London Whale

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pages: 257 words: 71,686

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

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

In spite of all the internal controls and risk limits, another rogue trader at the London headquarters of the Swiss bank UBS managed to lose his bank billions of pounds. The megabank HSBC was caught laundering drugs money while several banks were fined for ignoring sanctions against Iran and Sudan. In 2012, a trader known as the London Whale lost over $6 billion at JP Morgan. And for years now across Europe, small and medium-sized companies, pension funds, utilities, municipalities and other public institutions have been discovering that the complex financial products they bought from London-based investment bankers have turned ‘toxic’.

Complexity vastly increases the scope for misuse and even abuse. Whether the crash of 2008 was ultimately down to that or to a huge misunderstanding – Dr No or Dr Nitwit – is still the subject of heated discussion. But no such controversy exists surrounding the scandal caused by the trader known now as ‘the London Whale’. In the spring of 2012, a trader at the London offices of JP Morgan by the name of Bruno Iksil managed with his small team to run up a $6.2 billion loss. The nickname refers to Iksil’s humongous positions – in other words he had put a vast amount of the bank’s capital at risk. Iksil was based in the City but JP Morgan is an American bank so the Senate’s Permanent Subcommittee on Investigations began to dig into this ‘monster loss’.

the committee members asked the JP Morgan risk managers. Nobody was able to do so. JP Morgan is considered the bank with possibly the best risk management in the world. In the year before his whale-like loss, Iksil’s pay came to $7 million. Iksil didn’t break any laws and has never been prosecuted. The London Whale cost JP Morgan a lot of money but banks can also use complexity as a deliberate tool for their own purposes. I spoke to a restructurer who advises small companies in financial difficulty so that they can meet their debt obligations to his bank. He often felt overwhelmed by the complexity of the products and instruments his bank had sold to ‘his’ companies.


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, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, Bernie Sanders, 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 innovation, fixed income, Flash crash, forward guidance, full employment, George Akerlof, greed is good, high net worth, housing crisis, income inequality, index fund, inflation targeting, interest rate swap, invisible hand, John Meriwether, Joseph Schumpeter, liquidity trap, London Whale, Long Term Capital Management, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, moral hazard, Myron Scholes, natural language processing, negative equity, new economy, Northern Rock, obamacare, price stability, pushing on a string, quantitative easing, regulatory arbitrage, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, short selling, side project, Silicon Valley, tail risk, The Great Moderation, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, yield curve

At the January 25, 2012: FR: FOMC Statement, January 25, 2012, www.federalreserve.gov/newsevents/press/monetary/20120125a.htm. In a historic vote: Ibid. A few months later, market: Jessica Silver-Greenberg and Nelson D. Schwartz, “‘London Whale’ Said to Be Leaving JP Morgan,” New York Times, May 16, 2012. Dimon at first: Stephen Gandel, “The 10 Stages of Jamie Dimon’s Blubbering London Whale Grief,” Fortune.com, April 11, 2013. But an investigation: Robert Lenger, “JPM Trade ‘Flawed, Complex, Poorly Reviewed, Executed, Monitored,’” Forbes.com, May 12, 2012. A report by the Fed’s: FR: Office of the Inspector General, “Evaluation Report: The Board Should Enhance Its Supervisory Processes as a Result of Lessons Learned from the Federal Reserve’s Supervision of JPMorgan Chase & Company’s Chief Investment Office,” October 17, 2014, oig.federalreserve.gov/reports/2015-0030_-_Document_To_Release.pdf.

That was like saying, okay guys, in addition to this straitjacket we’re already wearing—getting unemployment to a magic number—let’s strap on another one, even if we all agree that our inflation metrics are imprecise. Fisher argued against it. Bernanke got his way. In a historic vote, the FOMC set an official inflation target rate of 2 percent. A few months later, market watchers were puzzled by weird movements in some credit markets; gossip began circulating about a rogue trader everyone dubbed the London Whale for the large positions he was taking in credit default swaps. The mystery was solved in April, when JPMC, now the biggest bank in the United States, revealed that a trader in its little-known Chief Investment Office in London had made enormous bets on derivatives that triggered $2 billion in losses for the bank.

The Obama administration had failed to do so but never explained why—probably because Yellen knew removing the power of bank supervision would dilute the Fair Chair’s power. LISCC was the compromise. Tarullo had lowered the hammer on New York Fed supervisors in 2009 for not pushing hard enough to compel Citigroup to repay $45 billion it borrowed during the financial crisis. Then, during the London Whale debacle, Tarullo had demanded to know how New York Fed supervisors had let such massive bets occur without their knowledge and oversight. So Tarullo was a logical choice to lead LISCC. At Bernanke’s direction Tarullo and a sixteen-person committee began looking at the Fed’s internal regulatory structure and practices.


pages: 239 words: 64,812

Geek Sublime: The Beauty of Code, the Code of Beauty by Vikram Chandra

Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Apple II, barriers to entry, Berlin Wall, British Empire, business process, conceptual framework, create, read, update, delete, crowdsourcing, don't repeat yourself, Donald Knuth, East Village, European colonialism, finite state, Firefox, Flash crash, functional programming, glass ceiling, Grace Hopper, haute couture, iterative process, Jaron Lanier, John von Neumann, land reform, London Whale, Norman Mailer, Paul Graham, pink-collar, revision control, Silicon Valley, Silicon Valley ideology, Skype, Steve Jobs, Steve Wozniak, supercomputer in your pocket, theory of mind, Therac-25, Turing machine, wikimedia commons, women in the workforce

Accessed June 11, 2013. http://www.lscheffer.com/malbolge.shtml. Schelling, Andrew. The Cane Groves of Narmada River: Erotic Poems from Old India. San Francisco: City Lights Books, 1998. Schlesinger, Jill. “JPMorgan Chase Earnings: ‘London Whale’ Cost $5.8 Billion.” CBS Money Watch, July 13, 2012. http://www.cbsnews.com/8301-505123_162-57471697/jpmorgan-chase-earnings-london-whale-cost-$5.8-billion/. Scott, Alec. “Lessons from Canada’s Silicon Valley Diaspora.” The Globe and Mail, February 23, 2012. http://www.theglobeandmail.com/report-on-business/rob-magazine/lessons-from-canadas-silicon-valley-diaspora/article535544/?

The trouble is that in Excel there is no way to trace where your data come from, there’s no audit trail (so you can overtype numbers and not know it), and there’s no easy way to test spreadsheets … The biggest problem is that anyone can create Excel spreadsheets—badly. Because it’s so easy to use, the creation of even important spreadsheets is not restricted to people who understand programming and do it in a methodical, well-documented way.27 Sloppy Excel-wrangling can lead to some very bad decisions, as in the “London Whale” trading disaster of 2012, which caused the financial services firm JPMorgan Chase a loss of approximately six billion dollars; the company’s internal investigation listed as one of the contributing factors a financial modeling process which required cutting and pasting data through a series of spreadsheets.

.], comment on “Git Is Simpler Than You Think.” 23. “Whatever Happened to Programming?” 24. Campbell, “Where Does One Go to Find the Current ‘Good’ Books to Read? (Or Blogs?)” 25. Ensmenger, The Computer Boys Take Over, 88. 26. Kwak, “The Importance of Excel.” 27. Ibid. 28. Ibid.; Schlesinger, “JPMorgan Chase Earnings: ‘London Whale’ Cost $5.8 Billion.” 29. Oliver, “Why I Still Love CQRS (and Messaging and Event Sourcing).” 30. Ibid. 31. Zihotki, “Raven & Event sourcing.” 32. Chakrabarti, “Arguing from Synthesis to the Self: Utpaldeva and Abhinavagupta Respond to Buddhist No-Selfism,” 203. 33. Ibid., 209. 34. Ibid., 211.


pages: 320 words: 87,853

The Black Box Society: The Secret Algorithms That Control Money and Information by Frank Pasquale

Affordable Care Act / Obamacare, 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, 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, Debian, don't be evil, drone strike, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, Filter Bubble, financial innovation, financial thriller, fixed income, Flash crash, full employment, 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, interest rate swap, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, Julian Assange, Kevin Kelly, knowledge worker, Kodak vs Instagram, kremlinology, late fees, London Interbank Offered Rate, London Whale, Marc Andreessen, Mark Zuckerberg, mobile money, moral hazard, new economy, Nicholas Carr, offshore financial centre, PageRank, pattern recognition, Philip Mirowski, precariat, profit maximization, profit motive, quantitative easing, race to the bottom, 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, the scientific method, too big to fail, transaction costs, two-sided market, universal basic income, Upton Sinclair, value at risk, WikiLeaks, Yochai Benkler, zero-sum game

These dynamics persist. Consider, for instance, JP Morgan Chase’s “London Whale” trades, which lost the bank billions of dollars. In 2012, the bank’s Chief Investment Office (CIO) had about $350 billion in excess deposits to manage, and devoted some to a very risky synthetic credit portfolio (SCP). The CIO asserted that it had “five key metrics and limits to gauge and control the risks associated with its trading activities.” But when several of those metrics indicated unacceptable losses, managers decided to change the metrics.105 The Senate Report on the London Whale helpfully encapsulates just how suspect this practice was: The head of the CIO’s London office . . . once compared managing the Synthetic Credit Portfolio, with its massive, complex, moving parts, to flying an airplane.

Note, however, political scientist Daniel Carpenter’s contention that “there is value in studying a singular process not because it stands in for so many others, but because it influences so many others.”165 Given how wealthy the boom years made so many in finance, and how unscathed the bust has left them, few aspiring traders and bankers would think of them as a cautionary FINANCE’S ALGORITHMS 137 tale. And trades like the London Whale indicate that years after the crisis, critical models are just as manipulable (and regulators as feckless) as they were in the bubble years. Until fi nance practices in general are routinely as scrutinized as those prevalent in the bubble years, we have little reason to think matters have changed all that much.

Some finance experts argue that the modeling of transactions has become so complex that disingenuous managers can always field a 174 THE BLACK BOX SOCIETY phalanx of quants to hide deals’ dangers. Moreover, algorithmic “control” systems, which are supposed to deter manipulation of risk models automatically, may be easier to manipulate than human experts— recall how JP Morgan Chase’s London Whale traders moved the goalposts to buy time for their risky strategies.125 But without actually reviewing the fine details of transactions, we’ll never even be able to have a coherent argument about such issues. Judge Rakoff actually tried to force such a review in one case. In 2011, he refused to accept a $285 million settlement proposed between Citigroup and the SEC regarding the bank’s role in promoting suspect securities.


pages: 154 words: 47,880

The System: Who Rigged It, How We Fix It by Robert B. Reich

Adam Neumann (WeWork), affirmative action, Affordable Care Act / Obamacare, Bernie Madoff, Bernie Sanders, business cycle, clean water, collective bargaining, corporate governance, corporate raider, corporate social responsibility, Credit Default Swap, crony capitalism, cryptocurrency, Donald Trump, ending welfare as we know it, financial deregulation, Gordon Gekko, immigration reform, income inequality, independent contractor, Jeff Bezos, job automation, London Whale, Long Term Capital Management, market fundamentalism, mass incarceration, mortgage debt, Occupy movement, Ponzi scheme, race to the bottom, Robert Bork, Ronald Reagan, Savings and loan crisis, shareholder value, too big to fail, trickle-down economics, union organizing, WeWork, women in the workforce, working poor, zero-sum game

Betting that the imbalance had to correct itself at some point, hedge funds saw an opportunity to make money by taking the other side of the trade. But instead of unwinding the position and taking losses, JPMorgan’s London team added to it. Global traders outside JPMorgan were stunned. “It’s basic risk management,” said one. “I do not see how you miss it.” They called Bruno the “London Whale.” When rumors began to fly, Dimon characterized it as “a complete tempest in a teapot.” Three weeks later he announced that the bank had lost $2 to $3 billion (the eventual figure would be north of $6 billion) in trades that were “poorly executed” and “poorly monitored,” the result of “many errors, “sloppiness,” and “bad judgment.”

But not to worry, he assured Wall Street and its regulators. “We will admit it, we will fix it and move on.” Dimon was called before the Senate Banking Committee to explain. “We made a mistake,” he admitted. “I am absolutely responsible. The buck stops with me.” The buck would not have stopped with Dimon had the London Whale swallowed the global banking system. If anything, the episode offered proof that the near meltdown of 2008 could happen again. JPMorgan was supposed to be “the port in the storm” (Dimon’s words), the bank that didn’t need a bailout (he repeatedly said). But less than four years after the financial crisis forced American taxpayers to bail out the Street and sent the entire American economy hurtling into the worst downturn since the Great Depression, JPMorgan recapitulated the whole debacle with the same kind of errors, sloppiness, and bad judgment, and the same excessively risky, poorly executed, and poorly monitored trades that had caused the crisis in the first place.

He believes that through economies of scale the bank could control even more of the financial industry. But what about diseconomies of scale—lack of adequate attention to detail, seemingly small risks that can explode if overlooked or mishandled, the hubris that often comes with large size—just the kind of errors that created the London Whale? Dimon argues that financial mergers are no different from combining Chevrolet and Buick and calling it General Motors. But financial assets are different from automobile assembly lines, which are made out of metal and bolted in concrete. During a panic, money can disappear in minutes. How big will Congress and bank regulators allow JPMorgan to get?


pages: 492 words: 118,882

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

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

That $1 Billion TransferWise Deal Is Exactly Why Mark Carney Worries About “An Uber-Type Situation In Financial Services.” Retrieved from Business Insider UK: http://uk.businessinsider.com/transferwise-mark-carney-and-uber-type-situation-in-banking-2015-1?r=US&IR=T Forelle, C. (2012, May 11). What Beached the London Whale? Credit Indices. Retrieved from The Wall Street Journal: http://blogs.wsj.com/marketbeat/2012/05/11/more-on-what-beached-the-london-whale-credit-indices/ Freeman, J. (2011 , March 19). Mega-Banks and the Next Financial Crisis . Retrieved from The Wall Street Journal: http://www.wsj.com/articles/SB10001424052748703899704576204594093772576 Hellwig, A. A. (2013).

Although this is true to a certain extent, the stark fact is that banking innovations affect monetary and fiscal conditions on which the entire economy is girded, and thus changes in this sector affect the economic conditions to a greater degree. While large banks might offer greater efficiencies, their size also comes with more process, more red-tape, increased amounts of opaqueness, and larger mistakes. Consider the case of the J.P. Morgan’s “London Whale” episode in 2012. As the traders executed their hedging strategy by entering into a series of derivative transactions involving credit default swaps (CDS) , one of the JP Morgan traders, Bruno Iksil, accumulated outsized CDS positions in the market and began distorting the market with massive bets.

As per his interpretation, the investment office in London tried to sidestep capital regulation laws of risk management by fulfilling the bare minimums of regulatory requirements. Traders were thus given the incentive to score big, and therefore, instead of focusing on simplicities, the traders focused on the complexities of derivative markets and ignored the danger signals provided by the stress tests (Forelle, 2012). The London whale incident is just one of the many financial scandals that have involved the TBTF banks following the crisis. Since 2008, HSBC has been involved in the LIBOR scandal, Standard Chartered in money laundering transactions, and JP Morgan, Citigroup, Bank of America, RBS, Barclays, and UBS (also known as the “Bandits’ Club ”) were all involved in rigging the Forex market (Independent, 2015).


Risk Management in Trading by Davis Edwards

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, fixed income, implied volatility, intangible asset, interest rate swap, iterative process, John Meriwether, London Whale, Long Term Capital Management, margin call, Myron Scholes, Nick Leeson, p-value, paper trading, pattern recognition, 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

While reports attribute the price movements to a flight to quality rather than market manipulation, LTCM was caught unable to trade out of its positions, eventually going bankrupt due to mark‐to‐market losses. 138 RISK MANAGEMENT IN TRADING After the LTCM bankruptcy, as predicted, the bond prices converged. The end result was a massive profit for the firms who bet against LTCM and later acquired their positions during the bankruptcy proceedings. JP Morgan’s London Whale In 2012, JP Morgan announced multi‐billion dollar losses in its portfolio of credit‐default swaps (CDS). JP Morgan had dominant market position in these assets, and the London-based head trader of the book, Bruno Iksil, was nicknamed the London Whale due to the size of the CDS portfolio. Prior to 2012, the business consisted of both buying and selling CDS portfolios. However, toward the end of 2011, trading became more one sided with JP Morgan holding positions opposite the rest of the market.

See good till canceled orders H hedge accounting, 188 hedge effectiveness, 193 logarithmic returns and, 194–195 hedge effectiveness testing, 187–189 hedge funds, 3–6 hedge-accounting memo, 189–191 hedging, 2, 11, 177–179 costs, 180 creating volatile earnings via, 187 using, 179–180 hedging calculations, 185 highest and best use, 130–131 historical backtesting, 99 holistic view of risk, 115–117 I illiquid market, 35, 124 implementing credit limits, 259–260 implied volatility, 160–161 Information Ratio, 109–110 integration, calculus, 85–87 interest rate swap contracts, 37, 54–55 interest rates, 201 intraday monitoring, 117–118 K kurtosis, 70–72 J JP Morgan, London whale, 138 L leverage, 4 LGD. See loss given default lifespan of orders, 19–20 limit orders, 17–19 limitations of approximations, 224 limits, trading, 147–148 liquid market, 34–35, 124 litigation risk, 25 live testing, 101 log-normal distributions, 82 logarithmic returns, hedge effectiveness and, 194–195 Long Term Capital Management, 137–138 304 loss given default, 240–241, 245–247 probability of default and, 254–255 losses calculating, 2, 10–11 profits and, 121–123 M managing risk, 28–29 (end of chapter 1 managing trading risk, 21–23 margining, 14 mark, 122 mark to market market crashes and, 126–128 market liquidity and, 125–126 mark-to-market accounting, 124, 128–130, 188 market, 122 market crashes, mark to market and, 126–128 market liquidity, mark to market and, 125–126 market orders, 17–19 market price, 123–125 market risk, 23, 25 market stability, speculators and, 136 market-based probability of default, 252–254 criticisms of, 254 markets, 16–17 Maslow, Abraham, 267 master netting agreement, 239 master netting, credit risk and, 256–257 mathematical derivative, 88 MBS.


pages: 831 words: 98,409

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

activist fund / activist shareholder / activist investor, 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, diversification, East Village, eat what you kill, Elon Musk, eurozone crisis, family office, financial repression, Gini coefficient, glass ceiling, Goldman Sachs: Vampire Squid, Google bus, Gordon Gekko, haute cuisine, high net worth, hindsight bias, income inequality, index fund, intangible asset, Jaron Lanier, John Meriwether, Kenneth Arrow, Kenneth Rogoff, 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, offshore financial centre, old-boy network, Parag Khanna, Paul Samuelson, peer-to-peer, performance metric, Peter Thiel, Plutocrats, plutocrats, Ponzi scheme, quantitative easing, Renaissance Technologies, rent-seeking, reserve currency, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, rolodex, Satyajit Das, shareholder value, Silicon Valley, social intelligence, sovereign wealth fund, Stephen Hawking, Steve Jobs, The Future of Employment, The Predators' Ball, The Rise and Fall of American Growth, too big to fail, women in the workforce, young professional

Carney accepted his apology, which was lucky for Dimon because Carney subsequently became even more powerful as governor of the Bank of England and chairman of the Financial Stability Board. In interviews, Dimon can get belligerent as well, especially when arguing against financial reform and in favor of higher remuneration. Neither does Dimon have any qualms to openly fight for his power. After JPMorgan suffered its record $6 billion “London Whale” trading loss in 2012, investors opposed Dimon’s dual role as CEO and chairman, arguing that his overseeing himself obviously hadn’t worked so well. Amongst much media attention, Dimon threatened to resign if forced out of his chairman role and in the end prevailed against his critics. As Wall Street’s unofficial ambassador in Washington, Dimon also became the leader of the pack among big bank CEOs.

He impressed the bureaucratic establishment with his business acumen and charm, quickly becoming the Beltway’s darling. For a long time, he was even considered to be President Obama’s favorite banker. The president repeatedly praised Dimon publicly, and the presidential cufflinks Dimon wore during his testimony at the Senate Banking Committee in connection with the London Whale loss were rumored to have been a present from the president himself. EQ: CONNECTING EMOTIONALLY One of the most indispensable skills leaders must possess is emotional intelligence. Finance is a Darwinian environment, where only the strongest survive. Most firms render similar services without any intellectual property to protect, and in general all top-level managers are smart, educated, and hard working.

See Financial leaders thought, 47–51 LeFrak, Richard, 129, 192 Legal norms, 222 “Legalized corruption,” 175–176 Lehman Brothers, 8, 20, 41, 56, 61, 157, 172, 177, 181–183, 205 Lending Club, 189 Lennon, John, 199 Levitt, Steven, 140 Leyne, Strauss-Kahn & Advisors, 195 Leyne, Thierry, 195 Liar’s Poker, 221 Liberia, 27, 171 Limits to Growth, The, 220 Links definition of, xxvi to hubs, 19 in human relationships, 19 system stability through, 215 Lipton, David, 165 Liversis, Andrew, 205 Lloyds, 137 Lobbying, 122 Lobbyists, 175 Loeb, Daniel, 91, 109 London, 43 London Business School, 48, 166, 175 London School of Economics, 16, 63, 142 “London Whale,” 57 Long Term Capital Management, 207–209 Loungani, Prakash, 50 Louvre, 132 Lowenstein, Roger, 208 Loyalty, 23 LTCM. See Long Term Capital Management “Lucky Sperm Club,” 137 Lutnick, Howard, 76 M Ma, Jack, 103 Macroeconomic trends, 70 Magic Mountain, The, 2 “Magic roundabout,” 134 Malloch-Brown, Lord Mark, 27 Manchurian Candidate, The, 67 Mankiw, Greg, 84 Mann, Thomas, 2 Mannesmann AG, 142–143 “Mansplaining,” 152–153 Marks, Howard, 90 Marrakech, 194 Marron, Donald, 209 Marx, Karl, 219 Massachusetts Institute of Technology, 36, 81, 84, 149, 185 Masters, Blythe, 156 “Matchers,” 104 Matrix Advisors, 184 “Matthew Effect,” 52 McDonough, William J., 209 McKinsey, 87, 115, 152 Meade, Michael, 201 Media scrutiny, 136–137 Meditation, 62, 70 Medley, Richard, 43 Mentoring gap, 154–155 Meritocracy, 71, 80, 83, 213 Meriwether, John, 207–209 Merkel, Chancellor Angela banker interactions with, 174 at Davos, 114 in Euro crisis, 177 general references to, 39, 61, 193 Josef Ackermann and, 142–144 Merrill Lynch, 56, 179, 183 Merton, Robert, 52, 208 Metropolitan Museum of Art’s Costume Institute Benefit, 76 Metzler, Jakob von, 136 Microsoft, 153 Middle East, 171 Milgram, Stanley, 18 Miliband, Ed, 137 Milken, Lowell, 191 Milken, Mike, 63–64, 129, 190–193 Milken Institute, 190, 192 Min Zhu, 27 Mindich, Eric, 109, 170 “Mind-reading,” 149 Minimum wage, 211 Minorities discrimination against, 148 integration of, 226 old boys’ network exclusion of, 82 Misinformation, 41 MIT.


pages: 218 words: 62,889

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

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, distributed ledger, diversification, Double Irish / Dutch Sandwich, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, financial repression, fixed income, gig economy, Gordon Gekko, high net worth, Hyman Minsky, independent contractor, information asymmetry, interest rate derivative, interest rate swap, Joseph Schumpeter, Kenneth Arrow, litecoin, London Interbank Offered Rate, London Whale, Long Term Capital Management, margin call, market fundamentalism, mortgage debt, new economy, Northern Rock, offshore financial centre, Paul Samuelson, peer-to-peer lending, Plutocrats, 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

The tokens sold are promoted as future functional units of currency if or when the ICO’s funding goal is met and the project launches. LIBOR: London interbank offered rate. A benchmark rate at which major global banks lend to one another in the international interbank market for short-term loans. ‘London Whale’: The nickname of a trader, Bruno Iksil, who lost at least $6.2bn for J. P. Morgan Chase & Co. in 2012. MBS: Mortgage-backed securities. A financial instrument similar to a bond. It is created out of a bundle of home loans bought from the banks that issued them. Investors in MBS receive periodic payments similar to bond coupon payments.

Banks’ less serious misdeeds include, but are not confined to, the following: misleading statements to investors involving capital-raising rights issues; abusive lending practices to small businesses; manipulation of gold prices; misreporting related to Barclays emergency capital raising; a banker stealing confidential regulatory information; collusion with Greek authorities to mislead EU policymakers on meeting euro criteria; financial engineering with the aim of moving Italian debt off balance sheet; manipulation of risk models with the aim of minimizing reported risk-weighted assets/capital requirements; filing false statements with the SEC and keeping false books and records, or what has become known as the ‘London Whale’ story.10 The list is likely to be incomplete by the time this book is published. Since 2009, American and foreign banks have paid out $321bn in fines for misbehaviour in the US alone. This is a handy sum. It suggests to us that big, international banks are prepared to take great risks with the law.


pages: 481 words: 120,693

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

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, assortative mating, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Boris Johnson, Branko Milanovic, Bretton Woods, BRICs, 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 innovation, Flash crash, Frank Gehry, Gini coefficient, global village, Goldman Sachs: Vampire Squid, Gordon Gekko, Guggenheim Bilbao, haute couture, high net worth, income inequality, invention of the steam engine, job automation, 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, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, NetJets, new economy, Occupy movement, open economy, Peter Thiel, place-making, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, postindustrial economy, Potemkin village, profit motive, purchasing power parity, race to the bottom, rent-seeking, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, self-driving car, short selling, Silicon Valley, Silicon Valley startup, Simon Kuznets, Solar eclipse in 1919, sovereign wealth fund, starchitect, stem cell, Steve Jobs, 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

Rules are only as good as the supervisors who enforce them, and good supervisors look beyond the letter of the rules to their spirit.” Eight months later, Dimon inadvertently bolstered Carney’s case. On May 10, 2012, JPMorgan revealed that a trader known as the London Whale had made a bet on credit derivatives that went sour, leading to a loss of at least $2 billion, and which analysts close to the bank believed could rise to $6 billion. Wall Street, led by Dimon, had spent the previous three years warning that Washington’s regulatory overreach was stifling the financial system. The London Whale’s trades suggested that the real danger was still too much risk. As Congressman Barney Frank put it, “The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today

., 86, 93 Levchin, Max, 183 Levy, Frank, 17 Levy, Gus, 286–87 Lewis, Michael, 69, 129 Li, Stella, 32–33 Libya, 215 Lightyear Capital, 142 Lin, Alfred, 233–34 Lin, Jeremy, 140 Lincoln, Abraham, 39 Lincoln, William, 98 Linden, Greg, 24–26 Lindert, Peter, 12, 16, 43 Lindsay, Michael, 43 LinkedIn, 141, 183–85 LinkExchange, 234 Li Peng, 208 Lithuania, 149 Li Xiaolin, 208 Li Xiaopeng, 208 LLC Smart Group, 191 Lloyd W. Dinkelspiel Award, 181 lobbying, 222–24, 247, 260–62, 273 Loeb, Dan, 242 London, City of, 211, 214, 217, 218, 219, 227 London School of Economics, 227 London Whale, 260 Long Depression, 7, 9, 41 long tail, 100, 126–27 López-Calva, Luis-Felipe, 197 Lora, Eduardo, 31 Los Angeles Times, 76 lucky job club, 175–76 Luddites, 12–13, 96–97 Ludicorp, 172 Lu Guanqiu, 204 Lumière, Louis and Auguste, 98 Luxos, 46 luxury goods and services, 102, 104, 106 Mac 400 electrocardiograph, 157–58 Macpherson, Elle, 74 Maddison, Angus, 8–9, 16 Madonna, 107 Magna Carta, 148 Mail.ru, 66, 163 Maira, Arun, 201 Major, John, 148 Malaysia, 149 managerial class, 131–36, 138 Mankiw, Greg, 268 Manning, Alan, 24 Manny, The (Peterson), 1–2 Mantle, Mickey, 108–9 Maples, Mike, 165 Marron, Donald, 142 Marshall, Alfred, 50, 95–97, 99, 101, 105, 108–12, 116, 118–19, 123, 131 Marshall, George C., 181 Marshall Scholarship, 181–82 Martin, Bradley, 6–7, 8, 14, 36, 37, 114 Martin, Cornelia, 6–7 Martin, Paul, 216–17, 250–51 Martin, Roger, 116–17, 123, 135 Marx, Elisabeth, 63 Marx, Karl, 42, 75, 89, 118, 284 Marxism, 14 material power index (MPI), 81 Matthew, Saint, 122–23 Matthew effect, 123, 126, 127–28 Mazumdar-Shaw, Kiran, 33 McCartney, Paul, 109 McFaul, Mike, 144 McKinsey, 52, 60, 121 Bloomberg/Schumer report by, 211–15, 227 Global Institute, 165–66 Means, Gardiner, 131–34, 138 Mediaite, 164 Mellin, Joe, 172 Merrill Lynch, 102, 119, 214–16 Merton, Robert, 50, 123–24, 127, 175 Mexico, 193–98 Slim and, 195–96 Meyer, Christopher, 222 Microsoft, 171, 176, 191, 234, 280, 282, 283 middle class, 240–41, 285 Midler, Bette, 127–28 Milanovic, Branko, ix–x, 16, 26, 194–96 Mill, John Stuart, 43 Miller, Steve, 27 Milner, Yuri, 52, 163–64, 171 Mindich, Eric, 271 minimum wage, 17, 91 Mir Osman Ali Khan, 191 Mishra, Prachi, 222, 223 Missner, Marshall, 124 Mittal, Aditya, 59, 161–62 Mittal, Lakshmi, 161, 192 Mittal Steel, 161, 191–92 Mokyr, Joel, 16–17 Monaco, 63 Moneyball (Lewis), 129 Monitor Group, 222, 227 Morgan, J.


The Fix: How Bankers Lied, Cheated and Colluded to Rig the World's Most Important Number (Bloomberg) by Liam Vaughan, Gavin Finch

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, mortgage debt, Northern Rock, performance metric, Ponzi scheme, Ronald Reagan, social intelligence, sovereign wealth fund, urban sprawl

Despite the impact on the dollar and the involvement of a number of American institutions,this was the London interbank offered rate, Barclays was a U.K. bank, and the U.S. had enough problems of its own. Stories were starting to emerge about a huge, undisclosed loss at JPMorgan caused by a French trader known in the market as the London Whale on account of the huge positions he took.12 Libor slipped off the agenda, leaving U.S. investigators with little choice but to put their feet up and watch in amazement as events unfolded on the other side of the Atlantic. The Saturday after the settlement, those events were focused on a small, exclusive area to the west of central London, where Barclays’s two most senior bankers had homes within walking distance of each other.

Deb Baran 159 Gibson Dunn & Crutcher 128 Gilmour, James 148, 168, 169 Glands, Paul 67 Godsell, Astley & Pearce 27, 29, 67 198 IN DEX Goldman Sachs 62, 66, 70, 72, 73, 81, 91, 92, 97, 137 Goodman, Colin 28–30, 31, 32, 37, 61, 62, 67, 78, 85, 117, 168, 169 Green, David 150, 159 Green, Stephen 58 Greenspan, Alan 71 Gulf International Bank 163 Icelandic banking system, collapse of 146 Interest-rate swaps 10, 16 International Monetary Fund (IMF) 95, 101, 118 International Organization of Securities Commission 74–5 IOSCO 109 Hall, Will 35, 148 Hawes, Neil 160, 161, 163 Hayes, Joshua (son) 130 Hayes, Nick (father of Tom Hayes) 5 Hayes, Robin (brother of Tom Hayes) 5 Hayes, Sandra (mother of Tom Hayes) 5 Hayes, Thomas Alexander William (Tom) xi, xii, 1–3 Asperger’s syndrome 2, 6, 22, 158, 164, 168 early trading 8–11 extravagances 67–8, 77 family and early years 5–6 life as trader 21–3 love of football 79 marriage 123 personal hygiene 80 personal wealth 130–1, 155 personality 20 sentence 166, 167–8 temper 7, 80, 82, 154 trial 157–66 HBOS 95 hedge funds 92 Herbert Smith 38 Heywood, Jeremy 96 Holder, Eric 103, 104, 149 Hoshino, Hayato 112, 114, 118, 119, 120, 121 HSBC 35–6, 58, 95, 96, 117 Huertas, Thomas 57–8, 75 Jamies Wine Bar 66 Japanese central bank 9 Japanese Financial Services Agency 130 Johnson, Peter 88, 89, 93, 99, 100 Jones Day 170 Jonson, Lydia 148 JPMorgan 47, 63, 66, 92, 137, 140, 174 ICAP xi, 3, 27, 28, 29, 37, 61, 65–8, 78, 79, 85, 112, 116, 168 Keiser, Rolf 80 Kengeter, Carsten 82, 161 King, Mervyn 55, 56, 57, 95, 96, 143–4 Knight, Angela 49, 51, 52, 54, 58, 59–60 Lampert, Eddie 72 Lawyers’ Christian Fellowship 158 Lazard 138 Lehman Brothers 1–3, 62, 75, 77, 81, 82, 94, 111, 112, 146 Leigh-Pemberton, James 139 Libor ix-x, xi, xii, 2–3, 9, 10–11 growth of 15–17 manipulation of 18, 23, 26–32, 33–8 origins of 14, 15 Lloyds 94, 96 Lloyds Banking Group 95 London interbank offered rate see Libor London Stock Exchange 138 London Whale (French trader) 140 Lowe, Gretchen 42–3, 44, 46, 74, 102, 135, 170 Lucas, Chris 134, 139 Lugar, Richard 45 Index Lukken, Walt 45, 74 Lynam, Moira 121 Madden, Luke 117 Major, John 54 Mandelson, Peter 137 Mann, John 145 Manufacturers Hanover 13 Marsh, Luke 104–5 Maxwell, Robert 105 McCappin, Brian 83, 114, 121, 122, 124 McDermott Will & Emery 75, 76, 106, 107 McGonagle, Vince 39, 41, 42–4, 45, 74, 135, 157, 169 McInerney, Denis 102 Meister, David 135, 136 Merchant, Jay 88 Merrill Lynch 64, 84, 92 Messina, Jim 69 Miller, Avery 107 Mocek, Greg 43, 74, 75–6, 87, 107 Mollenkamp, Carrick 40, 59–60 Morgan Stanley 91 Morton, Andrew 111–12, 120, 121, 124 MSCI 171 New York Fed 56, 57 New York Stock Exchange 167 Newsday 42 Nixon, Richard 13 Northern Rock 38, 49, 53, 95 Oakeshott, Matthew 136 Obama, Barack 69, 70, 103 Obie, Steve 42, 43, 73–6, 87, 89, 102, 107, 109, 135, 170, 173 Office of the Comptroller of the Currency 45 O’Leary, Peter (step-brother) 35–7 Osborne, George 106, 144 overnight indexed swaps 10 199 Pain, Jon 106 Park, Robertson 102 Paulson, Hank 72 Payment Protection Insurance misselling 137 Peng, Scott 43 Perry Capital 72 Perry, Richard 72 Peston, Robert 142, 143 Pieri, Mike 63, 81–3, 86, 119, 126, 130, 161 Pitt, Harvey 45 Platts 41 Porter, Chris 36, 37 Porter, Laurence 114, 115, 116, 118, 120 Prince, Chuck 116 private equity 92 Protium deal (2010) 137 Qatar Investment Authority 97 Rabobank xi, 64, 134 Rain Man 7 Rake, Mike 141, 143, 144 RBC 10 RBS xi, 66, 93, 94, 95, 96, 104, 118 Read, Darrell 27–30, 31, 33, 37–8, 61–2, 67, 77–8, 85, 112, 116, 117, 165, 168, 169 Reagan, Ronald 15 Reich, Ryan 88 relative value trading 22 Ricci, Rich 98, 134, 142 Richardson, Gordon 98 Risk Capital 44 Robb, Richard 17 Robson, Anthony 9 Rouse, Pete 69 Royal Bank of Canada 8 Royal Bank of Scotland 6, 10, 148, 174 RP Martin xi, 30, 31, 37, 63, 64, 65, 66, 79, 117, 148–9, 168 200 IN DEX Rubin, Robert 70, 71 Ruh, Joachim 80 Salomon Brothers 17 Sanders, Bernie 71 Sants, Hector 106, 142–3 Sarbanes-Oxley Act 70 Schapiro, Mary 69, 70 Schiliro, Phil 69 Schroders 92 Securities and Exchange Commission (SEC) 45, 69, 70, 120, 129 Senate Banking Committee 45 Serious Fraud Office (SFO) 148–52, 155, 158, 160, 161, 165, 168, 169 Serious Organised Crime and Police Act (SOCPA) (2005) (U.K.) 151 Shah of Iran 13 Shearman & Sterling 38 Shelton, Mark 127, 128 Sherrard, Charles 154 Smith New Court 92 “Special Liquidity Scheme” (U.K.) 55 Spencer, Michael 28, 30 “spoof offers” 32 Spratling, Gary 128–9 Sprinzen, Nicole 104 Standard Chartered 65, 94 Stevens, Ted 104 Steyer, Tom 72 Stone, Jonathan 99 Storey, Miles 51, 162, 163 subprime mortgage crisis (U.S.) 18, 53, 56, 103, 111 Sullivan & Cromwell 108, 134 Summers, Larry 69 swaps 7, 10 T.


pages: 455 words: 138,716

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

banking crisis, Bear Stearns, Bernie Madoff, butterfly effect, buy and hold, collapse of Lehman Brothers, collateralized debt obligation, Corrections Corporation of America, Credit Default Swap, credit default swaps / collateralized debt obligations, Edward Snowden, ending welfare as we know it, fixed income, forensic accounting, Gordon Gekko, greed is good, illegal immigration, information retrieval, London Interbank Offered Rate, London Whale, naked short selling, offshore financial centre, Ponzi scheme, profit motive, regulatory arbitrage, Savings and loan crisis, short selling, telemarketer, too big to fail, two and twenty, War on Poverty

Jamie Dimon’s megabank was caught up in dozens of scandals during the same period covered by the Abacus investigation—everything from money laundering to energy price manipulation to mismanaging customer funds to robo-signing to antitrust violations to charging excess overdraft fees to hiding billions of dollars of losses in the infamous “London Whale” episode, in which the bank hid the fact that one of its lunatic traders in Europe had nearly destroyed the firm by doubling and tripling down on exotic bets on corporate credit. All told, in just the three years since Vera Sung stumbled into Ken Yu’s real estate closing, Chase—again, a Covington & Burling client—had paid out more than $16 billion in regulatory settlements.

Because, thanks to all these various factors, executives from giant multinationals simply don’t end up in the prison population, law enforcement soon starts to operate on the reverse principle, that those huge companies are not the places where jailable crimes take place. So even white-collar investigators start to look for targets elsewhere, like at smaller businesses. A commissioner for the SEC, Daniel Gallagher, even talked about this out loud, in April 2012, when he gave a speech in Denver, Colorado. This was right in the middle of the Chase “London Whale” story and just before the LIBOR story, the HSBC story, and a half-dozen other financial scandals of various degrees of horribleness blew up. Despite all this, Gallagher came out with an interesting take on where to look for white-collar crime. “It is critically important that our enforcement program be extremely efficient,” Gallagher said.

Holder also talked about raising the statute of limitations on Wall Street cases, to give themselves another shot at all the crimes they ignored in the last five years, warning that those who committed crimes are “not out of the woods yet.” Hedge fund villain Stevie Cohen is being put out of business. As this book goes to press, criminal cases are reportedly coming against the megabank Chase for the “London Whale” episode and perhaps other misdeeds, including some related to its status as Bernie Madoff’s banker. At the very least, on the federal level, officials seem to recognize the political necessity of saying these things out loud, and this has to be in very large part due to the public outrage over the lack of Wall Street prosecutions.


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, 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

There is a firm-wide limit, known as VaR or Value at Risk – the most a firm could lose on any given day. The better you get trading, the higher your personal limit and the bigger chunk of the firm’s capital you get to play with and turn into more money (or end up as a smoking hole in the ground, see Nick Leeson and JP Morgan’s London Whale.) Bond trading is a little different, but not much. Again, trading government bonds and munis and corporate debt is mostly facilitating trades for clients. But there is no exchange. These are negotiated transactions. It’s you against the client, even though you are providing a service for the client.


pages: 352 words: 98,561

The City by Tony Norfield

accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, bank run, banks create money, Basel III, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, capital controls, central bank independence, colonial exploitation, colonial rule, continuation of politics by other means, dark matter, Edward Snowden, Fall of the Berlin Wall, financial innovation, financial intermediation, foreign exchange controls, Francis Fukuyama: the end of history, G4S, global value chain, Goldman Sachs: Vampire Squid, interest rate derivative, interest rate swap, Irish property bubble, linked data, London Interbank Offered Rate, London Whale, Mark Zuckerberg, Martin Wolf, means of production, Money creation, money market fund, mortgage debt, North Sea oil, Northern Rock, Occupy movement, offshore financial centre, Plutocrats, plutocrats, purchasing power parity, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Ronald Reagan, seigniorage, Sharpe ratio, sovereign wealth fund, The Great Moderation, transaction costs, transfer pricing, zero-sum game

The ability to expand assets is a key driver of profitability for the banking system, and the search for acceptable yields on financial investments helps spur financial market ‘innovation’ and all kinds of madcap speculation that, sooner or later, turns investment geniuses into morons. A famous example from 2012 was that of the ‘London Whale’. The big mammal in question was a trader for US bank JP Morgan Chase in London named Bruno Iksil.9 After successfully betting on credit derivatives in 2011 and making hundreds of millions of dollars, things started to go wrong for him the following year. In time-honoured fashion, he began doubling up on his positions to recover his losses.

Haldane, ‘Risk Off’, speech given on 18 August 2011, at bankofengland.co.uk. 7Federal Reserve, ‘Profits and Balance Sheet Developments at US Commercial Banks in 2008’, Federal Reserve Bulletin, Vol. 95, 2 June 2009, p. A76. 8Norfield, ‘Derivatives and Capitalist Markets’, pp. 116–18. 9Patricia Hurtado, ‘The London Whale’, Bloomberg, 23 April 2015, at bloombergview.com. 10Hilferding, Finance Capital, p. 172. 11Ibid., p. 180. 12Daniel E. Saros, in ‘The Circulation of Bank Capital and the General Rate of Interest’, Review of Radical Political Economics, Vol. 45, No. 2, 2013, pp. 149–61 (p. 154), and Lapavitsas in Profiting Without Producing (p. 127, n. 45), also assume, with Hilferding, that the rate of profit for the financial sector will tend to equal the average rate of profit in the industrial and commercial sectors. 13Ben Fine, ‘Banking Capital and the Theory of Interest’, Science & Society, Vol. 49, No. 4, Winter 1985–86, pp. 387–413 (p. 399). 14I developed the following points through useful discussions with Ben Fine. 15As in Gérard Duménil and Dominique Lévy, ‘The Real and Financial Components of Profitability (United States, 1952–2000)’, Review of Radical Political Economics, Vol. 36, 2004, pp. 82–110 (p. 104). 16For example, ONS, ‘Profitability of UK Companies, 3rd Quarter 2010’, 5 January 2011, at ons.gov.uk.


pages: 446 words: 117,660

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future by Paul Krugman

affirmative action, Affordable Care Act / Obamacare, Andrei Shleifer, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, bitcoin, blockchain, bond market vigilante , Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, market bubble, market clearing, market fundamentalism, means of production, Modern Monetary Theory, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, Plutocrats, plutocrats, Ponzi scheme, price stability, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, salary depends on his not understanding it, secular stagnation, Seymour Hersh, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, working-age population

And real-world policy—policy that will blight the lives of millions of working families—is being built on that foundation. THE EXCEL DEPRESSION April 18, 2013 In this age of information, math errors can lead to disaster. NASA’s Mars Orbiter crashed because engineers forgot to convert to metric measurements; JPMorgan Chase’s “London Whale” venture went bad in part because modelers divided by a sum instead of an average. So, did an Excel coding error destroy the economies of the Western world? The story so far: at the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, “Growth in a Time of Debt,” that purported to identify a critical “threshold,” a tipping point, for government indebtedness.

., 53, 54, 55n Johnston, David Cay, 350 Jones, Alex, 356, 357 Journal of Money, Credit and Banking, 137 JPMorgan Chase, 163 Kaiser Family Foundation, 39, 58 kakistocracy, 350 Kamin, David, 239 Kansas: education in, 293 taxes in, 216, 229, 293 Kavanaugh, Brett, 345, 346, 352 Kentucky, health care in, 68 Kerry, John, 366, 380, 381, 382 Kerry, Teresa Heinz, 380, 381 “ketchup economists,” 136, 141 Keynes, John Maynard, 81, 123, 134, 135, 143, 394, 402 The General Theory of Employment, Interest and Money, 132–33 “The Great Slump of 1930,” 137 Keynesian economics: and business cycle, 276 and Capitol Hill Baby-Sitting Co-op, 137–38 and dysfunctional finance, 147 free-market, 124, 125, 133, 394 macroeconomics, 123, 407–8 as “moderately conservative,” 4, 123, 133, 408 New Keynesian views, 129, 139–40, 143, 145, 147 and the 1980s, 129 opponents of, 4, 95, 124, 133–34, 143 re-embracing, 147–48 “khaki election,” use of term, 13 Khashoggi, Jamal, 330 Kinsley, Michael, 126 Kiyotaki, Nobuhiro, 147 Kleiman, Mark, 48 Klein, Ezra, 51, 356 Klein, Joe, 29 Koch brothers, 60, 303, 331, 336, 355 Kocherlakota, Narayana, 384 Kristol, Irving, 299 “Krugman calculation,” 267–70, 268, 272, 273, 274, 276 K Street project, 283 Kudlow, Larry, 330 Kydland, Finn, 139 Laffer curve, 385 Lancaster, Kelvin, 398 Langone, Ken, 95, 96 language: avoiding jargon, 7 specialized, 393–94 writing in clear English, 6–7 Latvia, slumps in, 162 Lazear, Eddie, 384 Lehman Brothers, 123, 146, 157 Leonhardt, David, 5 Lerner, Abba, 152–54 liberalism, 324 death of, 13 liberal professional economists, 149, 150 libertarians, 5 life expectancy, 199 liquidity, 89, 90 IS-LM, 109–12 liquidity trap, 112 Logic of Collective Action, The (Olson), 354–55 London market, banks lending in, 89 “London Whale” venture, 163 Longman, Phillip, 42 Lucas, Robert, 128, 130, 131, 138–39, 143 Maastricht Treaty, 405 macroeconomics: business cycle vs. long-term growth in, 275–76 and Capitol Hill Baby-Sitting Co-op, 137–38 Dark Age of, 131, 408, 409 as divided field, 123–25, 136–37 false peace in (1985–2007), 142 Keynesian, 123, 407–8 rational-expectation, 128 “saltwater” vs.


pages: 478 words: 126,416

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

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, disinformation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, 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, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Meriwether, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, Money 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, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, risk free rate, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, salary depends on his not understanding it, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War

Dimon successfully steered his organisation away from the worst excesses of the years to 2007 and emerged with a reputation unparalleled in the industry. But in 2012 Dimon’s image would be tarnished when his bank was forced to disclose large losses on so-called hedging activities. Bruno Iksil, the ‘London whale’, had made huge and unsuccessful bets in derivative markets. Barclays’ Diamond would be engulfed by a scandal invoking false disclosure of his bank’s cost of funds – the LIBOR scandal – and the Bank of England enforced his resignation. Politicians and public began to suspect that the recurrent crises of the finance sector were not simply the result of unexpected and unpredictable events, but symptomatic of deep-seated problems with the culture of the financial services industry.

The term came into popular language after Nick Leeson, a 28-year-old employee in the Singapore office of the venerable London investment bank of Barings, vanished overnight from his desk. The losses he had incurred led to the bankruptcy of the bank, and jail for Leeson. More recent ‘rogue traders’ include Jérôme Kerviel, that former employee of the French bank Société Générale (now in jail), who was ordered to repay €4.9 billion, and J.P. Morgan’s ‘London whale’ (Bruno Iksil), whose irregular trading was said to have lost the US bank $6 billion. Perhaps the largest of such excesses were those reported by ‘Howie’ Hubler, a once respected trader at Morgan Stanley, whose activities in 2007 were reported to have resulted in losses of $9 billion.23 A rogue trader is one who has run out of money, or scared his employer, before his number came up.


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

* * * For a few weeks that spring, the financial world’s attention was consumed by another scandal in London. A trader in J.P. Morgan’s London office, Bruno Iksil, had amassed huge positions in an exotic class of derivatives called credit default swap indexes. Before long, his bets grew so big that he was controlling a substantial slice of the market and had acquired a nickname: the London Whale. As Hayes had learned, size is a mixed blessing, and when markets turned against Iksil, competitors smelled blood and attacked. Things quickly careened out of control—soon Iksil’s team was sitting on losses of more than $2 billion. When the media caught a whiff of what was happening—a story made infinitely sexier by Iksil’s nickname and J.P.

The section on Kweku Adoboli’s downfall comes in large part from “Kweku Adoboli: A Rogue Trader’s Tale,” Financial Times, October 22, 2015, by Lindsay Fortado. Chapter 15: Spiders The Andrew Smith section is based on former traders’ interviews with me and with regulators and internal chat transcripts. The London Whale description is based in part on J.P. Morgan’s internal review into the debacle, the results of which were published in January 2013 in a 132-page report. Colin Goodman explained the circumstances surrounding his mother-in-law’s death in detail to regulators. In this and subsequent chapters, the sections about Hayes’s interactions with his lawyers and their interactions with the SFO and Justice Department are derived in part from detailed notes taken by the lawyers as well as my interviews with lawyers and others.


pages: 515 words: 132,295

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

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, additive manufacturing, Airbnb, algorithmic trading, Alvin Roth, Asian financial crisis, asset allocation, bank run, Basel III, Bear Stearns, bonus culture, Bretton Woods, British Empire, business cycle, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, 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, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial intermediation, Frederick Winslow Taylor, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, 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 Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, London Whale, Long Term Capital Management, 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, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, Satyajit Das, Savings and loan crisis, 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, technology bubble, 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, zero-sum game

13 Indeed, the Volcker Rule was changed, thanks to the financial lobby, to allow for what’s called “portfolio hedging,” meaning that banks can still do risky trades, as long as they are in the interest of protecting their existing assets rather than making new money. The problem is how to tell the difference. Even the heads of the banks often can’t. Remember the 2012 “London Whale” trading debacle, in which J.P. Morgan suffered a $6 billion loss when synthetic derivatives trades went awry? The write-down represented a major loss of face for Jamie Dimon, who had been nicknamed “the Teflon banker” for his reputation for managing risk and had lobbied hard against reregulation after 2008, particularly against the Volcker Rule.

Morgan executives and representatives met with federal regulators twenty-seven times on the issue between July 2010 and October 2011.)14 Famous for his command of banking detail, Dimon was forced to eat a huge helping of humble pie following the incident, which he had at first dismissed as no big deal, admitting only later that the offending trade had been “flawed, complex, poorly reviewed, poorly executed and poorly monitored.” It’s hard to believe that J.P. Morgan’s chief investment office, which made the trades, wasn’t designed to be a profit center, given that its head, who was let go from the bank following the London Whale event, earned $15 million a year. But even if you buy that claim, the case underscores that any kind of portfolio hedging carries what’s known as basis risk. In the case of a huge bank like JPMorgan Chase, which is several times as big as the world’s largest hedge funds, its very size is bound to create a market-moving event when it takes a position large enough to protect itself.


pages: 200 words: 54,897

Flash Boys: Not So Fast: An Insider's Perspective on High-Frequency Trading by Peter Kovac

bank run, barriers to entry, bash_history, Bernie Madoff, compensation consultant, computerized markets, computerized trading, Flash crash, housing crisis, index fund, locking in a profit, London Whale, market microstructure, merger arbitrage, prediction markets, price discovery process, Sergey Aleynikov, Spread Networks laid a new fibre optics cable between New York and Chicago, transaction costs, zero day

Today’s trading algorithms evaluate the risk of a position before the trade is made, while the trade is executing, and every millisecond thereafter. Many firms have multiple redundant systems checking risk at all times. The “traders” are actually risk managers, continually responding to mini alarms that signal the slightest anomaly. There are no hidden positions – like the ones that caused the $6 billion “London Whale” loss for JPMorgan – because all the trades automatically flow into these risk management systems, instantly double-checked against redundant data feeds from the exchanges. Rogue traders have no room to hide risky positions. Unlike banks trading opaque financial instruments that only a few insiders understand, high-frequency firms transact in liquid, well-understood exchange-traded securities.


pages: 514 words: 152,903

The Best Business Writing 2013 by Dean Starkman

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

A Wall Street executive who made ten times that amount and now has declining income along with a divorce, private-school tuitions, and elderly parents also suffers, he said. “These people never dreamed they’d be making $500,000 a year,” he said, “and dreamed even less that they’d be broke.” Matt Levine 18. The Tale of a Whale of a Fail Dealbreaker Certain things just can’t be explained in the mass-market press, and the London Whale trade that caused billions of dollars in losses for JP Morgan is one of them. For one thing, JP Morgan refused to offer any details about what its trading desk did—and for another, what its trading desk did was so mind-bendingly complex that few journalists could even understand it, and none could explain it in a way that the average newspaper reader could comprehend.

Matt Levine, an equity-derivatives geek turned blogger, understands complex concepts and can talk about them in a conversational and even funny way. This stuff isn’t easy. But for people who wanted to really get up to speed on a hugely important story, there was only one place to turn. Hi! Would you like to talk about the London Whale? Sure you would. The amount of misunderstanding of our poor beleaguered beluga is staggering, so I figured we could try to embark on a voyage of discovery together. Maybe we’ll figure it out. Along the way we’ll talk a tiny bit about the Volcker Rule. I am going to try to talk very slowly and simplify things so if you are pretty financially sophisticated you could skip this post (I’ve linked to some better things to read at the end), or just get really angry at me in the comments.


pages: 482 words: 149,351

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

activist fund / activist shareholder / activist investor, Airbnb, airline deregulation, anti-communist, bank run, banking crisis, Basel III, Bear Stearns, 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, failed state, falling living standards, family office, financial deregulation, financial innovation, forensic accounting, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global supply chain, high net worth, Ida Tarbell, income inequality, index fund, invisible hand, Jeff Bezos, Kickstarter, land value tax, late capitalism, light touch regulation, London Whale, Long Term Capital Management, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, 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, plutocrats, Ponzi scheme, price mechanism, 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, 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, The Chicago School, Thorstein Veblen, too big to fail, Tragedy of the Commons, transfer pricing, two and twenty, wealth creators, white picket fence, women in the workforce, zero-sum game

‘We had no idea what the ramifications would be in our financial system, and where, because these trades were booked in the Cayman Islands,’ Gensler said. ‘It was a terrible feeling.’ Then there was JP Morgan Chase’s multi-billion-dollar trading loss from credit default swaps executed in its UK branch by a trader known as the London Whale.1 Gensler could have mentioned, but didn’t, the case of Enron, the financialised US energy company whose collapse in 2001 was the largest bankruptcy in history at the time, and which turned out to have parked assets out of view in hundreds of financial vehicles in the Caymans and in the even murkier Turks and Caicos, both British overseas territories.

122, 136–7 Cadbury’s 113 Cameron, David 48 Capital Group 84 capital requirements 148–63 Careline Homecare Limited 190–3, 202–5, 206, 216, 220 care sector 4, 190–4, 202–9, 216–17, 220, 228, 229, 234 Carillion 46, 231, 237 Carlyle Group 214 Carvalho, Arnaldo Lago de 233 Cassano, Joe 161 Cayman Islands 1, 2, 3, 59–60, 62, 63–7, 93, 125, 136, 140, 141, 145, 150, 151, 152, 153–4, 157, 162, 179, 188, 200, 211, 228, 242 Cayman Trust Law (1967) 62 Celtic Tiger (Ireland economy) 4, 115, 116–39 Central Bank of Ireland 129, 136 Cheney, Dick 244 Cherwell, Lord 53 Chicago School 28, 29, 30, 46, 71, 74, 98, 110, 197, 209, 253 China 13, 23, 50, 55, 84, 85, 87, 92, 104, 108, 110, 117, 138, 200, 258, 262–7, 272, 274 China General Nuclear Power Corporation (CGN) 262–3 Chinese Communist Party (CCP) 258, 264, 265, 266, 267, 272 Christensen, John 5, 11, 48, 67–8 Christensen, Professor Clayton 197, 198 Citibank/Citigroup 11, 59, 83, 129, 140, 159 City of London 37, 38, 84, 92–3, 183, 185, 252, 271, 272, 273; Big Bang 104, 143–4; capture of British establishment 13, 142, 166–7, 257–60, 265, 266; Chinese influence upon 262–7; evidence machine/lobbying and 257–60; financial brain drain and 6, 108, 259; global financial crisis and see global financial crisis; monopolies and 84; neoliberalism and 37, 38; organised crime and other abusive activities linked to 11–12, 93, 97, 141–6, 154, 166, 167, 168; penetrated and captured by reckless global finance (London loophole) 140–68; rebirth as global financial centre after fall of British empire 4, 10, 50–69; tax havens and see tax havens; Third Way and 92–3, 97, 98, 102, 104, 108, 109, 113; UK economy and growth in size of 5–14, 108, 218–40, 257–61, 262–74 City of London Corporation 257–8 Clearing House Group 130–1 Clinton, Bill 91, 97, 101, 114, 115, 122, 159 Clinton, Hillary 91, 100 Coase, Ronald: The Problem of Social Cost 72–4, 79 Coelho, Tony 98–9 Cohen, Benjamin J. 57 Cohen, Sheldon 254 collateralised debt obligations (CDOs) 165, 235 collateralised loan obligations (CLOs) 165, 200 Commodity Futures Modernisation Act (CFMA) (2000) 159–60 Community Mental Health Fund, Missouri 44 comparative advantage concept 105, 108 Competition and Markets Authority 70 competitiveness of nations/competitiveness agenda 8–9, 13–14, 23, 28–49, 62, 68, 70–1, 73, 80, 95, 97–8, 100–15, 130, 131, 132–3, 136, 142, 143, 149, 159, 160, 161, 164, 165, 180–1, 184–5, 207, 218, 241–3, 246–7, 250, 252–3, 258, 266, 267, 270, 271, 273 Conservative Party 37, 53, 71, 78, 102, 157, 165, 168, 220, 229 consultants 40, 41, 42–3, 66, 117, 230, 232, 233 controlled foreign company (CFC) reforms, U.K. 249–50 Cook Islands 177, 186, 272 Cornfield, Bernie 93 corporation: complexity of 3, 205–6; concept of 196–7 credit, control of 21 credit default swap (CDS) 128, 141, 147, 155–9, 165 Credit Suisse 11, 180, 183 crime/criminal money 12, 56, 58, 61, 62, 63, 64–5, 93–4, 142–3, 144, 145, 153, 154, 167–8, 175, 180, 187, 223, 264, 272, 273 Cromwell, William 22 Daily Mail 113, 251, 252 Darling, Alistair 257 Davidson, Charles 182, 189 Davidson, Kenneth 81, 252 Davies, Will 36, 39, 102 Deaton, Angus 181 debt 7, 34, 58, 69, 121, 152, 160, 165, 169, 186, 190, 193–6, 198–201, 205, 206–7, 208, 210, 215, 221, 234, 235, 244, 248, 262 Delaware, U.S. 181 Deloitte 235, 237 Delors, Jacques 100 Democratic Party, U.S. 39, 97, 98–100, 102, 141, 245 Deng Xiaoping 117 Depfa 133 deregulation, financial 13, 31, 35, 64–5, 68–9, 91, 97, 104, 107, 109, 117–18, 138, 142, 143, 146, 152, 159–60, 164, 165, 260 derivatives 12, 140–1, 142, 144, 146–7, 149, 151, 155, 158–60, 161, 164, 193 Desmond, Dermot 129–30 de Tocqueville, Alexis 75–6 Deutsche Bank 83, 95, 111, 160 Devereux, Professor Mike 243 Director, Aaron 71–2, 78, 79 DIRT (Deposit Interest Retention Tax) 136 Down’s Syndrome North East Association (UK) (DNSE) 169–70, 174 Drexel Burnham Lambert 161, 195 drugs: gangs/money 12, 61, 64–5, 92, 142–3, 145, 167, 185–6; pharmaceutical/Big Pharma 85–6, 126, 247 Dunbar, Nicholas 152, 161 dynamic scoring/dynamic modeling 253–4 East India Company 50, 75 Eddy, Bruce 44 Efficient Markets Hypothesis 150 Elf Affair 94, 187 Enron 46, 141, 165, 235–6 Epstein, Professor Gerald 10–11, 259; Overcharged: The High Costs of Finance 10– 11 Ernst & Young 163, 235, 238 Espino, Ovidio Diaz: How Wall Street Created a Nation 23 Essilor 82; EssilorLuxottica 82 Eurodollar markets/Euromarkets 55–9, 60, 61, 62, 63, 64, 68, 69, 77, 91, 93, 104, 142 European Central Bank (ECB) 137 European Commission (EC) 84, 94, 100, 111, 137; Liikanen Report (2012) 135 European Economic Community (EEC) 77, 98, 118, 123, 124–5 European Round Table of Industrialists (ERT) 100 European Union (EU) 98, 109–10, 111, 124, 132, 147, 238 Export Profits Tax Relief 118 Facebook 23, 71, 84, 88, 171, 173, 185, 226, 271, 274 fallacy of composition 107–8, 247 Fallon, Padraic 124 Fanning, John 126 Fantus Factory Location Service 40 Farm Aid 87–8 Federal Reserve Bank of New York 57 Ferguson, Niall: The Ascent of Money 242 Fiat 250 Finance Acts, Ireland: (1968) 120; (1987) 131 finance curse, concept of 3–14, 15, 18, 19, 22, 31, 37, 48, 68, 71, 103, 108, 111, 132, 136, 174, 184–5, 193, 198, 216, 228, 239, 257, 261, 265, 267, 269, 270, 271, 272, 273, 274 financial capture 13, 68, 96, 153, 257, 259, 265, 266 Financial Conduct Authority (FCA) 25–6, 246 financial crisis, global (2007–8) 4, 6, 25, 83, 90, 99, 109, 113, 114, 116, 128, 130, 133–4, 135–6, 140–68, 169, 195, 202, 224–5, 233, 235, 236, 240, 257 financialisation 2–4, 6, 9, 10, 11, 37, 68–9, 71, 88, 90, 174, 180, 185, 190, 191, 194, 198, 205, 217, 224, 225, 226, 228, 232, 259, 267, 274 Financial Services Authority (FSA) 104, 160, 161, 166, 167 Financial Stability Board (FSB) 83 Financial Times 68, 84, 94, 107, 146, 214, 218, 226, 232, 243, 256 Finger, Bernd 168 Fischel, William 38 Fordism 80 foreign direct investment (FDI) 110, 118–19, 123, 124, 132, 250 Fox News 71, 253 Franks, Oliver 52 Fraser, Ian: Shredded 227 free markets 18–19, 71–2, 99, 126, 128, 241 free-rider problem 30–1, 43, 47, 38 free trade 31, 50–1 Friedman, Milton 28, 30, 37, 59, 72, 73–4; ‘The Social Responsibility of Business Is to Increase Its Profits’ 196–7, 198, 209 Friedmaniacs 28, 30 FTSE 100 228, 238 Gapper, John 232–3 Gash, Tom 230 Gates, Bill 127, 185 Gauke, David 249 Gaydamak, Arkady 186 Gazprom 84 GDP (gross domestic product) 6, 8, 111, 112, 123, 147, 153, 174, 241, 245, 254, 256, 260, 266 General Electric (GE) 86–7 Gensler, Gary 140–1 Gibraltar 60, 63 Giddens, Anthony: The Third Way 105 Gilbert, Martin 83 Gilead 85–6 Giles, Chris 218 Glasman, Baron 258 Glass-Steagall Act (1933) 76, 147, 158–9 globalisation 10, 35, 59, 93, 94–5, 97, 98, 101, 102, 103, 106, 107, 109, 165, 177, 251, 254 Golden Age of Capitalism 34, 69, 91, 92, 118, 196, 251, 254–5 Goldman Sachs 113, 159, 160, 183, 213, 235, 242 Google 71, 88, 226, 271 Graphite Capital Partners VIII A LP 191–2, 205, 206 Great Depression (1929–39) 31, 98 Greenspan, Alan 75, 159, 160 gross national income (GNI) 112, 119, 122–3, 134 Guernsey 60, 181, 191, 220, 222 Hahneman, Daniel 181 Haldane, Andrew 225 Hands, Guy 181 Hansen, Lee 28 happiness, wealth and 181–3, 189 Harlech, Lord 34 Harrington, Brooke 186, 188 Hartnett, Dave 113 Harvard Business School 101, 196, 197 Harvie, Alicia 87–8 Harvoni 86 Haughey, Charles 114–15, 120–3, 129–30, 136 Hayek, Friedrich 35–6, 37, 59, 76; The Road to Serfdom 36, 37 Hayes, Jerry 229 Heaton, David 234 hedge funds 6, 13, 83, 104, 108, 128, 130–1, 140–1, 154, 164, 177, 178, 189, 193, 200, 209, 213, 214–15, 217, 233 Henry, James 166, 260 Hewlett-Packard 39–40 Hinkley C 262–3 HMRC 62, 104, 113, 168, 173, 234, 241, 242, 245, 246, 249, 252–4; Computable General Equilibrium model 241, 252–4 HNWI (high net worth individuals) 180; ultra-HNWI 180 Hodge, Margaret 168, 239 Hofri-Windogradow, Adam 180 Hong Kong 50, 130, 138, 171–2, 266 HSBC 12, 54, 83, 107–8, 167, 266 Hundred Group 242 Hunt Companies 221 HypoVereinsbank 133 Industrial Development Authority (IDA), Ireland 118, 124–5, 126, 129, 131, 135 inequality 4, 11, 31, 34, 36, 47, 48, 59, 90, 109, 138, 179, 187, 225, 251, 255, 256, 257, 259, 267–8, 270, 272, 274 inflation 34, 80, 107, 129 Innes, Abby 229 Institute for Fiscal Studies (IFS) 247 Intel 125 internal rate of return (IRR) 198, 211 International Financial Services Centre (IFSC), Dublin 128–35, 251 International Monetary Fund (IMF) 137, 164, 219, 250, 251, 257 International Public Partnerships Limited (INPP) 220–1 International Swaps and Derivatives Association (ISDA) 158 Intruders 113 Investec Wealth & Investment Limited 220 investment funds 2, 88, 110, 140 Investors Overseas Services (IOS) 93 Iran 53–4 Ireland: Celtic Tiger economy in 4, 114–15, 116–39 Isle of Man 60, 136 Jackson County, Missouri, U.S. 44 Jenkins, Robert 11 Jensen, Professor Michael 196, 197, 198, 209, 215 Jersey 1, 2, 3, 5, 60, 63, 67–8, 131, 136, 169, 171, 173, 174, 202, 221, 222, 223, 228, 258 Jiang Zemin 117 Johnson, Boris 218, 219, 222 Johnson County, Kansas, U.S. 41–4 Johnson, Paul 247 Johnson, Simon 257 Joly, Eva 187 Journal of Political Economy 29, 46 JP Morgan Chase 83, 95, 141, 146, 147, 155, 158, 160, 214 Juncker, Jean-Claude 94–5, 97, 102, 103, 104, 111, 114, 122 Kansas, U.S. 41–4, 244–5, 255–6 Kay, John 9 Kennedy, Edward 78–9 Keynes, John Maynard 31–2, 34, 37, 38, 52, 59, 68, 251 KKR (Kohlberg Kravis Roberts) 2, 3, 195, 214 Koch, Charles 74 Kohlberg Junior, Jerome 194, 195, 199 Kohl, Marius 95 KPMG 114, 235, 237, 238–9 Kraft Heinz 81, 113 Kravis, Henry 2, 195 Kroes, Neelie 110 Krugman, Paul: ‘Competitiveness: A Dangerous Obsession’ 105 Labour Party 77, 97, 102–5, 132, 192, 220, 247, 257 Lack, Simon 214; The Hedge Fund Mirage 214 Laffer, Arthur/Laffer curve 244–5, 254 Lazonick, Bill 225, 226 Leaver, Professor Adam 207, 224–5, 234 Lehman Brothers 140, 162–4 Leigh-Pemberton, Robin 145 LeRoy, Greg 40–1 leveraged buyout (LBO) 195–6 Levin, Carl 134 Liberty Global 250 Libor (London Inter-Bank Offered Rate), manipulation of 12, 85, 109, 166 Linares, Adolfo 185, 188 Linklaters 163 Lloyds Bank 52 Local Government Association (LCA) 224 Loch Alpine Economics 253 London School of Economics (LSE) 37, 105, 229 London Stock Exchange (LSE) 167, 220 London Whale 141 Long-Term Capital Management (LTCM) 140–1 Luxembourg 1, 2, 3, 13, 55–6, 92, 93–7, 98, 111–13, 125, 130, 138, 142, 166, 201, 211, 221, 222, 228, 243 Luxleaks scandal (2014) 95, 109 Luxottica 82 Lycamobile 168 Lydian Capital Partnership 202 Lynn, Barry 87, 88 Macdonald, Ken 168 Macmillan, Harold 34, 53–4 MacSharry, Ray: The Making of the Celtic Tiger 118, 127 Madoff, Bernie 94, 96 Madrid, Miguel de la 58 Major, John 220 Maloney, Carolyn 141 Manafort, Paul 183 Manne, Henry 74 Marchant, David 157 Marx, Karl 15, 18 Masters, Blythe 158 Maugham, Jolyon 156 Maurer, Ueli 45–6 Mazerov, Michael 255 McAlpin, Clovis 62 McCarthy, Joseph 29 McCarthy, Justine 119 McCreevy, Charlie 132 McDonald, Duff 197 Mellon, Tamara 208 mergers and acquisitions (M&A) 26, 71, 81, 82, 83, 84, 87, 99, 110, 155, 225, 226, 251 Metcalf, Stephen 36 Microsoft 125, 185 Midland Bank 34, 54–5 Milken, Michael 195 Missouri, U.S. 41, 43, 44, 244–5, 255 money laundering 12, 145–6, 167, 168, 183 Money Trust Investigation, U.S.


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

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Albert Einstein, 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, 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, family office, financial innovation, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, global pandemic, Gordon Gekko, hiring and firing, Ida Tarbell, impact investing, income inequality, invisible hand, Jeff Bezos, job-hopping, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Kickstarter, Kōnosuke Matsushita, London Whale, Long Term Capital Management, market fundamentalism, Menlo Park, new economy, obamacare, oil shock, pattern recognition, performance metric, Peter Thiel, Plutocrats, 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, shareholder value, Silicon Valley, Skype, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, survivorship bias, The Nature of the Firm, the scientific method, Thorstein Veblen, Tragedy of the Commons, union organizing, urban renewal, Vilfredo Pareto, War on Poverty, William Shockley: the traitorous eight, women in the workforce, Y Combinator

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. But the moment didn’t last. In 2012, the firm revealed that a single trader in its London office—Bruno Iksil, nicknamed “the London Whale”—had incurred a trading loss of $2 billion, and the loss continued to grow thereafter, eventually reaching more than $6 billion. Dimon, who initially referred to reports about the loss as “a complete tempest in a teapot,” was pilloried in the media not just for the company’s failed internal risk controls, but for the mere fact that such a loss was even possible at a time when the American people were both reeling from the 2008–10 recession and angry that the country’s financial establishment had not only just avoided being punished for its crimes, but was indeed back to business as usual.

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.”

., 323 Hotta, Shozo, 205–6 “How Business Schools Lost Their Way” (Bennis and O’Toole), 224 “How Competitive Forces Shape Strategy” (Porter), 414 How Harvard Rules (Trumpbour), 432 Hubbard, Glenn, 405 Human Problems of an Industrial Civilization, The (Mayo), 88, 90 human relations movement, 37, 81–90, 93, 118, 286, 355 human resources movement, 61, 197–98 Huston, Darren, 531 IBM, 142, 209, 289, 301, 347; HBS grads hired by, 460; HBS partnership with, 154–55; HBS’s Executive Education and, 151; HBS’s MBAs required to buy computers and, 155; Kanter and, 404; layoffs at, 404, 492–93 Icahn, Carl, 367, 480, 481 Ignatius, Adi, 306 Iksil, Bruno (London Whale), 472, 548 Immelt, Jeffrey, 305, 531 “Impact Investing: Trading Up, Not Trading Off” (Bales), 7 INCADIS (Individual Case Discussion Simulator), 287 income inequality, 5, 10, 23, 56, 390, 426, 510, 539, 540–41; CEO compensation and, 165–66, 539, 544; concentration of wealth, 539; stock market and, 491; submerged state and, 542; wage stagnation and, 165, 426, 491 “Income Inequality in the United States, 1913–1998” (Saez), 540 India: business education in, 231, 233; Satyam Computer Services fraud, 408–9, 521 Indian Institute of Management–Ahmedabad, 230, 231, 236, 564–65 India Research Center, 234, 545 Individualized Corporation, The (Ghosal and Bartlett), 491 Industrial Bank of Japan, 153–54; endowment of HBS professorship, 153, 402 industrial organization (IO), 412–13 industrial psychology, 84–86 innovation, 557–58; disruptive, 303, 409, 422, 424, 572, 573; Doriot and wartime, 124; founder-inventors and, 60; MBAs and, 120–21; MBAs in Silicon Valley and, 10.


pages: 202 words: 66,742

The Payoff by Jeff Connaughton

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, locking in a profit, London Interbank Offered Rate, London Whale, Long Term Capital Management, naked short selling, Neil Kinnock, Plutocrats, plutocrats, Ponzi scheme, risk tolerance, Robert Bork, Savings and loan crisis, short selling, Silicon Valley, too big to fail, two-sided market, young professional

But whatever the causes of the Dow’s daily rollercoaster ride, millions of Americans are getting off it. Ordinary investors withdrew more than $135 billion from domestic stock mutual funds in 2011. Now, as I write in the spring of 2012, the azaleas and banking scandals are in bloom, including J. P. Morgan for failing to supervise complex derivatives positions by the “London Whale,” one of its traders, leading to billions of dollars in losses. And worse, Barclays and other banks have been exposed for manipulating LIBOR, which sets rates for trillions of dollars of financial instruments, leaving the credibility of the banking community in tatters. In the summer of 2012, the stock markets went haywire again when Knight Capital was battered by its own software glitch and in 45 minutes lost $440 million.


pages: 261 words: 86,905

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

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

That wouldn’t work for retail banking, where there is a strong social interest in keeping banks lending, but it might be a viable structure for investment banks, and would certainly make their risks more in line with their rewards. The British bank C. Hoare and Co. is unusual in being an unlimited liability bank, wholly owned by one family. London Whale The nickname of Bruno Iksil, the trader at J. P. Morgan’s London branch who was paid $7.32 million in 2010 and $6.76 million in 2011, and then in 2012 lost $6.2 billion betting on credit default swaps. The first response of Jamie Dimon, chairman and CEO of J. P. Morgan, was to describe the affair as “a tempest in a teacup,” until the scale of the losses became apparent.


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, Bernie Madoff, Black Swan, buy and hold, 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 innovation, financial intermediation, fixed income, Flash crash, income inequality, index fund, information asymmetry, invisible hand, Kenneth Arrow, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, moral hazard, Myron Scholes, Northern Rock, passive investing, performance metric, Ponzi scheme, post-work, principal–agent problem, rent-seeking, Ronald Coase, shareholder value, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, Steve Jobs, the market place, The Wealth of Nations by Adam Smith, transaction costs, Upton Sinclair, value at risk, WikiLeaks

The Federal Housing Finance Agency sued the bank, alleging it fraudulently claimed that the loans behind some $33 billion in mortgage derivatives met underwriting guidelines. The Securities and Exchange Commission and the US Attorney’s Office were prosecuting the bank for its public statements about a $6 billion trading loss fancifully nicknamed “the London whale” after the market heft of the trader who caused the blowup. The SEC also was investigating how the bank came to hire the children of well-connected Chinese in a potential bribery scheme. The US Attorney continued to explore the bank’s potential manipulation of the energy markets, even after the bank paid a $410 million settlement to the US energy regulator, but did not admit or deny criminality in that situation.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

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

In September 2013, Jamie Dimon, chief executive of JPMorgan Chase, America’s biggest bank, sent a memo to staff revealing that the bank had added a whopping 3,000 employees to bolster controls, devoted 500 people to fulfilling the Federal Reserve’s stress tests, and given staff 750,000 hours of training on compliance matters. Whether all this effort will be productive is moot. A failure of internal controls at JP Morgan that led in 2012 to the loss of around $6 billion in a London trading operation – the so-called London whale scandal – demonstrated that neither Jamie Dimon nor his fellow top executives knew what was going on inside the bank. Given that Mr Dimon is generally reckoned to be the most accomplished banker of his generation, there could be no clearer indication that today’s financial behemoths are too big and too complex to manage.


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, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, 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, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, foreign exchange controls, full employment, global supply chain, hindsight bias, Hyman Minsky, Joseph Schumpeter, Kenneth Rogoff, lateral thinking, London Whale, Long Term Capital Management, market bubble, money market fund, moral hazard, Myron Scholes, Network effects, new economy, offshore financial centre, paradox of thrift, pets.com, Ponzi scheme, quantitative easing, Ralph Nader, Richard Thaler, risk tolerance, Ronald Reagan, Sam Peltzman, savings glut, tail risk, technology bubble, The Great Moderation, too big to fail, transaction costs, union organizing, Unsafe at Any Speed, value at risk, William Langewiesche, zero-sum game

The beauty of capital is that it works no matter what causes the loss. Banks’ risk management seeks to protect against adverse movements in financial prices, excessive exposure to particular borrowers, a counterparty reneging on a deal, rogue traders and criminals. Yet it regularly fails. In 2012, J.P. Morgan Chase & Co. learned that a trader nicknamed “the London whale” had taken on huge derivatives positions in what seemed to be a flawed attempt to hedge the bank’s positions. The loss eventually grew to a staggering $6.2 billion. Yet the loss never threatened J.P. Morgan’s survival, thanks to the billions of dollars in capital it already had, some of it raised under pressure by regulators.


pages: 402 words: 98,760

Deep Sea and Foreign Going by Rose George

Admiral Zheng, air freight, Airbus A320, Albert Einstein, bank run, cable laying ship, Captain Sullenberger Hudson, Costa Concordia, Edward Lloyd's coffeehouse, Exxon Valdez, failed state, Filipino sailors, global supply chain, Google Earth, intermodal, Jones Act, London Whale, Malacca Straits, Panamax, pattern recognition, profit maximization, Skype, trade route, UNCLOS, UNCLOS, urban planning, WikiLeaks, William Langewiesche

Kraus and Rosalind M. Rolland, (eds.), The Urban Whale: North Atlantic Right Whales at the Crossroads, Cambridge, MA: Harvard University Press, 2007, p.382. 6 Enormous Carnivores, Microscopic Food Ibid., p.140. 7 A whale sailed through the middle of London Euan Ferguson, ‘After a day of struggles, the London whale dies a lonely death’, Observer, 22 January 2006. – 67 right whale carcasses Kraus and Rolland, op. cit., p.410. 8 A foghorn-like signal Michael Jasny, ‘Sounding the Depths: The rising toll of sonar, shipping, and industrial ocean noise on marine mammals’, Natural Resources Defense Council (NRDC), November 2005, p.3


pages: 375 words: 105,067

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

American ideology, asset allocation, Bear Stearns, 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 innovation, Flash crash, game design, greed is good, high net worth, impulse control, income inequality, index fund, London Whale, longitudinal study, Mark Zuckerberg, money market fund, mortgage debt, 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, too big to fail, transaction costs, Unsafe at Any Speed, upwardly mobile, Vanguard fund, wage slave, women in the workforce, working poor, éminence grise

This is something many women’s cheerleaders would rather not acknowledge. But how then to account for Lehman Brothers CFO Erin Callan, who went on television less than a week before the venerable bank crashed to assure investors that all was right with her books; JPMorgan Chase’s Ina Drew, the supervisor of the infamous “London Whale” trader who lost the bank billions of dollars; or alleged Bernard Madoff accomplice Sonja Kohn who, according to a lawsuit filed against her by Madoff bankruptcy trustee Irving Picard, “masterminded a vast illegal scheme”? Embracing theories about women, money, emotion, and risk also ignores women who are good with money in ways traditionally viewed as male, such as Mary Anne and Pamela Aden, two sisters who made their reputation as stars of the commodities trading world with astute but risky calls on gold over a period of decades.


pages: 387 words: 119,244

Making It Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy by Iain Martin

asset-backed security, bank run, Basel III, Bear Stearns, beat the dealer, Big bang: deregulation of the City of London, 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 innovation, G4S, 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, moral hazard, negative equity, Neil Kinnock, Nick Leeson, North Sea oil, Northern Rock, old-boy network, pets.com, Red Clydeside, shareholder value, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, value at risk

It subsequently had to seek a recapitalisation from the Gulf. Then the fourth, HSBC, had those money-laundering difficulties. Registered outside the UK, some of those who navigated the sub-prime mortgage crisis most deftly, and were smug as a result, later hit trouble. In 2012 the ultra-safe J. P. Morgan was temporarily beached by the ‘London Whale’. Its trading vehicle based in London ran up losses of $6.2bn that stunned those in charge in New York. J. P. Morgan’s celebrated risk-control processes had simply failed. The scale and potential ungovernability of the biggest banks does not mean that small is always beautiful. Some of the banks and building societies that had to be rescued during the crisis were relatively small, and narrowly focused on particular types of lending, with no investment banking activities.


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, bonus culture, BRICs, business process, buy and hold, 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, Goldman Sachs: Vampire Squid, high net worth, housing crisis, London Whale, Long Term Capital Management, merger arbitrage, Myron Scholes, new economy, passive investing, performance metric, risk tolerance, Ronald Reagan, Saturday Night Live, Satyajit Das, shareholder value, short selling, sovereign wealth fund, The Nature of the Firm, too big to fail, value at risk

Another person I interviewed suggested that if Goldman partners collectively had to disproportionately pay the $550 million settlement with the SEC out of their bonus pool, or if J.P. Morgan had a partnership structure and the partners together had to disproportionately pay the losses from the “London whale,” perhaps they collectively would take stronger action to prevent such behavior. He pointed out that when Goldman paid settlements related to Robert Maxwell, all the partners paid, not just the one responsible for the relationship, and the firm went back retroactively to those who were partners at the time for payments.


pages: 475 words: 155,554

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

Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, bond market vigilante , Boris Johnson, British Empire, capital controls, carbon footprint, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, G4S, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, light touch regulation, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, Money creation, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, tail risk, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, WikiLeaks, working-age population, zero-sum game

The ‘fatal flaw’ of VaR, as Haldane argues, is that it is silent about the tail risk. A trader could be given a so-called 99 per cent VaR limit of $10 million, but VaR would be blind to the trader’s construction of a portfolio that gave a 1 per cent chance of a $1 billion loss. J. P. Morgan itself discovered in May 2012 that the ‘London Whale’ corporate credit portfolio that was assessed with a 95 per cent VaR of $67 million in early 2012 had lost them $2 billion within weeks. In its February 2008 annual results, RBS calculated a 95 per cent VaR on its trading book at £45.7 million. The disastrous purchase of the toxic asset-laden ABN Amro had increased that measure by just £6 million.


The Volatility Smile by Emanuel Derman,Michael B.Miller

Albert Einstein, Asian financial crisis, Benoit Mandelbrot, Brownian motion, capital asset pricing model, collateralized debt obligation, continuous integration, Credit Default Swap, credit default swaps / collateralized debt obligations, discrete time, diversified portfolio, dividend-yielding stocks, Emanuel Derman, Eugene Fama: efficient market hypothesis, fixed income, implied volatility, incomplete markets, law of one price, London Whale, mandelbrot fractal, market bubble, market friction, Myron Scholes, prediction markets, quantitative trading / quantitative finance, risk tolerance, riskless arbitrage, Sharpe ratio, statistical arbitrage, stochastic process, stochastic volatility, transaction costs, volatility arbitrage, volatility smile, Wiener process, yield curve, zero-coupon bond

Markets are plagued with anomalies that violate standard financial theories (or, more accurately, theories are plagued by their inability to systematically account for the actual behavior of markets). For example, the negative return on a single day during the crash of 1987 was so many historical standard deviations away from the mean that it should never have occurred in our lifetime if returns were normally distributed. More recently, JPMorgan called the events of the “London Whale” an eight-standard-deviation event (JPMorgan Chase & Co. 2013). Stock 8 THE VOLATILITY SMILE evolution, to take just one of many examples, isn’t Brownian.1 So, while financial engineers are rich in mathematical techniques, we don’t have the right laws of science to exploit—not now, and maybe not ever.