ronald Coase, Ronald Reagan, Sam Altman, Sand Hill Road, Saturday Night Live, scientific management, shareholder value, Sheryl Sandberg, Silicon Valley, Skype, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Steve Jurvetson, survivorship bias, TED Talk, The Nature of the Firm, the scientific method, Thorstein Veblen, Tragedy of the Commons, union organizing, urban renewal, vertical integration, Vilfredo Pareto, War on Poverty, William Shockley: the traitorous eight, women in the workforce, Y Combinator

In 2015, the company had revenues and net income of $96.6 billion and $24.4 billion, respectively. Dimon’s management of JPMorgan Chase in the lead-up to the financial crisis left it in the unique position of being the one bank that the government actually called on for help as the crisis began to unfold, the result of which was that the bank bought the failing Wall Street firm Bear Stearns over the course of a single weekend in March 2008. That was followed by the purchase of the teetering Seattle bank, Washington Mutual. In the years since, the firm has only solidified its position at the top of the industry, a fact reflected quite clearly in Dimon’s bank account: In 2015, he earned a reported $27 million.6 For a brief moment in time, it seemed the man could do no wrong, a sentiment expressed quite clearly in 2009’s Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase, written by the author of this book.

“It’s perhaps in character . . . that his final bow at CIT should include the fine-print equivalent of a decorative cabinet,”21 wrote Reuters Breakingviews columnist Richard Beales. There’s another John who went to HBS with extensive Goldman ties, although he never worked there. John Paulson (’80) attended HBS on a Sidney J. Weinberg/Goldman Sachs scholarship. After working for the Boston Consulting Group, Bear Stearns, and a few lesser-known companies, he founded his own hedge fund, Paulson & Company, in 1994 with $2 million of his own money. By 2003 he was managing $300 million. But it was his bets against bonds backed by subprime mortgages that made him famous (and a billionaire) in the wake of the housing market crash.

Thain followed O’Neal as CEO of Merrill, serving from 2007 to 2009. As the crisis unfolded, he threw huge piles of money at old friends from Goldman Sachs, and was fired after a surprise $15 billion loss shortly after the firm’s sale to Bank of America. Jamie Dimon (’82). The CEO of JPMorgan Chase, Dimon was first praised for the rescues of Bear Stearns and Washington Mutual and then raked over the coals for what critics saw as excessive risk taking during the whole London Whale episode. The many, many HBS grads at McKinsey & Company. There was a joke in the mid-1990s that since pretty much every bank of importance had hired McKinsey, you had fifty companies focused on the same thing—global strategy—at the exact same time.6 The same was true ten years later, raising an interesting issue of “systemic risk.”


How an Economy Grows and Why It Crashes by Peter D. Schiff, Andrew J. Schiff

Alan Greenspan, Bear Stearns, Bretton Woods, business climate, currency peg, hiring and firing, indoor plumbing, low interest rates, offshore financial centre, price stability, Robert Shiller, technology bubble

Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear. But government has done all that it can to remove fear from the equation. And so beginning in 2008, as market forces moved to deflate the credit and housing bubbles, the government stepped in to re-inflate both. First came bailouts for Bear Stearns and American International Group (AIG) and guarantees for other Wall Street firms such as Goldman Sachs and Bank of America. Then came Treasury’s $700 billion Troubled Asset Relief Program (TARP) to purchase mortgage assets that no one in the private sector would touch. Then the government bailed out student loan provider Sallie Mae and essentially took over the entire student loan market.


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

addicted to oil, Alan Greenspan, American energy revolution, Asian financial crisis, Bear Stearns, buy and hold, carbon tax, Carl Icahn, corporate governance, delayed gratification, Donald Trump, family office, geopolitical risk, hydraulic fracturing, Jeff Bezos, junk bonds, low interest rates, Mark Zuckerberg, Masdar, Michael Milken, oil shale / tar sands, peak oil, Silicon Valley, sovereign wealth fund, Upton Sinclair, Yom Kippur War

“To be able to borrow money for ten years and ride out boom and bust cycles was almost as important an insight as horizontal drilling,” McClendon, with typical immodesty, later told Rolling Stone. “I never let Aubrey McClendon in the door for a meeting,” says an analyst who works for a big investment firm. “Because we would have bought a ton of stock and it would not have ended well. He was that good.” In the early 1990s, Bear Stearns helped Chesapeake sell high-yield debt in a first-of-its-kind sort of deal. This was no small achievement. After all, Chesapeake didn’t have much of a track record, and there was less than zero interest in the oil and gas business from the investment community. “I watched him convince people in these meetings,” says a banker who was there.


Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies by Nik Bhatia

Alan Greenspan, bank run, basic income, Bear Stearns, bitcoin, blockchain, Bretton Woods, British Empire, central bank independence, Cornelius Vanderbilt, Credit Default Swap, cryptocurrency, distributed ledger, fiat currency, fixed income, Fractional reserve banking, interest rate derivative, interest rate swap, Isaac Newton, joint-stock company, Kickstarter, Long Term Capital Management, margin call, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, offshore financial centre, quantitative easing, reserve currency, risk free rate, Satoshi Nakamoto, slashdot, smart contracts, time value of money, tulip mania, universal basic income

They were bank liabilities in a new form, one that was difficult for financial regulators or even the banking system as a whole to fully comprehend. Most illustratively though, derivatives existed as a tangled web of financial obligations within the banking system, concentrating risk in the relationships between a handful of banks in the United States and Europe. An enormous margin call from the investment bank and major LTCM counterparty Bear Stearns in September 1998 triggered a collective realization that derivatives held by the hedge fund had the power to bring down the entire house of flimsy interbank risk. At the time of the LTCM bailout, the total market value of all the world’s derivatives including interest rate swaps, credit default swaps, and foreign exchange currency swaps was $3 trillion.


pages: 354 words: 110,570

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

"World Economic Forum" Davos, Asian financial crisis, Bear Stearns, Bernie Madoff, Boeing 747, collapse of Lehman Brothers, colonial rule, corporate social responsibility, Credit Default Swap, Donald Trump, failed state, family office, financial engineering, forensic accounting, Frank Gehry, Global Witness, high net worth, junk bonds, low interest rates, Michael Milken, middle-income trap, Nick Leeson, offshore financial centre, Oscar Wyatt, Ponzi scheme, Right to Buy, risk tolerance, Savings and loan crisis, Snapchat, South China Sea, sovereign wealth fund, Virgin Galactic

But fearing a crash in home prices, with many Americans unable to keep up on their mortgage payments, Goldman itself had bet against the market—a trading strategy that later came to be known as the “Big Short.” When the U.S. housing bubble burst in 2007, these subprime securities blew up. Within a year, losses related to toxic subprime loans toppled Bear Stearns and Lehman Brothers, sparking a full-blown financial crisis. The U.S. government had to step in with a $700 billion bailout for the banks. The Goldman chief executive, dressed in a gray suit with a maroon tie, tried to parry the angry questioning from Senator Levin, arguing that some clients—big banks and institutional funds—still believed the U.S. housing market was robust in 2007.

Few punishments were meted out and, as a result, banks and regulators didn’t enforce these regulations all that stringently. More often than not, compliance departments were a weak appendage of a bank’s ecosystem, isolated under legal affairs. The subprime crisis, starting in 2007, changed the picture. U.S. regulators had been caught napping, and the collapse of Lehman Brothers and Bear Stearns, under the weight of bad mortgage loans, led to tighter scrutiny of banks’ actions. That extended to anti–money laundering, as Treasury and the Justice Department began to hand out heftier punishments to transgressors. Wachovia Bank, in early 2010, agreed to pay $160 million in penalties for failing to report $8 billion in dodgy transfers.


pages: 297 words: 108,353

Boom and Bust: A Global History of Financial Bubbles by William Quinn, John D. Turner

accounting loophole / creative accounting, Alan Greenspan, algorithmic trading, AOL-Time Warner, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Big bang: deregulation of the City of London, bitcoin, blockchain, book value, Bretton Woods, business cycle, buy and hold, capital controls, Celtic Tiger, collapse of Lehman Brothers, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, debt deflation, deglobalization, Deng Xiaoping, different worldview, discounted cash flows, Donald Trump, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, fake news, financial deregulation, financial intermediation, Flash crash, Francis Fukuyama: the end of history, George Akerlof, government statistician, Greenspan put, high-speed rail, information asymmetry, initial coin offering, intangible asset, Irish property bubble, Isaac Newton, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, junk bonds, land bank, light touch regulation, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Network effects, new economy, Northern Rock, oil shock, Ponzi scheme, quantitative easing, quantitative trading / quantitative finance, railway mania, Right to Buy, Robert Shiller, Shenzhen special economic zone , short selling, short squeeze, Silicon Valley, smart contracts, South Sea Bubble, special economic zone, subprime mortgage crisis, technology bubble, the built environment, total factor productivity, transaction costs, tulip mania, urban planning

However, when news of this leaked out, its depositors mounted a run on the bank which ended only when Chancellor Alistair Darling guaranteed its deposits. This was Britain’s first bank run in over 150 years. On 17 February 2008, Northern Rock was nationalised. About one month later, the US bank Bear Stearns was rescued by the Federal Reserve and taken over by JP Morgan for only a fraction of what its market value had been the previous week. Over the next few months, mortgage delinquencies continued to soar, MBSs continued to default and banks reported ever larger losses. On 7 September 2008, the US Treasury placed Fannie Mae and Freddie Mac, two government-sponsored entities (GSEs) that had been established to increase the available mortgage finance for affordable homes, into conservatorship and injected substantial capital funds into them because of their perilous financial condition.29 Then on 15 September Lehman Brothers filed for bankruptcy.

See financial crisis Bank of Australasia, the, 93 Bank of England in relation to the British Bicycle Mania, 108 in relation to the financial crisis of 1825, 48, 54–6 in relation to the financial crisis of 1847, 74 in relation to the first emerging market bubble, 52–3 in relation to the Great Railway Mania, 65–6, 68 in relation to the Subprime Bubble, 178, 179 role in the South Sea Bubble, 24, 37 Bank of International Settlements, 141 Bank of Japan, 137, 142, 146, 148 banking crisis. See financial crisis Banks and Currency Amendment Statute 1887, 92 Banque Générale. See General Bank Banque Royale. See General Bank Bear Stearns, 178 Berners-Lee, Tim, 153 Big Four Japanese securities companies, 140, 146 Birmingham Small Arms, 111 bitcoin, 210–11 Black Thursday, 24 October 1929, 123–4, 126 blockchain, 210–11 Bloomberg Television, 158 Bretton Woods System, 136 brewery boom of the 1890s, 111 Brodzky, Maurice, 88 broker loans in relation to the 1920s stock market bubble, 123, 128, 130 in relation to the Chinese bubbles, 205–7 in relation to the Dot-Com Bubble, 162 regulation of after the 1920s stock market bubble, 134 Brown, Gordon, 170 Bubble Act 1720, 28, 38, 40, 46 repeal of, 47, 56 bubble triangle, the as a predictive tool, 211–12 description of, 4–9 diagram of, 5 bubbles consequences of, 9–10 282 INDEX criteria for inclusion, 12 definition of, 4 etymology of, 3–4 investing in, 220–2 list of included, 13 prevention of, 216–18 rationality/irrationality of, 10–11 reasons for changes in frequency of, 214 reasons for end of, 9 riding of, 7, 221 capital controls, 198 capital flight.


pages: 382 words: 105,166

The Reckoning: Financial Accountability and the Rise and Fall of Nations by Jacob Soll

accounting loophole / creative accounting, bank run, Bear Stearns, Bonfire of the Vanities, British Empire, collapse of Lehman Brothers, computer age, corporate governance, creative destruction, Credit Default Swap, delayed gratification, demand response, discounted cash flows, double entry bookkeeping, financial independence, Frederick Winslow Taylor, Glass-Steagall Act, God and Mammon, High speed trading, Honoré de Balzac, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, new economy, New Urbanism, Nick Leeson, Plato's cave, Ponzi scheme, Ralph Waldo Emerson, scientific management, Scientific racism, South Sea Bubble, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade route

This would be an issue in the financial crisis of 2008, when unsound and overvalued mortgage securities bundles (CDOs) caused a world financial meltdown. The New York Federal Reserve, the New York offices of the SEC, and the Big Four firms—PricewaterhouseCoopers (PwC), Deloitte Touche Tohmatsu Ltd., Ernst & Young, and KPMG, with nearly 700,000 employees—were only blocks away from Bear Stearns and Lehmann Brothers, whose collapse led to the federal emergency bailout of most remaining investment banks through the comically titled Troubled Asset Relief Program (TARP). The auditing firms had warned the banks and regulators that CDOs were Class 3 assets (Class 1 being cash) and that their values were speculative and highly risky.

See debt bailouts Balance sheets, 171, 186, 193 Balanced books, concept of, xvi Balzac, Honoré de, 178–179 Bank of England, 108, 111, 165 Bank of the United States (first National), 163 Banker (or Moneylender) and His Wife, The (art) (Matsys), 58 Banking development of, 9 Dutch, 72–73 Glass-Steagall Act and, 192, 200 Gramm-Leach-Bliley Act and, 200 laws of the church and, 20–22 Medici family and, 30, 33–34 papacy and, 16–17, 33 Bankruptcy Act of 1831 (England), 172–173 Banque Générale, 134 Baring Brothers bank, 123 Barlaeus, Caspar, 79 Basilica of San Lorenzo, 35 Bastille, 144 Bear Stearns, 202–203 Beaumarchais, Pierre-Augustin de, 154 Beeckman, Isaac, 74 Benci, Giovanni di Amerigo, 37–38 Benson, Sir Henry, 194 Bentham, Jeremy, 117, 130, 167 Bentley, Richard, 120 Bentley, Thomas, 122, 125 Bernardino of Siena, 27 Bevis, Herman, 197 Bewindhebbers, 79, 81–82 Bill of Rights of 1689 (England), 103 Black Death, 25 Blunt, John, 106 Boccaccio, Giovanni, 25 Book of Revelation (Bible), 24 Book-keeper, The, 165, 176 Book-keeping methodiz’d (Mair), 118, 150 Borgia, Cesare, 56 Boston & Worcester Railroad, 169 Botticelli, 39 Boulton, Matthew, 124 Boulton and Watt (firm), 124 Bowring, John, 167–168 Braams, Daniël, 84 British Enlightenment Protestantism, 119–122 Brodrick, Thomas, 109 Brown, Obadiah, 150 Brown University, 150 Brunelleschi, 35 Bubbles French Mississippi scheme as, 106, 107 risky mortgages and, 202–203 South Sea Company, 107–112 Bureau of Accountability (France), 145 Burgundy, Duke of (Charles the Bold), 44–45 Bush, George W., 201, 202, 239n28 Business Education and Accountancy (Haskins), 176 Byzantium, 9–10, 12 Caligula (emperor), 6 Calonne, Vicomte de, Charles Alexandre, 142–143 Calvinists.


Money and Government: The Past and Future of Economics by Robert Skidelsky

"Friedman doctrine" OR "shareholder theory", Alan Greenspan, anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, book value, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, fake news, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Glass-Steagall Act, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kondratiev cycle, labour market flexibility, labour mobility, land bank, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, long and variable lags, low interest rates, market clearing, market friction, Martin Wolf, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mobile money, Modern Monetary Theory, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, nudge theory, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, placebo effect, post-war consensus, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, technological determinism, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

The collapse of the American sub-prime mortgage market in August 2007. This activated central banks’ role as lenders of last resort. 216 M ac roe c onom ic s i n t h e C r a s h a n d A f t e r , 2 0 0 7 – 2. The escalation of the financial crisis with the collapse and rescue of the major US investment bank Bear Stearns in March 2008. The confidence among banks in the quality of each others’ assets deteriorated markedly after this, leading to reduced interbank lending and much greater use of available central bank credit lines. The Fed became a global ‘lender of last resort’, making credit swaps available to fourteen central banks.

London: Centre for Policy Studies. 460 Index Italic figures refer to graphs and charts Abramovitz, Moses, 157, 158 the Acadamy and scholarship, 11–12, 13 ageing populations, 301–2, 371 AIG bail-out (2008), 325 Albermarle, Duke of, 78 Alesina, Alberto, 192, 231, 233, 241 anthropology, classical, 24 anti-Semitism, 30–31, 131 ‘Aquarius’ CDO structure, 326 Aquinas, Thomas, 28–9 Aristotle, 22, 23, 31 Asian Development Bank Institute, 327 ‘asset-backed commercial paper’ (ABCP), 326 ‘asset-backed securities’ (ABSs), 322–6, 327, 330 Attwood, Thomas, 48 austerity policy, 3, 49, 84, 114, 219, 225 and Bocconi School, 192, 231 and comparative recovery patterns, 241–4, 242, 243, 273, 273–4 cost of to British economy, 243–4, 244, 245 and financial folklore, 235–6 and inequality, 245–6 neo-classical errors, 232–3 Osborne’s crucial mistake, 229–30 Reinhart-Rogoff work, 232 theory behind, 228–35, 236–9 Austria, 91, 92 Austrian School, 46, 104, 192, 226, 296, 349–50 automation, 299, 370–71 Bagehot, Walter, Lombard Street (1873), 50 balance of payments, 103, 142, 143, 144, 145, 150, 152, 153, 159–60, 165, 332 balanced budget theory and gold standard, 56–7 and Keynesian economics, 126–7, 137–8, 142, 143–4, 146, 149–50, 151, 155 as mainstream until Keynes, 76, 95, 98 mandated by EU fiscal rules, 242–3 neo-Victorian reassertion of (from 1980s), 76, 114, 185, 193, 215, 221–2 nineteenth-century fiscal policy, 9, 29, 43, 76, 85, 87–8, 92 and post-2008 austerity policies, 223–4, 227–39, 242–6 461 i n de x balanced budget theory – (cont.) post-W W1 attempts to return to, 106–14 Roosevelt on, 130 Stiglitz’s balanced-budget multiplier, 235* Baldwin, Stanley, 108 Balogh, Thomas, 169 Bank of England 1950s view on monetary policy, 146 actions during 2008 crisis, 234–5, 253–4, 254, 257 Bank Charter Act (1844), 50 Bank Rate, 58, 101–2, 113, 115, 116, 145, 146, 249, 251, 253–6, 254, 261–2, 276 ‘Consols’ (consolidated debt), 43, 80–81 Currency School vs Banking School debate, 49–50 founding of (1694), 42–3, 80 given ‘operational independence’ (1998), 249, 272–3 imposes ‘Corset’ (1973), 168 inflation targeting, 188, 189, 249–53 and ‘law of reflux’, 46 as ‘lender of last resort’, 50, 249 ‘loss function’ for inflation target, 252 macroeconomic model (2004–10), 233, 310, 310–11 Monetary Policy Committee (MPC), 249, 254, 265, 275 during Napoleonic wars, 45–8 power over credit conditions, 105, 115–16 Prudential Regulatory Authority, 363 quantitative easing (QE) by, 254, 257, 259–62, 263–73, 274, 275–7, 276 Bank of International Settlements, 342–3 Bank of Japan, 271 Bank Rate after 2007–8 crisis, 254, 261–2, 279 during 2008 crisis, 253–6, 254, 278 and Bank of England, 58, 101–2, 113, 115, 116, 145, 146, 249, 251, 253–6, 254, 261–2, 276 and broad money monetarism, 186 in Cunliffe’s model, 54, 54–5, 102, 145 after First World War, 101–2 and inflation targeting, 188, 249, 251, 252, 358–9 and Keynes, 101, 102, 115, 166, 255* and managed gold standard, 71 in pre-crash USA, 340 and Radcliffe Report (1959), 146 set by independent central banks, 188, 249–50 and Thornton, 47, 278 transmission mechanism of, 250, 250–51 and Wicksell, 69, 70, 358–9 Banking School, 49–50 banks Austrian School’s 100 per cent reserve requirement, 350, 367 bail-outs, 30, 217, 223, 319–20, 364–5 ‘bank lending channel’, 64 Basel I (1988) and Basel II (2003), 320, 363 Basel III, 363, 364 capital adequacy requirements, 320, 363–4 capital/collateral requirements weakened, 320 collapse of in 2008 crisis, 217, 223, 319 and consolidated debt, 43, 80–81 continued bonuses after crash, 319–20 462 i n de x continued complaints by over regulation, 363–4, 367 creation of money by, 27, 34, 61, 67–8, 71, 311 damage inflicted by, 361–2 deposit and joint-stock banking, 92 deregulation, 307–9, 310–16, 318–22, 328, 332–3 development of modern system, 34 functional separation proposals, 362–3 funding of CR As by, 326–7, 329 Glass–Steagall overturned in USA (1999), 319 growth of unregulated sector, 168 late-medieval rediscovery of, 33–4 leverage concept, 317–18, 322 liquidity concept, 316–17 ‘living wills’, 365 LTROs (long-term refinancing operations), 257 macroprudential regulation, 363–5 maturity mismatch of SPVs, 326 ‘money multiplier’, 35, 64, 146, 179, 185, 258–9, 268–9, 277–8, 280 off balance-sheet assets, 318, 324, 325–6 post-crash reform agenda, 361–8 pre-crash orthodoxy, 5, 308–11 and quantity theory, 61, 64, 65–6, 67–70 reasons for regulation of, 316 reserve or liquidity requirements, 364 root of problem as greed, 365–6 solvency concept, 316–17 ‘stress testing’, 364 see also financial system Barber, Anthony, 167 Barings Bank demise of (1995), 366 rescue of (1890), 50 basic income guarantee, 371 Bavarian Banking Association, 266 Bayes’ theorem, 209 Bear Stearns, 217 ‘behavioural economics’, 388–90 Bernanke, Ben, 105, 179, 188, 248, 256, 275, 278, 334, 344 Besley, Tim, 226, 235 Bible, 30 Bismarck, Otto, 89, 92 Blanchard, Olivier, 230–31, 239 BNDES (Brazilian Development Bank), 354 Bocconi School, 192, 231 Bodin, Jean, 33 Boer War, 86 bond markets, 7, 90–92, 148, 186, 218, 219, 235, 246, 287, 341 Borio, C., 342–3 Brash, Donald, 188 Bretton Woods system, 16, 139, 159, 374–3, 381 collapse of in 1970s, 16–17, 162, 164–5, 166–7, 184 Brexit vote (June 2016), 257, 316*, 373 Britain, xviii adoption of Keynesian policy, 141, 142–3 austerity policy see austerity policy: cost to British economy bullionist vs ‘real bills’ controversy, 44, 45–9 centralization of tax collection, 80 Currency School vs Banking School debate, 44, 49–50 debate on post-crash policy, 225–8 deficit and public sector borrowing statistics (1956–2013), 156 Employment White Paper (1944), 141, 142 463 i n de x Britain – (cont.) final suspension of gold standard (1931), 113, 125 First World War borrowing, 95 fiscal experience (1692–2012), 77 forced out of ERM (1992), 188 GDP per capita growth (1919–2007), 154 ‘Geddes Axe’ (1920s), 108 and gold standard, 9, 42, 43, 44, 45–50, 53, 57–9, 80, 101 and Great Depression, 97, 98, 110–13 growth Keynesianism (1960–70), 148–9, 150–51, 152 industrial relations system, 147, 167–8, 169 inflation peak (1975), 166 inter-war cyclical downturns, 107, 113 and mercantilism, 78–81, 82 monetarism in, 185, 186–8, 189, 192–3, 249 nationalization in post-war period, 142, 158 post-crash bank liquidity ratios, 364 pre-crash housing bubble, 304 ‘prices and incomes policy’ in, 147, 150, 151, 167–8 public finances before 2008 crash, 224, 225 Public Sector Borrowing Requirement (PSBR), 155–6 public spending and tax revenue (1950–2000), 157 rearmament in late 1930s, 113 recession of early 1980s, 186–7 recoinage debate (1690s), 40, 41–3 return to gold standard (1925), 102, 103, 107 sharp rise in inequality since 1970s, 288–9, 299–300, 300 slow recovery from 2008 crash, 241, 242, 243–4, 245, 273, 273–4 ‘stop-go’ in post-war period (‘fine tuning’), 142–3, 145–6, 150, 152 victories over France (eighteenthcentury), 43, 80, 81 see also Bank of England; Conservative Party; Labour Party British Empire, 57, 58, 80 Brittan, Samuel, 225 Brown, Gordon, 193, 220, 221–3, 354, 357 and 2008 crash, 220, 223, 224 declares era of ‘boom and bust’ over, 215 ‘prudence’ as watchword, 226 Bryan, William Jennings, 52 budget deficit see balanced budget theory Buchanan, James, 198 Buffett, Warren, 326 Bundesbank, 140, 154, 257, 275 Bush, George W., 242 business schools, financing of, 13 Cairncross, A.

., 179 Erie Canal, 90 Eshag, Eprime, 71 European Central Bank, 139, 188, 198, 217, 242–3, 253, 254, 361 institutional constraints on, 50, 234, 242, 249, 274–5 misreading of Eurozone crisis, 275 quantitative easing (QE) by, 273–4 on ‘stress testing’, 364 taxing of ‘excess’ reserves, 266 use of LTROs, 257 European Commission, 139, 3612, 365 European Exchange Rate Mechanism, 188 European Investment Bank, 354 European Union (EU, formerly EEC), 153, 318, 379, 383 Financial Stability Board (FSB), 363 ‘Four Freedoms’, 375 lack of state, 376 Single Resolution Board, 365 Eurozone current account imbalances, 333, 334, 335, 336–7, 341–2 Juncker investment programme, 274 proposed European Monetary Fund, 376, 382 structural flaw in, 341, 375–7 two original sins of, 274, 376–5 Eurozone debt crisis (2010–12), 50, 223, 377, 382 and double-dip recession, 241, 242–3, 274 ECB’s misreading of, 275 and financial crowding-out theory, 234 and Greece, 32, 224, 224–5, 226, 233, 235, 242–3, 243, 365 and ‘troika’, 32, 139, 243 469 i n de x exchange-rate policy, 127–8, 139 and Congdon’s ‘real balance effect’, 285 and domestic interest rates, 251 fixed rates under Bretton Woods, 16, 159, 161, 162, 168 floating rates from 1970s, 16–17, 184 and Friedman, 182 IMF ‘scarce currency’ clause, 380–81 Nixon’s dollar devaluation (1971), 153, 154, 165 and quantitative easing, 267, 267 sterling crisis (1951), 145 sterling devaluation (November 1967), 152 sterling-dollar peg (from 1949), 148, 150, 152 sterling/franc/deutschmark devaluations (1949), 152 ‘Triffin paradox’, 161, 165 ‘expansionary fiscal consolidation’, 192, 225, 231 Fabian socialism, 96 Fama, Eugene, 208, 311–12, 313 Fanny Mae, 217, 256, 309, 320 fascism, 13, 98, 131, 175 Federal Reserve, US and 2008 crash, 50, 217, 254, 256 AIG bail-out (2008), 325 Federal Open Market Committee (FOMC), 185–6 and Great Depression, 104–6 inflation targeting, 188 and monetarism, 185–6, 188 monetary policy in 1950s, 146 ‘Operation Twist’, 268 quantitative easing (QE) by, 256–7, 273–4 ‘Reserve Position Doctrine’ (1920s), 103–4 and under-consumption theory, 298 Ferguson, Niall, 73, 79, 80, 91 financial collapse (2007–8) acute phase, 218–20, 223 ‘Austrian’ explanation, 104, 303 banks as proximate cause, 343, 361, 365 Bear Stearns rescue, 217 British analogies with Greece, 235 British debate after, 225–8 causes of, 3–4, 343–4, 365, 366, 368 central bank responses, 3, 217, 219, 234–5, 253–4, 254, 256–8, 359 comparative recovery patterns, 241–4, 242, 273, 273–4 compared to 1929 crash, 218 Conservative narrative, 226–8, 229–31, 233, 234–5, 237–9 and crisis of conservative economics, 17 and embedded leverage, 318, 322, 325 five distinct stages of crisis, 216–19 ‘global imbalances’ explanation, 11, 331, 333, 336–43, 337 government responses, 3, 217–18, 219–20, 221–36, 237–47 Hayekian view of cause, 303 hysteresis after, 239–41, 240, 241, 370 inequality as deeper cause of, 299–306, 368 Lehman Brothers bankruptcy, 3, 50, 217, 365 leverage (debt to equity) ratios on eve of, 317–18 liquidity-solvency confusion, 317 outbreaks of populism following, 13, 371–3, 376, 383 post-crash deficit, 226–33, 229, 237–8 private debt as proximate cause, 3–4 470 i n de x stagnation of real earnings as deep cause, 4, 303, 367 standard account of origins of, 3–4 as test of two theories, 2–3, 76 theoretical and policy responses, 10, 129, 219–20, 223–36, 237–47 see also austerity policy and under-consumption theory, 303–6 US sub-prime mortgage market, 3, 216, 304–5, 309, 323, 328, 341 see also Great Recession (2008–9) Financial Services Authority, U K, 321–2, 330 financial system and causes of 2008 collapse, 3, 4–5, 253, 307–9, 361 and crisis of conservative economics, 17 deregulation, 307–9, 310–16, 318–22, 328, 332–3, 384 East Asian financial crisis (1997–8), 202, 339, 371, 382 ‘Efficient Market Hypothesis’ (EMH), 311–13, 321–2, 328, 388 ‘financialization’ of the economy, 5, 305, 307–9, 366–7 fraud and criminality, 3, 4, 5, 7, 328, 350, 365–6, 367 and free-market orthodoxy, 5, 308–16 loosening of moral restraints, 319 mark-to-market (M2M) framework, 314 offshore euro-dollar market, 308, 332 privatised gain and socialised loss, 319–20 released from national regulation (1980s/90s), 131, 318–22 structural power of finance, 6–7, 14, 309 systemic under-estimation of risk, 314–16, 316*, 320–22, 323, 329–30 Thatcher’s Big Bang (1980s), 319 tradable public debt instruments, 43, 80–81 Turner’s ‘financial intensity’ concept, 366 unrealism of assumptions, 310–16 value at risk (VaR) framework, 314–15, 315, 330 ‘Washington consensus’ deregulation, 198, 200 see also banks FinTech, 356 First World War, 86, 95, 106–7, 374, 375 ‘fiscal consolidation’, 10–11, 129, 225 Darling’s plan (2009), 225–6 ‘expansionary’, 192, 225, 231 and Osborne, 227–8, 229–30, 231, 233, 237–9, 243–4, 244, 245 fiscal policy and 2008 collapse, 10, 217–18, 219–20, 223–36, 265–6, 273–4, 286 ‘Barber boom’, 167, 168 during Blair-Brown years, 221–4, 223, 225–6, 227 British experience (1692–2012), 77 Congdon’s total rejection of, 280, 285–6 ‘crowding out’ argument, 83–4, 109–11, 226, 233–5 current and capital spending, 107–8, 114, 142, 155–6, 193, 221–3, 237–8, 355–7 directing flow of new spending, 286–7 fiscal multiplier, 110–11, 125–6, 133–6, 138, 230–31, 233, 235, 244–5 471 i n de x fiscal policy – (cont.) in inter-war Britain, 106–17 and Keynesian economics, 2–3, 109, 111, 114–17, 125–7, 129–31, 133–4, 137–8, 173, 278 Keynesian full employment phase (1945–60), 141–8 Krugman’s ‘confidence fairy’, 117 Lawson counterrevolution, 185, 192–3, 222, 358 legacy of monetarism, 190–93 May Committee (1931), 112 national income accounts, 138 New Classical view of, 200 in new macroeconomic constitution, 351–2, 355–7, 360–61 nineteenth-century theory of, 9, 29 post-Keynesian disablement of, 193, 221, 258, 304, 328 pre-crash orthodoxy, 221–2, 223–4, 230–31 Public Sector Borrowing Requirement (PSBR), 155–6 see also balanced budget theory; public investment; taxation Fisher, Irving, 9, 52, 61, 99, 280 ‘compensated dollar’ scheme, 66 equation of exchange, 62–4, 71–2, 258, 278–9, 283, 284, 287 QTM formulation, 62–7, 71–2 and quantitative easing, 258, 278–9 Santa Claus money, 62–4, 258, 278–9 Fitch (CR A), 329 France assignats in 1790s, 64–5 and gold standard, 50, 102, 104, 127 ‘indicative planning’ system, 150 ‘physiocrats’in, 81 protectionism in late nineteenthcentury, 59 state holding companies, 356 statism in, 140, 144 university campus revolts (1968), 164 Freddie Mac, 217, 256, 309, 320 free trade, xviii, 9, 58–9, 76, 79, 81–2 abandoned in Britain (1932), 113 general presumption in favour of, 377 and Hume’s ‘price-specie-flow’ mechanism, 37–8, 53, 54, 104, 332 and Irish potato famine, 15 List’s ‘infant industry’ argument, 88–9, 90, 378–7 and nationalist–globalist split, 371–3 and post-war liberalization, 16, 374 and presumption of peace, 379 repeal of Corn Laws (1846), 15, 85 Ricardo’s doctrine of comparative advantage, 88, 378, 379, 379 US conversion to (1940s), 90 Freiburg School, 140 Friedman, Milton adaptive expectations theory, 180–81, 183, 194, 206–11 and Cartesian distinction, 22 as Fisher’s heir, 278 The Great Contraction (with Schwartz; 1865), 105 idea of ‘helicopter money’, 63 and monetary base, 185, 280 and Mont Pelerin Society, 176–7 and ‘natural’ rate of unemployment, 163, 177, 181, 195, 206, 208 onslaught on Keynesianism, 170, 174, 177–83, 261 ‘permanent income hypothesis’ (1957), 178, 183 and Phillips Curve, 38, 180–81, 194, 206–8, 207 472 i n de x policy implications of work of, 182–3 political motives of, 177, 183–4 and quantity theory, 61, 70, 177–9, 182, 183, 194 ‘stable demand function for money’, 179 view of Great Depression, 104–6, 179, 183, 256, 276, 278 weaknesses in arguments of, 183 Frydman, Roman, 389 Fullarton, John, 49 Funding for Lending programme, 265–6 G20 Financial Stability Board, 363 summits (2009/10), 219–20, 223, 225 G7 finance ministers meeting (February 2010), 224–5 Galbraith, James, 303, 361 game theorists, 389 Gasperin, Simone, 357* Geddes, Sir Eric, 108 German Historical School, 88–9 Germany and 2008 crash, 217, 218, 243 current account surplus, 333, 334, 341, 342, 380, 381 employer–union bargains, 147, 167 and Eurozone crisis, 341, 365, 376, 377 and Great Depression, 97, 111, 129–30 growth Keynesianism (1960–70), 153–4 high growth rates in 1950/60s, 149, 156 Hitler’s reduction in unemployment, 111, 112, 129–30 hyperinflation of early 1920s, 275 as Keynesian in 1960s, 140 nineteenth-century expansion and unification, 89, 91 ‘ordo-liberalism’ in, 140 post-war modernization/catch-up, 156–7 protectionism in late nineteenthcentury, 59 return to gold standard (1924), 102 ‘Rhenish capitalism’ model, 154 Giffen, Robert, 51 Giles, Chris, 219, 302 Gini coefficient, 299, 300 Gladstone, William, 42–3, 86 Glass–Steagall Act (1933), 319, 361, 362 global imbalances basic theory of, 335–6 and capital account liberalization, 318–19 capital flight, 59, 334, 337, 341, 343 Eurozone see Eurozone: current account imbalances as explanation for 2007–8 crash, 11, 331, 333, 336–43, 337 and financial deregulation, 318–19, 332–3 and First World War, 95 increases in pre-crash years, 333, 333–4, 334, 335 problematic nature of, 333–4 reserve accumulation, 336, 337–41 ‘saving glut’ vs ‘money’ glut, 338–41, 342 structural causes still in place, 344 US dollar as main reserve currency, 338 global warming, 383 globalization, 17, 300, 334–5 absence of the state, 350, 373, 375–6 anti-globalist movements, 371–2, 373 first age of, 51, 55, 57, 59, 374, 375 473 i n de x globalization – (cont.) future of, 382–4 Geneva and Seattle protests (1998/99), 371 and inflation rate, 252–3 and lower wages in developed world, 252–3, 300, 379 nationalist-globalist split, 371–3 ‘neo-liberal’ agenda of IMF, 139, 181, 318–19 popular protest against, 351, 371–2 resurgence of after Cold War, 374 Rodrik’s ‘impossible trinity’, 375 gold, 23, 24, 25, 28, 35, 37 new gold production, 51, 52, 55, 62 gold standard, xviii, 1, 9, 27, 29, 338 and Britain, 9, 42, 43, 44, 45–50, 53, 57–9, 80, 101, 102, 113 collapse of US exchange standard (1971), 160, 165 commitment to convertibility, 55–6 and Cunliffe model, 54–5, 102 depressions in later nineteenthcentury, 51–2 dysfunctional after First World War, 95, 97 final suspension in Britain (1931), 113, 125 Fisher’s ‘compensated dollar’ scheme, 66 Hume’s ‘price-specie-flow’ mechanism, 37–8, 53, 54, 104, 285, 332 and international bond markets, 92 as international by 1880s, 50–52 Keynes on, 58, 101, 127 Kindleberger thesis, 58–9 move to ‘managed’ system, 71, 99–100 replaces silver standard (1690s), 42, 43 restored (1821), 48 return to in 1920s, 102, 104, 107 suspension during Napoleonic wars, 43, 45–7 suspension of convertibility (1919), 101–2 triumph of by mid-nineteenthcentury, 44, 50 working and design of, 52–9 as working in tandem with empire, 57, 58 Goldberg, Michael D., 389 Goldman Sachs, 315 Goodhart, Charles, 168, 187 Graeber, David, 28 Great Depression (1929–32), 9, 13, 96, 97–8, 110–13, 127 compared to 2008 crash, 218 Friedman-Schwartz view, 104–6, 179, 183, 256, 276, 278 impact on US policy-makers in 2008 period, 256, 275, 278 left-wing explanations of, 298 rise in inequality in lead-up to, 289 and second wave of collectivism, 15–16 Great Moderation (early 1990s–2007), 4, 53, 202, 278 economic problems during, 348 financial deregulation during, 318–22, 328 financial innovation during, 322–8 and independent central banks, 215 inflation during, 106, 215, 216, 252–3, 253, 348, 359, 360 international financial network, 309, 318–28 output growth during, 215, 253, 348 Great Recession (2008–9), xviii Congdon’s view of, 281–2, 287 co-ordinated global response, 219–20, 383 decline in productivity after, 305–6 474 i n de x initial signs of recovery (2009), 218–19, 225, 226 monetary interpretation of, 105, 106 ‘premature withdrawal’ of fiscal stimulus, 219–20, 223–36, 245, 352 reform agenda after, 361–8 rise in inequality in lead-up to, 289–90, 299–300 see also financial collapse (2007–8) Greece and Eurozone debt crisis, 32, 224, 224–5, 226, 233, 235, 242–3, 243, 337, 341, 365 in gold standard era, 59 Greenspan, Alan, 188, 313 Hamilton, Alexander, 88, 90, 92 Hammond, Philip, 236, 352 Hannover Re scandal, 329 Harrison, George, 105 Harrod, Roy, 123 Harvey, John, 333, 387 Hawtrey, Ralph, 109–10, 280 Hayek, Friedrich, 33, 46, 177, 195, 350, 367 founds Mont Pelerin Society, 176 ‘over-consumption’ theory, 296 The Road to Serfdom (1944), 16, 175–6 on Wall Street Crash, 104 Heath, Edward, 167–8 Heckscher, Eli, 37 Help to Buy programme, 265, 266 Henderson, Hubert, 109 Henderson, W.


pages: 829 words: 187,394

The Price of Time: The Real Story of Interest by Edward Chancellor

"World Economic Forum" Davos, 3D printing, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, asset allocation, asset-backed security, assortative mating, autonomous vehicles, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, bitcoin, blockchain, bond market vigilante , bonus culture, book value, Bretton Woods, BRICs, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cashless society, cloud computing, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, commodity super cycle, computer age, coronavirus, corporate governance, COVID-19, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cryptocurrency, currency peg, currency risk, David Graeber, debt deflation, deglobalization, delayed gratification, Deng Xiaoping, Detroit bankruptcy, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, double entry bookkeeping, Elon Musk, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, everywhere but in the productivity statistics, Extinction Rebellion, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global reserve currency, global supply chain, Goodhart's law, Great Leap Forward, green new deal, Greenspan put, high net worth, high-speed rail, housing crisis, Hyman Minsky, implied volatility, income inequality, income per capita, inflation targeting, initial coin offering, intangible asset, Internet of things, inventory management, invisible hand, Japanese asset price bubble, Jean Tirole, Jeff Bezos, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, land bank, large denomination, Les Trente Glorieuses, liquidity trap, lockdown, Long Term Capital Management, low interest rates, Lyft, manufacturing employment, margin call, Mark Spitznagel, market bubble, market clearing, market fundamentalism, Martin Wolf, mega-rich, megaproject, meme stock, Michael Milken, Minsky moment, Modern Monetary Theory, Mohammed Bouazizi, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, Northern Rock, offshore financial centre, operational security, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, peer-to-peer lending, pensions crisis, Peter Thiel, Philip Mirowski, plutocrats, Ponzi scheme, price mechanism, price stability, quantitative easing, railway mania, reality distortion field, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk free rate, risk tolerance, risk/return, road to serfdom, Robert Gordon, Robinhood: mobile stock trading app, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, Second Machine Age, secular stagnation, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, stock buybacks, subprime mortgage crisis, Suez canal 1869, tech billionaire, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tim Haywood, time value of money, too big to fail, total factor productivity, trickle-down economics, tulip mania, Tyler Cowen, Uber and Lyft, Uber for X, uber lyft, Walter Mischel, WeWork, When a measure becomes a target, yield curve

Sydney, like Vancouver, was also favoured by Chinese property buyers.12 By 2016, the average home in the New South Wales’ capital was valued at more than twelve times local incomes, making Sydney the second most expensive housing market in the world after Hong Kong.13 On a national basis, Australian housing was deemed ‘severely unaffordable’, trapped in a perpetual bubble.14 A STOCK MARKET BUBBLE During the financial crisis, the New York Fed stumped up tens of billions of dollars to bail out the investment bank Bear Stearns and insurance giant AIG. Morgan Stanley, Goldman Sachs and other Wall Street firms were encouraged to convert into bank holding companies so they could borrow directly from the Fed. On its own account, the US central bank acquired vast amounts of Treasury bonds and mortgage securities. By the end of 2008, the Fed’s balance-sheet footings exceeded $2 trillion, more than double the level a few months earlier.

Two years later, the European Central Bank, whose nineteen members of the monetary union contained a population of some 340 million persons, brought its own deposit rate below zero. Switzerland followed. Having long rejected calls for negative rates, the Bank of Japan shocked financial markets by announcing in January 2016 that it too would impose a negative rate on deposits. By this date, there had been an estimated 637 rate cuts globally since the failure of Bear Stearns in early 2008, central banks had purchased more than $14 trillion worth of securities, and more than $8 trillion worth of government bonds yielded less than zero.22 11. By December 2020 nearly $18 trillion worth of bonds were yielding less than zero. Negative interest rates were intended, as Harvard’s Kenneth Rogoff put it, to ‘turbocharge the economy out of a deflationary recession’.23 But they failed to live up to this promise.

To find a specific word or phrase from the index, please use the search feature of your ebook reader. 3G Capital, 161, 169 AEG (German company), 159 African American households, 211 AIG (insurance giant), 175, 221 Alberti, Leon Battista, 21 Alexander the Great, 12 Alibaba, 283 Altman, Edward, 223 Amazon (company), 203 AmeriCredit Corp, 167* Amsterdam, 35–6, 39, 47 Anbang Insurance, 285–6 Anderson, Benjamin, 87, 88, 90, 91, 92 Anglo-Dutch Wars, 33 annuities, 26, 69, 195, 197, 229 Antiphanes (Athenian playwright), 18 Antiphon (Greek orator), 20 Apple, 54, 149, 166, 176, 241 Aquinas, Thomas, Summa Theologica, 19, 25 Arab Spring (2011), xxiii, 255–6 Argentina, 79–80, 79*, 242–3, 263 aristocracy/landed classes: in Ancien Régime France, 49, 51; in ancient Mesopotamia, 200; and price of land, 34–5, 39, 42, 44 Aristotle, 9, 18, 19, 20, 28, 40 Arnd, Karl, 4 art market, 180, 208–9, 271 Artemis Capital, 231 Asian economic development model, 267, 278; Asian crisis, 114, 252, 278 asset price bubbles: before 2008 crisis, xxiii, 32, 44, 111–19, 204; and Arab Spring, 255–6; bond market in 2010s, 226; and Borio’s financial cycle, 132–3, 134, 135; bubble economy term, 184–7; Cantillon’s view, 58, 60–61; Chinese real-estate bubble, xxiii, 271, 272–4, 282, 288, 289; in commodities (from 2010), 173–4, 255–6, 257; construction booms, 62–3, 69, 74, 90, 112, 144, 148, 258–60, 273–9; crypto bubbles, 177–9; Dotcom bubble, 111–12, 136–7, 176, 204; Everything Bubble in post-crisis decade, 44, 138–9, 173–80, 180, 181–3, 185, 193–5, 206–10, 215, 306–9; expansive monetary policy as common feature, xxiii, 116*, 123, 135, 172–87, 180, 220; idea of creating a bubble to deal with, 113*; Japanese economy in 1980s, xxiii, 105–8, 145, 182, 184, 271, 273, 279, 285–6; misallocation of capital during, 43, 114, 148–50, 266–81, 289; relation to real economy, 182–3, 185, 237; stock market bubble in 1920s USA, xxiii, 87–91, 90*, 92–4, 96–8, 98*, 112, 203; at times of low inflation, xxiii, 134, 135; unstable bubbles in China, 270, 271–4, 282, 288; vast investment boom in China, xxiii, 128, 267–81, 280*, 282–9; and wealth illusion, 193–5 see also Mississippi bubble asset-backed securities, 175, 225, 226–7 Assyrian empire, 12 AT&T, 167, 168 Augsburg, 202 Augustus, Roman Emperor, 12, 15 Australia, 175, 192, 239 Austria, 93, 93*, 97, 261; Wörgl’s currency experiment, 243, 294 Austrian economists, 32, 94–6, 100, 108 see also Hayek, Friedrich; Schumpeter, Joseph Ayr Bank, collapse of (1772), 63 Azerbaijan, 262 Babylonia, 3–4, 5–8, 9–12, 13, 13, 14–15 Bacon, Francis (artist), 208 Bacon, Sir Francis, ‘On Usury’ (1612), 34, 35, 40, 43, 44 Bagehot, Walter, 62, 63–4, 66–8, 70–71, 72, 74, 149, 155, 251; Bagehot rule, xxiii, 74–6, 80; and dangers of foreign lending, 66, 77, 78; on foreign lending craze, 78; warnings over easy money, 64, 66, 67, 68, 69, 72, 78, 80–81, 220, 233; Lombard Street (1873), 69, 74, 75, 76, 81 Bain Capital, 163 Balding, Christopher, 277* Bank for International Settlements (BIS), 11, 101, 107, 113–14, 131–4, 135–9, 144, 153, 168, 261 Bank of Amsterdam (Wisselbank), 47, 68 Bank of England: during 1920s, 82–3, 85–6, 92, 93; acquires foreign corporate securities (2016), 241†; Bagehot on role of, xxiii, 64, 66, 74, 75–6; Bank Charter Act (1844), 75–6, 76*; ‘corset’ in Bretton Woods era, 291; ‘credit easing’ policy, 242; dominion over credit markets, 292–3, 293*; and financialization, 168; founding of (1694), 47; and Gold Standard, 85, 251; inflation targeting, 119, 121, 241; as lender of last resort, 66, 74–6, 80; nationalization (1946), 172; NICE (non-inflationary consistent expansion), 112; in nineteenth-century, 42, 65, 66, 70, 71–2, 75–6, 79, 80; policies in post-crisis decade, 151, 153, 174, 233, 235, 241, 293; and regulation, 232, 233; and secular stagnation narratives, 126, 205–6 Bank of France, 82, 83, 92, 93 Bank of Japan (BOJ), 105–8, 119, 122, 146, 192, 224, 241, 242, 244–5, 271, 294 Bank of Spain, 117 banking: 1825 crisis, 64–7, 75; back-alley banking in China, 281–3; bankers as unpopular, 18; Casa di San Giorgio, Genoa, 47–8; development in Middle Ages, 22–4, 35; expansion in Britain during Napoleonic Wars, 69–70; and fountain-pen money, xxiv, 42, 269, 312; Law establishes General Bank (1716), 49–50; merchant banks in ancient world, 7, 8; National Banking System in USA, 157; ‘net interest margin’ eroded by ultra-low rates, 136; pre-twentieth-century panics/crises, 63, 64–8, 69, 70, 72–6, 79–81; repo market, 236*, 239, 245; UK and US economies shift towards, 167–8; vast expansion in China, 265–6; and zombification, 147, 148 see also financial sector Baoding Tianwei Group, 280 Baoshang Bank, 285 Baradaran, Mehrsa, 215* Barbon, Nicholas, 15 Barcelona, 23 Baring, Alexander, 65 Baring, Sir Francis, 74–5, 76 Baring Brothers, 74, 76, 80 Basel Committee, 232 basketball, shot clock, 141 Bastiat, Frédéric, xvii, xviii–xx, xxi, xxii, xxv, 9, 188–9, 215, 306 Batista, Eike, 257, 258 Bavarian Soviet Republic, 243 Bayer (German firm), 225 Bear Stearns, 175 behavioural research, 29 Belgium, 225 Benda, Julien, La Trahison des Clercs (1927), 297 Bentham, Jeremy, 30, 189 Berkshire Hathaway, 161 Berlusconi, Silvio, 293 Bernanke, Ben: actions during 2008 crisis, 76, 253–4; on causes of 2008 crisis, 114, 115–16, 118, 128–9; and easy money before 2008 crisis, 111–12, 113, 115–17, 115†, 118–19; evades consequences for 2008 crisis, 119; and inflation targeting, 119, 119*, 241; joins Federal Reserve (2002), 111–12; and legacy of John Law, 61; on monetary policy, 98, 98*, 115, 115*, 131, 155, 207, 230, 238; policy of dealing with aftermath of bubbles, 111–12, 114; and savings glut hypothesis, 128–9, 191; and taper tantrum (June 2013), 239, 256–7, 259, 263; and ultra-easy money after 2008 crisis, 124, 131, 133, 137–8, 153, 155, 181–3, 207, 215, 230, 238–40, 243–4, 262; view of Great Depression, 98, 98*, 99, 100, 101 Bernard, Samuel, 55* Bernardino of Siena, 25 Bernstein, Richard, 306 Bernstein, William, 128 Beyond Meat, 177 Bezos, Jeff, 203 bills of exchange, 22, 23, 24, 47, 50, 65‡, 71, 130 Bitcoin, 177–9, 307–8 BlackRock, 209, 227, 246 Blackstone Sir William, Commentaries on the Laws of England (1765), 17 BNP Paribas, 253† Bo Xilai, 288 Böhm-Bawerk, Eugen von, xxiii–xxiv, xxv, xxvi*, 13, 16, 19*, 29, 30, 31, 95, 246 Borio, Claudio, 132–4, 135–9, 153, 232–3, 240, 262–3, 269, 311 Borman, Frank, 143 bottomry loans, 6, 26 Bouazizi, Mohamed, 255 Bourbon, Duke of, 55 Brandeis, Justice Louis, 156, 158, 159, 202 Branson, Richard, 213 Braudel, Fernand, 21 Brazil, xxiii, 225, 254–5, 257–8, 291 Bretton Woods system, 133, 251, 290–91, 302 Bridgewater Associates, 229 Britain: 1825 banking crisis, 64–7, 75; building boom in mid-eighteenth-century, 62–3; calamities of 1660s, 33; decision to leave EU, 187, 241, 262; default on sovereign debt (1672), 33, 38; early twentieth century monopolies in, 159; economy in Bretton Woods era, 291, 302*; financial repression today, 292–3; foreign lending manias (1860s-80s), 77–8, 79–80; housing affordability crisis in, 212–13; loss of manufacturing jobs to China, 261*; low economic vitality in post-crisis decade, 124, 150–51, 153, 192; post-1571 debates on excessively high rates, 34–44; Productive Finance Working Group, 293, 293*; railway mania of 1840s, 70–72, 73; return to the Gold Standard (1920s), 43, 82, 85, 86; reversal of global capital flows (late-1920s), 93; Revolutionary/Napoleonic Wars, 41–2, 69–70; shift from manufacturing towards services, 167–8; South Sea Bubble (1720), 69; trade cycle from early eighteenth century, 62–4; usury in, 24, 26, 27, 34, 40, 42, 65‡, 65; zombification in, 146 see also Bank of England British Association of Recovery Professionals, 146 British Home Stores (BHS), 196–7 Brown, Brendan, 218 Brown, Gordon, 112 Brunnermeier, Markus, 236 Bryan, William Jennings, 99 bubble economy term, 184–7 Buchan, James, 54, 56*, 59 Buenos Aires Water Supply and Drainage Company, 80 Buffett, Warren, 126, 161, 225, 307, 308, 308* Bullard, James, 239 Burry, Michael, 198 buyout firms, 160–63, 183†, 204, 207, 222, 223, 237 Byzantium, 25 Calvin, John, 26 Campbell, Donald, 120–21 Canada, 119, 174–5, 192, 196*, 241 Canterbury, Justin Welby, Archbishop of, 17, 201 Cantillon, Richard, 58, 60–61, 60* capital flows, global: in 1920s, 82, 91, 261; Bretton Woods capital controls, 291; capital controls return after 2008, 262, 291; ‘commodity super-cycle (from 2010), 173–4, 255–6, 257; cross-border lending in Eurozone, 144–5; and Dollar Standard, 251–2, 253, 261, 262–3; foreign lending manias (1860s-80s), 77–8, 79–80, 79†; ‘global banking glut’ notion, 132, 252–3; global credit bubble in early 2000s, 252–3, 261; international carry trade, 137, 237–8, 252, 253–4, 256–7, 258; ‘persistent expansion bias’ of monetary system, 262; post-crisis flows into emerging markets, xxiii, 253–9, 262–3; protectionism of 1930s, 261–2; recirculation of in run-up to 2008 crisis, 115‡; recording/measuring of, 137; reversals of, 63, 93, 93*, 261; and role of interest, 139, 251–7, 259–61, 262–3; ‘second phase of global liquidity’ after 2008 crisis, 253–9, 262–3; taper tantrum (June 2013), xxiii, 137, 239, 256–7, 259, 263; Turkish debt, 258–60; and US interest rates, 137, 251–5, 256–7, 259–61, 262–3, 285 capitalism: Bastiat on broad consequences of actions, xix–xx; capital defined, 28, 28*; distortions/disruptions by unicorns, 148–50; distrust of in 1930s, 299; Hayek on, 96, 295–6, 298; Hazlitt on price system, xx; interest rates as at heart of, xxii, xxv, 16, 28, 141, 297; low marginal costs in New Economy, 127–8; Marxist-Leninist critique of, 159–60, 217*, 298; primacy of finance in modern era, 138–9; process of ‘creative destruction’, xx, 140–43, 143*, 153, 296–7; Proudhon on, xvii; role of risk in, 220, 298; Schumpeter on, 140, 153, 296–7; Adam Smith on mutual self-interest, 27–8; state capitalism, 280, 284, 292–5, 297, 298; takes off in medieval Italy, 21–3, 23 Cappadocia, 12 Carillion (construction company), 197 Carnegie, Andrew, 157–8 Carney, Mark, 235 Carroll, Lewis, 309, 311 carry trading, 220–22, 227, 229, 233, 234, 236; international, 137, 237–8, 252, 253–5, 256–7, 258; new regime emerges after 2008 crisis, 221–4, 253–5, 256–7, 258 cars, 173, 179, 210, 220; manufacture of, 142, 166–7, 176–7, 261; and revival of subprime market, 215, 224 Carstens, Agustín, 214* Carter, Jimmy, 108–9 Case, Anne, 213 Cassel, Gustav, xxvi, 36*, 88, 190, 192, 195, 246 Catholic church, 18–19, 23–4, 25–6 central banks: attitudes to risk, 230–31; Bagehot rule, xxiii, 74–6, 80; direct involvement in stock market, 172–3, 241–2, 293–4; dominion over credit markets, xxii, 292–3, 293*; double standards in approach to bail outs, 215; and duration risk, 225; fuelling of asset price bubbles by, 43, 60–61, 88, 110, 113, 115–16, 118–19, 132–6, 174–6, 181–2, 185, 194–5; goal of stable price level, xxiii, 42, 86–8, 94, 96–8, 105–8, 109–13, 133, 203; influence on long-term rates, 133, 134–5; issuing of ‘fiat money’, xxiv, 13, 312; Long Island meeting (1927), 82–3, 88, 92; and March 2020 crash, 305–6; money supply targets in 1980s, 121; move to ‘active’ monetary policy in 1920s, 84, 85–8, 85†, 92–4, 96–8; and responsibility for inequality, 214–17; ‘Taylor Rule’, 116–17 see also quantitative easing and also entries for individual institutions central planning: in Bretton Woods era, 291, 292–5; Hayek’s The Road to Serfdom (1944), 295–6, 298; and misallocation of capital, 264, 266, 269; and problem of regulation, 232–3; reappearance of, 297, 298, 302; during Second World War, 295, 302, 311; and ‘tyranny of metrics’, 120* da Certaldo, Paolo, 21 Chamberlain, Austen, 86 Chamberlen, Hugh, 59* Chan, Melissa, 274 Chang Ying, Remarks on a Regular Livelihood, 265 Chapman, D.


pages: 1,061 words: 341,217

The Price of Silence: The Duke Lacrosse Scandal by William D. Cohan

"Hurricane Katrina" Superdome, affirmative action, Albert Einstein, Bear Stearns, Bonfire of the Vanities, David Brooks, fixed income, medical malpractice, Robert Bork, rolodex, Ronald Reagan, Saturday Night Live, union organizing

Since July 2012, he has worked as a stockbroker at Deutsche Bank Securities on Wall Street. His father, Kevin, a former member of the board of directors at Bear Stearns & Company, Inc., where he also was a senior managing director and head of the mortgage-backed securities department, was a founding partner of the Fortress Investment Group. He was also the founding partner of Galton Capital Group, a residential mortgage-credit fund manager, which is now part of the hedge fund Mariner Investment Group, started by Finnerty’s former Bear Stearns partner, William Michaelcheck. Collin Finnerty did not respond to numerous requests to be interviewed for this book.

The Dutch colonial house was in a cul-de-sac next to the Garden City Golf Club and was said to be worth more than $2 million. The Finnertys also owned a $4.3 million summer home in West Hampton Beach, with a tennis court and a motorboat. His father, Kevin, was a very successful Wall Street banker, first at Bear Stearns, where he became a senior managing director and the head of mortgage-backed securities, and then at both UBS and what became JPMorgan Chase & Co. Finnerty was the middle of five children, with two older brothers and two younger sisters. His mother, Mary Ellen, described him not only as “a big boy with a big heart” but also as “private,” “shy,” “sensitive,” and “religious.”

“When I was arrested, there was only a couple of weeks left in the semester, and at the end of the semester it’s mostly exam review, and in college, that’s when you really start to hunker down, at the end of the semester. I had to pretty much do it on my own at the end there, and we just communicated through Duke, and my guidance counselor had to get in touch—it took about three months for me to get all the information to finish the finals up.” Eventually, Seligmann got an internship working at Bear Stearns, the investment bank, in New York. But he missed his entire junior year of college. Finnerty spent the spring, summer, and fall of 2006 at his home on Long Island. He eventually took one class at a local university but, like Seligmann, he missed his junior year of college, too. The Evans indictment and the Seligmann hearing launched a new round of editorials about the direction of the case (including a treatise by William Safire, the New York Times’s language columnist, on whether describing Mangum as an “exotic” dancer as opposed to an “erotic” dancer was misleading).


pages: 160 words: 6,876

Shaky Ground: The Strange Saga of the U.S. Mortgage Giants by Bethany McLean

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Alan Greenspan, Bear Stearns, collateralized debt obligation, crony capitalism, housing crisis, junk bonds, Michael Milken, mortgage debt, negative equity, obamacare, Pershing Square Capital Management, race to the bottom, Savings and loan crisis

But he also said that they were “the only game in town” once the housing market dried up in the summer of 2007. Private capital, so plentiful in the boom, simply disappeared. If a homeowner wanted a mortgage, it had to be one that could be sold to Fannie and Freddie. The most striking moment came in the spring of 2008, just after the dramatic rescue of Bear Stearns. At a press conference on March 19, Paulson, Jim Lockhart, Dan Mudd, and Richard Syron, the CEO of Freddie Mac, announced that the GSEs would be permitted to reduce their capital in order to purchase or guarantee an additional $200 billion in mortgages. No one voiced any public concern. “Fannie Mae and Freddie Mac are significant participants in the mortgage market, and I am encouraged that today’s announcement will make more financing available in this area,” said Paulson.


pages: 397 words: 112,034

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

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Berlin Wall, biodiversity loss, Black Swan, Bretton Woods, business cycle, capital controls, carbon credits, carbon tax, Cass Sunstein, central bank independence, classic study, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial engineering, financial innovation, floating exchange rates, foreign exchange controls, full employment, Gini coefficient, Glass-Steagall Act, global macro, global reserve currency, global village, high net worth, high-speed rail, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inverted yield curve, invisible hand, Just-in-time delivery, Kenneth Rogoff, Long Term Capital Management, low interest rates, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, military-industrial complex, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, precautionary principle, price stability, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Ronald Reagan, Savings and loan crisis, sovereign wealth fund, special drawing rights, subprime mortgage crisis, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Tragedy of the Commons, Washington Consensus, Westphalian system, WikiLeaks, women in the workforce, yield curve

The investment banks did indeed have a serious problem in 2008, because most of them (including the most risky tranches of asset-backed securities) had been manufacturing inordinate quantities of “structured products” during the boom and still held large amounts of inventory when the crisis broke. They did suffer losses running into many tens of billions of dollars. In this sense the post-2007 crisis was specific to this particular type of institution and, in fact, largely to the well-known names (Lehman Brothers, Bear Stearns, Citigroup, and Merrill Lynch, plus some specialist mortgage lenders in the commercial banking sector). The majority of US commercial banks were and still are in a different position. They also have had their difficulties, which is hardly surprising given that peak-to-trough falls in house prices and commercial real estate were, respectively, 30 percent and more than 40 percent.

These events include: • The increasing complexity of derivative products, including CDSs (Credit Default Swaps) and CDOs (Collateralized Debt Obligations)4 • The ascendancy of rating agencies • Alt-A subprime lending • Basel II (2005–2006) • The subprime housing crisis in the United States, including the rise of “NINJA” (no income, no jobs, no assets) financing • The rise of hedge funds • The oil crisis (2008) • The collapse of Bear Stearns, Fannie Mae, Freddie Mac, and Lehman Brothers (2008) Understanding the causes of the global financial crisis will go hand in hand with regulatory reform and increasing targeted global compliance and ethics programs.5 Why SOX Failed SOX was supposed to remedy the financial improprieties and excesses that existed prior to July 31, 2002.


pages: 434 words: 114,583

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

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", 1960s counterculture, Asilomar, asset-backed security, Bear Stearns, Berlin Wall, business logic, cognitive dissonance, collapse of Lehman Brothers, corporate governance, crossover SUV, Fall of the Berlin Wall, financial engineering, Ford Model T, full employment, hiring and firing, independent contractor, Kaizen: continuous improvement, McMansion, military-industrial complex, self-driving car, short selling, short squeeze, Silicon Valley, sovereign wealth fund, Steve Jobs, subprime mortgage crisis

The reason was simple: Porsche was making more money from the options it bought on Volkswagen shares than from the sale of cars. But it was already clear that conditions in financial markets were becoming much less favorable for that kind of financial engineering. In March 2008, the collapse of Bear, Stearns had provided a forewarning of the risks lurking in the market for subprime mortgages, a form of asset the investment bank had helped pioneer. Porsche pushed ahead with plans to acquire a majority in Volkswagen, but buying the additional shares became more difficult and took time. It was not until September 16, 2008, that Porsche acquired another 5 percent of Volkswagen’s voting shares, bringing the total stake to 35 percent.

“acoustic function,” 120–21, 123–24, 178, 227, 246; See also defeat device AdBlue solution, 167, 180, 227 AdBlue tank, 152, 170 advertising “clean diesel” campaign, 145–47, 208, 266 “Think Small” campaign, 34–35 and VW’s legal exposure, 255 aerodynamics, 109 aftermath of emissions cheating revelations, 211–23 air-cooled engines, 29 air pollution; See also nitrogen oxide (NOx) emissions in California, 168 emissions controls and, 251–52 European emissions rules, 162 premature deaths in Europe, 161 Alexandria, Virginia, EPA lab, 70–73, 75 Ambrosio, Aniello, 239–41 Angola, 104 Ann Arbor, Michigan, EPA lab, 68, 70, 72, 75 annual meetings, VW, 98–99, 243 Apple, 205, 222 asset-backed securities, 221 asthma, NOx and, 2, 160, 252 Audi Daimler alliance, 114, 126–27 defeat device origins, 123 defeat device revelations, 267–68 EA 189 diesel engine, 158 emissions control software, 120 EPA’s second notice of violation, 217 “Green Police” commercial, 145–46 losses after Piëch’s departure, 59 NOx emissions, 254 Piëch as CEO, 46–47, 190 Piëch as department head, 31–32 Piëch as head of development, 38–42 Piëch’s development of diesel engine for, 43–44 Piëch’s maneuverings against Wolfgang Habbel, 45 Porsche 924 production, 38 road testing of diesels, 184 search of Ingolstadt offices, 272–73 as source of VW profit, 189 Martin Winterkorn and, 118 Audi A3, 53, 146, 148, 167 Audi A8, 88, 184 Audi 80, 41 Audi 100, 39, 44 Audi Q7 SUV, 127–28 Audi TT, 53 Audi workers council, 45–46 Auschwitz, 12, 13 autobahn, 5 Autobahn (Kraftwerk), 36 Autostadt, 108 AutoUni, 222 auxiliary engine control devices, 73 Ayala, Alberto meetings with Schmidt and Johnson about defeat device, 197–99 VW’s obfuscation on emissions anomalies, 181–82, 184 WVU test of emissions controls, 168, 169, 174–75 Bach, David, 151 Baden-Baden, Germany, 17 Bad Nauheim, Germany, internment camp, 17 BaFin, 212, 243–44 Barclays, 136 Barra, Mary, 255, 256 battery-powered cars, 204–5 Baudet, Jean, 15 Bavaria project, 136 Bear, Stearns, 136 Beetle, See Volkswagen Beetle Behles, Franz, 40 Bensinger, Jörg, 41 Bentley, 82, 83, 85 Bentley, Walter Owen, 83 Bentley Arnage, 85 Bentley Bentayga, 202 Bentley Continental GT, 85 Benz, Carl, 4, 5 Berlin Wall, fall of, 52, 56 Bernbach, Bill, 34 Bernhard, Wolfgang, 110, 113, 119 Besch, Marc, 1, 169, 171–73 Bliley, Tom, 74–75 BlueMotion emissions technology, 151–52 BlueTec emissions technology, 113–14, 119, 127, 151–52 BMW (corporation), 100, 119 BMW SUV, 2, 3, 169, 170, 173, 176–77 BNP Paribas, 238 Bode, Jörg, 155 body gaps, 54, 90 Böhm, Fritz, 45–46 Boies, David, 233 bonuses executive, 242, 247, 257 worker, 260 Bosch and common rail, 116–17 EDC17 ECU, 124, 226–27 legal settlement, 266 meeting that included discussion of defeat device, 177–78 request for indemnity clause in VW contract, 124 VW defeat device specifications, 124 Martin Winterkorn and, 118 Bratislava, Slovakia, 95 Braun, Wernher von, 17, 28 Brazil, 156, 206, 218, 245 Breton, Leo diesel truck engine emissions test, 72 doubts about laboratory testing, 68–69 ignition timing tester, 72–73 road testing, 70–71, 74, 255 WVU mobile testing unit, 79 Breyer, Charles R., 232–36, 265–66 bribery scandals Siemens, 257–58 Skoda, 102–3 Brooks, Philip, 236 Bugatti, 82–87 Bugatti, Ettore, 83, 86 Bugatti Type 41 Royale, 83 Bugatti Veyron, 86–87 Bundeswehr, 41 buybacks, 235 Cabraser, Elizabeth J., 233 Cadillac emissions scandal, 68–71 California; See also Los Angeles, California EPA threat to withhold approval of VW sales, 193–95 NOx pollution in, 168–69 WVU road test of VW vehicles, 1–4, 166–75 California Air Resources Board (CARB) Audi test results, 184 demands for software code from VW, 192–94 early discussions with VW about emissions control equipment, 125, 126 importance of cooperation with, 195–96 initial WVU test of emissions controls, 168–70, 173–75 intention to do further tests, 177 June 2015 Passat test, 192 pressure on VW to explain emissions anomalies, 181–85 testing garage, 3 threat to withhold approval of VW sales in CA, 193–95 tougher tests devised by, 184 VW’s stonewalling of, 178, 255 California Plug-In Electric Vehicle Collaborative, 205 call options, 137, 138 Canada, 55, 245, 266 carbon dioxide (CO2) emissions diesel vehicles, 159 European Parliament regulations, 164 global warming and, 54, 75, 126, 147 passenger diesel in Europe, 75 VW diesels, 154 carbon monoxide (CO) emissions, 69 Carder, Dan ICCT contract for emissions testing, 166, 167 reaction to news of EPA findings against VW, 209–10 on Time magazine 2016 list of 100 most influential people, 265 WVU road tests, 2, 78–80, 172–74 catalytic converters, 75, 114; See also lean NOx trap (LNT) Caterpillar Inc., 73, 125 Center for Alternative Fuels, Engines, and Emissions (CAFEE) Carder as director, 166 Carder’s concern over finances of, 265 development of road testing, 78–81 origins, 77–78 road test of VW vehicles in California, 1–4, 166–75 Center for Automotive Research conference, 197 certification for US sales, 192–94 Chaos Communication Conference, 227 Chattanooga, Tennessee, VW plant, 167, 181, 188, 206, 217, 273 Cheap Trick (band), 145 children NOx and, 160, 161, 207 at Volkswagenwerk in WWII, 13–14 China as competitor to VW, 56, 222 declining sales, 218 Carl Hahn and, 48 lack of extensive VW legal exposure in, 245 as market for Porsche SUVs, 94 VW sales in, 206 Chrysler, 90 civil lawsuits, 229 class action suits, 195, 232, 237 Clean Air Act amendments (1990), 64, 67 Cadillac emissions scandal, 70 carbon monoxide/hydrocarbon reduction mandate, 39 charges against Oliver Schmidt, 268 charges against VW, 247 diesel truck engine violations, 73–74 “clean diesel,” 2–3, 145–59, 208, 225, 247, 253, 256, 266 climate change, See global warming climate control systems, 69 Clinton, Bill, and administration, 75 code of conduct, 151 Cold War, 22, 48 Commerce Committee (U.S.


On the Road: Adventures From Nixon to Trump by James Naughtie

"Hurricane Katrina" Superdome, Affordable Care Act / Obamacare, Alistair Cooke, anti-communist, Ayatollah Khomeini, Bear Stearns, Berlin Wall, Bernie Sanders, Black Lives Matter, centre right, collapse of Lehman Brothers, Donald Trump, fake news, Ferguson, Missouri, gentrification, Haight Ashbury, illegal immigration, immigration reform, Julian Assange, Mikhail Gorbachev, Norman Mailer, obamacare, Oklahoma City bombing, plutocrats, post-work, Ronald Reagan, Ronald Reagan: Tear down this wall, Seymour Hersh, South China Sea, Steve Bannon, trickle-down economics, white flight, WikiLeaks, Yom Kippur War, young professional, zero-sum game

As voters made up their minds, all Americans were facing up to the truth that in the preceding nine months under George W. Bush, while the Federal Reserve had been trying desperately to pump some life into a jittery economy and to prop up financial institutions that had once seemed secure – guaranteeing to underwrite Bear Stearns, which had teetered on the brink of disaster with $10 trillion in securities promising to go up in smoke if it collapsed – the banks had been playing a life-and-death game of pass the parcel. Middle-income Americans learned that their mortgages had been contrived and then sold on through financial instruments so complicated that no one fully understood them, invented by algorithmic wizards who didn’t seem to care, and certainly hadn’t grasped the truth that the very intricacy and cleverness of their inventions concealed from sight an ocean of bad debt that left Wall Street’s ‘masters of the universe’ running around like penniless punters who’d been fleeced in a shell game on a street corner.

INDEX Aaron, Hank, 105 ABC, 102 Abedin, Huma, 188 Abernathy, Ralph, 155 abortion, 119, 175, 176, 203–4, 204, 265, 274, 276–7 Abourezk, James, 80 Abramsky, Jenny, 110 Accidental American, The, 143 Afghanistan, 112, 132, 159, 258 Agnew, Spiro, 44, 49, 51 al-Qaeda, 132 Alda, Alan, 45 Alexander, Bobby and Gloria, 175, 176 All the President’s Men, 57 Allen, Gavin, 155 Allen, Woody, 16 Amash, Justin, 199 America, vi, 280 American Conservative Union (ACU), 146, 197 American Enterprise Institute, 98 American Spectator, 120 America’s Crisis of Leadership, 111, 113, 114 Ames, Aldrich, 93 Andy (student), 24 Annan, Kofi, 131 anthrax scare, 139 anti-communism, 38, 98, 145 anti-Semitism, 14, 16, 216 Apprentice, The, 177 Arafat, Yasser, 115 Assange, Julian, 290 assassination, 49, 71, 72, 78, 82, 198, 202, 219 assimilation, 9–10, 15 Associated Press (AP), 34 Atlanta Constitution, 56 The Atlantic, 81–2, 202 Audacity of Hope (Obama), 154 automaticity, 141 Baker, Howard, 42 Baker, James, 126 Baltimore Sun, 56 Balz, Dan, 82 Barenboim, Daniel, 95 Barnum & Bailey, 62 BBC, 38, 50, 63, 106–12 passim, 115, 122, 154, 155, 169, 183, 241, 271, 280 M Street offices of, 116, 191–2, 299 Naughtie joins, 5 Radio 4, 5, 75, 95, 110, 111–12, 125, 153 Radio 5 Live, 111, 154 World Service, 50, 241 Beach Boys, 78, 79 Beame, Abe, 32 Bear Stearns, 158–9 Beck, Glenn, 176 Becker, Daniel, 104–5 Begin, Menachem, 69 Benenson, Joel, 190 Benn, Tony, 84 Berkowitz, Mr and Mrs, 16 Berle, Milton, 15 Berlin Wall, 95–6 Bernstein, Carl, 38, 57, 80 Bernstein, Leonard, 31 Bess (dog), 207 Biden, Hunter, 291 Biden, Joe, 168, 269, 291 Bingham, Joan, 83 Birch, John, 98 Black Lives Matter, 216 Blair House, 84, 122 Blair, Tony, 120, 121, 122, 129–33, 141–3, 147–51 Blitzer, Wolf, 121 Bluestone, Irving, 89 Blumenthal, Sidney, 120, 124 Bobbitt, Phil, 215–16 Bolton, John, 143, 144, 146 Borscht Belt, 9, 14, 15, 20 Boston Globe, 56 Bradlee, Ben, 79, 80–1 Breasted, Mary, 134, 299 Brexit, 197, 242 Broder, David, 42, 87–8, 120 Brooks, Mel, 15 Brown, Gordon, 120 Brown, Jerry, 88, 205–7, 208–9 Brunson, Doyle, 173–4 Buckley, William F., 98 BUNAC, 6, 10–11 Bureau of International Security and Nonproliferation, 203 Burke, James Lee, 6 busboys, 12, 13 Bush, Barbara, 108, 181 Bush, Billy, 275 Bush, George H.


pages: 397 words: 114,841

High Steel: The Daring Men Who Built the World's Greatest Skyline by Jim Rasenberger

AOL-Time Warner, Bear Stearns, collective bargaining, Donald Trump, East Village, Ford Model T, illegal immigration, Lewis Mumford, MITM: man-in-the-middle, scientific management, strikebreaker, Tacoma Narrows Bridge, union organizing, urban planning, vertical integration, young professional

You’re either going to give them away, cause you can’t raise no kids drinking, or you put it down and never touch it again.” And that was the end of it. Once he made the decision, he never went back. Keith and Marvin connected together for another eight years. Their last connecting job was a huge Midtown office building for Bear Stearns, the New York financial concern. It was 1998 and they were both on the cusp of forty, generally the age a connector starts thinking about moving on to less strenuous labor. One afternoon the superintendent approached Keith and asked him if he wanted to take over as walking boss. Keith knew that accepting the promotion would mean severing his partnership with Marvin, perhaps forever.

Ambassador Bridge American Board of Indian Commissioners American Bridge Company American method American Psychological Association American Tract Society Building Ammann, Othmar anchorages Apologies to the Iroquois appraisers Arbitrator (bulldog) Arthur Andersen building Ashtabula railroad bridge collapse Auden, W. H. autonomy Backett, George balance Bank of Manhattan building Barker, Chett baseball Basic Oxygen Furnace (BOF) bays beams Bear Stearns building beaters Beatty, Billy Beauvais, Alex Beauvais, Walter Beckett, James Bedell, Charles bends Bennet, James Bernie’s Grocery Bessemer, Henry Bessemer Converter Bethlehem Steel Big Ben Birger, William Birkmire, William Black Bear tavern Black Bridge black ironworkers Bloody Friday Bloomberg Media building Board of Building Trades bolting-up gang book, union boomers bridgemen as columns as ironworkers as booming out, Mohawks and booms Bossom, Alfred Bovis Lend-Lease Bowers, George, Jr.


Financial Statement Analysis: A Practitioner's Guide by Martin S. Fridson, Fernando Alvarez

Bear Stearns, book value, business cycle, corporate governance, credit crunch, discounted cash flows, diversification, Donald Trump, double entry bookkeeping, Elon Musk, financial engineering, fixed income, information trail, intangible asset, interest rate derivative, interest rate swap, junk bonds, negative equity, new economy, offshore financial centre, postindustrial economy, profit maximization, profit motive, Richard Thaler, shareholder value, speech recognition, statistical model, stock buybacks, the long tail, time value of money, transaction costs, Y2K, zero-coupon bond

The incident occurred as management was making a round of investor presentations aimed at generating support for its plans to develop a new resort on the Atlantic City, New Jersey, site of the shuttered World's Fair casino. Worse yet, from the company's standpoint, the fact that Trump had omitted some rather useful information was detectable. Bear, Stearns & Co. bond analyst Tom Shandell noticed that the company's press release reported mysteriously large revenues for the Trump Taj Mahal. The unit's revenues increased by $4.9 million over the comparable 1998 quarter, even though the New Jersey Casino Control Commission reported a $12.1 million decline in the Taj Mahal's casino revenues.

Elizabeth MacDonald, Laura Johannes, and Emily Nelson, “Discount-Club Retailers Shift Accounting,” Wall Street Journal, October 28, 1998, B4. 20. “MemberWorks Reports Record Fiscal 2000 Fourth Quarter Financial Results,” Business Wire, July 28, 2000. 21. Elizabeth MacDonald, “Are Those Revenues for Real?” Forbes, May 29, 2000, 108–110. The author credits Bear Stearns & Co. with identifying 120 companies that announced they had changed or would change their revenue recognition policies in recent months. 22. “Sequoia, Ex-Officials Settle SEC Charges of Inflating Results,” Wall Street Journal, February 17, 1996, B6. 23. SEC v. Scott A. Livengood, John W. Tate, and Randy S.


pages: 362 words: 116,497

Palace Coup: The Billionaire Brawl Over the Bankrupt Caesars Gaming Empire by Sujeet Indap, Max Frumes

Airbnb, Bear Stearns, Blythe Masters, book value, business cycle, Carl Icahn, coronavirus, corporate governance, corporate raider, Credit Default Swap, data science, deal flow, Donald Trump, family office, fear of failure, financial engineering, fixed income, Jeffrey Epstein, junk bonds, lockdown, low interest rates, Michael Milken, mortgage debt, NetJets, power law, ride hailing / ride sharing, Right to Buy, Robert Solow, Savings and loan crisis, shareholder value, super pumped, Travis Kalanick

These co-investors of the buyout group were, like Apollo and TPG, the smartest, most successful, and most sophisticated investors in the world. They ranged from traditional private equity to hedge funds to and Wall Street banks. Funds that put money into the deal alongside Apollo and TPG ultimately included Blackstone, Goldman Sachs, Credit Suisse, Bear Stearns, Deutsche Bank, Oaktree, Silver Point, Oak Hill, and Perry Capital, among several others. If Apollo and TPG were comfortable investing at a near $30 billion valuation, many less-savvy investors were eager to tag along. The Michael J. Fox Foundation and Bob Kraft, the New England Patriots owner, joined the group.

Rather, his job was to protect the independent public shareholders of the parent company, though not the OpCo creditors. Caesars Growth would have Caesars Acquisition Corporation, its publicly listed parent, negotiate the Four Properties deal on its behalf. CAC’s special committee had three independent directors. One was Don Kornstein, a former investment banker at Bear Stearns who had been a director at Gala Coral, a UK-based gaming company that Apollo controlled. Phil Erlanger, a PhD from Wharton, was a longtime investment banker at Barclays and Lehman Brothers covering private equity firms—including Apollo. The lead director for CAC would be Marc Beilinson, a Los Angeles bankruptcy lawyer who had reinvented himself as restructuring consultant and professional board member.


pages: 1,336 words: 415,037

The Snowball: Warren Buffett and the Business of Life by Alice Schroeder

affirmative action, Alan Greenspan, Albert Einstein, anti-communist, AOL-Time Warner, Ayatollah Khomeini, barriers to entry, Bear Stearns, Black Monday: stock market crash in 1987, Bob Noyce, Bonfire of the Vanities, book value, Brownian motion, capital asset pricing model, card file, centralized clearinghouse, Charles Lindbergh, collateralized debt obligation, computerized trading, Cornelius Vanderbilt, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, do what you love, Donald Trump, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, Fairchild Semiconductor, Fillmore Auditorium, San Francisco, financial engineering, Ford Model T, Garrett Hardin, Glass-Steagall Act, global village, Golden Gate Park, Greenspan put, Haight Ashbury, haute cuisine, Honoré de Balzac, If something cannot go on forever, it will stop - Herbert Stein's Law, In Cold Blood by Truman Capote, index fund, indoor plumbing, intangible asset, interest rate swap, invisible hand, Isaac Newton, it's over 9,000, Jeff Bezos, John Bogle, John Meriwether, joint-stock company, joint-stock limited liability company, junk bonds, Larry Ellison, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, Marshall McLuhan, medical malpractice, merger arbitrage, Michael Milken, Mikhail Gorbachev, military-industrial complex, money market fund, moral hazard, NetJets, new economy, New Journalism, North Sea oil, paper trading, passive investing, Paul Samuelson, pets.com, Plato's cave, plutocrats, Ponzi scheme, proprietary trading, Ralph Nader, random walk, Ronald Reagan, Salesforce, Scientific racism, shareholder value, short selling, side project, Silicon Valley, Steve Ballmer, Steve Jobs, supply-chain management, telemarketer, The Predators' Ball, The Wealth of Nations by Adam Smith, Thomas Malthus, tontine, too big to fail, Tragedy of the Commons, transcontinental railway, two and twenty, Upton Sinclair, War on Poverty, Works Progress Administration, Y2K, yellow journalism, zero-coupon bond

More people tried to sell assets behind the scenes and found no buyers; more lenders began to call in loans. On Thursday, March 13, 2008, a run began, this time on Bear Stearns, the weakest of the investment banks, as its lenders started refusing to roll over its loans. In a near re-creation of the Salomon crisis seventeen years earlier, the following day, Friday, Bear nearly collapsed from lack of financing. But this time the Federal Reserve took the unprecedented step of guaranteeing $30 billion of Bear Stearns debt—the first time the Federal Reserve had ever bailed out an investment bank. Bear closed at $30 per share on Friday afternoon.

He remained aloof, never appeared on the trading floor, and, as one senior manager noted, even a glimpse of him in the hallways at Salomon was “a rare sighting.” Susie came out to visit from San Francisco. Kay Graham arrived to play bridge and keep him company. Before long, he had set up a regular game with Carol Loomis, George Gillespie, and Ace Greenberg, the CEO of Bear Stearns. Bridge helped him relax because, when he played bridge, he couldn’t think about anything else. A couple of miles uptown, in his enormous Park Avenue apartment filled with a painstakingly assembled collection of art, his old friend Dan Cowin lay dying of cancer. Buffett wasn’t sleeping. When in New York, he would call home at twelve-thirty a.m., since he had the special deal to get the Wall Street Journal early in Omaha, and have tomorrow’s news read to him over the phone.34 He listened on tenterhooks, fearing that something horrible would be published about Salomon.

It was hard to justify government involvement in orchestrating a bailout when there was a viable private bid on the table. Finally, he told the assembled bankers that the other bid had failed for “structural reasons.” Buffett was not there to make a counterargument. The Federal Reserve brokered a deal in which fourteen banks put up a total of $3.6 billion. Only one bank, Bear Stearns, refused to participate, earning the long-lasting enmity of the rest. Meriwether’s crew negotiated an arrangement for themselves that they considered slightly better than “indentured servitude.”34 That night at the Lake Hotel, Buffett found out what had happened. He felt that Meriwether didn’t want to sell to him.


pages: 859 words: 204,092

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

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

In early 2007 the government announced the formation of the China Investment Corporation, a new state agency to oversee investment of $200 billion of China’s foreign currency reserves - similar to Temasek Holdings, the Singapore government’s successful investment agency, which manages a $108 billion global portfolio of investments.153 To test the water, the new agency placed $3 billion of its holdings with Blackstone, the US-based private equity group, thereby signalling Beijing’s intention to switch some of its investments from US Treasury bonds into more risky equity holdings.154 In fact it has since emerged that the State Administration of Foreign Exchange, which oversees China’s reserves, has itself been investing rather more widely than was previously believed.155 These moves herald China’s rise as a major global financial player.156 In the second half of 2007, as the credit crunch began to bite, China Development Bank took a significant stake in the UK-based Barclays Bank157 and Citic Securities formed a strategic alliance with the US investment bank Bear Stearns before the latter went bust.158 Three Chinese banks were also in talks about acquiring a stake in Standard Chartered, the UK-based emerging markets lender.159 But most of this came to nought as the Chinese increasingly realized the likely severity of the credit crunch and the potential threat it represented to any stakes in Western financial institutions that it might purchase.

‘China’s Two Trillion Dollar Question’, editorial, Financial Times, 11 September 2008. 156 . For a broader view of the rise of such funds, see Martin Wolf, ‘The Brave New World of State Capitalism’, Financial Times, 16 October 2007. 157 . ‘China Aids Barclays on ABN Amro’, Financial Times, 23 July 2007; ‘The Chinese Bank Plan is One to Watch’, Financial Times, 23 July 2007. 158 . ‘Bear Stearns in Landmark China Deal’, Financial Times, 22 October 2007. 159 . ‘Chinese Banks Seek Stake in StanChart’, Financial Times, 18 November 2007. Earlier in 2007, the Bank of China was reported as being interested in acquiring a US bank; ‘Bank of China Seeking US Acquisition Targets’, South China Morning Post, 22 January 2007. 160 .

, International Herald Tribune, 1 June 2006; Lampton, ‘What Growing Chinese Power Means for America’, pp. 2-12. 166 . ‘Chinese Fund Takes $5bn Morgan Stanley Stake’, Financial Times, 19 December 2007. As of mid December 2007, the Chinese enjoyed stakes of 20%, 9.9%, 10%, 2.6% and 6.6% in Standard Bank, Morgan Stanley, Blackstone, Barclays and Bear Stearns respectively; ‘Morgan Stanley Taps China for $5bn’, Financial Times, 19 December 2007. This, of course, was before the credit crunch. 167 . This has already happened in a limited way with China demonstrating its ability to destroy a satellite and then the US doing likewise; ‘Chinese Missile Test Against Satellite Was No Surprise to US’, International Herald Tribune , 24 April 2007; ‘US Missile Hits Defunct Satellite’, Financial Times, 21 February 2008. 168 .


pages: 829 words: 186,976

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

airport security, Alan Greenspan, Alvin Toffler, An Inconvenient Truth, availability heuristic, Bayesian statistics, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, big-box store, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, book value, Broken windows theory, business cycle, buy and hold, Carmen Reinhart, Charles Babbage, classic study, Claude Shannon: information theory, Climategate, Climatic Research Unit, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, computer age, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, Daniel Kahneman / Amos Tversky, disinformation, diversification, Donald Trump, Edmond Halley, Edward Lorenz: Chaos theory, en.wikipedia.org, equity premium, Eugene Fama: efficient market hypothesis, everywhere but in the productivity statistics, fear of failure, Fellow of the Royal Society, Ford Model T, Freestyle chess, fudge factor, Future Shock, George Akerlof, global pandemic, Goodhart's law, haute cuisine, Henri Poincaré, high batting average, housing crisis, income per capita, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet Archive, invention of the printing press, invisible hand, Isaac Newton, James Watt: steam engine, Japanese asset price bubble, John Bogle, John Nash: game theory, John von Neumann, Kenneth Rogoff, knowledge economy, Laplace demon, locking in a profit, Loma Prieta earthquake, market bubble, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, Monroe Doctrine, mortgage debt, Nate Silver, negative equity, new economy, Norbert Wiener, Oklahoma City bombing, PageRank, pattern recognition, pets.com, Phillips curve, Pierre-Simon Laplace, Plato's cave, power law, prediction markets, Productivity paradox, proprietary trading, public intellectual, random walk, Richard Thaler, Robert Shiller, Robert Solow, Rodney Brooks, Ronald Reagan, Saturday Night Live, savings glut, security theater, short selling, SimCity, Skype, statistical model, Steven Pinker, The Great Moderation, The Market for Lemons, the scientific method, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, Timothy McVeigh, too big to fail, transaction costs, transfer pricing, University of East Anglia, Watson beat the top human players on Jeopardy!, Wayback Machine, wikimedia commons

It is for this reason that governments—at great cost to taxpayers as well as to their popularity—sometimes bail out failing financial firms. But the Federal Reserve, which did bail out Bear Stearns and AIG, elected not to do so for Lehman Brothers, defying the expectations of investors and causing the Dow to crash by 500 points when it opened for business the next morning. Why the government bailed out Bear Stearns and AIG but not Lehman remains unclear. One explanation is that Lehman had been so irresponsible, and its financial position had become so decrepit, that the government wasn’t sure what could be accomplished at what price and didn’t want to chase good money after bad.81 Larry Summers, who was the director of the National Economic Council at the time that I met him in the White House in December 2009,82 told me that the United States might have had a modestly better outcome had it bailed out Lehman Brothers.

Murrah Federal Building, 425 algorithms, 265, 426 all-in bet, 306 Allison, Graham, 433–35 Al Qaeda, 422, 424, 425, 426, 433, 435–36, 440, 444 Alzheimer’s, 420 Amazon.com, 352–53, 500 American exceptionalism, 10 American Football League (AFL), 185–86, 480 American League, 79 American Stock Exchange, 334 Amsterdam, 228 Anchorage, Alaska, 149 Anderson, Chris, 9 Angelo, Tommy, 324–26, 328 animals, earthquake prediction and, 147–48 Annals of Applied Statistics, 511–12 ANSS catalog, 478 Antarctic, 401 anthropology, 228 antiretroviral therapy, 221 Apple, 264 Archilochus, 53 Arctic, 397, 398 Arianism, 490 Aristotle, 2, 112 Armstrong, Scott, 380–82, 381, 388, 402–3, 405, 505, 508 Arrhenius, Svante, 376 artificial intelligence, 263, 293 Asia, 210 asset-price bubble, 190 asymmetrical information, 35 Augustine, Saint, 112 Australia, 379 autism, 218, 218, 487 availability heuristic, 424 avian flu, see bird flu A/Victoria flu strain, 205–6, 208, 483 Babbage, Charles, 263, 283 Babyak, Michael, 167–68 baby boom, 31 Babylonians, 112 Bachmann, Michele, 217 bailout bills, 19, 461 Bak, Per, 172 Baker, Dean, 22 Bane, Eddie, 87 Bank of England, 35 Barbour, Haley, 140 baseball, 9, 10, 16, 74–106, 128, 426, 446, 447, 451n aging curve in, 79, 81–83, 81, 83, 99, 164 betting on, 286 luck vs. skill in, 322 minor league system in, 92–93 results in, 327 rich data in, 79–80, 84 Baseball America, 75, 87, 89, 90, 90, 91 Baseball Encyclopedia, 94 Baseball Prospectus, 75, 78, 88, 297 basic reproduction number (R0), 214–15, 215, 224, 225, 486 basketball, 80n, 92–93, 233–37, 243, 246, 256, 258, 489 batting average, 86, 91, 95, 100, 314, 321, 321, 339 Bayer Laboratories, 11–12, 249 Bayes, Thomas, 240–43, 251, 253, 254, 255, 490 Bayesian reasoning, 240, 241–42, 259, 349, 444 biases and beliefs in, 258–59 chess computers’ use of, 291 Christianity and, 490 in climatology, 371, 377–78, 403, 406–7, 407, 410–11 consensus opinion and, 367 Fisher’s opposition to, 252 gambling esteemed in, 255–56, 362 priors in, 244, 245, 246, 252, 255, 258–59, 260, 403, 406–7, 433n, 444, 451, 490, 497 stock market and, 259–60 Bayes’s theorem, 15, 16, 242, 243–49, 246, 247, 248, 249, 250, 258, 266, 331, 331, 448–49, 450–51 in poker, 299, 301, 304, 306, 307, 322–23 Beane, Billy, 77, 92, 93–94, 99–100, 103, 105–7, 314 Bear Stearns, 37 beauty, complexity and, 173 beer, 387, 459 behavioral economics, 227–28 Belgium, 459 Bellagio, 298–99, 300, 318, 495 bell-curve distribution, 368n, 496 Bengkulu, Indonesia, 161 Benjamin, Joel, 281 Berlin, Isaiah, 53 Berners-Lee, Tim, 448, 514 BetOnSports PLC, 319 bets, see gambling Betsy, Hurricane, 140 betting markets, 201–3, 332–33 see also Intrade biases, 12–13, 16, 293 Bayesian theory’s acknowledgment of, 258–59 in chess, 273 and errors in published research, 250 favorite-longshot, 497 of Fisher, 255 objectivity and, 72–73 toward overconfidence, 179–83, 191, 203, 454 in polls, 252–53 as rational, 197–99, 200 of scouts, 91–93, 102 of statheads, 91–93 of weather forecasts, 134–38 Bible, 2 Wicked, 3, 13 Biden, Joseph, 48 Big Data, 9–12, 197, 249–50, 253, 264, 289, 447, 452 Big Short, The (Lewis), 355 Billings, Darse, 324 Bill James Baseball Abstract, The, 77, 78, 84 bin Laden, Osama, 432, 433, 434, 440, 509 binomial distribution, 479 biological weapons, 437, 438, 443 biomedical research, 11–12, 183 bird flu, 209, 216, 229 Black, Fisher, 362, 367, 369 “Black Friday,” 320 Black Swan, The (Taleb), 368n Black Tuesday, 349 Blanco, Kathleen, 140 Blankley, Tony, 50 Blodget, Henry, 352–54, 356, 364–65, 500 Blue Chip Economic Indicators survey, 199, 335–36 Bluefire, 110–11, 116, 118, 127, 131 bluffing, 301, 303, 306, 310, 311, 328 Bonus Baby rule, 94 books, 2–4 cost of producing, 2 forecasting and, 5 number of, 2–3, 3, 459 boom, dot-com, 346–48, 361 Boston, 77 Boston Red Sox, 63, 74–77, 87, 102, 103–5 Bowman, David, 161–62, 167 Box, George E.


pages: 654 words: 120,154

The Firm by Duff McDonald

"World Economic Forum" Davos, Alan Greenspan, AOL-Time Warner, Asian financial crisis, asset light, Bear Stearns, benefit corporation, book value, borderless world, collective bargaining, commoditize, conceptual framework, corporate governance, creative destruction, credit crunch, family office, financial independence, Frederick Winslow Taylor, Glass-Steagall Act, income inequality, invisible hand, Jeff Bezos, Joseph Schumpeter, Ken Thompson, Kickstarter, laissez-faire capitalism, Mahatma Gandhi, Nelson Mandela, new economy, pets.com, Ponzi scheme, Ralph Nader, risk tolerance, risk-adjusted returns, Robert Solow, scientific management, shareholder value, Sheryl Sandberg, Silicon Valley, Steve Jobs, supply-chain management, The Nature of the Firm, vertical integration, young professional

But they were precisely wrong when they concluded that, “as in other consolidating industries, these megaplayers will be tightly run, highly productive, highly innovative, highly skilled at mergers and acquisitions . . . Shareholders, customers and society at large will all be better off as a result.”28 With Jamie Dimon at the helm of JPMorgan Chase, that bank was both tightly run and skilled at mergers and acquisitions—witness the bank’s Hail Mary acquisitions of both Bear Stearns and Washington Mutual in 2008. But that was the exception. It was an exception in another way too—it was the only one of the large banks to make sparing use of McKinsey consultants. Nearly every other major financial institution—from Lehman Brothers to Merrill Lynch to Citigroup (all major users of McKinsey)—showed a distinct loss of both effective management and risk control at the peak of the boom.

See also investment banking; specific person or bank Bantam Books, 153 bar codes, 115 Barnard, Chester, 55 Barrington Associates, 42 Barron’s magazine, 281 Barton, Dominic: Asian interests of, 300, 301, 335 capitalism views of, 301–2 clients of, 301 Davis and, 299, 300 earlier managing directors compared to, 299–300, 301 elections as managing director of, 297, 299–300, 301, 324 Gupta case and, 317 Gupta compared with, 301 knowledge building and, 302, 303 and Kumar as inside-trader, 307–8 Mer meeting with, 323–24 and partnership morale, 321 personal and professional background of, 300, 301 writings of, 297, 301–2 BASF, 79 Basic Training Guide (McKinsey & Co.), 49–51 BBC, 180–81 Beame, Abe, 71 Bear Stearns, 287 Bechtel Group, 220 Bedaux Company, 26–27 Bell Labs, 170, 193–94, 195, 197, 215–16 Ben & Jerry’s, 106 Benmosche, Robert, 258, 294 Bennett, David, 286 Bennett, Jim, 117, 146, 147, 153 Berardinelli, David, 258, 259 Bergen, Harold, 53 Bertelsmann, 161 Bessemer Securities, 134 best place to work surveys, 295, 324 “best practices,” 5, 283 Bezos, Jeff, 11 Bharara, Preet, 318 Bhatia, Sabeer, 314 Biglari, Hamid, 232 Birt, John, 181 Black & Decker, 110 Blackwell, Lord, 285 Blankfein, Lloyd, 312, 315 Bleeke, Joel, 225 Bloomberg LP, 323 Bloomberg, Michael, 283 Bok, Derek, 82–83 Bolshoi Theater, 228 Bookkeeping and Accounting (McKinsey), 21 books: McKinsey-published, 156.


pages: 320 words: 87,853

The Black Box Society: The Secret Algorithms That Control Money and Information by Frank Pasquale

Adam Curtis, Affordable Care Act / Obamacare, Alan Greenspan, algorithmic trading, Amazon Mechanical Turk, American Legislative Exchange Council, asset-backed security, Atul Gawande, bank run, barriers to entry, basic income, Bear Stearns, Berlin Wall, Bernie Madoff, Black Swan, bonus culture, Brian Krebs, business cycle, business logic, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chelsea Manning, Chuck Templeton: OpenTable:, cloud computing, collateralized debt obligation, computerized markets, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, data science, Debian, digital rights, don't be evil, drone strike, Edward Snowden, en.wikipedia.org, Evgeny Morozov, Fall of the Berlin Wall, Filter Bubble, financial engineering, financial innovation, financial thriller, fixed income, Flash crash, folksonomy, full employment, Gabriella Coleman, Goldman Sachs: Vampire Squid, Google Earth, Hernando de Soto, High speed trading, hiring and firing, housing crisis, Ian Bogost, informal economy, information asymmetry, information retrieval, information security, interest rate swap, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, John Bogle, Julian Assange, Kevin Kelly, Kevin Roose, knowledge worker, Kodak vs Instagram, kremlinology, late fees, London Interbank Offered Rate, London Whale, machine readable, Marc Andreessen, Mark Zuckerberg, Michael Milken, mobile money, moral hazard, new economy, Nicholas Carr, offshore financial centre, PageRank, pattern recognition, Philip Mirowski, precariat, profit maximization, profit motive, public intellectual, quantitative easing, race to the bottom, reality distortion field, recommendation engine, regulatory arbitrage, risk-adjusted returns, Satyajit Das, Savings and loan crisis, search engine result page, shareholder value, Silicon Valley, Snapchat, social intelligence, Spread Networks laid a new fibre optics cable between New York and Chicago, statistical arbitrage, statistical model, Steven Levy, technological solutionism, the scientific method, too big to fail, transaction costs, two-sided market, universal basic income, Upton Sinclair, value at risk, vertical integration, WikiLeaks, Yochai Benkler, zero-sum game

The Project on Government Oversight has uncovered 789 instances of former SEC personnel announcing their intent to represent a client before the SEC within two years of leaving the agency.131 If any were involved in MUIs related to their current employer, they may welcome the data black hole.132 Journalists are also routinely frustrated by finance regulators’ opacity.133 The SEC gave the New York Times’s William D. Cohan virtually no information on its precrisis inquiries into Goldman Sachs and Bear Stearns, despite repeated pleas and FOIA requests. Cohan has identified a series of critical events crucial to the public’s understanding of the crisis. He claims that the SEC has the most revealing documents related to them, but it will not disclose them.134 Cohan laments that decision, concluding that “if our government agencies continue to do everything in their considerable power to keep hidden information that belongs in the public realm, all the regulatory reform in the world won’t end the rot on Wall Street.”

., 49 Administrative Procedure Act (APA), 11 Affordable Care Act (ACA), 27, 84, 127, 203, 205 ALEC, 186 AllTrials.net, 10 Alperovitz, Gar, 85 Amazon, 5, 14–15, 59, 65, 99, 208–209; information sharing 49, 97; opaque technologies, 66, 82, 89– 90, 97, 161–163; profi ling, 31 Andreessen, Marc, 97 Anti-Defamation League, 73 Apple, 59, 61– 64, 71, 85, 95; and Internet,163; and Google, 97– 98 Assange, Julian, 51, 142 audit logs, 157–160 Auerbach, David, 159 bailouts, 7,124–125, 135, 138, 143, 199, 212; AIG, 115–116, Baker, Dean, 202 Bamford, James, 50 Bank Fraud Working Group, 44 Barr, Bob, 48 Bear Stearns, 175 Begley, John, 63 Bezos, Jeff, 97 Bhidé, Amar, 61, 136, 214 Big Data, 5– 6, 10, 15; proposals for legal reform, 140, 147–151, 153, 180; reputational concerns, 19, 21, 25, 28–29, 34, 38, 40; search concerns, 81, 92, 96 Bill of Rights, 63, 156 Black, Bill, 176 Boone, Peter, 133 Born, Brooksley, 105, 117, 134 Brandeis, Louis, 11, 134, 156 Breuer, Lanny, 172 Brin, Sergey, 71, 81, 187 Cappelli, Peter, 36 Carpenter, Daniel, 136 Center for Effective Government, 10 Center for Investigative Reporting, 46 Chilton, Bart, 122 Chopra, Samir, 193 Church Committee, 155, 160 Citigroup, 43, 113, 118, 174 Citizens United v.


pages: 416 words: 124,469

The Lords of Easy Money: How the Federal Reserve Broke the American Economy by Christopher Leonard

2021 United States Capitol attack, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, collateralized debt obligation, coronavirus, corporate governance, COVID-19, Donald Trump, Dutch auction, financial engineering, financial innovation, fixed income, Ford Model T, forensic accounting, forward guidance, full employment, glass ceiling, Glass-Steagall Act, global reserve currency, Greenspan put, hydraulic fracturing, income inequality, inflation targeting, Internet Archive, inverted yield curve, junk bonds, lockdown, long and variable lags, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, Money creation, mortgage debt, new economy, obamacare, pets.com, power law, proprietary trading, quantitative easing, reserve currency, risk tolerance, Robinhood: mobile stock trading app, Ronald Reagan, Silicon Valley, stock buybacks, too big to fail, yield curve

The Fed was denied the power to lend directly to corporations, or to take on risky debt like leveraged loans. This was designed in part so the Fed could not pick winners and losers in the economy by directly subsidizing some industries over others. The Fed arguably went outside this stricture in 2008, when it arranged loans for failing investment firms like Bear Stearns. But Dodd-Frank gave the Treasury secretary clear oversight over such actions. This is why Powell had a copy of Dodd-Frank on his desk when he started working from home in March. Over the weekend of March 20, he finalized the details on a complex rescue package that would include several interlocking bailouts, each targeting different parts of the financial system.

., 186–88, 191, 192, 194, 195, 198 AIG, 23 Airbnb, 297 allocation of money, 19, 20 allocative effects of quantitative easing, 27, 28 of zero bound, 19, 20, 27 American Banker, 209 American Enterprise Institute, 18 announcement effect, 134 Apollo Management, 168–70, 172–74, 180, 186, 191 Ares Capital, 213 asset bubbles, 20, 29, 54–56, 63, 69, 82, 83, 85, 88–89, 91–93, 95, 105, 134, 142, 148, 222, 228, 231, 234, 300 China and, 235 Florida real estate, 54–55, 86 asset prices and value, 53–55, 57–59, 68, 81, 82, 86–87, 98, 237, 259, 262 coronavirus relief and, 288 inflation and, 50, 68–69, 81–84, 87, 95, 119, 148, 182, 224, 295, 297, 305 interest rates and, 300 loans and, 49–51, 57–60 quantitative easing and, 119, 132, 148, 182, 300 ZIRP and, 119, 192 assets, 235 coronavirus bailouts and, 287 defined, 54 ownership of, 119, 287 AT&T, 270 auto workers, 74 Axel, Ralph, 254 bailouts, 87, 208–11, 248–49, 302 coronavirus, see coronavirus relief and bailout programs repo market, 243–58 in 2008 and 2009, 10, 23, 100–102, 206, 249, 286 Bain Capital, 180 Bair, Sheila, 210 Baker, James, III, 162 balance sheets of banks, 50–51, 57–58 defined, 343 of Fed, 102, 138, 147, 211, 227, 231, 236, 256, 257, 290–91, 301–2, 343, 349 bank failures, 45–46, 48, 66, 67, 68, 73, 96n, 98, 100 Continental Illinois, 65–66, 68–69, 97, 98, 100 coronavirus and, 269–70 FDIC and, 208–9 Fed’s loans to banks during, 46, 58, 63 of 1873, 46 of foreign banks, 101 liquidation of insolvent banks, 64 living wills and, 208–9, 269 of 1980s, 53, 58–59, 96 Penn Square, 63–65, 67–69, 97, 98 “too big to fail” banks, 66–67, 97, 202, 203, 209, 219 Bank Policy Institute, 206–7 banks, 43 bailouts of, see bailouts balance sheets of, 50–51, 57–58 Basel III accord and, 203, 204, 209–10 big, Hoenig’s plan to break up (the Hoenig rule), 203–7, 209 capital set aside for times of crisis, 209–11 central, 103–4, 112, 139–40, 217–18, 232, 235, 237–38, 345 central, U.S. creation of, 44–47 community, 202 coronavirus and, 269 divided into commercial and investment, 80, 348 Dodd-Frank rules and, 203, 204, 207, 209, 229, 252, 277, 350 early American system of, 45 economics and, 302 European, 134, 210 FDIC liquidation of, 64 FDIC’s protection of consumer deposits in, 80, 202, 345 FDR and, 79, 100, 204 free banking era, 45 Global Financial Crisis’s effect on, 202, 206 Hoenig’s disputes with bankers, 49–50, 55, 58–59, 65 Hoenig’s views on, 43–44 interstate banking laws, 96–97 lobbyists for, 206–7 mergers and consolidation of, 43, 202 New Deal and, 79–80, 204 overnight loans between, 114, 248, 249 regional, 279 regulation of, 48, 79, 80, 97, 100, 203, 204, 207, 209 reserves of, 121, 221, 244, 248–49, 251, 256 reserves of, excess, 227, 243, 244, 248–50 shadow, 202, 252, 291, 350 stock value of, 269, 270 stress tests for, 207–8, 229, 269 symposium of directors of, 96–99 see also loans Barstool Sports, 288 Basel III accord, 203, 204, 209–10 basis risk trades, 252–55, 265 BDCs (business development corporations), 181 bear market, 236 Bear Stearns, 277 Beck, Glenn, 109–11 Bell, Steve, 158–60 Belly Up (Zweig), 64 Bernanke, Ben, 10, 22–26, 31, 73, 93–94, 96, 102, 105, 108, 132, 136, 146, 217, 222, 223, 229, 243, 258, 267, 291 Citadel and, 289–90 Congressional testimony of, 99, 109 final meeting as Fed chairman, 222 Fisher and, 131 Hoenig and, 15, 29, 93–94, 104 inflation and, 93 memoir of, 22, 34 press conferences of, 144–45 quantitative easing and, 10, 25–34, 105, 112–13, 118n, 121, 126–30, 132–34, 136, 140–46, 148, 182, 247 Yellen and, 130 Bianco, Jim, 261–63, 269–70 Biden, Joe, 298–99, 304 Binder, Carola, 108, 109, 144 Bloomberg News, 101, 109, 231, 298 BlueCrest Capital Management, 254 BNP Paribas, 99–100 Boehne, Edward, 72 Boeing, 298 Boies Schiller Flexner, 284 bonds, 119, 134, 142, 147, 155–56, 170, 211, 218, 235, 237, 262, 270, 272, 279, 347 coronavirus relief and, 288 defined, 344 developing nations and, 216–17 Fed’s purchase of, 101, 110, 139, 227, 267, 279, 280, 282 Fed’s sale of, 231–34, 236 junk, see junk bonds negative-interest-rate, 217–18 Operation Twist and, 127 Treasury, see Treasury bonds Boston Market, 284 Bowman, Michelle, 280n Brady, Nicholas F., 156–58, 160–61 Brainard, Lael, 272, 280n Brazil, 217 Brookings Institution, 224, 257–58 Brown, Sherrod, 206 Bryan, Vicki, 177–78, 182 Bryan, William Jennings, 9, 46 Buffett, Warren, 159–60 Bullard, Jim, 34 Burns, Arthur, 22 Bush, George H.


pages: 142 words: 45,733

Utopia or Bust: A Guide to the Present Crisis by Benjamin Kunkel

Alan Greenspan, Anthropocene, anti-communist, Bear Stearns, Bretton Woods, business cycle, capital controls, Carmen Reinhart, creative destruction, David Graeber, declining real wages, full employment, Hyman Minsky, income inequality, late capitalism, Lewis Mumford, liberal capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, mortgage debt, Occupy movement, peak oil, price stability, profit motive, public intellectual, savings glut, Slavoj Žižek, The Wealth of Nations by Adam Smith, transatlantic slave trade, vertical integration, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, zero-sum game

The first big book we tackled was The Limits to Capital (1981) by the Marxist geographer David Harvey (whose more recent work occasioned another of the essays). We were somewhere in the middle of Harvey’s closely argued pages, which pay special attention to the role of property markets in capitalist crises, when the investment bank Bear Stearns collapsed from misbegotten investments in mortgage-backed securities. I can’t say the complete financial panic that broke out six months later didn’t surprise Chad and me, but we were less taken aback than, for example, Alan Greenspan, former chairman of the Federal Reserve, who admitted before a congressional hearing to being “shocked” to discover a “flaw in the model that I perceived as the critical functioning structure of how the world works.”


pages: 589 words: 128,484

America's Bank: The Epic Struggle to Create the Federal Reserve by Roger Lowenstein

bank run, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, capital controls, central bank independence, Charles Lindbergh, corporate governance, fiat currency, financial independence, full employment, Glass-Steagall Act, Ida Tarbell, Long Term Capital Management, low interest rates, Michael Milken, Money creation, moral hazard, off-the-grid, old-boy network, quantitative easing, The Wealth of Nations by Adam Smith, Upton Sinclair, walking around money

Trusts could do this because they existed outside the regulated ecosystem of National Banking—not unlike the way, in a future generation, special off-balance-sheet vehicles would help commercial banks to circumvent the rules. Indeed, in the panic that began one hundred years later, it was a non-bank, Bear Stearns, where the trouble started, and for similar reasons. In 1907, more than 40 percent of all deposits in New York were parked in trusts—on the periphery of the financial system. And while a dollar in the national banks was backed, on average, by 25 cents of cash in the till, each dollar in the trusts was supported by only 6 cents.

.: banking reform meeting in, 20 Democratic National Convention in, 159–61, 163, 164–66 Baltimore platform, 327 bank assets, 189, 221 bank associations, 67 bank checks, 67 bank credits, 75, 261 bankers, 6, 7, 8 central banks supported by, 177, 179 distrust of, 27, 72, 127, 138, 150 Glass-Owen supported by, 247 nineteenth-century, 16 private, 115 reform-minded, 128 on silver, 16 Wall Street, see Wall Street western, 85 Wilson on, 143–44 Bankers Trust, 64, 96 bank holidays, 68 Banking Act (1935), 266 banking charter rights, 332 banking reform, 5–8, 33, 45, 46, 60, 89, 93, 98, 150, 159, 175, 191, 201–22, 268–69, 325 Democratic, 81, 157, 199 federal control and, 216 Main Street and, 131 Taft and, 158 Wall Street and, 70, 131, 175 Wilson and, 73, 128, 143–44, 148–49, 167–68, 177, 195, 198, 201–2, 205–18, 221–22, 223, 227–28, 310 banking system, unified, 122 bank loans, currency and, 226–27 bank notes, 49, 150 Bank of Commerce, 299 Bank of England, 2, 83–84, 85–86, 335 American economy and, 56–57 currency supply and, 86–87 interest rates of, 5–6 loans in time of scarcity by, 70, 83, 288 money issued by, 117 notes issued by, 83, 84, 86 as private, 83–84 and Wall Street recessions, 5–6 Bank of France, 4, 84, 85, 214 cash reserves of, 87 Bank of the United States, first, 2–3, 84, 142, 246 Bank of the United States, Second, 3–5, 20, 84, 101, 115, 142, 187, 198, 246 Bank of the United States, Third (potential), 3 bank paper, 122, 246, 258 bank runs, 2, 63, 81, 200, 204, 245, 249 banks: asset currency and loans by, 33 big, 4, 45, 136 bills of trade and, 39 branch offices of, 55 business and, 199 central reserve city, 14–15, 26–27, 39n, 182, 248n, 311 chartering of, 41 commercial, 47, 85 country, see country banks deposits rising in, 199, 316 failures of, 13, 15, 19, 204 Fed and member, 322 federalism and, 183 for-profit, 181 in Gilded Age, 6 government power over, 207 growth of, 199 heartland, 46 hoarding by, 69, 259 interlocking directorates for, 222, 225, 228 international, 118 lending by, 33, 248 limited guarantee for, 313 middle-tier, see middle-tier banks national, see national banks under National Banking Acts, 14–15 New York, see New York, banks and bankers in northern, 17 number of, 31, 135, 193, 278–79, 314 private, 3, 7–8, 48n, 63, 121–22, 185, 195, 228n progressives on, 71 public control of, 115, 128 public oversight of, 148 regional, 149 Reserve Banks and, 181 reserve network, 101, 311 reserves of, 39, 70, 321, 325 self-regulation for, 119 shortfall by, 225 state, see state banks Treasury loans to, 27, 41 Barney, Charles T., 62–63, 283 barter, 67 Baruch, Bernard, 308 baseball, 156 Bear Stearns, 62 Belmont, August, Jr., 165n Berlin, 49, 57, 86, 88, 140 Bermuda, 171 Bernanke, Ben, 25, 188, 258, 296 Big Business, progressive skepticism toward, 45 bills of lading, 226 bills of trade, 32, 39 discounting of, 87, 226 bimetallic system, 16, 19–20, 230, 277 Blankfein, Lloyd, 122, 257 Board of Trade, British, 96 see also National Board of Trade bonds, 24, 188 government, 14, 24, 75, 78, 114, 212, 217, 220, 225, 258, 277, 321 railroad, 15, 41, 78 Boston, Mass., 53, 156, 159 banks in, 12, 68 Federal Reserve Bank in, 260n Boston Daily Globe, 332 Brandeis, Louis, 169, 190, 193, 211–12, 313–14 Brandt, T.


pages: 494 words: 132,975

Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott

airport security, Alan Greenspan, banking crisis, Bear Stearns, Bretton Woods, British Empire, business cycle, collective bargaining, complexity theory, creative destruction, cuban missile crisis, Francis Fukuyama: the end of history, full employment, Gordon Gekko, greed is good, Gunnar Myrdal, if you build it, they will come, Isaac Newton, Joseph Schumpeter, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, means of production, military-industrial complex, Mont Pelerin Society, mortgage debt, New Journalism, Nixon triggered the end of the Bretton Woods system, Northern Rock, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, public intellectual, pushing on a string, road to serfdom, Robert Bork, Robert Solow, Ronald Reagan, Simon Kuznets, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, trickle-down economics, Tyler Cowen, War on Poverty, We are all Keynesians now, Yom Kippur War

Bush’s stimulus package was accompanied by a basket of actions by Ben Bernanke, who succeeded Greenspan as chairman of the Fed, to encourage banks to resume lending. Interest rates were halved between September 2007 and April 2008, huge short-term loans were made to banks, and the Fed bought bad mortgage debt. In March 2008, Bear Stearns, a leader in subprime mortgage lending, was sold in a fire sale to JPMorgan Chase. The following September, Lehman Brothers went bankrupt. Neither collapse was popular, not even among those who professed to believe the market should take its course. On the contrary, the most common criticism was that the administration had “allowed” Lehman to stop trading.

., 23 Athenaeum, 31 Athenaeum Club, 123 Attlee, Clement, 203, 226, 227, 326n Australia, 227–28 Austria, xi–xii, xiii, 1–3, 4, 9, 10, 15–28, 29–30, 40, 44, 83, 88, 111, 138, 145, 190, 196, 214–15, 225 Austrian Institute for Business Cycle Research, 40 Austrian school, 2–3, 20, 25, 27, 37, 40, 41, 42–44, 47, 48, 59, 61, 62, 65–66, 67, 70, 72, 80, 87–90, 91, 96, 97–102, 103, 114, 115, 116, 120–22, 124–27, 138, 147–48, 175, 178, 180, 210, 212, 217, 232, 251, 261, 294 Austro-Hungarian Bank, 22 Austro-Hungarian empire, 9, 15–28 automobile industry, 57 Axis powers, 189–90 Balanced Budget Act (1997), 274–75 Balcerowicz, Leszek, 266 Baldwin, Stanley, 39 Banco di Roma, 115 Banking Act (1935), 166 banknotes, 22, 131, 136, 149–50 Bank of England, 24, 32–33, 37, 39, 59, 61, 62 bankruptcies, 12, 257, 279, 294 banks: —Austrian, 22, 83 —borrowing by, 31–33, 41, 84 —British, 24, 32–33, 37, 39, 59, 61, 62 —cash reserves of, 55 —central, 22, 25, 31–33, 37, 39, 41, 42, 43, 55–56, 59, 61, 62, 79, 84–85, 141–42, 164, 165–66, 345n —credit policies of, 25, 43, 55, 79, 84–85, 100, 117–18, 136–37, 142, 160, 188, 279, 280–81 —deposits in, 143–44, 275 —failure of, 83, 84, 135, 278–79 —German, 85 —interest rates of, 41–44, 84–85, 141–42, 160 —international, 56, 136–37 —investment, 112, 275 —Italian, 114–15 —lending rate of, 32–33, 55, 59 —loan policies of, 32–33, 55, 59, 79, 83, 159 —regulation of, 275 —U.S., 28, 41, 84–85 Barro, Robert, 294 Barry, Charles, 140 Bear Stearns, 280 Beck, Glenn, xiii–xiv, 290 Belgium, 282 Bell, Clive, 226 Bell, Vanessa, 5, 11, 24, 66, 226, 301n Benn, Tony, 203 Bentham, Jeremy, 35, 74 Berenson, Bernard, 114 Berenson, Mary, 114 Berlin, 9, 145 Berlin, University of, 34–36 Bernanke, Ben, 269, 280 Beveridge, William, 48, 65, 144, 153, 182, 227, 306n Beveridge Report, 227 Bible, 127, 259 bin Laden, Osama, 276 Blair, Tony, 292 Blinder, Alan S., 268 Blitz, xi–xii, 192–93 Bloomsbury Group, 5–8, 24, 34, 52, 66, 226, 301n Blum, Léon, 23–24 Blunt, Anthony, 87 Boehner, John, 278 Böhm-Bawerk, Eugen von, 48, 49–51, 74, 75, 91, 100, 103, 303n, 307n, 310n Bolshevik revolution, 9 Bolshevism, 9, 191 bonds: —corporate, 275 —government, 19, 41, 163, 284 “book credits,” 79 Bowley, Arthur, 306n “brain trust,” 158 Bretton Woods conference (1944), 56, 193, 198, 243, 255 British Airways, 259 British Empire, 44 British Library, 139 British Petroleum, 259 British school, 2, 48, 59, 61, 62, 65–66, 70, 87–89, 97–102, 120–22, 124–27, 138, 147–48, 178 Brooke, Rupert, 7 Brookings Institute, 231 Bryce, Robert, 108, 168 Budget Enforcement Act (1990), 277 building societies, 143–44 bureaucracy, 4, 159, 203, 278 Burgess, Guy, 87 Burke, Edmund, 35 Burns, Arthur, 232–33, 243, 255 Bush, George H.


pages: 505 words: 142,118

A Man for All Markets by Edward O. Thorp

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", 3Com Palm IPO, Alan Greenspan, Albert Einstein, asset allocation, Bear Stearns, beat the dealer, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, book value, Brownian motion, buy and hold, buy low sell high, caloric restriction, caloric restriction, carried interest, Chuck Templeton: OpenTable:, Claude Shannon: information theory, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Edward Thorp, Erdős number, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, Garrett Hardin, George Santayana, German hyperinflation, Glass-Steagall Act, Henri Poincaré, high net worth, High speed trading, index arbitrage, index fund, interest rate swap, invisible hand, Jarndyce and Jarndyce, Jeff Bezos, John Bogle, John Meriwether, John Nash: game theory, junk bonds, Kenneth Arrow, Livingstone, I presume, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, Mason jar, merger arbitrage, Michael Milken, Murray Gell-Mann, Myron Scholes, NetJets, Norbert Wiener, PalmPilot, passive investing, Paul Erdős, Paul Samuelson, Pluto: dwarf planet, Ponzi scheme, power law, price anchoring, publish or perish, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, RFID, Richard Feynman, risk-adjusted returns, Robert Shiller, rolodex, Sharpe ratio, short selling, Silicon Valley, Stanford marshmallow experiment, statistical arbitrage, stem cell, stock buybacks, stocks for the long run, survivorship bias, tail risk, The Myth of the Rational Market, The Predators' Ball, the rule of 72, The Wisdom of Crowds, too big to fail, Tragedy of the Commons, uptick rule, Upton Sinclair, value at risk, Vanguard fund, Vilfredo Pareto, Works Progress Administration

For many of the remaining half that did trade, the quantity reported by Madoff just for my client’s two accounts exceeded the entire volume reported for everyone. To check the minority of remaining trades, those that did not conflict with the prices and volumes reported by the exchanges, I asked an official at Bear Stearns to find out in confidence who all the buyers and sellers of the options were. We could not connect any of them to Madoff’s firm. I told my client that the trades were fake and Madoff’s investment operation was a fraud. My client had a dilemma. If I was right and he closed his accounts with Madoff he would protect his money, save his reputation, and avoid a legal mess.

In 2004, five major investment banks persuaded the US Securities and Exchange Commission to increase their allowable leverage. Previously, they could borrow $11 for every $1 of net worth. This meant they only had $1 out of every $12, or 8.33 percent, as a cushion against disaster. Under its chairman Christopher Cox, the SEC allowed Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Stearns, and Lehman Brothers to expand their leverage to something like 33:1, rivaling the levels that doomed the ill-fated hedge fund Long-Term Capital Management just six years earlier. With, say, $33 in assets and $32 of liabilities for each $1 of net worth, a decline of a little over 3 percent in assets would wipe out their equity.


pages: 441 words: 136,954

That Used to Be Us by Thomas L. Friedman, Michael Mandelbaum

addicted to oil, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, Amazon Web Services, American Society of Civil Engineers: Report Card, Andy Kessler, Ayatollah Khomeini, bank run, barriers to entry, Bear Stearns, Berlin Wall, blue-collar work, Bretton Woods, business process, call centre, carbon footprint, carbon tax, Carmen Reinhart, Cass Sunstein, centre right, Climatic Research Unit, cloud computing, collective bargaining, corporate social responsibility, cotton gin, creative destruction, Credit Default Swap, crowdsourcing, delayed gratification, drop ship, energy security, Fall of the Berlin Wall, fear of failure, full employment, Google Earth, illegal immigration, immigration reform, income inequality, Intergovernmental Panel on Climate Change (IPCC), job automation, Kenneth Rogoff, knowledge economy, Lean Startup, low interest rates, low skilled workers, Mark Zuckerberg, market design, mass immigration, more computing power than Apollo, Network effects, Nixon triggered the end of the Bretton Woods system, obamacare, oil shock, PalmPilot, pension reform, precautionary principle, proprietary trading, Report Card for America’s Infrastructure, rising living standards, Ronald Reagan, Rosa Parks, Saturday Night Live, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Steve Jobs, the long tail, the scientific method, Thomas L Friedman, too big to fail, University of East Anglia, vertical integration, WikiLeaks

They are therefore “all about how—not how much … Situational values push us toward the strategy of becoming ‘too big to fail.’ Sustainable values inspire us to pursue the strategy of becoming ‘too sustainable to fail,’” by building enduring relationships. As the collapse of major Wall Street banks such as Bear Stearns and Lehman Brothers has demonstrated, Seidman explains, “What makes an institution sustainable is not the scale and size it reaches but how it does its business—how it relates to its employees, shareholders, customers, suppliers, the environment, society, and future generations.” Just how far Wall Street drifted into situational values came out in some of the congressional hearings about the causes of the 2008 subprime crisis.

-China Relations Associated Press Association for Computing Machinery Atlanta Atlanta Journal-Constitution Auburn University Auguste, Byron Australia Austria automation automobile industry, see cars; Ford Motor Company; General Motors Autor, David B Baathists Bachmann, Michele Baer, Don Baghdad Bahrain Bain & Company Baltimore Orioles baseball team Bangalore (India) Bangkok Bank of America bankruptcy; of municipal governments Bankruptcy Abuse Prevention and Consumer Protection Act (2005) Barber, Michael Battle Hymn of the Tiger Mother (Chua) Bayh, Evan Bay of Pigs invasion BBC Bear Stearns Beck, Glenn Becker, Dan Bell, Alexander Graham Bennett, Robert Benton, Thomas Berkshire Hathaway Berlin Berlin Wall; fall of Beta Bytes Bethesda Naval Hospital Bhagwati, Jagdish Biddle, Mike Bihar (India) Bill and Melinda Gates Foundation bin Laden, Osama biofuels Biofuels Digest BlackBerry blacks, see African Americans Blackstone Discovery Blankfein, Lloyd Blinder, Alan Bloomberg BusinessWeek Bloomberg News Bloom Energy Boehlert, Sherwood Boeing Company Bonaparte, Napoleon Bosnia; immigrants from Boston Boston Red Sox baseball team Bowles, Erskine Boxer, Barbara Boyd, John Boys and Girls High School (Brooklyn, New York) Bradsher, Keith Brazil Bretton Woods Agreement Bridges, Beau Bridges, Jeff Britain Brookings Institution Brooks, Preston Brownstein, Ronald Bryan, William Jennings budget deficits; lobbyists and; partisan polarization and; reduction of; state; tax cuts and; wars and Budget Reconciliation Act (1993) Buffalo (New York) Buffett, Warren Bull Moose party Bull Run, battle of Bumpers, Dale Burger King Burkhardt, Dan Bush, George H.


pages: 515 words: 132,295

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

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, additive manufacturing, Airbnb, Alan Greenspan, algorithmic trading, Alvin Roth, Asian financial crisis, asset allocation, bank run, Basel III, Bear Stearns, behavioural economics, Big Tech, bonus culture, Bretton Woods, British Empire, business cycle, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, commoditize, computerized trading, corporate governance, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, data science, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, electricity market, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial intermediation, Ford Model T, Frederick Winslow Taylor, George Akerlof, gig economy, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Greenspan put, guns versus butter model, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, information asymmetry, interest rate derivative, interest rate swap, Internet of things, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Bogle, John Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, London Whale, Long Term Capital Management, low interest rates, manufacturing employment, market design, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, Paul Samuelson, pensions crisis, Ponzi scheme, principal–agent problem, proprietary trading, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Ronald Reagan, Satyajit Das, Savings and loan crisis, scientific management, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, stock buybacks, subprime mortgage crisis, technology bubble, TED Talk, The Chicago School, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, Tragedy of the Commons, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund, vertical integration, zero-sum game

These associations included, among others, working as a $1,200-an-hour consultant for Countrywide Financial (a mortgage lender that was deeply involved in the subprime crisis and had to be bailed out by the Fed) and getting paid $100,000 to testify in the defense of Ralph Cioffi and Matthew Tannin, two Bear Stearns hedge fund managers who were prosecuted (and later acquitted) for fraud.52 Hubbard had also coauthored a Goldman Sachs report in 2004, entitled “How Capital Markets Enhance Economic Performance and Facilitate Job Creation,” in which he said that credit derivatives were protecting banks from losses by redistributing risk.

And so, in the aftermath of the 2008 crisis, both Goldman and Morgan went from being stand-alone investment banks to bank-owning financial holding companies regulated by the Fed.57 By becoming federally backed banking entities, these institutions got both the freedom to control as many aspects of the market as possible and precious direct access to government subsidies and federal underwriting. J.P. Morgan, already a bank holding company, ended up benefiting too; it got to acquire the large commodities assets of Bear Stearns and RBS Sempra (the energy trading business previously co-owned by the Royal Bank of Scotland) at rock-bottom prices. Just as J.P. Morgan emerged as a bigger and more systemically important bank after 2008, so it became the five-hundred-pound gorilla of the commodities trading markets, boasting a physical commodity inventory valued at over $17 billion.58 It even bought a stake in the LME, which it purchased from the bankrupt futures firm MF Global, becoming the exchange’s largest shareholder.59 All this happened despite the fact that the original regulatory exemptions that allowed J.P.


pages: 349 words: 134,041

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, Asian financial crisis, asset-backed security, Bear Stearns, beat the dealer, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business logic, business process, buy and hold, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, commoditize, complexity theory, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, currency risk, disinformation, disintermediation, diversification, diversified portfolio, Edward Thorp, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, financial engineering, financial innovation, fixed income, Glass-Steagall Act, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, John Bogle, John Meriwether, junk bonds, locking in a profit, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, mega-rich, merger arbitrage, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mutually assured destruction, Myron Scholes, new economy, New Journalism, Nick Leeson, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, proprietary trading, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, Right to Buy, risk free rate, risk-adjusted returns, risk/return, Salesforce, Satyajit Das, shareholder value, short selling, short squeeze, South Sea Bubble, statistical model, technology bubble, the medium is the message, the new new thing, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

Hence, our losses across strategies were correlated after-the-fact from the sharp increase in the liquidity premium: the use of leverage has accentuated the losses.’ The letter to investors sought new capital from them on the basis that ‘. . . since it is prudent to raise capital the fund is offering you the opportunity to invest on special terms related to LTCM’s fees.’9 There were no takers. On 18 September 1998, Bear Stearns (LTCM’s prime broker and principal clearing agent for both exchange and OTC collateral) is rumoured to have frozen the fund’s cash account following a large margin call. On 23 September 1998, AIG, Goldman Sachs and Warren Buffet made an offer to buy out LTCM’s partners and inject $4 billion into the fund.

However, the text is different. 6 ‘What Worries Warren’ (3 March 2003) Fortune. 13_INDEX.QXD 17/2/06 4:44 pm Page 325 Index accounting rules 139, 221, 228, 257 Accounting Standards Board 33 accrual accounting 139 active fund management 111 actuaries 107–10, 205, 289 Advance Corporation Tax 242 agency business 123–4, 129 agency theory 117 airline profits 140–1 Alaska 319 Allen, Woody 20 Allied Irish Bank 143 Allied Lyons 98 alternative investment strategies 112, 308 American Express 291 analysts, role of 62–4 anchor effect 136 Anderson, Rolf 92–4 annuities 204–5 ANZ Bank 277 Aquinas, Thomas 137 arbitrage 33, 38–40, 99, 114, 137–8, 171–2, 245–8, 253–5, 290, 293–6 arbitration 307 Argentina 45 arithmophobia 177 ‘armpit theory’ 303 Armstrong World Industries 274 arrears assets 225 Ashanti Goldfields 97–8, 114 Asian financial crisis (1997) 4, 9, 44–5, 115, 144, 166, 172, 207, 235, 245, 252, 310, 319 asset consultants 115–17, 281 ‘asset growth’ strategy 255 asset swaps 230–2 assets under management (AUM) 113–4, 117 assignment of loans 267–8 AT&T 275 attribution of earnings 148 auditors 144 Australia 222–4, 254–5, 261–2 back office functions 65–6 back-to-back loans 35, 40 backwardation 96 Banca Popolare di Intra 298 Bank of America 298, 303 Bank of International Settlements 50–1, 281 Bank of Japan 220 Bankers’ Trust (BT) 59, 72, 101–2, 149, 217–18, 232, 268–71, 298, 301, 319 banking regulations 155, 159, 162, 164, 281, 286, 288 banking services 34; see also commercial banks; investment banks bankruptcy 276–7 Banque Paribas 37–8, 232 Barclays Bank 121–2, 297–8 13_INDEX.QXD 17/2/06 326 4:44 pm Page 326 Index Baring, Peter 151 Baring Brothers 51, 143, 151–2, 155 ‘Basel 2’ proposal 159 basis risk 28, 42, 274 Bear Stearns 173 bearer eurodollar collateralized securities (BECS) 231–3 ‘behavioural finance’ 136 Berkshire Hathaway 19 Bermudan options 205, 227 Bernstein, Peter 167 binomial option pricing model 196 Bismarck, Otto von 108 Black, Fischer 22, 42, 160, 185, 189–90, 193, 195, 197, 209, 215 Black–Scholes formula for option pricing 22, 185, 194–5 Black–Scholes–Merton model 160, 189–93, 196–7 ‘black swan’ hypothesis 130 Blair, Tony 223 Bogle, John 116 Bohr, Niels 122 Bond, Sir John 148 ‘bond floor’ concept 251–4 bonding 75–6, 168, 181 bonuses 146–51, 244, 262, 284–5 Brady Commission 203 brand awareness and brand equity 124, 236 Brazil 302 Bretton Woods system 33 bribery 80, 303 British Sky Broadcasting (BSB) 247–8 Brittain, Alfred 72 broad index secured trust offerings (BISTROs) 284–5 brokers 69, 309 Brown, Robert 161 bubbles 210, 310, 319 Buconero 299 Buffet, Warren 12, 19–20, 50, 110–11, 136, 173, 246, 316 business process reorganization 72 business risk 159 Business Week 130 buy-backs 249 ‘call’ options 25, 90, 99, 101, 131, 190, 196 callable bonds 227–9, 256 capital asset pricing model (CAPM) 111 capital flow 30 capital guarantees 257–8 capital structure arbitrage 296 Capote, Truman 87 carbon trading 320 ‘carry cost’ model 188 ‘carry’ trades 131–3, 171 cash accounting 139 catastrophe bonds 212, 320 caveat emptor principle 27, 272 Cayman Islands 233–4 Cazenove (company) 152 CDO2 292 Cemex 249–50 chaos theory 209, 312 Chase Manhattan Bank 143, 299 Chicago Board Options Exchange 195 Chicago Board of Trade (CBOT) 25–6, 34 chief risk officers 177 China 23–5, 276, 302–4 China Club, Hong Kong 318 Chinese walls 249, 261, 280 chrematophobia 177 Citibank and Citigroup 37–8, 43, 71, 79, 94, 134–5, 149, 174, 238–9 Citron, Robert 124–5, 212–17 client relationships 58–9 Clinton, Bill 223 Coats, Craig 168–9 collateral requirements 215–16 collateralized bond obligations (CBOs) 282 collateralized debt obligations (CDOs) 45, 282–99 13_INDEX.QXD 17/2/06 4:44 pm Page 327 Index collateralized fund obligations (CFOs) 292 collateralized loan obligations (CLOs) 283–5, 288 commercial banks 265–7 commoditization 236 commodity collateralized obligations (CCOs) 292 commodity prices 304 Commonwealth Bank of Australia 255 compliance officers 65 computer systems 54, 155, 197–8 concentration risk 271, 287 conferences with clients 59 confidence levels 164 confidentiality 226 Conseco 279–80 contagion crises 291 contango 96 contingent conversion convertibles (co-cos) 257 contingent payment convertibles (co-pays) 257 Continental Illinois 34 ‘convergence’ trading 170 convertible bonds 250–60 correlations 163–6, 294–5; see also default correlations corruption 303 CORVUS 297 Cox, John 196–7 credit cycle 291 credit default swaps (CDSs) 271–84, 293, 299 credit derivatives 129, 150, 265–72, 282, 295, 299–300 Credit Derivatives Market Practices Committee 273, 275, 280–1 credit models 294, 296 credit ratings 256–7, 270, 287–8, 297–8, 304 credit reserves 140 credit risk 158, 265–74, 281–95, 299 327 credit spreads 114, 172–5, 296 Credit Suisse 70, 106, 167 credit trading 293–5 CRH Capital 309 critical events 164–6 Croesus 137 cross-ruffing 142 cubic splines 189 currency options 98, 218, 319 custom repackaged asset vehicles (CRAVEs) 233 daily earning at risk (DEAR) concept 160 Daiwa Bank 142 Daiwa Europe 277 Danish Oil and Natural Gas 296 data scrubbing 142 dealers, work of 87–8, 124–8, 133, 167, 206, 229–37, 262, 295–6; see also traders ‘death swap’ strategy 110 decentralization 72 decision-making, scientific 182 default correlations 270–1 defaults 277–9, 287, 291, 293, 296, 299 DEFCON scale 156–7 ‘Delta 1’ options 243 delta hedging 42, 200 Deming, W.E. 98, 101 Denmark 38 deregulation, financial 34 derivatives trading 5–6, 12–14, 18–72, 79, 88–9, 99–115, 123–31, 139–41, 150, 153, 155, 175, 184–9, 206–8, 211–14, 217–19, 230, 233, 257, 262–3, 307, 316, 319–20; see also equity derivatives Derman, Emmanuel 185, 198–9 Deutsche Bank 70, 104, 150, 247–8, 274, 277 devaluations 80–1, 89, 203–4, 319 13_INDEX.QXD 17/2/06 4:44 pm Page 328 328 Index dilution of share capital 241 DINKs 313 Disney Corporation 91–8 diversification 72, 110–11, 166, 299 dividend yield 243 ‘Dr Evil’ trade 135 dollar premium 35 downsizing 73 Drexel Burnham Lambert (DBL) 282 dual currency bonds 220–3; see also reverse dual currency bonds earthquakes, bonds linked to 212 efficient markets hypothesis 22, 31, 111, 203 electronic trading 126–30, 134 ‘embeddos’ 218 emerging markets 3–4, 44, 115, 132–3, 142, 212, 226, 297 Enron 54, 142, 250, 298 enterprise risk management (ERM) 176 equity capital management 249 equity collateralized obligations (ECOs) 292 equity derivatives 241–2, 246–9, 257–62 equity index 137–8 equity investment, retail market in 258–9 equity investors’ risk 286–8 equity options 253–4 equity swaps 247–8 euro currency 171, 206, 237 European Bank for Reconstruction and Development 297 European currency units 93 European Union 247–8 Exchange Rate Mechanism, European 204 exchangeable bonds 260 expatriate postings 81–2 expert witnesses 310–12 extrapolation 189, 205 extreme value theory 166 fads of management science 72–4 ‘fairway bonds’ 225 Fama, Eugene 22, 111, 194 ‘fat tail’ events 163–4 Federal Accounting Standards Board 266 Federal Home Loans Bank 213 Federal National Mortgage Association 213 Federal Reserve Bank 20, 173 Federal Reserve Board 132 ‘Ferraris’ 232 financial engineering 228, 230, 233, 249–50, 262, 269 Financial Services Authority (FSA), Japan 106, 238 Financial Services Authority (FSA), UK 15, 135 firewalls 235–6 firing of staff 84–5 First Interstate Ltd 34–5 ‘flat’ organizations 72 ‘flat’ positions 159 floaters 231–2; see also inverse floaters ‘flow’ trading 60–1, 129 Ford Motors 282, 296 forecasting 135–6, 190 forward contracts 24–33, 90, 97, 124, 131, 188 fugu fish 239 fund management 109–17, 286, 300 futures see forward contracts Galbraith, John Kenneth 121 gamma risk 200–2, 294 Gauss, Carl Friedrich 160–2 General Motors 279, 296 General Reinsurance 20 geometric Brownian motion (GBM) 161 Ghana 98 Gibson Greeting Cards 44 Glass-Steagall Act 34 gold borrowings 132 13_INDEX.QXD 17/2/06 4:44 pm Page 329 Index gold sales 97, 137 Goldman Sachs 34, 71, 93, 150, 173, 185 ‘golfing holiday bonds’ 224 Greenspan, Alan 6, 9, 19–21, 29, 43, 47, 50, 53, 62, 132, 159, 170, 215, 223, 308 Greenwich NatWest 298 Gross, Bill 19 Guangdong International Trust and Investment Corporation (GITIC) 276–7 guaranteed annuity option (GAO) contracts 204–5 Gutenfreund, John 168–9 gyosei shido 106 Haghani, Victor 168 Hamanaka, Yasuo 142 Hamburgische Landesbank 297 Hammersmith and Fulham, London Borough of 66–7 ‘hara-kiri’ swaps 39 Hartley, L.P. 163 Hawkins, Greg 168 ‘heaven and hell’ bonds 218 hedge funds 44, 88–9, 113–14, 167, 170–5, 200–2, 206, 253–4, 262–3, 282, 292, 296, 300, 308–9 hedge ratio 264 hedging 24–8, 31, 38–42, 60, 87–100, 184, 195–200, 205–7, 214, 221, 229, 252, 269, 281, 293–4, 310 Heisenberg, Werner 122 ‘hell bonds’ 218 Herman, Clement (‘Crem’) 45–9, 77, 84, 309 Herodotus 137, 178 high net worth individuals (HNWIs) 237–8, 286 Hilibrand, Lawrence 168 Hill Samuel 231–2 329 The Hitchhiker’s Guide to the Galaxy 189 Homer, Sidney 184 Hong Kong 9, 303–4 ‘hot tubbing’ 311–12 HSBC Bank 148 HSH Nordbank 297–8 Hudson, Kevin 102 Hufschmid, Hans 77–8 IBM 36, 218, 260 ICI 34 Iguchi, Toshihude 142 incubators 309 independent valuation 142 indexed currency option notes (ICONs) 218 India 302 Indonesia 5, 9, 19, 26, 55, 80–2, 105, 146, 219–20, 252, 305 initial public offerings 33, 64, 261 inside information and insider trading 133, 241, 248–9 insurance companies 107–10, 117, 119, 150, 192–3, 204–5, 221, 223, 282, 286, 300; see also reinsurance companies insurance law 272 Intel 260 intellectual property in financial products 226 Intercontinental Hotels Group (IHG) 285–6 International Accounting Standards 33 International Securities Market Association 106 International Swap Dealers Association (ISDA) 273, 275, 279, 281 Internet stock and the Internet boom 64, 112, 259, 261, 310, 319 interpolation of interest rates 141–2, 189 inverse floaters 46–51, 213–16, 225, 232–3 13_INDEX.QXD 17/2/06 4:44 pm Page 330 330 Index investment banks 34–8, 62, 64, 67, 71, 127–8, 172, 198, 206, 216–17, 234, 265–7, 298, 309 investment managers 43–4 investment styles 111–14 irrational decisions 136 Italy 106–7 Ito’s Lemma 194 Japan 39, 43, 82–3, 92, 94, 98–9, 101, 106, 132, 142, 145–6, 157, 212, 217–25, 228, 269–70 Jensen, Michael 117 Jett, Joseph 143 JP Morgan (company) 72, 150, 152, 160, 162, 249–50, 268–9, 284–5, 299; see also Morgan Guaranty junk bonds 231, 279, 282, 291, 296–7 JWM Associates 175 Kahneman, Daniel 136 Kaplanis, Costas 174 Kassouf, Sheen 253 Kaufman, Henry 62 Kerkorian, Kirk 296 Keynes, J.M. 167, 175, 198 Keynesianism 5 Kidder Peabody 143 Kleinwort Benson 40 Korea 9, 226, 278 Kozeny, Viktor 121 Krasker, William 168 Kreiger, Andy 319 Kyoto Protocol 320 Lavin, Jack 102 law of large numbers 192 Leeson, Nick 51, 131, 143, 151 legal opinions 47, 219–20, 235, 273–4 Leibowitz, Martin 184 Leland, Hayne 42, 202 Lend Lease Corporation 261–2 leptokurtic conditions 163 leverage 31–2, 48–50, 54, 99, 102–3, 114, 131–2, 171–5, 213–14, 247, 270–3, 291, 295, 305, 308 Lewis, Kenneth 303 Lewis, Michael 77–8 life insurance 204–5 Lintner, John 111 liquidity options 175 liquidity risk 158, 173 litigation 297–8 Ljunggren, Bernt 38–40 London Inter-Bank Offered Rate (LIBOR) 6, 37 ‘long first coupon’ strategy 39 Long Term Capital Management (LTCM) 44, 51, 62, 77–8, 84, 114, 166–75, 187, 206, 210, 215–18, 263–4, 309–10 Long Term Credit Bank of Japan 94 LOR (company) 202 Louisiana Purchase 319 low exercise price options (LEPOs) 261 Maastricht Treaty and criteria 106–7 McLuhan, Marshall 134 McNamara, Robert 182 macro-economic indicators, derivatives linked to 319 Mahathir Mohammed 31 Malaysia 9 management consultants 72–3 Manchester United 152 mandatory convertibles 255 Marakanond, Rerngchai 302 margin calls 97–8, 175 ‘market neutral’ investment strategy 114 market risk 158, 173, 265 marketable eurodollar collateralized securities (MECS) 232 Markowitz, Harry 110 mark-to-market accounting 10, 100, 139–41, 145, 150, 174, 215–16, 228, 244, 266, 292, 295, 298 Marx, Groucho 24, 57, 67, 117, 308 13_INDEX.QXD 17/2/06 4:44 pm Page 331 Index mathematics applied to financial instruments 209–10; see also ‘quants’ matrix structures 72 Meckling, Herbert 117 Melamed, Leo 34, 211 merchant banks 38 Meriwether, John 167–9, 172–5 Merrill Lynch 124, 150, 217, 232 Merton, Robert 22, 42, 168–70, 175, 185, 189–90, 193–7, 210 Messier, Marie 247 Metallgesellschaft 95–7 Mexico 44 mezzanine finance 285–8, 291–7 MG Refining and Marketing 95–8, 114 Microsoft 53 Mill, Stuart 130 Miller, Merton 22, 101, 194 Milliken, Michael 282 Ministry of Finance, Japan 222 misogyny 75–7 mis-selling 238, 297–8 Mitchell, Edison 70 Mitchell & Butler 275–6 models financial 42–3, 141–2, 163–4, 173–5, 181–4, 189, 198–9, 205–10 of business processes 73–5 see also credit models Modest, David 168 momentum investment 111 monetization 260–1 monopolies in financial trading 124 moral hazard 151, 280, 291 Morgan Guaranty 37–8, 221, 232 Morgan Stanley 76, 150 mortgage-backed securities (MBSs) 282–3 Moscow, City of 277 moves of staff between firms 150, 244 Mozer, Paul 169 Mullins, David 168–70 multi-skilling 73 331 Mumbai 3 Murdoch, Rupert 247 Nabisco 220 Napoleon 113 NASDAQ index 64, 112 Nash, Ogden 306 National Australia Bank 144, 178 National Rifle Association 29 NatWest Bank 144–5, 198 Niederhoffer, Victor 130 ‘Nero’ 7, 31, 45–9, 60, 77, 82–3, 88–9, 110, 118–19, 125, 128, 292 NERVA 297 New Zealand 319 Newman, Frank 104 news, financial 133–4 News Corporation 247 Newton, Isaac 162, 210 Nippon Credit Bank 106, 271 Nixon, Richard 33 Nomura Securities 218 normal distribution 160–3, 193, 199 Northern Electric 248 O’Brien, John 202 Occam, William 188 off-balance sheet transactions 32–3, 99, 234, 273, 282 ‘offsites’ 74–5 oil prices 30, 33, 89–90, 95–7 ‘omitted variable’ bias 209–10 operational risk 158, 176 opinion shopping 47 options 9, 21–2, 25–6, 32, 42, 90, 98, 124, 197, 229 pricing 185, 189–98, 202 Orange County 16, 44, 50, 124–57, 212–17, 232–3 orphan subsidiaries 234 over-the-counter (OTC) market 26, 34, 53, 95, 124, 126 overvaluation 64 13_INDEX.QXD 17/2/06 4:44 pm Page 332 332 Index ‘overwhelming force’ strategy 134–5 Owen, Martin 145 ownership, ‘legal’ and ‘economic’ 247 parallel loans 35 pari-mutuel auction system 319 Parkinson’s Law 136 Parmalat 250, 298–9 Partnoy, Frank 87 pension funds 43, 108–10, 115, 204–5, 255 People’s Bank of China (PBOC) 276–7 Peters’ Principle 71 petrodollars 71 Pétrus (restaurant) 121 Philippines, the 9 phobophobia 177 Piga, Gustavo 106 PIMCO 19 Plaza Accord 38, 94, 99, 220 plutophobia 177 pollution quotas 320 ‘portable alpha’ strategy 115 portfolio insurance 112, 202–3, 294 power reverse dual currency (PRDC) bonds 226–30 PowerPoint 75 preferred exchangeable resettable listed shares (PERLS) 255 presentations of business models 75 to clients 57, 185 prime brokerage 309 Prince, Charles 238 privatization 205 privity of contract 273 Proctor & Gamble (P&G) 44, 101–4, 155, 298, 301 product disclosure statements (PDSs) 48–9 profit smoothing 140 ‘programme’ issuers 234–5 proprietary (‘prop’) trading 60, 62, 64, 130, 174, 254 publicly available information (PAI) 277 ‘puff’ effect 148 purchasing power parity theory 92 ‘put’ options 90, 131, 256 ‘quants’ 183–9, 198, 208, 294 Raabe, Matthew 217 Ramsay, Gordon 121 range notes 225 real estate 91, 219 regulatory arbitrage 33 reinsurance companies 288–9 ‘relative value’ trading 131, 170–1, 310 Reliance Insurance 91–2 repackaging (‘repack’) business 230–6, 282, 290 replication in option pricing 195–9, 202 dynamic 200 research provided to clients 58, 62–4, 184 reserves, use of 140 reset preference shares 254–7 restructuring of loans 279–81 retail equity products 258–9 reverse convertibles 258–9 reverse dual currency bonds 223–30 ‘revolver’ loans 284–5 risk, financial, types of 158 risk adjusted return on capital (RAROC) 268, 290 risk conservation principle 229–30 risk management 65, 153–79, 184, 187, 201, 267 risk models 163–4, 173–5 riskless portfolios 196–7 RJ Reynolds (company) 220–1 rogue traders 176, 313–16 Rosenfield, Eric 168 Ross, Stephen 196–7, 202 Roth, Don 38 Rothschild, Mayer Amshel 267 Royal Bank of Scotland 298 Rubinstein, Mark 42, 196–7 13_INDEX.QXD 17/2/06 4:44 pm Page 333 Index Rumsfeld, Donald 12, 134, 306 Rusnak, John 143 Russia 45, 80, 166, 172–3, 274, 302 sales staff 55–60, 64–5, 125, 129, 217 Salomon Brothers 20, 36, 54, 62, 167–9, 174, 184 Sandor, Richard 34 Sanford, Charles 72, 269 Sanford, Eugene 269 Schieffelin, Allison 76 Scholes, Myron 22, 42, 168–71, 175, 185, 189–90, 193–7, 263–4 Seagram Group 247 Securities and Exchange Commission, US 64, 304 Securities and Futures Authority, UK 249 securitization 282–90 ‘security design’ 254–7 self-regulation 155 sex discrimination 76 share options 250–1 Sharpe, William 111 short selling 30–1, 114 Singapore 9 single-tranche CDOs 293–4, 299 ‘Sisters of Perpetual Ecstasy’ 234 SITCOMs 313 Six Continents (6C) 275–6 ‘smile’ effect 145 ‘snake’ currency system 203 ‘softing’ arrangements 117 Solon 137 Soros, George 44, 130, 253, 318–19 South Sea Bubble 210 special purpose asset repackaging companies (SPARCs) 233 special purpose vehicles (SPVs) 231–4, 282–6, 290, 293 speculation 29–31, 42, 67, 87, 108, 130 ‘spinning’ 64 333 Spitzer, Eliot 64 spread 41, 103; see also credit spreads stack hedges 96 Stamenson, Michael 124–5 standard deviation 161, 193, 195, 199 Steinberg, Sol 91 stock market booms 258, 260 stock market crashes 42–3, 168, 203, 257, 259, 319 straddles or strangles 131 strategy in banking 70 stress testing 164–6 stripping of convertible bonds 253–4 structured investment products 44, 112, 115, 118, 128, 211–39, 298 structured note asset packages (SNAPs) 233 Stuart SC 18, 307, 316–18 Styblo Bleder, Tanya 153 Suharto, Thojib 81–2 Sumitomo Corporation 100, 142 Sun Tzu 61 Svensk Exportkredit (SEK) 38–9 swaps 5–10, 26, 35–40, 107, 188, 211; see also equity swaps ‘swaptions’ 205–6 Swiss Bank Corporation (SBC) 248–9 Swiss banks 108, 305 ‘Swiss cheese theory’ 176 synthetic securitization 284–5, 288–90 systemic risk 151 Takeover Panel 248–9 Taleb, Nassim 130, 136, 167 target redemption notes 225–6 tax and tax credits 171, 242–7, 260–3 Taylor, Frederick 98, 101 team-building exercises 76 team moves 149 technical analysis 60–1, 135 television programmes about money 53, 62–3 Thailand 9, 80, 302–5 13_INDEX.QXD 17/2/06 4:44 pm Page 334 334 Index Thatcher, Margaret 205 Thorp, Edward 253 tobashi trades 105–7 Tokyo Disneyland 92, 212 top managers 72–3 total return swaps 246–8, 269 tracking error 138 traders in financial products 59–65, 129–31, 135–6, 140, 148, 151, 168, 185–6, 198; see also dealers trading limits 42, 157, 201 trading rooms 53–4, 64, 68, 75–7, 184–7, 208 Trafalgar House 248 tranching 286–9, 292, 296 transparency 26, 117, 126, 129–30, 310 Treynor, Jack 111 trust investment enhanced return securities (TIERS) 216, 233 trust obligation participating securities (TOPS) 232 TXU Europe 279 UBS Global Asset Management 110, 150, 263–4, 274 uncertainty principle 122–3 unique selling propositions 118 unit trusts 109 university education 187 unspecified fund obligations (UFOs) 292 ‘upfronting’ of income 139, 151 Valéry, Paul 163 valuation 64, 142–6 value at risk (VAR) concept 160–7, 173 value investing 111 Vanguard 116 vanity bonds 230 variance 161 Vietnam War 182, 195 Virgin Islands 233–4 Vivendi 247–8 volatility of bond prices 197 of interest rates 144–5 of share prices 161–8, 172–5, 192–3, 199 Volcker, Paul 20, 33 ‘warehouses’ 40–2, 139 warrants arbitrage 99–101 weather, bonds linked to 212, 320 Weatherstone, Dennis 72, 268 Weil, Gotscal & Manges 298 Weill, Sandy 174 Westdeutsche Genosenschafts Zentralbank 143 Westminster Group 34–5 Westpac 261–2 Wheat, Allen 70, 72, 106, 167 Wojniflower, Albert 62 World Bank 4, 36, 38 World Food Programme 320 Worldcom 250, 298 Wriston, Walter 71 WTI (West Texas Intermediate) contracts 28–30 yield curves 103, 188–9, 213, 215 yield enhancement 112, 213, 269 ‘yield hogs’ 43 zaiteku 98–101, 104–5 zero coupon bonds 221–2, 257–8


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

"World Economic Forum" Davos, 3D printing, air freight, Asian financial crisis, Bear Stearns, Berlin Wall, blockchain, Bretton Woods, business intelligence, capital controls, Capital in the Twenty-First Century by Thomas Piketty, classic study, cloud computing, colonial rule, Credit Default Swap, cuban missile crisis, deindustrialization, demographic transition, Deng Xiaoping, disruptive innovation, Doha Development Round, Donald Trump, energy transition, European colonialism, export processing zone, failed state, Fall of the Berlin Wall, foreign exchange controls, geopolitical risk, Gini coefficient, high-speed rail, housing crisis, income inequality, industrial cluster, industrial robot, interest rate swap, intermodal, Internet of things, invention of movable type, inventory management, John Markoff, liberal world order, Malacca Straits, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, new economy, oil shale / tar sands, oil shock, purchasing power parity, quantitative easing, reserve currency, Ronald Reagan, seigniorage, Shenzhen special economic zone , smart cities, smart grid, SoftBank, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, Suez canal 1869, Suez crisis 1956, supply-chain management, Thomas L Friedman, trade liberalization, trade route, transcontinental railway, UNCLOS, UNCLOS, union organizing, Washington Consensus, working-age population, zero-sum game

Bush, who had struggled so desperately in 2000, carried Florida by a solid 52 –47 margin over John Kerry and was triumphantly reelected.47 As inflation began rising during the 2005 –2006 electoral aftermath, the US Federal Reserve Board began raising interest rates, despite stagnation in middle-class incomes, thus raising pressures on overextended borrowers and setting the stage for a deeper financial crisis. On July 31, 2007, the Bear Stearns securities firm liquidated two hedge funds and filed for bankruptcy protection. Only a week later, on August 6, American Home Mortgage Investment also filed for bankruptcy. Early in 2008, another election year, it looked at first as though the crisis was subsiding. On January 11 Bank of America announced that it would buy Countrywide Financial for $4 billion. On March 16 the Federal Reserve guaranteed $30 billion of Bear Stearns’s assets in preparation for its sale to JP Morgan Chase. And on August 15 the Soros Fund, previously known for its farsighted appreciation of global economic trends, increased its stake in the troubled Lehman Brothers investment banking firm from 10,000 to 9.47 million shares.


pages: 460 words: 130,820

The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion by Eliot Brown, Maureen Farrell

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Adam Neumann (WeWork), Airbnb, AOL-Time Warner, asset light, Bear Stearns, Bernie Madoff, Burning Man, business logic, cloud computing, coronavirus, corporate governance, COVID-19, Didi Chuxing, do what you love, don't be evil, Donald Trump, driverless car, East Village, Elon Musk, financial engineering, Ford Model T, future of work, gender pay gap, global pandemic, global supply chain, Google Earth, Gordon Gekko, greed is good, Greensill Capital, hockey-stick growth, housing crisis, index fund, Internet Archive, Internet of things, Jeff Bezos, John Zimmer (Lyft cofounder), Larry Ellison, low interest rates, Lyft, Marc Benioff, Mark Zuckerberg, Masayoshi Son, Maui Hawaii, Network effects, new economy, PalmPilot, Peter Thiel, pets.com, plant based meat, post-oil, railway mania, ride hailing / ride sharing, Robinhood: mobile stock trading app, rolodex, Salesforce, San Francisco homelessness, Sand Hill Road, self-driving car, sharing economy, Sheryl Sandberg, side hustle, side project, Silicon Valley, Silicon Valley startup, smart cities, Snapchat, SoftBank, software as a service, sovereign wealth fund, starchitect, Steve Jobs, subprime mortgage crisis, super pumped, supply chain finance, Tim Cook: Apple, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, vertical integration, Vision Fund, WeWork, women in the workforce, work culture , Y Combinator, Zenefits, Zipcar

CHAPTER 12 Banking Bros In 2015, a decade into his tenure as CEO of JPMorgan Chase, not only was Jamie Dimon running the country’s largest financial institution, but he was often hailed as one of the world’s top CEOs, a trusted sounding board for lawmakers on Capitol Hill, and the most recognizable face on Wall Street. During the financial crisis of 2007–2008, as banks were failing or getting rescued by the U.S. government, Dimon emerged as the most stable figure in the whole wobbly industry. He rescued two dying banks—Bear Stearns and Washington Mutual—and helped stave off a total collapse of the financial system. But in the years after the recession, Dimon became focused on what he saw as a weak spot in JPMorgan’s otherwise formidable reach: Silicon Valley. Technology companies were attracting a torrent of money from Wall Street investors as the economy tilted toward the tech industry.

CHAPTER 36 The Fall of Adam The next morning, Monday, September 16, Jen Berrent and Artie Minson met in the lobby of JPMorgan’s headquarters at 383 Madison. The two longtime Neumann deputies were due to meet with Mary Callahan Erdoes and Noah Wintroub soon, but they needed to get on the same page. They sunk into chairs in the black-and-white-tiled lobby of the octagonal building—one built for Bear Stearns before its rapid collapse—which was adorned with screens flashing JPMorgan marketing materials. It had been a rough couple of weeks for the two senior WeWork executives. Berrent, normally unflappable, felt a constant cloud of anxiety as things began to look increasingly bleak for the IPO. Soon after they began talking, they both realized it was time to acknowledge reality.


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, Bear Stearns, Bernie Madoff, business cycle, collapse of Lehman Brothers, compensation consultant, Cornelius Vanderbilt, corporate governance, corporate social responsibility, creative destruction, credit crunch, false flag, financial engineering, Ford Model T, 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, 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

One of the diseases that grips institutions is the ‘safety in numbers’ philosophy – in other words, neurotic risk avoidance at all costs. This is the belief that as long as you follow the crowd – even if they’re quite wrong – you can’t be criticized for your work. Company boards and committees can make astounding errors thanks to peer pressure and the desire to conform – look at Northern Rock or Bear Stearns. Yet as General MacArthur said, ‘There is no security on this earth. Only opportunity.’ I have studied the careers of a number of great entrepreneurs, and all of them followed Franklin D. Roosevelt’s belief in ‘bold, persistent experimentation’. And good old Thomas Edison again, while on his way to doing things like founding General Electric, said, ‘I have not failed.


pages: 162 words: 50,108

The Little Book of Hedge Funds by Anthony Scaramucci

Alan Greenspan, Andrei Shleifer, asset allocation, Bear Stearns, Bernie Madoff, business process, carried interest, corporate raider, Credit Default Swap, diversification, diversified portfolio, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, financial engineering, fixed income, follow your passion, global macro, Gordon Gekko, high net worth, index fund, it's over 9,000, John Bogle, John Meriwether, Long Term Capital Management, mail merge, managed futures, margin call, mass immigration, merger arbitrage, Michael Milken, money market fund, Myron Scholes, NetJets, Ponzi scheme, profit motive, proprietary trading, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, risk/return, Ronald Reagan, Saturday Night Live, Sharpe ratio, short selling, short squeeze, Silicon Valley, tail risk, Thales and the olive presses, Thales of Miletus, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule, Vanguard fund, Y2K, Yogi Berra, zero-sum game

As Warren Buffett says, “You only find out who is swimming naked when the tide goes out.” Fearful that LTCM’s collapse would signal a more widespread hedge fund fire, the Federal Reserve board intervened and orchestrated a $3.65-billion bailout—with the help of 14 other financial institutions. Each of the major broker dealers (with the exception of Bear Stearns) put up capital, took over the defunct fund, and worked patiently to unravel the trades once the market calmed down. According to the Fed’s William McDonough, “An abrupt and disorderly liquidation would have posed unacceptable risks to the American economy.” Sound familiar? Although Long Term Capital Management took the crown for the most-documented hedge fund failure, the runner-up is more than likely Amaranth Advisors.


pages: 1,009 words: 329,520

The Last Tycoons: The Secret History of Lazard Frères & Co. by William D. Cohan

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", activist fund / activist shareholder / activist investor, Alan Greenspan, AOL-Time Warner, bank run, Bear Stearns, book value, Carl Icahn, carried interest, cognitive dissonance, commoditize, computer age, corporate governance, corporate raider, creative destruction, credit crunch, deal flow, diversification, Donald Trump, East Village, fear of failure, financial engineering, fixed income, G4S, Glass-Steagall Act, hiring and firing, interest rate swap, intermodal, Joseph Schumpeter, junk bonds, land bank, late fees, Long Term Capital Management, Marc Andreessen, market bubble, Michael Milken, offshore financial centre, Ponzi scheme, proprietary trading, Ralph Nader, Ralph Waldo Emerson, rolodex, Ronald Reagan, shareholder value, short squeeze, SoftBank, stock buybacks, The Nature of the Firm, the new new thing, Yogi Berra

He also spoke with Bill Miller, the former Treasury secretary whom he had profiled. Miller thought Rattner a "brilliant guy" and wanted him to join him at G. William Miller & Co., a merchant bank he started in Washington in 1983. Rattner met with Ken Lipper, then at Salomon Brothers, and Ace Greenberg, the longtime head of Bear Stearns & Co. He met with Bob Rubin at Goldman Sachs. After a cocktail of some Macbeth-like soul-searching as to whether investment banking would be fulfilling or meaningful enough and an evening of extreme drunkenness with Sulzberger in London, Rattner bolted the Times and joined Lehman. Sulzberger, while disappointed, understood his friend's decision.

What's more, after the Seagram dinner, Jaquith claimed, Felix increasingly shut him out of other deals. Fed up, he left Lazard in 1985. Felix rejected Jaquith's assessment. "I was happy with his work and sorry to see him go," he told the Times. After Lazard, Jaquith had successive jobs at Forstmann Little, at Bear Stearns, and even at his own investment firm, Tilal, an acronym for "There Is Life After Lazard." His own arrogance and addictive behavior contributed mightily to his professional and personal demise. Finally, after years of struggle, at the end of 1997 he broke his addiction to alcohol and crack cocaine.

The article went on to catalog the flaws of the deal and its high price tag nonetheless. "The Lazard IPO shapes up as a great deal for Wasserstein, former Lazard partners and current managing directors," Barron's concluded. "But other investors probably should stay away. There are far better Street franchises available at much better prices, including Goldman, Lehman, Bear Stearns and even embattled Morgan Stanley." For his part, Goldman's Tuft said the Lazard IPO proved to be a tough sell, at least initially: there were too many hedge funds looking to short the stock or that got into the deal looking for a short-term pop, and when that didn't happen, they dumped the stock in the market.


pages: 172 words: 54,066

The End of Loser Liberalism: Making Markets Progressive by Dean Baker

Alan Greenspan, Asian financial crisis, banking crisis, Bear Stearns, Bernie Sanders, business cycle, collateralized debt obligation, collective bargaining, corporate governance, currency manipulation / currency intervention, Doha Development Round, financial innovation, full employment, Glass-Steagall Act, Home mortgage interest deduction, income inequality, inflation targeting, invisible hand, low interest rates, manufacturing employment, market clearing, market fundamentalism, medical residency, patent troll, pets.com, pirate software, price stability, public intellectual, quantitative easing, regulatory arbitrage, rent-seeking, Robert Shiller, Silicon Valley, too big to fail, transaction costs

This change meant that these banks could conceal bad assets from scrutiny by regulators, as it appears Lehman was doing on a large scale at the time it went bankrupt. It is not clear how much of a role the SEC’s rule change played in the process, but the investment banks did become much more highly leveraged following it. They went from leverage ratios of less than 12-to-1 prior to the change to as high as 40-to-1 in the case of Bear Stearns at the time of its collapse. 2006: The end of the housing bubble and the beginning of the collapse Home prices peaked in the summer of 2006 and began to edge downward in the second half of the year. One widely used measure of home prices, the Case-Shiller 20 City index, was down by 3.5 percent from its summer peak by the end of 2006.


End the Fed by Ron Paul

affirmative action, Alan Greenspan, Bear Stearns, Bernie Madoff, Bernie Sanders, Bretton Woods, business cycle, crony capitalism, currency manipulation / currency intervention, fiat currency, Fractional reserve banking, guns versus butter model, hiring and firing, housing crisis, illegal immigration, invisible hand, Khyber Pass, Long Term Capital Management, low interest rates, market bubble, means of production, military-industrial complex, Money creation, moral hazard, Ponzi scheme, price mechanism, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, Savings and loan crisis, too big to fail, tulip mania, We are all Keynesians now, Y2K

RON PAUL: With your fingers crossed, I guess. Okay. Thank you. Apparently, the finger crossing didn’t work. Several times in the above exchange, Bernanke says that he expects a bright future of a growing economy with no apparent problems on the way. Keep in mind that this was two weeks before the collapse of the Bear Stearns hedge funds, and one year ahead of the wholesale crumbling of the American financial system. All problems, he says, will be cured about our liquid financial markets. Why anyone takes his view seriously today is a mystery. Finally, he confesses his belief that government spending is a source of economic growth, a superstition of the old-line Keynesians that you can rob some people and give to other people and somehow magically create prosperity.


pages: 205 words: 55,435

The End of Indexing: Six Structural Mega-Trends That Threaten Passive Investing by Niels Jensen

Alan Greenspan, Basel III, Bear Stearns, declining real wages, deglobalization, disruptive innovation, diversification, Donald Trump, driverless car, eurozone crisis, falling living standards, fixed income, full employment, Greenspan put, income per capita, index fund, industrial robot, inflation targeting, job automation, John Nash: game theory, liquidity trap, low interest rates, moral hazard, offshore financial centre, oil shale / tar sands, old age dependency ratio, passive investing, Phillips curve, purchasing power parity, pushing on a string, quantitative easing, regulatory arbitrage, rising living standards, risk free rate, risk tolerance, Robert Solow, secular stagnation, South China Sea, total factor productivity, working-age population, zero-sum game

www.federalreserve.gov/releases/z1/current/z1.pdf Federal Reserve Bank of Kansas City (2000) The P/E ratio and stock market performance www.kansascityfed.org/Publicat/econrev/pdf/4q00shen.pdf Federal Reserve Bank of San Francisco (2011) Boomer Retirement: Headwinds for US Equity Markets? Economic Letter 2011-26, Zheng Liu & Mark M Spiegel. Financial News (2013) The collapse of Bear Stearns: Five years on. www.fnlondon.com Financial Times (2017) ETFs are eating the US stock market. www.ft.com/content/6dabad28-e19c-11e6-9645-c9357a75844a Fitch Ratings (2017) Most Major EEMEA Oil Exporters Still Face Pressure from Low Prices, April 2017. www.fitchratings.com/site/pr/1021682 Fortune Magazine (2016) Here’s Why Hedge Funds Around the World Are Cutting Their Fees.


pages: 486 words: 148,485

Being Wrong: Adventures in the Margin of Error by Kathryn Schulz

affirmative action, Alan Greenspan, anti-communist, banking crisis, Bear Stearns, behavioural economics, Bernie Madoff, Boeing 747, car-free, Cass Sunstein, cognitive dissonance, colonial rule, conceptual framework, cosmological constant, cuban missile crisis, Daniel Kahneman / Amos Tversky, dark matter, David Sedaris, desegregation, Johann Wolfgang von Goethe, lake wobegon effect, longitudinal study, mandatory minimum, mirror neurons, Pierre-Simon Laplace, Ronald Reagan, six sigma, stem cell, Steven Pinker, subprime mortgage crisis, Tenerife airport disaster, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, trade route

When the book came out, in the summer of 2007—right around the time when the financial fault lines began to tremble—it topped both the New York Times and the Amazon.com bestseller lists. By October 23, though, all that was in the past. The economy had been in bad shape for over a year, and in the spring of 2008, with the collapse of the global investment giant Bear Stearns, it had entered a virtual freefall. What began as a subprime mortgage crisis (triggered by the now-infamous practice of offering mortgages to people with limited or troubled credit histories) had broadened into a liquidity crisis, a credit crisis, a banking crisis, a currency crisis, a trade crisis—just about every kind of economic crisis you could name.

See certainty altered states, 36–40 Alzheimer’s disease, 80n amnesia (amnesiacs), 19–22, 80n Amundsen, Roald, 353n anosognosia, 68–69, 77, 82, 354n Anton’s Syndrome, 67–69, 77 Apology and Defense, An (Miller), 218–19 aporia, 319 Appenzell Ausserrhoden, 135, 146–47, 151 Appenzell Innerrhoden, 135, 146–47, 151 Aquinas, Thomas, 21–22, 28–29 arctic (superior) mirages, 50–52 Aristophanes, 259–60, 262, 265 Aristotle, 21, 277, 323 art (aesthetics), 15–16, 326–33, 338–39 Artemidorus Daldianus, 37–38 artificial intelligence (AI), 334–35 Asch, Solomon (line studies), 144–45, 155–56, 157 aspirin, 4 Atë, 262 atoms, 4, 221 Atwater, Ann, 275–78 auditory illusions, 61, 63–64 Augustine, 6, 23, 114, 140, 279, 283–87, 346n, 347–48n Austen, Jane, 331n autism, 102–3n Avery, Steven, 225–27, 239–46 aviation accidents, 63, 302–3, 387n Bacon, Francis, 129, 137–38, 349n Bacon, Roger, 137, 139 Baffin, William, 48, 49 Baffin Bay, 48–49 Banaszak, Lee Ann, 147–48, 151, 364n Barrow, John, 48–50, 52 Bartlett, Robert, 52, 60, 140 Bates, David, 41, 349–50n Bay of Pigs, 152, 153 Bear Stearns, 88 Becker, Ernest, 336–37 Becton, Joe, 275–79 Beerntsen, Penny, 220–22, 224–27, 239–46 Beerntsen, Tom, 220–22, 227 “belief,” use of term, 96n beliefs, 87–110 abrupt changes in, 186–87 communal. See community beliefs confirmation bias and, 124–31 ’Cuz It’s True Constraint, 104–9 distal.


pages: 506 words: 146,607

Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market by Daniel Reingold, Jennifer Reingold

Alan Greenspan, AOL-Time Warner, barriers to entry, Bear Stearns, Berlin Wall, corporate governance, deal flow, estate planning, Fall of the Berlin Wall, fixed income, George Gilder, high net worth, informal economy, junk bonds, margin call, Mary Meeker, mass immigration, Michael Milken, new economy, pets.com, Robert Metcalfe, rolodex, Saturday Night Live, shareholder value, short selling, Silicon Valley, stem cell, Telecommunications Act of 1996, thinkpad, traveling salesman, undersea cable, UUNET

Since we had only recently invested, were we to be the underwriter, it would look like we had invested in order to get the IPO business and/or to hype the stock when it went public. Everyone agreed, for a change, that this was a real conflict of interest. I was relieved. Eventually Digital Island did get its IPO done, in June of 1999, underwritten by Bear Stearns, at $10 a share. It was, to my surprise, a huge hit. It quickly rose to as high as $148 in December 1999. But then, like so many other dot-com startups, it crashed. (By 2001, it had found its savior, Cable & Wireless, which bought Digital Island for just $3.40 per share.) Returning from my flashback, I heard Merrill banker Rob Kramer immediately begin to slam my colleague Mark Kastan’s lack of influence in the markets and lack of respect among the top executives of the startup local carriers that he covered.

Michael (Mike) AT&T action plan of AT&T restructuring and AT&T tracker and background/personality of Comcast bid and current situation of Global Telecom CEO Conference and Arthur Andersen Asian telecom privatization AT&T antitrust breakup of Baby Bells as threat to cellular coverage and Comcast bid and financial problems of Grubman’s downgrade of Grubman’s upgrade of Grubman–Weill relationship and leadership change at local startups and price wars and Reingold’s downgrade of Reingold’s upgrade of restructuring of SBC purchase of tracking stock and AT&T Broadband AT&T Labs At&T Long Distance AT&T Wireless IPO underwriters Avoid rating Baby Bells cellular coverage and competition and Grubman’s view of local startups and as long distance service mergers and Reingold’s view of strengthened position of See also specific companies Baker, Richard bandwidth banking. See investment banks Bank of America Bank of New York bankruptcy filings Worldcom’s as largest Barron’s Bartiromo, Maria Barton, Neil Bath, Blake BCN Telecom Bear Stearns beauty contests Beckwith, Aaron Belladonna, Julia Bell Atlantic AirTouch bid GTE merger NYNEX merger BellSouth Berkery, Rosemary Bingham, Blair BlackBerry Blodget, Henry Blood on the Street (Gasparino) Blumenstein, Rebecca boards of directors interlocking WorldCom lawsuit settlements Boatman’s Bancshares Inc.


pages: 590 words: 153,208

Wealth and Poverty: A New Edition for the Twenty-First Century by George Gilder

accelerated depreciation, affirmative action, Albert Einstein, Bear Stearns, Bernie Madoff, book value, British Empire, business cycle, capital controls, clean tech, cloud computing, collateralized debt obligation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversified portfolio, Donald Trump, equal pay for equal work, floating exchange rates, full employment, gentrification, George Gilder, Gunnar Myrdal, Home mortgage interest deduction, Howard Zinn, income inequality, independent contractor, inverted yield curve, invisible hand, Jane Jacobs, Jeff Bezos, job automation, job-hopping, Joseph Schumpeter, junk bonds, knowledge economy, labor-force participation, longitudinal study, low interest rates, margin call, Mark Zuckerberg, means of production, medical malpractice, Michael Milken, minimum wage unemployment, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, mortgage debt, non-fiction novel, North Sea oil, paradox of thrift, Paul Samuelson, plutocrats, Ponzi scheme, post-industrial society, power law, price stability, Ralph Nader, rent control, Robert Gordon, Robert Solow, Ronald Reagan, San Francisco homelessness, scientific management, Silicon Valley, Simon Kuznets, Skinner box, skunkworks, Solyndra, Steve Jobs, The Wealth of Nations by Adam Smith, Thomas L Friedman, upwardly mobile, urban renewal, volatility arbitrage, War on Poverty, women in the workforce, working poor, working-age population, yield curve, zero-sum game

As former Fed official Vern McKinley reports, the Office of Thrift Supervision gave IndyMac high ratings right up until shortly before it failed in 2008 despite the presence on site of as many as forty bank examiners. Filling McKinley’s book, Financing Failure: A Century of Bailouts, are similar stories on Bear Stearns, Lehman Brothers, Washington Mutual, and Wachovia, going back through the history of banking and its regulation. The completeness of regulatory coverage was no remedy for its epistemic inadequacy. The regulators could have no more knowledge about the future of the regulated companies than could the entrepreneurs of the companies themselves.

altruism capitalism and American Enterprise Institute American Exchange American Federation of State, County, and Municipal Employees American International Group (AIG) American Revolution American Telephone and Telegraph Company (AT&T) Anderson, Martin anthropology economic anti-discrimination laws anti-dropout campaign anti-poverty programs anti-Semitism antitrust suits antiviral drugs arson Asian capitalism Aspen Institute assimilation of minorities Aston-Martin Atlanta (Georgia) AT&T. See American Telephone and Telegraph automation Auton Computing Company Axelrod, David Bacon, Robert Banfield, Edward Bank of America banks Barcelo, Romero barter Bartlett, Bruce Barzini, Luigi Basel II Bear Stearns Beaton, David Beinstock, Herbert Bell, Daniel Berkshire Paper Company Berle, Adolph A. Bernanke, Ben Bessemer, Sir Henry Bezos, Jeff The Big Con (Jonathan Chait) The Big Short (Michael Lewis) bilingualism and bilingual education biological doom theory biological insecticides birth rates Black Panthers Blacks in civil service credentialism and discrimination and education equal-rights agencies as enemies of in government jobs high-school dropouts Hispanics and example of incomes of men mutual aid and myths about in small firms war on poverty and women Blue Cross/Blue Shield bonds Boorstin, Daniel Borg-Warner Borlaug, Norman Boston Globe Bourne, Peter BP Bricklin, Dan Brin, Sergey Brinner, Roger Britain’s Economic Problem: Too Few Producers (Walter Eltis and Robert Bacon) British National Health British Treasury Brookes, Warren T.


Investment: A History by Norton Reamer, Jesse Downing

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

As history is likely to have it, these detractors were shortsighted in their criticisms. Progress in Managing Cyclical Crises 227 EXHIBIT 6.1 – KEY DATES IN THE FINANCIAL CRISIS AND GREAT RECESSION February 1, 2006: Ben Bernanke becomes chairman of the Fed October 2007: Bear market begins December 2007: Great Recession begins March 16, 2008: Bear Stearns sold to J. P. Morgan September 7, 2008: Fannie Mae and Freddie Mac put into government conservatorship September 14–16, 2008: Lehman Brothers fails Merrill Lynch sold to Bank of America AIG bailout September 20, 2008: Treasury first draft of TARP (three pages) September 21, 2008: Goldman Sachs and Morgan Stanley become bank holding companies September 25, 2008: Washington Mutual taken over by J.

The Glass-Steagall Act of 1933 virtually regulated away merchant banks like Morgan’s by not allowing depository banks to act as investment banks.39 One of the first private equity firms of the post–World War II era was Kohlberg Kravis Roberts, or KKR, founded in 1978 by partners who left New York investment bank Bear Stearns. In 1988, KKR won the bid for the largest leveraged buyout in investment history to that point—that of RJR Nabisco for $25 billion, a storied investment transaction famously chronicled in the book Barbarians at the Gate and the film of the same name.40 These firms of the 1980s were the first in the private equity world to use modern techniques of leverage, high-yield bonds, dividend recapitalizations, and new capital structures that have become so prevalent in the private equity world today.


pages: 215 words: 55,212

The Mesh: Why the Future of Business Is Sharing by Lisa Gansky

"World Economic Forum" Davos, Airbnb, Amazon Mechanical Turk, Amazon Web Services, banking crisis, barriers to entry, Bear Stearns, bike sharing, business logic, carbon footprint, carbon tax, Chuck Templeton: OpenTable:, clean tech, cloud computing, credit crunch, crowdsourcing, diversification, Firefox, fixed income, Google Earth, impact investing, industrial cluster, Internet of things, Joi Ito, Kickstarter, late fees, Network effects, new economy, peer-to-peer lending, planned obsolescence, recommendation engine, RFID, Richard Florida, Richard Thaler, ride hailing / ride sharing, sharing economy, Silicon Valley, smart grid, social web, software as a service, TaskRabbit, the built environment, the long tail, vertical integration, walkable city, yield management, young professional, Zipcar

Older executives often know that their business model and brand are fading and squeeze the last juice from the fruit for themselves. Many of them grabbed what they could on the way out, leaving the rest of us mired in an economic maelstrom. A Harvard study showed that the top five executives at Lehman Brothers and Bear Stearns cashed out equity and bonuses worth an average of $250 million each in the years leading up to their collapse. Executives at McDonald’s, the U.S.-based airline companies (with the exception of JetBlue and Southwest), many of the utility companies, including AT&T, Verizon, and Comcast, and all the car companies have made similar moves to cash out early and often.


pages: 196 words: 57,974

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

affirmative action, AOL-Time Warner, barriers to entry, Bear Stearns, Bonfire of the Vanities, book value, borderless world, business process, Carl Icahn, Charles Lindbergh, classic study, company town, Corn Laws, Cornelius Vanderbilt, corporate governance, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, double entry bookkeeping, Etonian, Fairchild Semiconductor, financial engineering, Great Leap Forward, hiring and firing, Ida Tarbell, industrial cluster, invisible hand, James Watt: steam engine, John Perry Barlow, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, junk bonds, knowledge economy, knowledge worker, laissez-faire capitalism, manufacturing employment, market bubble, Michael Milken, military-industrial complex, mittelstand, new economy, North Sea oil, pneumatic tube, race to the bottom, railway mania, Ronald Coase, scientific management, 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, Triangle Shirtwaist Factory, tulip mania, wage slave, William Shockley: the traitorous eight

He chose Shearson Lehman, part of American Express, to advise him; but after a fierce battle, the company was eventually bought by Kohlberg Kravis Roberts, an adviser whom Johnson had somewhat foolishly spurned, for $25 billion. Johnson was given a $53 million payoff; thousands of his former workers lost their jobs in the subsequent rationalization. KKR was a new sort of organization—a leveraged buyout partnership that created a succession of investment funds. Formed in 1976 by three bankers from Bear Stearns, KKR had already taken over Beatrice Foods (in an $8.7 billion buyout) and Safeway ($4.8 billion) and a string of smaller firms. The structures varied, but KKR’s fund put in a relatively small portion of equity—in RJR’s case, only $1.5 billion. Following the same sort of procedures as Hanson, it then paid off the debt, ideally leaving the equity-holders sitting on an enormous profit.


Days of Fire: Bush and Cheney in the White House by Peter Baker

"Hurricane Katrina" Superdome, addicted to oil, Alan Greenspan, anti-communist, battle of ideas, Bear Stearns, Berlin Wall, Bernie Madoff, Bob Geldof, Boeing 747, buy low sell high, carbon tax, card file, clean water, collective bargaining, cuban missile crisis, desegregation, drone strike, energy security, facts on the ground, failed state, Fall of the Berlin Wall, friendly fire, Glass-Steagall Act, guest worker program, hiring and firing, housing crisis, illegal immigration, immigration reform, information security, Mikhail Gorbachev, MITM: man-in-the-middle, no-fly zone, operational security, Robert Bork, rolling blackouts, Ronald Reagan, Ronald Reagan: Tear down this wall, Saturday Night Live, South China Sea, stem cell, Ted Sorensen, too big to fail, uranium enrichment, War on Poverty, working poor, Yom Kippur War

He was not predicting one, Paulson said, but they did not want to box themselves in either. “Mr. President, the fact is, the whole system is so fragile we don’t know what we might have to do if a financial institution is about to go down.” The next day, Bush got a phone call from Paulson letting him know that they were on the verge of just that scenario. Bear Stearns, one of the venerable investment houses of Wall Street, was about to go under. Bear had been one of the most aggressive players investing in risky home loans and now was paying the price with the meltdown of the subprime mortgage market. “This is the real thing,” Paulson told Bush. “We’re in danger of having a firm go down.

But Paulson argued that Bear’s failure would have vast consequences for the whole system. On Friday morning, March 14, Paulson made clear that the government would have to intervene. “Mr. President,” he warned Bush, “you can take out that line in your speech about no bailouts.” By the time Air Force One landed in New York, Paulson and Ben Bernanke had orchestrated the takeover of Bear Stearns by JPMorgan Chase, with the help of a $29 billion credit line from the Federal Reserve, effectively ending an eighty-five-year institution but averting a wider calamity. “It seems like I showed up in an interesting moment,” Bush said to laughter as he began his speech to the Economic Club of New York.

They had no choice but to let Lehman go down. “What the hell is going on?” Bush asked Paulson when he reached him on Sunday, September 14. “I thought we were going to get a deal.” “The British aren’t prepared to approve,” Paulson said. “Will we be able to explain why Lehman is different from Bear Stearns?” Bush asked. “Yes, sir. There was just no way to save Lehman. We couldn’t find a buyer even with the other private firms’ help. We will just have to try to manage this.” Even as they dealt with Lehman’s bankruptcy, the government had to make its largest intervention in the private sector to date, pumping a staggering $85 billion into the insurance conglomerate AIG on September 16 in exchange for 80 percent control.


Quantitative Trading: How to Build Your Own Algorithmic Trading Business by Ernie Chan

algorithmic trading, asset allocation, automated trading system, backtesting, Bear Stearns, Black Monday: stock market crash in 1987, Black Swan, book value, Brownian motion, business continuity plan, buy and hold, classic study, compound rate of return, Edward Thorp, Elliott wave, endowment effect, financial engineering, fixed income, general-purpose programming language, index fund, Jim Simons, John Markoff, Long Term Capital Management, loss aversion, p-value, paper trading, price discovery process, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Ray Kurzweil, Renaissance Technologies, risk free rate, risk-adjusted returns, Sharpe ratio, short selling, statistical arbitrage, statistical model, survivorship bias, systematic trading, transaction costs

But those instruments are not the focus in this book. There is no law stating that one can become wealthy only by working with complicated financial instruments. (In fact, one can become quite poor trading complex mortgage-backed securities, as the financial crisis of 2007–08 and the demise of Bear Stearns have shown.) The kind of quantitative trading I focus on is called statistical arbitrage trading. Statistical arbitrage deals with the simplest financial instruments: stocks, futures, and sometimes currencies. One does not need an advanced degree to become a statistical arbitrage trader. If you have taken a few high school–level courses in math, statistics, computer programming, or economics, you are probably as qualified as anyone to tackle some of the basic statistical arbitrage strategies.


pages: 261 words: 10,785

The Lights in the Tunnel by Martin Ford

Alan Greenspan, Albert Einstein, Bear Stearns, Bill Joy: nanobots, Black-Scholes formula, business cycle, call centre, carbon tax, cloud computing, collateralized debt obligation, commoditize, Computing Machinery and Intelligence, creative destruction, credit crunch, double helix, en.wikipedia.org, factory automation, full employment, income inequality, index card, industrial robot, inventory management, invisible hand, Isaac Newton, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, knowledge worker, low skilled workers, mass immigration, Mitch Kapor, moral hazard, pattern recognition, prediction markets, Productivity paradox, Ray Kurzweil, Robert Solow, Search for Extraterrestrial Intelligence, Silicon Valley, Stephen Hawking, strong AI, technological singularity, the long tail, Thomas L Friedman, Turing test, Vernor Vinge, War on Poverty, warehouse automation, warehouse robotics

In many cases it was difficult or impossible to calculate their value. In addition, financial institutions had engaged in many other complex interrelationships based on exotic derivatives that were intended to help manage various risks. All this led to uncertainty that caused values to fall even more. The result was the downfall of Bear Stearns in March 2008, and the global crisis that followed. The point of this, of course, is that it would have been impossible to create these weird derivatives without access to very powerful computers. If the subprime crisis had occurred in earlier years, it would certainly have been a far smaller event.


100 Baggers: Stocks That Return 100-To-1 and How to Find Them by Christopher W Mayer

Alan Greenspan, asset light, bank run, Bear Stearns, Bernie Madoff, book value, business cycle, buy and hold, Carl Icahn, cloud computing, disintermediation, Dissolution of the Soviet Union, dumpster diving, Edward Thorp, Henry Singleton, hindsight bias, housing crisis, index fund, Jeff Bezos, market bubble, Network effects, new economy, oil shock, passive investing, peak oil, Pershing Square Capital Management, shareholder value, Silicon Valley, SimCity, Stanford marshmallow experiment, Steve Jobs, stock buybacks, survivorship bias, Teledyne, The Great Moderation, The Wisdom of Crowds, tontine

At the current rate, Innosight estimates, 75 percent of the current S&P will be replaced by 2027. Leaving the S&P 500 doesn’t mean the death of the firm. But unless there is a buyout, S&P usually kicks you out 22 100-BAGGERS only when you are in trouble—for example, Circuit City, the New York Times, Kodak or Bear Stearns. Or they kick you out when you get too small—which is another way of saying you underperformed. (Although dropped stocks tend to outperform in the first year after being dropped, excluding those bought out.) Average company lifespan on S&P index (in years) 70 60 50 40 30 Projections based on current data 20 10 0 ’60 ’95 ’70 ’75 ’80 ’85 ’90 ’95 ’00 ’05 ’10 ’15 ’20 ’25 Year (each data point represents a rolling 7-yr average of average lifespan) I’ll show you one more chart to make a point.


pages: 586 words: 160,321

The Euro and the Battle of Ideas by Markus K. Brunnermeier, Harold James, Jean-Pierre Landau

"there is no alternative" (TINA), Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, battle of ideas, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, Brexit referendum, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, cross-border payments, currency peg, currency risk, debt deflation, Deng Xiaoping, different worldview, diversification, Donald Trump, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, financial deregulation, financial repression, fixed income, Flash crash, floating exchange rates, full employment, Future Shock, German hyperinflation, global reserve currency, income inequality, inflation targeting, information asymmetry, Irish property bubble, Jean Tirole, Kenneth Rogoff, Les Trente Glorieuses, low interest rates, Martin Wolf, mittelstand, Money creation, money market fund, Mont Pelerin Society, moral hazard, negative equity, Neil Kinnock, new economy, Northern Rock, obamacare, offshore financial centre, open economy, paradox of thrift, pension reform, Phillips curve, Post-Keynesian economics, price stability, principal–agent problem, quantitative easing, race to the bottom, random walk, regulatory arbitrage, rent-seeking, reserve currency, risk free rate, road to serfdom, secular stagnation, short selling, Silicon Valley, South China Sea, special drawing rights, tail risk, the payments system, too big to fail, Tyler Cowen, union organizing, unorthodox policies, Washington Consensus, WikiLeaks, yield curve

But the punishment of Greece would also have a demonstrational effect. One German official was later quoted in the press as saying, “You need to sacrifice one to scare the rest.”17 For Americans, this type of argument looked like an exact replay of the frenetic discussions that had taken place in 2008. The rescue of Bear Stearns in March had created moral hazard; there was a need to demonstrate that there was no overall government guarantee for banks and that insolvent institutions should be allowed to fail in a market economy. Hence, when Lehman Brothers encountered a run in September 2008, the government would not help.

Index Abe, Shinzo, 285 Ackermann, Joseph (“Joe”), 166, 330 Adam, Konrad, 65 Adenauer, Konrad, 40, 47–48 AEG (firm), 49 Agenzia per la Promozione dello Sviluppo ne Mezzogiorno (Italian organization), 240 Agreement on Net Financial Assets (ANFA), 325 AIG (firm), 314 aircraft industry, 71 Allais, Maurice, 68, 71 Alternative für Deutschland (German party), 65 Andrieux, François, 44 Anglo-American economic perspective, 249–51 Anglo-Irish Bank, 303–4, 338 Anglo-Saxon financial capitalism, 162 anti-Semitism, 55, 61 Argentina, 126, 295, 330 Aron, Raymond, 65 Asia Infrastructure Investment Bank, 275 Asian economic crisis, 22, 157, 165; IMF and, 290, 293; US and, 262 Asian Monetary Fund (proposed), 22 Asmussen, Jörg, 199, 264, 337–38, 350, 355 asset-based securities, 360; alternatives to, 367 assets: asset quality reviews, 202; collateral policy on, 192–93; ESBies (European safe bonds), 113–14; government guarantees for, 194–95; held by US banks, 255; mark-to-market assets, 163–64; purchased by China, 280–81; purchased by Russia, 283–84; ring-fencng of, 213–14; safe assets, 182–83, 222–26 asymmetric information, 162 austerity, 380; debate over stimulus versus, 148–54; in Italy, 335 Bagehot, Walter, 131, 193, 332 Balcerowicz, Leszek, 147 Balladur, Edouard, 80–81 Balogh, Thomas, 258 Banca d’Italia, 242, 325 Banco d’España (Spanish central bank), 323 Banco Espirito Sancto (Portuguese bank), 201–2 bank debts, 303–4 Bank Deutscher Länder, 344 Bankia (Spanish bank), 189, 192 banking, 157–59; bail-ins of, 197–203; bank failures, 201–2; capital markets and, 162–66; collateral policy for, 192–93; in currency unions, 90, 211–22; direct recapitalization of, 195–97; ECB’s supervision of, 368–72; Eurosystem, 321–25; exposure limits in, 185; in France and Germany, 46–48; during global financial crisis, 173–74; interaction of banks with states, 182–83; interbank market in, 166–72; as issue for troika, 302; money creation in, 160–61; recapitalization of banks, 357; traditional, 159–62; in UK, following Lehman collapse, 269; zombie and vampire banks, 189 banking unions, 211–12 Bank of Cyprus, 199 Bank of England, 89, 157, 319 bankruptcies, 256–59 Banque de France, 325 Barber, Tony, 272 Barre, Raymond, 72 Barroso, José Manuel, 19, 113, 230, 301 Basel II regulations, 208 Bastiat, Fréderic, 57, 69–70 Bayerische Hypotheken- und Wechsel-Bank (Germany), 171 Bear Stearns (firm), 264 Beck, Ulrich, 27 Belgium: on currency unions, 210; Dexia bank bailed out by, 217; on UK’s threat to leave EU, 277; universal banking in, 159 Belka, Marek, 302 BELLs (Bulgaria, Estonia, Latvia, and Lithuania), 147 Berlusconi, Silvio, 94, 116–17, 243, 247, 335; on euro, 248; meets with Merkel and Sarkozy, 246, 336; Putin and, 285 Bernanke, Ben, 314 Biagi, Marco, 244 Bismarck, Otto von, 58 Blair, Tony, 268–69 Blanchard, Olivier, 143, 301 blue Eurobonds, 112 Böhm, Franz, 62 Bossi, Umberto, 335–36 Bowe, John, 304 Brady Plan, 291 Brazil, 330 Bresciani-Turroni, Costantino, 238 Bretton Woods system, 77–79; alternatives to, 312; gold standard and, 90; IMF created by, 288 Bridge of Spies (film, Spielberg), 45 Britain.


pages: 553 words: 168,111

The Asylum: The Renegades Who Hijacked the World's Oil Market by Leah McGrath Goodman

Alan Greenspan, anti-communist, Asian financial crisis, automated trading system, banking crisis, barriers to entry, Bear Stearns, Bernie Madoff, Carl Icahn, computerized trading, corporate governance, corporate raider, credit crunch, Credit Default Swap, East Village, energy security, Etonian, family office, Flash crash, global reserve currency, greed is good, High speed trading, light touch regulation, market fundamentalism, Oscar Wyatt, peak oil, Peter Thiel, pre–internet, price mechanism, profit motive, proprietary trading, regulatory arbitrage, reserve currency, rolodex, Ronald Reagan, side project, Silicon Valley, upwardly mobile, zero-sum game

This was true when Born famously took on Federal Reserve chairman Alan Greenspan in the 1990s, warning of the stark dangers of unregulated financial derivatives in the dark market, which had started long ago with commodities and had since branched out into complex debt instruments. Of course, she’d been right. Less than two decades later, in 2008, she was branded a market Cassandra during the 360-degree disemboweling that shredded banking citadels Bear Stearns, Lehman Brothers, and Merrill Lynch, as unregulated credit-default swaps—bets on the creditworthiness of a company or product, such as mortgages—hurled the global financial system into its death spiral. Having specialized in obscure financial instruments at Arnold & Porter, Born easily grasped the inner workings of the market in ways that went right over Congress’s head.

Oil had officially surpassed the previous inflation-adjusted high of $103.76 of April 1980. Market bulls rejoiced—again. But the last of the pit traders were starting to get worried. Why was the market acting this way? There was no major news to explain what was happening. The collapse of one of Wall Street’s biggest banks, Bear Stearns, later that month did not seem to lend itself to bullishness. The market was looking increasingly shaky and they were the market, so if they didn’t know what was going on, they didn’t know who did. It was around this time that Fox News commentator Bill O’Reilly interviewed market executive John D’Agostino about how consumers might combat rising energy prices.


pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

affirmative action, Affordable Care Act / Obamacare, airline deregulation, Alan Greenspan, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, behavioural economics, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, electricity market, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, Glass-Steagall Act, Great Leap Forward, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Bogle, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low interest rates, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, Paul Volcker talking about ATMs, payday loans, Phillips curve, price stability, profit maximization, profit motive, public intellectual, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, search costs, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, stock buybacks, subprime mortgage crisis, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, Tragedy of the Commons, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

But at issue in this case was disclosure of information long after the transactions had occurred. Besides, capital markets can’t exercise discipline in the absence of relevant information. Those who advocate secrecy are advocating policies that would undermine the discipline of the marketplace. 31. JPMorgan Chase benefited through the Bear Stearns bailout. In another instance of questionable governance, Stephen Friedman became chairman of the Federal Reserve Bank of New York in January 2008, while he was simultaneously a member of the board of Goldman Sachs and had a large holding in Goldman stock. He resigned in May 2009 after the controversy over the obvious conflicts of interest (including share purchases, which enabled him to make $3 million).

., xxiii auction theory, 50 austerity, 207, 220, 221, 230–36 Australia, 5, 14, 18, 22, 135, 286 autoworkers, 67 balanced-budget multiplier, 217–18, 379 Bangladesh, microcredit schemes in, 196, 197 bankers: bonuses for, x, xiv, xv, 21, 79, 141, 169, 245, 247, 270, 319, 333, 363 criminal prosecution of, xvi, 70, 119, 199, 205–6, 372, 373 economic influence of, xxii–xxiii, 79–80, 240 private incentives of, 33, 34, 87, 90, 96, 109–10 risky behavior by, xi, xxiii, 37, 90, 101, 109, 171, 198, 239–40, 246, 247, 269, 270, 336, 387 see also corporations; financial markets; financial sector Bank of America, 70, 374 bankruptcy: corporate, 313 derivatives claims in, 49, 271 government regulation of, 30 personal, 10, 275, 301 reform of, 58 student debt in, 58, 94, 195, 196, 265, 271, 323, 371 see also Chapter 11; foreclosures bankruptcy law, 193–97, 201, 202, 270, 271, 284 Bardeen, John, 41 Bartel, Larry, xxiv Basov, Nikolay, 315 Bear Stearns, 388 Belgium, 19, 22, 286 Berlusconi, Silvio, 349 Bernanke, Ben, 247, 248, 252, 257, 389 Berners-Lee, Tim, 41, 315 Bhutan, 122, 312 Bilmes, Linda, 176 Bipartisan Policy Center, 207 Bischoff, Kendra, 75 BlackBerry, 203 Blankfein, Lloyd, 124 Bloomberg, Michael, xiv bondholders, 168, 240, 261 bonds, municipal, 212, 378 Bowles, Erskine, 207 Bowles-Simpson Deficit Reduction Commission, 207, 221, 379, 380 Brattain, Walter, 41 Brazil, 5, 51, 249 economic growth in, 139, 298, 353 Bridgestone/Firestone, 104 British Petroleum (BP), xviii, 99, 189, 190, 367, 374 “Buffett rule,” 395 Buffett, Warren, 77, 180, 269, 333, 395, 396 Burnham, Walter Dean, 130 Bush, George W., 71, 73, 86, 87, 97, 101, 114, 169, 177, 208, 212, 221, 228, 330, 360, 383 Bush administration, xiv, 167, 168, 171, 178 business: anticompetitive behavior in, 44–46, 317, 318 corruption in, 176 government partnerships with, 174 government regulation of, 47 innovations in, 35, 46, 41, 78, 96, 178–79, 314, 315 political power of, 47, 50, 51, 62, 95, 99, 101, 111, 131–32, 135, 136, 285, 286, 319, 325, 350 teamwork in, 113, 343 trust in, 121–22 see also corporations; financial sector business, small, 61, 167, 225, 226, 241, 245, 395 California, electricity market liberalization in, 177–78 campaign finance, 37, 47, 131–32, 135, 136, 162, 196, 200, 206, 285–86, 319, 325, 350, 373, 397 Canada, 5, 18, 19 capital, 59, 323 social, 122–23, 125, 135 capital controls, 60, 181, 182, 277, 353 capital gains, 71–72, 87, 88, 115, 211, 274, 297, 298, 315, 330, 361, 378, 395 Cardoso, Enrique, 5 Carter, Jimmy, 71 Cayman Islands, 270 cell phones, 98, 203, 274 Census Bureau, U.S., 27, 305 Central Intelligence Agency (CIA), 209 Chait, Jonathan, 19, 116–17 Chapter 11, 284, 313, 363 see also bankruptcy Chavez, Hugo, 40 Cheney, Richard, 101 Chicago school, 44–45, 47, 256, 317, 391 child care, 10, 301 Chile, 141, 258 China, 19, 54, 64, 249, 280 economic strength of, 144, 175 inflation in, 259–60 Citibank, 204–5, 369, 387 cities, community segregation in, 75–76 Citizens United v.


pages: 526 words: 160,601

A Generation of Sociopaths: How the Baby Boomers Betrayed America by Bruce Cannon Gibney

1960s counterculture, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, AlphaGo, American Society of Civil Engineers: Report Card, Bear Stearns, Bernie Madoff, Bernie Sanders, Black Lives Matter, bond market vigilante , book value, Boston Dynamics, Bretton Woods, business cycle, buy and hold, carbon footprint, carbon tax, Charles Lindbergh, classic study, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate personhood, Corrections Corporation of America, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, dark matter, DeepMind, Deng Xiaoping, Donald Trump, Downton Abbey, Edward Snowden, Elon Musk, ending welfare as we know it, equal pay for equal work, failed state, financial deregulation, financial engineering, Francis Fukuyama: the end of history, future of work, gender pay gap, gig economy, Glass-Steagall Act, Haight Ashbury, Higgs boson, high-speed rail, Home mortgage interest deduction, Hyperloop, illegal immigration, impulse control, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jane Jacobs, junk bonds, Kitchen Debate, labor-force participation, Long Term Capital Management, low interest rates, Lyft, Mark Zuckerberg, market bubble, mass immigration, mass incarceration, McMansion, medical bankruptcy, Menlo Park, Michael Milken, military-industrial complex, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, Neil Armstrong, neoliberal agenda, Network effects, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shock, operation paperclip, plutocrats, Ponzi scheme, price stability, prosperity theology / prosperity gospel / gospel of success, quantitative easing, Ralph Waldo Emerson, RAND corporation, rent control, ride hailing / ride sharing, risk tolerance, Robert Shiller, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, school choice, secular stagnation, self-driving car, shareholder value, short selling, side project, Silicon Valley, smart grid, Snapchat, source of truth, stem cell, Steve Jobs, Stewart Brand, stock buybacks, survivorship bias, TaskRabbit, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, War on Poverty, warehouse robotics, We are all Keynesians now, white picket fence, Whole Earth Catalog, women in the workforce, Y2K, Yom Kippur War, zero-sum game

The financial establishment now dominated by Boomers had to persuade the accounting profession (also dominated by Boomers) to accept the consignment of these derivatives off balance sheet. Accountants, who had only a generation before set the standard for fairness, prudence, and transparency, rolled over.* The collapses of Lehman Brothers and Bear Stearns were both linked to OBS practices and similar practices would have killed AIG, the giant “insurer,” had the government not bailed it out. The private sector, as its proponents trumpet (and in a different context, I’m a fan of the private sector), is an engine for innovation, though under the Boomers inventiveness slid quickly into fraud, helped in substantial part by a sustained deregulatory push.

Undeterred, another Boomer Congress deregulated derivatives in 2000 and the market for these items, often conveniently kept OBS, vastly expanded.17 Just before the 2008 crisis, the largest banks were almost all led by Boomers, like Chuck Prince of Citi, Kerry Killinger and Alan Fishman of Washington Mutual (the biggest US bank failure ever), Ken Lewis of Bank of America, Jamie Dimon at JP Morgan Chase, and Lloyd Blankfein at Goldman Sachs, who became CEO after co-Boomer Hank Paulson left for the Treasury in 2006. All expanded their banks, though to what extent and at what risk remained a mystery, certainly to the SEC. SEC chairman Chris Cox, having relaxed capital rules four years earlier, opined as late as 2008 that he had a “good deal of comfort about the capital cushions at these firms,” firms like Bear Stearns, which collapsed days after Cox issued his soothing talk.18 Was Cox out of his depth, lying, or both? We do know, at a minimum, that Cox was a Boomer. It wasn’t as if some people didn’t sense the possibility of things going south—Goldman bet against the housing market while peddling the other side of the transactions to its clients, and Chuck Prince of Citi said in 2007 that the credit-fueled boom might end but that “as long as the music is playing, you’ve got to get up and dance.


pages: 261 words: 70,584

Retirementology: Rethinking the American Dream in a New Economy by Gregory Brandon Salsbury

Alan Greenspan, Albert Einstein, asset allocation, Bear Stearns, behavioural economics, buy and hold, carried interest, Cass Sunstein, credit crunch, Daniel Kahneman / Amos Tversky, diversification, estate planning, financial independence, fixed income, full employment, hindsight bias, housing crisis, loss aversion, market bubble, market clearing, mass affluent, Maui Hawaii, mental accounting, mortgage debt, mortgage tax deduction, National Debt Clock, negative equity, new economy, RFID, Richard Thaler, risk tolerance, Robert Shiller, side project, Silicon Valley, Steve Jobs, the rule of 72, Yogi Berra

• Daniel Sadek’s Quick Loan Funding was originating so many loans in southern California that he pulled in a reported $37 million in one year.10 • Nonstandard loans (less than 5% down) jumped from 9% in 1991 to 29% by 2007.11 Freddie Mac and Fannie Mae kept capital markets liquid enough so that banks and mortgage originators could award loans to consumers. These two government-sponsored enterprises (GSEs) provided a market for securitized subprime mortgages. Other companies, such as Bear Stearns and Lehman Brothers, also got into the business of buying subprime mortgage-backed bonds.12 • Everything having to do with houses and home improvement was also booming. For example, Home Depot, a penny stock in 1985, went from $50 per share at the beginning of 1997 to $79 at the end of 1999.13 Over the past decade, it’s hovered between $20 and $45.


pages: 206 words: 70,924

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

Abraham Wald, Albert Einstein, Bayesian statistics, Bear Stearns, 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 engineering, 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 free rate, risk tolerance, risk/return, Robert Solow, 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

Their models typically assume that there are zero transaction costs. We might consider a 180-person firm to be expensive to operate, but the initial funding of the firm represented more than $5 million invested per employee. 168 The Rise of the Quants Long Term Capital Management used the facilities of others, such as Bear Stearns and Merrill Lynch, and the company was registered in the Cayman Islands to reduce regulatory overhead and minimize tax consequences. So that they could avoid the regulation imposed on mutual funds, Long Term Capital Management was organized as a hedge fund, under the Investment Company Act of 1940, which imposes little oversight but allows the admission of only very well-heeled millionaires who understood the risks of a highly leveraged strategy and could afford to lose some money on occasion.


pages: 271 words: 62,538

The Best Interface Is No Interface: The Simple Path to Brilliant Technology (Voices That Matter) by Golden Krishna

Airbnb, Bear Stearns, computer vision, crossover SUV, data science, en.wikipedia.org, fear of failure, impulse control, Inbox Zero, Internet Archive, Internet of things, Jeff Bezos, Jony Ive, Kickstarter, lock screen, Mark Zuckerberg, microdosing, new economy, Oculus Rift, off-the-grid, Paradox of Choice, pattern recognition, QR code, RFID, self-driving car, Silicon Valley, skeuomorphism, Skype, Snapchat, Steve Jobs, tech worker, technoutopianism, TED Talk, Tim Cook: Apple, Y Combinator, Y2K

Hopefully buyouts or valuable new product creation—such as Google’s acquisition of the hardware company Nest, or Facebook’s purchase of the virtual reality device Oculus Rift—will alter course by having other profitability far surpass ad revenue, but for now this is our reality: Google at launch Google now “Got the girl. Got the money. Now I’m ready to live a disgusting, frivolous life.” 5 Those are words of Stephan Paternot on CNN. On Friday the 13th, in November 1998, he watched the stock price of theGlobe.com—the web-site he cofounded in 1995 while a student at Cornell—increase by 606 percent in a Bear Stearns IPO that was Wall Street’s largest first-day gain. By the next morning, it was valued at $843 million6. The promise of the website was to convert the massive traffic of his web community to sell personalized ads. However, the site couldn’t get the traffic and user base of rivals like GeoCities, so the cofounders resigned in 2000, and the stock was delisted from NASDAQ in 2001.7 It’s the kind of ad-based horror story that technology companies do everything to avoid.


pages: 219 words: 67,173

Grand Central: How a Train Station Transformed America by Sam Roberts

accounting loophole / creative accounting, Bear Stearns, City Beautiful movement, clean water, collective bargaining, Cornelius Vanderbilt, Donald Trump, Jane Jacobs, Joan Didion, Lewis Mumford, Marshall McLuhan, megaproject, New Urbanism, the High Line, transcontinental railway, transit-oriented development, urban planning, urban renewal, Y2K

With tenants demanding floor space with higher ceilings and fewer columns, the existing zoning would allow only smaller buildings than those that now exist between Third and Fifth Avenues and from East 39th Street to East 59th. So far, only two buildings, the former Philip Morris headquarters on 42nd Street and the 47-story 383 Madison between 46th and 47th Streets (originally the Bear Stearns Building, later owned by JPMorgan Chase), which opened in 2001, have been built with the air rights from Grand Central. A NEW WAITING ROOM DECORATED WITH MURALS COMMISSIONED BY ARTS FOR TRANSIT AND ORIGINAL BENCHES. The planning commission was expected to approve rules that would ease the transfer of more than a million square feet of remaining air rights from Grand Central and provide other incentives to develop as much as 4.4 million more square feet in the corridor, including the MTA’s own headquarters building at 347 Madison, and 237 Park, which also owns Depew Place, the tiny street astride the terminal between Lexington and Park.


pages: 272 words: 64,626

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

23andMe, Abraham Maslow, Alan Greenspan, Andy Kessler, bank run, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bob Noyce, bread and circuses, British Empire, business cycle, business process, California gold rush, carbon credits, carbon footprint, Cass Sunstein, cloud computing, collateralized debt obligation, collective bargaining, commoditize, computer age, Cornelius Vanderbilt, creative destruction, disintermediation, Douglas Engelbart, Dutch auction, Eugene Fama: efficient market hypothesis, fiat currency, Firefox, Fractional reserve banking, George Gilder, Gordon Gekko, greed is good, income inequality, invisible hand, James Watt: steam engine, Jeff Bezos, job automation, Joseph Schumpeter, junk bonds, Kickstarter, knowledge economy, knowledge worker, Larry Ellison, libertarian paternalism, low skilled workers, Mark Zuckerberg, McMansion, Michael Milken, Money creation, Netflix Prize, packet switching, personalized medicine, pets.com, prediction markets, pre–internet, profit motive, race to the bottom, Richard Thaler, risk tolerance, risk-adjusted returns, Silicon Valley, six sigma, Skype, social graph, Steve Jobs, The Wealth of Nations by Adam Smith, transcontinental railway, transfer pricing, vertical integration, wealth creators, Yogi Berra

So to make up for lower velocity, to keep the economy from shrinking like a raisin, Fed chairman Ben Bernanke began increasing the monetary base to increase the amount of money. But it’s hard. Even with bailout funds, banks didn’t want to lend, so their 10:1 increase of Fed money didn’t happen—let alone the 50:1 Bear Stearns money creation. So Bernanke started buying U.S. Treasuries, with cash, to increase the money supply. Which is pretty funny since he is also selling U.S. Treasuries to fund stimuli and budget deficits and . . . Hey, wait a second, can’t he just print $10 trillion and retire all the U.S. Treasury debt?


pages: 317 words: 71,776

Inequality and the 1% by Danny Dorling

Affordable Care Act / Obamacare, banking crisis, battle of ideas, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Boris Johnson, Branko Milanovic, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, centre right, collective bargaining, conceptual framework, corporate governance, credit crunch, David Attenborough, David Graeber, delayed gratification, Dominic Cummings, double helix, Downton Abbey, en.wikipedia.org, Etonian, family office, financial deregulation, full employment, gentrification, Gini coefficient, high net worth, housing crisis, income inequality, land value tax, Leo Hollis, Londongrad, longitudinal study, low skilled workers, lump of labour, mega-rich, Monkeys Reject Unequal Pay, Mont Pelerin Society, mortgage debt, negative equity, Neil Kinnock, Occupy movement, offshore financial centre, plutocrats, precariat, quantitative easing, race to the bottom, Robert Shiller, Russell Brand, TaskRabbit, TED Talk, The Spirit Level, The Wealth of Nations by Adam Smith, trickle-down economics, unpaid internship, very high income, We are the 99%, wealth creators, working poor

This is a semi-secret fraternity that was founded at the start of the Great Depression, around 1929, and which includes among its members ‘both incredibly successful financiers (New York City’s Mayor Michael Bloomberg, former Goldman Sachs chairman John Whitehead, hedge-fund billionaire Paul Tudor Jones) and incredibly unsuccessful ones (Lehman Brothers CEO Dick Fuld, Bear Stearns CEO Jimmy Cayne, former New Jersey governor and MF Global flameout Jon Corzine)’.18 In early 2014 the fraternity was exposed in the British newspapers, one of which reported that ‘the upper ranks of finance are composed of people who have completely divorced themselves from reality’.19 The journalist did not make the obvious connection to financiers in London.


pages: 218 words: 68,648

Confessions of a Crypto Millionaire: My Unlikely Escape From Corporate America by Dan Conway

Affordable Care Act / Obamacare, Airbnb, bank run, basic income, Bear Stearns, Big Tech, bitcoin, blockchain, buy and hold, cloud computing, cognitive dissonance, corporate governance, crowdsourcing, cryptocurrency, disruptive innovation, distributed ledger, double entry bookkeeping, Ethereum, ethereum blockchain, fault tolerance, financial independence, gig economy, Gordon Gekko, Haight Ashbury, high net worth, holacracy, imposter syndrome, independent contractor, initial coin offering, job satisfaction, litecoin, Marc Andreessen, Mitch Kapor, obamacare, offshore financial centre, Ponzi scheme, prediction markets, rent control, reserve currency, Ronald Coase, Satoshi Nakamoto, Silicon Valley, Silicon Valley billionaire, smart contracts, Steve Jobs, supercomputer in your pocket, tech billionaire, tech bro, Tragedy of the Commons, Turing complete, Uber for X, universal basic income, upwardly mobile, Vitalik Buterin

After taking a quick look at the charts, he’d put his phone away and try to focus on what was being said on stage. But a minute or two later, he’d take another look. The same sequence repeated itself with other attendees all over the room, all day long. It was like that scene from The Big Short when the Bear Stearns CEO was on stage in the early days of the 2008 financial crisis, telling everyone there was nothing to worry about while Bear’s stock price plummeted, setting off alerts on everyone’s BlackBerries. Except we were experiencing the opposite. As the Tapscotts droned on, a new, uncurated asset was being created before our very eyes, like a skyscraper being constructed at one hundred times normal speed.


Principles of Corporate Finance by Richard A. Brealey, Stewart C. Myers, Franklin Allen

3Com Palm IPO, accelerated depreciation, accounting loophole / creative accounting, Airbus A320, Alan Greenspan, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, banking crisis, Bear Stearns, Bernie Madoff, big-box store, Black Monday: stock market crash in 1987, Black-Scholes formula, Boeing 747, book value, break the buck, Brownian motion, business cycle, buy and hold, buy low sell high, California energy crisis, capital asset pricing model, capital controls, Carl Icahn, Carmen Reinhart, carried interest, collateralized debt obligation, compound rate of return, computerized trading, conceptual framework, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, cross-subsidies, currency risk, discounted cash flows, disintermediation, diversified portfolio, Dutch auction, equity premium, equity risk premium, eurozone crisis, fear index, financial engineering, financial innovation, financial intermediation, fixed income, frictionless, fudge factor, German hyperinflation, implied volatility, index fund, information asymmetry, intangible asset, interest rate swap, inventory management, Iridium satellite, James Webb Space Telescope, junk bonds, Kenneth Rogoff, Larry Ellison, law of one price, linear programming, Livingstone, I presume, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, market bubble, market friction, money market fund, moral hazard, Myron Scholes, new economy, Nick Leeson, Northern Rock, offshore financial centre, PalmPilot, Ponzi scheme, prediction markets, price discrimination, principal–agent problem, profit maximization, purchasing power parity, QR code, quantitative trading / quantitative finance, random walk, Real Time Gross Settlement, risk free rate, risk tolerance, risk/return, Robert Shiller, Scaled Composites, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, Skype, SpaceShipOne, Steve Jobs, subprime mortgage crisis, sunk-cost fallacy, systematic bias, Tax Reform Act of 1986, The Nature of the Firm, the payments system, the rule of 72, time value of money, too big to fail, transaction costs, University of East Anglia, urban renewal, VA Linux, value at risk, Vanguard fund, vertical integration, yield curve, zero-coupon bond, zero-sum game, Zipcar

BEYOND THE PAGE ● ● ● ● ● U.S. house prices brealey.mhhe.com/c14 The widespread availability of mortgage finance fueled a dramatic increase in house prices, which doubled in the five years ending June 2006. At that point prices started to slide and homeowners began to default on their mortgages. A year later Bear Stearns, a large investment bank, announced huge losses on the mortgage investments that were held in two of its hedge funds. By the spring of 2008 Bear Stearns was on the verge of bankruptcy, and the U.S. Federal Reserve arranged for it to be acquired by JPMorgan Chase. The crisis peaked in September 2008, when the U.S. government was obliged to take over the giant federal mortgage agencies Fannie Mae and Freddie Mac, both of which had invested several hundred billion dollars in subprime mortgage-backed securities.

However, even the senior tranches were exposed to the risk of an economy-wide slump in the housing market. For this reason the debt has been termed “economic catastrophe debt.”14 Economic catastrophe struck in the summer of 2007, when the investment bank Bear Stearns revealed that two of its hedge funds had invested heavily in nearly worthless CDOs. Bear Stearns was rescued with help from the Federal Reserve, but it signaled the start of the credit crunch and the collapse of the CDO market. By 2009 issues of CDOs had effectively disappeared.15 Did this collapse reflect a fundamental flaw in the practice of securitization?

., 205n, 333n, 342 Barclays Bank, 793 Barclays Capital, 379 Baring Brothers, 297n, 681 Barnett Banks, 812 Barrier options, 554 Barwise, P., 288 Basis point (BP), 616 Basis risk, 679–681 Baskin, J., 848n Bates, T. W., 750n Bautista, A. J., 650n Bayerische Vereinsbank, 812 BBVA, 403 Bearer bonds, 46n, 608 Bear Stearns, 366, 610 Beaver, William H., 597–598, 598n Bebchuk, L. A., 314, 854n, 870n Becht, M., 878 Bechtel, 375 Behavioral finance, 333–336 dividend payments in, 403–404, 412 limits to arbitrage, 334–335 market efficiency and, 333–336 market timing and, 470–471 signaling and, 372, 403–405 Bell Laboratories, 841 BellSouth, 841n Benartzi, L., 205n Benchmark bills, 795, 796 Benefit-cost ratio, 119n Benetton, 5 Benmelech, E., 642n Benveniste, L.


pages: 613 words: 181,605

Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees by Patrick Dillon, Carl M. Cannon

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", accounting loophole / creative accounting, affirmative action, Alan Greenspan, AOL-Time Warner, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, buy and hold, Carl Icahn, collective bargaining, Columbine, company town, computer age, corporate governance, corporate raider, desegregation, energy security, estate planning, Exxon Valdez, fear of failure, fixed income, Gordon Gekko, greed is good, illegal immigration, index fund, John Markoff, junk bonds, mandatory minimum, margin call, Maui Hawaii, McDonald's hot coffee lawsuit, Michael Milken, money market fund, new economy, oil shale / tar sands, Ponzi scheme, power law, Ralph Nader, rolodex, Ronald Reagan, Sand Hill Road, Savings and loan crisis, Silicon Valley, Silicon Valley startup, Steve Jobs, the High Line, the market place, white picket fence, Works Progress Administration, zero-sum game

Like the firm itself, everyone connected to it had to put themselves at risk. Lazar, who had made courting risk his profession, accepted. First into the Milberg Weiss stable, Lazar would continue his business relationship with the firm for the next twenty-five years, picking off targets such as Bear Stearns, Lockheed, Pacific Gas & Electric, United Airlines, Standard Oil, Genentech, Denny’s Restaurants, W. R. Grace, New Image, Xerox, Prudential Insurance, Occidental Health, and Standard Oil/British Petroleum in more than seventy lawsuits that returned $44 million to the firm. IN SAN DIEGO, Bill Lerach was reading the financial sections himself.

I’ll argue the case myself!” SEYMOUR LAZAR HAD PROVED to be a great plaintiff. And Milberg Weiss, in turn, made good on its end of the bargain. From 1984 through 1993 Lazar’s name appeared in more than a dozen successful cases ranging from Standard Oil, to biotech research company Genentech, to Beverly Hills Savings and Bear Stearns. Milberg Weiss did well in those cases, earning in excess of $10 million in fees, and so did Lazar, earning $1.4 million against less than $10,000 in losses. By comparison, the thousands of class action plaintiffs the firm represented received an average of sixty-five cents on every dollar lost.


pages: 992 words: 292,389

Conspiracy of Fools: A True Story by Kurt Eichenwald

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, Bear Stearns, book value, Burning Man, California energy crisis, computerized trading, corporate raider, currency risk, deal flow, electricity market, estate planning, financial engineering, forensic accounting, intangible asset, Irwin Jacobs, John Markoff, junk bonds, Long Term Capital Management, margin call, Michael Milken, Negawatt, new economy, oil shock, price stability, pushing on a string, Ronald Reagan, transaction costs, value at risk, young professional

Some details of Lay’s move to HNG from “Houston Natural Gas Chairman Resigns Under Pressure,” Dow Jones News Service, June 6, 1984. 14. Some details of Skilling’s background from a transcript of his secret deposition before the SEC on Dec. 5–6, 2001. Other details from his deposition of Sept. 19, 1997, in the case of Bernard H. Glatzer v. Bear Stearns & Co., 95 civ. 1154, filed in U.S. District Court for the Southern District of New York, 10–14. Other details from Peter Tufano and Sanjay Bhatnagar’s case study for Harvard Business School, “Enron Gas Services,” number N9-294-076, March 4, 1994. Also see an untitled Jan. 6, 2001, draft of an article by Professor Christopher A.

Some details of the oil-trading scandal from Enron’s official release on the matter, “Enron Discontinues Subsidiary,” Oct. 22, 1987. CHAPTER 2 1. Some details of the development and functioning of the Gas Bank from Skilling’s SEC deposition of Dec. 5–6, 2001, as well as his Sept. 19, 1997, deposition in Glatzer v. Bear Stearns, 27–29. Other details from Tufano and Bhatnagar, “Enron Gas Services,” and the untitled Jan. 6, 2001, draft of the Bartlett article for the Harvard Business Review. 2. Details of the events surrounding the economic summit from a variety of sources, including a transcript of the June 21, 1990, White House briefing conducted by Marlin Fitzwater, the Press Secretary; a transcript of the July 11, 1990, broadcast of ABC World News Tonight; Sean McCormally, “Sherpas and Snappers, Nocturnal and Otherwise,” United Press International, July 12, 1990. 3.

All of Bush’s public dialogue comes from that transcript, and certain events that had just occurred, including his thoughts, were described in his speech. 6. The timing of the conversations between Spencer Stuart and Fastow was established by the dates automatically printed on faxes that day that went to both Fastow and Enron. 7. Portions of Fastow’s background from his 1997 deposition in Glatzer v. Bear Stearns. Also see David Barboza and John Schwartz, “The Financial Wizard Tied to Enron’s Fall,” New York Times, Feb. 6, 2002, A1. Other information from a copy of Fastow’s 1990 résumé. 8. Fastow’s encounter with the cabdriver was chronicled by Ann Marie Lipinski and Hanke Gratteau, “What Some Cab Riders Suffer Is a Crime,” Chicago Tribune, May 27, 1986. 9.


pages: 300 words: 76,638

The War on Normal People: The Truth About America's Disappearing Jobs and Why Universal Basic Income Is Our Future by Andrew Yang

3D printing, Airbnb, assortative mating, augmented reality, autonomous vehicles, basic income, Bear Stearns, behavioural economics, Ben Horowitz, Bernie Sanders, call centre, corporate governance, cryptocurrency, data science, David Brooks, DeepMind, Donald Trump, Elon Musk, falling living standards, financial deregulation, financial engineering, full employment, future of work, global reserve currency, income inequality, Internet of things, invisible hand, Jeff Bezos, job automation, John Maynard Keynes: technological unemployment, Khan Academy, labor-force participation, longitudinal study, low skilled workers, Lyft, manufacturing employment, Mark Zuckerberg, megacity, meritocracy, Narrative Science, new economy, passive income, performance metric, post-work, quantitative easing, reserve currency, Richard Florida, ride hailing / ride sharing, risk tolerance, robo advisor, Ronald Reagan, Rutger Bregman, Sam Altman, San Francisco homelessness, self-driving car, shareholder value, Silicon Valley, Simon Kuznets, single-payer health, Stephen Hawking, Steve Ballmer, supercomputer in your pocket, tech worker, technoutopianism, telemarketer, The future is already here, The Wealth of Nations by Adam Smith, traumatic brain injury, Tyler Cowen, Tyler Cowen: Great Stagnation, Uber and Lyft, uber lyft, unemployed young men, universal basic income, urban renewal, warehouse robotics, white flight, winner-take-all economy, Y Combinator

The big banks eventually settled with the Department of Justice for billions of dollars—JPMorgan Chase agreed to pay $13 billion in 2013, and Bank of America agreed to pay $16.65 billion in 2014—but most everybody kept their jobs and senior executives escaped culpability, despite the havoc wreaked on the economy. Even the CEOs of the failed firms Lehman Brothers, Merrill Lynch, and Bear Stearns each walked away with hundreds of millions of dollars. In the current system it pays financially for companies to be aggressive and abuse the public trust, make as much money as possible, and then pay some modest fines. Often, no criminal laws are broken, or if they are, violations are impossible to either prosecute or prove.


pages: 192 words: 75,440

Getting a Job in Hedge Funds: An Inside Look at How Funds Hire by Adam Zoia, Aaron Finkel

backtesting, barriers to entry, Bear Stearns, collateralized debt obligation, commodity trading advisor, Credit Default Swap, credit default swaps / collateralized debt obligations, deal flow, discounted cash flows, family office, financial engineering, fixed income, global macro, high net worth, interest rate derivative, interest rate swap, Long Term Capital Management, managed futures, merger arbitrage, offshore financial centre, proprietary trading, random walk, Renaissance Technologies, risk-adjusted returns, rolodex, short selling, side project, statistical arbitrage, stock buybacks, stocks for the long run, systematic trading, two and twenty, unpaid internship, value at risk, yield curve, yield management

All the major investment banks have such analyst training programs, as do most of the regional and middle-market banks and the leading consulting firms. (Note: The largest or most elite investment banks are typically referred to as “bulge-bracket” banks.) Based on our own research, in 2007 alone the leading investment banks, including Bear Stearns, Citigroup, Credit Suisse, Goldman Sachs, JPMorgan Chase, Lehman Brothers, Merrill Lynch, and Morgan Stanley, combined brought about 900 first-year analysts into their U.S. offices. On the consulting side, about 400 first-year analysts were on the payrolls of such firms as Bain & Company, Boston Consulting Group, McKinsey & Company, and the Monitor Group.


pages: 249 words: 79,740

The Next Decade: Where We've Been . . . And Where We're Going by George Friedman

airport security, Ayatollah Khomeini, Bear Stearns, Berlin Wall, British Empire, business cycle, continuation of politics by other means, creative destruction, Deng Xiaoping, facts on the ground, Fall of the Berlin Wall, full employment, hydraulic fracturing, illegal immigration, It's morning again in America, low interest rates, military-industrial complex, Monroe Doctrine, Ronald Reagan, Savings and loan crisis, South China Sea, Suez crisis 1956

With the collapse of the housing market, the mortgages that had been bundled and sold to investors no longer had a clear value. Because these investors had believed that prices would never fall, they had never looked at what was actually inside their bundles. The more aggressive investors in bundled mortgages, investment banks such as Bear Stearns and Lehman Brothers, had leveraged their positions many times over, and by the time the loan payments were due, the value of the underlying assets was so murky that no one would buy them, or even refinance the loans. Unable to cover their bets, these big players went bankrupt. And since many of the people who had bought these supposedly conservative investments, including the commercial paper issued by the banks, were in other countries, the entire global system went down.


pages: 241 words: 81,805

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis by Tim Lee, Jamie Lee, Kevin Coldiron

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, backtesting, bank run, Bear Stearns, Bernie Madoff, Bretton Woods, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, currency risk, debt deflation, disinformation, distributed ledger, diversification, financial engineering, financial intermediation, Flash crash, global reserve currency, implied volatility, income inequality, inflation targeting, junk bonds, labor-force participation, Long Term Capital Management, low interest rates, Lyft, margin call, market bubble, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, negative equity, Network effects, Ponzi scheme, proprietary trading, public intellectual, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, rising living standards, risk free rate, risk/return, sharing economy, short selling, short squeeze, sovereign wealth fund, stock buybacks, tail risk, TikTok, Uber and Lyft, uber lyft, yield curve

Given the Volcker Rule and the increased regulatory focus on systemic risk, it seems unlikely that banks have been a meaningful source of carry growth in the last several years, and this is not likely to change. 2. We use the term “investment bank” in a loose sense since most sizable global investment banks were converted to bank holding companies (Goldman Sachs, Morgan Stanley), bought by banks (Merrill Lynch, Bear Stearns), or closed (Lehman). European “universal” banks such as UBS and Deutsche have always engaged in both commercial and investment banking operations. 78 THE RISE OF CARRY Private Equity Leveraged Buyouts Are a Form of Carry Trade Thus far we have looked at institutional involvement in carry trades through the lens of incentives.


pages: 261 words: 81,802

The Trouble With Billionaires by Linda McQuaig

"World Economic Forum" Davos, battle of ideas, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, British Empire, Build a better mousetrap, carried interest, Charles Babbage, collateralized debt obligation, computer age, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Douglas Engelbart, Douglas Engelbart, employer provided health coverage, financial deregulation, fixed income, full employment, Gary Kildall, George Akerlof, Gini coefficient, Glass-Steagall Act, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invention of the wheel, invisible hand, Isaac Newton, Jacquard loom, John Bogle, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, lateral thinking, low interest rates, Mark Zuckerberg, market bubble, Martin Wolf, mega-rich, minimum wage unemployment, Mont Pelerin Society, Naomi Klein, neoliberal agenda, Northern Rock, offshore financial centre, Paul Samuelson, plutocrats, Ponzi scheme, pre–internet, price mechanism, proprietary trading, purchasing power parity, RAND corporation, rent-seeking, rising living standards, road to serfdom, Robert Solow, Ronald Reagan, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, trickle-down economics, Vanguard fund, very high income, wealth creators, women in the workforce

The arrangement Paulson had in mind was rife with potential conflicts of interest. He clearly wanted to help pick the mortgages that would make up the new CDOs. And he would obviously favour particularly risky subprime mortgages, thereby increasing the likelihood that the CDOs would become worthless and he would be able to collect on the ‘insurance’ he had taken out. Bear Stearns, the giant investment bank where Paulson had once served as managing director, said no to his scheme. But Goldman Sachs agreed to the arrangement, providing Paulson with his dream opportunity: a chance to bet on toxic CDOs worth about $5 billion. And all went according to plan. The housing bubble burst soon afterward, causing untold misery among homeowners and rendering the $5 billion in CDOs worthless – and allowing Paulson to collect $1 billion in ‘insurance’.


pages: 237 words: 72,716

The Inequality Puzzle: European and US Leaders Discuss Rising Income Inequality by Roland Berger, David Grusky, Tobias Raffel, Geoffrey Samuels, Chris Wimer

"World Economic Forum" Davos, Bear Stearns, Branko Milanovic, business cycle, Caribbean Basin Initiative, Celtic Tiger, collective bargaining, corporate governance, corporate social responsibility, double entry bookkeeping, equal pay for equal work, fear of failure, financial innovation, full employment, Gini coefficient, hiring and firing, illegal immigration, income inequality, invisible hand, Long Term Capital Management, long term incentive plan, microcredit, military-industrial complex, Money creation, offshore financial centre, principal–agent problem, profit maximization, proprietary trading, rent-seeking, shareholder value, Silicon Valley, Silicon Valley startup, time value of money, very high income

I think the excesses of capitalism are the biggest threat to capitalism. Cheap money did it, to some extent. But the greed of the people is what comes out in this Gillian Tett book. JP Morgan seems particularly an exception, they invented credit derivative swaps, but they were much more cautious and were aware of the downside risks. Merrill Lynch, Bear Stearns, and just about everybody else, just piled in. The book reads like a thriller, it will hold your attention. Will inequality increase? What checked the rise of inequality? One was politics and the rise of the organized working class demanding a bigger share, demanding political change, and welfare states before the First World War.


pages: 348 words: 82,499

DIY Investor: How to Take Control of Your Investments & Plan for a Financially Secure Future by Andy Bell

asset allocation, bank run, Bear Stearns, Black Monday: stock market crash in 1987, buy and hold, collapse of Lehman Brothers, credit crunch, currency risk, diversification, diversified portfolio, estate planning, eurozone crisis, fixed income, high net worth, hiring and firing, Isaac Newton, junk bonds, Kickstarter, lateral thinking, low interest rates, money market fund, Northern Rock, passive investing, place-making, quantitative easing, selection bias, short selling, South Sea Bubble, technology bubble, transaction costs, Vanguard fund

The financial crisis, the Eurozone and corporate bonds Back at the height of the credit crunch in 2008, investors were staring into the abyss and fearing the worst. Fear of corporate collapse meant bond prices fell off a cliff, meaning the income you got for buying them soared. Don’t get me wrong – the doom and gloom at the time was very real – who would have thought that Lehman Brothers, Bear Stearns and many more household-name companies at home and abroad would be consigned to history? But bond managers knew that valuations had fallen far further than the fundamentals justified. Back in October 2008 corporate bond prices had fallen so far that, for anyone holding a basket of stocks, at least a third of investment-grade issuers would have had to go bust over the next five years before investing in government bonds would have delivered a better return.


pages: 306 words: 85,836

When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants by Steven D. Levitt, Stephen J. Dubner

Affordable Care Act / Obamacare, Airbus A320, airport security, augmented reality, barriers to entry, Bear Stearns, behavioural economics, Bernie Madoff, Black Swan, Broken windows theory, Captain Sullenberger Hudson, carbon tax, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, feminist movement, food miles, George Akerlof, global pandemic, information asymmetry, invisible hand, loss aversion, mental accounting, Netflix Prize, obamacare, oil shale / tar sands, Pareto efficiency, peak oil, pre–internet, price anchoring, price discrimination, principal–agent problem, profit maximization, Richard Thaler, Sam Peltzman, security theater, sugar pill, Ted Kaczynski, the built environment, The Chicago School, the High Line, Thorstein Veblen, transaction costs, Tyler Cowen, US Airways Flight 1549

I wonder whether market forces might exert the kind of discipline required to limit the involvement of young people in gang-controlled drug economies. If, as Treasury Secretary Paulson reminds us, “market discipline” is sufficient to regulate the financial markets, perhaps it could be effective in the underground. Oh, yes, I forgot about Bear Stearns. (Sorry, couldn’t resist.) Don’t Burn the Food (SDL) In a sample of thirteen African countries between 1999 and 2004, 52 percent of women surveyed say they think that wife-beating is justified if she neglects the children; around 45 percent think it’s justified if she goes out without telling the husband or argues with him; 36 percent if she refuses sex, and 30 percent if she burns the food.


pages: 265 words: 80,510

The Enablers: How the West Supports Kleptocrats and Corruption - Endangering Our Democracy by Frank Vogl

"World Economic Forum" Davos, active measures, Alan Greenspan, Asian financial crisis, bank run, Bear Stearns, Bernie Sanders, blood diamond, Brexit referendum, Carmen Reinhart, centre right, corporate governance, COVID-19, crony capitalism, cryptocurrency, Donald Trump, F. W. de Klerk, failed state, Global Witness, Greensill Capital, income inequality, information security, joint-stock company, London Interbank Offered Rate, Londongrad, low interest rates, market clearing, military-industrial complex, moral hazard, Nelson Mandela, offshore financial centre, oil shale / tar sands, profit maximization, quantitative easing, Renaissance Technologies, Silicon Valley, Silicon Valley startup, stock buybacks, too big to fail, WikiLeaks

Bush, the Securities and Exchange Commission’s leadership shared Greenspan’s views and applied a very light touch in its oversight of financial institutions. Under its watch, for example, massive speculation, using very large amounts of borrowed funds, saw the collapse of huge institutions that it should have been monitoring, such as investment firms Bear Stearns, Lehman Brothers, and the insurance giant AIG. Meanwhile, another part of the Bush administration shared the same ethos when it came to supervising the nation’s largest mortgage-financing corporations. The go-go culture in banking and the overconfidence of public officials that the markets would adjust to guard against debacles produced the global financial crash of 2008.


pages: 263 words: 86,709

Bully Market: My Story of Money and Misogyny at Goldman Sachs by Jamie Fiore Higgins

Bear Stearns, Bernie Madoff, BIPOC, Black Lives Matter, glass ceiling, messenger bag, money market fund, short selling, zero-sum game

My body, with all its struggles when I was younger, was able to keep up with two growing humans, and I was relieved and grateful. Unfortunately, while my pregnancy was smooth, the markets weren’t. The year 2008 started off tough, as the unemployment rate rose. Then in March, the Fed intervened to save Bear Stearns, one of our competitors. Bear was overexposed to mortgage-backed securities and other toxic assets, which were tanking. To make matters worse, they purchased them with leverage, which is fancy talk for borrowed money. But the markets rebounded by May, and we all breathed a sigh of relief. Then over the summer, Fannie Mae and Freddie Mac stocks started dropping.


pages: 361 words: 86,921

The End of Medicine: How Silicon Valley (And Naked Mice) Will Reboot Your Doctor by Andy Kessler

airport security, Andy Kessler, Bear Stearns, bioinformatics, Buckminster Fuller, call centre, Dean Kamen, digital divide, El Camino Real, employer provided health coverage, full employment, George Gilder, global rebalancing, Law of Accelerating Returns, low earth orbit, Metcalfe’s law, moral hazard, Network effects, off-the-grid, pattern recognition, personalized medicine, phenotype, Ray Kurzweil, Richard Feynman, Sand Hill Road, Silicon Valley, stem cell, Steve Jurvetson, vertical integration

Every damn one of them sounded like the next greatest thing, so the mice scurried some more, discussed among themselves and probed and prodded CEOs with insightful questions until the mice were so confused, they just asked someone else what they should buy. I’d been to so many tech conferences I could tell you where the bathroom and best cellular reception is in the leading hotels of the world. But this was a health care conference. I’d pulled some strings at Bear Stearns and wangled an invite. I figured it would be a great forum to get instantly up to speed on the health care industry. So I put on a suit, slogged to New York, sweated in 95-degree heat, and pretended to be interested in Phase II trials of monoclonal antibodies. What I learned was that health care investing was a bigger crapshoot than technology.


pages: 327 words: 90,542

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril by Satyajit Das

"there is no alternative" (TINA), "World Economic Forum" Davos, 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Alan Greenspan, Albert Einstein, Alfred Russel Wallace, Anthropocene, Anton Chekhov, Asian financial crisis, banking crisis, Bear Stearns, Berlin Wall, bitcoin, bond market vigilante , Bretton Woods, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, digital divide, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial engineering, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, geopolitical risk, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, Great Leap Forward, Greenspan put, happiness index / gross national happiness, high-speed rail, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), it is difficult to get a man to understand something, when his salary depends on his not understanding it, It's morning again in America, Jane Jacobs, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, Kevin Roose, knowledge economy, knowledge worker, Les Trente Glorieuses, light touch regulation, liquidity trap, Long Term Capital Management, low interest rates, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, middle-income trap, Mikhail Gorbachev, military-industrial complex, Minsky moment, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, PalmPilot, passive income, peak oil, peer-to-peer lending, pension reform, planned obsolescence, plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Robert Solow, Ronald Reagan, Russell Brand, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, Stephen Fry, systems thinking, TaskRabbit, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, uber lyft, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

Liquidity evaporated. Easy credit had lubricated the engine of the financial system, driving the boom. Now the oil was draining out through a large crack and the system gradually seized up. At the start of the crisis, there was a sense of schadenfreude in the rest of the world as storied US institutions like Bear Stearns, the government-sponsored mortgage providers Fannie Mae and Freddie Mac, Merrill Lynch, Lehman Brothers, and AIG were bought up or collapsed. But European and Asian self-satisfaction at the failure of Anglo-Saxon, especially American, red-in-tooth-and-claw capitalism was short-lived. In 2009, as the US economy and financial system stabilized, Greece's finances were found to be parlous.


pages: 324 words: 93,175

The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home by Dan Ariely

Alvin Roth, An Inconvenient Truth, assortative mating, Bear Stearns, behavioural economics, Burning Man, business process, cognitive dissonance, Cornelius Vanderbilt, corporate governance, Daniel Kahneman / Amos Tversky, Demis Hassabis, end world poverty, endowment effect, Exxon Valdez, first-price auction, Ford Model T, Frederick Winslow Taylor, George Akerlof, happiness index / gross national happiness, hedonic treadmill, IKEA effect, Jean Tirole, job satisfaction, knowledge economy, knowledge worker, loss aversion, name-letter effect, Peter Singer: altruism, placebo effect, Richard Thaler, Saturday Night Live, search costs, second-price auction, Skinner box, software as a service, subprime mortgage crisis, sunk-cost fallacy, The Wealth of Nations by Adam Smith, ultimatum game, Upton Sinclair, young professional

* * * Rotten Tomatoes for Bankers Not surprisingly, the desire for revenge struck many a citizen in the wake of the financial meltdown of 2008. As a result of the collapse of the mortgage-backed securities market, institutional banks fell like dominoes. In May 2008, JPMorgan Chase acquired Bear Stearns. On September 7, the government stepped in to rescue Fannie Mae and Freddie Mac. A week later, on September 14, Merrill Lynch was sold to Bank of America. The following day, Lehman Brothers filed for bankruptcy. The day after that (September 16), the U.S. Federal Reserve loaned money to AIG to prevent the company’s collapse.


High-Frequency Trading by David Easley, Marcos López de Prado, Maureen O'Hara

algorithmic trading, asset allocation, backtesting, Bear Stearns, Brownian motion, capital asset pricing model, computer vision, continuous double auction, dark matter, discrete time, finite state, fixed income, Flash crash, High speed trading, index arbitrage, information asymmetry, interest rate swap, Large Hadron Collider, latency arbitrage, margin call, market design, market fragmentation, market fundamentalism, market microstructure, martingale, National best bid and offer, natural language processing, offshore financial centre, pattern recognition, power law, price discovery process, price discrimination, price stability, proprietary trading, quantitative trading / quantitative finance, random walk, Sharpe ratio, statistical arbitrage, statistical model, stochastic process, Tobin tax, transaction costs, two-sided market, yield curve

His group xii i i i i i i “Easley” — 2013/10/8 — 11:31 — page xiii — #13 i i ABOUT THE AUTHORS supports the global execution services business, and focuses on market microstructure and electronic trading research and development. Michael joined Bank of America in 2004 as an equity derivatives quant, after spending three years at Bear Stearns in the same role. He was head of equities quantitative research for year 2008 before moving to algorithmic trading. He has a PhD in theoretical physics from SUNY Stony Brook. Prior to joining the finance industry he taught and worked in quantum field theory and particle physics at the University of Southampton and at the University of Michigan.


pages: 309 words: 91,581

The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It by Timothy Noah

air traffic controllers' union, Alan Greenspan, assortative mating, autonomous vehicles, Bear Stearns, blue-collar work, Bonfire of the Vanities, Branko Milanovic, business cycle, call centre, carbon tax, collective bargaining, compensation consultant, computer age, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, Deng Xiaoping, easy for humans, difficult for computers, Erik Brynjolfsson, Everybody Ought to Be Rich, feminist movement, Ford Model T, Frank Levy and Richard Murnane: The New Division of Labor, Gini coefficient, government statistician, Gunnar Myrdal, income inequality, independent contractor, industrial robot, invisible hand, It's morning again in America, job automation, Joseph Schumpeter, longitudinal study, low skilled workers, lump of labour, manufacturing employment, moral hazard, oil shock, pattern recognition, Paul Samuelson, performance metric, positional goods, post-industrial society, postindustrial economy, proprietary trading, purchasing power parity, refrigerator car, rent control, Richard Feynman, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, Stephen Hawking, Steve Jobs, subprime mortgage crisis, The Spirit Level, too big to fail, trickle-down economics, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, upwardly mobile, very high income, Vilfredo Pareto, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, Yom Kippur War

By the time it was formally repealed in 1999, “it was like the Maginot Line. It was there and in force but everybody was running around it to do whatever they needed to do with the Fed’s approval.” More important, Istel notes, was the Securities and Exchange Commission’s easing of leverage restrictions. Before it went bust Bear Stearns’s ratio of debt to assets reached 33 to 1. In retrospect, the extent of Wall Street’s leveraging prior to the 2008 crash seems insane, no matter how lucrative in the short term. According to Istel, not only did the trend reflect a generational change (Wall Street leaders were no longer children of the Depression who harbored an innate aversion to debt); it also reflected technological hubris.


Alpha Girls: The Women Upstarts Who Took on Silicon Valley's Male Culture and Made the Deals of a Lifetime by Julian Guthrie

"Susan Fowler" uber, "World Economic Forum" Davos, Airbnb, Alan Greenspan, Andy Rubin, Apollo 11, Apple II, barriers to entry, Bear Stearns, Benchmark Capital, blockchain, Bob Noyce, call centre, cloud computing, credit crunch, deal flow, disruptive innovation, Elon Musk, equal pay for equal work, Fairchild Semiconductor, fear of failure, game design, Gary Kildall, glass ceiling, hiring and firing, information security, Jeff Bezos, Larry Ellison, Louis Pasteur, Lyft, Marc Benioff, Mark Zuckerberg, Menlo Park, Mitch Kapor, new economy, PageRank, peer-to-peer, pets.com, phenotype, place-making, private spaceflight, retail therapy, ROLM, Ronald Reagan, Rosa Parks, Salesforce, Sand Hill Road, Sheryl Sandberg, Silicon Valley, Silicon Valley startup, Skype, Snapchat, software as a service, South of Market, San Francisco, stealth mode startup, Steve Jobs, Steve Jurvetson, Steve Wozniak, Susan Wojcicki, TaskRabbit, Teledyne, Tim Cook: Apple, Timothy McVeigh, Travis Kalanick, uber lyft, unpaid internship, upwardly mobile, urban decay, UUNET, web application, William Shockley: the traitorous eight, women in the workforce

The book was filled with tips about what to do before starting chemo, from going to the dentist for teeth cleaning to using towels for bed pillows—it made it easier to clean up the clumps of hair when your hair began to fall out. A minor infection or fever could turn serious quickly, and she should expect to feel worse with each treatment. Sonja’s health crisis had come at a time when Silicon Valley—and America—was having a life-changing crisis of its own. It was 2008, and Bear Stearns had collapsed in February, followed by the bankruptcy of Lehman Brothers in September, the largest bankruptcy in U.S. history. Then the Fed had had to bail out insurance giant AIG. Home mortgages and values were in a complete meltdown. Sonja had made a career of navigating the economy in good times and bad.


pages: 347 words: 91,318

Netflixed: The Epic Battle for America's Eyeballs by Gina Keating

activist fund / activist shareholder / activist investor, AOL-Time Warner, Apollo 13, barriers to entry, Bear Stearns, business intelligence, Carl Icahn, collaborative consumption, company town, corporate raider, digital rights, inventory management, Jeff Bezos, late fees, Mark Zuckerberg, McMansion, Menlo Park, Michael Milken, Netflix Prize, new economy, out of africa, performance metric, Ponzi scheme, pre–internet, price stability, recommendation engine, Saturday Night Live, shareholder value, Silicon Valley, Silicon Valley startup, Steve Jobs, subscription business, Superbowl ad, tech worker, telemarketer, warehouse automation, X Prize

Antioco described the bricks-and-mortar rental industry as “in the tank,” and agreed that movie studios had a legitimate cause to worry, that the disastrous year for both theatrical and home rental revenues portended an upheaval to come. “I am not trying to portray that everything is hunky-dory with the rental industry. It’s not,” he said in an interview in December. He still predicted, however, that Blockbuster would have a profitable fourth quarter, after losing more than half a billion dollars in 2005. Meanwhile, Bear Stearns upgraded Netflix to “outperform” from “peer perform,” and raised its price target, as it noted that rental industry statistics finally confirmed what Antioco and Hastings already knew: Mainstream consumers were drifting away from store-based rental. As analysts took apart Blockbuster’s business model in notes to clients and in interviews, noting that its stores and overhead were too bloated, Antioco was busy divesting—jettisoning everything unnecessary.


pages: 324 words: 93,606

No Such Thing as a Free Gift: The Gates Foundation and the Price of Philanthropy by Linsey McGoey

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, agricultural Revolution, American Legislative Exchange Council, Bear Stearns, bitcoin, Bob Geldof, cashless society, clean water, cognitive dissonance, collapse of Lehman Brothers, colonial rule, corporate governance, corporate social responsibility, crony capitalism, effective altruism, Etonian, Evgeny Morozov, financial innovation, Food sovereignty, Ford paid five dollars a day, germ theory of disease, hiring and firing, Howard Zinn, Ida Tarbell, impact investing, income inequality, income per capita, invisible hand, Jane Jacobs, John Elkington, Joseph Schumpeter, Leo Hollis, liquidationism / Banker’s doctrine / the Treasury view, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, meta-analysis, Michael Milken, microcredit, Mitch Kapor, Mont Pelerin Society, Naomi Klein, Neil Armstrong, obamacare, Peter Singer: altruism, Peter Thiel, plutocrats, price mechanism, profit motive, public intellectual, Ralph Waldo Emerson, rent-seeking, road to serfdom, Ronald Reagan, school choice, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, Slavoj Žižek, Steve Jobs, strikebreaker, subprime mortgage crisis, tacit knowledge, technological solutionism, TED Talk, The Wealth of Nations by Adam Smith, Thorstein Veblen, trickle-down economics, urban planning, W. E. B. Du Bois, wealth creators

The value of pro-market solutions particularly during times of economic catastrophe has been one of the most common themes to emerge out of the 2008 collapse, a crisis which initially led to questions over whether the private sector was, as Georgia Keohane writes, ‘the best exemplar of corporate governance, accountability, or long-term investment savvy’.39 At the 2009 Skoll World Forum, just months after the collapse of Lehman Brothers and Bear Stearns, there was very little acknowledgement of the role that business played in destabilizing markets. Rather, there was a remarkably self-congratulatory, proselytizing tenor to proceedings, a sense that the ‘new’ socially oriented entrepreneurship offered salvation in dark times. Soraya Salti, a representative of INJAZ al-Arab, an organization that draws on Arab business leaders to help build entrepreneurialism among Arab youth, praised attendees with the following passage from Kahlil Gibran: ‘You work so that you may keep pace with the earth and the soul of the earth.


pages: 326 words: 91,532

The Pay Off: How Changing the Way We Pay Changes Everything by Gottfried Leibbrandt, Natasha de Teran

"World Economic Forum" Davos, Alan Greenspan, Ayatollah Khomeini, bank run, banking crisis, banks create money, Bear Stearns, Big Tech, bitcoin, blockchain, call centre, cashless society, Clayton Christensen, cloud computing, coronavirus, COVID-19, Credit Default Swap, cross-border payments, cryptocurrency, David Graeber, Donald Trump, Edward Snowden, Ethereum, ethereum blockchain, financial exclusion, global pandemic, global reserve currency, illegal immigration, information asymmetry, initial coin offering, interest rate swap, Internet of things, Irish bank strikes, Julian Assange, large denomination, light touch regulation, lockdown, low interest rates, M-Pesa, machine readable, Money creation, money: store of value / unit of account / medium of exchange, move fast and break things, Network effects, Northern Rock, off grid, offshore financial centre, payday loans, post-industrial society, printed gun, QR code, RAND corporation, ransomware, Real Time Gross Settlement, reserve currency, Rishi Sunak, Silicon Valley, Silicon Valley startup, Skype, smart contracts, sovereign wealth fund, special drawing rights, tech billionaire, the payments system, too big to fail, transaction costs, WikiLeaks, you are the product

. ______________________________________________________________________ 1 Or at least that’s what he said in the 1976 film, All the President’s Men. 2 The USA has handed out billions in fines to its own large banks for conduct-related misbehaviour, notably the mis-selling of securities backed by mortgages: $56 billion to Bank of America (which includes Merrill Lynch and Countrywide, acquired by BofA), $27 billion to JPMorgan (which includes Bear Stearns and Washington Mutual (WaMu)) and $12 billion to Citibank for manipulating the Libor interest rate benchmark. 3 Deloitte, in its role as BCCI liquidator, sued the Bank of England for £1 billion but lost and had to reimburse its legal fees of £73 million. 30. No way to pay: excluded from the payment system How is that banks keep serving the wrong customers, processing illicit payments and paying staggering amounts in fines?


Hiding in Plain Sight: The Invention of Donald Trump and the Erosion of America by Sarah Kendzior

4chan, Bear Stearns, Berlin Wall, Bernie Sanders, Black Lives Matter, borderless world, Brexit referendum, Cambridge Analytica, Carl Icahn, Chelsea Manning, Columbine, corporate raider, desegregation, disinformation, don't be evil, Donald Trump, drone strike, Edward Snowden, Evgeny Morozov, fake news, Ferguson, Missouri, Francis Fukuyama: the end of history, gentrification, Golden arches theory, hiring and firing, illegal immigration, income inequality, Jaron Lanier, Jeff Bezos, Jeffrey Epstein, Julian Assange, junk bonds, Michael Milken, military-industrial complex, Mohammed Bouazizi, Naomi Klein, Nelson Mandela, new economy, Oklahoma City bombing, opioid epidemic / opioid crisis, payday loans, plutocrats, public intellectual, QAnon, Robert Hanssen: Double agent, Ronald Reagan, side hustle, Silicon Valley, Skype, Steve Bannon, Thomas L Friedman, trickle-down economics, Twitter Arab Spring, unpaid internship, white flight, WikiLeaks, Y2K, zero-sum game

Barr’s career of cover-ups (Iran-Contra) and lies (his Mueller Report summary) are detailed in later chapters, but for now, it is worth noting that an investigation conducted with integrity seems unlikely. Epstein’s obsession with underage girls was evident from the start: while at Dalton, he allegedly had inappropriate relationships with students.10 He left Dalton in 1976 to work at Bear Stearns and then struck out on his own as a financial adviser for clients who were not named—with the exception of Les Wexner, the billionaire CEO of L Brands, which owns Victoria’s Secret and other major companies. In the rare public examinations of Epstein’s finances prior to 2019, Wexner was often listed as Epstein’s closest partner.11 Wexner is a dedicated Zionist activist who has spent a great deal of money seeking to shape global policy toward Israel through what he describes as philanthropic initiatives.12 But for decades, Epstein allegedly controlled much of Wexner’s money after Wexner gave him power of attorney, depositing millions into mysterious “charities” and running his sex-trafficking operation from one of Wexner’s homes.13 After Epstein’s arrest, Wexner accused Epstein of misappropriating his funds.14 For decades, none of the stories on Epstein specified how he made his fortune, saying only that he managed and invested the assets of wealthy clients.


pages: 356 words: 103,944

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

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Asian financial crisis, bank run, banking crisis, Bear Stearns, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, classic study, 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, export processing zone, 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 interest rates, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, Multi Fibre Arrangement, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, Paul Samuelson, precautionary principle, price stability, profit maximization, race to the bottom, regulatory arbitrage, Savings and loan crisis, savings glut, Silicon Valley, special drawing rights, special economic zone, subprime mortgage crisis, 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

Did the problem lie with unscrupulous mortgage lenders? Spendthrift borrowers? Faulty practices by credit rating agencies? Too much leverage on the part of financial institutions? The global savings glut? Too loose monetary policy by the Federal Reserve? Government guarantees for Fannie Mae and Freddie Mac? The U.S. Treasury’s rescue of Bear Stearns and AIG? The U.S. Treasury’s refusal to bail out Lehman Brothers? Greed? Moral hazard? Too little regulation? Too much regulation? The debate on these questions remains fierce and will no doubt continue for a long time. In the bigger scheme of things, these questions interrogate mere details.


All About Asset Allocation, Second Edition by Richard Ferri

activist fund / activist shareholder / activist investor, Alan Greenspan, asset allocation, asset-backed security, barriers to entry, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, book value, buy and hold, capital controls, commoditize, commodity trading advisor, correlation coefficient, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, equity premium, equity risk premium, estate planning, financial independence, fixed income, full employment, high net worth, Home mortgage interest deduction, implied volatility, index fund, intangible asset, inverted yield curve, John Bogle, junk bonds, Long Term Capital Management, low interest rates, managed futures, Mason jar, money market fund, mortgage tax deduction, passive income, pattern recognition, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, selection bias, Sharpe ratio, stock buybacks, stocks for the long run, survivorship bias, too big to fail, transaction costs, Vanguard fund, yield curve

Over the next decade, thousands of bankruptcies and near bankruptcies claimed the retirement savings of hundreds of thousands of rank and file employees who believed in those companies by purchasing their bonds. Some of those companies are household names, including General Motors, Lehman Brothers, AIG, Bear Stearns, and Chrysler. Will these bankruptcies of too-big-to-fail companies teach others to diversify their investments and lower their portfolio risk using asset allocation? Not likely. 8 CHAPTER 1 WHY PROFESSIONAL ADVICE DOES NOT ALWAYS HELP How do you learn about investing and at the same time avoid costly mistakes?


pages: 327 words: 103,336

Everything Is Obvious: *Once You Know the Answer by Duncan J. Watts

"World Economic Forum" Davos, active measures, affirmative action, Albert Einstein, Amazon Mechanical Turk, AOL-Time Warner, Bear Stearns, behavioural economics, Black Swan, business cycle, butterfly effect, carbon credits, Carmen Reinhart, Cass Sunstein, clockwork universe, cognitive dissonance, coherent worldview, collapse of Lehman Brothers, complexity theory, correlation does not imply causation, crowdsourcing, death of newspapers, discovery of DNA, East Village, easy for humans, difficult for computers, edge city, en.wikipedia.org, Erik Brynjolfsson, framing effect, Future Shock, Geoffrey West, Santa Fe Institute, George Santayana, happiness index / gross national happiness, Herman Kahn, high batting average, hindsight bias, illegal immigration, industrial cluster, interest rate swap, invention of the printing press, invention of the telescope, invisible hand, Isaac Newton, Jane Jacobs, Jeff Bezos, Joseph Schumpeter, Kenneth Rogoff, lake wobegon effect, Laplace demon, Long Term Capital Management, loss aversion, medical malpractice, meta-analysis, Milgram experiment, natural language processing, Netflix Prize, Network effects, oil shock, packet switching, pattern recognition, performance metric, phenotype, Pierre-Simon Laplace, planetary scale, prediction markets, pre–internet, RAND corporation, random walk, RFID, school choice, Silicon Valley, social contagion, social intelligence, statistical model, Steve Ballmer, Steve Jobs, Steve Wozniak, supply-chain management, tacit knowledge, The Death and Life of Great American Cities, the scientific method, The Wisdom of Crowds, too big to fail, Toyota Production System, Tragedy of the Commons, ultimatum game, urban planning, Vincenzo Peruggia: Mona Lisa, Watson beat the top human players on Jeopardy!, X Prize

We can never know for sure, of course, because we didn’t run that experiment, but we can make some educated guesses. AIG, for one, would probably not exist and its various counterparties, including Goldman Sachs, would be short several tens of billions of dollars that were funneled to them through AIG. Citigroup might well have collapsed, and Merrill Lynch, Bear Stearns, and Lehman Brothers might all have been dissolved rather than merged with other banks. All told, the banking industry might have lost tens of billions of dollars in 2009—quite the opposite of the tens of billions they actually made—and many thousands of bankers who in reality received bonuses would instead have been out of work.


pages: 269 words: 104,430

Carjacked: The Culture of the Automobile and Its Effect on Our Lives by Catherine Lutz, Anne Lutz Fernandez

"Hurricane Katrina" Superdome, barriers to entry, Bear Stearns, book value, car-free, carbon footprint, collateralized debt obligation, congestion pricing, failed state, feminist movement, Ford Model T, fudge factor, Gordon Gekko, housing crisis, illegal immigration, income inequality, inventory management, Lewis Mumford, market design, market fundamentalism, mortgage tax deduction, Naomi Klein, Nate Silver, New Urbanism, oil shock, peak oil, Ralph Nader, Ralph Waldo Emerson, ride hailing / ride sharing, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, traffic fines, traumatic brain injury, Unsafe at Any Speed, urban planning, white flight, women in the workforce, working poor, Zipcar

Hedge funds, which are largely unregulated, have been especially active in the CDO market, where trades are also unregulated. No one knows just how much hedge funds have made in recent years off of loans, good or bad, because they are not required to file their financial results with the Securities and Exchange Commission like other investment firms. And although some hedge funds, like other institutions such as Bear Stearns, have been bankrupted by being on the wrong end of risk play, many hedge funds have benefited greatly from loans on homes and autos, predatory and conventional. The nation’s richest hedge fund manager as of 2008 was John Paulson, who racked up $3.7 billion in 2007, in large part betting against the American Dream by hedging subprime mortgage securities and CDOs.51 Who are these mysterious moguls hiding in the hedges, adding to their coffers as Hyundai Sonatas and Ford Rangers are repossessed all across the country?


pages: 317 words: 106,130

The New Science of Asset Allocation: Risk Management in a Multi-Asset World by Thomas Schneeweis, Garry B. Crowder, Hossein Kazemi

asset allocation, backtesting, Bear Stearns, behavioural economics, Bernie Madoff, Black Swan, book value, business cycle, buy and hold, capital asset pricing model, collateralized debt obligation, commodity trading advisor, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, diversification, diversified portfolio, financial engineering, fixed income, global macro, high net worth, implied volatility, index fund, interest rate swap, invisible hand, managed futures, market microstructure, merger arbitrage, moral hazard, Myron Scholes, passive investing, Richard Feynman, Richard Feynman: Challenger O-ring, risk free rate, risk tolerance, risk-adjusted returns, risk/return, search costs, selection bias, Sharpe ratio, short selling, statistical model, stocks for the long run, survivorship bias, systematic trading, technology bubble, the market place, Thomas Kuhn: the structure of scientific revolutions, transaction costs, value at risk, yield curve, zero-sum game

At its collapse in 2008 the CDO market was in excess of USD 2 trillion (nominal without the inclusion of synthetic products based on the returns of each basic product—also, while the dollar amount associated with the synthetics remain an unknown variable it is safe to point out that AIG, Lehman Brothers, and Bear Stearns each fell victim to this unknown), and most market participants could not identify or value their underlying assets. Similarly, the subprime market started as a reasoned approach to provide housing for the middle class within the United States and was fully supported by the Bush administration and the United States Congress.


pages: 328 words: 96,678

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them by Nouriel Roubini

"World Economic Forum" Davos, 2021 United States Capitol attack, 3D printing, 9 dash line, AI winter, AlphaGo, artificial general intelligence, asset allocation, assortative mating, autonomous vehicles, bank run, banking crisis, basic income, Bear Stearns, Big Tech, bitcoin, Bletchley Park, blockchain, Boston Dynamics, Bretton Woods, British Empire, business cycle, business process, call centre, carbon tax, Carmen Reinhart, cashless society, central bank independence, collateralized debt obligation, Computing Machinery and Intelligence, coronavirus, COVID-19, creative destruction, credit crunch, crony capitalism, cryptocurrency, currency manipulation / currency intervention, currency peg, data is the new oil, David Ricardo: comparative advantage, debt deflation, decarbonisation, deep learning, DeepMind, deglobalization, Demis Hassabis, democratizing finance, Deng Xiaoping, disintermediation, Dogecoin, Donald Trump, Elon Musk, en.wikipedia.org, energy security, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, eurozone crisis, failed state, fake news, family office, fiat currency, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, future of work, game design, geopolitical risk, George Santayana, Gini coefficient, global pandemic, global reserve currency, global supply chain, GPS: selective availability, green transition, Greensill Capital, Greenspan put, Herbert Marcuse, high-speed rail, Hyman Minsky, income inequality, inflation targeting, initial coin offering, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of movable type, Isaac Newton, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, knowledge worker, Long Term Capital Management, low interest rates, low skilled workers, low-wage service sector, M-Pesa, margin call, market bubble, Martin Wolf, mass immigration, means of production, meme stock, Michael Milken, middle-income trap, Mikhail Gorbachev, Minsky moment, Modern Monetary Theory, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Mustafa Suleyman, Nash equilibrium, natural language processing, negative equity, Nick Bostrom, non-fungible token, non-tariff barriers, ocean acidification, oil shale / tar sands, oil shock, paradox of thrift, pets.com, Phillips curve, planetary scale, Ponzi scheme, precariat, price mechanism, price stability, public intellectual, purchasing power parity, quantitative easing, race to the bottom, Ralph Waldo Emerson, ransomware, Ray Kurzweil, regulatory arbitrage, reserve currency, reshoring, Robert Shiller, Ronald Reagan, Salesforce, Satoshi Nakamoto, Savings and loan crisis, Second Machine Age, short selling, Silicon Valley, smart contracts, South China Sea, sovereign wealth fund, Stephen Hawking, TED Talk, The Great Moderation, the payments system, Thomas L Friedman, TikTok, too big to fail, Turing test, universal basic income, War on Poverty, warehouse robotics, Washington Consensus, Watson beat the top human players on Jeopardy!, working-age population, Yogi Berra, Yom Kippur War, zero-sum game, zoonotic diseases

Short-term loans taken by government or private agents might save a few bucks thanks to lower interest rates than longer-term loans, but at a high potential cost. If a liquidity crisis hits, and those loans come due, they are hard to refinance. A maturity mismatch (that is, having short-term liabilities and longer-term illiquid assets) can be fatal, as the Wall Street firms Bear Stearns and Lehman Brothers learned in 2008. When lenders refuse to replace a maturing loan with a new loan, then households, companies, and governments may run short on cash they need to operate. Lack of liquidity may correct itself if creditors willing to refinance in times of debtor distress or bailouts by governments can plug a temporary shortfall.


pages: 349 words: 99,230

Essential: How the Pandemic Transformed the Long Fight for Worker Justice by Jamie K. McCallum

Affordable Care Act / Obamacare, American Legislative Exchange Council, Anthropocene, antiwork, Bear Stearns, Bernie Sanders, Black Lives Matter, carbon tax, cognitive dissonance, collective bargaining, company town, coronavirus, COVID-19, death from overwork, defund the police, deindustrialization, deskilling, Donald Trump, Elon Musk, future of work, George Floyd, gig economy, global pandemic, global supply chain, Great Leap Forward, green new deal, housing crisis, income inequality, independent contractor, invisible hand, Jeff Bezos, job automation, karōshi / gwarosa / guolaosi, labor-force participation, laissez-faire capitalism, lockdown, Loma Prieta earthquake, low-wage service sector, Lyft, manufacturing employment, market fundamentalism, minimum wage unemployment, moral hazard, Naomi Klein, occupational segregation, post-work, QR code, race to the bottom, remote working, rewilding, ride hailing / ride sharing, side hustle, single-payer health, social distancing, stock buybacks, strikebreaker, subprime mortgage crisis, TaskRabbit, The Great Resignation, the strength of weak ties, trade route, Triangle Shirtwaist Factory, Uber and Lyft, uber lyft, union organizing, Upton Sinclair, women in the workforce, working poor, workplace surveillance , Works Progress Administration, zoonotic diseases

When the housing bubble burst in 2007–2008, it quickly became clear that predatory lending by banks, toxic financial products developed on Wall Street, and poor government regulation of finance industries were to blame. What was initially described as a “financial crisis,” as if it only affected Bear Stearns and Lehman Brothers, quickly morphed into a global social breakdown. In the US, the effects were devastating. Rates of home ownership careened down to 63 percent, about 1960s levels.1 Income and wealth inequality, which had already been expanding, suddenly skyrocketed, setting a new course upward that hasn’t slowed since.


The Rough Guide to New York City by Rough Guides

3D printing, Airbnb, Bear Stearns, Berlin Wall, Bernie Madoff, bike sharing, Blue Bottle Coffee, Bonfire of the Vanities, Broken windows theory, Buckminster Fuller, buttonwood tree, car-free, centre right, Chuck Templeton: OpenTable:, clean water, collateralized debt obligation, colonial rule, congestion pricing, Cornelius Vanderbilt, crack epidemic, David Sedaris, Donald Trump, Downton Abbey, East Village, Edward Thorp, Elisha Otis, Exxon Valdez, Frank Gehry, General Motors Futurama, gentrification, glass ceiling, greed is good, haute couture, haute cuisine, Howard Zinn, illegal immigration, index fund, it's over 9,000, Jane Jacobs, junk bonds, Kickstarter, Lewis Mumford, Lyft, machine readable, Nelson Mandela, Norman Mailer, paper trading, Ponzi scheme, post-work, pre–internet, rent stabilization, ride hailing / ride sharing, Saturday Night Live, Scaled Composites, starchitect, subprime mortgage crisis, sustainable-tourism, The Death and Life of Great American Cities, the High Line, transcontinental railway, Triangle Shirtwaist Factory, uber lyft, upwardly mobile, urban decay, urban planning, urban renewal, white flight, Works Progress Administration, Yogi Berra, young professional

Investment banks had arranged hundreds of CDOs (Collateralized Debt Obligations), essentially bonds secured by subprime mortgages, since 1987; when overextended borrowers began to default on their mortgages all over the US, the money dried up. Insurer AIG was bailed out by the US government to the tune of $186 billion, and one by one the investment banks failed, unable to cope with mind-boggling losses. Lehman Brothers, founded in 1850, collapsed with debts of over $700 billion (the largest bankruptcy in US history), and Bear Stearns and Merrill Lynch were sold to JPMorgan Chase and Bank of America respectively. Finally, Goldman Sachs and Morgan Stanley (the last heir to JP’s empire) converted to traditional bank holding companies (thus allowing them access to federal funds), ending the era of merchant banks on Wall Street.

In 2005 Bloomberg won re-election to a second term, during which he signed a law banning “trans-fats” in New York restaurants, unveiled a plan to replace the city’s thirteen thousand taxicabs with hybrid vehicles (though it later got tripped up in the court system), and proposed a congestion pricing scheme to reduce traffic in Manhattan similar to the one in London. In autumn 2007 the economy began to slump once more, as Wall Street registered heavy losses connected to the subprime mortgage crisis. The following year was a tough one for the city and some of its political figures. On Wall Street, investment banking giant Bear Stearns hit rock bottom and was bought out by JPMorgan, and later in the year Lehman Brothers declared bankruptcy. The real-estate market finally began to cave in and numerous construction projects were put on hold due to lack of funds. The 2008 presidential election season ended up as a disappointment for both Giuliani and the state’s junior senator, Hillary Rodham Clinton, who lost their bids for the Republican and Democratic nominations, respectively (though Clinton became Secretary of State under President Barack Obama).


pages: 431 words: 107,868

The Great Race: The Global Quest for the Car of the Future by Levi Tillemann

Affordable Care Act / Obamacare, An Inconvenient Truth, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, banking crisis, Bear Stearns, car-free, carbon footprint, clean tech, creative destruction, decarbonisation, deindustrialization, demand response, Deng Xiaoping, Donald Trump, driverless car, electricity market, Elon Musk, en.wikipedia.org, energy security, factory automation, Fairchild Semiconductor, Ford Model T, foreign exchange controls, gigafactory, global value chain, high-speed rail, hydrogen economy, index card, Intergovernmental Panel on Climate Change (IPCC), joint-stock company, Joseph Schumpeter, Kanban, Kickstarter, manufacturing employment, market design, megacity, Nixon shock, obamacare, off-the-grid, oil shock, planned obsolescence, Ralph Nader, RFID, rolodex, Ronald Reagan, Rubik’s Cube, self-driving car, shareholder value, Shenzhen special economic zone , short squeeze, Silicon Valley, Silicon Valley startup, skunkworks, smart cities, Solyndra, sovereign wealth fund, special economic zone, Steve Jobs, Tesla Model S, too big to fail, Unsafe at Any Speed, zero-sum game, Zipcar

But in order to get that, they were going to have make peace with the regulators in California. Part III Three Crises 13 “Scared Shitless” America’s Industrial Implosion IN 2008, signs of weakness in the U.S. economy started with the New Year. In January, layoffs began to outpace new job growth and a few months later the failure of the ninety-year-old investment company Bear Stearns presaged the collapse of the financial sector. Over the summer, the crisis continued to build strength and eventually it came to a head in September, when the investment bank Lehman Brothers disintegrated under the weight of a bankrupt portfolio—composed of assets that had been hidden from the public through malfeasant accounting.1 John McCain, Barack Obama’s Republican opponent, gave a stump speech two days after what came to be known as the “Lehman Shock.”


pages: 389 words: 109,207

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street by William Poundstone

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Albert Einstein, anti-communist, asset allocation, Bear Stearns, beat the dealer, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bletchley Park, Brownian motion, buy and hold, buy low sell high, capital asset pricing model, Claude Shannon: information theory, computer age, correlation coefficient, diversified portfolio, Edward Thorp, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, Henry Singleton, high net worth, index fund, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, John Meriwether, John von Neumann, junk bonds, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Michael Milken, Myron Scholes, New Journalism, Norbert Wiener, offshore financial centre, Paul Samuelson, publish or perish, quantitative trading / quantitative finance, random walk, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ronald Reagan, Rubik’s Cube, short selling, speech recognition, statistical arbitrage, Teledyne, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, traveling salesman, value at risk, zero-coupon bond, zero-sum game

By the end of the week, LTCM had shed $551 million. It desperately needed collateral to cover too many simultaneous losing trades. Positions were liquidated at a loss. The fund tried to raise money from Warren Buffett and George Soros. Meriwether spoke with a trusted friend, Vinny Mattone, formerly of Bear Stearns. “Where are you?” Mattone asked. “We’re down by half,” Meriwether answered. “You’re finished,” Mattone said. “What are you talking about? We still have two billion. We have half—we have Soros.” “When you’re down by half,” Mattone explained, “people figure you can go down all the way. They’re going to push the market against you.


pages: 438 words: 109,306

Tower of Basel: The Shadowy History of the Secret Bank That Runs the World by Adam Lebor

Alan Greenspan, banking crisis, Basel III, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, central bank independence, corporate governance, corporate social responsibility, deindustrialization, eurozone crisis, fiat currency, financial independence, financial innovation, foreign exchange controls, forensic accounting, Glass-Steagall Act, Goldman Sachs: Vampire Squid, haute cuisine, IBM and the Holocaust, Kickstarter, low interest rates, Occupy movement, offshore financial centre, Ponzi scheme, power law, price stability, quantitative easing, reserve currency, special drawing rights

Freddie and Fannie then sold the securities to outside investors and guaranteed both the principal and the interest payments. Thanks to the government’s imprimatur, the system worked and remained stable. But in the early 2000s, Wall Street worked out how to purchase and securitize mortgages without going through Freddie or Fannie. Finance houses such as Lehman Brothers and Bear Stearns bundled high-risk subprime mortgages—those granted to borrowers with a poor credit rating—into securities. The Wall Street finance houses then sold them to investors, few of whom understood the risks they were buying. The global credit system was vastly overstretched. The BIS had repeatedly warned that excessive global credit growth, poor lending practices by commercial banks, private sector excesses and global imbalances were fueling a potential crisis.


pages: 364 words: 104,697

Were You Born on the Wrong Continent? by Thomas Geoghegan

Alan Greenspan, Albert Einstein, American Society of Civil Engineers: Report Card, An Inconvenient Truth, banking crisis, Bear Stearns, Berlin Wall, Bob Geldof, business logic, collective bargaining, corporate governance, cross-subsidies, dark matter, David Brooks, declining real wages, deindustrialization, disinformation, Easter island, ending welfare as we know it, facts on the ground, Gini coefficient, Glass-Steagall Act, haute cuisine, high-speed rail, income inequality, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, laissez-faire capitalism, low skilled workers, Martin Wolf, McJob, military-industrial complex, minimum wage unemployment, mittelstand, offshore financial centre, Paul Samuelson, payday loans, pensions crisis, plutocrats, Prenzlauer Berg, purchasing power parity, Ralph Waldo Emerson, Robert Gordon, Ronald Reagan: Tear down this wall, Saturday Night Live, Silicon Valley, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, union organizing, Wolfgang Streeck, women in the workforce

And while Germany was not disinvesting from itself, all the global capital was going to the U.S. All the hot money went to New York. And the fear was that, as capital became more global, German companies would not get any money precisely because they had ordinary workers sitting on the corporate boards. Would Bear Stearns or Merrill Lynch want to put money into a company where a guy whose job was watering the office plants was a director? Bear and Merrill and Bank of America expect a director to be—well, someone who’s not going to wreck the company. So Germany was dark, and in the years to come, Germans I met would often say, “How do you find us?”


pages: 335 words: 104,850

Conscious Capitalism, With a New Preface by the Authors: Liberating the Heroic Spirit of Business by John Mackey, Rajendra Sisodia, Bill George

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, Abraham Maslow, Bear Stearns, benefit corporation, Berlin Wall, Buckminster Fuller, business process, carbon footprint, collective bargaining, corporate governance, corporate social responsibility, creative destruction, crony capitalism, cross-subsidies, do well by doing good, en.wikipedia.org, Everything should be made as simple as possible, Fall of the Berlin Wall, fear of failure, Flynn Effect, income per capita, invisible hand, Jeff Bezos, job satisfaction, John Elkington, lone genius, low interest rates, Mahatma Gandhi, microcredit, Nelson Mandela, Occupy movement, profit maximization, Ralph Waldo Emerson, shareholder value, six sigma, social intelligence, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Steven Pinker, systems thinking, The Fortune at the Bottom of the Pyramid, The Wealth of Nations by Adam Smith, too big to fail, union organizing, wealth creators, women in the workforce, zero-sum game

Most regrettably, the drive for short-term gains has led to the destruction of many great companies like General Motors and Sears and the bankruptcies of Enron, WorldCom, Kmart, and Kodak, and more than one hundred large companies that were forced to restate past financial reports in 2003–2004 because of questionable accounting. These problems pale in comparison with the 2008 failure of major financial firms like Fannie Mae, Bear Stearns, Lehman Brothers, Countrywide, Citigroup, and scores of others, as overleveraged financial institutions collapsed while trying to maximize their shareholder value. In effect, Wall Street’s pressure on corporations to increase short-term stock prices boomeranged, knocking out many of those same financial firms.


pages: 385 words: 111,807

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

"there is no alternative" (TINA), Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, antiwork, AOL-Time Warner, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, Charles Babbage, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial engineering, financial innovation, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, Glass-Steagall Act, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, Great Leap Forward, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land bank, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Neal Stephenson, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, proprietary trading, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, scientific management, Scramble for Africa, search costs, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

Initially, the problem mortgage loans in the US were estimated to be $50–100 billion – not a small amount but an amount that can be easily absorbed by the system (or so many claimed at the time). However, the crisis erupted properly in the summer of 2008, with the bankruptcy of the investment banks Bear Stearns and then Lehmann Brothers. A huge financial panic swept the world. It was revealed that even some of the most venerable names in the financial industry were in big trouble, having generated and bought huge numbers of dubious composite financial products. The ‘Keynesian spring’ and the return of the free-market orthodoxy – with a vengeance The initial responses of the major economies were very different from those following the Great Depression.


file:///C:/Documents%20and%... by vpavan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Alan Greenspan, AOL-Time Warner, asset allocation, Bear Stearns, Berlin Wall, book value, business cycle, buttonwood tree, buy and hold, Carl Icahn, corporate governance, corporate raider, currency risk, disintermediation, diversification, diversified portfolio, Donald Trump, estate planning, financial engineering, fixed income, index fund, intangible asset, interest rate swap, John Bogle, junk bonds, Larry Ellison, margin call, Mary Meeker, money market fund, Myron Scholes, new economy, payment for order flow, price discovery process, profit motive, risk tolerance, shareholder value, short selling, Silicon Valley, Small Order Execution System, Steve Jobs, stocks for the long run, stocks for the long term, tech worker, technology bubble, transaction costs, Vanguard fund, women in the workforce, zero-coupon bond, éminence grise

These practices met the letter, but not the spirit, of the best-execution rule. In a short period of time, the wholesalers began to dominate the flow of orders. They had become moneymaking machines. Knight grew to handle about 20 percent of the volume in the most active Nasdaq stocks by mid-1999. And Schwab Capital Markets, estimates Bear Stearns analyst Amy Butte, was raking in about $1 billion a year in market-making revenue. Neither contributed much to the crucial process of price discovery— the result of order interaction over the Nasdaq network or the auction taking place on the floor of the NYSE. But with a guaranteed flow of orders, and most customers not knowing where their orders were ending up, there was little reason to send orders elsewhere to get price improvement.


pages: 407 words: 104,622

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, Andrew Wiles, automated trading system, backtesting, Bayesian statistics, Bear Stearns, beat the dealer, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, blockchain, book value, Brownian motion, butter production in bangladesh, buy and hold, buy low sell high, Cambridge Analytica, Carl Icahn, Claude Shannon: information theory, computer age, computerized trading, Credit Default Swap, Daniel Kahneman / Amos Tversky, data science, diversified portfolio, Donald Trump, Edward Thorp, Elon Musk, Emanuel Derman, endowment effect, financial engineering, Flash crash, George Gilder, Gordon Gekko, illegal immigration, index card, index fund, Isaac Newton, Jim Simons, John Meriwether, John Nash: game theory, John von Neumann, junk bonds, Loma Prieta earthquake, Long Term Capital Management, loss aversion, Louis Bachelier, mandelbrot fractal, margin call, Mark Zuckerberg, Michael Milken, Monty Hall problem, More Guns, Less Crime, Myron Scholes, Naomi Klein, natural language processing, Neil Armstrong, obamacare, off-the-grid, p-value, pattern recognition, Peter Thiel, Ponzi scheme, prediction markets, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, Robert Mercer, Ronald Reagan, self-driving car, Sharpe ratio, Silicon Valley, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, Steve Bannon, Steve Jobs, stochastic process, the scientific method, Thomas Bayes, transaction costs, Turing machine, Two Sigma

Worrywarts predicted the difficulties might spread, but few thought a corner of the mortgage market was capable of crippling the broader stock or bond markets. Either way, Brown and Mercer’s statistical-arbitrage stock trades were market neutral, so the jitters were unlikely to affect returns. On Friday, August 3, the Dow Jones Industrial Average plummeted 281 points, a loss attributed to concern about the health of investment bank Bear Stearns. The drop didn’t seem like a big deal, though. Most senior investors were on vacation, after all, so reading into the losses didn’t seem worthwhile. By that summer, a group of quantitative hedge funds had emerged dominant. Inspired by Simons’s success, most had their own market-neutral strategies just as reliant on computer models and automated trades.


pages: 432 words: 106,612

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever by Robin Wigglesworth

Albert Einstein, algorithmic trading, asset allocation, Bear Stearns, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Blitzscaling, Brownian motion, buy and hold, California gold rush, capital asset pricing model, Carl Icahn, cloud computing, commoditize, coronavirus, corporate governance, corporate raider, COVID-19, data science, diversification, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, fear index, financial engineering, fixed income, Glass-Steagall Act, Henri Poincaré, index fund, industrial robot, invention of the wheel, Japanese asset price bubble, Jeff Bezos, Johannes Kepler, John Bogle, John von Neumann, Kenneth Arrow, lockdown, Louis Bachelier, machine readable, money market fund, Myron Scholes, New Journalism, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, Performance of Mutual Funds in the Period, Peter Thiel, pre–internet, RAND corporation, random walk, risk-adjusted returns, road to serfdom, Robert Shiller, rolodex, seminal paper, Sharpe ratio, short selling, Silicon Valley, sovereign wealth fund, subprime mortgage crisis, the scientific method, transaction costs, uptick rule, Upton Sinclair, Vanguard fund

Essentially, they are traditional funds with the usual medley of analysts, traders, and portfolio managers who use the superior ETF structure—tradable and in the United States tax-advantaged—rather than the conventional legal vehicles that have been the norm for most of the post–World War II era. Bear Stearns launched the first active ETF all the way back in 2008. It invested in short-term debt instruments and was given the ticker YYY—naturally leading to jokes about “why why why” would any investor want an actively managed ETF. Growth has been slow, with the assets of actively managed ETFs still about $240 billion by the end of 2020, due to some major drawbacks.


pages: 1,042 words: 266,547

Security Analysis by Benjamin Graham, David Dodd

activist fund / activist shareholder / activist investor, asset-backed security, backtesting, barriers to entry, Bear Stearns, behavioural economics, book value, business cycle, buy and hold, capital asset pricing model, Carl Icahn, carried interest, collateralized debt obligation, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, diversification, diversified portfolio, fear of failure, financial engineering, financial innovation, fixed income, flag carrier, full employment, Greenspan put, index fund, intangible asset, invisible hand, Joseph Schumpeter, junk bonds, land bank, locking in a profit, Long Term Capital Management, low cost airline, low interest rates, Michael Milken, moral hazard, mortgage debt, Myron Scholes, prudent man rule, Right to Buy, risk free rate, risk-adjusted returns, risk/return, secular stagnation, shareholder value, stock buybacks, The Chicago School, the market place, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, two and twenty, zero-coupon bond

We added a new essay on global value investing. Because these contributions were submitted and edited during the second half of 2007 and early 2008, you will not see references to the deepening credit crisis and sharp financial market sell-off that very nearly bankrupted the venerable investment bank Bear Stearns in March 2008. The reason is that instead of focusing myopically on very recent developments, we took a long-term view that would be applicable in both good markets and bad, and, like Graham and Dodd, we concerned ourselves chiefly with “concepts, methods, standards, principles, and, above all, with logical reasoning.”

., 193n Bagehot, Walter, 143 Balance sheet, 93–94 asset valuation and (see Asset valuation) as check on published earnings statement, 437–438 checking effect of losses or profits on financial position and, 600–607 checking up on reported earnings per share on, 598–600 comparison over time, 598–613 long-range study of earning power and resources and, 607–613 usefulness of, 538–539 Baldwin Locomotive Works, 90, 457, 459, 606 Balsam, Jerome, 265n Baltimore and Ohio Railroad Company, 239, 244, 257n Bangor and Aroostook Railroad, 177–178, 679 Bank debt, large, as sign of weakness, 594–596 Bank loans of intermediate maturity, 597–598 Bankruptcy: bondholders and, 231–236 price patterns produced by, 686–687 price-value discrepancies and, 685–687 protective committee and, 240–241 tendency to sell below fair value and, 236–237 varieties of, 268–270 voluntary readjustment plans and, 237–239 (See also Distressed investing) Bankruptcy Abuse Protection and Consumer Protection Act of 2005, 270n Bankruptcy Act of 1898, 270n Barclay v. Wabash Railway, 199n Bargain hunting, 50–53 Barker Bros. Corp., 522–523 Barnhart Bros. and Spindler Company, 221 Barnsdall Oil Company, 451–452, 620–621 Baruch, Bernard M., 16 Basic-stock inventory accounting, 429–430 Bayuk Cigars, Inc., 303 Bear Stearns, 725 Belding, Heminway Company, 329 Belgium, 174, 175 Bemis Brothers’ Bag, 92n Bendix Aviation Corporation, 423 Berkey and Gay Furniture Company, 252, 330 Berkshire Hathaway, 40, 287n, 342, 344–345 Berle, A. A., Jr., 199n, 576, 577 Bethlehem Steel Company, 305–306, 461, 462, 481n, 579, 682–683, 691–692 Better Business Bureau of New York City, 259n Beuhler, Alfred G., 392n Bloomberg, 718 Bloomberg, Lawrence N., 558n Bloomingdale’s, 43 “Blue-sky flotation,” 259n Boeing Airplane Company, 678 Bolivia, 175 Bon Ami, 93n Bond(s), 123–140 amortization of discount on, 433–434 avoidance of loss and, 143 buying on depression basis, 154–164, 266 collapses of, causes of, 157–161 collateral-trust, 182–183 common sense and, 135–137 conflicting views on financing by, 161–162 convertible (see Convertible issues) durability of Security Analysis and, 137–140 early maturing, danger of, 596–597 equipment obligations, 180–182 evolution of investment standards and, 125–126 exclusion by New York statute, 171–172 Federal Land Bank, 213–214 as fixed-value investment, 141–143 of foreign corporations, 176 foreign-government, 173–175 high-grade (see High-grade bonds) income, 202–208 investing vs. speculating and, 102 investment absolutes and, 126 investment standards for, 169–179, 180–189 investment vs. speculation and, 126–128 investment-trust, protective provisions for, 247–252 legal rights of bondholders and, 230–231 low-priced, limitation of profit on, 323–324 mortgage, 215–218 Oaktree Capital Management investment methodology for, 130–135 pragmatic approach for, 128–130 protective covenants and (see Protective covenants) railroads, unsound financial policies followed by, 162 real estate, 183–189 as safe investment, rejection of rule by Graham and Dodd, 43 sound, unavailability of, 161 speculative, 28, 324–325 subordination to bank debt in reorganization, 243 of subsidiary companies, 226–227 “underlying,” 152–153 undervalued, market exaggerations due to, 683–685 working-capital requirements and, 245–246 zero-coupon, 284 Bond and Mortgage Guarantee Company, 216 Bond prices, interest rates and, 25–27 Book value, 548–558 of common stocks, treatment of preferred stocks and, 550–551 computation of, 548–550 current-asset value and cash-asset value and, 553–554 exaggeration by pyramiding, 649–650 practical significance of, 555–558 of preferred stocks, 551–553 Borg Warner, 456 Borman, Frank, 265 Bosland, Chelcie C., 4, 17, 362n Botany Worsted Mills, 430 Bowker Building, 185n Bradlees, 276–278 Braunthal, Alfred, 467n Brazil, 175 “A Break in the Action” (Castro), 271n Breeden, Richard, 279–280 British Companies Act of 1929, 386n–387n Brooklyn Heights Railroad Company, 209 Brooklyn Rapid Transit Company, 209, 492 Brooklyn Union Elevated Railroad, 78–79, 146–147, 209, 685, 693 Brooklyn Union Gas Company, 321, 322 Brooklyn-Manhattan Transit Corporation, 79, 595, 693 Brown Brothers Harriman & Co., 7 Budd Manufacturing Company, 246n Buffalo Sabres, 274 Buffett, Warren, 40, 53, 54, 58, 137–138, 273, 287, 345, 396, 622, 629, 713–714, 715, 720 Bulgaria, 175 Bunte Brothers, 674 Burchill Act, 233n Burlington, 212 Burtchett, E.


pages: 437 words: 113,173

Age of Discovery: Navigating the Risks and Rewards of Our New Renaissance by Ian Goldin, Chris Kutarna

"World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, Airbnb, Albert Einstein, AltaVista, Asian financial crisis, asset-backed security, autonomous vehicles, banking crisis, barriers to entry, battle of ideas, Bear Stearns, Berlin Wall, bioinformatics, bitcoin, Boeing 747, Bonfire of the Vanities, bread and circuses, carbon tax, clean water, collective bargaining, Colonization of Mars, Credit Default Swap, CRISPR, crowdsourcing, cryptocurrency, Dava Sobel, demographic dividend, Deng Xiaoping, digital divide, Doha Development Round, double helix, driverless car, Edward Snowden, Elon Musk, en.wikipedia.org, epigenetics, experimental economics, Eyjafjallajökull, failed state, Fall of the Berlin Wall, financial innovation, full employment, Galaxy Zoo, general purpose technology, Glass-Steagall Act, global pandemic, global supply chain, Higgs boson, Hyperloop, immigration reform, income inequality, indoor plumbing, industrial cluster, industrial robot, information retrieval, information security, Intergovernmental Panel on Climate Change (IPCC), intermodal, Internet of things, invention of the printing press, Isaac Newton, Islamic Golden Age, Johannes Kepler, Khan Academy, Kickstarter, Large Hadron Collider, low cost airline, low skilled workers, Lyft, Mahbub ul Haq, Malacca Straits, mass immigration, Max Levchin, megacity, Mikhail Gorbachev, moral hazard, Nelson Mandela, Network effects, New Urbanism, non-tariff barriers, Occupy movement, On the Revolutions of the Heavenly Spheres, open economy, Panamax, Paris climate accords, Pearl River Delta, personalized medicine, Peter Thiel, post-Panamax, profit motive, public intellectual, quantum cryptography, rent-seeking, reshoring, Robert Gordon, Robert Metcalfe, Search for Extraterrestrial Intelligence, Second Machine Age, self-driving car, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Skype, smart grid, Snapchat, special economic zone, spice trade, statistical model, Stephen Hawking, Steve Jobs, Stuxnet, synthetic biology, TED Talk, The Future of Employment, too big to fail, trade liberalization, trade route, transaction costs, transatlantic slave trade, uber lyft, undersea cable, uranium enrichment, We are the 99%, We wanted flying cars, instead we got 140 characters, working poor, working-age population, zero day

.**** Like a pandemic pathogen, toxic debts originated in a small backwater (subprime mortgage lending) and spread quickly through intertwined balance sheets to threaten the global financial system.50 From the top down and bottom up, the financial sector’s tangled complexity muddled the vision of those standing in its midst. Neither private- nor public-sector actors saw the accumulating danger. As a Bloomberg columnist observed in 2008, “[The CEO of Bear Stearns] plays bridge, and [the CEO of Merrill Lynch] golfs while their firms collapse, not because they don’t care their firms are collapsing, but because they don’t know that their firms are collapsing.”51 In its 2007 Global Financial Stability Report, the IMF concluded that “weakness has been contained to certain portions of the subprime market, and is not likely to pose a serious systemic risk.


Hopes and Prospects by Noam Chomsky

air traffic controllers' union, Alan Greenspan, Albert Einstein, banking crisis, Bear Stearns, Berlin Wall, Bretton Woods, British Empire, capital controls, colonial rule, corporate personhood, Credit Default Swap, cuban missile crisis, David Ricardo: comparative advantage, deskilling, en.wikipedia.org, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Firefox, Glass-Steagall Act, high-speed rail, Howard Zinn, Hyman Minsky, invisible hand, liberation theology, market fundamentalism, Martin Wolf, Mikhail Gorbachev, Monroe Doctrine, moral hazard, Nelson Mandela, new economy, nuremberg principles, one-state solution, open borders, Plutonomy: Buying Luxury, Explaining Global Imbalances, public intellectual, Ralph Waldo Emerson, RAND corporation, Robert Solow, Ronald Reagan, Savings and loan crisis, Seymour Hersh, structural adjustment programs, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, trade liberalization, uranium enrichment, Washington Consensus

As the crisis began to hit, Geithner hinted that he would use the enormous leverage he had as president of the New York Fed to impose some controls on exotic financial instruments, but “there is no evidence,” Canova writes, “that there has been much action, even though Geithner has used this time to negotiate multibillion-dollar bailouts and deals associated with the collapse of Bear Stearns, Lehman Brothers, AIG, and now Citigroup.” He adds that “the selection of Geithner and Summers to top administrative posts rewards past failure and protects special interests [and] also sends the wrong message to those who thought they were voting for change.”28 Not much help in “changing” the world of finance could be expected from the Democratic Congress either.


pages: 436 words: 114,278

Crude Volatility: The History and the Future of Boom-Bust Oil Prices by Robert McNally

"World Economic Forum" Davos, Alan Greenspan, American energy revolution, Asian financial crisis, banking crisis, barriers to entry, Bear Stearns, Bretton Woods, collective bargaining, credit crunch, energy security, energy transition, geopolitical risk, housing crisis, hydraulic fracturing, Ida Tarbell, index fund, Induced demand, interchangeable parts, invisible hand, joint-stock company, market clearing, market fundamentalism, megaproject, moral hazard, North Sea oil, oil rush, oil shale / tar sands, oil shock, peak oil, price discrimination, price elasticity of demand, price stability, sovereign wealth fund, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, transfer pricing, vertical integration

In 2006, a U.S. real estate bubble began deflating, spilling over into foreclosures, delinquencies, and financial institution failures. Credit tightened, transmitting distress to the real economy and slowing real estate investment and household spending. By the end of 2007, the U.S. economy was in a full recession. The collapse of the U.S. securities firm Bear Stearns in March 2008 intensified concerns about a financial crisis, and September brought more foreboding signs as Washington was forced to seize the government-sponsored housing lenders Fannie Mae and Freddie Mac.92 On September 14, 2008, the U.S. subprime mortgage crisis erupted into a global financial emergency when Lehman Brothers—the fourth-largest investment bank in the country—declared bankruptcy.


pages: 416 words: 118,592

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, book value, BRICs, butter production in bangladesh, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial engineering, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Japanese asset price bubble, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, margin call, market bubble, Mary Meeker, money market fund, mortgage tax deduction, new economy, Own Your Own Home, PalmPilot, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stock buybacks, stocks for the long run, sugar pill, survivorship bias, The Myth of the Rational Market, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

The NASDAQ index of high-tech stocks declined by 70 percent from March 2000 to October 2002. During the twelve-month period from March 2008 through March 2009, the stock market declined by almost 50 percent. Did the stock market accurately reflect all relevant information about stocks and the economy in March 2000 or March 2008? Were professional investment firms such as Bear Stearns and Lehman Brothers making rational assessments of the value of the mortgage-backed securities in their portfolios before the financial crisis that forced both firms into liquidation and threatened to blow up the world economy in 2009? Critics believe that such events stretch the credibility of the efficient-market theory beyond the breaking point.


pages: 380 words: 118,675

The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone

airport security, Amazon Mechanical Turk, Amazon Web Services, AOL-Time Warner, Apollo 11, bank run, Bear Stearns, Bernie Madoff, big-box store, Black Swan, book scanning, Brewster Kahle, buy and hold, call centre, centre right, Chuck Templeton: OpenTable:, Clayton Christensen, cloud computing, collapse of Lehman Brothers, crowdsourcing, cuban missile crisis, Danny Hillis, deal flow, Douglas Hofstadter, drop ship, Elon Musk, facts on the ground, fulfillment center, game design, housing crisis, invention of movable type, inventory management, James Dyson, Jeff Bezos, John Markoff, junk bonds, Kevin Kelly, Kiva Systems, Kodak vs Instagram, Larry Ellison, late fees, loose coupling, low skilled workers, Maui Hawaii, Menlo Park, Neal Stephenson, Network effects, new economy, off-the-grid, optical character recognition, PalmPilot, pets.com, Ponzi scheme, proprietary trading, quantitative hedge fund, reality distortion field, recommendation engine, Renaissance Technologies, RFID, Rodney Brooks, search inside the book, shareholder value, Silicon Valley, Silicon Valley startup, six sigma, skunkworks, Skype, SoftBank, statistical arbitrage, Steve Ballmer, Steve Jobs, Steven Levy, Stewart Brand, the long tail, Thomas L Friedman, Tony Hsieh, two-pizza team, Virgin Galactic, Whole Earth Catalog, why are manhole covers round?, zero-sum game

In his autobiography, Walmart’s founder expounds on the principles of discount retailing and discusses his core values of frugality and a bias for action—a willingness to try a lot of things and make many mistakes. Bezos included both in Amazon’s corporate values. Memos from the Chairman, by Alan Greenberg (1996). A collection of memos to employees by the chairman of the now-defunct investment bank Bear Stearns. In his memos, Greenberg is constantly restating the bank’s core values, especially modesty and frugality. His repetition of wisdom from a fictional philosopher presages Amazon’s annual recycling of its original 1997 letter to shareholders. The Mythical Man-Month, by Frederick P. Brooks Jr. (1975).


pages: 384 words: 118,572

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

Abraham Maslow, attribution theory, Bear Stearns, behavioural economics, Bernie Madoff, Bluma Zeigarnik, British Empire, Cass Sunstein, cognitive dissonance, cognitive load, coherent worldview, Daniel Kahneman / Amos Tversky, dark triade / dark tetrad, endowment effect, epigenetics, Higgs boson, higher-order functions, hindsight bias, lake wobegon effect, lateral thinking, libertarian paternalism, Milgram experiment, placebo effect, Ponzi scheme, post-work, publish or perish, Richard Thaler, risk tolerance, seminal paper, side project, Skype, Steven Pinker, sunk-cost fallacy, the scientific method, tulip mania, Walter Mischel

She’s the real deal, though. She’s not one of those “storefront gypsies who take advantage of people’s fear.” No, no. She’s been psychic since she turned seven, when she saw a dead woman rearranging the flowers that surrounded her coffin. She claims to have persuaded two clients to reject higher-paying offers from Bear Stearns eighteen months before its collapse. A session with her (in 2008): $400. Jude Deveraux, a bestselling romance novelist, handed about $17 million over seventeen years to Rose Marks, a psychic who split her time between Florida and New York. And for what? Marks had told her that she could transfer the soul of her dead son into another boy’s body and reunite mother and child once more.


pages: 358 words: 119,272

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms by Russell Napier

Alan Greenspan, Albert Einstein, asset allocation, banking crisis, Bear Stearns, behavioural economics, book value, Bretton Woods, business cycle, buy and hold, collective bargaining, Columbine, cuban missile crisis, desegregation, diversified portfolio, fake news, financial engineering, floating exchange rates, Fractional reserve banking, full employment, Glass-Steagall Act, global macro, hindsight bias, Kickstarter, Long Term Capital Management, low interest rates, market bubble, Michael Milken, military-industrial complex, Money creation, mortgage tax deduction, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, price stability, reserve currency, risk free rate, Robert Gordon, Robert Shiller, Ronald Reagan, short selling, stocks for the long run, yield curve, Yogi Berra

., Boston. 2 July: The $1.6 billion Dreyfus Fund has been trimming its utility-stock holdings that did so well for it in 1981. And a growing part of its cash reserves are going back into the stock market. ‘I can see a 50% gain in these stocks a lot more easily then in most,’ says Howard Stein, president of the fund. 14 July: The eminent brokerage firms of Merrill Lynch, Pierce, Fenner & Smith; Goldman Sachs; Bear Stearns and E.F. Hutton each can produce rather lengthy lists of stocks deemed worthy of purchase. They have something else in common, however. Their top strategists all think investors would be better off in bonds. 27 July: ‘It was a normal correction as the market pulled back and digested the recent declines in interest rates,’ asserted vice president Ralph Acampora of Kidder Peabody, encouraged that ‘volume tended to dry up’ when prices were falling.


pages: 400 words: 124,678

The Investment Checklist: The Art of In-Depth Research by Michael Shearn

accelerated depreciation, AOL-Time Warner, Asian financial crisis, barriers to entry, Bear Stearns, book value, business cycle, call centre, Carl Icahn, Clayton Christensen, collective bargaining, commoditize, compensation consultant, compound rate of return, Credit Default Swap, currency risk, do what you love, electricity market, estate planning, financial engineering, Henry Singleton, intangible asset, Jeff Bezos, Larry Ellison, London Interbank Offered Rate, margin call, Mark Zuckerberg, money market fund, Network effects, PalmPilot, pink-collar, risk tolerance, shareholder value, six sigma, Skype, Steve Jobs, stock buybacks, subscription business, supply-chain management, technology bubble, Teledyne, time value of money, transaction costs, urban planning, women in the workforce, young professional

There are a few ways that management typically responds to difficult situations; identifying which actions these managers take will help you decide whether they are an ideal partner or not. Some managers allow current adversity to overwhelm them completely. In this type of situation, management is trying to evade the problem rather than confront it. For example, when Bear Stearns was nearing bankruptcy, then-CEO James Cayne could be found playing golf or playing in bridge tournaments. He ignored the risks the firm was facing.12 Some managers attempt to blame the problems on others or on events beyond their control. In this scenario, you will typically see heavily lawyered press releases or releases carefully crafted by public relations firms.


Hedgehogging by Barton Biggs

activist fund / activist shareholder / activist investor, Alan Greenspan, asset allocation, backtesting, barriers to entry, Bear Stearns, Big Tech, book value, Bretton Woods, British Empire, business cycle, buy and hold, diversification, diversified portfolio, eat what you kill, Elliott wave, family office, financial engineering, financial independence, fixed income, full employment, global macro, hiring and firing, index fund, Isaac Newton, job satisfaction, junk bonds, low interest rates, margin call, market bubble, Mary Meeker, Mikhail Gorbachev, new economy, oil shale / tar sands, PalmPilot, paradox of thrift, Paul Samuelson, Ponzi scheme, proprietary trading, random walk, Reminiscences of a Stock Operator, risk free rate, Ronald Reagan, secular stagnation, Sharpe ratio, short selling, Silicon Valley, transaction costs, upwardly mobile, value at risk, Vanguard fund, We are all Keynesians now, zero-sum game, éminence grise

They are still valuable to check out ideas with, and sometimes a conversation with them can be very instructive. Our primary research sources are Morgan Stanley, J.P. Morgan (for economics), Goldman Sachs, Credit Lyonaisse, ISI, Bernstein, Credit Suisse, The Bank Credit Analyst, Merrill Lynch, Intregal Associates, and Bear Stearns. My assistant erases everything else. From time to time I add sources to and delete from the primary list. Otherwise, I would get overwhelmed with stuff I really don’t pay any attention to. I do this because I used to lug around a heavy briefcase full of research. I had the bad habit of wanting to reduce the load by discarding paper.


pages: 424 words: 121,425

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

access to a mobile phone, affirmative action, Alan Greenspan, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Bear Stearns, British Empire, call centre, Capital in the Twenty-First Century by Thomas Piketty, cashless society, credit crunch, David Graeber, disintermediation, disruptive innovation, diversification, failed state, fiat currency, financial innovation, financial intermediation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, housing crisis, income inequality, Internet Archive, invisible hand, junk bonds, Kickstarter, low interest rates, M-Pesa, McMansion, Michael Milken, microcredit, mobile money, Money creation, moral hazard, mortgage debt, new economy, Own Your Own Home, Paul Volcker talking about ATMs, payday loans, peer-to-peer lending, price discrimination, profit maximization, profit motive, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, Ronald Reagan: Tear down this wall, Savings and loan crisis, savings glut, subprime mortgage crisis, the built environment, the payments system, too big to fail, trade route, transaction costs, unbanked and underbanked, underbanked, union organizing, W. E. B. Du Bois, white flight, working poor

The 2008 financial crisis revealed that government support goes well beyond FDIC insurance and that all financial institutions that operate with high leverage, not just traditional banks, can experience a run. The recent crisis resulted from many complex factors, but at its most basic, it was a run on the “shadow banking system”—financial institutions that operate with leverage similar to a bank, like investment banks, such as Lehman Brothers and Bear Stearns, and insurance companies, such as AIG.21 Although Wall Street investment banks are not banks, “shadow banks” are still susceptible to the same economic realities as deposit banks. They are highly leveraged, and they lend long and borrow short. Like banks with their liquid deposits that can be withdrawn at any time, investment banks also have liquid assets (commercial paper or other lines of credit from other banks) and illiquid loans.


Cable Cowboy by Mark Robichaux

AOL-Time Warner, Barry Marshall: ulcers, Bear Stearns, call centre, Chuck Templeton: OpenTable:, corporate raider, cotton gin, estate planning, fear of failure, financial engineering, Irwin Jacobs, junk bonds, Michael Milken, mutually assured destruction, oil rush, profit maximization, rolodex, Ronald Reagan, shareholder value, Silicon Valley, Telecommunications Act of 1996, vertical integration

The costs, everyone suddenly realized, would be enormous. Industry executives pegged the cost for a digital overhaul of the nation’s cable systems to be around $100 billion.10 Malone realized he had to change the perception of the company on Wall Street quickly. He chose a media conference hosted by Bear Stearns in Phoenix to tell the world he had taken back the reins at TCI, which at the time was trading at around $11, a fouryear low. On October 24, Malone told a crowd of analysts: “Rumors that I have expired, or am terminally ill or have lost interest in the cable company are substantially inaccurate.” 171 9486_Robichaux_02.f.qxd 8/28/02 9:54 AM Page 172 172 C A B L E C O W B OY He and Clouston made presentations in the afternoon, and Malone took over the audience at dinner, proving that he could still hold a crowd spellbound by his edifying explanations of TCI’s business.


pages: 453 words: 122,586

Samuelson Friedman: The Battle Over the Free Market by Nicholas Wapshott

2021 United States Capitol attack, Alan Greenspan, bank run, basic income, battle of ideas, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, California gold rush, collective bargaining, coronavirus, corporate governance, COVID-19, creative destruction, David Ricardo: comparative advantage, Donald Trump, double helix, en.wikipedia.org, fiat currency, financial engineering, fixed income, floating exchange rates, full employment, God and Mammon, greed is good, Gunnar Myrdal, income inequality, indoor plumbing, invisible hand, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, light touch regulation, liquidity trap, lockdown, low interest rates, Machinery of Freedom by David Friedman, market bubble, market clearing, mass immigration, military-industrial complex, Money creation, money market fund, Mont Pelerin Society, moral hazard, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, paradox of thrift, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, price stability, public intellectual, pushing on a string, quantitative easing, rent control, road to serfdom, Robert Bork, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, seminal paper, Simon Kuznets, social distancing, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, trickle-down economics, universal basic income, upwardly mobile, urban renewal, War on Poverty, We are all Keynesians now, Works Progress Administration, zero-sum game

He could not resist a sideswipe at Friedman’s heirs, the “inflation targetters,” writing to Summers: You correctly doubt that the many hidden and admitted losses that resulted from a burst real estate bubble impinging on the new dynamite of Frankenstein financial engineering can heal themselves by private initiative. Before we are out of the mess, the Federal purse—the Treasury and the Federal Reserve Board—is going to lose amounts that dwarf previous real estate failures and anything that happened after 1939. Accordingly, I thought your stance, approving the Bear Stearns caper but worrying that Freddie and Fannie executives and shareholders were left to revert to their bad old ways or bad new ways, was strange. Strange and harmful if believed in. Freddie and Fannie are from now on the on-stage dummies run by [Treasury Secretary Hank] Paulson9-Bernanke ventriloquists. … It’s tough-donuts time for fervent inflation targetters.10 Summers replied: I agree with you the situation is grave, the government will have to do much more. … No time for moral hazard speeches. … But what about Fannie and Freddie?


pages: 483 words: 141,836

Red-Blooded Risk: The Secret History of Wall Street by Aaron Brown, Eric Kim

Abraham Wald, activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, Asian financial crisis, Atul Gawande, backtesting, Basel III, Bayesian statistics, Bear Stearns, beat the dealer, Benoit Mandelbrot, Bernie Madoff, Black Swan, book value, business cycle, capital asset pricing model, carbon tax, central bank independence, Checklist Manifesto, corporate governance, creative destruction, credit crunch, Credit Default Swap, currency risk, disintermediation, distributed generation, diversification, diversified portfolio, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, experimental subject, fail fast, fear index, financial engineering, financial innovation, global macro, illegal immigration, implied volatility, independent contractor, index fund, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market clearing, market fundamentalism, market microstructure, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, natural language processing, open economy, Pierre-Simon Laplace, power law, pre–internet, proprietary trading, quantitative trading / quantitative finance, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, shareholder value, Sharpe ratio, special drawing rights, statistical arbitrage, stochastic volatility, stock buybacks, stocks for the long run, tail risk, The Myth of the Rational Market, Thomas Bayes, too big to fail, transaction costs, value at risk, yield curve

The largest shareholders in all Wall Street firms were the employees. Why would they buy the stock if they were playing “heads I win, tails the firm loses”? There were three Wall Street CEOs with more than a billion dollars at stake in their companies: Hank Greenberg of American International Group (AIG), Dick Fuld at Lehman Brothers, and Jimmy Cayne at Bear Stearns. So the people with the most to lose failed. In my entire Wall Street career I have been in on many risk decisions. I didn’t always agree with the decisions, but there was never a meeting in which every senior person didn’t think seriously and hard about the risk. And they weren’t thinking of the money they would lose if things went bad; they were thinking of their pride, and their friends and employees, and customers and creditors.


pages: 1,829 words: 135,521

Python for Data Analysis: Data Wrangling with Pandas, NumPy, and IPython by Wes McKinney

Bear Stearns, business process, data science, Debian, duck typing, Firefox, general-purpose programming language, Google Chrome, Guido van Rossum, index card, p-value, quantitative trading / quantitative finance, random walk, recommendation engine, sentiment analysis, side project, sorting algorithm, statistical model, Two Sigma, type inference

See Figure 9-11 for the result: from datetime import datetime fig = plt.figure() ax = fig.add_subplot(1, 1, 1) data = pd.read_csv('examples/spx.csv', index_col=0, parse_dates=True) spx = data['SPX'] spx.plot(ax=ax, style='k-') crisis_data = [ (datetime(2007, 10, 11), 'Peak of bull market'), (datetime(2008, 3, 12), 'Bear Stearns Fails'), (datetime(2008, 9, 15), 'Lehman Bankruptcy') ] for date, label in crisis_data: ax.annotate(label, xy=(date, spx.asof(date) + 75), xytext=(date, spx.asof(date) + 225), arrowprops=dict(facecolor='black', headwidth=4, width=2, headlength=4), horizontalalignment='left', verticalalignment='top') # Zoom in on 2007-2010 ax.set_xlim(['1/1/2007', '1/1/2011']) ax.set_ylim([600, 1800]) ax.set_title('Important dates in the 2008-2009 financial crisis') Figure 9-11.


pages: 458 words: 136,405

Protest and Power: The Battle for the Labour Party by David Kogan

Bear Stearns, Berlin Wall, Bernie Sanders, Boris Johnson, Bretton Woods, Brexit referendum, Brixton riot, centre right, crowdsourcing, Donald Trump, Etonian, F. W. de Klerk, falling living standards, financial independence, full employment, imperial preference, Jeremy Corbyn, means of production, Mikhail Gorbachev, Neil Kinnock, Nelson Mandela, Northern Rock, open borders, race to the bottom, Ronald Reagan, wealth creators, Winter of Discontent, Yom Kippur War

Throughout 2008 the government was faltering, but Brown’s moment came in an international crisis that he was uniquely qualified to handle. The seeds of economic chaos were being sown in September 2007 when Northern Rock ran into trouble and was finally bailed out by the government in February 2008. The US investment bank, Bear Stearns, was also rescued by JP Morgan. In March 2008, the US Treasury secretary, Hank Paulson, stated, ‘I do believe that the worst is likely to be behind us.’ The unseen and unexpected contagion of subprime had only just begun. Brown, as chancellor and then prime minster, had presided over a decade of growth and sound fiscal management.


Adam Smith: Father of Economics by Jesse Norman

active measures, Alan Greenspan, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Cornelius Vanderbilt, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, electricity market, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial engineering, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Glass-Steagall Act, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, low interest rates, market bubble, market fundamentalism, Martin Wolf, means of production, mirror neurons, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, public intellectual, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Solow, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

This is what happened with the collapse of Northern Rock in the UK and Washington Mutual in the US in 2008. Almost exactly the same process can operate with the failure of money market funds; and of bank lending to businesses against collateral, or trading on margin. A relatively small initial market movement can quickly become a rout, as occurred with the failures of the investment banks Bear Stearns and Lehman Brothers. Our understanding of these channels of destabilization has greatly improved in recent years, in part due to the pioneering work of Hyman Minsky. It does not require us to make any unusual assumptions about human behaviour. Within each channel lie specific internal incentives for investors to act as they do.


pages: 752 words: 131,533

Python for Data Analysis by Wes McKinney

Alignment Problem, backtesting, Bear Stearns, cognitive dissonance, crowdsourcing, data science, Debian, duck typing, Firefox, functional programming, Google Chrome, Guido van Rossum, index card, machine readable, random walk, recommendation engine, revision control, sentiment analysis, Sharpe ratio, side project, sorting algorithm, statistical model, type inference

See Figure 8-11 for the result: from datetime import datetime fig = plt.figure() ax = fig.add_subplot(1, 1, 1) data = pd.read_csv('ch08/spx.csv', index_col=0, parse_dates=True) spx = data['SPX'] spx.plot(ax=ax, style='k-') crisis_data = [ (datetime(2007, 10, 11), 'Peak of bull market'), (datetime(2008, 3, 12), 'Bear Stearns Fails'), (datetime(2008, 9, 15), 'Lehman Bankruptcy') ] for date, label in crisis_data: ax.annotate(label, xy=(date, spx.asof(date) + 50), xytext=(date, spx.asof(date) + 200), arrowprops=dict(facecolor='black'), horizontalalignment='left', verticalalignment='top') # Zoom in on 2007-2010 ax.set_xlim(['1/1/2007', '1/1/2011']) ax.set_ylim([600, 1800]) ax.set_title('Important dates in 2008-2009 financial crisis') See the online matplotlib gallery for many more annotation examples to learn from.


pages: 483 words: 143,123

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

activist fund / activist shareholder / activist investor, addicted to oil, Alan Greenspan, American energy revolution, Asian financial crisis, Bakken shale, Bear Stearns, Bernie Sanders, Buckminster Fuller, Carl Icahn, corporate governance, corporate raider, credit crunch, energy security, Exxon Valdez, Great Leap Forward, housing crisis, hydraulic fracturing, Kickstarter, LNG terminal, man camp, margin call, Maui Hawaii, North Sea oil, oil rush, oil shale / tar sands, oil shock, peak oil, Peter Thiel, reshoring, self-driving car, Silicon Valley, sovereign wealth fund, Steve Jobs, Timothy McVeigh, urban decay

• • • On a Sunday morning in May 2008, McClendon drove to an Oklahoma City restaurant to meet Art Swanson, the small-time energy operator who was a high school acquaintance of McClendon’s and was working on their ambitious racetrack/golf course development. By then, the price tag for the project had topped $200 million, a sum that seemed outrageous, even for McClendon. Over pancakes and omelets, he and Swanson decided to scrap the idea. They began to discuss business. Two months earlier, venerable investment bank Bear Stearns had collapsed, amid growing jitters about a potential bursting of the nation’s housing bubble and its impact on the financial system. The mortgage mess didn’t seem to matter to the energy world, though, as crude prices approached $120 a barrel and natural gas was close to twelve dollars per thousand cubic feet.


pages: 422 words: 131,666

Life Inc.: How the World Became a Corporation and How to Take It Back by Douglas Rushkoff

Abraham Maslow, Adam Curtis, addicted to oil, affirmative action, Alan Greenspan, Amazon Mechanical Turk, An Inconvenient Truth, anti-globalists, AOL-Time Warner, banks create money, Bear Stearns, benefit corporation, big-box store, Bretton Woods, car-free, Charles Lindbergh, colonial exploitation, Community Supported Agriculture, complexity theory, computer age, congestion pricing, corporate governance, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, death of newspapers, digital divide, don't be evil, Donald Trump, double entry bookkeeping, easy for humans, difficult for computers, financial innovation, Firefox, full employment, General Motors Futurama, gentrification, Glass-Steagall Act, global village, Google Earth, greed is good, Herbert Marcuse, Howard Rheingold, income per capita, invention of the printing press, invisible hand, Jane Jacobs, John Nash: game theory, joint-stock company, Kevin Kelly, Kickstarter, laissez-faire capitalism, loss aversion, market bubble, market design, Marshall McLuhan, Milgram experiment, military-industrial complex, moral hazard, multilevel marketing, mutually assured destruction, Naomi Klein, negative equity, new economy, New Urbanism, Norbert Wiener, peak oil, peer-to-peer, place-making, placebo effect, planned obsolescence, Ponzi scheme, price mechanism, price stability, principal–agent problem, private military company, profit maximization, profit motive, prosperity theology / prosperity gospel / gospel of success, public intellectual, race to the bottom, RAND corporation, rent-seeking, RFID, road to serfdom, Ronald Reagan, scientific management, short selling, Silicon Valley, Simon Kuznets, social software, Steve Jobs, Telecommunications Act of 1996, telemarketer, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trade route, trickle-down economics, union organizing, urban decay, urban planning, urban renewal, Vannevar Bush, vertical integration, Victor Gruen, white flight, working poor, Works Progress Administration, Y2K, young professional, zero-sum game

Even sympathetic congressional leaders understand that to bail out consumers who bought houses more expensive than they could afford is to reward careless speculation. But when the financial institutions backing these faulty mortgage products begin to fail, government is there with a check. The federal government exchanges real money in the form of Treasury notes for bad money in the form of mortgage-backed securities. The highest-paid brokers at Bear Stearns keep their jobs, even if the logo on their letterhead changes to J. P. Morgan, and their bonuses are reduced for a few years while the dust settles. The fiction is that the money just “vanished.” Financial newspapers and cable-TV business channels say that the value of holdings has been “erased” by market downturns, but it hasn’t been erased at all.


pages: 493 words: 139,845

Women Leaders at Work: Untold Tales of Women Achieving Their Ambitions by Elizabeth Ghaffari

"World Economic Forum" Davos, Albert Einstein, AltaVista, Bear Stearns, business cycle, business process, cloud computing, Columbine, compensation consultant, corporate governance, corporate social responsibility, dark matter, deal flow, do what you love, family office, Fellow of the Royal Society, financial independence, follow your passion, glass ceiling, Grace Hopper, high net worth, John Elkington, knowledge worker, Larry Ellison, Long Term Capital Management, longitudinal study, Oklahoma City bombing, performance metric, pink-collar, profit maximization, profit motive, recommendation engine, Ronald Reagan, Savings and loan crisis, shareholder value, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, thinkpad, trickle-down economics, urban planning, women in the workforce, young professional

Ghaffari: What did you do differently from the local California banks that failed during the latest financial crisis? Gouw: We learned a great deal from the nineties when Southern California real estate got hit hard. A lot of banks chose not to address their problems. I still remember July 2007, after the Bear Stearns hedge fund blew up, we went to our board and said, “Real estate may have a problem.” Early in 2008, we started to curtail our construction lending and at the same time began selling some of these loans. I engaged KPMG to review 100 percent of our portfolio of construction loans. We took the necessary charge-offs and raised capital.


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

Alan Greenspan, asset allocation, backtesting, barriers to entry, Basel III, Bear Stearns, book value, business process, buy low sell high, capital controls, carbon credits, carried interest, clean tech, commoditize, corporate governance, corporate raider, correlation coefficient, creative destruction, currency risk, deal flow, discounted cash flows, disintermediation, disruptive innovation, distributed generation, diversification, diversified portfolio, family office, fixed income, high net worth, impact investing, information asymmetry, intangible asset, junk bonds, Lean Startup, low interest rates, market clearing, Michael Milken, passive investing, pattern recognition, performance metric, price mechanism, profit maximization, proprietary trading, risk tolerance, risk-adjusted returns, risk/return, Savings and loan crisis, shareholder value, Sharpe ratio, Silicon Valley, sovereign wealth fund, statistical arbitrage, time value of money, transaction costs, two and twenty

The opportunity to improve companies, the ability to have an alignment of interest with management and us being the shareholders with long-term, patient capital—to me, these are the hallmarks of private equity. And while we have been focused on delivering exceptional long-term investment returns from the outset, private equity has evolved quite a bit since we started out four decades ago. After leaving Bear Stearns to start our own firm, we had $120,000 between the three of us—$10,000 each from George and me, which was about all we had at the time, and $100,000 from Jerry who was 20 years our senior. With $120,000 in the bank, we went to raise our first fund, a $25 million private equity fund. Keep in mind there were no such funds in those days and there was no one doing what is now considered private equity.


pages: 520 words: 134,627

Unacceptable: Privilege, Deceit & the Making of the College Admissions Scandal by Melissa Korn, Jennifer Levitz

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", affirmative action, barriers to entry, Bear Stearns, benefit corporation, blockchain, call centre, Donald Trump, Gordon Gekko, helicopter parent, high net worth, impact investing, independent contractor, Jeffrey Epstein, machine readable, Maui Hawaii, medical residency, Menlo Park, multilevel marketing, performance metric, rolodex, Ronald Reagan, Salesforce, Sand Hill Road, Saturday Night Live, side hustle, side project, Silicon Valley, Snapchat, stealth mode startup, Steve Jobs, telemarketer, Thorstein Veblen, unpaid internship, upwardly mobile, yield management, young professional, zero-sum game

He mentioned Peyton’s impending college search to his longtime friend and California-based colleague Bill Powers, a managing director and portfolio manager. The two had known each other since college, when they were football punters for their respective schools. Both then worked at IBM, then Salomon Brothers, then moved to Pimco in the early 1990s. (Powers peeled off for a two-year stint at Bear Stearns in 1988.) Powers had a fix. “Why don’t you meet Rick Singer?” he told Hodge. “He’s the best there is.” * * * • • • HODGE, WHO’D RELOCATED TO Tokyo in 2002, had moved up the ranks at Pimco as an account manager and then account executive. His job was to pitch the portfolio products to potential clients, a hybrid between salesman and investing expert, with a CFA earned in 1992 helping to bolster his bona fides.


pages: 1,335 words: 336,772

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

Alan Greenspan, always be closing, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Bolshevik threat, book value, Boycotts of Israel, Bretton Woods, British Empire, buy and hold, California gold rush, capital controls, Carl Icahn, Charles Lindbergh, collective bargaining, Cornelius Vanderbilt, corporate raider, death from overwork, Dutch auction, Etonian, financial deregulation, financial engineering, fixed income, German hyperinflation, Glass-Steagall Act, index arbitrage, interest rate swap, junk bonds, low interest rates, margin call, Michael Milken, military-industrial complex, money market fund, Monroe Doctrine, North Sea oil, oil shale / tar sands, old-boy network, paper trading, plutocrats, Robert Gordon, Ronald Reagan, short selling, stock buybacks, strikebreaker, Suez canal 1869, Suez crisis 1956, the market place, the payments system, too big to fail, transcontinental railway, undersea cable, Yom Kippur War, young professional

It was also notified by Maurice R. Greenberg, chief executive of the American International Group, a New York insurer, that his firm would cease business with houses that persisted in stock-index arbitrage for their own accounts. On May 10, 1988, in a splashy coordinated effort, Morgan Stanley, Salomon Brothers, Bear Stearns, Paine Webber, and Kidder, Peabody announced they would stop the practice. Morgan Stanley had apparently orchestrated the move by alerting the others to its plans. Blocked from program trading in the United States, Morgan Stanley then went to Japan that December and caused a furor by introducing the practice there, spurring the Tokyo exchange to a record high.

., 143 Baronial Age, 3, 23–28, 43, 55, 85, 108, 131, 160, 180, 303, 698 Barrie, Sir James, 97, 265 Barrington, Ken, 570–71 Barron, Clarence W., 66, 142, 248 Barron’s, 587, 696 Bartow, Frank D., 331, 426 Baruch, Bernard, 65, 149, 202, 207, 305, 320, 351, 358, 371 Bates, Joshua, 6 Beame, Abraham, 619, 620 Beard, Anson, 662 Bear raiders, 351–53, 354 Bear Stearns, 702 Beaverbrook Lord, 290 Beebe, Morgan and Company, J. M., 9, 19 Bechtel, Stephen, Sr., 543, 544 Bechtel Company, 606, 610 Beecher, Henry Ward, 18 Behn, Sosthenes, 308, 371 Belgium, 705 Bell and Sons, Arthur, 680 Belmont, August, Jr., 74, 75, 149 Belmont, August, Sr., 5, 39, 40 Belridge Oil, 631, 632 Bendall, David, 589–90, 592, 613 Bendix Corporation, 500 Benét, Stephen Vincent, 278 Bennett, John, 626 Berenson, Bernard, 117, 141, 173, 280 Berkovitch, Boris S., 656 Berle, Adolf A., 419, 420 Bernard, Lewis W., 581, 595, 596, 624, 634, 663, 695 Bethlehem Steel, 417, 534 World War I and, 189, 190, 200 Bicester, Lord, see Smith, Vivian Hugh Big Bang deregulation, 673–76, 684, 685, 688, 714, 715 Biggs, Barton, 587, 700 Bishop, Jerry E., 564, 565 Bismarck, Otto von, 26, 27 Black, Eugene, 518, 552–53 Black, William, 512, 518, 623 Blackett, Basil, 187, 198, 246 Black Monday, 664, 699, 700–702, 717 Black Thursday, 303, 313, 315–17, 355–56 Block Community Organization, 347 Blood Brotherhood, 342–43 Blough, Roger M., 536–37 Blum, Léon, 478 Blumenthal, Charles, 215, 216, 248 Blunden, George, 687 Blyth, Charles, 390–91 Boer War, 98, 99, 195 Boesky, Ivan, 683, 684, 685, 686, 712–13 Bolivia, 354 Bolshevism, 210, 211, 225, 292, 338 Bonsal, Dudley J., 565–66 Boocock, Howard and Adele, 218 Booth, Willis, 282–83 Borglum, Gutzon, 347 Boston and Maine Railroad, 175–76 Brackenridge, A.


pages: 516 words: 157,437

Principles: Life and Work by Ray Dalio

Alan Greenspan, Albert Einstein, asset allocation, autonomous vehicles, backtesting, Bear Stearns, Black Monday: stock market crash in 1987, cognitive bias, currency risk, Deng Xiaoping, diversification, Dunning–Kruger effect, Elon Musk, financial engineering, follow your passion, global macro, Greenspan put, hiring and firing, iterative process, Jeff Bezos, Long Term Capital Management, margin call, Market Wizards by Jack D. Schwager, microcredit, oil shock, performance metric, planetary scale, quantitative easing, risk tolerance, Ronald Reagan, Silicon Valley, Steve Jobs, transaction costs, yield curve

I brought Bob, Greg, and a young analyst named Bob Elliott to a lunch meeting with Geithner. We walked him through the numbers and he literally turned white. When he asked me where we’d gotten them from, I told him they were publicly available. We’d just put them together and looked at them in a different way. Two days after our meeting with Geithner, Bear Stearns collapsed. That didn’t trigger much worry for most people or for the markets, though it was a sign of what was to come. It wasn’t until six months later in September, when Lehman Brothers collapsed, that everyone else connected the dots. At that point the dominoes fell fast, and though they couldn’t contain all the damage, policymakers, most importantly Fed chairman Ben Bernanke, reacted brilliantly to create “a beautiful deleveraging” (i.e., a way of lowering debt burdens while keeping economic growth positive and inflation low).8 To make this long story short, we navigated this period well for our clients, anticipating market moves and avoiding losses.


Convergence Culture: Where Old and New Media Collide by Henry Jenkins

barriers to entry, Bear Stearns, Cass Sunstein, citizen journalism, collective bargaining, Columbine, content marketing, deskilling, digital divide, disinformation, Donald Trump, game design, George Gilder, global village, Howard Rheingold, informal economy, means of production, military-industrial complex, moral panic, new economy, no-fly zone, profit motive, Robert Metcalfe, Saturday Night Live, search costs, SimCity, slashdot, Steven Pinker, tacit knowledge, technological determinism, the long tail, the market place, Y Combinator

A sign for the service was mounted on top of the cab that took the dejected contestants away, and in one comic interstitial, the colorful Raj appeared as a taxi driver. 9. The Contestants as Brand:The female contestants were showcased modeling lingerie as "The Women of The Apprentice" in Maxim magazine. 10. The Brand as Judges: As the second season neared its finale,Trump allowed a range of executives from other companies, including Unilever H P C , PepsiCo., Bear Stearns, and Skenováno pro studijní ucely 72 Buying into American Idol Heyer spoke of a shift "away from broadcast T V as the anchor m e d i u m " and toward "experience-based, access-driven These examples scarcely exhaust the marketing" as the ideal means of reachroles brands play in the series (and ing the emerging generation of consumdoesn't include the various ways N B C is ers.


pages: 486 words: 150,849

Evil Geniuses: The Unmaking of America: A Recent History by Kurt Andersen

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, affirmative action, Affordable Care Act / Obamacare, air traffic controllers' union, airline deregulation, airport security, Alan Greenspan, always be closing, American ideology, American Legislative Exchange Council, An Inconvenient Truth, anti-communist, Apple's 1984 Super Bowl advert, artificial general intelligence, autonomous vehicles, basic income, Bear Stearns, Bernie Sanders, blue-collar work, Bonfire of the Vanities, bonus culture, Burning Man, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Cass Sunstein, centre right, computer age, contact tracing, coronavirus, corporate governance, corporate raider, cotton gin, COVID-19, creative destruction, Credit Default Swap, cryptocurrency, deep learning, DeepMind, deindustrialization, Donald Trump, Dr. Strangelove, Elon Musk, ending welfare as we know it, Erik Brynjolfsson, feminist movement, financial deregulation, financial innovation, Francis Fukuyama: the end of history, future of work, Future Shock, game design, General Motors Futurama, George Floyd, George Gilder, Gordon Gekko, greed is good, Herbert Marcuse, Herman Kahn, High speed trading, hive mind, income inequality, industrial robot, interchangeable parts, invisible hand, Isaac Newton, It's morning again in America, James Watt: steam engine, Jane Jacobs, Jaron Lanier, Jeff Bezos, jitney, Joan Didion, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, junk bonds, Kevin Roose, knowledge worker, lockdown, low skilled workers, Lyft, Mark Zuckerberg, market bubble, mass immigration, mass incarceration, Menlo Park, Naomi Klein, new economy, Norbert Wiener, Norman Mailer, obamacare, Overton Window, Peter Thiel, Picturephone, plutocrats, post-industrial society, Powell Memorandum, pre–internet, public intellectual, Ralph Nader, Right to Buy, road to serfdom, Robert Bork, Robert Gordon, Robert Mercer, Ronald Reagan, Saturday Night Live, Seaside, Florida, Second Machine Age, shareholder value, Silicon Valley, social distancing, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Stewart Brand, stock buybacks, strikebreaker, tech billionaire, The Death and Life of Great American Cities, The Future of Employment, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, trickle-down economics, Tyler Cowen, Tyler Cowen: Great Stagnation, Uber and Lyft, uber lyft, union organizing, universal basic income, Unsafe at Any Speed, urban planning, urban renewal, very high income, wage slave, Wall-E, War on Poverty, We are all Keynesians now, Whole Earth Catalog, winner-take-all economy, women in the workforce, working poor, young professional, éminence grise

That experience gave me a spectacular and revelatory first-hand glimpse of the financial industry at the turn of the century. VCs and Wall Street banks—Chase, Goldman Sachs, and Lehman Brothers, among others—required hardly any convincing to invest. One day in early 2000, an investment banker from Bear Stearns knocked on our door. Were we financed? Did we need capital? Incredibly, she was going up and down the grungy halls of the industrial building where we had our office, making cold calls. This, we half-joked, must be a sign of the top of the market. In all, Wall Street and others invested the equivalent of $50 million in our dot-com.


pages: 566 words: 160,453

Not Working: Where Have All the Good Jobs Gone? by David G. Blanchflower

90 percent rule, active measures, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, bank run, banking crisis, basic income, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Lives Matter, Black Swan, Boris Johnson, Brexit referendum, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clapham omnibus, collective bargaining, correlation does not imply causation, credit crunch, declining real wages, deindustrialization, Donald Trump, driverless car, estate planning, fake news, Fall of the Berlin Wall, full employment, George Akerlof, gig economy, Gini coefficient, Growth in a Time of Debt, high-speed rail, illegal immigration, income inequality, independent contractor, indoor plumbing, inflation targeting, Jeremy Corbyn, job satisfaction, John Bercow, Kenneth Rogoff, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, longitudinal study, low interest rates, low skilled workers, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, mass incarceration, meta-analysis, moral hazard, Nate Silver, negative equity, new economy, Northern Rock, obamacare, oil shock, open borders, opioid epidemic / opioid crisis, Own Your Own Home, p-value, Panamax, pension reform, Phillips curve, plutocrats, post-materialism, price stability, prisoner's dilemma, quantitative easing, rent control, Richard Thaler, Robert Shiller, Ronald Coase, selection bias, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, trade liberalization, universal basic income, University of East Anglia, urban planning, working poor, working-age population, yield curve

Lehman Brothers filed for bankruptcy protection on September 15, 2008, the day before the FOMC meeting. Boston Fed president Eric Rosengren told my Dartmouth class “Financial Crisis of the Noughties” some years later that it would have been possible to rescue Lehman Brothers over the several months after Bear Stearns collapsed in March 2008. By September 15 when Lehman filed for chapter 11 bankruptcy protection it was too late as they were already insolvent. The job of the central bank is to help solvent but illiquid banks, not the insolvent. Clearly opportunities were missed. I got into big trouble at the start of 2008 when I did an interview with Ashley Seager, at the Guardian, where I said the MPC was “fiddling while Rome burns.”5 In testimony to the Treasury Select Committee in the House of Commons that oversees the MPC, I worried on March 28, 2008, about what might happen: “My concern would be one should make sure one is ahead of the curve so that later one is not in a position where something horrible happens, I do not want that to occur.


pages: 540 words: 168,921

The Relentless Revolution: A History of Capitalism by Joyce Appleby

1919 Motor Transport Corps convoy, agricultural Revolution, Alan Greenspan, An Inconvenient Truth, anti-communist, Asian financial crisis, asset-backed security, Bartolomé de las Casas, Bear Stearns, Bernie Madoff, Bretton Woods, BRICs, British Empire, call centre, Charles Lindbergh, classic study, collateralized debt obligation, collective bargaining, Columbian Exchange, commoditize, Cornelius Vanderbilt, corporate governance, cotton gin, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, Doha Development Round, double entry bookkeeping, epigenetics, equal pay for equal work, European colonialism, facts on the ground, failed state, Firefox, fixed income, Ford Model T, Ford paid five dollars a day, Francisco Pizarro, Frederick Winslow Taylor, full employment, General Magic , Glass-Steagall Act, Gordon Gekko, Great Leap Forward, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, hiring and firing, Ida Tarbell, illegal immigration, informal economy, interchangeable parts, interest rate swap, invention of movable type, invention of the printing press, invention of the steam engine, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, Jeff Bezos, John Bogle, joint-stock company, Joseph Schumpeter, junk bonds, knowledge economy, land bank, land reform, Livingstone, I presume, Long Term Capital Management, low interest rates, Mahatma Gandhi, Martin Wolf, military-industrial complex, moral hazard, Nixon triggered the end of the Bretton Woods system, PalmPilot, Parag Khanna, pneumatic tube, Ponzi scheme, profit maximization, profit motive, race to the bottom, Ralph Nader, refrigerator car, Ronald Reagan, scientific management, Scramble for Africa, Silicon Valley, Silicon Valley startup, South China Sea, South Sea Bubble, special economic zone, spice trade, spinning jenny, strikebreaker, Suez canal 1869, the built environment, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thorstein Veblen, total factor productivity, trade route, transatlantic slave trade, transcontinental railway, two and twenty, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, vertical integration, War on Poverty, working poor, Works Progress Administration, Yogi Berra, Yom Kippur War

At the same time, low interest rates drove the managers of capital to seek new ways to get more for their money, even if they had to invent fancy stratagems to do so. The trauma began with the failure of Lehman Brothers, an event that did not stir the U.S. government to act. The incredibly tight “sink-or-swim together” union of world financial institutions became apparent. So much so that the government quickly moved to save in succession Bear Stearns, its sponsored residential mortgage companies Fannie Mae and Freddie Mac, and the insurance company American International Group, while negotiating a fire sale of Merrill Lynch to the Bank of America. Worldwide, governments acted quickly, if somewhat erratically, raising the hope that the lessons from the Great Depression of the 1930s and Japan’s “lost decade” of deflation in the 1990s had left a residue of wisdom.


pages: 615 words: 168,775

Troublemakers: Silicon Valley's Coming of Age by Leslie Berlin

AltaVista, Apple II, Arthur D. Levinson, Asilomar, Asilomar Conference on Recombinant DNA, Bear Stearns, beat the dealer, Bill Atkinson, Bill Gates: Altair 8800, Bob Noyce, book value, Byte Shop, Charles Babbage, Clayton Christensen, cloud computing, computer age, Computer Lib, discovery of DNA, Do you want to sell sugared water for the rest of your life?, don't be evil, Donald Knuth, double helix, Douglas Engelbart, Douglas Engelbart, Dynabook, Edward Thorp, El Camino Real, Fairchild Semiconductor, fear of failure, Fellow of the Royal Society, financial independence, game design, Haight Ashbury, hiring and firing, independent contractor, industrial robot, informal economy, Internet of things, inventory management, Ivan Sutherland, John Markoff, Kickstarter, Kitchen Debate, Larry Ellison, Leonard Kleinrock, manufacturing employment, Mark Zuckerberg, Menlo Park, Minecraft, Mother of all demos, Oklahoma City bombing, packet switching, Project Xanadu, prudent man rule, Ralph Nader, Recombinant DNA, Robert Metcalfe, ROLM, rolodex, Ronald Reagan, Salesforce, Sand Hill Road, Silicon Valley, Silicon Valley startup, Snapchat, software as a service, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, Ted Nelson, Teledyne, union organizing, upwardly mobile, William Shockley: the traitorous eight, women in the workforce, work culture

The board of directors was extravagantly well credentialed for such a young firm, including the CEO of Venrock, the Rockefeller family’s venture capital firm; the CEO of retail giant Macy’s; and the venture capitalist behind Fairchild Semiconductor, Scientific Data Systems, and Intel.III The offering’s investment bankers—Hambrecht & Quist and Morgan Stanley—were among the most respected in the world, “the best names we could get,” in the words of board member Arthur Rock, who noted that Morgan Stanley usually did not deign to take upstart tech firms public.1 The size of the offering was enormous ($101.2 million raised versus the $35 million raised by Genentech two months earlier), and the list of underwriters included some of the top names in finance at the time, including Bear Stearns; Blyth Eastman Paine Webber; Alex. Brown & Sons; Drexel Burnham Lambert; Goldman Sachs; E. F. Hutton, Kidder Peabody, and Lehman Brothers Kuhn Loeb. Thirty years later, Apple would be the biggest company, by market capitalization, in the world, and several of its underwriters would be bankrupt or sold.


pages: 541 words: 173,676

Generations: the Real Differences Between Gen Z, Millennials, Gen X, Boomers, and Silents—and What They Mean for America's Future: The Real Differences between Gen Z, Millennials, Gen X, Boomers, and Silents—and What They Mean for America's Future by Jean M. Twenge

1960s counterculture, 2021 United States Capitol attack, affirmative action, airport security, An Inconvenient Truth, Bear Stearns, Bernie Sanders, Black Lives Matter, book scanning, coronavirus, COVID-19, crack epidemic, critical race theory, David Brooks, delayed gratification, desegregation, Donald Trump, Edward Snowden, Elon Musk, fake news, feminist movement, Ferguson, Missouri, Ford Model T, future of work, gender pay gap, George Floyd, global pandemic, Gordon Gekko, green new deal, income inequality, Jeff Bezos, Joan Didion, job automation, Kitchen Debate, knowledge economy, labor-force participation, light touch regulation, lockdown, Marc Andreessen, Mark Zuckerberg, McJob, meta-analysis, microaggression, Neil Armstrong, new economy, opioid epidemic / opioid crisis, Peter Thiel, QAnon, Ralph Nader, remote working, ride hailing / ride sharing, rolodex, Ronald Reagan, Saturday Night Live, Sheryl Sandberg, side hustle, Snapchat, Steve Jobs, Steve Wozniak, superstar cities, tech baron, TED Talk, The Great Resignation, TikTok, too big to fail, Travis Kalanick, War on Poverty, We are the 99%, women in the workforce, World Values Survey, zero-sum game

Instead, with one foot in the old physical world and the other in the digital ether, they will take the helm with an understanding of both the benefits and drawbacks of our technologically saturated culture. Event Interlude: The Great Recession and Its Aftermath At first, the economic news came as a trickle. Housing prices began to decline as foreclosures went up in 2006. A Morgan Stanley bond trader lost $9 billion betting on subprime mortgages in 2007. The investment bank Bear Stearns failed in March 2008. Then it came as a rush: The investment firm Lehman Brothers failed on September 15, 2008, and the next day the Federal Reserve was forced to buy out insurance firm AIG when it was deemed “too big to fail.” The financial system was on the verge of collapse and the stock market crashed.


pages: 1,202 words: 424,886

Stigum's Money Market, 4E by Marcia Stigum, Anthony Crescenzi

accounting loophole / creative accounting, Alan Greenspan, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Black-Scholes formula, book value, Brownian motion, business climate, buy and hold, capital controls, central bank independence, centralized clearinghouse, corporate governance, credit crunch, Credit Default Swap, cross-border payments, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, disintermediation, distributed generation, diversification, diversified portfolio, Dutch auction, financial innovation, financial intermediation, fixed income, flag carrier, foreign exchange controls, full employment, Glass-Steagall Act, Goodhart's law, Greenspan put, guns versus butter model, high net worth, implied volatility, income per capita, intangible asset, interest rate derivative, interest rate swap, inverted yield curve, junk bonds, land bank, large denomination, locking in a profit, London Interbank Offered Rate, low interest rates, margin call, market bubble, market clearing, market fundamentalism, Money creation, money market fund, mortgage debt, Myron Scholes, offshore financial centre, paper trading, pension reform, Phillips curve, Ponzi scheme, price mechanism, price stability, profit motive, proprietary trading, prudent man rule, Real Time Gross Settlement, reserve currency, risk free rate, risk tolerance, risk/return, Savings and loan crisis, seigniorage, shareholder value, short selling, short squeeze, tail risk, technology bubble, the payments system, too big to fail, transaction costs, two-sided market, value at risk, volatility smile, yield curve, zero-coupon bond, zero-sum game

The number of primary dealers has fallen over the years, owing mostly to consolidation in the industry, as government securities dealers have either merged or changed the focus of their business. Currently, there are 22 primary dealers consisting of many household names. The 22 primary dealers are shown below: Primary Dealer List as of October 2006 Bank of America Securities LLC Barclays Capital Inc. Bear, Stearns & Co., Inc. BNP Paribas Securities Corp. CIBC World Markets Corp. Cantor Fitzgerald & Co. Citigroup Global Markets Inc. Countrywide Securities Corporation Credit Suisse Securities (USA) LLC Daiwa Securities America Inc. Deutsche Bank Securities Inc. Dresdner Kleinwort Wasserstein Securities LLC Goldman, Sachs & Co.

The Dealers Of the over $400 billion of municipal securities that were issued in 2005, Citigroup was the leading underwriter, underwriting $62.6 billion in total proceeds from 894 issues. Second was UBS (UBS ranked first the previous year) at $45.8 billion from 820 issues. Ranking third was Merrill at $31.1 billion on 400 issues, and in fourth was Lehman at $26 billion on 270 issues. Rounding out the top 10 in ranking order were JPMorgan, Bear Stearns, Morgan Stanley, Bank of America, Goldman, and RBC Capital Markets. Combined, the top 10 underwrote 71.6% of total issuance.8 Market Technicals The muni-note market is a technical market resulting from seasonal peaks in both demand and supply. With respect to the supply, a lot of states work on a fiscal year that ends on June 30; they are issuing notes basically against budgeted, working-capital needs and budgeted revenues and tax receipts.


pages: 603 words: 182,781

Aerotropolis by John D. Kasarda, Greg Lindsay

3D printing, air freight, airline deregulation, airport security, Akira Okazaki, Alvin Toffler, An Inconvenient Truth, Asian financial crisis, back-to-the-land, barriers to entry, Bear Stearns, Berlin Wall, big-box store, blood diamond, Boeing 747, book value, borderless world, Boris Johnson, British Empire, business cycle, call centre, carbon footprint, Cesare Marchetti: Marchetti’s constant, Charles Lindbergh, Clayton Christensen, clean tech, cognitive dissonance, commoditize, company town, conceptual framework, credit crunch, David Brooks, David Ricardo: comparative advantage, Deng Xiaoping, deskilling, digital map, disruptive innovation, Dr. Strangelove, Dutch auction, Easter island, edge city, Edward Glaeser, Eyjafjallajökull, failed state, financial engineering, flag carrier, flying shuttle, food miles, Ford Model T, Ford paid five dollars a day, Frank Gehry, fudge factor, fulfillment center, full employment, future of work, Future Shock, General Motors Futurama, gentleman farmer, gentrification, Geoffrey West, Santa Fe Institute, George Gilder, global supply chain, global village, gravity well, Great Leap Forward, Haber-Bosch Process, Hernando de Soto, high-speed rail, hive mind, if you build it, they will come, illegal immigration, inflight wifi, intangible asset, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), intermodal, invention of the telephone, inventory management, invisible hand, Jane Jacobs, Jeff Bezos, Jevons paradox, Joan Didion, Kangaroo Route, Kickstarter, Kiva Systems, knowledge worker, kremlinology, land bank, Lewis Mumford, low cost airline, Marchetti’s constant, Marshall McLuhan, Masdar, mass immigration, McMansion, megacity, megaproject, Menlo Park, microcredit, military-industrial complex, Network effects, New Economic Geography, new economy, New Urbanism, oil shale / tar sands, oil shock, One Laptop per Child (OLPC), peak oil, Pearl River Delta, Peter Calthorpe, Peter Thiel, pets.com, pink-collar, planned obsolescence, pre–internet, RFID, Richard Florida, Ronald Coase, Ronald Reagan, Rubik’s Cube, savings glut, Seaside, Florida, Shenzhen special economic zone , Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, SimCity, Skype, smart cities, smart grid, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, spinning jenny, starchitect, stem cell, Steve Jobs, Suez canal 1869, sunk-cost fallacy, supply-chain management, sustainable-tourism, tech worker, telepresence, the built environment, The Chicago School, The Death and Life of Great American Cities, the long tail, The Nature of the Firm, thinkpad, Thomas L Friedman, Thomas Malthus, Tony Hsieh, trade route, transcontinental railway, transit-oriented development, traveling salesman, trickle-down economics, upwardly mobile, urban planning, urban renewal, urban sprawl, vertical integration, Virgin Galactic, walkable city, warehouse robotics, white flight, white picket fence, Yogi Berra, zero-sum game

Ficano, who as a boy attended UAW rallies with his grandfather (who had left Italy to work for Henry Ford), has found himself in partial possession of Detroit’s best chance at a postunion, postauto, postindustrial future. He has no illusions as to what will befall them if they waste it. If there was a canary in the coal mine beneath Bear Stearns and Lehman Brothers, it was Detroit, which shed six hundred thousand jobs during the bubble. Even in an era of no-money-down, no-money-back mortgages, the city’s population fled by the tens of thousands. No wonder the jet-lagged delegates were in a raw, truth-telling mood. At dinner, Ficano sat to my right, while on my left was a high-strung young man named Walter Mears.


pages: 603 words: 182,826

Owning the Earth: The Transforming History of Land Ownership by Andro Linklater

agricultural Revolution, Alan Greenspan, anti-communist, Anton Chekhov, Ayatollah Khomeini, Bear Stearns, Big bang: deregulation of the City of London, British Empire, business cycle, colonial rule, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, electricity market, facts on the ground, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, full employment, Gini coefficient, Glass-Steagall Act, Google Earth, Great Leap Forward, income inequality, invisible hand, James Hargreaves, James Watt: steam engine, John Perry Barlow, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kibera, Kickstarter, land reform, land tenure, light touch regulation, market clearing, means of production, megacity, Mikhail Gorbachev, Mohammed Bouazizi, Monkeys Reject Unequal Pay, mortgage debt, Northern Rock, Peace of Westphalia, Pearl River Delta, plutocrats, Ponzi scheme, profit motive, quantitative easing, Ralph Waldo Emerson, refrigerator car, Right to Buy, road to serfdom, Robert Shiller, Ronald Reagan, spinning jenny, Suez canal 1869, The Chicago School, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, three-masted sailing ship, too big to fail, trade route, transatlantic slave trade, transcontinental railway, ultimatum game, wage slave, WikiLeaks, wikimedia commons, working poor

As news spread of the rising default rates on risky mortgages, trade in derivative bundles dwindled, and then quite suddenly in the summer of 2008 their standing as capital assets evaporated. At a stroke, the health of financial institutions that held them became poisoned. The roll call included the investment bank Bear Stearns, with eleven billion dollars in equity but almost four hundred billion in potentially worthless assets; the American International Group, the largest insurers in the world, notionally worth more than $110 billion but whose London office alone issued credit swap defaults valued at more than $440 billion; and the blue-blooded investment bank Lehman Brothers, broker to more than a hundred hedge funds, with equity of $639 billion but potential debts of $1.3 trillion.


pages: 661 words: 185,701

The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance by Eswar S. Prasad

access to a mobile phone, Adam Neumann (WeWork), Airbnb, algorithmic trading, altcoin, bank run, barriers to entry, Bear Stearns, Ben Bernanke: helicopter money, Bernie Madoff, Big Tech, bitcoin, Bitcoin Ponzi scheme, Bletchley Park, blockchain, Bretton Woods, business intelligence, buy and hold, capital controls, carbon footprint, cashless society, central bank independence, cloud computing, coronavirus, COVID-19, Credit Default Swap, cross-border payments, cryptocurrency, deglobalization, democratizing finance, disintermediation, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, Elon Musk, Ethereum, ethereum blockchain, eurozone crisis, fault tolerance, fiat currency, financial engineering, financial independence, financial innovation, financial intermediation, Flash crash, floating exchange rates, full employment, gamification, gig economy, Glass-Steagall Act, global reserve currency, index fund, inflation targeting, informal economy, information asymmetry, initial coin offering, Internet Archive, Jeff Bezos, Kenneth Rogoff, Kickstarter, light touch regulation, liquidity trap, litecoin, lockdown, loose coupling, low interest rates, Lyft, M-Pesa, machine readable, Mark Zuckerberg, Masayoshi Son, mobile money, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, offshore financial centre, open economy, opioid epidemic / opioid crisis, PalmPilot, passive investing, payday loans, peer-to-peer, peer-to-peer lending, Peter Thiel, Ponzi scheme, price anchoring, profit motive, QR code, quantitative easing, quantum cryptography, RAND corporation, random walk, Real Time Gross Settlement, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, risk/return, Robinhood: mobile stock trading app, robo advisor, Ross Ulbricht, Salesforce, Satoshi Nakamoto, seigniorage, Sheryl Sandberg, Silicon Valley, Silicon Valley startup, smart contracts, SoftBank, special drawing rights, the payments system, too big to fail, transaction costs, uber lyft, unbanked and underbanked, underbanked, Vision Fund, Vitalik Buterin, Wayback Machine, WeWork, wikimedia commons, Y Combinator, zero-sum game

Financial Stability The main goal of financial regulation is to ensure that finance works well in supporting economic activity and attaining the other objectives for which it is designed and, more importantly, that it does not become a source of instability itself. The notion that market forces favor safer and more efficient firms and cull riskier and less efficient ones does not seem to hold in finance. From Ponzi schemes à la Bernie Madoff to large investment banks such as Bear Stearns and Lehman Brothers that took on vast amounts of risk and came crashing down, finance run amok causes pain across broad swaths of society. When stock markets fall, investors take a hit to their portfolios. When a company files for bankruptcy, owners of that company’s equities or debt could lose their investments.


pages: 593 words: 183,240

An Economic History of the Twentieth Century by J. Bradford Delong

affirmative action, Alan Greenspan, Andrei Shleifer, ASML, asset-backed security, Ayatollah Khomeini, banking crisis, Bear Stearns, Bretton Woods, British Empire, business cycle, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, collapse of Lehman Brothers, collective bargaining, colonial rule, coronavirus, cotton gin, COVID-19, creative destruction, crowdsourcing, cryptocurrency, cuban missile crisis, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, en.wikipedia.org, ending welfare as we know it, endogenous growth, Fairchild Semiconductor, fake news, financial deregulation, financial engineering, financial repression, flying shuttle, Ford Model T, Ford paid five dollars a day, Francis Fukuyama: the end of history, full employment, general purpose technology, George Gilder, German hyperinflation, global value chain, Great Leap Forward, Gunnar Myrdal, Haber-Bosch Process, Hans Rosling, hedonic treadmill, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, housing crisis, Hyman Minsky, income inequality, income per capita, industrial research laboratory, interchangeable parts, Internet Archive, invention of agriculture, invention of the steam engine, It's morning again in America, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, land reform, late capitalism, Les Trente Glorieuses, liberal capitalism, liquidity trap, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, means of production, megacity, Menlo Park, Mikhail Gorbachev, mortgage debt, mutually assured destruction, Neal Stephenson, occupational segregation, oil shock, open borders, open economy, Paul Samuelson, Pearl River Delta, Phillips curve, plutocrats, price stability, Productivity paradox, profit maximization, public intellectual, quantitative easing, Ralph Waldo Emerson, restrictive zoning, rising living standards, road to serfdom, Robert Gordon, Robert Solow, rolodex, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, Simon Kuznets, social intelligence, Stanislav Petrov, strikebreaker, structural adjustment programs, Suez canal 1869, surveillance capitalism, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Great Moderation, The Nature of the Firm, The Rise and Fall of American Growth, too big to fail, transaction costs, transatlantic slave trade, transcontinental railway, TSMC, union organizing, vertical integration, W. E. B. Du Bois, Wayback Machine, Yom Kippur War

The desire on the part of investors to dump risky assets—at any price—and buy safer ones—at any price—became an imperative. The desire on the part of the Fed and the Treasury to prevent Wall Street from profiting from the crisis drove their decisions in September 2008. Previously, equity shareholders had been severely punished when their firms were judged too big to fail—the shareholders of Bear Stearns, AIG, Fannie Mae, and Freddie Mac essentially had all their wealth confiscated. But this was not true of bondholders and counterparties, who were paid in full. The Fed and Treasury feared that a bad lesson was being taught. To unteach that lesson required, at some point, allowing a bank to fail.


pages: 498 words: 184,761

The Riders Come Out at Night: Brutality, Corruption, and Cover-Up in Oakland by Ali Winston, Darwin Bondgraham

affirmative action, anti-communist, Bay Area Rapid Transit, Bear Stearns, Black Lives Matter, Broken windows theory, Chelsea Manning, cognitive dissonance, collective bargaining, COVID-19, crack epidemic, defund the police, deindustrialization, desegregation, Donald Trump, Edward Snowden, Ferguson, Missouri, friendly fire, full employment, gentrification, George Floyd, global pandemic, Golden Gate Park, mass incarceration, Nelson Mandela, Occupy movement, Oklahoma City bombing, old-boy network, Port of Oakland, power law, Ronald Reagan, San Francisco homelessness, Silicon Valley, sovereign wealth fund, transcontinental railway, urban renewal, W. E. B. Du Bois, War on Poverty, white flight, WikiLeaks, Yogi Berra

Officers would have been required to pay 9 percent of their pensions’ cost, producing a savings of about $7.8 million for the city. In exchange, the Officers’ Association wanted a guarantee that no officers would be laid off for three years. Dellums’s team couldn’t give this assurance. Following the housing market meltdown and collapse of once-mighty financial institutions like Merrill Lynch and Bear Stearns, small California cities were going bankrupt. All bets were off about a recovery. Oakland unilaterally laid off 80 officers. City officials knew the layoffs would do more than cut the headcount from a high of 830 cops Dellums had built up to under 700, including attrition and cutbacks of police academies.23 The biggest impact was actually who received pink slips: the newest officers were let go.


pages: 613 words: 200,826

Unreal Estate: Money, Ambition, and the Lust for Land in Los Angeles by Michael Gross

Albert Einstein, Ayatollah Khomeini, bank run, Bear Stearns, Bernie Madoff, California gold rush, Carl Icahn, clean water, Cornelius Vanderbilt, corporate raider, cotton gin, Donald Trump, estate planning, family office, financial engineering, financial independence, Henry Singleton, Irwin Jacobs, Joan Didion, junk bonds, Maui Hawaii, McMansion, Michael Milken, mortgage debt, Norman Mailer, offshore financial centre, oil rush, passive investing, pension reform, Ponzi scheme, Right to Buy, Robert Bork, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Steve Wozniak, tech billionaire, Teledyne, The Predators' Ball, transcontinental railway, yellow journalism

He settled again a few months later, just before jurors were set to award $116 million to a former Pacific Capital associate who claimed Winnick had stiffed him on a share of profits (just as Milken had allegedly once stiffed Winnick). Arthur Andersen (which went belly-up after it was found guilty of obstruction of justice in the Enron collapse), the law firm of Simpson Thacher & Bartlett, Citigroup, Goldman Sachs, JPMorgan Chase, Credit Suisse, Morgan Stanley, Bear Stearns, Deutsche Bank, Lehman Brothers, and Canadian Imperial Bank of Commerce all also settled class action suits over their role selling Global Crossing to investors. But some of those same banks also sued Winnick and other top executives, seeking $1.7 billion in damages, accusing them of a “massive scam,” lying about the company’s performance late in 2001 to win loans and keep it going.


pages: 601 words: 193,225

740 Park: The Story of the World's Richest Apartment Building by Michael Gross

Alan Greenspan, Albert Einstein, anti-communist, Bear Stearns, Bonfire of the Vanities, California gold rush, Carl Icahn, company town, Cornelius Vanderbilt, corporate raider, cuban missile crisis, Donald Trump, Glass-Steagall Act, Irwin Jacobs, it's over 9,000, Jarndyce and Jarndyce, junk bonds, McMansion, Michael Milken, mortgage debt, Norman Mailer, offshore financial centre, oil shale / tar sands, plutocrats, Ronald Reagan, sensible shoes, short selling, strikebreaker, The Predators' Ball, traveling salesman, Upton Sinclair, urban planning

The son of Raymond Kravis, a petroleum engineer from England who became a self-made millionaire working for the likes of Joseph P. Kennedy and the Chase Bank, Henry Kravis was born in Tulsa, Oklahoma, attended eastern prep schools, studied business at Columbia, interned at Goldman Sachs, worked briefly for the company that owned the Missouri-Kansas-Texas Railroad, and ended up at the Bear Stearns investment bank in 1969, the same year he married Helene Diane Shulman, who was known as Hedi, the petite, dark-haired daughter of a psychiatrist. In 1976, Kravis, a cousin named George Roberts, and their boss, Jerome Kohlberg, who specialized in what would become known as leveraged buyouts, left to form their own merchant banking firm, Kohlberg, Kravis & Roberts.


pages: 801 words: 209,348

Americana: A 400-Year History of American Capitalism by Bhu Srinivasan

activist fund / activist shareholder / activist investor, American ideology, AOL-Time Warner, Apple II, Apple's 1984 Super Bowl advert, bank run, barriers to entry, Bear Stearns, Benchmark Capital, Berlin Wall, blue-collar work, Bob Noyce, Bonfire of the Vanities, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Charles Lindbergh, collective bargaining, commoditize, Cornelius Vanderbilt, corporate raider, cotton gin, cuban missile crisis, Deng Xiaoping, diversification, diversified portfolio, Douglas Engelbart, Fairchild Semiconductor, financial innovation, fixed income, Ford Model T, Ford paid five dollars a day, global supply chain, Gordon Gekko, guns versus butter model, Haight Ashbury, hypertext link, Ida Tarbell, income inequality, information security, invisible hand, James Watt: steam engine, Jane Jacobs, Jeff Bezos, John Markoff, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, laissez-faire capitalism, Louis Pasteur, Marc Andreessen, Menlo Park, Michael Milken, military-industrial complex, mortgage debt, mutually assured destruction, Norman Mailer, oil rush, peer-to-peer, pets.com, popular electronics, profit motive, punch-card reader, race to the bottom, refrigerator car, risk/return, Ronald Reagan, Sand Hill Road, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, Steve Wozniak, strikebreaker, Ted Nelson, The Death and Life of Great American Cities, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, trade route, transcontinental railway, traveling salesman, Upton Sinclair, Vannevar Bush, Works Progress Administration, zero-sum game

But the actions of men like Icahn also set the template for a new type of acquirer, men who were decidedly less rough around the edges or, at the very least, smart enough to appear so. This new category, the leveraged buyout, also required borrowing money to buy a company’s stock, but it was not hostile and often required the complicity of the company’s management. Among the pioneers were two cousins from Oklahoma, Henry Kravis and George Roberts, who had left the firm Bear Stearns in the late 1970s. Along with a senior Bear partner, Jerome Kohlberg, they formed KKR. The business of KKR was to take public companies private—the opposite of an IPO. The rationale for the business model was that private ownership would bring an unwieldy public company needed operating discipline.


Americana by Bhu Srinivasan

activist fund / activist shareholder / activist investor, American ideology, AOL-Time Warner, Apple II, Apple's 1984 Super Bowl advert, bank run, barriers to entry, Bear Stearns, Benchmark Capital, Berlin Wall, blue-collar work, Bob Noyce, Bonfire of the Vanities, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Charles Lindbergh, collective bargaining, commoditize, Cornelius Vanderbilt, corporate raider, cotton gin, cuban missile crisis, Deng Xiaoping, diversification, diversified portfolio, Douglas Engelbart, Fairchild Semiconductor, financial innovation, fixed income, Ford Model T, Ford paid five dollars a day, global supply chain, Gordon Gekko, guns versus butter model, Haight Ashbury, hypertext link, Ida Tarbell, income inequality, information security, invisible hand, James Watt: steam engine, Jane Jacobs, Jeff Bezos, John Markoff, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, laissez-faire capitalism, Louis Pasteur, Marc Andreessen, Menlo Park, Michael Milken, military-industrial complex, mortgage debt, mutually assured destruction, Norman Mailer, oil rush, peer-to-peer, pets.com, popular electronics, profit motive, punch-card reader, race to the bottom, refrigerator car, risk/return, Ronald Reagan, Sand Hill Road, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, Steve Wozniak, strikebreaker, Ted Nelson, The Death and Life of Great American Cities, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, trade route, transcontinental railway, traveling salesman, Upton Sinclair, Vannevar Bush, Works Progress Administration, zero-sum game

But the actions of men like Icahn also set the template for a new type of acquirer, men who were decidedly less rough around the edges or, at the very least, smart enough to appear so. This new category, the leveraged buyout, also required borrowing money to buy a company’s stock, but it was not hostile and often required the complicity of the company’s management. Among the pioneers were two cousins from Oklahoma, Henry Kravis and George Roberts, who had left the firm Bear Stearns in the late 1970s. Along with a senior Bear partner, Jerome Kohlberg, they formed KKR. The business of KKR was to take public companies private—the opposite of an IPO. The rationale for the business model was that private ownership would bring an unwieldy public company needed operating discipline.


pages: 920 words: 233,102

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State by Paul Tucker

"Friedman doctrine" OR "shareholder theory", Alan Greenspan, Andrei Shleifer, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, Brexit referendum, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, conceptual framework, corporate governance, diversified portfolio, electricity market, Fall of the Berlin Wall, financial innovation, financial intermediation, financial repression, first-past-the-post, floating exchange rates, forensic accounting, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, Greenspan put, incomplete markets, inflation targeting, information asymmetry, invisible hand, iterative process, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, liberal capitalism, light touch regulation, Long Term Capital Management, low interest rates, means of production, Money creation, money market fund, Mont Pelerin Society, moral hazard, Northern Rock, operational security, Pareto efficiency, Paul Samuelson, price mechanism, price stability, principal–agent problem, profit maximization, public intellectual, quantitative easing, regulatory arbitrage, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, road to serfdom, Robert Bork, Ronald Coase, seigniorage, short selling, Social Responsibility of Business Is to Increase Its Profits, stochastic process, subprime mortgage crisis, tail risk, The Chicago School, The Great Moderation, The Market for Lemons, the payments system, too big to fail, transaction costs, Vilfredo Pareto, Washington Consensus, yield curve, zero-coupon bond, zero-sum game

Giannini, one of the finest writers on central banking, passed away at a tragically young age. 9 Including Hoares, a seventeenth-century private bank that petitioned against the Bank’s charter, reflecting a struggle between the political economy worldviews of Whigs (the Bank’s backers) and Tories (its initial opponents). See Pincus, 1688, chapter 12. Even in the late twentieth century, one British merchant bank held out against a possible market solution to the Barings crisis, just as it is said that, on Wall Street in 1998, Bear Stearns held out against a collective private sector solution for the problems of (the splendidly named) Long-Term Capital Management facilitated by the Federal Reserve Bank of New York. 10 The implicit thought experiment concerns the costs of separate governance for (a) basic needs and pure coordination problems and (b) cooperative ventures.


pages: 825 words: 228,141

MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins

"World Economic Forum" Davos, 3D printing, active measures, activist fund / activist shareholder / activist investor, addicted to oil, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, backtesting, Bear Stearns, behavioural economics, bitcoin, Black Monday: stock market crash in 1987, buy and hold, Carl Icahn, clean water, cloud computing, corporate governance, corporate raider, correlation does not imply causation, Credit Default Swap, currency risk, Dean Kamen, declining real wages, diversification, diversified portfolio, Donald Trump, estate planning, fear of failure, fiat currency, financial independence, fixed income, forensic accounting, high net worth, index fund, Internet of things, invention of the wheel, it is difficult to get a man to understand something, when his salary depends on his not understanding it, Jeff Bezos, John Bogle, junk bonds, Kenneth Rogoff, lake wobegon effect, Lao Tzu, London Interbank Offered Rate, low interest rates, Marc Benioff, market bubble, Michael Milken, money market fund, mortgage debt, Neil Armstrong, new economy, obamacare, offshore financial centre, oil shock, optical character recognition, Own Your Own Home, passive investing, profit motive, Ralph Waldo Emerson, random walk, Ray Kurzweil, Richard Thaler, risk free rate, risk tolerance, riskless arbitrage, Robert Shiller, Salesforce, San Francisco homelessness, self-driving car, shareholder value, Silicon Valley, Skype, Snapchat, sovereign wealth fund, stem cell, Steve Jobs, subscription business, survivorship bias, tail risk, TED Talk, telerobotics, The 4% rule, The future is already here, the rule of 72, thinkpad, tontine, transaction costs, Upton Sinclair, Vanguard fund, World Values Survey, X Prize, Yogi Berra, young professional, zero-sum game

TR: It works for us everywhere but in the financial world. KB: That’s exactly right. TR: What’s even more amazing is that after calling the housing bust, you were also right about Europe and Greece. How did you do that? Again, I’m trying to understand the psychology of how you think. KB: In mid-2008, post–Bear Stearns, right before Lehman went bankrupt, we sat in here with my team and said, “Okay, what’s going on throughout this crisis is that the risk in the world—that used to be on private balance sheets—is moving to the public balance sheets. So let’s get a white board and let’s reconstruct the public [government] balance sheets of the nations.


pages: 468 words: 233,091

Founders at Work: Stories of Startups' Early Days by Jessica Livingston

"World Economic Forum" Davos, 8-hour work day, Aaron Swartz, affirmative action, AltaVista, Apple II, Apple Newton, Bear Stearns, Boeing 747, Brewster Kahle, business cycle, business process, Byte Shop, Compatible Time-Sharing System, Danny Hillis, David Heinemeier Hansson, digital rights, don't be evil, eat what you kill, fake news, fear of failure, financial independence, Firefox, full text search, game design, General Magic , Googley, Hacker News, HyperCard, illegal immigration, Internet Archive, Jeff Bezos, Joi Ito, Justin.tv, Larry Wall, Maui Hawaii, Max Levchin, Menlo Park, Mitch Kapor, Multics, nuclear winter, PalmPilot, Paul Buchheit, Paul Graham, Peter Thiel, proprietary trading, Richard Feynman, Robert Metcalfe, Ruby on Rails, Sam Altman, Sand Hill Road, side project, Silicon Valley, slashdot, social software, software patent, South of Market, San Francisco, Startup school, stealth mode startup, Steve Ballmer, Steve Jobs, Steve Jurvetson, Steve Wozniak, The Soul of a New Machine, web application, Y Combinator

Now it’s a very well-understood thing. The Microsoft operating system updates automatically. Updates to virus programs come over automatically. In the beginning, a lot of people we talked to said, “It’s too early. Do I really want to do this?” But we had a couple of really big successes—Morgan Stanley and Bear Stearns. These companies that had thousands of traders all over the world really needed to use the same software or it wouldn’t work. They needed to roll this out at 100,000 endpoints and needed to get a report and warn people that didn’t get updates. And we did that very, very well. Over time, Marimba went from a consumer software distribution/push technology company to an enterprise software distribution company—which is a lot more boring than in the early days, but there was a lot more money to be made in that market.


How to Survive a Plague: The Inside Story of How Citizens and Science Tamed AIDS by David France

affirmative action, Albert Einstein, Bear Stearns, Berlin Wall, Donald Trump, East Village, estate planning, facts on the ground, global pandemic, Live Aid, medical residency, placebo effect, Ronald Reagan, sensible shoes, sugar pill, trickle-down economics

Each of the traders they encountered wore a pocket badge, which the guard at the door scrutinized only glancingly. Hilferty zoomed in on several badges. They were plastic-coated white tags, about three-by-five inches, and contained the name of the firm along with a series of large, bold numbers. Franchino knew a place that would copy them exactly. They decided to masquerade as traders from Bear Stearns, because that firm seemed to have the greatest representation on the floor. The replicas looked spot on, but to be sure, Staley and Hilferty gave them a dry run one day after lunchtime, when a thousand traders streamed back to work. Wearing dark blue suits and gripping chunky pads of paper for effect, they walked right past a guard without a moment’s hesitation.


pages: 898 words: 266,274

The Irrational Bundle by Dan Ariely

accounting loophole / creative accounting, air freight, Albert Einstein, Alvin Roth, An Inconvenient Truth, assortative mating, banking crisis, Bear Stearns, behavioural economics, Bernie Madoff, Black Swan, Broken windows theory, Burning Man, business process, cashless society, Cass Sunstein, clean water, cognitive dissonance, cognitive load, compensation consultant, computer vision, Cornelius Vanderbilt, corporate governance, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, delayed gratification, Demis Hassabis, Donald Trump, end world poverty, endowment effect, Exxon Valdez, fake it until you make it, financial engineering, first-price auction, Ford Model T, Frederick Winslow Taylor, fudge factor, Garrett Hardin, George Akerlof, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, IKEA effect, Jean Tirole, job satisfaction, John Perry Barlow, Kenneth Arrow, knowledge economy, knowledge worker, lake wobegon effect, late fees, loss aversion, Murray Gell-Mann, name-letter effect, new economy, operational security, Pepsi Challenge, Peter Singer: altruism, placebo effect, price anchoring, Richard Feynman, Richard Thaler, Saturday Night Live, Schrödinger's Cat, search costs, second-price auction, Shai Danziger, shareholder value, Silicon Valley, Skinner box, Skype, social contagion, software as a service, Steve Jobs, subprime mortgage crisis, sunk-cost fallacy, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tragedy of the Commons, ultimatum game, Upton Sinclair, Walter Mischel, young professional

I’m open to other ideas, and I am looking for volunteers who want to hold the sons of bitches so I can beat the crap out of them. Rotten Tomatoes for Bankers Not surprisingly, the desire for revenge struck many a citizen in the wake of the financial meltdown of 2008. As a result of the collapse of the mortgage-backed securities market, institutional banks fell like dominoes. In May 2008, JPMorgan Chase acquired Bear Stearns. On September 7, the government stepped in to rescue Fannie Mae and Freddie Mac. A week later, on September 14, Merrill Lynch was sold to Bank of America. The following day, Lehman Brothers filed for bankruptcy. The day after that (September 16), the U.S. Federal Reserve loaned money to AIG to prevent the company’s collapse.


pages: 864 words: 272,918

Palo Alto: A History of California, Capitalism, and the World by Malcolm Harris

2021 United States Capitol attack, Aaron Swartz, affirmative action, air traffic controllers' union, Airbnb, Alan Greenspan, Alvin Toffler, Amazon Mechanical Turk, Amazon Web Services, Apple II, Apple's 1984 Super Bowl advert, back-to-the-land, bank run, Bear Stearns, Big Tech, Bill Gates: Altair 8800, Black Lives Matter, Bob Noyce, book scanning, British Empire, business climate, California gold rush, Cambridge Analytica, capital controls, Charles Lindbergh, classic study, cloud computing, collective bargaining, colonial exploitation, colonial rule, Colonization of Mars, commoditize, company town, computer age, conceptual framework, coronavirus, corporate personhood, COVID-19, cuban missile crisis, deindustrialization, Deng Xiaoping, desegregation, deskilling, digital map, double helix, Douglas Engelbart, Edward Snowden, Elon Musk, Erlich Bachman, estate planning, European colonialism, Fairchild Semiconductor, financial engineering, financial innovation, fixed income, Frederick Winslow Taylor, fulfillment center, future of work, Garrett Hardin, gentrification, George Floyd, ghettoisation, global value chain, Golden Gate Park, Google bus, Google Glasses, greed is good, hiring and firing, housing crisis, hydraulic fracturing, if you build it, they will come, illegal immigration, immigration reform, invisible hand, It's morning again in America, iterative process, Jeff Bezos, Joan Didion, John Markoff, joint-stock company, Jony Ive, Kevin Kelly, Kickstarter, knowledge worker, land reform, Larry Ellison, Lean Startup, legacy carrier, life extension, longitudinal study, low-wage service sector, Lyft, manufacturing employment, Marc Andreessen, Marc Benioff, Mark Zuckerberg, Marshall McLuhan, Max Levchin, means of production, Menlo Park, Metcalfe’s law, microdosing, Mikhail Gorbachev, military-industrial complex, Monroe Doctrine, Mont Pelerin Society, moral panic, mortgage tax deduction, Mother of all demos, move fast and break things, mutually assured destruction, new economy, Oculus Rift, off grid, oil shale / tar sands, PageRank, PalmPilot, passive income, Paul Graham, paypal mafia, Peter Thiel, pets.com, phenotype, pill mill, platform as a service, Ponzi scheme, popular electronics, power law, profit motive, race to the bottom, radical life extension, RAND corporation, Recombinant DNA, refrigerator car, Richard Florida, ride hailing / ride sharing, rising living standards, risk tolerance, Robert Bork, Robert Mercer, Robert Metcalfe, Ronald Reagan, Salesforce, San Francisco homelessness, Sand Hill Road, scientific management, semantic web, sexual politics, Sheryl Sandberg, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, social web, SoftBank, software as a service, sovereign wealth fund, special economic zone, Stanford marshmallow experiment, Stanford prison experiment, stem cell, Steve Bannon, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, stock buybacks, strikebreaker, Suez canal 1869, super pumped, TaskRabbit, tech worker, Teledyne, telemarketer, the long tail, the new new thing, thinkpad, Thorstein Veblen, Tim Cook: Apple, Tony Fadell, too big to fail, Toyota Production System, Tragedy of the Commons, transcontinental railway, traumatic brain injury, Travis Kalanick, TSMC, Uber and Lyft, Uber for X, uber lyft, ubercab, union organizing, Upton Sinclair, upwardly mobile, urban decay, urban renewal, value engineering, Vannevar Bush, vertical integration, Vision Fund, W. E. B. Du Bois, War on Poverty, warehouse robotics, Wargames Reagan, Washington Consensus, white picket fence, William Shockley: the traitorous eight, women in the workforce, Y Combinator, Y2K, Yogi Berra, éminence grise

The 2008 housing crisis demonstrated the perils of confusing advertising with innovation, and blending up risky subprime home loans didn’t actually improve the quality of the underlying assets. When the house of cards fell, it took down a few storied financial institutions and a lot more homeowners with it. But as they do in the aftermath of every bubble, the winners bought up the losers: Bank of America took Merrill Lynch, and JPMorgan Chase got Bear Stearns. And then, housing prices kept stepping back up. Anyone who crafted an Aristotelian tragic narrative out of the 2008 crisis would have seen it as a correction for 10 years or so of financial-engineering shenanigans and irrational exuberance. But it was the investors who never read any Greek, the ones who were ready to roll the dice on the newly cheap housing stock, who made the right call.


Eastern USA by Lonely Planet

1960s counterculture, active transport: walking or cycling, Affordable Care Act / Obamacare, Albert Einstein, Apollo 11, Bear Stearns, Berlin Wall, bike sharing, Bretton Woods, British Empire, car-free, carbon footprint, centre right, Charles Lindbergh, collective bargaining, congestion pricing, Cornelius Vanderbilt, cotton gin, cuban missile crisis, Day of the Dead, desegregation, Donald Trump, East Village, fake news, Fall of the Berlin Wall, Ford Model T, Frank Gehry, gentleman farmer, gentrification, glass ceiling, Guggenheim Bilbao, haute cuisine, Hernando de Soto, illegal immigration, immigration reform, information trail, interchangeable parts, jitney, Ken Thompson, Kickstarter, license plate recognition, machine readable, Mason jar, mass immigration, McMansion, megacity, Menlo Park, Neil Armstrong, new economy, New Urbanism, obamacare, Quicken Loans, Ralph Waldo Emerson, Ronald Reagan, Rosa Parks, Saturday Night Live, Silicon Valley, Skype, the built environment, the High Line, the payments system, three-martini lunch, transcontinental railway, union organizing, Upton Sinclair, upwardly mobile, urban decay, urban planning, urban renewal, urban sprawl, walkable city, white flight, Works Progress Administration, young professional

Just up Broadway from here is the African Burial Ground ( 212-637-2019; www.nps.gov/afbg; Ted Weiss Federal Bldg, 1st fl, 290 Broadway, btwn Duane & Reade Sts; admission free; 10am-4pm Tue-Sat), where the skeletal remains of more than 400 free and enslaved African men and women were discovered during preliminary construction of a downtown office building in 1991. WALL STREET & THE FINANCIAL DISTRICT Of course once-venerable banks including Lehman Brothers and Bear Stearns have shuttered and thousands of jobs were lost in the worldwide economic crash of late 2007/early 2008, however the neighborhood and financial industry have rebounded. Still, these days, in the mind of Main St, Wall Street is synonymous with shortsighted greed and decadent irresponsibility. Both an actual street and the metaphorical home of US commerce, its etymological origin is the wooden barrier built by Dutch settlers in 1653 to protect Nieuw Amsterdam from Native Americans and the British.


pages: 1,544 words: 391,691

Corporate Finance: Theory and Practice by Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann le Fur, Antonio Salvi

"Friedman doctrine" OR "shareholder theory", accelerated depreciation, accounting loophole / creative accounting, active measures, activist fund / activist shareholder / activist investor, AOL-Time Warner, ASML, asset light, bank run, barriers to entry, Basel III, Bear Stearns, Benoit Mandelbrot, bitcoin, Black Swan, Black-Scholes formula, blockchain, book value, business climate, business cycle, buy and hold, buy low sell high, capital asset pricing model, carried interest, collective bargaining, conceptual framework, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, currency risk, delta neutral, dematerialisation, discounted cash flows, discrete time, disintermediation, diversification, diversified portfolio, Dutch auction, electricity market, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial innovation, fixed income, Flash crash, foreign exchange controls, German hyperinflation, Glass-Steagall Act, high net worth, impact investing, implied volatility, information asymmetry, intangible asset, interest rate swap, Internet of things, inventory management, invisible hand, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, lateral thinking, London Interbank Offered Rate, low interest rates, mandelbrot fractal, margin call, means of production, money market fund, moral hazard, Myron Scholes, new economy, New Journalism, Northern Rock, performance metric, Potemkin village, quantitative trading / quantitative finance, random walk, Right to Buy, risk free rate, risk/return, shareholder value, short selling, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, stocks for the long run, supply-chain management, survivorship bias, The Myth of the Rational Market, time value of money, too big to fail, transaction costs, value at risk, vertical integration, volatility arbitrage, volatility smile, yield curve, zero-coupon bond, zero-sum game

They are suppliers of liquidity; they are also an indicator of investor risk aversion. The basic duty of a bank is to assess risk and repackage it while eliminating the diversifiable risk. Whatever their business model, the worst-managed players have been hit: Northern Rock, Fortis, Wachovia for retail banks; Bear Stearns, Lehman Brothers for investment banks; Citi for universal banks. There does not seem to be a better business model – some players are just better managed than others. Section 15.4 Theoretical framework: efficient markets An efficient market is one in which the prices of financial securities at any time ­rapidly reflect all available relevant information.


USA Travel Guide by Lonely, Planet

1960s counterculture, active transport: walking or cycling, Affordable Care Act / Obamacare, Albert Einstein, Apollo 11, Apollo 13, Asilomar, Bay Area Rapid Transit, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, big-box store, bike sharing, Biosphere 2, Bretton Woods, British Empire, Burning Man, California gold rush, call centre, car-free, carbon footprint, centre right, Charles Lindbergh, Chuck Templeton: OpenTable:, congestion pricing, Cornelius Vanderbilt, cotton gin, cuban missile crisis, Day of the Dead, desegregation, Donald Trump, Donner party, Dr. Strangelove, East Village, edge city, El Camino Real, fake news, Fall of the Berlin Wall, feminist movement, Ford Model T, Frank Gehry, gentleman farmer, gentrification, glass ceiling, global village, Golden Gate Park, Guggenheim Bilbao, Haight Ashbury, haute couture, haute cuisine, Hernando de Soto, Howard Zinn, illegal immigration, immigration reform, information trail, interchangeable parts, intermodal, jitney, Ken Thompson, Kickstarter, license plate recognition, machine readable, Mars Rover, Mason jar, mass immigration, Maui Hawaii, McMansion, Menlo Park, military-industrial complex, Monroe Doctrine, Neil Armstrong, new economy, New Urbanism, obamacare, off grid, off-the-grid, Quicken Loans, Ralph Nader, Ralph Waldo Emerson, retail therapy, RFID, ride hailing / ride sharing, Ronald Reagan, Rosa Parks, Saturday Night Live, Silicon Valley, South of Market, San Francisco, starchitect, stealth mode startup, stem cell, supervolcano, the built environment, The Chicago School, the High Line, the payments system, three-martini lunch, trade route, transcontinental railway, union organizing, Upton Sinclair, upwardly mobile, urban decay, urban planning, urban renewal, urban sprawl, Virgin Galactic, walkable city, white flight, working poor, Works Progress Administration, young professional, Zipcar

Just up Broadway from here is the African Burial Ground Offline map Google map ( 212-637-2019; www.nps.gov/afbg; Ted Weiss Federal Bldg, 1st fl, 290 Broadway, btwn Duane & Reade Sts; admission free; 10am-4pm Tue-Sat) , where the skeletal remains of more than 400 free and enslaved African men and women were discovered during preliminary construction of a downtown office building in 1991. WALL STREET & THE FINANCIAL DISTRICT Of course once-venerable banks including Lehman Brothers and Bear Stearns have shuttered and thousands of jobs were lost in the worldwide economic crash of late 2007/early 2008, however the neighborhood and financial industry have rebounded. Still, these days, in the mind of Main St, Wall Street is synonymous with shortsighted greed and decadent irresponsibility. Both an actual street and the metaphorical home of US commerce, its etymological origin is the wooden barrier built by Dutch settlers in 1653 to protect Nieuw Amsterdam from Native Americans and the British.