Northern Rock

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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, 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, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, WikiLeaks, working-age population, zero-sum game

Adam Applegarth told MPs later that Northern Rock’s wide funding base meant he thought such a reserve would not be necessary. Northern Rock spread the cushion against unexpected losses thinner and thinner. At the end, the ratio of its assets to its equity base was 58:1, the highest in Europe. But the Rock was compliant with all laws and financial regulations at the time. The UK regulator, the Financial Services Authority, signed off Northern Rock as one of only four lower-risk banks that only needed a full risk assessment every three years. Northern Rock was deemed so safe that it was singled out for special treatment amongst the thirty-eight major UK banks: Northern Rock did not have to be subject to the FSA’s ‘Risk Management Programme’. As a result, the FSA stopped even bothering with Northern Rock. The top five banks were inspected just under once a week between 2005 and 2007 under the ‘close and continuous’ regulatory framework.

They’d come here for Northern Rock. Seven years on, it was all to end in ignominy and bank runs. Northern Rock had the dubious honour of being discussed for some time at the September 2007 meeting of the mighty US Federal Reserve. This prompted Fed board member Richard Fisher to suggest that Newcastle might be better known as Sandcastle. Alistair Darling, the former UK chancellor who himself had a Northern Rock mortgage, recalls the smug hand-rubbing amongst European finance ministers as they witnessed what they thought was the downfall of Anglo-Saxon capitalism. Plenty has been written about the collapse, the runs and the nationalisation of Northern Rock. But even a sandcastle needs to be built by somebody. This is how you grow and then harvest a 125 per cent mortgage. For Northern Rock, an ex-building society with a low credit rating, the key question was how they could borrow significant amounts of money in order to lend it on.

For Northern Rock, an ex-building society with a low credit rating, the key question was how they could borrow significant amounts of money in order to lend it on. At its peak, Northern Rock had no more than seventy-five branches, over a quarter of them in the northeast. So it was never going to get enough retail deposits in, even if noughties Britons had wanted to save. So how to fund the desired growth? ‘You can’t do it in the capital markets,’ I was told by one member of the Northern Rock securitisation team, whom I shall call Jon Taylor (he wishes to remain anonymous). ‘You’re Northern Rock, you don’t have a great rating. Until secure technology. Whatever you say, it gave Northern Rock a level playing field.’ Adam Applegarth, Northern Rock’s cricket-playing chief executive, was a marketeer rather than banker. He looked after his staff very well, and he came up with the ‘virtuous circle strategy’ that sought to gobble up market share with cheap innovative mortgage products (see here).


pages: 253 words: 79,214

The Money Machine: How the City Works by Philip Coggan

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

When it ran into trouble, only a quarter of its funds came from retail customers. The strategy had enabled Northern Rock to expand very quickly; in the first half of 2007, its lending was 31 per cent higher than the year before. This approach looked highly profitable. Ironically enough, the last annual results that it produced before its collapse showed record pre-tax profits of £627 million, 27 per cent higher than the previous year. Indeed, anyone who looked at the raw data might have been surprised by Northern Rock’s collapse; the repayment arrears on its mortgages were less than half the industry average. But these headline numbers belied some fundamental weaknesses. It takes time for mortgages to go wrong and when it got into trouble, a third of Northern Rock’s loans were less than two years old. As it expanded, it was increasing the proportion of loans to homebuyers with a small deposit (and to those who wanted to borrow more than the value of the house itself).

But in August 2007, alarmed by losses on subprime loans, investors suddenly wanted nothing to do with mortgage-backed securities. Northern Rock had raised money from the markets in January and May, and was scheduled to do so in September. In August, it was thus low in cash. It had not thought to put emergency funding plans in place. So the bank had to turn to others for help. An attempt was made to sell the bank to Lloyds TSB but Lloyds wanted a £30 billion loan from the Bank of England before it would sign the deal. The central bank was unwilling to agree; ironically, its eventual exposure to Northern Rock proved much larger. The only option left was direct help from the Bank of England, and when news of that deal leaked, retail customers started to demand their money back. What emerged was a classic ‘run on the bank’ such has been seen many times in history. Even without the run, Northern Rock was probably finished as an independent entity.

When the credit crunch hit, some of those banks were particularly vulnerable. The Northern Rock Collapse Building up a base of retail deposits takes time and resources. Either you need a big base of branches (with lots of costly property and staff), a call centre to handle consumer enquiries or you need to offer a high return to attract the rate tarts who surf the internet. The originate and distribute model seemed to offer a quicker and easier route to gain market share. Instead of waiting for deposits to build up, a bank could go out and make the mortgage loans it desired and then sell those loans in the financial markets. Provided it received a higher rate from homeowners than it paid in the market, such a strategy would be profitable. Northern Rock, a Newcastle building society turned bank, was the British institution that proved most aggressive in pursuing this strategy.


pages: 311 words: 99,699

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

accounting loophole / creative accounting, asset-backed security, bank run, banking crisis, Black-Scholes formula, Blythe Masters, break the buck, Bretton Woods, business climate, business cycle, buy and hold, collateralized debt obligation, commoditize, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, easy for humans, difficult for computers, financial innovation, fixed income, housing crisis, interest rate derivative, interest rate swap, Kickstarter, locking in a profit, Long Term Capital Management, McMansion, money market fund, mortgage debt, North Sea oil, Northern Rock, Renaissance Technologies, risk tolerance, Robert Shiller, Robert Shiller, Satyajit Das, short selling, sovereign wealth fund, statistical model, The Great Moderation, too big to fail, value at risk, yield curve

[ FOURTEEN ] BEAR BLOWS UP On January 11, 2008, JPMorgan Chase burst into the news again. Andy Kuipers, chief executive of Northern Rock, announced that the bank was buying £2.2 billion of Northern Rock’s mortgage loans. “This is a relatively small transaction, representing around two percent of Northern Rock’s gross assets, but it is a positive development in the company’s ongoing strategic review,” Kuipers said, noting that the sale “will allow us to reduce the debt with the Bank of England.” The significance of Northern Rock’s announcement, though, went well beyond Northern Rock’s fate. It signaled that JPMorgan Chase was flexing its muscles even as other major banks were furiously trying to shore themselves up. The price at which Bill Winters’s team in London had arranged to buy the Northern Rock mortgages was extremely favorable, and Winters regarded the deal as one of the sweetest the bank had done for some time.

By 2007, less than a quarter of Northern Rock’s funding came from retail deposits, with the rest raised by securitization. Because the bank was securitizing its mortgages with off-balance-sheet vehicles, it did not need to hold a large volume of capital reserves against those loans, and it could extend about three times more mortgages, per unit of capital, than in its presecuritization days. By 2007, Northern Rock had trebled its share of the UK mortgage market, accounting for 18.9 percent of all mortgages, and was still hungry for more. At the start of that year, its website cheerfully told consumers that “if your wallet has taken a beating over the festive season, a new loan from Northern Rock could be the perfect way to sort things out.” When the money markets seized up in August 2007, though, Northern Rock discovered that its main funding source had frozen.

It held the savings of millions of British consumers and was deemed eminently safe. Or it had been until Peston’s report. Within minutes of the BBC bulletin, consumers began logging on to Northern Rock’s website and withdrawing their cash. The website then crashed, fueling panic. The next morning, Northern Rock savers flocked to the bank’s branch offices, and pictures of terrified savers in a long line in front of the bank beamed onto computers, television screens, BlackBerries, and mobile phones around the world. By midmorning, a full-scale bank run was under way. Never before had so many terrified consumers and investors seen a bank run in action, in real time. Technology was helping to spread the panic. What brought Northern Rock down was another variant of the woes that had beset IKB and Cairn. At the turn of the century, the bank had embraced securitization with a vengeance, raising funds by selling masses of mortgage-backed bonds to investors all over the world.


pages: 597 words: 172,130

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

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

King may have been insistent on making banks pay for their previous mistakes, but the Bank of England’s job for three hundred years had been to prevent a bank collapse and the broader public panic that might ensue if British subjects no longer believed their deposits were safe. His strategy was to step in as lender of last resort to Northern Rock, if necessary—but he insisted on ensuring that the Bank of England truly was the bank’s last resort, and on charging a “penalty” interest rate for emergency loans, making them an undesirable option for any other banks that might wish to go to Threadneedle Street for help. King argued that an emergency loan to Northern Rock would be most effective if it was covert. After all, if the public knew that Northern Rock had had to turn to the Bank of England for funds, it could increase the sense of panic. But lawyers for both banks fretted that a failure to disclose the loan immediately might be illegal, giving Northern Rock shareholders an inaccurate impression of the bank’s health. A subsequent investigation questioned that interpretation of the law but acknowledged that it would have been hard to keep any large-scale loan to Northern Rock secret for long in the “febrile and fevered atmosphere of that period.”

TEN Over by Christmas The morning of Friday, September 14, 2007, Mervyn King and Alistair Darling flew to Porto, Portugal, for a scheduled meeting of European Union central bankers and finance ministers. The timing of their trip to the riverside city best known for its sweet fortified wine was terrible. For the past several weeks, Northern Rock PLC, a bank based in the North East of England with £100 billion in assets, had been in crisis. Its business was to issue mortgages, which would then be packaged and sold on financial markets—and since August, mortgage securities had been toxic to global investors. Northern Rock faced a cash crunch, as depositors discovered just how bad its situation was, a classic bank run. Television news programs showed ominously long lines of Northern Rock customers waiting to pull their deposits. “You don’t want to be the ones in the end of the queue that the money’s run out,” an uncertain customer said to the cameras outside a branch in Reading.

“You don’t want to be the ones in the end of the queue that the money’s run out,” an uncertain customer said to the cameras outside a branch in Reading. In a palatial Moorish hall, the governor of the Bank of England and the chancellor of the exchequer watched from afar—on TV, just like many of those Northern Rock customers determined not to be in the end of the queue when the money ran out. “They’re behaving perfectly rationally, you know,” King told Darling, the chancellor later recalled. It was an accurate statement—but hardly what Darling wanted to hear. Britain had seen a number of bank failures over the years. But the two men had overseen the first run on a British bank since Overend & Gurney’s in 1866. Known before 1997 as the Northern Rock Building Society, Northern Rock had established itself as a very modern variety of bank. Much of its deposit base came from the Internet, with people all over the country parking their savings there electronically to take advantage of high interest rates.


pages: 398 words: 105,917

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

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

As subprime mortgage defaults in the US spread into the mainstream banking system and credit became harder to come by, the market took a closer look at Northern Rock. In September 2007, it said ‘no more’. The shunned Rock turned to the Bank of England for support. When the news leaked, the streets of Britain saw the first ‘run’ on a bank since Overend & Gurney a century and a half earlier. Hundreds of jobs went as Northern Rock was nationalized, with no compensation to investors, many of whom had spent their life savings on shares. In a description applied to many of the banks a couple of years later by Financial Services Authority chairman Lord Turner, Northern Rock’s returns had been ‘illusory profits’.30 Yet they justified huge payments to executives and shareholders, stripping the bank of any real capital.

It was a risk of which its auditor PwC was certainly aware, based on what it had said in its 2004 paper, but one about which the firm now said nothing. Northern Rock began to use the new IAS39 accounting standard at the beginning of 2005, a year earlier than most banks. It was no longer making provision for expected losses on mortgage loans. At the same time, the consequences of the markets’ excesses were becoming real: 8,200 home repossessions across the UK in 2004 became 21,000 in 2006.27 The interest rates the bank was having to pay in the money markets were steadily rising. Yet the prospect of greater defaults in the not-too-distant future was being ignored in both the accounts that Northern Rock was preparing under the new standard and, accordingly, the numbers used in its boardroom. As chartered accountant and former standard-setter Tim Bush told a later parliamentary inquiry, ‘banks are run on key ratios from the accounts’.28 And these accounts were giving chief executive Adam Applegarth, a 44-year-old maths and economics graduate who earned £30m in five years, the kind of ratios he liked – although even he admitted that nearly 50% profit growth in the first half of 2005 because of the new accounting method was ‘faintly insane’.29 The madness had to end.

The law required the auditors to report to the Financial Services Authority when a bank ‘may not be, or may cease to be a going concern’.35 As any half-competent bean counter would have realized that Northern Rock was in a precarious position and ‘may cease to be a going concern’ well before it crumbled, this obligation ought to have been triggered. Even if the auditors were shy of publicly expressing concerns over a bank’s ‘going concern’ status for fear of spooking the markets, they should at least have put the regulator in the picture. Yet, throughout the whole of 2006, PwC and the Financial Services Authority did not discuss Northern Rock at all. They had just one meeting and one phone call, far too late, in 2007. This, said the committee, was a ‘dereliction’.36 The question hovering over the post-mortem was why the bean counters had been so credulous.


pages: 457 words: 143,967

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

activist fund / activist shareholder / activist investor, Asian financial crisis, asset-backed security, bank run, banking crisis, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, break the buck, call centre, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, family office, financial deregulation, financial innovation, fixed income, high net worth, hiring and firing, index card, index fund, interest rate derivative, light touch regulation, loadsamoney, Long Term Capital Management, Martin Wolf, money market fund, moral hazard, Nick Leeson, Northern Rock, offshore financial centre, old-boy network, out of africa, prediction markets, quantitative easing, Ronald Reagan, shareholder value, short selling, Sloane Ranger, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, too big to fail, wikimedia commons, yield curve

Reflecting widely held economic theory, he believed that the banking sector was strong enough to withstand the impact of taking mortgage backed securities on to balance sheets; that the private sector would re-establish valuations; and that to step in prematurely would encourage ‘moral hazard’, the perception among financial institutions that they would be protected from the consequences of their actions by a government safety net.21 It was the direct opposite of the view Diamond had put forward but the careful reader would have noted the penultimate paragraph of the governor’s letter: ‘lender of last resort operations remain in the armoury of all central banks.’22 THE RUN ON THE ROCK The lender of last resort’s role is to provide loans to institutions on the verge of collapse and when King wrote that letter he had already agreed with the Treasury and the FSA that the Bank of England would if necessary stand behind Northern Rock. He had also intimated as much to the company itself. Northern Rock’s June profits warning had been a sign of fundamental problems with its business model. It had been one of the most aggressive players in the residential mortgage market, raising its share from 6 to 20 per cent in a decade.23 The money it lent came from securitizing and selling on its loans and from borrowing in the short term inter-bank money markets; by 2007, only a quarter of Northern Rock’s £101 billion loan book was covered by retail deposits. When money markets dried up in August 2007, Northern Rock was unable to renew wholesale debt as it matured or lend to new borrowers – or even repay depositors. On 16 August, King had told Northern Rock’s chairman Dr Matt Ridley that the Bank of England would, if necessary, act as a lender of last resort but that his strong advice was to find an alternative.

I believe we were right not to go down that road which in the United States led to Sarbanes–Oxley, and we were right to build upon our light-touch system through the leadership of Sir Callum McCarthy – fair, proportionate, predictable and increasingly risk based.’11 The FSA’s confidence in light touch was demonstrated a few months later, in February 2007, when it merged its teams supervising RBS and Barclays under one senior manager. The team had just twelve staff keeping their eyes on two of the UK’s largest banks which at that time had combined assets of £2 trillion. The boom conditions of 2006 had bred total confidence in the banking industry. Northern Rock and HBOS were piling up mortgage market share, RBS was lending with astonishing confidence and gung-ho chiefs believed that ‘big was good but bigger was even better’. Fund managers wanted to know why Northern Rock’s asset and dividend growth was better than Barclays’ and pressed Varley to get ahead of the pack. As the top of the industry consolidated around a smaller number of bigger players, Barclays dared not get left behind. The Barclays board of 2006 had to map their bank’s future in the midst of this euphoria.

No such alternative was forthcoming and on 10 September it had to seek emergency funds from the Bank of England, in secret. Nevertheless, on Thursday 13 September what had happened was reported on the BBC by Robert Peston, the broadcaster’s business editor. It was the most dramatic business story in living memory. The following day thousands of depositors rushed to Northern Rock branches anxious to withdraw their money before the bank went bust. The images were flashed round the world, spreading disbelief wherever they were shown. This was the UK, not a banana republic! Northern Rock’s website crashed and staff in the branches did not have enough notes to fill the plastic bags that customers brought in for their cash.24 Queues wound round street corners, pensioners were in tears, depositors with other British banks nervously wondered if their money was safe. In the midst of all this angst, in his office in Portcullis House next to the House of Commons, Treasury Committee chairman John McFall MP studied the letter he had just received from Governor King.


pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, call centre, capital asset pricing model, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, creative destruction, credit crunch, David Graeber, en.wikipedia.org, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, Hyman Minsky, inflation targeting, invention of writing, invisible hand, Irish bank strikes, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, mobile money, moral hazard, mortgage debt, new economy, Northern Rock, Occupy movement, plutocrats, Plutocrats, private military company, Republic of Letters, Richard Feynman, Robert Shiller, Robert Shiller, Scientific racism, scientific worldview, seigniorage, Silicon Valley, smart transportation, South Sea Bubble, supply-chain management, The Wealth of Nations by Adam Smith, too big to fail

Chancellor of the Exchequer announced that he had authorised the Bank of England to provide a “liquidity support facility”—effectively, a larger than normal overdraft—to Northern Rock, a medium-sized British bank that specialised in residential mortgages.9 Northern Rock had run into trouble because it funded a large part of its book of mortgage lending—by its nature, a collection of very long-term promises to pay—by selling short-dated bills and bonds to investors; that is, short-term promises to pay. When problems emerged in international financial markets in the course of 2007, this short-term funding disappeared. And when Northern Rock’s depositors saw the way the wind was blowing, they also began to pull out their money. A run on the bank in the so-called “wholesale” funding markets—the markets for its bills and bonds—had become a run on the bank in its “retail” funding market—its deposits from individuals and companies.

In the absence of external assistance, it was clear that the market believed Northern Rock to be not just illiquid, but insolvent. Luckily for Northern Rock—or at least for its bondholders, depositors, and other customers—external assistance was at hand for the second time. Once again, the U.K. sovereign stepped in, but this time into the shoes not of the bank’s lenders, but of its shareholders. New equity capital was required in order to make good the gap between the value of the bank’s assets and its liabilities—and to provide an adequate buffer against potential further declines. The liquidity support operation had consisted of the sovereign merely agreeing to give one fixed promise to pay—a claim on the Bank of England—in return for another fixed promise of supposedly equal value—a claim on Northern Rock. What was now required, however, was something quite different.

The sovereign would give its fixed promises to pay in return for equity: a residual claim on the uncertain difference between the value of Northern Rock’s assets and its liabilities. The liquidity support, at least in principle, had involved no risk of profit or loss—just a transfer of liquidity risk from private investors to the sovereign. This new operation would involve, by contrast, a transfer of credit risk. If losses ceased to mount on Northern Rock’s mortgages, the sovereign might not lose money. But if they did not, the sovereign, as equity owner, would be on the hook. This was not a job for the Bank of England—the monetary authority. If the sovereign is deliberately going to put taxpayers’ money at risk, better to ensure that it is its democratically elected government that is doing so. The purchase of Northern Rock’s equity was therefore made by the U.K. Treasury—the fiscal authority.


pages: 309 words: 85,584

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

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

Borrowing ‘short’ and lending ‘long’ is all very well in good times, but not when there is a collapse of confidence. The building society Northern Rock was over-dependent on extremely short-term funds, offering 100 per cent plus mortgages, which they funded by borrowing very short-term funds. It was perfectly rational for members of the public to rush to withdraw what might otherwise be considered longer-term savings when it was reported that the institution was in trouble, and, at that stage, government guarantees of the safety of deposits had not been confirmed. Those guarantees were soon announced, but not before memorable scenes of queues outside Northern Rock branches were flashed around the world. It did not help that, unlike some other building societies, Northern Rock had very few branches, so that the impression of panic was magnified enormously.

Another factor that has to be taken into account is what became known as an obsession of Governor King in 2007 when the Northern Rock crisis occurred. King was worried about ‘moral hazard’ – the fear that automatically rescuing a bank would encourage others to take excessive risks, knowing that they could expect to be bailed out by the government. Although the FSA was formally separated from the Bank – physically too, because it was located some miles downriver at Canary Wharf – there was in fact a tripartite system. The FSA was responsible for day-to-day supervision, the Bank was responsible for overall financial stability, and the Treasury was there at the other end of town with obvious responsibilities when the crisis arose. When one thing led to another, and the failure of Northern Rock was followed by the much bigger disaster of the Royal Bank of Scotland, various chickens came home to roost.

That Lehman Brothers was allowed to go under shook financial confidence so much that it certainly added to the momentum for a large-scale recapitalisation and rescue of the banking system. Concerned about the historical association between Old Labour and nationalisation, Gordon Brown had resisted calls for immediate nationalisation of Northern Rock, even when Governor King was saying this was the obvious answer. Finally, on 17 February 2008, Chancellor Darling announced that Northern Rock would ‘temporarily’ be taken into public ownership. Several years later, the Treasury’s most senior official, Sir Nicholas Macpherson, acknowledged, ‘With the benefit of hindsight the Treasury was slow off the mark in addressing the problem. There was a five-month period of drift.’ The episode, he said, was a ‘monumental collective failure, of which the Treasury was a part’.


pages: 346 words: 90,371

Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane

"Robert Solow", agricultural Revolution, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, basic income, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, debt deflation, deindustrialization, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, garden city movement, George Akerlof, ghettoisation, Gini coefficient, Hernando de Soto, housing crisis, Hyman Minsky, income inequality, information asymmetry, knowledge worker, labour market flexibility, labour mobility, land reform, land tenure, land value tax, Landlord’s Game, low skilled workers, market bubble, market clearing, Martin Wolf, means of production, money market fund, mortgage debt, negative equity, Network effects, new economy, New Urbanism, Northern Rock, offshore financial centre, Pareto efficiency, place-making, price stability, profit maximization, quantitative easing, rent control, rent-seeking, Richard Florida, Right to Buy, rising living standards, risk tolerance, Second Machine Age, secular stagnation, shareholder value, the built environment, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, universal basic income, urban planning, urban sprawl, working poor, working-age population

By shifting these loans off the balance sheet, banks were able to reduce the amount of capital they had to hold against their assets, meaning they could make more loans. Box 5.4 The parable of Northern Rock In November 2015 the UK government agreed to sell a £13 billion collection of former Northern Rock mortgages – transferred to public ownership after the bank collapsed during the financial crisis ‒ to a US private equity group, Cerberus Capital Management. The loans covered about 125,000 customers owing an average of £100,000. It was the biggest ever sale of financial assets by a European government. How did a US investment fund specialising in distressed debt come to buy £13 billion worth of nationalised UK mortgages? The story is a remarkable insight into the way in which property and land in the UK has become financialised over the past century. Northern Rock was a bank when, at the height of the financial crisis in February 2008, it was nationalised by the government.

Six months earlier, customers were queuing outside its doors to withdraw their cash in the first genuine bank run in the UK since the nineteenth century. But only seven years before Northern Rock was a quite different kind of institution: it was a building society. Over time, many building societies merged, enabling the pooling of liquidity that allowed for larger home building schemes and mortgage financing. In 1965, two North East societies ‒ the Northern Counties Permanent Building Societies (established in 1850) and the Rock Building Societies (established in 1865) – merged and Northern Rock Building Societies was born. Following the deregulation of the 1970s and 1980s, increasing competition for mortgage finance from banks, including international banks, led building societies to expand via mergers and acquisitions. Northern Rock acquired 53 smaller building societies, most notably the North of England Building Society in 1994.

Northern Rock acquired 53 smaller building societies, most notably the North of England Building Society in 1994. Finally, in 1997, Northern Rock chose to demutualise and become a shareholder-owned bank. Its assets, patiently built up by its members since the 1860s, were floated on the stock exchange, with existing savers and mortgage borrowers receiving a cash windfall. Looking for aggressive growth to compete with much larger British banks, Northern Rock formulated a business strategy that involved borrowing heavily in the UK and international money markets rather than depending on traditional retail deposits. It then extended mortgages to customers based on this funding, and re-sold these mortgages on international capital markets. This was achieved via ‘securitising’ the loans – packaging loans of different riskiness together to form mortgage-backed securities attractive to a range of different investors.


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, 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, 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, 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, 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, transfer pricing, wealth creators, white picket fence, women in the workforce, zero-sum game

This defence has been so effective that trust lawyers have called it litigation-proof.5 This gives us a sense of how slippery and powerful trusts can be. Plain, crude ownership is for the little people. It also helps to explain that suspicious Northern Rock structure held ‘under the terms of a discretionary trust for the benefit of one or more charities’. The structure was legally separated from Northern Rock by the legal walls of the trust, so those assets were considered off the bank’s balance sheet. And yet the structure was economically connected to Northern Rock, with its financialised pipework of Jersey androids ultimately spitting profits out of the fortress and into the bank’s bottom line. Northern Rock, too, got to have its cake and eat it. And yet, you may still ask, what’s with the charitable trust? Well, the truth is that there are many legitimate and excellent charitable trusts or foundations out there doing fine things, sitting on fortresses of endowed capital and paying out regular amounts to worthy causes.

See also ‘Serious Fraud Office needs funding boost, warns OECD’, Financial Times, 23 March 2017. 8 Wealth and its Armour 1. See ‘Northern Rock – the questions needing answers’, taxresearch.org.uk, 17 September 2007. The distinction between ownership and control is outlined on p.28 of ‘Granite Master Issuer plc: annual report and accounts for the year ended 31 December 2006’, where it states, ‘The Company’s ultimate controlling party is Northern Rock plc … the Company’s ultimate parent is the Law Debenture Intermediary Corporation plc, a company registered in England and Wales, the shares being held under a trust arrangement.’ Also see Ian Cobain and Ian Griffiths, ‘A twisty trail: from Northern Rock to Jersey to a tiny charity’, Guardian, 28 November 2007; ‘Memorandum from the Financial Services Authority’, Parliament.uk., 9 October 2007; Paul Murphy, ‘The (un)charitable core of Northern Rock’, FT Alphaville, 8 October 2007.

In recent years mugging someone out of their savings or their pension would probably earn you a yacht.’44 And so, it seems, would mugging a whole country – and indeed half the world. 8 Wealth and its Armour On 17 September 2007 Richard Murphy, a British commentator and forensic accountant, published a short blog remarking on some odd items in the accounts of Northern Rock, the British mortgage bank. Long queues had formed outside the bank’s branches after it had admitted a few days earlier that it had asked the Bank of England for emergency funding. This was the first proper run on a bank in Britain since 1866, and one of the first big shocks of the global financial crisis. Northern Rock had been playing the securitisation game hard, using whizzy special purpose vehicles. These vehicles got funding to buy mortgages by issuing short-term debt and selling it to global investors; when investors got the jitters and stopped rolling over their loans, the whole tightly interconnected financial machine ground to a violent halt. On one level, this explained Northern Rock’s sudden cardiac arrest. But the deeper Murphy probed, the odder it looked.


pages: 334 words: 82,041

How Did We Get Into This Mess?: Politics, Equality, Nature by George Monbiot

Affordable Care Act / Obamacare, Alfred Russel Wallace, bank run, bilateral investment treaty, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, creative destruction, credit crunch, David Attenborough, dematerialisation, demographic transition, drone strike, en.wikipedia.org, first-past-the-post, full employment, Gini coefficient, hedonic treadmill, income inequality, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, invisible hand, land reform, land value tax, market fundamentalism, meta analysis, meta-analysis, Mont Pelerin Society, moral panic, Naomi Klein, Northern Rock, obamacare, oil shale / tar sands, old-boy network, peak oil, place-making, plutocrats, Plutocrats, profit motive, rent-seeking, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, urban sprawl, wealth creators, World Values Survey

The self-seeking fleas agreed to his request, and in September the government opened a support facility for the floundering bank. The taxpayer eventually bailed out Northern Rock to the tune of £27 billion. When news of the crisis leaked, it caused the first run on a bank in this country since 1878. The parasitic state had to intervene a second time: the run was halted only when the government guaranteed the depositors’ money. Eventually the government was obliged to nationalise the bank. Investors, knowing that their money would now be safe as it was protected by the state, began to return. While the crisis was made possible by a ‘substantial failure of regulation’, MPs identified the directors of Northern Rock as ‘the principal authors of the difficulties that the company has faced’. They singled Ridley out for having failed ‘to provide against the risks that [Northern Rock] was taking and to act as an effective restraining force on the strategy of the executive members’.4 This, you might think, must have been a salutary experience.

The knowledge monopoly is as unwarranted and anachronistic as the Corn Laws. Let’s throw off these parasitic overlords and liberate the research which belongs to us. 29 August 2011 34 The Man Who Wants to Northern Rock the Planet Brass neck doesn’t begin to describe it. Matt Ridley used to make his living partly by writing state-bashing columns in the Daily Telegraph. The government, he complained, is ‘a self-seeking flea on the backs of the more productive people of this world … governments do not run countries, they parasitise them’.1 Taxes, bail-outs, regulations, subsidies, intervention of any kind, he argued, are an unwarranted restraint on market freedom. Then he became chairman of Northern Rock, where he was able to put his free market principles into practice. Under his chairmanship, the bank pursued what the Treasury Select Committee later described as a ‘high-risk, reckless business strategy’.2 It was able to do so because the government agency which oversees the banks, the Financial Services Authority, ‘systematically failed in its regulatory duty’.3 On 16 August 2007, Dr Ridley rang an agent of the detested state to explore the possibility of a bail-out.

Of those whose fluctuations have been measured, one is increasing, three are stable and eight are declining.20 Ridley uses blatant cherry-picking to create the impression that ecosystems are recovering: water snake numbers in Lake Erie, fish populations in the Thames, bird’s eggs in Sweden.21 But as the Millennium Ecosystem Assessment shows, of sixty-five global indicators of human impacts on biodiversity, only one – the extent of temperate forests – is improving. Eighteen are stable, but in all the other cases the impacts are increasing.22 Northern Rock grew rapidly by externalising its costs, pursuing money-making schemes that would eventually be paid for by other people. Ridley encourages us to treat the planet in the same way. He either ignores or glosses over the costs of ever-expanding trade and perpetual growth. His timing, as BP fails to contain the oil spill in the Gulf of Mexico, is unfortunate. Like the collapse of Northern Rock, the Deepwater Horizon disaster was made possible by weak regulation. Ridley would weaken it even further, leaving public protection to the invisible hand of the market. He might not have been chastened by experience, but it would be wrong to claim that he has learnt nothing.


pages: 263 words: 80,594

Stolen: How to Save the World From Financialisation by Grace Blakeley

"Robert Solow", activist fund / activist shareholder / activist investor, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, basic income, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, bitcoin, Bretton Woods, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, cryptocurrency, currency peg, David Graeber, debt deflation, decarbonisation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, full employment, G4S, gender pay gap, gig economy, Gini coefficient, global reserve currency, global supply chain, housing crisis, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), Kenneth Rogoff, Kickstarter, land value tax, light touch regulation, low skilled workers, market clearing, means of production, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, Northern Rock, offshore financial centre, paradox of thrift, payday loans, pensions crisis, Ponzi scheme, price mechanism, principal–agent problem, profit motive, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Right to Buy, rising living standards, risk-adjusted returns, road to serfdom, savings glut, secular stagnation, shareholder value, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, the built environment, The Great Moderation, too big to fail, transfer pricing, universal basic income, Winter of Discontent, working-age population, yield curve, zero-sum game

Queues started forming outside the bank’s headquarters at 65 Lombard Street, and within a week the “Panic of 1866” had taken hold of the country. 141 years later, the panic of 2007 was just beginning as Northern Rock, the largest mortgage lender in the UK, found itself unable to access funding.2 Northern Rock’s business model was based on the securitisation of mortgage loans — turning mortgages into financial securities that could be traded on capital markets. It borrowed from other financial institutions over short-time horizons — often on an overnight basis — and lent long, issuing mortgages that wouldn’t mature for decades. When financial markets started to seize up in 2007, banks stopped lending to one another, and “the Rock” found itself unable to access international capital markets, meaning it couldn’t pay its debts. On 13 September 2007, the news broke that Northern Rock was seeking emergency support from the Bank of England: the first UK bank run since Overend.

Both bank runs resulted from an asset bubble — one in railways, the other in housing. Both Northern Rock and Overend relied on borrowing from financial markets to finance their day-to-day liabilities. Both were eventually forced to appeal to the Bank of England for help. But there were also some critical differences between the two institutions. Overend lent money to companies that were building the UK’s railway networks: the same railway networks that we use to this day. They may have done so on unwise terms, but they had invested in the expansion of the productive capacity of the economy — in our ability to produce things, both then and in the future. Northern Rock was doing no such thing. A former building society, Northern Rock lent consumers money to buy already-existing homes. It had been criticised for approving mortgages with incredibly high “loan-to-value” ratios; on occasion the bank granted mortgages worth 125% of the property’s value.3 Rather than creating assets, Northern Rock was creating debt.

It had been criticised for approving mortgages with incredibly high “loan-to-value” ratios; on occasion the bank granted mortgages worth 125% of the property’s value.3 Rather than creating assets, Northern Rock was creating debt. And it was doing so on an unsustainable scale. The contrast is puzzling. If it was so unproductive, then why was Northern Rock bailed out when Overend, Gurney and Company was allowed to fail? It is true that by 2007 the Bank of England had become the UK’s official lender of last resort, with a responsibility to support ailing banks if their demise might threaten the stability of the financial system. But this raises more questions. How had a small former building society become so important that its demise could have brought the booming British finance sector to its knees? When did the UK’s finance sector became so large, and so powerful, that a single bank could extract billions from the taxpayer under the threat of economic meltdown?


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, 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, 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

In such circumstances those banks such as RBS needing to fund themselves with a lot of borrowing were going to find the cost going up. By mid-September the credit crunch spread to the British high street and there were queues outside branches of Northern Rock, as an old-fashioned bank run got under way. The Northern Rock business model had been built on lending large multiples of salary to Britons who wanted to buy a house, on the expectation that it could borrow this on the international ‘wholesale’ money markets, markets that were now freezing. An ill-prepared FSA, Bank of England and Treasury were desperately trying to work out how to keep Northern Rock going, before moving later to full nationalisation at huge cost to the taxpayer. In August and September there was considerable concern inside RBS over market turbulence, although it didn’t yet turn into panic.

In 2000, after being axed by Rowland, Wanless joined the board of a then small bank in his native North East of England and chaired its audit and risk committees until the crash of 2007. That bank was called Northern Rock. To replace Wanless at NatWest in 1999, Rowland made Ron Sandler chief operating officer. The tough, Zimbabwean-born former boss of Lloyd’s insurance market was charged with helping Rowland fight off Mathewson and Burt. In a much later incarnation, Sandler would follow Wanless once again. He was hired by the Labour government to oversee the nationalised Newcastle-based Northern Rock after Wanless and others were forced to resign following its collapse in 2007. In October 1999, it was NatWest that Sandler was battling to save. He and Rowland were forced by investors to announce the formal abandonment of the doomed Legal & General bid and on 27 October they revealed a plan to sell off Ulster Bank, and three other parts of the NatWest business.

It also presaged a severe and sustained downturn in the economy that has had adverse consequences for the prosperity of Britons. In January 2013, five years into the crisis, the UK economy was still 3.4 per cent below its pre-slump peak. The living standards of millions of families have declined. Of course, in the crisis of 2007 to 2008 RBS was not the only British institution to need rescuing. Plenty of others got into difficulties – HBOS, Northern Rock, Bradford & Bingley. All had to be bailed out or sold, and even the institutions that did not have to be nationalised – taken over by the taxpayer – relied on forms of special support and loan facilities from a government desperate to keep the banking system alive. RBS is a special case, however. Its blow-up was the largest and most spectacular of the lot. When it arrived at the point of failure, the government had to buy £45.2bn of RBS shares and offer many billions more in credit facilities to prevent the bank’s collapse.


pages: 315 words: 99,065

The Virgin Way: Everything I Know About Leadership by Richard Branson

barriers to entry, call centre, carbon footprint, Celtic Tiger, clean water, collective bargaining, Costa Concordia, Donald Trump, Elon Musk, friendly fire, glass ceiling, illegal immigration, index card, inflight wifi, Lao Tzu, low cost airline, low cost carrier, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, Nelson Mandela, Northern Rock, profit motive, Ralph Waldo Emerson, Ronald Reagan, shareholder value, Silicon Valley, stem cell, Steve Jobs, Tesla Model S, trade route, zero-sum game

The days of the mega-parties at the Manor may be a thing of the past but generally we have reverted to the original smaller more intimate roots and settings in which everyone gets a chance to glimpse an ‘other side’ to the people they work with – including myself, whenever I can work an invitation. ROCKING THE ROCK In January 2012, Virgin Money finally acquired Northern Rock, the British high-street bank that had been nationalised four years earlier, and we had a lot to celebrate. After their brief spell of working for the government, Northern Rock’s 2,000 or so employees were clearly excited about joining the Virgin family. They didn’t have to wait long to get a taste of their new corporate culture when Jayne-Anne Gadhia, CEO of Virgin Money, and I hosted a huge street party inside Northern Rock’s headquarters in Newcastle upon Tyne, at which everyone got an opportunity to behave in very ‘unbankerlike’ ways! It was kind of an initiation by friendly fire for all the former Northern Rock people who I don’t think had ever seen their previous bosses loosen their ties, let alone their purse-strings for a bank-sponsored megabash.

In retrospect I was also glad she just happened to be watching TV at home one Sunday evening and saw a discussion about the struggles facing Northern Rock, an iconic bank in the north of England that had run afoul of the 2007 financial crisis. Apparently some TV banking expert on the show said something to the effect that, ‘What this bank needs is someone like Richard Branson to sort it out and run it.’ She sent me an email right away saying, ‘Maybe it’s not a bad idea so let’s talk about it.’ We did – and following a call to Alistair Darling, the Chancellor of the Exchequer, the next day, we were on our way for what would be a highly frustrating but finally successful four-year pursuit: in January of 2012 Northern Rock officially became a part of Virgin Money when we acquired it from the UK government. It was agreed that all of the Northern Rock branches would be rebranded as Virgin Money as quickly as possible and just like that we found ourselves with a high-street banking presence for the first time.

Horatio 294–5 Nest 365, 368–70 Netflix 56–8, 216–18, 358 New York Times 146, 172, 304 Newcastle United FC 258 NeXT 262 Nike 311, 371 Nikon 125 9/11 210, 305 Nokia 311–12 Nolan, Anthony 321 Nominet Trust 363 Northern Rock 185, 186–8, 257–8 note-taking 5, 30–1, 33–7 NTL:Telewest 161 Obama, Barack 79–80 OceanElders 237 Oelwang, Jean 285 Old Man and the Sea, The (Hemingway) 104 Oldfield, Mike 134 O’Leary, Michael 21 Olympic Games, Winter, Sochi 311 Oneworld 312 oratory 31–3, 83–94 common human fear 84 and Q&A format 88–9 and teleprompters 84–5 and well-timed pauses 87 words best avoided during 90–4 words recommended for use during 94–5 Page, Larry 82–3, 130–1, 137, 191, 198, 288, 362–3 and April Fool stunts 268–9 palindromes 111 Pan Am 156, 300 Pascal, Blaise 82 passion: as essence of brand 242 innateness of 242–3 RB’s 242 recognised in others 247 Path 370 PayPal 247 Penni (RB’s assistant) 66 Pepsico 285 ‘Per Ardua ad Astra’ 103 Pioneers TV 280 Pixar 324 Plato 334 Player, Gary 134 Polman, Paul 357 Powell, Colin 79 Pret a Manger, and ex-prisoners 24 Private Sector Employment Indicator 283 procrastination: orchestrated 330, 334 serial 328–9 Project Oxygen 214 public speaking, see oratory Qantas 72, 73, 138, 236 Qwikster 57–8 Raleigh, Walter 293 Reach for the Sky 102–3 Reagan, Ronald 299, 325 Rebel Billionaire, The 192, 195 Reed, Claire 274–5 Reed, Frank 207–8 Reel Gardening 274–5 Remington Products 64 résumé, see CV RetailSales 148 Richard III 197 Ridgway, Steve 76–7 Robinson, Mary 38, 118 Rolling Stones 97 Rose, Greg 339 Rossi, Chris 206 Royal Bank of Scotland 186, 188 Rutherford, Mike 323 Ryanair 21 Safaricom 354 Sainsbury’s, and ex-prisoners 24 Sandberg, Sheryl 285 Sarah Blakely Foundation 195 see also Blakely, Sara SB.TV 281 Schmidt, Eric 268, 288 Scott, Robert Falcon 293 Scully, John 368 Securities and Exchange Commission 331 Seneca 141 Shakespeare, William 197 Sheeran, Ed 281 ShIFT project 355 Singapore Airlines 77, 138–9, 312 Skyteam 312 Skytrain 298, 299, 306 see also Laker Airways social enterprises 360–4 Social Tech, Social Change 363 Souter, Brian 337–8 Southwest Airlines 228–31, 233–4, 239 Soweto 286 SpaceX 247 Spanx 192–5 Spy Who Came in From the Cold, The (le Carré) 30 Spy Who Shagged Me, The 75 Star Alliance 312 Starbucks 169–70 Start-Up Loans Company 283 Steel, Joe 160–1 Stereophonics 97–8 Stevens Aviation 231 Stop and Search UK 362 Student: beginnings of 30, 279, 347 as David vs Goliath 156 Howard interview RB about 90–1 le Carré interviewed for 5, 30 Lennon interviewed for 5 RB as ‘cub reporter’ on 5 Student Loans Company 282 subprime mortgages 331 Sun Microsystems 268 T-Mobile 31 Tait, David 86, 129, 200, 250–1 and RB’s passport 256 Talisman Management 237–8 Tata Group 357 Tata, Ratan 357 team dynamics 322 see also collaboration teleprompters 84–5 Tennyson, Alfred, Lord 295 Tesla Model S 246–7 Tewson, Jane 23 Thatcher, Margaret 80, 299 Tiffany 148 Toll Group 24 TOMS 357, 359 Towers Watson 215–16 Trafalgar, Battle of 294 Trump, Donald 21, 197 Truth and Reconciliation Commission 38 Tubular Bells 134–5, 166 Tutu, Desmond 37–8 TWA 156, 300 Twain, Mark 40, 86–7, 88, 155, 180 Twitter 82, 106, 131 UN Foundation 359 Unilever 359 unions 243–4 Vega, Cecilia 285 Virgin Active 62, 108–10, 206, 207–8 quote on leadership and listening from 46 in Soweto 286 Virgin America 74, 77, 151–3, 209–10, 257, 286 cabin innovations at 371 Virgin Atlantic 70, 71–2, 74–5, 76–7, 129, 130, 144, 171–3, 200–1, 245, 333 BA’s ad battle with 172–3 and British Airways 301 cabin innovations at 371 Clubhouse Lounges of 63, 181, 183 and collaboration 312–13 complimentary limos offered by 158 and Continental Airlines 150–1 and Coutts Bank 118 as David vs Goliath 156–9 and delegation 200 and gut feeling 329 and headsets 145–6 and Heathrow emergency landing 98 inaugural flight of 255–7 and King’s ‘pirate’ gibe 301 Laker’s advice to 300 left out of flotation 165 new HQ for 121 new routes made available to 140 ‘nothing “typical” about’ 146 perceived as ‘rock-and-roll airline’ 74 RB cold-calls customers of 66–7 and RB’s ballooning 304 RB’s hands-on approach to 128 and RB’s logo stunt against BA 301–2 shiatsu massages offered by 171 single-aeroplane route flown by 156 Upper Class offered by 158, 182–3 and Virgin Mobile, parallels with 159–60 Virgin Australia (formerly Virgin Blue) 72–4, 75–6, 138–40, 236, 243, 245–6, 257 and gut feeling 329 Virgin Blue, see Virgin Australia Virgin Bride 329 Virgin Cola 58–9, 304–7, 329 Virgin Cruises 333 Virgin Digital 127 Virgin Express 243–4 Virgin Galactic 40, 103, 247, 270, 333, 371–2 Virgin Group: airlines owned by 22, 62, 257; see also individual airlines corporate culture adopted by, beginnings of 235 definition-of-leadership research among 43–7, 191 disparate range offered by 236, 243 and ex-prisoners 24 floatation of 165–6 floatation reversal by 167 head offices of 49 major lawsuits concerning 31 new corporate HQ of 258–9 note-taking among personnel of 34; see also note-taking parties thrown by, see Virgin parties and get-togethers passion as brand essence of 242 RB’s and employees’ top leadership attributions of 44–5 see also individual Virgin brands Virgin Holidays 69 Virgin Hotels 62–4, 69 Virgin Limited Edition 62, 191, 209 quote on leadership and listening from 47 Virgin Management: definition-of-leadership research by 43–7, 191 and ex-prisoners 24 Virgin Media 161–2 ads of 171 day-off-for-giving idea of 320–1 quote on leadership and listening from 46 Virgin Media Pioneers (VMP) 280–2 Virgin Mega 111–13 Virgin Megastores 126, 127–8, 181–2, 262 New York City 182 Paris 181 Virgin Mobile 159–61, 171, 285 music festival of 173–4 Virgin Mobile Australia, quote on leadership and listening from 45 Virgin Mobile FreeFest 174 Virgin Money 164, 181, 185–90, 285 ‘Everybody Better Off’ (EBO) philosophy of 188, 190 and Goldman Sachs 330–1 Lounge concept of 188–90 as Newcastle United kit sponsor 258 Northern Rock acquired by 185, 187, 257–8 and Virgin StartUp 283 Young Enterprise’s collaboration with 277–8 Virgin One 186 Virgin parties and get-togethers 253–5 at Manor, Oxfordshire 254–5 and new corporate HQ 258–9 and Northern Rock acquisition 257–8 Virgin Atlantic inaugural flight 255–7 weekend-long 255 Virgin Produced 365 Virgin Pulse 127, 359 Virgin Records 97, 245, 333 as David vs Goliath 156 first album release of 134–5 first shop of 181 and people-first culture 228 ‘Slipped Disc’ name suggestion for 170 staff member’s thefts from 22–3 ‘Virgin Shaglantic’ 75 Virgin StartUp 283 Virgin Trains 144, 247–50, 317 and Department for Transport 41 and ex-prisoners 24 and FirstGroup 335–40 and north-east derailment 343–4 quote on leadership and listening from 46 and West Coast franchise 41, 335–40 Virgin Unite 274, 280, 285, 291, 355 Virgin Way: evolution of 5 parties an essential part of 259; see also Virgin parties and get-togethers project named after 43 and testing own products 65 ‘Virgle’ 269 Vodafone 354 VOSS 355 V2 Records 97–8 Wal-Mart 349–53 Warwickshire Police 106 water saving 352–3, 354 Wayne, John 29–30 Wayne, Ronald 137 Wells, Adam 371 West Coast rail franchise 41, 335–40 Whitehorn, Will 343–4 Whiteside, George 40 wildlife crime 362–3 Winfrey, Oprah 194 women: on battlefield 295 as entrepreneurs 284–5 Working Chance 24 working from home, see home working Wozniak, Steve 137 Yahoo!


When the Money Runs Out: The End of Western Affluence by Stephen D. King

Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

Yet, today, bankers no longer trust each other. While Northern Rock grabbed all the headlines in 2007 thanks to the vast queues of worried depositors who gathered outside, understandably fearing the loss of their savings, its public failure was only the final chapter in a whole volume of – sometimes self-­imposed – mishaps. The loss of trust in Northern Rock reflected four factors: (1) a loss of faith in the pieces of paper – the IOUs – which banks released into the capital markets – so-­called wholesale funding – to support lending to high risk households; (2) a sense that Northern Rock’s own business model – unusually dependent on wholesale funding – was no longer sustainable; (3) a sudden panic on behalf of equity investors who recognized that, in the absence of wholesale funding, Northern Rock was no longer a viable concern; and (4) in the absence of sufficient deposit guarantees – and after a leak to the BBC9 – a recognition on behalf of Northern Rock’s depositors that their money was no longer safe.

Banks assume a decent rate of economic growth and continued gains in house prices both to increase their loan books (and, hence, their profitability) and also to limit the number of non-­performing loans.17 Think, for example, of the behaviour of UK banks before the onset of the financial crisis. Back then, loan-­to-­value ratios on UK mortgages averaged around 75 per cent. Some of the more outlandish banks – most obviously, Northern Rock – were offering loan-­to-­value ratios of 125 per cent, based on the foolish expectation that property prices would forever rise. In 2012, five years after the collapse of Northern Rock, average loan-­to-­value ratios were 51 4099.indd 51 29/03/13 2:23 PM When the Money Runs Out down to around 55 per cent and the mortgage market was barely growing. Consumer credit had stagnated while commercial real estate loans were shrinking fast. Delusional behaviour creates its own problems.

Constructing houses, however, tends not to be as productive as building the internet, developing mobile telephony or reorganizing working methods as a result of technological innovations. The white heat of the 1990s technological revolution was replaced by the stone cold of a housing boom. Underlying economic growth began to slow down even before the financial crisis materialized. The third period of disappointment – disaster is, frankly, a more accurate description – was the financial crisis itself. Northern Rock, Royal Bank of Scotland and HBOS were the three highest profile bank failures in the UK. In Europe, Fortis and Dexia grabbed the headlines. And, in the US, Bear Stearns, Washington Mutual, IndyMac, Lehman and AIG dominated the newswires. The underlying situation, however, was even worse. Between 2007 and 2012, 30 4099.indd 30 29/03/13 2:23 PM Taking Progress for Granted approaching 500 US banks had failed (including the aptly named Cape Fear Bank in Wilmington, North Carolina).


pages: 368 words: 32,950

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

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

There was speculation whether the government had put pressure on the Bank to act, so compromising the Bank’s independence, or whether the Bank of England itself had realised it was wrong. Mervyn King’s continued long-term role as Governor of the Bank of England came under brief trial by media. Shortly afterwards, King told a Treasury Select Committee that he had been stopped from acting quickly to prevent the Northern Rock panic because of four pieces of legislation that ensure transparency. He said he would have preferred to deal with Northern Rock by acting covertly as a lender of last resort, but was advised that the Market Abuse Directive (see Chapter 22) meant this action had to be made public. He told the Committee that he had hoped Northern Rock could be taken over, but this had not been possible because it would have taken too long. Acquisitions under the UK’s Takeover Code take 60 days to complete. _______________________________________ THE BANK OF ENGLAND 17  King noted two pieces of current legislation that could contribute to public panic in the event of a banking liquidity problem.

In 1984, the Bank helped Johnson Matthey Bankers Limited, a London market maker in gold bullion, which had got into financial difficulties from its  16 HOW THE CITY REALLY WORKS __________________________________ commercial lending exposures. If the operation had been allowed to fail, other bullion dealers would have joined the creditors, which would have diminished confidence in the London gold market. In September 2007, the Bank of England agreed to provide Northern Rock, a mortgage lending bank, with ‘as much funding as may be necessary’. The mortgage lender obtained three-quarters of its funds from wholesale markets, where lending had become much more difficult as a knock-on effect from US sub-prime mortgage failures (see Chapter 12). Some commentators queried whether the crisis at Northern Rock, only the fifth largest mortgage lender in the UK, had justified intervention by the Bank of England, which on the Bank’s own criteria should have been in the case of systemic threat. Others argued that the move was necessary for broader financial stability.

Others argued that the move was necessary for broader financial stability. Some thought that the Bank of England might have made things easier for banks generally if, like the European Central Bank (ECB) or the US Federal Reserve, it had injected liquidity earlier into the system. The Bank of England’s publicised support was met with a public panic, and hordes of customers withdrew savings from Northern Rock. A few days later the Chancellor offered an unprecedented and legally binding guarantee of all funds deposited with Northern Rock, something that it would not be able to extend to the entire banking system without having to print money on a scale that could lead to horrendous inflation. Later in the same month, the Bank of England said it would pump a further £10 billion into the money markets at a three-month maturity, with penal interest rates, against a wider range of collateral, including mortgage collateral, than in its weekly open market operations.


pages: 543 words: 147,357

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

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

After Abbey National demutualised in 1989, the floodgates had opened. By 2000, Cheltenham and Gloucester, the Alliance and Leicester, the Halifax, Northern Rock, the Woolwich and Bradford and Bingley had all demutualised as well. Some, like the Halifax and Cheltenham and Gloucester, had been taken over (by Bank of Scotland and Lloyds-TSB, respectively) and were lending as components of larger banking groups; others, like the Bradford and Bingley and Northern Rock, were still independent. But all advanced mortgages in an environment in which there was no check to growth, knowing that they could be financed after the event in the interbank and securitisation markets. Northern Rock was far from the only bank willing to lend more than 100 per cent of a house’s value and six times the borrower’s income. The whole financial sector drowned the property market in credit, so by summer 2007 it had cumulatively issued £257 billion of residential mortgage-backed securities in the new markets for securitised assets to top up normal sources of funding.

Caught in this pincer, even the most conservative banks started to consider higher leverage or investing in riskier assets as the only means to survive.20 Unregulated nineteenth-century banking witnessed Northern Rock-type bank runs aplenty. Famously, Overend, Gurney and Co. went belly up in 1866, prompting the great economic and political commentator Walter Bagehot to describe its senior executives as ‘sapient nincompoops’. ‘These losses’, he wrote, ‘were made in a manner so reckless and so foolish that one would think a child who had lent money in the City of London would have lent it better.’21 The bank had borrowed short, made terrible long-term lending decisions and suffered the consequences. Similar accusations could be made today against the directors of RBS, HBOS and Northern Rock. Such nineteenth-century disasters led the Bank of England to develop its lender-of-last-resort function, stepping in to provide stricken banks with cash to stem the run, not least because stronger, well-run banks can be sucked into the general loss of confidence.

An IMF paper reports that young people growing up in recessions are much more fatalistic than others, believing that effort and work are far less important in generating results than having the luck to live in good times.7 Bank crashes can even damage health directly. A study at Cambridge University found that they increase the risk of death from stress and worry.8 The customers who tried to withdraw cash from Northern Rock, Britain’s first bank run for more than a century, experienced a similar level of stress to victims of an earthquake. The capitalism that Britain developed and which crashed so spectacularly has a lot to answer for. To date, though, it has hardly even been asked any questions, let alone provided any answers. A wounded society The unbalanced structure of economic growth over the last decade has fed straight through to a disastrous social geography, bypassing the least advantaged and rewarding the wealthy.


Not Working by Blanchflower, David G.

active measures, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, Boris Johnson, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clapham omnibus, collective bargaining, correlation does not imply causation, credit crunch, declining real wages, deindustrialization, Donald Trump, estate planning, Fall of the Berlin Wall, full employment, George Akerlof, gig economy, Gini coefficient, Growth in a Time of Debt, illegal immigration, income inequality, indoor plumbing, inflation targeting, job satisfaction, John Bercow, Kenneth Rogoff, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, longitudinal study, low skilled workers, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, mass incarceration, meta analysis, meta-analysis, moral hazard, Nate Silver, negative equity, new economy, Northern Rock, obamacare, oil shock, open borders, Own Your Own Home, p-value, Panamax, pension reform, plutocrats, Plutocrats, post-materialism, price stability, prisoner's dilemma, quantitative easing, rent control, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, selection bias, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, Thorstein Veblen, trade liberalization, universal basic income, University of East Anglia, urban planning, working poor, working-age population, yield curve

As the MPC was pushing interest rates up, from 4.5 percent in July 2006 to 5.75 percent in August 2007, Northern Rock had agreed to issue a tranche of mortgages at interest rates lower than those it eventually had to pay to finance them. Northern Rock was in trouble. The Bank of England emphasized the concerns over moral hazard. They wanted to send a message that if bankers took excessive risks they could not look to the central bank to rescue them from the consequences. On September 13, 2007, Alistair Darling, the Chancellor of the Exchequer, had little choice but to agree that the central bank should provide emergency funding to Northern Rock. The run started on the evening of September 13, following the news that a well-known bank had gone to the Bank of England for help. Northern Rock had seventy-two branches in total, and only four branches in London.

As the Treasury Select Committee (TSC) noted, these factors together explained why it did not take many customers seeking to withdraw their funds for queues to extend out the front door and into the street—and into the public consciousness.12 Lines started to form outside branches of Northern Rock on Friday, September 14, as the share price fell 31 percent on the day. Lines continued to form the next day, Saturday. 13 On Monday, September 17, shares opened 31 percent lower. With lines forming again. Alistair Darling intervened, pledging that the government would guarantee all deposits. Northern Rock was eventually nationalized on February 17, 2008. The run was halted. The man in the street was rightly upset at the failure to stop a bank run. The Bank of England knew well before it failed that Northern Rock was in trouble and did nothing about it. It was obvious that if Northern Rock, which depended on access to wholesale money markets and had relatively few depositors, was in trouble so would be others that were dependent on that source of funding.

We didn’t know where we had been, and we didn’t know where we were going. Same as now. Northern Rock It is not as if there weren’t adequate warnings. During my time on the MPC I watched as thousands of people lined up outside Northern Rock when its website failed. The world was treated to the scenes of a good old bank run. Depositors waiting in line around the country to withdraw their cash. Shin (2009) has noted that the last time that happened was at Overend, Gurney, a London bank that got in trouble in the railway and docks boom of the 1860s. Britain’s deposit-insurance scheme guaranteed fully only the first £2,000 of deposits, and then 90 percent of only the next £33,000. It was sensible to run to the bank to get your money. Northern Rock relied on wholesale markets rather than on retail deposits to finance most of its lending.11 In January 2007, it announced record pretax profits of £627 million for 2006, up 27 percent on the previous year.


pages: 223 words: 10,010

The Cost of Inequality: Why Economic Equality Is Essential for Recovery by Stewart Lansley

"Robert Solow", banking crisis, Basel III, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Branko Milanovic, Bretton Woods, British Empire, business cycle, business process, call centre, capital controls, collective bargaining, corporate governance, corporate raider, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, Edward Glaeser, Everybody Ought to Be Rich, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, Goldman Sachs: Vampire Squid, high net worth, hiring and firing, Hyman Minsky, income inequality, James Dyson, Jeff Bezos, job automation, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, laissez-faire capitalism, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market bubble, Martin Wolf, mittelstand, mobile money, Mont Pelerin Society, Myron Scholes, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, Tyler Cowen: Great Stagnation, Washington Consensus, Winter of Discontent, working-age population

At the heart of its burst for growth was a new mortgage concept—the ‘Together Loan’—which offered young borrowers 125 per cent of the purchase price and up to a maximum of six times income. Despite raising eyebrows across the industry and being attacked by some rivals as ‘too racy’, other banks soon started offering more generous deals just to stay in the race. By 2006, mortgages of five times salary or more were commonplace.264 For a while, Northern Rock’s aggressive business model appeared to pay off handsomely. By 2007, it had risen to provide a fifth of all mortgages, outstripping bigger rivals like Halifax and Nationwide, while its share price hit an all-time high. But Northern Rock’s strategy was in many ways a microcosm of what had been happening to the finance and market-led British economy. By the middle of the 2000s, Britain was riding the wave of an economic boom and house prices were heading skyward. But with the national wage base continuing its long term slide, this boom was only possible because of a growing dependence on debt, not just to finance the rising cost of buying a home, but to pay for an increasing share of ordinary spending as well.

The sweeping away of these controls brought great changes in the way mortgages were provided. Gradually, most building societies chose to sell up and convert into banks, abandoning mutuality in favour of profits (at least in part because of the Citystyle rewards available to bank executives) and making them accountable not to members but to shareholders. One by one, the biggest of the high street names—Abbey National, Halifax, Cheltenham and Gloucester, Northern Rock—converted. Although mutual building societies—from Nationwide to the Yorkshire—still exist, the majority of mortgages are now provided by banks. Deregulation and demutualisation proved another personal gravy-train for those at the top of the finance industry bringing higher fees, commissions and bonuses. For customers, deregulation meant mortgages were easier to obtain with a much greater range of products offered to a much wider group of people.

After the freeing up of mortgage restrictions, the lending institutions became increasingly innovative—some would say reckless. In the 1960s and 1970s, the typical mortgage was limited to two and a half times earnings, and rarely more than 80 or 90 per cent of the property value. Some kind of deposit was mandatory. After big bang, these restrictions were mostly axed and mortgage deals became more and more generous. The bank leading the charge on innovation was Northern Rock, the Newcastlebased building society that had started life as a friendly society in the nineteenth century. More than a century later, it was among the last of those building societies succumbing to privatisation, converting, despite a good deal of opposition from members, into a bank in 1997. The company’s newly appointed chief executive, the 38-year old Adam Applegarth, a highly- motivated and confident local man who had climbed his way up through the company, was determined to move the newly created bank, a small fish with only 76 branches, into the big league.


pages: 464 words: 139,088

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

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

A Bank of England study of 116 large global banks during the crisis (of which 74 survived and 42 failed) found that the simple but robust leverage ratio was better at predicting which banks would fail than the more sophisticated risk-weighted measures of capital.30 The most extreme example was Northern Rock, which failed in the autumn of 2007. At the start of that year, Northern Rock had the highest ratio of capital to risk-weighted assets of any major bank in Britain, so much so that it was proposing to return capital to its shareholders because they had no need of it – under the regulations. At the same time, the bank’s leverage ratio was extraordinarily high at between 60 to 1 and 80 to 1.31 The reason for this remarkable discrepancy between the two measures of capital ratios was that the international standards assumed that mortgages were an extremely safe form of lending and Northern Rock did little else. But Northern Rock had been selling its mortgage loans to other investors rather than holding them on its own balance sheet.

But there were still discounts of the value of banknotes at a distance from head office from the par value that would be offered at head office. 21 Gorton (1989). 22 Data for 2014 from the respective central banks. 23 Goodhart is persuasive on this point (2015). There are also too many examples of the irresponsible encouragement of people on low incomes to borrow for one to be sanguine about the behaviour of the financial services industry. 24 Gibbon (1776), Vol. 1, p. 282. 25 Although when the British bank Northern Rock started to fail in September 2007, a surprising proportion of depositors who withdrew their money were prepared to leave a branch of the bank clutching a cheque drawn on Northern Rock itself. 26 Between the spring of 2007 and the spring of 2009 the demand for £50 notes rose by 28 per cent, double the increase for other denominations. See Bank of England statistics: http://www.bankofengland.co.uk/banknotes/Pages/about/stats.aspx#1 27 Bernanke and James (1991). 28 In 2013 the Freedom From Religion Foundation, a group of atheists, took legal action against the United States Treasury Department claiming that the inclusion of this traditional motto was unconstitutional on the grounds that whenever they used money they were being ‘forced to proselytise’ for a god in whom they didn’t believe.

It might only encourage a run to start sooner than would otherwise be the case, and if suspensions were regarded as potentially likely, then bank deposits would no longer function effectively as money. Second, governments could guarantee bank deposits to remove the incentive to join a bank run. Deposit insurance is now a common feature of most advanced economies’ banking systems. Nevertheless, the insurance provided is not fully comprehensive, and on occasions that has created difficulties. In 2007, when the UK bank Northern Rock failed, individual depositors joined a bank run because their deposits were insured only up to a limit and not for their full value. The run stopped only when the UK government belatedly announced a taxpayer guarantee of the deposits. In 2008, financial institutions withdrew their funds from US banks or their new equivalents, known as ‘shadow’ banks, because those deposits were not insured. The Federal Reserve stepped in to provide a degree of guarantee to stop the run.


pages: 741 words: 179,454

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

affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial independence, financial innovation, financial thriller, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Mikhail Gorbachev, Milgram experiment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, plutocrats, Plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, survivorship bias, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

Originally a self-help movement for artisans based in Newcastle, Northern Rock for much of its 150 years in existence took deposits from savers and lent to people to buy homes. Originally owned by its members, in 1997 the company demutualized and offered its shares on the London Stock Exchange. Between 1997 and 2007, under CEO Adam Applegarth, Northern Rock’s loan portfolio increased from £16 billion to £101 billion, a rate of more than 20 percent per annum. Northern Rock’s share of the UK’s residential mortgage market more than tripled from 6 percent to 20 percent in ten years. One mortgage product allowed homebuyers to borrow 125 percent of the value of the home, or up to six times their income. As growth outstripped the ability to finance loans from deposits from its customers, Northern Rock relied on securitization, arguing that issuing MBSs provided access to large pools of money from investors, cheaper borrowing costs and shifted the risk away from Northern Rock.

As growth outstripped the ability to finance loans from deposits from its customers, Northern Rock relied on securitization, arguing that issuing MBSs provided access to large pools of money from investors, cheaper borrowing costs and shifted the risk away from Northern Rock. Northern Rock issued £17 billion of MBSs in 2006 alone. In early 2007, bankers reaping large fees from Northern Rock securitizations voted them the best financial borrower in capital markets. In late 2007, Northern Rock’s dependence on securitization would destroy it when the market failed. CitiGroup, Merrill Lynch, and UBS committed seppuku, ritualized suicide. New regulations, low interest rates, and stable markets led banks to borrow more to invest in securitized bonds. At Merrill Lynch the strategy was known as a “million for a billion”—a million dollars in bonus money for every billion the bank invested in mortgage securities. Under changed banking regulations (known as Basel 2), credit ratings and the bank’s own models were used to calculate risk and set the amount of capital required.

Reinsurance companies and monoline insurers that had hedged mortgage exposures now experienced spontaneous symmetry breaking, failing in sympathy with the defaulting mortgages leaving the banks that they had insured exposed. As the markets seized up, banks were left with low-quality loans that they were unable to repackage and sell off, as planned. Despite minimal exposure to subprime mortgages, Northern Rock was unable to raise money as the securitization market seized up. In mid-September 2007, queues of panicked customers outside Northern Rock branches waited to withdraw deposits. In the Internet banking age, the signs of an old-fashioned bank run sealed Northern Rock’s fate. Adam Applegarth confessed to a UK parliamentary hearing that he understood: “the logic of somebody who has their life savings invested in an institution and who sees pictures of people queuing outside the door and they go join that queue.”22 Unable to issue commercial paper as holdings of toxic assets fell in value, conduits triggered parent bank credit lines, returning the assets to the mother ship.


pages: 322 words: 77,341

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

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

In one form or another, balance sheet abysses of this sort are responsible for all the collapses we’ve seen. Perhaps we can experience a twinge of national pride at the thought that this planetwide problem began with Northern Rock, which in September 2007 experienced the single most dreaded event which can overtake any financial institution, not seen in Britain for more than a century: a bank run. So many people turned up in person to withdraw money that the bank ended up paying out 5 percent of its total assets, a cool £1 billion in cash. Perhaps we can also experience a twinge of nostalgia at the fact that at the time of its nationalization a few months later, the £25 billion Northern Rock bailout was the biggest sum any government anywhere in the world had ever given to a private company. Such, such were the days … the really serious wave of bailouts and collapses began with Bear Stearns in March 2008 and then went to the next level with the “conservatorship” of Fannie Mae and Freddie Mac on September 7, the largest nationalization in the history of the world.

The result … well, out of what seemed to most people a clear blue sky, the clearest blue sky ever, there was a colossal wreck. That left an awful lot of people wondering one simple thing: what happened? I’ve been following the economic crisis for more than two years now. I began working on the subject as part of the background to a novel, and soon realized that I had stumbled across the most interesting story I’ve ever found. While I was beginning to work on it, the British bank Northern Rock blew up, and it became clear that, as I wrote at the time, “If our laws are not extended to control the new kinds of super-powerful, super-complex, and potentially super-risky investment vehicles, they will one day cause a financial disaster of global-systemic proportions.” I also wrote, apropos the obvious bubble in property prices, that “you would be forgiven for thinking that some sort of crash is imminent.”

They also preferred not to lend you more than two and a half times your annual income; if two of you were buying a property together, you could stretch to three times your joint income. Back in those days it was very hard, verging on impossible, for people who do what I do now—write for a living—to get a mortgage, because we couldn’t produce the relevant pay slips and employment history.* All those rules have long since gone from the U.K. property market. A banker involved in picking over the corpse of Northern Rock told me, “Most of the loans were sound, but one or two of their books had blown up, and one of the worst of them was the hundred and twenty percent mortgages.” I asked why anyone would want to borrow 120 percent of the value of the thing they were buying, and he just shrugged. That product makes sense only if you are absolutely certain of the value of the property you’re buying: and there is no reason to be absolutely certain of that.


pages: 246 words: 74,341

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

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

In scenes that the country had not witnessed for over 140 years, long lines of worried depositors wanting to withdraw their money were forming outside the branch offices of Northern Rock. This Newcastle bank had derived two-thirds of its financing from money-market loans, capable of being canceled at any time, and used the money for decadelong securitized mortgages whose value exceeded that of the actual homes.16 As Martin Wolf has concluded, government guarantees for the banking system meant that savers saw only the high rates of interest paid by Northern Rock, not the risks it was taking. But this daredevil business concept did not survive a nervous market that would no longer touch mortgage-backed securities with a 10-foot pole. The Bank of England, the UK central bank, expressed its willingness to support Northern Rock on September 14, but that did not make savers any calmer-on the contrary, this was when the bank run started in earnest.

It took three more days until the lines dissolved, after the government had declared that taxpayers would indirectly guarantee deposits. That was the first step toward nationalization. Only days before the run, a trader at Lehman Brothers had underlined in an e-mail that now was the perfect time to buy: "Load up on Northern Rock for your children, your mum, your goldfish."17 And that was not a lone optimist. Despite a whole series of alarms going off and a number of meetings with the bank, the UK Financial Services Authority had not noticed any major problems. On the contrary, the FSA approved Northern Rock's dividends and models briefly before the end. It was "asleep at the wheel," as an inquiry report put it." The government-sponsored mortgage giants in the United States also remained optimists to the very end. In January 2007, Fannie Mae's chief economist gave a soothing message at a press conference: "I think the worst in housing is over.

See privatizing gains and socializing losses Morgan Stanley, 85, 86, 122 Morgenson, Gretchen, 63 Morgenthau, Henry, 108 mortgage-backed securities, 27-28, 46-49 ABX.HE, 67 banking industry and, 49-55 capital and reserve requirements, 49-53 credit ratings and credit-rating agencies and, 46-49, 58-68, 134-35 mark-to-market accounting and, 91-94 repackaging mortgages, 45-46, 134-35 riding the bubble, 55-58 Subprime XYZ package, 65-68 See also collateralized-debt obligations (CDOs) Mortgage Bankers Association, lobbying, 34 mortgage interest deduction, 5-6, 24 Mozilo, Angelo, 30, 71-72 Mudd, Daniel, 40, 77 mutual funds, 145 New Deal, 105-9 New York Mellon Corp., 122 Newmark, Evan, 124 Nixon, Richard, 143, 154 Nocera, Joe, 122, 124 nonrecourse mortgages, 9 Northern Rock, 76-77 Obama, Barack, 116 stimulus package, 153-54 Oddson, David, 94 Odell, Mats, 148 Ohanian, Lee, 106 O'Neal, Stanley, 55-56, 75-76 O'Neill, Paul, 19 Organization for Economic Cooperation and Development countries, 51 Orszag, Jonathan, 34 Orszag, Peter, 34 O'Toole, Randal, 8 overconcentration of banks, Great Depression and, 104 oversubscribed securitized mortgages, 27-28 ownership society, 24, 36-40 Paulson, Henry "Hank," 51, 78, 81, 83, 88, 99, 100 bailout plans, 118-28.


Global Financial Crisis by Noah Berlatsky

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

., no more freebies in the form of underpriced equity, preferred shares, loan guarantees or insurance on assets), it will just confirm how bad things really are. 221 The Global Financial Crisis Britain Nationalizes Northern Rock Bank, February 2008 The chancellor [of the exchequer, or finance minister of Britain] Alistair Darling, moved to end six months of turmoil over the fate of Northern Rock yesterday when he admitted his efforts to find a buyer for the stricken bank had failed and he was forced into the first nationalisation of a British company since the 1970s. . . . Darling . . . defended his handling of the crisis. . . . The government only stepped in to prevent a domino effect in the industry, he said. Phillip Inman, Larry Elliott, and David Hencke, “Darling Under Fire as Northern Rock Is Nationalised,” Guardian Online, February 18, 2008. www.guardian.co.uk. Principles for Nationalization Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume.

The Asset Protection Scheme introduced in January also provides insurance cover for “toxic assets”, which means the 45 The Global Financial Crisis government has taken on an open-ended risk without a corresponding “upside” for the taxpayer. This route was chosen in preference to fresh government equity capital precisely because it makes a quick return to private-sector ownership easier. There is now a danger of premature reprivatisation, which would leave the taxpayer with a vast toxic dump of losses and a poor price for the share sale. There are already rumours that Northern Rock is being lined up for a rapid sale. If banks are to return to “normal” commercial operation under private ownership, the issue arises of how they should be regulated. The Cruickshank report on banking, commissioned by Gordon Brown a decade ago, posed the central question: why should banks be allowed to pursue the maximisation of shareholder value—and management bonuses— when they are underwritten by the taxpayer?

The nonperforming asset problem of U.S. and European financial institutions appears to have been gradually shifting to a traditional problem of loans on the banking book. The difficulty of evaluating the loan asset value, when the adverse feedback loop between the financial system and the real economy is at play, seems to be an unflagging issue at any time. Third, the framework to deal with troubled financial institutions was not well-equipped. It can hardly be said that the 211 The Global Financial Crisis process of the disposal of the Northern Rock and Lehman Brothers, was carried out within the sufficiently robust institutional framework. Even if such framework was in place, public capital injection into financial institutions is unpopular among the public in any country. In addition, there is a stigma on the part of financial institution to apply for injection of public capital. Furthermore, it is also a daunting task to identify the amount of losses incurred by financial institutions, which is the precondition for public capital injection.


pages: 484 words: 136,735

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

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

But disaster could still have been avoided had it not been for the third and greatest blunder: the U.S. government’s refusal to intervene directly in the financial system when the credit crunch began. Such direct intervention was what saved Britain after the Northern Rock collapse, the most serious run on a major bank anywhere in the advanced capitalist world since the Great Depression. The British government provided a temporary but open-ended guarantee to all British financial institutions, albeit reluctantly and under pressure from the Bank of England. This temporary guarantee instantly stopped the bank run, stabilized the financial system, and gave regulators the breathing space they needed to work out a longer-term solution. Had the U.S. Treasury been prepared to think seriously about the role of government in the modern financial system, they would have seen Northern Rock as a dress rehearsal and model for dealing with the Lehman crisis a year later. By taking somewhat earlier action, the U.S. government could probably have avoided even the moderate costs and financial damage of a Northern Rock-style response.

The next chapter argues that cyclical, rather than structural, forces were behind the 2007 bust in mortgage finance, which was then exaggerated by the astonishing incompetence of political mismanagement into the greatest financial crisis of all time. CHAPTER NINE Boom and Bust Forever We will never return to the old boom and bust. —Prime Minister Gordon Brown, March 2007, six months before the run on Northern Rock, Britain’s largest mortgage bank FINANCIAL BOOMS AND BUSTS have baffled and fascinated economic thinkers since capitalism’s earliest days. It is therefore no surprise that the greatest financial crisis in living memory, which occurred in the months after the bankruptcy of Lehman, elicited many different explanations. These ranged from excessive savings in China to policy mistakes by the Federal Reserve Board, from corrupt political lobbying to the immutable facts of human psychology, crystallized by the unforgettable two-word phrases from Alan Greenspan that punctuated the boom and bust: first “irrational exuberance,” then “infectious greed,” and finally “shocked disbelief.”

By taking somewhat earlier action, the U.S. government could probably have avoided even the moderate costs and financial damage of a Northern Rock-style response. Paulson could almost certainly have saved the situation much earlier and less expensively by implementing a government-led Plan B to end the credit crunch in early 2008. Some type of government-led anticrisis plan was widely expected in January 2008, when it became obvious that the banks’ mark-to-market losses would just keep mounting and when, to make matters worse, the U.S. municipal bond market suddenly seized up.23 The outlines of such a government-led Plan B were widely discussed in the markets at the time and could have included many of the measures ultimately adopted, but at far lower cost. For example, the Treasury, and if necessary the president himself, could have stated explicitly that the U.S. government would never renege on its implicit guarantees for Fannie Mae and Freddie Mac, the Government Sponsored Enterprises, or GSEs.


pages: 1,066 words: 273,703

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

Affordable Care Act / Obamacare, Apple's 1984 Super Bowl advert, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, Boris Johnson, break the buck, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, dark matter, deindustrialization, desegregation, Detroit bankruptcy, Dissolution of the Soviet Union, diversification, Doha Development Round, Donald Trump, Edward Glaeser, Edward Snowden, en.wikipedia.org, energy security, eurozone crisis, Fall of the Berlin Wall, family office, financial intermediation, fixed income, Flash crash, forward guidance, friendly fire, full employment, global reserve currency, global supply chain, global value chain, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, housing crisis, Hyman Minsky, illegal immigration, immigration reform, income inequality, interest rate derivative, interest rate swap, Kenneth Rogoff, large denomination, light touch regulation, Long Term Capital Management, margin call, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, mittelstand, money market fund, moral hazard, mortgage debt, mutually assured destruction, negative equity, new economy, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shale / tar sands, old-boy network, open economy, paradox of thrift, Peter Thiel, Ponzi scheme, predatory finance, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, reserve currency, risk tolerance, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, structural adjustment programs, The Great Moderation, Tim Cook: Apple, too big to fail, trade liberalization, upwardly mobile, Washington Consensus, We are the 99%, white flight, WikiLeaks, women in the workforce, Works Progress Administration, yield curve, éminence grise

It marks the cut-off point between ‘an Edwardian summer’ of prosperity and tranquility and the trench warfare of the credit crunch—the failed banks, the petrified markets, the property markets blown to pieces by a shortage of credit.”9 Quite how bad things were soon going to get was suggested three weeks later, when on September 14, Northern Rock, one of Britain’s largest mortgage lenders, failed. On TV screens, the Northern Rock panic looked like a classic bank run. Anxious depositors queued up outside beleaguered bank branches to retrieve their funds. News photographers and camera crews had a field day. But off camera something even worse was happening. The trillion-dollar global funding market was shutting down.10 I Northern Rock was a product of Britain’s overheated housing bubble. Formed in the 1960s through amalgamation of two nineteenth-century building societies (thrifts) and headquartered in gritty Newcastle, it had by the 1990s acquired fifty-three competitors across the north of England.

This transaction was the largest debut deal in that market for a single A rated financial institution targeted at both domestic Australian investors and the Far East.”11 Northern Rock had minimal exposure to US subprime. But that didn’t matter, because it sourced its funding from markets heavily used by banks that did. The bad news from Paribas on August 9 was enough to shut down the interbank lending markets and the market for asset-backed commercial paper. It was the seizure in the funding market that poleaxed the entire securitization business and in particular the European side, which had been most actively involved in the issuance of ABCP. Given Northern Rock’s extreme dependence on wholesale funding, it took only two working days after the markets dried up for the bank to notify the Financial Services Authority of an impending crisis.12 But the Bank of England was in no mood to help.

Given Northern Rock’s extreme dependence on wholesale funding, it took only two working days after the markets dried up for the bank to notify the Financial Services Authority of an impending crisis.12 But the Bank of England was in no mood to help. Governor Mervyn King took the view that the overextended mortgage lender should suffer the consequences of its irresponsible expansion. By the end of August Northern Rock’s liquidity problems had become life threatening. But it wasn’t until September 13, after the BBC reported the story and the government acted to address the crisis by announcing a guarantee, that the retail depositors panicked. After that, the main damage to Northern Rock’s balance sheet was done by online withdrawals. The elderly savers queuing in the streets made for alarming TV footage. But it was not their panic that was bringing down the bank. It was a bank run operating on an altogether different scale at the speed of computer terminals in money markets across the world.


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

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

Then there was a run on Countrywide Financial, the largest US mortgage lender, in mid-August 2007. At the same time, there was a run on Northern Rock, which was the largest mortgage lender in Britain. Both firms had been aggressive in their efforts to increase their market share, both had relied on the commercial paper market for more than 30 percent of the money that they used to buy mortgage loans. In effect they had been selling short-term IOUs to firms that had extra cash to get the money to buy more mortgages. Countrywide Financial was rescued by the Bank of America, which initially made a capital investment through the purchases of preferred shares and subsequently acquired Countrywide. Northern Rock was rescued by the Bank of England, which initially provided liquidity; subsequently the British government acquired shares in the firm and became its majority owner.

The sharp declines in prices of residential real estate in the United States, Britain, Ireland, and several other countries that began toward the end of 2006 led to massive government investments – ‘bailouts’ – of the financial institutions. In 2008 many of the top firms in the US investment banking industry were wiped out or forced to seek a stronger merger partner. The British government ‘nationalized’ Northern Rock, the largest mortgage lender in the country, and became the dominant shareholder in the Royal Bank of Scotland. The Irish government made massive investments in the six largest banks in the country. The three large banks in Iceland were taken over by the government. Countrywide Financial, the largest mortgage lender in the United States, was acquired by Bank of America, which subsequently acquired Merrill Lynch, one of the largest US investment banks – but then Bank of America required a large injection of capital from the US Treasury.

The concern was that if AIG tanked, runs on many other financial institutions would occur, and this dramatic rush for cash would lead to the collapse of the financial system. The interplay among the decline in real estate prices and bank loan losses was inevitable and predictable, although the identity of the firms that would be pummeled could not have been predicted. However, those firms that had rapidly increased their market share – Countrywide, Northern Rock, Washington Mutual – had done so on the basis of short-term funds borrowed in wholesale markets, and they were more vulnerable to runs than the lenders that relied almost exclusively on deposits for the money to buy mortgages. The money market funds – established primarily by brokerage firms as an alternative to government-guaranteed deposits – were subject to runs, and the US Treasury hastily extended the umbrella of deposit insurance to these firms.


pages: 270 words: 73,485

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

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

The contagion spread across the Atlantic. In September 2007 the British bank Northern Rock requested financial assistance from the government. The story is much the same. The bank had loaned out excessively in mortgages. It had securitized them and sold them on the international markets. Once the US market for subprime securities started to cool, Northern Rock became concerned that it did not have sufficient liquidity to refund customer deposits if they were demanded. Northern Rock initially tried to borrow money on the wholesale money market, but found it too expensive. As rumors circulated that Northern Rock was in trouble, depositors queued up to withdraw their money. The UK government had to rush to the rescue and nationalize the bank. Northern Rock was not the only UK bank to experience trouble, but it was the first UK bank to experience a bank run in over a century.

Joseph (i) Meade, James (i) mean (i) measurement of capital debate (i) mechanization, of weaving (i) Meiselman, David (i) Menger, Carl (i) mercantilism (i), (ii), (iii) Mexico see crises, Mexican microeconomics (i) Middle East, post-World War I (i) Mill, John Stuart (i) Mitchell, Wesley Clair (i) Mitterand, François (i) modeling (i), (ii) macro-200 new classical economics (i) see also econometric modeling Modigliani, Franco (i) monetarism (i) control of money supply (i) deficit reduction demands (i) effects of (i) political support (i) monetarists (i) monetary policy Bundesbank (i) role of (i) as tool for recovery (i), (ii) monetary theory (i) money circulation (i) effect on economic system (i) motives for demand (i) role of (i) as scaling variable (i) money balances (i), (ii) money changers (i) money cranks (i) money price level (i) money problem (i) money supply (i), (ii) money wages flexibility/rigidity (i) and inflation (i) rates of increase (i) and unemployment (i), (ii) see also real wages; wages monopolies, grants of (i) monopoly power (i) Moore, Henry (i) mortgages (i), (ii), (iii) securitization (i) subprime (i), (ii) moving data, and unique static equilibrium (i) “Mr Keynes and the ‘Classics’: A Suggested Interpretation” (Hicks) (i) multiplier-accelerator model (i) multiplier process (i), (ii) Friedman’s challenge (i) Myrdal, Gunnar (i), (ii) Monetary Equilibrium (i) national data (i) National Debt (i) natural rate of interest (i) natural rate of unemployment (i) negative equity (i) neoclassical economics (i) neoclassical-Keynesian synthesis (i) new classical economics (i) attitude to modeling (i) modeling (i) time series data (i) new classical macro model (i) new classical model (i) aggregate demand and aggregate supply (i) policy implications (i) new normality (i) Newcomb, Simon (i) newly-industrialized economies (i) Newton, Isaac (i), (ii), (iii) Nixon, Richard (i), (ii), (iii) Nobel Prize (i), (ii), (iii), (iv), (v), (vi) nominal level (i) non-inflationary continuous expansion (NICE) (i), (ii) normal distribution (i) North America, Declaration of Independence (i) Northern Rock (i) oil shock (i) “On the High Price of Bullion’’ (Ricardo) (i) one-to-one jobs (i) O’Neill, Jim (i) open economy (i) opportunity cost (i) optimism/pessimism (i) options (i) Osborne, George (i) Ottoman Empire (i) Overend & Gurney (i) oversaving (i), (ii), (iii), (iv), (v), (vi) Overstone, Lord (i) Paish, Frank (i) paper currency, withdrawal (i) parameters (i) partial equilibrium theory (i), (ii) Paterson, William (i) Pax Britannica (i) per capita incomes (i) perfect markets see under markets Phillips, A.


pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

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

This is the risk that the markets you rely on for your funding simply dry up, cease to operate, deny you funds at any reasonable price. The overconfident, overaggressive British bank Northern Rock failed in 2007 because it could no longer obtain funds. Historically, retail banks have always been careful to fund themselves largely by attracting customer deposits, because such deposits have historically proved a reliable and stable form of financing. Northern Rock threw that tried-and-tested model out of the window, relying in very large part on short-term money market financing. That funding structure was insane in at least two respects. First, it generated a huge maturity mismatch between Northern Rock’s long-term assets (primarily loans made to customers) and its very short-term funding. Secondly, it placed vastly excessive reliance on the continued willingness of commercial lenders to lend to it.

Search for ‘Advanced bond concepts: yield and bond price.’ 6 Emma Charlton and Keith Jenkins, ‘German bunds slide most in 8 weeks; Greek two-year notes rise,’ Bloomberg, Sept. 17, 2011. 7 Though rumor has it that banks are trying to recreate these now. 8 Search Bank of International Settlements (www.bis.org) for ‘Amounts outstanding of over-the-counter (OTC) derivatives.’ 9 Fawn Johnson, ‘SEC queries firms on repos,’ Wall Street Journal, March 30, 2010. 10 Tett, Fool’s Gold, p. 241. 11 Eric Dash and Sewell Chan, ‘Panel criticizes oversight of Citi by 2 executives,’ New York Times, April 8, 2010. 12 See JP Morgan Chase’s financial statements, most easily accessed via investor.shareholder.com/JPMorganchase/earnings.cfm. 13 James Kirkup, ‘The path to Northern Rock’s nationalisation,’ Daily Telegraph, Jan. 14, 2008. 14 Kirsty Walker, ‘Northern Rock chief’s offer to resign,’ Daily Mail, Oct. 16, 2007. 15 ‘Northern Rock bosses: A board profile,’ Daily Mail, Sept. 18, 2007. 16 Ashley Seager and Angela Balakrishnan, ‘Rock liabilities added to the national debt,’ Guardian, Feb. 8, 2008. 17 For a scarily huge number, see table on p. 192 of JP Morgan’s annual report for 2010, accessible at investor.shareholder.com/jpmorganchase/annual.cfm.

Secondly, it placed vastly excessive reliance on the continued willingness of commercial lenders to lend to it. It was simply asking for trouble‌—‌and in 2007 that’s what it got. It took £26 billion of government loans to keep Northern Rock afloat, until the bank was effectively nationalized in 2008.13 That story was only the first in a chain of failures. The German bank IKB set up some off-balance-sheet investment vehicles that were funded exclusively in the commercial paper market (the main form of short-term borrowing). When those markets closed up, IKB was left with nowhere to turn. Dumb financing, maturity mismatches, disastrous outcomes. Citigroup itself was felled by the same thing. When that manager spoke bitterly about how almost no one in the bank even knew about the thing that had eventually laid it low, the problem was only indirectly the collapse in the mortgage market.


pages: 443 words: 98,113

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

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

Securitisation was at the heart of the sub-prime mortgage scandal in the USA, which precipitated the financial crash that ruined lives and intensified inequality and economic insecurity. It is still going on. An egregious case in Britain was Northern Rock, a lender that borrowed heavily on UK and international capital markets during the pre-2007 housing boom to give mortgage loans of up to 125 per cent of the property value. Like its counterparts in the USA, the firm bundled up these risky mortgages and sold them as income-generating assets to investors, using the proceeds to help pay its debts. When the credit crunch came in 2007, the demand for securitised mortgage assets dried up and Northern Rock was unable to meet debt commitments. There was a run on the bank, the first UK bank run in 150 years, and in 2008 it was taken into state ownership. Billions of pounds of outstanding mortgages remained, many in arrears.

Ma, The Impact of Student Loan Debt on Small Business Formation, Federal Reserve Bank of Philadelphia, July 2015. 30 H. Warrell, ‘Students take on more paid employment as living costs rise’, Financial Times, 10 August 2015. 31 L. Bachelor, ‘Flatscreen TVs, chic interiors … and rents of up to £300 a week’, The Observer, 16 August 2015, pp. 8–9. 32 J. Farrell and D. Hellier, ‘Northern Rock mortgages worth £13 billion sold to US investment firm’, The Guardian, 14 November 2015, p. 42. 33 This was widely reported, amid allegations in the Northern Ireland Parliament. See, for instance, ‘Cantillon: Cerberus and the Northern Rock deal’, Irish Times, 14 November 2015. 34 Human Rights Watch, ‘US: Courts rubber stamp corporate suits against poor’, Press Release, 21 January 2016. 35 C. Reinhart and K. Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2011). 36 See, for instance, S.

The government also began selling the 43 per cent of shares it acquired in Lloyds Banking Group, after it returned to profit. With the exception of a planned £2 billion sale in 2016 to retail (small) investors at a 5 per cent discount to the market price, the sales have been to carefully selected private investors, enabled to reap the gains from a publicly funded bailout. In 2015, the UK government also sold a £13 billion package of mortgages and loans formerly issued by Northern Rock, which collapsed in 2007, to the US private equity group Cerberus; Cerberus promptly sold a quarter of the loans to another bank. The once-toxic mortgages, with an interest rate of nearly 5 per cent, had come good mainly because of a rise in property prices. So public assets were sold on favourable terms to the financial elite based on an ideological commitment to privatisation and a desire to finance tax cuts.


pages: 478 words: 126,416

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

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

(The foul-mouthed Jimmy Cayne, of Bear Stearns, who refused to participate, would receive his comeuppance a decade later when the Federal Reserve took pleasure in forcing a fire-sale of his failing business to J.P. Morgan.) But the concerns about banks that paralysed the USA in 1933, or which brought the global financial system close to collapse in 2008, were not like that. The run on Northern Rock was very different from the run on the Derbyshire Building Society. Northern Rock had a fundamental business problem. The company relied on being able to refinance packages of mortgages of indifferent quality in a market for mortgage-backed securities that was drying up. The problem was in the reality of the business, not in the imagination of depositors, and was the result of uncertainty about the underlying solvency of the company and the quality of its assets.

When the supply chain lacks liquidity, consumers need to maintain stocks for themselves – they keep a spare pint of milk in the fridge. The financial analogue of the spare pint is the necessity for businesses and households to maintain monetary balances. In extreme cases of illiquidity, households end up hoarding cash under the bed. These supply chain inefficiencies may be costly, in both the milk supply chain and the money market. In September 2007 a picture of depositors queuing up to withdraw money from Northern Rock, a small British mortgage lender, made the front page of every national newspaper. This was a ‘bank run’, when everyone was attempting to withdraw their deposits before the cash was exhausted. But financial services are not unique in their vulnerability to runs. If people suspect there is not enough milk, they will queue to obtain whatever milk is available, and the fears of shortage will prove – temporarily – justified.

A run on a solvent, liquid, well-capitalised and well-managed bank, in which unfounded panic among depositors creates an unnecessary crisis, is a theoretical possibility: but in practice it is as rare as a milk panic. When the Derby-based engineering firm Rolls-Royce collapsed in 1971, there was a run on the Derbyshire Building Society, and the queues outside its offices were similar to those that gathered at branches of Northern Rock in 2007. Depositors feared that the collapse of one venerable local institution might be followed by the collapse of another. But these unfounded fears quickly subsided. If they had not, the affairs of the solvent Derbyshire Building Society could easily and quickly have been transferred to another institution. Even in times of financial distress there are widely dispersed supplies of cash and short-term credit available – in the hands of the public, and with large financial and non-financial corporations.


pages: 367 words: 108,689

Broke: How to Survive the Middle Class Crisis by David Boyle

anti-communist, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, call centre, collateralized debt obligation, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, delayed gratification, Desert Island Discs, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, financial deregulation, financial independence, financial innovation, financial intermediation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, housing crisis, income inequality, Jane Jacobs, job satisfaction, Kickstarter, knowledge economy, knowledge worker, market fundamentalism, Martin Wolf, mega-rich, mortgage debt, Neil Kinnock, Nelson Mandela, new economy, Nick Leeson, North Sea oil, Northern Rock, Occupy movement, off grid, offshore financial centre, pension reform, pensions crisis, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, positional goods, precariat, quantitative easing, school choice, Slavoj Žižek, social intelligence, too big to fail, trickle-down economics, Vanguard fund, Walter Mischel, wealth creators, Winter of Discontent, working poor

‘The Cartel is an arrangement to stifle competition,’ chief executive Clive Thornton told the press. ‘We want none of it.’[24] When building-society interest rates started to rise up to market levels, wholesale funds were available to the banks on the wholesale markets — but not to the building societies. They had to wait for new legislation in 1986 (see the next chapter) that allowed them to bypass their own depositors and raise money in that way — eventually the cause of disaster for Northern Rock and HBOS a quarter of a century later. The year 1986 was also the year that the former Times editor Simon Jenkins said he heard a director of Halifax Building Society, as it was then, say: ‘God help us if the bankers get their hands on our mortgages or if our brokers get their hands on their deposits.’[25] Both events did take place in the fullness of time, as we shall see. Lawson talked about the end of the Cartel, but feared the short-term consequences of killing it.

(It wasn’t until the final week of John Major’s government in 1997, and also thanks to Boléat, that they were given a general power to do whatever they wanted.) Much more controversially, if they didn’t have enough depositors’ money for the mortgages people wanted, they would be allowed to raise 40 per cent of their mortgage finance on the international markets (raised by the Blair government to 50 per cent). It was overusing this power that would eventually bring down Northern Rock in 2008. As the new law came up for its first reading in the House of Commons, the building societies’ share of the UK mortgage market dipped below 50 per cent. Would the legislation be in time to provide any kind of opposition to the rampaging banks? Boléat dampened expectations. ‘In fact,’ he said in a speech once the bill had passed through the House of Commons, ‘the building-society legislation will be the cause of comparatively little.’[7] As it turned out, Boléat was wrong.

The building-society network might not survive at all. ‘I realized that it would blow the sector apart,’ said Coles. ‘Most of the customers of Cheltenham & Gloucester had less than that in their accounts. Most of them didn’t realize they were owners of it, and — in return for giving up membership, when we were so poor at explaining what mutuality was — they would get all this money. It was a real no-brainer.’ Two weeks later, Northern Rock said that it would merge with the Heart of England Building Society. Something was going on, and the Cheltenham & Gloucester announcement changed everything. Even the giant Halifax decided it would have to rethink its decision not to convert. What if there was a hostile bid? Could they ever withstand it? Were their own reserves too much of a temptation to corporate raiders? Could building societies survive at all?


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, 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

Tighe was in Japan on vacation after completing her training contract at Shearman & Sterling in London. Like Hayes, she worked long hours in a challenging, stressful environment that left little room for anything else. In the days that followed, Hayes couldn’t get Tighe out of his mind.19 Outwardly serene, she had a fiery streak and an inner confidence. They agreed to meet again. This time she listened to him ramble on about the fortune he made off the collapse of Northern Rock bank and didn’t glaze over. Tighe came from a family of Aston Villa fanatics and knew the intricacies of the British soccer leagues. She was a keeper, someone who found his idiosyncrasies endearing and his ambition attractive. When it was time for Tighe to return to London, they embarked on a long-distance relationship. She applied for jobs in Tokyo and, in May 2008, flew back to take up a position with Herbert Smith.

Since their last meeting the world had grown hostile and unrecognizable. Rising defaults on mortgages in the U.S. had spooked markets, drying up the easy flow of credit between financial institutions and exposing the shaky foundations upon which years of easy profits had rested. Banks were forced to write down the value of their assets by billions of dollars and were left perilously close to insolvency. Northern Rock was nationalized in February 2008 after the mortgage lender became the first British firm in 150 years to suffer a bank run. BNP Paribas, France’s biggest lender, created panic the previous August when it froze redemptions from its funds, refusing to give investors their money back. Most of the afternoon was spent discussing the pressing issue of how to access enough capital to stay alive. At one point, Angela Knight, the BBA’s chief executive and a former politician,broached the issue of Libor.

If a bank needed to borrow a couple of hundred million dollars for a few weeks, there would always be a lender somewhere happy to oblige in exchange for a small amount of interest. No One’s Clean-Clean 53 By the summer of 2007, that had started to change. The mortgage crisis in the U.S. caused banks and investment funds around the world to become skittish about lending to each other without collateral. Firms that relied on the so-called money markets to fund their businesses were paralyzed by the ballooning cost of short-term credit. On Sept. 14, customers of Northern Rock queued for hours to withdraw their savings after the U.K. lender announced it was relying on loans from the Bank of England to stay afloat. After that, banks were only prepared to make unsecured loans to each other for a few days at a time, and interest rates on longer-term loans rocketed. Libor, as a barometer of stress in the system, reacted accordingly. In August 2007, the spread between three-month dollar Libor and the overnight indexed swap, a measure of banks’ overnight borrowing costs, jumped from 12 basis points to 73 basis points.


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

accounting loophole / creative accounting, Albert Einstein, anti-globalists, asset-backed security, banking crisis, banks create money, basic income, Boris Johnson, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, collective bargaining, corporate raider, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, G4S, Goldman Sachs: Vampire Squid, high net worth, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, Kickstarter, labour market flexibility, laissez-faire capitalism, land value tax, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, mass immigration, means of production, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Philip Mirowski, plutocrats, Plutocrats, popular capitalism, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, wealth creators, WikiLeaks, Winter of Discontent, working poor, Yom Kippur War, zero-sum game

Pension funds and insurance houses that had protected themselves by buying CDSs found that the banks that sold them couldn’t afford to honour them in the event of default. In September 2008, global private pensions dropped in value by 20% in one week.128 Northern Rock on the rocks In the UK, the first bank to fail and be bailed out – to the tune of £27 billion – was Northern Rock, which had led the way in over-lending on mortgages and securitisation. Commenting on the former chairman Matt Ridley’s views, George Monbiot writes: As chairman of Northern Rock, he was responsible, according to the Treasury select committee, for the ‘high-risk, reckless business strategy’ which caused the first run on a British bank since 1878 . . . Before he became chairman, a position he appears to have inherited from his father, Matt Ridley was one of this country’s fiercest exponents of laissez-faire capitalism.

These are not merely responses to market shifts but ways of influencing those shifts, for example by inflating bubbles: they are weapons, not tools, as Ewald Engelen and co-researchers argue.137 On ‘Black Wednesday’, 16 September 1992, multi-billionaire George Soros made £1 billion by short-selling sterling – in anticipation of its being ejected from the European Exchange Rate Mechanism. In effect, he saw that the pound was overvalued, took on the Bank of England when it made frenzied efforts to defend the currency, and won.138 When the previously much-lauded Northern Rock bank got into trouble in 2008, hedge funds short-sold its shares and then bought them up when they’d hit rock bottom.139 When, in 2013, the UK’s Royal Mail was privatised by issuing shares at far below the market price, it was an aggressive hedge fund that became the largest shareholder. Hedge fund managers’ remuneration system is distinctive: most get 2% of assets, regardless of whether they make a profit or loss, and 20% of profits.

Having done his best to bankrupt the blood-sucking state, he returned to his family seat at Blagdon Hall, set in 15 square miles of farmland, where the Ridleys live – non-parasitically of course – on rents from their tenants, hand-outs from the Common Agricultural Policy and fees from the estate’s opencast coal mines. No one has been uncouth enough to mention the idea that he might be surcharged for part of the £400m loss Northern Rock has inflicted on the parasitic taxpayer. It’s not the 1% who have to carry the costs of their cock-ups.129 Estimates of the size of the UK bank bailout range between £289 billion and £550 billion – or nearly £10,000 for every British resident – exceeding the £203 billion of tax that the sector paid in the five years up to 2006–07.130 These costs are around 1% of gross domestic product in the UK.


pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Moneyball by Michael Lewis explains big data, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game

Nowhere has the tension between different meanings of risk been more stark, and more damaging, than in financial regulation. In the spring of 2007, the UK bank Northern Rock announced at its AGM that it was the best-capitalised bank in the United Kingdom, and would be returning ‘surplus’ capital to shareholders. 10 And according to the internationally agreed risk calculations embodied in the Basel regulations that had come into force at the beginning of the year, it was indeed the best-capitalised bank in Britain. The risk weights mandated by those new regulations assumed that mortgages were among the safest assets in which a bank could invest; however, if you stripped out the risk weighting, the liabilities of Northern Rock were eighty times its equity capital. Worse, the very detailed regulations which defined ‘capital adequacy’ took no account of how the bank structured the liability side of its balance sheet – the bank’s own borrowings which funded its mortgage lending.

Under an ambitious young chief executive, Adam Applegarth, Northern Rock had moved far from the traditional building society it had been only ten years earlier, which took deposits from retail savers and lent them to home buyers. The bank now financed much of its lending from day-to-day borrowing in money markets before selling packages of securitised mortgages to other financial institutions. In August 2007 both the market for short-term borrowing and the market for re-selling packages of loans dried up and the bank simply ran out of money. Queues formed outside the company’s branches as savers scrambled to get what was left in the tills. The panic subsided after the government guaranteed deposits and the Bank of England provided financial support. In February 2008, beyond rescue, Northern Rock was nationalised. Clever people, sitting in Basel and drawn from around the world, had sought since the 1980s to set a global framework for bank regulation.

Both commercial bankers and regulators believed that while retail funding might suddenly dry up, wholesale funding would always be available at a price. This reasonable assumption turned out to be wrong. Northern Rock was felled by an off-model event. The abject failure of models in the global financial crisis has not dented their popularity among regulators. European directives – known as Solvency II – have extended the use of similar models to the insurance sector, and a pension fund regime is likely to follow. But insurance companies rarely fail as a result of low-probability events described by risk models, but in consequence of off-model issues such as fraud or – as at Northern Rock – the realisation of narratives which had not been imagined by management or regulators. Pension models In 1991 the ebullient fraudster Robert Maxwell disappeared from his yacht in the Canaries and was found to have looted the Daily Mirror pension funds to support his crumbling business empire.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

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

., New Frontier social programmes, 83, 84 Keynes, John Maynard: Bretton Woods conference, 59, 60, 62, 109; General Theory, 37; ICU proposal, 60, 66, 90, 109, 254, 255; influence on New Dealers, 81; on investment decisions, 48; on liquidity, 160–1; trade imbalances, 62–6 Keynsianism, 157 Kim Il Sung, 77 Kissinger, Henry, 94, 98, 106 Kohl, Helmut, 201 Korea, 91, 191, 192 Korean War, 77, 86 labour: as a commodity, 28; costs, 104–5, 104, 105, 106, 137; hired, 31, 45, 46, 53, 64; scarcity of, 34–5; value of, 50–2 labour markets, 12, 202 Labour Party (British), 69 labourers, 32 land: as a commodity, 28; enclosure, 64 Landesbanken, 203 Latin America: effect of China on, 215, 218; European banks’ exposure to, 203; financial crisis, 190 see also specific countries lead, prices, 96 Lebensraum, 67 Left-Right divide, 167 Lehman Brothers, 150, 152–3 leverage, 121–2 leveraging, 37 Liberal Democratic Party (Japan), 187 liberation movements, 79, 107 LIBOR (London Interbank Offered Rate), 148 liquidity traps, 157, 190 Lloyds TSB, 153, 156 loans: and CDOs, 7–8, 129–31; defaults on, 37 London School of Economics, 4, 66 Long-Term Capital Management (LTCM) hedge fund collapse, 13 LTCM (Long-Term Capital Management) hedge fund collapse, 2, 13 Luxembourg, support for Dexia, 154 Maastricht Treaty, 199–200, 202 MacArthur, Douglas, 70–1, 76, 77 machines, and humans, 50–2 Malaysia, 91, 191 Mao, Chairman, 76, 86, 91 Maresca, John, 106–7 Marjolin, Robert, 73 Marshall, George, 72 Marshall Plan, 71–4 Marx, Karl: and capitalism, 17–18, 19, 34; Das Kapital, 49; on history, 178 Marxism, 181, 182 Matrix, The (film), 50–2 MBIA, 149, 150 McCarthy, Senator Joseph, 73 mercantilism, in Germany, 251 merchant class, 27–8 Merkel, Angela, 158, 206 Merrill Lynch, 149, 153, 157 Merton, Robert, 13 Mexico: effect of China on, 214; peso crisis, 190 Middle East, oil, 69 MIE (military-industrial establishment), 82–3 migration, Crash of 2008, 3 military-industrial complex mechanism, 65, 81, 182 Ministry for International Trade and Industry (Japan), 78 Ministry of Finance (Japan), 187 Minotaur legend, 24–5, 25 Minsky, Hyman, 37 money markets, 45–6, 53, 153 moneylenders, 31, 32 mortgage backed securities (MBS) 232, 233, 234 NAFTA (North American Free Trade Agreement), 214 National Bureau of Economic Research (US), 157 National Economic Council (US), 3 national income see GDP National Security Council (US), 94 National Security Study Memorandum 200 (US), 106 nationalization: Anglo Irish Bank, 158; Bradford and Bingley, 154; Fortis, 153; Geithner–Summers Plan, 179; General Motors, 160; Icelandic banks, 154, 155; Northern Rock, 151 NATO (North Atlantic Treaty Organization), 76, 253 negative engineering, 110 negative equity 234 neoliberalism, 139, 142; and greed, 10 New Century Financial, 147 New Deal: beginnings, 45; Bretton Woods conference, 57–9; China, 76; Global Plan, 67–71, 68; Japan, 77; President Kennedy, 84; support for the Deutschmark, 74; transfer union, 65 New Dealers: corporate power, 81; criticism of European colonizers, 79 ‘new economy’, 5–6 New York stock exchange, 40, 158 Nietzsche, Friedrich, 19 Nixon, Richard, 94, 95–6 Nobel Prize for Economics, 13 North American Free Trade Agreement (NAFTA), 214 North Atlantic Treaty Organization (NATO), 76 North Korea see Korea Northern Rock, 148, 151 Obama administration, 164, 178 Obama, Barack, 158, 159, 169, 180, 230, 231 OECD (Organisation for Economic Co-operation and Development), 73 OEEC (Organisation for European Economic Co-operation), 73, 74 oil: global consumption, 160; imports, 102–3; prices, 96, 97–9 OPEC (Organization of the Petroleum Exporting Countries), 96, 97 paradox of success, 249 parallax challenge, 20–1 Paulson, Henry, 152, 154, 170 Paulson Plan, 154, 173 Penn Bank, 40 Pentagon, the, 73 Plaza Accord (1985), 188, 192, 213 Pompidou, Georges, 94, 95–6 pound sterling, devaluing, 93 poverty: capitalism as a supposed cure for, 41–2; in China, 162; reduction in the US, 84; reports on global, 125 predatory governance, 181 prey–predator dynamic, 33–5 prices, flexible, 40–1 private money, 147, 177; Geithner–Summers Plan, 178; toxic, 132–3, 136, 179 privatization, of surpluses, 29 probability, estimating, 13–14 production: cars, 70, 103, 116, 157–8; coal, 73, 75; costs, 96, 104; cuts in, 41; in Japan, 185–6; processes, 30, 31, 64; steel, 70, 75 production–distribution cycle, 54 property see real estate prophecy paradox, 46, 47, 53 psychology, mass, 14 public debt crisis, 205 quantitative easing, 164, 231–6 railway bubbles, 40 Rational Expectations Hypothesis (REH), 15–16 RBS (Royal Bank of Scotland), 6, 151, 156; takeover of ABN-Amro, 119–20 Reagan, Ronald, 10, 99, 133–5, 182–3 Real Business Cycle Theory (RBCT), 15, 16–17 real estate, bubbles, 8–9, 188, 190, 192–3 reason, deferring to expectation, 47 recession predictions, 152 recessions, US, 40, 157 recycling mechanisms, 200 regulation, of banking system, 10, 122 relabelling, 14 religion, organized, 27 renminbi (RMB), 213, 214, 217, 218, 253 rentiers, 165, 187, 188 representative agents, 140 Reserve Bank of Australia, 148 reserve currency status, 101–2 risk: capitalists and, 31; riskless, 5, 6–9, 14 Roach, Stephen, 145 Robbins, Lionel, 66 Roosevelt, Franklin D., 165; attitude towards Britain, 69; and bank regulation, 10; New Deal, 45, 58–9 Roosevelt, Theodore (‘Teddy’), 180 Royal Bank of Scotland (RBS), 6, 151, 156; takeover of ABN-Amro, 119–20 Rudd, Kevin, 212 Russia, financial crisis, 190 Saudi Arabia, oil prices, 98 Scandinavia, Gold Standard, 44 Scholes, Myron, 13 Schopenhauer, Arthur, 19 Schuman, Robert, 75 Schumpter, Joseph, 34 Second World War, 45, 55–6; aftermath, 87–8; effect on the US, 57–8 seeds, commodification of, 163 shares, in privatized companies, 137, 138 silver, prices, 96 simulated markets, 170 simulated prices, 170 Singapore, 91 single currencies, ICU, 60–1 slave trade, 28 SMEs (small and medium-sized enterprises), 186 social welfare, 12 solidarity (asabiyyah), 33–4 South East Asia, 91; financial crisis, 190, 191–5, 213; industrialization, 86, 87 South Korea see Korea sovereign debt crisis, 205 Soviet Union: Africa, 79; disintegration, 201; Marshall Plan, 72–3; Marxism, 181, 182; relations with the US, 71 SPV (Special Purpose Vehicle), 174 see also EFSF stagflation, 97 stagnation, 37 Stalin, Joseph, 72–3 steel production, in Germany, 70 Strauss-Kahn, Dominique, 60, 254, 255 Summers, Larry, 230 strikes, 40 sub-prime mortgages, 2, 5, 6, 130–1, 147, 149, 151, 166 success, paradox of, 33–5, 53 Suez Canal trauma, 69 Suharto, President of Indonesia, 97 Summers, Larry, 3, 132, 170, 173, 180 see also Geithner–Summers Plan supply and demand, 11 surpluses: under capitalism, 31–2; currency unions, 61; under feudalism, 30; generation in the EU, 196; manufacturing, 30; origin of, 26–7; privatization of, 29; recycling mechanisms, 64–5, 109–10 Sweden, Crash of 2008, 155 Sweezy, Paul, 73 Switzerland: Crash of 2008, 155; UBS, 148–9, 151 systemic failure, Crash of 2008, 17–19 Taiwan, 191, 192 Tea Party (US), 162, 230, 231, 281 technology, and globalization, 28 Thailand, 91 Thatcher, Margaret, 117–18, 136–7 Third World: Crash of 2008, 162; debt crisis, 108, 219; interest rate rises, 108; mineral wealth, 106; production of goods for Walmart, 125 tiger economies, 87 see also South East Asia Tillman Act (1907), 180 time, and economic models, 139–40 Time Warner, 117 tin, prices, 96 toxic theory, 13–17, 115, 133–9, 139–42 trade: balance of, 61, 62, 64–5; deficits (US), 111, 243; global, 27, 90; surpluses, 158 trades unions, 124, 137, 202 transfer unions, New Deal, 65 Treasury Bills (US), 7 Treaty of Rome, 237 Treaty of Versailles, 237 Treaty of Westphalia, 237 trickle-down, 115, 135 trickle-up, 135 Truman Doctrine, 71, 71–2, 77 Truman, Harry, 73 tsunami, effects of, 194 UBS, 148–9, 151 Ukraine, and the Crash of 2008, 156 UN Security Council, 253 unemployment: Britain, 160; Global Plan, 96–7; rate of, 14; US, 152, 158, 164 United States see US Unocal, 106 US economy, twin deficits, 22–3, 25 US government, and South East Asia, 192 US Mortgage Bankers Association, 161 US Supreme Court, 180 US Treasury, 153–4, 156, 157, 159; aftermath of the Crash of 2008, 160; Geithner–Summers Plan, 171–2, 173; bonds, 227 US Treasury Bills, 109 US (United States): aftermath of the Crash of 2008, 161–2; assets owned by foreign state institutions, 216; attitude towards oil price rises, 97–8; China, 213–14; corporate bond purchases, 228; as a creditor nation, 57; domestic policies during the Global Plan, 82–5; economy at present, 184; economy praised, 113–14; effects of the Crash of 2008, 2, 183; foreign-owned assets, 225; Greek Civil War, 71; labour costs, 105; Plaza Accord, 188; profit rates, 106; proposed invasion of Afghanistan, 106–7; role in the ECSC, 75; South East Asia, 192 value, costing, 50–1 VAT, reduced, 156 Venezuela, oil prices, 97 Vietnamese War, 86, 91–2 vital spaces, 192, 195, 196 Volcker, Paul: 2009 address to Wall Street, 122; demand for dollars, 102; and gold convertibility, 94; interest rate rises, 99; replaced by Greenspan, 10; warning of the Crash of 2008, 144–5; on the world economy, 22, 100–1, 139 Volcker Rule, 180–1 Wachowski, Larry and Andy, 50 wage share, 34–5 wages: British workers, 137; Japanese workers, 185; productivity, 104; prophecy paradox, 48; US workers, 124, 161 Wal-Mart: The High Cost of Low Price (documentary, Greenwald), 125–6 Wall Street: Anglo-Celtic model, 12; Crash of 2008, 11–12, 152; current importance, 251; Geithner–Summers Plan, 178; global profits, 23; misplaced confidence in, 41; private money, 136; profiting from sub-prime mortgages, 131; takeovers and mergers, 115–17, 115, 118–19; toxic theory, 15 Wallace, Harry, 72–3 Walmart, 115, 123–7, 126; current importance, 251 War of the Currents, 39 Washington Mutual, 153 weapons of mass destruction, 27 West Germany: labour costs, 105; Plaza Accord, 188 Westinghouse, George, 39 White, Harry Dexter, 59, 70, 109 Wikileaks, 212 wool, as a global commodity, 28 working class: in Britain, 136; development of, 28 working conditions, at Walmart, 124–5 World Bank, 253; origins, 59; recession prediction, 149; and South East Asia, 192 World Trade Organization, 78, 215 written word, 27 yen, value against dollar, 96, 188, 193–4 Yom Kippur War, 96 zombie banks, 190–1

September – The obvious unwillingness of the banks to lend to one another is revealed when the rate at which they do this lending (the LIBOR, short for the London Interbank Offered Rate) exceeds the Bank of England’s rate by more than 1 per cent (for the first time since the South East Asian crisis of 1998). At that point, we witness the first run on a bank since 1929. The bank in question is Northern Rock. While it holds no CDOs or sub-prime mortgage accounts, the bank relies heavily on short-term loans from other banks. When this source of credit dries up, it can no longer meet its liquidity needs. When customers suspect this, they try to withdraw their money, at which point the bank collapses, before being brought back to ‘life’ by the Bank of England at a cost in excess of £15 billion. Rocked by this development, Bernanke drops US interest rates by another small amount, to 4.75 per cent, while the Bank of England pumps £10 billion worth of liquidity into the City of London.

It was served up when Lehman Brothers failed in September 2008 – its mountainous CDOs were mostly insured by AIG (which had issued CDSs against Lehman’s CDOs). February – The Fed lets it be known that it is worried about the insurance sector, while the G7 (the representatives of the seven leading developed countries) forecast the cost of the sub-prime crisis to be in the region of $400 billion. Meanwhile the British government is forced to nationalize Northern Rock. Wall Street’s fifth-largest bank, Bear Stearns (which in 2007 was valued at $20 billion) is wiped out, absorbed by JPMorgan Chase, which pays the paltry sum of $240 million for it, with the taxpayer throwing in a subsidy in the order of $30 billion. April – It is reported that more than 20 per cent of mortgage ‘products’ in Britain are being withdrawn from the market, along with the option of taking out a 100 per cent mortgage.


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The Verdict: Did Labour Change Britain? by Polly Toynbee, David Walker

banking crisis, Big bang: deregulation of the City of London, Bob Geldof, Boris Johnson, call centre, central bank independence, congestion charging, Corn Laws, Credit Default Swap, decarbonisation, deglobalization, deindustrialization, Etonian, failed state, first-past-the-post, Frank Gehry, gender pay gap, Gini coefficient, high net worth, hiring and firing, illegal immigration, income inequality, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, labour market flexibility, market bubble, mass immigration, millennium bug, moral panic, North Sea oil, Northern Rock, offshore financial centre, pension reform, plutocrats, Plutocrats, Ponzi scheme, profit maximization, purchasing power parity, Right to Buy, shareholder value, Skype, smart meter, stem cell, The Spirit Level, too big to fail, University of East Anglia, working-age population, Y2K

Labour’s third election took place in the shadow of Iraq and as the great boom was cresting. Public spending gushed, private debt spiralled, house prices skyrocketed; the UK economy was becoming lopsided. With ‘fewer children and pensioners living in hardship’, we wrote in Better or Worse? (2005), ‘Blair’s era was a better time to be British than for many decades’. But that era came to a precipitate end as the crowds milled outside Northern Rock in the autumn of 2007. How little, it now seems, was entrenched. How little political effort was put into changing public attitudes to recognize that generous public services required generous levels of tax. Labour never began the national discussion about what it was costing to improve public services. They failed to adjust taxation at a time of boom, to make tax fairer, to match the proceeds from income with those from wealth, to calibrate (with fairness in mind) direct and indirect charges.

It’s the same with schools and the police – if only people would take a hard look at how good they are, instead of relying on the odd negative story exaggerated in the media.’ As for Labour’s NHS reorganizations. ‘Going in a circle? No, I’d say three or four times round in a circle.’ If she stays on during the Con-Lib era, she will have more circuits to do. CHAPTER 3 The economy under Labour ‘I just want my money out,’ Thea Hardy from Crystal Palace told reporters as she joined a shuffling, angry queue outside a Northern Rock branch, showing how formerly phlegmatic Britain could panic with the best of them. The day the good times ended was 14 September 2007. The subsequent recession caused UK national output to fall 5 per cent, a larger cumulative loss of output than in any other post-war recession. Labour went from impresario of capitalist prosperity to doughty Keynesian mobilizing the state to fill capitalism’s deficiencies.

The merger tide swallowed Higgs’s company and it went bust along with the rest of RBS.) Government reforms were self-defeating. The remuneration committees it had insisted on became a means of further inflating top pay. A new shape for boards did not lead to better behaviour. Labour tried to strengthen the arm of dissident shareholders, giving them extra rights to push and probe. However, the Northern Rock board reached the end of the worst year in its history, nationalization pending, by paying its chief executive a salary of £760,000 pro rata till he departed, plus a bonus of £660,000. So much for shareholder power. Evidence piled up that mergers and acquisitions did not secure prosperity, either for workers affected, or in aggregate. Ger many and Japan did not allow takeovers in the British style yet they kept exporting and manufacturing.


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DIY Investor: How to Take Control of Your Investments & Plan for a Financially Secure Future by Andy Bell

asset allocation, bank run, buy and hold, collapse of Lehman Brothers, credit crunch, diversification, diversified portfolio, estate planning, eurozone crisis, fixed income, high net worth, hiring and firing, Isaac Newton, Kickstarter, lateral thinking, money market fund, Northern Rock, passive investing, place-making, quantitative easing, selection bias, short selling, South Sea Bubble, technology bubble, transaction costs, Vanguard fund

And if your PIBS have a call date then there is always the risk that the issuing building society will buy them back at face value when that date comes around. When PIBS go wrong When many PIBS were launched back in the early 1990s, a number of investors assumed they were as rock-solid as the building societies that issued them. Unfortunately for those who bought PIBS from Northern Rock and Bradford & Bingley, they were. The interest rates offered were huge. Northern Rock issued PIBS paying 12.6 per cent a year, while Bradford & Bingley issued PIBS paying 13 per cent and 11.6 per cent. To be fair, interest rates were considerably higher back then than they are today, and rates like this were not uncommon. Both of these lenders’ PIBS were converted to PSBs when each of the building societies demutualised. But when the financial crisis hit and both institutions went bust, income payments ceased immediately and it was to be several more years until both sets of PIBS-holders were offered a payout of around 30p in the pound on their original investment.

Banks and building societies that count as one: Barclays, Standard Life Cash Savings. Co-op Bank, Smile, Britannia. Coventry Building Society, Stroud & Swindon. Halifax, Bank of Scotland, Intelligent Finance, Birmingham Midshires, AA, Saga. HSBC, First Direct. Lloyds TSB, Cheltenham & Gloucester. Nationwide, Cheshire, Derbyshire, Dunfermline Building Societies. Santander, Cahoot. Virgin Money, Northern Rock. Yorkshire Bank, Clydesdale Bank. Yorkshire, Barnsley, Chelsea, Norwich & Peterborough Building Societies, Egg. Overseas banks Banks based within the European Union have a similar level of investor protection – 100,000. But beware of banks that are not based in the EU as they do not have the same level of investor protection, as investors found out the hard way when banks based in Iceland and the Isle of Man collapsed in 2008.

For full details of the top ethical funds on the market, including their ethical policies and company-filtering techniques, go to www.fairinvestment.co.uk/investing_in_ethical_funds.aspx. Investment strategies to be avoided Buying shares that have fallen a long way on the belief that ‘surely they will bounce back’ There is no guarantee they will, and in all likelihood the company is on the way out. It happened to a friend, who bought £10,000-worth of Northern Rock in 2008 when their shares were at 75p, having been over 1200p a year earlier. A few months later his money had gone forever. Short-term plays on the Footsie Again, just because the FTSE 100 has fallen two days in a row doesn’t mean it will bounce back the next. You may say, ‘Yes it does, that happened yesterday’. But that is no guarantee it will happen tomorrow. If someone has told you a sure-fire system for the FTSE, or any other index for that matter, don’t believe them.


pages: 523 words: 111,615

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

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

. ∞ Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 CONTENTS Overview PART ONE: CHALLENGES ONE Happiness TWO Nature THREE Posterity FOUR Fairness FIVE Trust PART TWO: OBSTACLES SIX Measurement SEVEN Values EIGHT Institutions PART THREE: MANIFESTO NINE The Manifesto of Enough Acknowledgments Notes References Illustration Credits Index The Economics of Enough OVERVIEW In mid-september 2007 my sister phoned me to ask whether she should withdraw her savings from the bank and put the money somewhere else—and if so, where would be safe. She was with Northern Rock, and there was an old-fashioned run on the bank. It was unable to meet customers’ demand for withdrawals and had to ask the Bank of England to lend it the cash. The television news showed lines of anxious depositors hoping to take out all their funds. It was the first full-fledged bank run in living memory in the United Kingdom. I told her that the government would bail out all the depositors, as it would be political suicide to do anything else. My sister ignored my advice (although it ultimately turned out to be right) and joined the line outside her local branch. As for Northern Rock, it had to be taken over by the British government. A year later, in September 2008, the investment bank Lehman Brothers collapsed.

At the peak of its might in 1999, it had a market valuation of $150 billion and reported annual revenues of $39 billion. By 2002 it was almost worthless and the assets it held were sold to other companies. These are the biggest corporate and financial collapses of recent times but there have been others. They have included long-established and respected names and have occurred in Europe and elsewhere—Parmalat in Italy, Northern Rock and Royal Bank of Scotland in the United Kingdom, Satyam in India. Enron was a relatively new creation but many other companies that vanished in recent times were formed in the nineteenth century or even earlier. These recent examples were destroyed by the dynamite of innovative financial transactions, which were powerfully destructive, especially when used with criminal intent to defraud. In other recent bankruptcies, deliberate fraud may have been absent but the destructive effect of complex derivatives was similar.

Courtesy of Shutterstock. 259 INDEX Addams, Jane, 131 AEG Live, 197 Affluent Society, The (Galbraith), 190, 230–31 aging population: baby boom generation and, 4, 106, 109; demographic implosion and, 95–100; measurement and, 206; policy recommendations for, 267, 280, 287, 296; posterity and, 89–90, 94–95, 105–6, 109, 112–13; retirement age and, 94, 97–99, 106–7, 112 Alesina, Alberto, 128, 135–36, 171 All Consuming: How Shopping Got Us into This Mess and How We Can Find Our Way Out (Lawson), 26 altruism, 48, 118–22 André, Carl, 27 anomie, 48, 51 anxiety, 1, 25, 47–48, 136–38, 149, 174 Aristotle, 50 Arrow, Kenneth, 81–82, 220, 236–37, 310n25 Arthur Anderson, 145 asymmetric information, 17; institutions and, 248, 254, 262–63; measurement and, 186; values and, 214, 219–20, 229 Australia, 12, 271; Bureau of Statistics and, 274; diversity and, 172; fairness and, 126, 130, 143; measurement and, 188, 202, 206–7; time surveys and, 206–8; trust and, 140 Austria, 239 Axelrod, Robert, 118–19 baby boom generation, 4, 106, 109 bailouts: banks and, 1, 88, 91, 99–100, 145, 267; stimulus packages and, 91, 100–3, 111 Bank of England, 1–2, 174 bankruptcy, 289; Lehman Brothers and, 1, 85, 87–88, 145, 211, 275–76; Northern Rock and, 1, 146; posterity and, 87; trust and, 145–46 banks, 2; bailouts and, 1, 88, 91, 99–100, 145, 267; Baker on, 244; bonus culture of, 87–88, 115, 139, 143–44, 193, 221, 223, 277–78, 295; capital reduction and, 256; competition and, 277; Economy of Enough and, 22, 28; fairness and, 115, 133, 139, 143–44; flaunting of wealth by, 277; Gilded Age of, 144; greed and, 277–78; higher capital requirements for, 277; immorality of, 90, 277–78; interconnected network of, 277–78; interest rates and, 281, 283; lobbyists of, 87–88, 276; measurement and, 193, 200; needed policy recommendations for, 277–78; politicians and, 87–88, 286; posterity issues and, 85–91, 94, 99–102; recovery and, 3, 103; reform and, 277–79, 283, 296; regulation of, 7; runs on, 1; state–owned, 252; structural fragility of, 6; trust and, 88–89, 145–50, 158, 161–64, 174, 176, 257; values and, 211, 213, 217, 223, 226–28, 233 “Battle for Seattle” riot, 211 Baumol, William, 189–94, 206–7 BBC, 226, 247, 288 behavioral economics, 282; fairness and, 116–17, 121; rational choice theory and, 214–15.


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

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

Soon a horde of account holders are doing the same, forcing the bank to suspend payments. Mr Banks is duly sacked, prompting the tragic lament that he has been ‘brought to wrack and ruin in his prime’. These words might legitimately have been echoed by Adam Applegarth, the former chief executive of the English bank Northern Rock, who suffered a similar fate in September 2007 as customers queued outside his bank’s branches to withdraw their cash. This followed the announcement that Northern Rock had requested a ‘liquidity support facility’ from the Bank of England. The financial crisis that struck the Western world in the summer of 2007 provided a timely reminder of one of the perennial truths of financial history. Sooner or later every bubble bursts. Sooner or later the bearish sellers outnumber the bullish buyers.

The liquidity crisis that some commentators had been warning about for at least a year struck in August 2007, when American Home Mortgage filed for bankruptcy, BNP Paribas suspended three mortgage investment funds and Countrywide Financial drew down its entire $11 billion credit line. What scarcely anyone had anticipated was that defaults on subprime mortgages by low-income households in cities like Detroit and Memphis could unleash so much financial havoc:aw one bank (Northern Rock) nationalized; another (Bear Stearns) sold off cheaply to a competitor in a deal underwritten by the Fed; numerous hedge funds wound up; ‘write-downs’ by banks amounting to at least $318 billion; total anticipated losses in excess of one trillion dollars. The subprime butterfly had flapped its wings and triggered a global hurricane. Among the many ironies of the crisis is that it could ultimately deal a fatal blow to the government-sponsored mother of the property-owning democracy: Fannie Mae.63 One consequence of government policy has been to increase the proportion of mortgages held by Fannie Mae and her younger siblings Freddie and Ginnie, while at the same time reducing the importance of the original government guarantees that were once a key component of the system.

The cooperative banking sector has seen the most change in recent years, with high levels of consolidation (especially following the Savings and Loans crisis of the 1980s), and most institutions moving to shareholder ownership. But the only species that is now close to extinction in the developed world is the state-owned bank, as privatization has swept the world (though the nationalization of Northern Rock suggests the species could make a come-back). In other respects, the story is one of speciation, the proliferation of new types of financial institution, which is just what we would expect in a truly evolutionary system. Many new ‘mono-line’ financial services firms have emerged, especially in consumer finance (for example, Capital One). A number of new ‘boutiques’ now exist to cater to the private banking market.


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The New Economics: A Bigger Picture by David Boyle, Andrew Simms

Asian financial crisis, back-to-the-land, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, capital controls, carbon footprint, clean water, collateralized debt obligation, colonial rule, Community Supported Agriculture, congestion charging, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, deskilling, en.wikipedia.org, energy transition, financial deregulation, financial exclusion, financial innovation, full employment, garden city movement, happiness index / gross national happiness, if you build it, they will come, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Kickstarter, land reform, light touch regulation, loss aversion, mega-rich, microcredit, Mikhail Gorbachev, mortgage debt, neoliberal agenda, new economy, North Sea oil, Northern Rock, offshore financial centre, oil shock, peak oil, pensions crisis, profit motive, purchasing power parity, quantitative easing, Ronald Reagan, seigniorage, Simon Kuznets, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trickle-down economics, Vilfredo Pareto, Washington Consensus, wealth creators, working-age population

They could all rely on safe loans being in the package, but it also meant they could also rely on unsafe sub-prime loans being in there as well, and, as the default rate began to rise, that rendered them of doubtful and uncertain value. By July 2007, Standard & Poor was threatening to cut its ratings on $12 billion of sub-prime debt. A month later, the European Central Bank was pumping €95 billion into the money markets, as the flow of interbank lending, which banks need to deal with day-to-day withdrawals while their deposits are out on loan, all but dried up. A month after that, reports that Northern Rock was looking for emergency financial support from the Bank of England led to the first run on a British bank for over a century, with the alien sight of savers queuing for hours in the rain outside branches. Since then, as we know, the crisis accelerated until most of the investment banks on Wall Street had disappeared, and – spurred by the bankruptcy of Lehman Brothers – most of the banks in Europe and North America were forced to accept state bail outs and partial state control, or went cap in hand to the sovereign wealth funds in the Middle East, to avoid bankruptcy.

A truly resilient financial system has a multitude of financial actors, making diverse investments and taking different kinds of risks so that if one is hit by crisis, the others aren’t dragged down with it. It is no accident that the safest UK bank according to its safe financial reserves (so-called Tier 1 capital) is the Nationwide – a mutually owned building society. The government is set to own great swathes of our APPENDICES 163 financial system: Northern Rock, RBS, Lloyds TSB, HBOS. It should take the chance to demerge these behemoths that grew so complicated that they couldn’t keep track of our money or their own money. A rich, diverse ecology of different economic systems is needed, not a banking monoculture of giant actors which, when they topple, threaten us all. 2 Segregate financial markets – by separating activities such as trading and retail banking A central plank of the process of financial de-regulation has been the removal of restrictions on what activities different institutions can undertake.

(John Kenneth) 41, 51 gambling 14–15, 152 Gandhi, Mohandas (Mahatma) 18, 19, 21, 110, 112 Gates, Bill 141 Gates, Jeff 141–2 GDP (gross domestic product) 10, 32, 36–40, 42, 43, 54, 79 alternatives to 40–2, 43 bad measure of success 10, 37, 55, 78 INDEX global 141 UK 4 see also growth genetically modified crops see GM crops Germany 33, 50, 58 Gladwell, Malcolm 68 Global Barter Clubs 57, 58 global commons 113, 148 global currencies 56, 61, 120, 147–8 global greenback 61 global warming 3, 3–4, 115, 155 see also climate change globalization 8, 28, 143, 153 see also interdependence GM (genetically modified) crops 91, 117, 119, 140–1 Goetz, Stephan 124 gold standard 8, 143 Good Life, The (BBC sitcom) 69 goods, local 19, 109, 110 Goodwin, Fred 142 government borrowing 37–8, 49–50, 58, 62, 141 governments 2, 28, 116, 129, 158 creating money 58–9, 62, 90 propping up banking system 6, 7 Graham, Benjamin 120 Grameen Bank 26, 143–4, 153 Great Barrington (Massachusetts) 57, 151–2, 153 Great Depression 3, 36, 57 green bonds 157 green collar jobs 106, 157 Green Consumer Guide, The (Elkington and Hailes, 1988) 26, 69, 72 green economics 23, 100, 117 green energy 26, 97, 102–3, 114, 156, 157 Green New Deal 156–8 green taxation 153 greenhouse gas emissions 3–4, 115, 148 gross domestic product see GDP Gross National Happiness 43 growth 2, 11, 12–13, 23, 36–7, 38–40, 42, 43 185 bad measure of success 10, 158 maximizing 25 and poverty 4, 39–40, 81–2 and progress 39, 78 wealth defined in terms of 32 and well-being 4–5 see also GDP guilds 80, 80–1 happiness 12, 18, 29, 41, 43, 45–6 Happy Planet Index 32–3, 34, 43 Hard Times (Dickens, 1854) 36 HBOS 7 health 46, 72, 78, 96, 115, 129 health costs 117 healthcare 13, 33, 44 hedge funds 5, 7, 97, 120 Helsinki (Finland) 102 HIV/AIDS 70, 111, 135, 148 Honduras 139, 141 house prices 36, 46, 79, 83, 91, 126–7, 151 London 53, 54, 91 see also mortgages Howard, Ebenezer 105, 158 HSBC 5 human interaction 67–8, 74 human needs 20, 24, 67, 86 human rights 110–11, 116, 147 ill-health 35, 38, 46 ‘illth’ 29, 35 IMF (International Monetary Fund) 27, 82, 91, 135–6, 139, 143, 147, 147–8 incomes 24, 37, 43, 44, 78, 79, 81 and happiness 45–6 inequalities 37, 81, 82, 142 of poorest 4, 81, 82, 112, 142 Index of Sustainable Economic Welfare see ISEW India 82, 91, 110, 119, 136, 139–40, 153 indigenous knowledge 82, 117 inequality 4, 81–2, 96, 112–13, 116 inflation 8, 22, 58, 90 information technology 58, 59, 115 186 THE NEW ECONOMICS intellectual property 82, 91, 110, 113, 116, 117 interdependence 111–20, 135–8 Keynes on 19, 109, 110, 115, 143 see also globalization interest 8, 11, 11–12, 58, 77, 157 interest rates 144, 144–5 interest-free money 43, 73, 84, 90 intergenerational equity 25, 117 international bankruptcy 147 International Monetary Fund see IMF investment 14, 45, 53, 60, 104, 118, 137–8 ethical 26, 69–70, 74, 154 involvement 71, 75, 128–30 Iraq 49, 60, 136 ISEW (Index of Sustainable Economic Welfare) 40–1, 43, 78 Islamic banking 58, 90, 146 islands, small 31–2, 33–4 Italy 33, 119–20, 138 Ithaca hours currency 57, 58 It’s a Wonderful Life (film, Capra, 1946) 38 Jacobs, Jane 56, 110, 126 Jaffe, Bernie 126 Japan 26, 50, 91, 113, 119, 128 Jefferson, Thomas 18, 20 Jersey 52, 53 Jones, Allan 103 Jubilee Debt campaign 137 junk bonds 1, 142–3 just-in-time 123–4, 155 Keynes, John Maynard 2, 13–14, 15, 17, 21, 37, 55 on interdependence 19, 109, 110, 115, 143 international currency 61, 120 on local production 19, 109, 110 on ‘practical men’ as ‘slaves of some defunct economist’ 10, 35, 67, 87, 159 Keynesian economics 8, 18, 22, 27, 28 Kinney, Jill 130 Knowsley (Merseyside) 104 Kropotkin, Peter 18 Krugman, Paul 52 land 19, 82, 96 land tax 43 landfill 97, 98, 100, 107 Layard, Richard 41 Lehigh Hospital (Pennsylvania) 129 Letchworth Garden City (Hertfordshire) 105 lets (local exchange and trading systems) 57 liberalism 18, 19, 27 Lietaer, Bernard 56, 61, 120 life 19, 29, 55, 69, 86, 91 need for meaning 42, 75 life expectancy 31, 32–3, 82 life poverty 82–3 life satisfaction 31, 33, 41, 42 Lima (Peru) 130–1 Linton, Michael 57, 58 Living Economy, The (Ekins, 1986) 24–5 LM3 (Local Money 3) 60, 104–5 loans see debt Local Alchemy programme 152–3 local circulation of money 103–5, 107, 124, 151–2 local currencies 26, 56, 57, 58, 59, 60, 151–2, 153 local economies 26, 81, 85, 86, 105–7, 118, 124, 133 local exchange and trading systems (lets) 57 local food 2, 118, 119–20, 151 local governments 6, 44, 60 local life 4, 81, 158 Local Money 3 see LM3 local production 109, 116, 118 local savings schemes 61 local shops 75, 82–3, 104, 124, 124–5, 126, 151 supermarkets and 80, 105, 125 local wealth 14, 53–4 localization 155–6, 159 London 52, 53, 61, 97, 102, 103 house prices 53, 54, 91 traffic speed 65–6 INDEX London Underground 147 Lutzenberger, Jose 26 Macmillan Cancer Care 88–9 McRobie, George 22, 24 mainstream 4–5, 26, 154, 159–60 see also economics Malawi 135–6, 137 Malaysia 51 Manchester United 155 manipulated debt 139–41 markets 10, 12, 51, 70, 158 financial 1–2, 52, 53, 55, 138, 154–5 free 22, 85, 112–13 new economics and 67, 72–5, 85 Marsh Farm estate (Luton) 104–5, 152–3 Maslow, Abraham 67 materialism 12, 46–7 Max-Neef, Manfred 24 Maxwell, Robert 143 MDGs (Millennium Development Goals) 39, 136 Mead, Margaret 129 meaning, need for 42, 75 measurement problem 36–40 measuring 12, 42, 55, 85 success 2, 8, 10, 43, 44, 55, 154, 156, 158 value 10, 15, 29, 53, 59, 115 wealth 32, 37–40, 53–4 well-being 4, 18, 32–3, 34, 43 mechanics, Cuban 95–6, 97 medieval economics 78–80, 80–1 mega-rich 120, 141, 142 mental health 4, 35, 36, 46, 68, 83 Merck 99 micro-credit 26, 143–4, 145, 146, 151, 153 Milkin, Michael 142 Millennium Development Goals see MDGs minimum wage 92 misery, of UK young people 35–6 Mishan, E.J. 40 Mogridge, Martin 65–6, 74 Mondragon (Spain), cooperatives 153 money 8, 11, 13, 18, 27, 29, 36, 95 187 as a bad measure 10, 15, 18, 53, 59, 90, 143, 154 creating 7, 56–7, 58–9, 84, 90, 120, 138, 147 designed for money markets 53 economics and 25, 127 externalities 35 and life 55, 86, 154, 159 local circulation 103–5, 107, 124, 151–2 means to an end 15 new economics view 15, 59–60, 89 new ways of organizing 56–60 re-using 103–5 replacing with well-being 42 slowing down 51–2, 60 too little 57 types of 14–15, 57, 59, 120 and value 10, 15, 53, 59 and wealth 15, 19, 32, 38, 78 and well-being 18, 21, 81 see also GDP; growth; price; trickle down money flows 26, 50–2, 60, 103–5, 107, 124, 136–8 money markets 1–2, 52, 53, 55, 138, 154–5 money poverty 81–2 money system 7–8, 50–6, 60 monopolies 8, 20, 83, 84–6, 89–90, 125–6, 133, 146 Monsanto 85, 140 moral philosophy 12, 19, 72–3 morality 8, 18, 28, 74, 115 economics and 12, 19, 22 Morris, William 18, 78, 151 mortgages 1, 4, 5–6, 6, 7, 46, 91 working to pay 46, 68, 73, 77–8, 79, 81, 83, 84, 89, 126–7, 140 see also house prices motivations 4–5, 11, 67–9, 70, 71, 72, 73, 75 multinationals 14, 61, 84–5, 90, 137–8, 139, 143 multiple currencies 58, 59–60, 60, 90 multiplier effect 103–5 Murdoch, Rupert 52 188 THE NEW ECONOMICS Myers, Norman 117 Nanumaea (Tuvalu) 34 national accounting 37–8, 38–9 national debt 49–50, 83, 84, 139, 141 national grid 102, 106 National Health Service see NHS natural capital 3, 99 natural resources 22, 40, 43, 84, 97–8 needs 20, 24, 25, 67, 75, 86 basic 25, 89, 91–2, 115 nef (the new economics foundation) 24, 26, 45, 71, 104, 131–2, 145 Local Alchemy programme 152–3 see also Happy Planet Index; LM3 ‘neo-liberal’ policies 8, 27–8 Nether Wallop (Hampshire) 80, 81 The Netherlands 58, 106, 138 New Century 5 New Deal for Communities 152 New Deal (US) 157 new economics 2–3, 9–10, 18–19, 28–9, 59, 153–4, 159–60 Cuba as object lesson 96–7 history of 9–10, 18–19, 21–7 and the mainstream 26 as new definition of wealth 15 principles 35, 157–8 new economics foundation see nef New York City 52, 128 News Corporation 52 NHS (National Health Service) 87, 114, 131 Northern Rock 6 Nottingham 35 Nu-Spaarpas experiment 106 Obama, Barack 154, 157 obsolescence, built-in 98, 100, 101 odious debt 146 offshore assets 136–7 offshore financial centres 52–3, 61 oil 3, 96, 115, 117, 155 Oil Legacy Fund 157 orchards 111, 112, 115, 124 organic food 26 Ostrom, Elinor 127 out-of-town retailing 75, 80, 123, 132 overconsumption 32, 40, 44, 113 Owen, Robert 57 ownership 11, 46, 60, 91, 118, 156 paid work 87–9, 92 palm oil 112 Partners in Health 130–1 peak oil 3, 96, 117, 155 Pearce, David 25–6, 98, 115 Peasants’ Revolt (1381) 18 pensions 7, 44, 61, 73, 155 people, as assets 15, 57–8, 128–9, 130, 131 permit trading 45, 117–18, 148 personal carbon allowances 45, 117–18 personal debt 7, 36, 83–4, 91, 140, 141 Petrini, Carlo 119–20 Pettifor, Ann 135, 137 philanthropy 130, 133 policy makers 28, 35, 73, 87, 90 assumptions of 67, 68, 73, 128 Keynes on 10, 35, 67, 87, 159 political agenda 42–7 politicians 11, 54, 159 politics, new 159 pollution 10, 35, 37, 40, 98, 112, 114 by GM genes 91, 117, 119 poor 29, 145–6 Porritt, Jonathon 23 post-autistic economics 9–10, 71–2 poverty 4, 23, 35, 79–80, 81–2, 127 economic system and 13–14, 18, 29, 81–2, 154 interdependence leading to 111–15 reduction 39–40, 51–2, 61, 116, 124–5 poverty gap 4, 52–3, 78, 82 power 10, 12, 25, 28, 53, 141–2 corporate 20, 28, 85 monopoly power 83, 89–90, 125–6, 146 power relationships 29, 114 price 10, 67, 72, 73, 115, 153 Price, Andrew 132 INDEX prices 80, 156, 158 Pritchard, Alison 23 product life cycle 97–8, 101 professionals 130, 132, 133, 159 profits 12, 13, 99 progress 36, 37–8, 39, 43, 44, 77–8, 81–2, 84 Proudhon, Pierre-Joseph 120 psychology, economics and 67–8, 71, 72–3 public goods 148 public sector commissioning 131–2, 133 public services 45, 74, 127–32, 158 public transport 66, 74 ‘purchasing power parity’ 81 Putnam, Robert 126–7, 127–8 189 retirement 46, 73 see also pensions rewarded work 88 rewards 7, 8, 11, 25, 92, 141, 142 roads 66, 115 Robertson, James 17, 22, 23, 55, 145 Rockefeller, John D. 28 Roman Catholic church 19, 21, 117 Roosevelt, Eleanor 96 Roosevelt, Franklin Delano 157 Rotterdam (The Netherlands) 106 rubbish 97–105 Rupasingha, Anil 124 Rushey Green surgery (London) 131 Ruskin, John 17–18, 18, 29, 35, 78, 81 Russia 110 qoin system 58 rainforests 4, 10, 111, 112 ‘rational man’ assumption 10, 71 RBS 142 re-use 97, 99, 100–5 Reagan, Ronald 22, 27 real money, generating 120 ‘real’ wealth 2, 32, 36–40 reciprocity 44, 128, 128–30, 133 see also co-production recycling 97, 98, 100–1, 105–6, 106–7 redistribution 19, 27, 52, 96 regeneration 27, 104, 105, 107, 116, 124, 128 regional currencies 58, 59, 60 regulation 129, 156 competition 85, 113, 125, 126, 133 financial sector 53, 85, 157 relationships 4, 69, 83, 128–30 remittances 137 Rendell, Matt 33 renewable energy 26, 97, 102, 102–3, 114, 156, 157 repair 97, 98, 101, 105, 107 resources 32, 43, 97–8, 99, 100–1, 114, 158 local 25, 115 natural 22, 40, 43, 84, 97–8 St Louis (Missouri) 131 Samoa 34 Sane (South African New Economics) 58 saving seeds 91, 117, 119, 141 savings 7, 46, 73, 90, 157 schools 131 Schor, Juliet 83 Schumacher, E.F.


pages: 726 words: 172,988

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

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

One example is the behavior of the London interbank offered rate (LIBOR), an index for the rates that London banks charge each other in unsecured borrowing and lending. Before August 2007, the difference between LIBOR and an interest rate for lending that was considered riskless was around 10 basis points (0.01 percent). On September 14, 2007, the day that the Bank of England announced emergency funding for Northern Rock, one of the largest mortgage lenders in the United Kingdom, the difference reached 85 basis points. The difference reached an all-time high (until then) of 108 basis points on December 6, 2007; another high of 83 basis points on March 17, 2008, after the collapse of Bear Stearns, and finally a record 365 basis points on October 10, 2008, after the turmoil caused by the Lehman bankruptcy. See Sengupta and Tam (2008), Acharya et al. (2010, 335–340), and FCIC (2011, 252).

Laux and Leuz (2009) and Barth and Landsman (2010) suggest that in 2008 the problem was due not so much to the use of fair-value accounting as to the reactions of banks, investors, and regulators to the results of applying these rules. Haldane (2011c) calls for a different accounting regime for banks. We further discuss the issues around the book and market value of banks in Chapter 6 and 7. 27. The problems of Germany’s Industriekreditbank and Sächsische Landesbank and the U.K.’s Northern Rock appeared as early as August 2007 (see Hellwig 2009). Over the twelve months that followed, the downward spiral in asset markets destroyed the solvency of many other highly indebted banks. 28. Briefly in this chapter, and more fully in Chapter 10, we discuss how money market funds developed and how they came to play such a key role in the interconnectedness of the system (see Fink 2008 and Goodfriend 2011). 29.

Securities and Exchange Commission (SEC) and that summarizes the performance of a public company, JPMorgan Chase had a total of loan-related commitments that amounted to $975 billion (note 29 of the report), of which only $1 billion appears on the balance sheet. In addition, it had guarantees and other commitments with a contractual amount of $316 billion, of which the amount carried onto the balance sheet was only $4 billion. 8. On Enron, see Healy and Palepu (2003) and McLean and Elkind (2004). 9. This was the case with Germany’s Industriekreditbank and Sächsische Landesbank and the United Kingdom’s Northern Rock (see Hellwig 2009). Thiemann (2012) discusses why supervisors let banks get away with these commitments. 10. See Brady et al. (2012). 11. The numbers are based on the 10-K form for 2011 (see note 7 above) that JPMorgan Chase filed with the SEC, particularly note 3 in the report (p. 189). Under the U.S. GAAP, the net derivative assets on the balance sheet are $92.5 billion. If JPMorgan Chase instead reports under IFRS, according to the International Swaps and Derivatives Association (ISDA) (2012), derivative receivables should be reported on a gross basis, with an asset balance of $1.884 trillion and a corresponding liability balance of $1.792 trillion.


pages: 476 words: 139,761

Kleptopia: How Dirty Money Is Conquering the World by Tom Burgis

active measures, Anton Chekhov, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Boris Johnson, British Empire, collapse of Lehman Brothers, coronavirus, corporate governance, COVID-19, Covid-19, credit crunch, Credit Default Swap, cryptocurrency, do-ocracy, Donald Trump, energy security, Etonian, failed state, Gordon Gekko, high net worth, Honoré de Balzac, illegal immigration, invisible hand, Julian Assange, liberal capitalism, light touch regulation, Mark Zuckerberg, Martin Wolf, Mikhail Gorbachev, Mohammed Bouazizi, Northern Rock, offshore financial centre, Right to Buy, Ronald Reagan, Skype, sovereign wealth fund, trade route, WikiLeaks

And there was something else, something deeper – Nigel sensed it faintly, with a shiver – connected somehow to what was happening to money: far away, the screams of the tortured, the silence of the dead. 2 A Feast Whitehall, February 2008 In February 2008, while it was just about still possible to pretend the crisis wasn’t happening, a tall, lean billionaire with a thin face and receding hair made his way to the Banqueting House on Whitehall. Around the corner, in Downing Street, the chancellor of the exchequer was nationalising a failed bank, Northern Rock. Here, as across the West, the bailout of the financial system had begun, a transfer of public wealth to private pockets that ranked in scale alongside the one that had made this and many other billionaires’ fortune the previous decade. Crisis was all around, but the chamber of rare beauty into which the oligarch now stepped was a place apart. It stood a half-hour walk along a bend in the Thames from the City, as it had since James I commanded from the architect Inigo Jones somewhere to indulge his love of masques, the lavish performances at which the royals could move among their subjects in disguise.

He did his work and filed his report. The decision went up to BSI’s bosses in Switzerland, who agreed that the London office could take them on. Nigel was kept apart from the bankers, in his own office. He was signing off on their requests to open accounts for clients and shift their money around the world but he had little idea who the clients were or where their money was coming from. Outside, the crisis was getting worse. Northern Rock showed you how it was going to go: the enormous losses bankers had run up while enriching themselves would be borne by the public. But Nigel noticed something else that was happening in parallel. The banks seemed to be splitting open, their tricks revealed for all to see. And yet, quietly, more and more money was going to ground. In late February 2008, Nigel read in The Times that half of all commercial properties in the UK no longer belonged to named human beings.

He knew that BSI’s London office had already received a private warning from the Financial Services Authority that it was conducting insufficient checks on the origins of its ‘high risk’ clients’ money. That was back in 2004, before he joined the bank. On September 11 he wrote to his bosses again, suggesting that he be kept on because he had worked at the City regulator, which ‘is being obliged to supervise firms more closely in the aftermath of Northern Rock and the credit crunch’. To no avail: after the Lehman weekend, Nigel’s boss wrote to him to confirm that he was being dismissed and that there was no job for him elsewhere at BSI. His last day would be a fortnight hence. Still Nigel did not relent. He explained that most of the bank’s London clients were using the same techniques – creating sham companies, avoiding paper trails – that had come to light in the UBS scandal.


pages: 369 words: 94,588

The Enigma of Capital: And the Crises of Capitalism by David Harvey

accounting loophole / creative accounting, anti-communist, Asian financial crisis, bank run, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, equal pay for equal work, European colonialism, failed state, financial innovation, Frank Gehry, full employment, global reserve currency, Google Earth, Guggenheim Bilbao, Gunnar Myrdal, illegal immigration, indoor plumbing, interest rate swap, invention of the steam engine, Jane Jacobs, joint-stock company, Joseph Schumpeter, Just-in-time delivery, land reform, liquidity trap, Long Term Capital Management, market bubble, means of production, megacity, microcredit, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Northern Rock, oil shale / tar sands, peak oil, Pearl River Delta, place-making, Ponzi scheme, precariat, reserve currency, Ronald Reagan, sharing economy, Silicon Valley, special drawing rights, special economic zone, statistical arbitrage, structural adjustment programs, the built environment, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, too big to fail, trickle-down economics, urban renewal, urban sprawl, white flight, women in the workforce

As the venerable ex-chair of the Federal Reserve, Paul Volcker (who five years earlier, along with several other knowledgeable commentators, had predicted financial calamity if the US government did not force the banking system to reform its ways) noted, never before had things gone downhill ‘quite so fast and quite so uniformly around the world’. The rest of the world, hitherto relatively immune (with the exception of the United Kingdom, where analogous problems in the housing market had earlier surfaced such that the government had been forced to nationalise a major lender, Northern Rock, early on), was dragged precipitously into the mire generated primarily by the US financial collapse. At the epicentre of the problem was the mountain of ‘toxic’ mortgage-backed securities held by banks or marketed to unsuspecting investors all around the world. Everyone had acted as if property prices could rise for ever. By autumn 2008, near-fatal tremors had already spread outwards from banking to the major holders of mortgage debt.

.: Limits to Growth 72 meat-based diets 73, 74 Medicare 28–9, 224 Mellon, Andrew 11, 98 mercantilism 206 merchant capitalists 40 mergers 49, 50 forced 261 Merrill Lynch 12 Merton, Robert 100 methane gas 73 Mexico debt crisis (1982) 10, 19 northern Miexico’s proximity to the US market 36 peso rescue 261 privatisation of telecommunications 29 and remittances 38 standard of living 10 Mexico City 243 microcredit schemes 145–6 microeconomics 237 microenterprises 145–6 microfinance schemes 145–6 Middle East, and oil issue 77, 170, 210 militarisation 170 ‘military-industrial complex’ 91 minorities: colonisation of urban neighbourhoods 247, 248 Mitterrand, François 198 modelling of markets 262 modernism 171 monarchy 249 monetarism 237 monetisation 244 money centralised money power 49–50, 52 a form of social power 43, 44 limitlessness of 43, 47 loss of confidence in the symbols/quality of money 114 universality of 106 monoculture 186 Monopolies Commission 52 monopolisation 43, 68, 95, 113, 116, 221 Monsanto 186 Montreal Protocol (1989) 76, 187 Morgan Stanley 19 Morishima, Michio 70 Morris, William 160 mortgages annual rate of change in US mortgage debt 7 mortgage finance for housing 170 mortgage-backed bonds futures 262 mortgage-backed securities 4, 262 secondary mortgage market 173, 174 securitisation of local 42 securitisation of mortgage debt 85 subprime 49, 174 Moses, Robert 169, 171, 177 MST (Brazil) 257 multiculturalism 131, 176, 231, 238, 258 Mumbai, India anti-Muslim riots (early 1990s) 247 redevelopment 178–9 municipal budgets 5 Museum of Modern Art, New York 21 Myrdal, Gunnar 196 N Nandigram, West Bengal 180 Napoleon III, Emperor 167, 168 national debt 48 National Economic Council (US) 11, 236 national-origin quotas 14 nationalisation 2, 4, 8, 224 nationalism 55–6, 143, 194, 204 NATO 203 natural gas 188 ‘natural limits’ 47 natural resources 30, 71 natural scarcity 72, 73, 78, 80, 83, 84, 121 nature and capital 88 ‘first nature’ 184 relation to 121, 122 ‘the revenge of nature’ 185 ‘second nature’ 184, 185, 187 as a social product 188 neocolonialism 208, 212 neoliberal counter-revolution 113 neoliberalism 10, 11, 19, 66, 131, 132, 141, 172, 175, 197, 208, 218, 224, 225, 233, 237, 243, 255 Nepal: communist rule in 226 Nevada, foreclosure wave in 1 New Deal 71 ‘new economy’ (1990s) 97 New Labour 45, 255 ‘new urbanism’ movement 175 New York City 11 September 2001 attacks 41 fiscal crisis (1975) 10, 172, 261 investment banks 19, 28 New York metropolitan region 169, 196 Nicaragua 189 Niger delta 251 non-governmental organisations (NGOs) 35, 253–4 non-interventionism 10 North Africa, French import of labour from 14 North America, settlement in 145 North American Free Trade Association (NAFTA) 200 Northern Ireland emergency 247 Northern Rock 2 Norway: Nordic cris (1992) 8 nuclear power 188 O Obama, Barack 11, 27, 34, 210 Obama administration 78, 121 O’Connor, Jim 77, 78 offshoring 131 Ogoni people 251 oil cheap 76–7 differential rent on oil wells 83 futures 83, 84 a non-renewable resource 82 ‘peak oil’ 38, 73, 78, 79, 80 prices 77–8, 80, 82–3, 261 and raw materials prices 6 rents 83 United States and 76–7, 79, 121, 170, 210, 261 OPEC (Organisation of Oil-Producing Countries) 83, 84 options markets currency 262 equity values 262 unregulated 99, 100 Orange County, California bankruptcy 100, 261 Organisation for Economic Cooperation and Development (OECD) 51 organisational change 98, 101 organisational forms 47, 101, 121, 127, 134, 238 Ottoman Empire 194 ‘over the counter’ trading 24, 25 overaccumulation crises 45 ozone hole 74 ozone layer 187 P Pakistan: US involvement 210 Palley, Thomas 236 Paris ‘the city of light’ 168 epicentre of 1968 confrontations 177, 243 Haussmann’s rebuilding of 49, 167–8, 169, 171, 176 municipal budget crashes (1868) 54 Paris Commune (1871) 168, 171, 176, 225, 243, 244 Partnoy, Frank: Ubfectious Greed 25 patents 221 patent laws 95 patriarchy 104 pensions pension funds 4, 5, 245 reneging on obligations 49 Péreire brothers 49, 54, 98, 174 pesticides 185, 186, 187 petty bourgeois 56 pharmaceutical sector 129, 245 philanthropy 44 Philippines: excessive urban development 8 Phillips, Kevin 206 Pinochet, General Augusto 15, 64 plant 58 Poland, lending to 19 political parties, radical 255–6 politics capitalist 76 class 62 co-revolutionary 241 commodified 219 depoliticised 219 energy 77 identity 131 labour organizing 255 left 255 transformative 207 pollution air 77 oceanic 74 rights 21 ‘Ponts et Chaussées’ organisation 92 Ponzi schemes 21, 114, 245, 246 pop music 245–6 Pope, Alexander 156 population growth 59, 72, 74, 121, 167 and capital accumulation 144–7 populism 55–6 portfolio insurance 262 poverty and capitalism 72 criminalisation and incarceration of the poor 15 feminisation of 15, 258 ‘Great Society’ anti-poverty programmes 32 Prague 243 prices commodity 37, 73 energy 78 food grain 79–80 land 8, 9, 182–3 oil 8, 28, 37–8, 77–8, 80, 82–3, 261 property 4, 182–3 raw material 37 reserve price 81–2 rising 73 share 7 primitive accumulation 58, 63–4, 108, 249 private consortia 50 private equity groups 50 private property and radical egalitarianism 233, 234 see also property markets; property rights; property values privatisation 10, 28, 29, 49, 251, 256, 257 pro-natal policies 59 production expansion of 112, 113 inadequate means of 47 investment in 114 liberating the concept 87 low-profit 29 offshore 16 production of urbanisation 87 reorganisation and relocation of 33 revolutionising of 89 surplus 45 technologies 101 productivity agreements 14, 60, 96 agricultural 119 cotton industry 67 gains 88, 89 Japan and West Germany 33 rising 96, 186 products development 95 innovation 95 new lines 94, 95 niches 94 profit squeeze 65, 66, 116 profitability constrains 30 falling 94, 131 of the financial sector 51 and wages 60 profits easy 15 excess 81, 90 falling 29, 72, 94, 116, 117 privatising 10 rates 70, 94, 101 realisation of 108 proletarianisation 60, 62 property markets crash in US and UK (1973–75) 8, 171–2, 261 overextension in 85 property market-led Nordic and Japanese bank crises 261 property-led crises (2007–10) 10, 261 real estate bubble 261 recession in UK (after 1987) 261 property rights 69, 81–2, 90, 122, 179, 198, 233, 244, 245 Property Share Price Index (UK) 7 property values 171, 181, 197, 248 prostitution 15 protectionism 31, 33, 43, 211 punctuated equilibrium theory of natural evolution 130 Putin, Vladimir 29, 80 Q Q’ing dynasty 194 quotas 16 R R&D (research and development) 92, 95–6 race issues 104 racism 61, 258 radical egalitarianism 230–34 railroads 42, 49, 191 Railwan, rise of (1970s) 35 rare earth metals 188 raw materials 6, 16, 37, 58, 77, 101, 113, 140, 144, 234 RBS 20 Reagan, Ronald 15, 64, 131, 141 Reagan-Thatcher counter revolution (early 1980s) 71 Reagan administration 1, 19 Reagan recession (1980–82) 60, 261 Real Estate Investment Trusts (US) 7 recession 1970s 171–2 language of 27 Reagan (1980–82) 60, 261 Red Brigade 254 reforestation 184 refrigeration 74 reinvestment 43, 45, 66–7, 110–12, 116 religious fundamentalism 203 religious issues 104 remittances 38, 140, 147 rentiers 40 rents differential rent 81, 82, 83 on intellectual property rights 221 land 182 monetisation of 48, 109 monopoly 51, 81–2, 83 oil 83 on patents 221 rising 181 reproduction schemas 70 Republican Party (US) 11, 141 reserve price 81 resource values 234 Ricardo, David 72, 94 risks, socialising 10 robbery 44 Robinson, Joan 238 robotisation 14, 136 Rockefeller, John D. 98 Rockefeller brothers 131 Rockefeller foundation 44, 186 Roman Empire 194 Roosevelt, Franklin D. 71 Rothschild family 98, 163 Royal Society 91, 156 royalties 40 Rubin, Robert 98 ‘rule of experts’ 99, 100–101 Russia bankruptcy (1998) 246, 261 capital flight crisis 261 defaults on its debt (1998) 6 oil and natural gas flow to Ukraine 68 oil production 6 oligarchs 29 see also Soviet Union S Saddam Hussein 210 Saint-Simon, Claude Henri de Rouvroy, Comte de 49 Saint-Simonians 87, 168 Salomon Brothers 24 Samuelson, Robert 235, 239 Sandino, Augusto 189 Sanford, Charles 98 satellites 156 savings 140 Scholes, Myron 100 Schumer, Charles 11 Schumpeter, Joseph 46 Seattle battle of (1999) 38, 227 general strike (1918) 243 software development in 195 Second World War 32, 168–70, 214 sectarianism 252 securitisation 17, 36, 42 Sejong, South Korea 124–6 service industries 41 sexism 61 sexual preferences issues 104, 131, 176 Shanghai Commune (1967) 243 shark hunting 73, 76 Shell Oil 79, 251 Shenzhen, China 36 shop floor organisers (shop stewards) 103 Silicon Valley 162, 195, 216 Singapore follows Japanese model 92 industrialisation 68 rise of (1970s) 35 slavery 144 domestic 15 slums 16, 151–2, 176, 178–9 small operators, dispossession of 50 Smith, Adam 90, 164 The Wealth of Nations 35 social democracy 255 ‘social democratic’ consensus (1960s) 64 social inequality 224 social relations 101, 102, 104, 105, 119, 121, 122, 123, 126, 127, 135–9, 152, 240 loss of 246 social security 224 social services 256 social struggles 193 social welfarism 255 socialism 136, 223, 228, 242, 249 compared with communism 224 solidarity economy 151, 254 Soros, George 44, 98, 221 Soros foundation 44 South Korea Asian Currency Crisis 261 excessive urban development 8 falling exports 6 follows Japanese model 92 rise of (1970s) 35 south-east Asia: crash of 1997–8 6, 8, 49, 246 Soviet Union in alliance with US against fascism 169 break-up of 208, 217, 227 collapse of communism 16 collectivisation of agriculture 250 ‘space race’ (1960s and 1970s) 156 see also Russia space domination of 156–8, 207 fixed spaces 190 ‘space race’ (1960s and 1970s) 156 Spain property-led crisis (2007–10) 5–6, 261 unemployment 6 spatial monopoly 164–5 special drawing rights 32, 34 special economic zones 36 special investment vehicles 36, 262 special purpose entities 262 speculation 52–3 speculative binges 52 speed-up 41, 42 stagflation 113 stagnation 116 Stalin, Joseph 136, 250 Standard Oil 98 state formation 196, 197, 202 state-corporate nexus 204 ‘space race’ (1960s and 1970s) 156 state-finance nexus 204, 205, 237, 256 blind belief in its corrective powers 55 ‘central nervous system’ for capital accumulation 54 characteristics of a feudal institution 55 and the current crisis 118 defined 48 failure of 56–7 forms of 55 fusion of state and financial powers 115 innovation in 85 international version of 51 overwhelmed by centralised credit power 52 pressure on 54 radical reconstruction of 131 role of 51 and state-corporate research nexus 97 suburbanisation 171 tilts to favour particular interests 56 statistical arbitrage strategies 262 steam engine, invention of 78, 89 Stiglitz, Joseph 45 stimulus packages 261 stock markets crash (1929) 211, 217 crashes (2001–02) 261 massive liquidity injections (1987) 236, 261 Stockton, California 2 ’structural adjustment’ programmes vii, 19, 261 subcontracting 131 subprime loans 1 subprime mortgage crisis 2 substance abuse 151 suburbanisation 73, 74, 76–7, 106–7, 169, 170, 171, 181 Summers, Larry 11, 44–5, 236 supermarket chains 50 supply-side theory 237 surveillance 92, 204 swaps credit 21 Credit Default 24, 262 currency 262 equity index 262 interest rate 24, 262 Sweden banking system crash (1992) 8, 45 Nordic crisis 8 Yugoslav immigrants 14 Sweezey, Paul 52, 113 ‘switching crises’ 93 systematic ‘moral hazard’ 10 systemic risks vii T Taipei: computer chips and household technologies in 195 Taiwan falling exports 6 follows Japanese model 92 takeovers 49 Taliban 226 tariffs 16 taxation 244 favouring the rich 45 inheritance 44 progressive 44 and the state 48, 145 strong tax base 149 tax rebates 107 tax revenues 40 weak tax base 150 ‘Teamsters for Turtles’ logo 55 technological dynamism 134 technologies change/innovation/new 33, 34, 63, 67, 70, 96–7, 98, 101, 103, 121, 127, 134, 188, 193, 221, 249 electronic 131–2 ‘green’ 188, 221 inappropriate 47 labour fights new technologies 60 labour-saving 14–15, 60, 116 ‘rule of experts’ 99, 100–101 technological comparative edge 95 transport 62 tectonic movements 75 territorial associations 193–4, 195, 196 territorial logic 204–5 Thailand Asian Currency Crisis 261 excessive urban development 8 Thatcher, Margaret, Baroness 15, 38, 64, 131, 197, 255 Thatcherites 224 ‘Third Italy’, Bologna 162, 195 time-space compression 158 time-space configurations 190 Toys ‘R’ Us 17 trade barriers to 16 collapses in foreign trade (2007–10) 261 fall in global international trade 6 increase in volume of trading 262 trade wars 211 trade unions 63 productivity agreements 60 and US auto industry 56 trafficking human 44 illegal 43 training 59 transport costs 164 innovations 42, 93 systems 16, 67 technology 62 Treasury Bill futures 262 Treasury bond futures 262 Treasury instruments 262 TRIPS agreement 245 Tronti, Mario 102 Trotskyists 253, 255 Tucuman uprising (1969) 243 Turin: communal ‘houses of the people’ 243 Turin Workers Councils 243 U UBS 20 Ukraine, Russian oil and natural gas flow to 68 ultraviolet radiation 187 UN Declaration of Human Rights 234 UN development report (1996) 110 Un-American Activities Committee hearings 169 underconsumptionist traditions 116 unemployment 131, 150 benefits 60 creation of 15 in the European Union 140 job losses 93 lay-offs 60 mass 6, 66, 261 rising 15, 37, 113 and technological change 14, 60, 93 in US 5, 6, 60, 168, 215, 261 unionisation 103, 107 United Fruit Company 189 United Kingdom economy in serious difficulty 5 forced to nationalise Northern Rock 2 property market crash 261 real average earnings 13 train network 28 United Nations 31, 208 United States agricultural subsidies 79 in alliance with Soviet Union against fascism 169 anti-trust legislation 52 auto industry 56 blockbusting neighbourhoods 248 booming but debt-filled consumer markets 141 and capital surplus absorption 31–2 competition in labour markets 61 constraints to excessive concentration of money power 44–5 consumerism 109 conumer debt service ratio 18 cross-border leasing with Germany 142–3 debt 158, 206 debt bubble 18 fiscal crises of federal, state and local governments 261 health care 28–9 heavy losses in derivatives 261 home ownership 3 housing foreclosure crises 1–2, 4, 38, 166 industries dependent on trade seriously hit 141 interventionism in Iraq and Afghanistan 210 investment bankers rescued 261 investment failures in real estate 261 lack of belief in theory of evolution 129 land speculation scheme 187–8 oil issue 76–7, 79, 80, 121, 170, 210, 261 population growth 146 proletarianisation 60 property-led crisis (2007–10) 261 pursuit of science and technology 129 radical anti-authoritarianism 199 Reagan Recession 261 rescue of financial institutions 261 research universities 95 the reversing origins of US corporate profits (1950–2004) 22 the right to the city movement 257 ‘right to work’ states 65 savings and loan crisis (1984–92) 8 secondary mortgage market 173 ‘space race’ (1960s and 1970s) 156 suburbs 106–7, 149–50, 170 train network 28 unemployment 5, 6, 60, 168, 215, 261 unrestricted capitalist development 113 value of US stocks and homes, as a percentage of GDP 22 and Vietnam War 171 wages 13, 62 welfare provision 141 ‘urban crisis’ (1960s) 170 urban ‘heat islands’ 77 urban imagineering 193 urban social movements 180 urbanisation 74, 85, 87, 119, 131, 137, 166, 167, 172–3, 174, 240, 243 US Congress 5, 169, 187–8 US Declaration of Independence 199 US National Intelligence Council 34–5 US Senate 79 US Supreme Court 179 US Treasury and Goldman Sachs 11 rescue of Continental Illinois Bank 261 V Vanderbilt family 98 Vatican 44 Veblen, Thorstein 181–2 Venezuela 256 oil production 6 Vietnam War 32, 171 Volcker, Paul 2, 236 Volcker interest rate shock 261 W wage goods 70, 107, 112, 162 wages and living standards 89 a living wage 63 national minimum wage 63 rates 13, 14, 59–64, 66, 109 real 107 repression 12, 16, 21, 107, 110, 118, 131, 172 stagnation 15 wage bargaining 63 Wal-Mart 17, 29, 64, 89 Wall Street, New York 35, 162, 200, 219, 220 banking institutions 11 bonuses 2 ‘Party of Wall Street’ 11, 20, 200 ‘War on Terror’ 34, 92 warfare 202, 204 Wasserstein, Bruce 98 waste disposal 143 Watt, James 89 wealth accumulation by capitalist class interests 12 centralisation of 10 declining 131 flow of 35 wealth transfer 109–10 weather systems 153–4 Weather Underground 254 Weill, Sandy 98 Welch, Jack 98 Westphalia, Treaty of (1648) 91 Whitehead, Alfred North 75 Wilson, Harold 56 wind turbines 188 women domestic slavery 15 mobilisation of 59, 60 prostitution 15 rights 176, 251, 258 wages 62 workers’ collectives 234 working hours 59 World Bank 36, 51, 69, 192, 200, 251 ‘Fifty Years is Enough’ campaign 55 predicts negative growth in the global economy 6 World Bank Development Report (2009) 26 World Trade Organisation (WTO) 200, 227 agreements 69 street protests against (Seattle, 1999) 55 TRIPS agreement 245 and US agricultural subsidies 79 WorldCom 8, 100, 261 worldwide web 42 Wriston, Walter 19 X X-rays 99 Y Yugoslavia dissolution of 208 ethnic cleansings 247 Z Zapatista revolutionary movement 207, 226, 252 Zola, Émile 53 The Belly of Paris 168 The Ladies’ Paradise 168

.: Limits to Growth 72 meat-based diets 73, 74 Medicare 28–9, 224 Mellon, Andrew 11, 98 mercantilism 206 merchant capitalists 40 mergers 49, 50 forced 261 Merrill Lynch 12 Merton, Robert 100 methane gas 73 Mexico debt crisis (1982) 10, 19 northern Miexico’s proximity to the US market 36 peso rescue 261 privatisation of telecommunications 29 and remittances 38 standard of living 10 Mexico City 243 microcredit schemes 145–6 microeconomics 237 microenterprises 145–6 microfinance schemes 145–6 Middle East, and oil issue 77, 170, 210 militarisation 170 ‘military-industrial complex’ 91 minorities: colonisation of urban neighbourhoods 247, 248 Mitterrand, François 198 modelling of markets 262 modernism 171 monarchy 249 monetarism 237 monetisation 244 money centralised money power 49–50, 52 a form of social power 43, 44 limitlessness of 43, 47 loss of confidence in the symbols/quality of money 114 universality of 106 monoculture 186 Monopolies Commission 52 monopolisation 43, 68, 95, 113, 116, 221 Monsanto 186 Montreal Protocol (1989) 76, 187 Morgan Stanley 19 Morishima, Michio 70 Morris, William 160 mortgages annual rate of change in US mortgage debt 7 mortgage finance for housing 170 mortgage-backed bonds futures 262 mortgage-backed securities 4, 262 secondary mortgage market 173, 174 securitisation of local 42 securitisation of mortgage debt 85 subprime 49, 174 Moses, Robert 169, 171, 177 MST (Brazil) 257 multiculturalism 131, 176, 231, 238, 258 Mumbai, India anti-Muslim riots (early 1990s) 247 redevelopment 178–9 municipal budgets 5 Museum of Modern Art, New York 21 Myrdal, Gunnar 196 N Nandigram, West Bengal 180 Napoleon III, Emperor 167, 168 national debt 48 National Economic Council (US) 11, 236 national-origin quotas 14 nationalisation 2, 4, 8, 224 nationalism 55–6, 143, 194, 204 NATO 203 natural gas 188 ‘natural limits’ 47 natural resources 30, 71 natural scarcity 72, 73, 78, 80, 83, 84, 121 nature and capital 88 ‘first nature’ 184 relation to 121, 122 ‘the revenge of nature’ 185 ‘second nature’ 184, 185, 187 as a social product 188 neocolonialism 208, 212 neoliberal counter-revolution 113 neoliberalism 10, 11, 19, 66, 131, 132, 141, 172, 175, 197, 208, 218, 224, 225, 233, 237, 243, 255 Nepal: communist rule in 226 Nevada, foreclosure wave in 1 New Deal 71 ‘new economy’ (1990s) 97 New Labour 45, 255 ‘new urbanism’ movement 175 New York City 11 September 2001 attacks 41 fiscal crisis (1975) 10, 172, 261 investment banks 19, 28 New York metropolitan region 169, 196 Nicaragua 189 Niger delta 251 non-governmental organisations (NGOs) 35, 253–4 non-interventionism 10 North Africa, French import of labour from 14 North America, settlement in 145 North American Free Trade Association (NAFTA) 200 Northern Ireland emergency 247 Northern Rock 2 Norway: Nordic cris (1992) 8 nuclear power 188 O Obama, Barack 11, 27, 34, 210 Obama administration 78, 121 O’Connor, Jim 77, 78 offshoring 131 Ogoni people 251 oil cheap 76–7 differential rent on oil wells 83 futures 83, 84 a non-renewable resource 82 ‘peak oil’ 38, 73, 78, 79, 80 prices 77–8, 80, 82–3, 261 and raw materials prices 6 rents 83 United States and 76–7, 79, 121, 170, 210, 261 OPEC (Organisation of Oil-Producing Countries) 83, 84 options markets currency 262 equity values 262 unregulated 99, 100 Orange County, California bankruptcy 100, 261 Organisation for Economic Cooperation and Development (OECD) 51 organisational change 98, 101 organisational forms 47, 101, 121, 127, 134, 238 Ottoman Empire 194 ‘over the counter’ trading 24, 25 overaccumulation crises 45 ozone hole 74 ozone layer 187 P Pakistan: US involvement 210 Palley, Thomas 236 Paris ‘the city of light’ 168 epicentre of 1968 confrontations 177, 243 Haussmann’s rebuilding of 49, 167–8, 169, 171, 176 municipal budget crashes (1868) 54 Paris Commune (1871) 168, 171, 176, 225, 243, 244 Partnoy, Frank: Ubfectious Greed 25 patents 221 patent laws 95 patriarchy 104 pensions pension funds 4, 5, 245 reneging on obligations 49 Péreire brothers 49, 54, 98, 174 pesticides 185, 186, 187 petty bourgeois 56 pharmaceutical sector 129, 245 philanthropy 44 Philippines: excessive urban development 8 Phillips, Kevin 206 Pinochet, General Augusto 15, 64 plant 58 Poland, lending to 19 political parties, radical 255–6 politics capitalist 76 class 62 co-revolutionary 241 commodified 219 depoliticised 219 energy 77 identity 131 labour organizing 255 left 255 transformative 207 pollution air 77 oceanic 74 rights 21 ‘Ponts et Chaussées’ organisation 92 Ponzi schemes 21, 114, 245, 246 pop music 245–6 Pope, Alexander 156 population growth 59, 72, 74, 121, 167 and capital accumulation 144–7 populism 55–6 portfolio insurance 262 poverty and capitalism 72 criminalisation and incarceration of the poor 15 feminisation of 15, 258 ‘Great Society’ anti-poverty programmes 32 Prague 243 prices commodity 37, 73 energy 78 food grain 79–80 land 8, 9, 182–3 oil 8, 28, 37–8, 77–8, 80, 82–3, 261 property 4, 182–3 raw material 37 reserve price 81–2 rising 73 share 7 primitive accumulation 58, 63–4, 108, 249 private consortia 50 private equity groups 50 private property and radical egalitarianism 233, 234 see also property markets; property rights; property values privatisation 10, 28, 29, 49, 251, 256, 257 pro-natal policies 59 production expansion of 112, 113 inadequate means of 47 investment in 114 liberating the concept 87 low-profit 29 offshore 16 production of urbanisation 87 reorganisation and relocation of 33 revolutionising of 89 surplus 45 technologies 101 productivity agreements 14, 60, 96 agricultural 119 cotton industry 67 gains 88, 89 Japan and West Germany 33 rising 96, 186 products development 95 innovation 95 new lines 94, 95 niches 94 profit squeeze 65, 66, 116 profitability constrains 30 falling 94, 131 of the financial sector 51 and wages 60 profits easy 15 excess 81, 90 falling 29, 72, 94, 116, 117 privatising 10 rates 70, 94, 101 realisation of 108 proletarianisation 60, 62 property markets crash in US and UK (1973–75) 8, 171–2, 261 overextension in 85 property market-led Nordic and Japanese bank crises 261 property-led crises (2007–10) 10, 261 real estate bubble 261 recession in UK (after 1987) 261 property rights 69, 81–2, 90, 122, 179, 198, 233, 244, 245 Property Share Price Index (UK) 7 property values 171, 181, 197, 248 prostitution 15 protectionism 31, 33, 43, 211 punctuated equilibrium theory of natural evolution 130 Putin, Vladimir 29, 80 Q Q’ing dynasty 194 quotas 16 R R&D (research and development) 92, 95–6 race issues 104 racism 61, 258 radical egalitarianism 230–34 railroads 42, 49, 191 Railwan, rise of (1970s) 35 rare earth metals 188 raw materials 6, 16, 37, 58, 77, 101, 113, 140, 144, 234 RBS 20 Reagan, Ronald 15, 64, 131, 141 Reagan-Thatcher counter revolution (early 1980s) 71 Reagan administration 1, 19 Reagan recession (1980–82) 60, 261 Real Estate Investment Trusts (US) 7 recession 1970s 171–2 language of 27 Reagan (1980–82) 60, 261 Red Brigade 254 reforestation 184 refrigeration 74 reinvestment 43, 45, 66–7, 110–12, 116 religious fundamentalism 203 religious issues 104 remittances 38, 140, 147 rentiers 40 rents differential rent 81, 82, 83 on intellectual property rights 221 land 182 monetisation of 48, 109 monopoly 51, 81–2, 83 oil 83 on patents 221 rising 181 reproduction schemas 70 Republican Party (US) 11, 141 reserve price 81 resource values 234 Ricardo, David 72, 94 risks, socialising 10 robbery 44 Robinson, Joan 238 robotisation 14, 136 Rockefeller, John D. 98 Rockefeller brothers 131 Rockefeller foundation 44, 186 Roman Empire 194 Roosevelt, Franklin D. 71 Rothschild family 98, 163 Royal Society 91, 156 royalties 40 Rubin, Robert 98 ‘rule of experts’ 99, 100–101 Russia bankruptcy (1998) 246, 261 capital flight crisis 261 defaults on its debt (1998) 6 oil and natural gas flow to Ukraine 68 oil production 6 oligarchs 29 see also Soviet Union S Saddam Hussein 210 Saint-Simon, Claude Henri de Rouvroy, Comte de 49 Saint-Simonians 87, 168 Salomon Brothers 24 Samuelson, Robert 235, 239 Sandino, Augusto 189 Sanford, Charles 98 satellites 156 savings 140 Scholes, Myron 100 Schumer, Charles 11 Schumpeter, Joseph 46 Seattle battle of (1999) 38, 227 general strike (1918) 243 software development in 195 Second World War 32, 168–70, 214 sectarianism 252 securitisation 17, 36, 42 Sejong, South Korea 124–6 service industries 41 sexism 61 sexual preferences issues 104, 131, 176 Shanghai Commune (1967) 243 shark hunting 73, 76 Shell Oil 79, 251 Shenzhen, China 36 shop floor organisers (shop stewards) 103 Silicon Valley 162, 195, 216 Singapore follows Japanese model 92 industrialisation 68 rise of (1970s) 35 slavery 144 domestic 15 slums 16, 151–2, 176, 178–9 small operators, dispossession of 50 Smith, Adam 90, 164 The Wealth of Nations 35 social democracy 255 ‘social democratic’ consensus (1960s) 64 social inequality 224 social relations 101, 102, 104, 105, 119, 121, 122, 123, 126, 127, 135–9, 152, 240 loss of 246 social security 224 social services 256 social struggles 193 social welfarism 255 socialism 136, 223, 228, 242, 249 compared with communism 224 solidarity economy 151, 254 Soros, George 44, 98, 221 Soros foundation 44 South Korea Asian Currency Crisis 261 excessive urban development 8 falling exports 6 follows Japanese model 92 rise of (1970s) 35 south-east Asia: crash of 1997–8 6, 8, 49, 246 Soviet Union in alliance with US against fascism 169 break-up of 208, 217, 227 collapse of communism 16 collectivisation of agriculture 250 ‘space race’ (1960s and 1970s) 156 see also Russia space domination of 156–8, 207 fixed spaces 190 ‘space race’ (1960s and 1970s) 156 Spain property-led crisis (2007–10) 5–6, 261 unemployment 6 spatial monopoly 164–5 special drawing rights 32, 34 special economic zones 36 special investment vehicles 36, 262 special purpose entities 262 speculation 52–3 speculative binges 52 speed-up 41, 42 stagflation 113 stagnation 116 Stalin, Joseph 136, 250 Standard Oil 98 state formation 196, 197, 202 state-corporate nexus 204 ‘space race’ (1960s and 1970s) 156 state-finance nexus 204, 205, 237, 256 blind belief in its corrective powers 55 ‘central nervous system’ for capital accumulation 54 characteristics of a feudal institution 55 and the current crisis 118 defined 48 failure of 56–7 forms of 55 fusion of state and financial powers 115 innovation in 85 international version of 51 overwhelmed by centralised credit power 52 pressure on 54 radical reconstruction of 131 role of 51 and state-corporate research nexus 97 suburbanisation 171 tilts to favour particular interests 56 statistical arbitrage strategies 262 steam engine, invention of 78, 89 Stiglitz, Joseph 45 stimulus packages 261 stock markets crash (1929) 211, 217 crashes (2001–02) 261 massive liquidity injections (1987) 236, 261 Stockton, California 2 ’structural adjustment’ programmes vii, 19, 261 subcontracting 131 subprime loans 1 subprime mortgage crisis 2 substance abuse 151 suburbanisation 73, 74, 76–7, 106–7, 169, 170, 171, 181 Summers, Larry 11, 44–5, 236 supermarket chains 50 supply-side theory 237 surveillance 92, 204 swaps credit 21 Credit Default 24, 262 currency 262 equity index 262 interest rate 24, 262 Sweden banking system crash (1992) 8, 45 Nordic crisis 8 Yugoslav immigrants 14 Sweezey, Paul 52, 113 ‘switching crises’ 93 systematic ‘moral hazard’ 10 systemic risks vii T Taipei: computer chips and household technologies in 195 Taiwan falling exports 6 follows Japanese model 92 takeovers 49 Taliban 226 tariffs 16 taxation 244 favouring the rich 45 inheritance 44 progressive 44 and the state 48, 145 strong tax base 149 tax rebates 107 tax revenues 40 weak tax base 150 ‘Teamsters for Turtles’ logo 55 technological dynamism 134 technologies change/innovation/new 33, 34, 63, 67, 70, 96–7, 98, 101, 103, 121, 127, 134, 188, 193, 221, 249 electronic 131–2 ‘green’ 188, 221 inappropriate 47 labour fights new technologies 60 labour-saving 14–15, 60, 116 ‘rule of experts’ 99, 100–101 technological comparative edge 95 transport 62 tectonic movements 75 territorial associations 193–4, 195, 196 territorial logic 204–5 Thailand Asian Currency Crisis 261 excessive urban development 8 Thatcher, Margaret, Baroness 15, 38, 64, 131, 197, 255 Thatcherites 224 ‘Third Italy’, Bologna 162, 195 time-space compression 158 time-space configurations 190 Toys ‘R’ Us 17 trade barriers to 16 collapses in foreign trade (2007–10) 261 fall in global international trade 6 increase in volume of trading 262 trade wars 211 trade unions 63 productivity agreements 60 and US auto industry 56 trafficking human 44 illegal 43 training 59 transport costs 164 innovations 42, 93 systems 16, 67 technology 62 Treasury Bill futures 262 Treasury bond futures 262 Treasury instruments 262 TRIPS agreement 245 Tronti, Mario 102 Trotskyists 253, 255 Tucuman uprising (1969) 243 Turin: communal ‘houses of the people’ 243 Turin Workers Councils 243 U UBS 20 Ukraine, Russian oil and natural gas flow to 68 ultraviolet radiation 187 UN Declaration of Human Rights 234 UN development report (1996) 110 Un-American Activities Committee hearings 169 underconsumptionist traditions 116 unemployment 131, 150 benefits 60 creation of 15 in the European Union 140 job losses 93 lay-offs 60 mass 6, 66, 261 rising 15, 37, 113 and technological change 14, 60, 93 in US 5, 6, 60, 168, 215, 261 unionisation 103, 107 United Fruit Company 189 United Kingdom economy in serious difficulty 5 forced to nationalise Northern Rock 2 property market crash 261 real average earnings 13 train network 28 United Nations 31, 208 United States agricultural subsidies 79 in alliance with Soviet Union against fascism 169 anti-trust legislation 52 auto industry 56 blockbusting neighbourhoods 248 booming but debt-filled consumer markets 141 and capital surplus absorption 31–2 competition in labour markets 61 constraints to excessive concentration of money power 44–5 consumerism 109 conumer debt service ratio 18 cross-border leasing with Germany 142–3 debt 158, 206 debt bubble 18 fiscal crises of federal, state and local governments 261 health care 28–9 heavy losses in derivatives 261 home ownership 3 housing foreclosure crises 1–2, 4, 38, 166 industries dependent on trade seriously hit 141 interventionism in Iraq and Afghanistan 210 investment bankers rescued 261 investment failures in real estate 261 lack of belief in theory of evolution 129 land speculation scheme 187–8 oil issue 76–7, 79, 80, 121, 170, 210, 261 population growth 146 proletarianisation 60 property-led crisis (2007–10) 261 pursuit of science and technology 129 radical anti-authoritarianism 199 Reagan Recession 261 rescue of financial institutions 261 research universities 95 the reversing origins of US corporate profits (1950–2004) 22 the right to the city movement 257 ‘right to work’ states 65 savings and loan crisis (1984–92) 8 secondary mortgage market 173 ‘space race’ (1960s and 1970s) 156 suburbs 106–7, 149–50, 170 train network 28 unemployment 5, 6, 60, 168, 215, 261 unrestricted capitalist development 113 value of US stocks and homes, as a percentage of GDP 22 and Vietnam War 171 wages 13, 62 welfare provision 141 ‘urban crisis’ (1960s) 170 urban ‘heat islands’ 77 urban imagineering 193 urban social movements 180 urbanisation 74, 85, 87, 119, 131, 137, 166, 167, 172–3, 174, 240, 243 US Congress 5, 169, 187–8 US Declaration of Independence 199 US National Intelligence Council 34–5 US Senate 79 US Supreme Court 179 US Treasury and Goldman Sachs 11 rescue of Continental Illinois Bank 261 V Vanderbilt family 98 Vatican 44 Veblen, Thorstein 181–2 Venezuela 256 oil production 6 Vietnam War 32, 171 Volcker, Paul 2, 236 Volcker interest rate shock 261 W wage goods 70, 107, 112, 162 wages and living standards 89 a living wage 63 national minimum wage 63 rates 13, 14, 59–64, 66, 109 real 107 repression 12, 16, 21, 107, 110, 118, 131, 172 stagnation 15 wage bargaining 63 Wal-Mart 17, 29, 64, 89 Wall Street, New York 35, 162, 200, 219, 220 banking institutions 11 bonuses 2 ‘Party of Wall Street’ 11, 20, 200 ‘War on Terror’ 34, 92 warfare 202, 204 Wasserstein, Bruce 98 waste disposal 143 Watt, James 89 wealth accumulation by capitalist class interests 12 centralisation of 10 declining 131 flow of 35 wealth transfer 109–10 weather systems 153–4 Weather Underground 254 Weill, Sandy 98 Welch, Jack 98 Westphalia, Treaty of (1648) 91 Whitehead, Alfred North 75 Wilson, Harold 56 wind turbines 188 women domestic slavery 15 mobilisation of 59, 60 prostitution 15 rights 176, 251, 258 wages 62 workers’ collectives 234 working hours 59 World Bank 36, 51, 69, 192, 200, 251 ‘Fifty Years is Enough’ campaign 55 predicts negative growth in the global economy 6 World Bank Development Report (2009) 26 World Trade Organisation (WTO) 200, 227 agreements 69 street protests against (Seattle, 1999) 55 TRIPS agreement 245 and US agricultural subsidies 79 WorldCom 8, 100, 261 worldwide web 42 Wriston, Walter 19 X X-rays 99 Y Yugoslavia dissolution of 208 ethnic cleansings 247 Z Zapatista revolutionary movement 207, 226, 252 Zola, Émile 53 The Belly of Paris 168 The Ladies’ Paradise 168


pages: 329 words: 95,309

Digital Bank: Strategies for Launching or Becoming a Digital Bank by Chris Skinner

algorithmic trading, AltaVista, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, augmented reality, bank run, Basel III, bitcoin, business cycle, business intelligence, business process, business process outsourcing, buy and hold, call centre, cashless society, clean water, cloud computing, corporate social responsibility, credit crunch, crowdsourcing, cryptocurrency, demand response, disintermediation, don't be evil, en.wikipedia.org, fault tolerance, fiat currency, financial innovation, Google Glasses, high net worth, informal economy, Infrastructure as a Service, Internet of things, Jeff Bezos, Kevin Kelly, Kickstarter, M-Pesa, margin call, mass affluent, MITM: man-in-the-middle, mobile money, Mohammed Bouazizi, new economy, Northern Rock, Occupy movement, Pingit, platform as a service, Ponzi scheme, prediction markets, pre–internet, QR code, quantitative easing, ransomware, reserve currency, RFID, Satoshi Nakamoto, Silicon Valley, smart cities, social intelligence, software as a service, Steve Jobs, strong AI, Stuxnet, trade route, unbanked and underbanked, underbanked, upwardly mobile, We are the 99%, web application, WikiLeaks, Y2K

Unfortunately, this is being called into question, thanks to the new regulations around best execution and transparency, which implies broker-dealers don’t always act in their client’s best interests (really?!). This trust has also been tested by Enron, Worldcom, Parmalat and such like, and is being tested again in the credit crunch. In fact, the recent admission by the Bank of England that they didn’t understand the financial markets anymore, in light of the Northern Rock collapse, is shocking. When the regulators and co-ordinators of the financial markets lose their understanding, something has to change. Buyology therefore means knowing the why, how, what and when ingredients of buying, and ensuring you position your business to always be there at the right time, with the right words ... there’s a song with that phrase and the next line is “and you’ll be mine”.

That’s why they want branches. In particular, customers want branches because dealing with money is frightening. It’s not an easy thing. It’s scary. People need help with managing their money and for them, the branch is the place to go. Not everyone will do this online and remote these days, as they want to have someone to talk to about money, and that’s what the branch gives them. It is the reason why Virgin acquired Northern Rock’s branches and why Marks & Spencer is opening branches with HSBC and why Tesco is opening branches. Without branches you cannot grow a banking business, and you wouldn’t pay millions for bricks and mortar branches if the bricks and mortar branches did not matter. This is all well and good, but those who are anti-branch say that they were designed in the 18th century for a market of three hundred years ago and are not fit for purpose today, as the world has become digitised and the next generation customer just does not think this way.

The management of Second Life decided that they also had to close access to gambling in virtual worlds in July 2007 to comply with this policy, which led to a major run on the virtual banks. Until this date, a lot of the commercial transactions taking place in Second Life, where people converted real US dollars to Linden dollars, were for gambling purposes apparently. Therefore, the closure of gambling denizens in the virtual world meant that folks immediately started to take money out of the virtual banks, a bit like Northern Rock but worse. So imagine you are Andre Sanchez in Sao Paulo, the one-man band behind the virtual Ginko Bank. You have over a million real US dollars on account, translated into around 275 million Linden Dollars that you are managing for the Second Life community. Suddenly, your customers demand their money be converted back to real dollars, and you drown in their demands so you just close down the virtual bank, leaving punters with losses of around $750,000 in real life.


pages: 782 words: 187,875

Big Debt Crises by Ray Dalio

Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, break the buck, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, declining real wages, European colonialism, fiat currency, financial innovation, German hyperinflation, housing crisis, implied volatility, intangible asset, Kickstarter, large denomination, manufacturing employment, margin call, market bubble, market fundamentalism, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, refrigerator car, reserve currency, short selling, sovereign wealth fund, too big to fail, transaction costs, universal basic income, value at risk, yield curve

However, by the end of the year, efforts to establish this fund had been abandoned, as the collaborating banks decided that it was “not needed at this time.”15 Meanwhile, despite optimism at home, the credit crunch spread from the US to Europe through two main mechanisms. The first was that some European banks (most notably the British bank Northern Rock) had come to rely on money markets for short-term wholesale funding. When that source of funding began to dry up in the summer of 2007, Northern Rock experienced a classic “run,” with depositors lining up to withdraw funds for three straight days in the middle of September.16 The UK had a similar deposit insurance scheme as the US, but with a lower cap on insured deposits (£35,000). To stem the run, the British government guaranteed all of Northern Rock’s deposits. The second mechanism resulted from the investments that many European banks had made in subprime securitizations. The largest ones, like UBS and Deutsche Bank, owned stakes in securitizations as a corollary to their role in producing the securitizations themselves.

The Standard & Poor’s 500-stock index closed down 1.7 percent…The yield on the 10-year Treasury note, which moves in the opposite direction from the note’s price, fell to its lowest level, at 4.37 percent, in more than a year and a half. On Thursday evening, the yield was 4.51 percent.” –New York Times September 14, 2007 Credit Fears Ease, and Markets Climb -New York Times September 14, 2007 British Lender Offered Emergency Loan “The British government said it had authorized the Bank of England to provide a ‘liquidity support facility’ of unspecified size to Northern Rock, a mortgage lender based in Newcastle, England, that has expanded aggressively in recent years...Northern Rock’s need for emergency financing represents a significant broadening of the effects of the crisis in global financial markets, analysts said, because until now problems at European banks have stemmed mostly from their direct exposure to United States subprime loans.” –New York Times September 19, 2007 Global Markets Rise Sharply After Rate Cut -New York Times September 20, 2007 Fed Chief Calls for New Mortgage Rules “Ben S.


pages: 417 words: 97,577

The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, bank run, barriers to entry, Berlin Wall, Bernie Sanders, big-box store, Bob Noyce, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, computer age, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fall of the Berlin Wall, family office, financial innovation, full employment, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, income inequality, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, means of production, merger arbitrage, Metcalfe's law, multi-sided market, mutually assured destruction, Nash equilibrium, Network effects, new economy, Northern Rock, offshore financial centre, passive investing, patent troll, Peter Thiel, plutocrats, Plutocrats, prediction markets, prisoner's dilemma, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Silicon Valley, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, undersea cable, Vanguard fund, very high income, wikimedia commons, William Shockley: the traitorous eight, zero-sum game

German Finance Minister Wolfgang Schäuble blamed the European economic crisis on smaller European countries for abandoning “long-term gains for short-term gratification,” by increasing their debt load and abandoning trading competitiveness.33 Yet just as your consumption is someone else's income, Germany's trading surplus had to be someone else's deficit. Likewise, Germany's assets were someone else's “irresponsible” loans. Not everyone can run trade surpluses at the same time, and not everyone can be a creditor at the same time. Your consumption is my income, and your borrowing is my lending. In the summer of 2007, long lines of depositors started forming outside the bank Northern Rock in London. It was the first bank run in Britain since 1866. Ironically, the panic started when the Bank of England said Northern Rock was in fine shape and that it would stand by the bank. Problems can only be believed when they are officially denied. Immediately customers were alerted to problems and demanded the return of their deposits.34 Every depositor was behaving in a perfectly rational way, yet when all of them showed up to get their cash at the same time, they were causing the very bankruptcy they sought to avoid.

., 39 Mukherjee, Siddhartha, 167 Munger, Charlie, 2 Murdoch, Rupert, 133 “My Fellow Zillionaires” (Hanauer), 231–232 N Nakaji, Peter, 35–36 Nash, John, 26 National Dairy Holdings, price fixing, 119 Nationally Recognized Statistcal Rating Organization (NRSRO), 183–184 Navalny, Alexei, 92 Nazis, trusts (commonality), 137 NBCUniversal, Comcast purchase, 6–7 NBC Universal, market dominance, 133 Net investment (nonfinancial businesses), 205f Netscape, Microsoft (impact), 93 Net wealth shares (United States), 230f Network Effects, 15, 98 self-reinforcement, 103–104 Nevins, Allan, 156 New Deal, 78 “New Poor,” 230–231 News Corporation, market dominance, 133 News Feed (Facebook), impact, 99–100 Nixon, Richard, 157 Noesser, Gary, 28 Noncompete agreements (noncompetes) spread, 84 state enforcement, absence, 70f worker percentage, 69f Nonfinancial businesses, net investment, 205f Northern Rock, panic, 17–18 Northern Securities Company, formation, 196 Noyce, Robert, 66–67 NSC, antitrust case, 196 O Obama, Barack, 95–96, 161, 165, 190 reverse revolvers, 191–192 Occupational licensing, excess (impact), 83 Occupy Wall Street movement, 211–212 Ogden, Aaron, 137 Ohlhausen, Maureen K., 83 Old Republic, market dominance, 135 Oligopolies, 15, 125–136 Buffett perspective, 201 court decision, 30 ownership, 201 reputation, problem, 5 Olney, Richard, 191 “On Being the Right Size” (Haldane), 49 Online advertising, duopolies, 123–124 Operating systems, Microsoft market share, 117 Optimism, essence, 229 OptumRx, market dominance, 130 Ordoliberalism, 153, 238 Organisation for Economic Co-operation and Development (OECD), study, 23 Organisms, growth phases, 52f Orphan Drug Act (1983), 175 Orwell, George, 113 Ownership, concentration, 199 P Page, Larry, 68 Panic of 1907, 195–196, 208–209 Pasquale, Frank, 123 Passive investing, 201 Passive investments, contest, 203 Passively managed assets, share, 202f Patents, 171–172, 246 annual issuance (US), 173f problems, 172–173 protection, congressional removal, 246 Walt Disney, impact, 173–174 Paulson, Henry, 190 Payment systems, duopolies, 122 PayPal eBay release, 56 founding, 4 value, 118 Pearson, Michael, 168–169 Peltzman, Sam, 224 Perfect markets, belief, 155 Perkins, Charles E., 191 Personal information, Facebook control, 117 Pharmaceutical Research and Manufacturers of America, drug lobbying, 187 Pharmacy benefit managers (PBMs) market, 115–116 oligopolies, 130–131 Philippon, Thomas, 56 Phone companies, oligopolies, 126–127 Phone operating systems, duopolies, 123 Pierce, Justin, 40–41 Pike, Chris, 226 Piketty, Thomas, 214–217 diagnosis, 228 income chart, 224 Pipes, basis, 122 “Pitchforks Are Coming…for Us Plutocrats” (Hanauer), 232 Planck, Max, 165 “Planning Outline for the Construction of a Social Credit System” (China), 111–112 Platform companies, 97–98 Political activity, 248 Political freedom, 143–144, 233 Porter, Michael, 14 Posner, Richard, 156 Potsdam Treaty, 150–151 Poultry industry, oligopolies, 132–133 Power balance, 217 concentration, 141 imbalance, 74 Predatory pricing, punishment (laws), 244 Premier, market dominance, 130 Price-fixing, allegations, 131 Price leadership, 43–44 Prices, increase, 40–45 mergers, impact, 44 Prisoner's Dilemma, The, 27–28 Privacy, importance, 247–248 Productivity companies, impact, 54 growth, reduction, 53f low level, impact, 48–49 reduction, 47–56 wages, contrast, 222 Profitability increase, 51 investment, contrast, 57f Profits, lobbying/regulation (relationship), 188 ProPublica study, 104 Protestant Ethic and the Spirit of Capitalism, The, (Weber), 76 Q Queen, Edward, 14 R Raff, Adam, 87–88, 94 Railroads control, farmer resentment, 140 mergers, 120f monopolies/local monopolies, 119 Randall, James, 21 RCA, innovation, 55 Reagan, Nancy, 159 Reagan, Ronald, 46, 158–161 antitrust revolution, 224–225 Reback, Gary, 94 Reed's Law, 98 Reflections on the Revolution in France (Burke), 239 RegData, usage, 180, 188 Regulation lobbying/profits, correlation, 188 profits, correlation, 181 usage, 167, 245–246 Regulatory capture, avoidance, 245 Reich, Robert, 197 Republic Services Group, 3 Return-free filing system, IRS implementation, 126 Returns, company lobbying (comparison), 187f Reverse revolvers, 191–192 Revolt of the Elites, The, (Lasch), 58 Revolutions, appearance, 230–231 Revolving door, 190f, 193f avoidance, 245 Reynolds, Glenn, 183 Rhodes, Cecil, 24 Ricardo, David, 58 Richards, Tyler, 179 Robber barons impact, 111 term, usage, 139 Rock, Edward, 209 Rockefeller, John D., 111, 126, 139–143, 208, 240 Roosevelt, Franklin Delano, 146, 224 New Deal, 78 Roosevelt, Theodore, 141–143, 193, 234 trust fighting, 239–240 Royal Bank of Scotland, rate rigging, 25 Rural areas, lag, 72f S Salop, Steven, 39, 225 Sandberg, Sheryl, 114 Sanders, Bernie, 212, 231 Sarnoff's Law, 98 Saving Capitalism (Reich), 197 Saxenian, AnnaLee, 67 Scale (West), 51 Schäuble, Wolfgang, 17 Schiantarelli, Fabio, 181 Schmalensee, Richard, 106 Schmalz, Marin, 199 Schmidt, Eric, 68, 96, 114 Schumpeter, Joseph, 4–5 Schweitzer, Arthur, 148 Search engine, building, 118 Searches, monopolies/local monopolies, 118 Secular stagnation, 56 Seeds, monopolies/local monopolies, 119, 121 Servan-Schreiber, Jean-Jacques, 4 Service Corporation International (SCI), market dominance, 121–122 Share buybacks, 206 limitation, 247 Shareholders, 246–247 manager representation, 79 Sherman Act of 1890, 7, 140–144, 157, 160, 237 Sherman, John, 140, 195 Shockley, William, 65–67 Signaling, 30 Silicon Valley, disparagement, 87 Simon, Hermann, 29–30 Singer, Paul, 203–204 Skilling, Jeffrey, 14 SkyChefs, wage laws fines, 78 Small banks, disappearance, 181–182 Small firms, disappearance, 47 Small-scale businesses, job creation, 50 Smith, Adam, 7, 22, 35, 38, 63, 191 invisible hand, 38 Smith, Brad, 94 Smith, William French, 158 Snap, Initial Public Offerings, 107 Snowden, Edward, 112 Social networks, monopolies/local monopolies, 117–118 Society, regulations (service), 245 Soros, George, 113 Sprint, phone market dominance, 126–127 Square-cube law, 49–50 Staggers Rail Act (1980), 119 Staltz, André, 102 Standard Oil market control, 90–91 Supreme Court dissolution, 142 Standard & Poor's 500(S&P500), Big 3 ownership, 203f Startups advertising, 107 dynamics, 106–107 reduction, 45–47 Stationers Company, The, 235 Statute of Monopolies (England), 172 Steele, Helena, 102 Steinbaum, Marshall, 38, 72 Sterling Jewelers, claims (filing), 80 Stewart, market dominance, 135 Stigler, George, 155 Stiles, T.J., 138–139 Stock markets, success, 218 Stock ownership income, impact, 197 US percentage, 201 Stocks company retirement, 207 options, manager purchase, 247 Stoppelman, Jeremy, 108 Strikes, wage growth (association), 80f Strouse, Jean, 208 Structure of Scientific Revolutions, The, (Kuhn), 165 Summers, Larry, 56 Superstar firms, rise, 40 Suslow, Valerie Y., 25 Sustainable prosperity, 208 Sweetland, Kyle, 83 Swipe fees, dispute, 122 Switching costs (reduction), rules (creation), 246 T Tabakovic, Haris, 192 Taibbi, Matt, 102 Takedown notices, filing, 99 Tap Dancing to Work (Buffett), 1 Tax preparation, oligopolies, 125–126 Technology companies market capitalization, 90–91 monopolies, profits, 114 Tecu, Isabel, 199 Teles, Steven M., 174, 188 Temporary work, empowerment, 75 Temporary workers, poverty l ine, 75 Tesla, Nikola, 67, 195 TEVA Pharmaceuticals, generic drug release, 176 Thiel, Peter, 4–5 Third-party services, sale, 245 Thomas, Diana, 180 Time Warner Cable, Comcast purchase (FTC prevention), 165 Time Warner, market dominance, 133 Tit for Tat, 28–29 Title insurance, oligopolies, 135–136 T-Mobile, phone market dominance, 126–127 “Tobacco Trust,” 142 Toll roads, impact, 111 Trademarks, theft, 102 Trade, restraints, 68 “Traitorous Eight,” 66, 84 TransDigm, company acquisition/price increases, 184–186 Trickle-down monetary policies, 219 Trotsky, Leon (rehabilitation), 212 True Believer (Hoffer), 230 Truman, Harry (monopoly condemnation), 146 Trump, Donald (election), 212 Trusts antitrust enforcement budget, 160f challenges, 141 creation, 142 Nazis, commonality, 137 Turf wars, 21 U Unionization, collapse, 83 Unions decrease, 84f membership, income distribution (contrast), 79f restrengthening, 78 United States banking mergers, 128f banks, owners (ranking), 200f economy, entrepreneurialship (reduction), 46f federal government, relationship/revolving door, 190f, 193f grocery market, competitiveness, 32 healthcare, monopolies/oligopolies (prevalence), 131–132 income inequality, 214f, 225f job markets, examination, 38 markets, passively managed assets (share), 202f Morganizing, 195 net wealth shares, 230f optimism, essence, 229 patents, annual issuance, 173f public companies, collapse (number), 10f wages leading indicator, perception (variation), 64f United States v.


pages: 497 words: 150,205

European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right by Philippe Legrain

3D printing, Airbnb, Asian financial crisis, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, BRICs, British Empire, business cycle, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, cleantech, collaborative consumption, collapse of Lehman Brothers, collective bargaining, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, debt deflation, Diane Coyle, disruptive innovation, Downton Abbey, Edward Glaeser, Elon Musk, en.wikipedia.org, energy transition, eurozone crisis, fear of failure, financial deregulation, first-past-the-post, forward guidance, full employment, Gini coefficient, global supply chain, Growth in a Time of Debt, hiring and firing, hydraulic fracturing, Hyman Minsky, Hyperloop, immigration reform, income inequality, interest rate derivative, Intergovernmental Panel on Climate Change (IPCC), Irish property bubble, James Dyson, Jane Jacobs, job satisfaction, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, liquidity trap, margin call, Martin Wolf, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, North Sea oil, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, open economy, peer-to-peer rental, price stability, private sector deleveraging, pushing on a string, quantitative easing, Richard Florida, rising living standards, risk-adjusted returns, Robert Gordon, savings glut, school vouchers, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart grid, smart meter, software patent, sovereign wealth fund, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, working-age population, Zipcar

On the contrary, as late as 2006, ECB President Trichet welcomed the fact that investors were willing to lend to the Greek government on almost as good terms as to Germany’s as evidence of the euro’s success.53 This convergence of bond yields, in turn, was validated by the ECB’s collateral lending rules, which treated all eurozone government bonds as if they were “risk-free”. As for the Bank of England, when Northern Rock suffered the ignominy of a run in September 2007, the first on a British bank since the nineteenth century, it was asleep at the wheel. While central bankers provided the rocket fuel, financial regulators allowed bankers to drive faster with souped-up engines, while skimping on safety measures. In both Britain and the eurozone, financial regulation was often inadequate and sometimes perverse.

Back home, banks’ reckless lending, mostly against the perceived security of booming house prices, saw British households pile on record amounts of debt, rising from 108 per cent of their disposable income in 2000 to a whopping 170 per cent in early 2008.391 When the US housing bubble burst, bank lending froze and then UK house prices slumped too, one bank after another toppled. The first was Northern Rock, an overextended local bank that pumped out cheap, risky mortgages financed by short-term debt, which suffered a run in September 2007 and was eventually nationalised in February 2008. Days after the collapse of Lehman Brothers in September 2008, HBOS, a retail bank similarly laid low by wild mortgage lending financed with fickle debt, was rescued through a government-brokered takeover by Lloyds TSB, a more conservative lender seduced by the prospect of dominating high-street banking.

Crucially, banks have charged smaller firms more, while refusing to lend to many of them.430 While bigger businesses that can borrow from capital markets have replaced bank loans with cheaper corporate debt, smaller ones that do not have that option have been hit hard, especially since nearly half of credit to smaller firms is in the form of (extremely expensive) credit-card lending and overdrafts.431 They have responded by trying to build up cash buffers and inventories, stifling investment and undermining productivity. Since small and medium-sized enterprises represent 99.9 per cent of businesses in Britain, account for 60 per cent of private sector jobs and 50 per cent of businesses’ turnover, this has been a big brake on growth.432 A wise government would have forced banks to tackle their balance-sheet problems. Or it would have bypassed them by directing the banks that it nationalised (Northern Rock) or controlled (RBS) to lend more to creditworthy businesses. Instead, government efforts to boost bank lending have tried to tackle the symptoms of the problem rather than the cause, with predictably disappointing results. First came Project Merlin, a corporatist deal with Britain’s four biggest banks in February 2011 that failed to boost lending. This was followed in March 2012 by the National Loan Guarantee Scheme, which sought to lower banks’ funding costs but achieved little.


pages: 566 words: 155,428

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

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

But old habits die hard, and while the Fed was way ahead of the ECB, it was not quite there yet. At its September 18 meeting, the FOMC qualified its view that “the tightening of credit conditions has the potential to . . . restrain economic growth” by adding that “some inflation risks remain.” It was a finely balanced assessment of risks—far too balanced, given the emerging realities. Just five days earlier, the Bank of England had intervened massively to save Northern Rock, a huge savings institution, from the first bank run in Britain since 1866.* Things were coming unglued in England. Our problems here were strikingly similar. Could we be far behind? While the Fed’s speed made the ECB look like the proverbial tortoise watching the hare, this particular hare wasn’t actually running that fast. After its 50-basis-point rate cut on September 18, 2007, the Fed waited another six weeks—until its next regularly scheduled meeting—to move again.

b Kovacevich was actually chairman, not CEO. c Mudd was replaced by Herbert Allison, who then moved to the Treasury Department. d Syron was replaced by David Moffett, who served only until March 2009. WE’RE NOT IN KANSAS ANYMORE The post-Lehman panic spread rapidly beyond U.S. borders. The United Kingdom, of course, was deeply enmeshed in the financial crisis well before Lehman failed. It had stopped the run on Northern Rock, improvised a deposit insurance system on short notice, and either rescued or nationalized most of its big banks. Banks in Ireland lent recklessly during the property boom and were carrying huge unrealized losses prior to the Lehman bankruptcy. This “open secret” was laid bare in a very rough way when Lehman collapsed. The same was true of Iceland, on an even grander scale relative to its tiny economy.

See Foreclosures refinancing, precollapse, 38 Mozilo, Angelo, 164, 305 Naked CDS, 66, 280, 302 National Commission on Fiscal Responsibility and Reform, 397 National Economic Council (NEC), 214, 216 Negative amortization loans, 71 Negative net worth, 103–4 New Century Financial Corporation, 69 New Deal reforms for housing crisis, 324–25 regulatory agencies created, 265–66, 288 New jobs tax credit (NJTC), 229–30 News, and efficient markets hypothesis, 64–65, 103 Newton, Isaac, 47 NINJA loans, 70 Nominal interest rates, 376–78 Nonbank lenders shadow banking system, 59–64 unregulated and subprimes, 59 Nonrecourse loans for commercial paper, 147–48 for troubled asset purchases, 206–7 Northern Rock, 95, 168 Notional values, derivatives, 62 Obama, Barack, 212–20 Affordable Care Act (2010), 406 on AIG bailout, 138 backlash against, 347–48 bipartisan goals of, 220, 227 Dodd-Frank Act of 2010, 303–19 economic conditions upon election, 212, 218, 346–47 economic Dream Team, 214–17 election of 2008, 203–4 federal budget deficit efforts, 396–400 and fiscal cliff, 360 foreclosure mitigation efforts, 332–38 payroll tax cuts, 360 policy agenda, scope of, 218–20, 361 regulatory reform agenda of, 291–98 shortcomings regarding crisis, 217, 218, 220, 256–57, 325, 357–58, 361, 439, 440 stimulus package, 223–36 on Volcker Rule, 312 Occupy Wall Street, 7, 363 O’Donnell, Christine, 362 Office of Federal Housing Enterprise Oversight (OFHEO), 117–18 Office of the Comptroller of the Currency (OCC), 275, 302 regulatory failure of, 57–58 Office of Thrift Supervision (OTS), 131–32, 275, 302 O’Neal, E.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

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

There was a stark illustration of this problem in 2007 when the BBC News at Ten programme reported that Northern Rock, a bank based in the north-east of England, was in talks about emergency funding from the Bank of England. The next day depositors were queuing to withdraw their money. In turn, the sight of those queues made other depositors fearful, encouraging them to withdraw their money. Meanwhile, those who banked online were attempting, and failing because of a system overload, to do the same thing. Eventually, it took an announcement by the government that it would guarantee all deposits (initially up to £35,000 and then up to £50,000) to bring the run to a halt. The Northern Rock panic was not as bad as it might have been. Few depositors wanted their money back in the form of notes and coins.

leverage leveraged buyout Lewis, Michael Liberal Democrat party (UK) Liberal Party (UK) life expectancy life-cycle theory Little Dorrit lire Live 8 concert Lloyd George, David Lombard Odier Lombard Street Research London School of Economics Long Term Capital Management longevity Louis XIV, King of France Louis XV, King of France Louvre accord Lucas, Robert Lucullus, Roman general Luxembourg Macaulay, Thomas McCarthy, Cormac Macdonald, James MacDonald, Ramsay McKinsey McNamara, Robert Madoff, Bernie Malthusian trap Mandelson, Peter Marais, Matthieu Marco Polo Mares, Arnaud Marks & Spencer Marshall, George Marshall Aid Marshalsea Prison Mauro, Paolo May, Sir George means/media of exchange Medicaid Medicare Mellon, Andrew mercantilism Merchant of Venice, The Meriwether, John Merkel, Angela Merton, Robert Mexico Mill, John Stuart Milne-Bailey, Walter Minsky, Hyman Mises, Ludwig von Mississippi Project Mitterrand, Francois Mobutu, Joseph Mongols monetarism monetary policy monetary targets money markets money supply Moody’s Moore’s Law moral hazard Morgan Stanley Morgenthau, Henry Morrison, Herbert mortgages mortgage-backed bonds Multilateral Debt Relief Initiative Napier, Russell Napoleon, emperor of France Napoleonic Wars Nasser, president of Egypt National Association of Home Builders National Association of Realtors National Association of Security Dealers Netherlands New Century New Hampshire New Jersey Newton, Sir Isaac New York Times New Zealand Nixon, Richard Norman, Montagu North Carolina Northern Ireland Northern Rock North Korea North Rhine Westphalia, Germany Norway Obama, Barack odious debt Odysseus OECD d’Orléans, duc Ottoman Empire output gap Overstone, Lord overvalued currency owner-equivalent rent Papandreou, George paper money paradox of thrift Paris club Passfield, Lord (Sidney Webb) Paulson, Hank pawnbroking pension age pension funds pensions Pepin the Short Perot, Ross Perry, Rick Persians Peter Pan Philip II, King of Spain Philip IV, King of France PIGS countries PIMCO Plaza accord Poland Ponzi, Charles Ponzi scheme population growth populism portfolio insurance Portugal pound Prasad, Eswar precious metals Price-earnings ratio primary surplus Prince, Chuck principal-agent problem printing money private equity property market protectionism Protestant work ethic public choice theory public-sector workers purchasing power parity pyramid schemes Quaintance, Lee quantitative easing (QE) Quincy, Josiah railway mania Rajan, Raghuram Rand, Ayn Reagan, Ronald real bills theory real interest rates Record, Neil Reformation, the Reichsbank Reichsmark Reid, Jim Reinhart, Carmen renminbi Rentenmark rentiers reparations Republican Party reserve currency retail price index retirement revaluation Revolutionary War Ridley, Matt Roberts, Russell Rogoff, Kenneth Romanovs Roosevelt, Franklin D.


pages: 872 words: 259,208

A History of Modern Britain by Andrew Marr

air freight, Albert Einstein, anti-communist, battle of ideas, Beeching cuts, Big bang: deregulation of the City of London, Bob Geldof, Bretton Woods, British Empire, Brixton riot, clean water, collective bargaining, computer age, congestion charging, cuban missile crisis, deindustrialization, Etonian, falling living standards, fear of failure, Fellow of the Royal Society, financial independence, floating exchange rates, full employment, housing crisis, illegal immigration, Kickstarter, liberal capitalism, Live Aid, loadsamoney, market design, mass immigration, means of production, Mikhail Gorbachev, millennium bug, Neil Kinnock, Nelson Mandela, new economy, North Sea oil, Northern Rock, offshore financial centre, open borders, out of africa, Parkinson's law, Piper Alpha, Red Clydeside, reserve currency, Right to Buy, road to serfdom, Ronald Reagan, Silicon Valley, strikebreaker, upwardly mobile, Winter of Discontent, working poor, Yom Kippur War

By far the most ominous event was the revelation than an adventurous building society, based in the north-east of England, had been forced to go to the Bank of England for emergency support. What had happened to Northern Rock, Britain’s fifth-largest provider of mortgages, was the direct consequence of those ‘sub-prime’ problems in America earlier in the year. Mud and ice were spreading through the Western banking system as banks, wondering how much bad debt others were exposed to, stopped lending readily to one another. The lubrication began to fail, and because Northern Rock had lent so much money so aggressively, it was first in trouble. Its bosses resigned, but not before the world had watched huge queues of people across Britain waiting to get their money out. It was the first run on a bank in this country for 140 years. The new chancellor, Alastair Darling, promised to guarantee all savers’ funds in Northern Rock – though not elsewhere – in order to shore up the stability of the banking system.

The new chancellor, Alastair Darling, promised to guarantee all savers’ funds in Northern Rock – though not elsewhere – in order to shore up the stability of the banking system. The Bank of England injected money into the system to provide some more lubrication. A search began to find a private buyer who would take over Northern Rock without being completely underwritten by the taxpayer. And another search began to find who was to blame. The management of Northern Rock? American banks? The Bank of England, which had reacted slowly to the early signs of trouble? Most attention focussed on the prime minister, who had created the new system of banking regulation early in his time as chancellor. In the end, the building society had to be nationalised – a whiff of the Seventies. The Northern Rock crisis began just when pressure was mounting on Brown to call an early general election. Things came to a head at the Labour party conference at Bournemouth. Some of the cabinet ministers closest to him were convinced that by going to the country in October 2007, capitalizing on his summer successes, he could win a clear and substantial majority over the Tories.


pages: 586 words: 160,321

The Euro and the Battle of Ideas by Markus K. Brunnermeier, Harold James, Jean-Pierre Landau

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, currency peg, debt deflation, Deng Xiaoping, different worldview, diversification, Donald Trump, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, financial deregulation, financial repression, fixed income, Flash crash, floating exchange rates, full employment, German hyperinflation, global reserve currency, income inequality, inflation targeting, information asymmetry, Irish property bubble, Jean Tirole, Kenneth Rogoff, Martin Wolf, mittelstand, money market fund, Mont Pelerin Society, moral hazard, negative equity, Neil Kinnock, new economy, Northern Rock, obamacare, offshore financial centre, open economy, paradox of thrift, pension reform, price stability, principal–agent problem, quantitative easing, race to the bottom, random walk, regulatory arbitrage, rent-seeking, reserve currency, road to serfdom, secular stagnation, short selling, Silicon Valley, South China Sea, special drawing rights, the payments system, too big to fail, union organizing, unorthodox policies, Washington Consensus, WikiLeaks, yield curve

A second important facet of cross-country flows in the euro area is that much of the funding came in the form of wholesale, interbank funding. Because of this funding structure, capital flows into the periphery could dry up and reverse quickly. Still, this is not a feature unique to international capital flows, as much within-country funding is also interbank and wholesale. Just consider, for example, Northern Rock, a UK bank that suffered a bank run in 2007. It was reliant on wholesale funding, and it was precisely this reliance that made Northern Rock so vulnerable to a run. Other UK banks also relied on wholesale funding, but the larger banks had European subsidiaries that had access to ECB liquidity at a time when the Bank of England was reluctant to provide liquidity out of moral hazard concerns. Do cross-border capital flows within a currency union deserve special attention because they can lead to inefficient investment and misallocation?

De facto, financial firms are or were able to pick their favorite regulators, resulting in moral hazard problems—to which the Fed is or was powerless. Another important debate about a euro-wide banking union was the scope of the supervisory mechanism. While Germans insisted that the scope should be limited, leaving national supervisory boards some powers, notably over small banks, such as savings and loans, France also wanted to put small banks under European supervision. It argued that small banks can also be systemic, like Northern Rock in the United Kingdom. The fact that most banks in France are large banks, that is, national champions, may have also played a role in this position. Another debate was whether and to what extent macroprudential regulation should be Europeanized. While the crisis regulation had previously focused on the soundness of each bank separately, after the crisis, the focus shifted to the soundness of the whole financial system.

., 257 Moscovici, Pierre, 37 Müller-Armack, Alfred, 62 multiplier effects, 137–42 Münchau, Wolfgang, 63, 268 Mundell, Robert, 103 Müntefering, Franz, 163 Nakamura, Emi, 142 Naples (Italy), 50 Napoleon (emperor, France), 40 Napolitano, Giorgio, 246–47, 336 national central banks (NCBs), 321; ECB and, 323; information shared between ECB and, 370 National Front (France), 37, 39 natural gas, 284–85 Nazis, economic policies of, 59–61 negative interest rates, 359–60 neoliberalism, 73 Netherlands, 36, 151 Neue Zürcher Zeitung (newspaper), 64 New Deal programs, 102 New Development Bank (NDB), 312 New Keynesian models, 142, 145, 187 New Red Brigades (Italy), 244 New York Stock Exchange (NYSE), 346–47 Nicole, Pierre, 57 no-bailout clause. See Maastricht Treaty Northern Rock (UK bank), 170 Nouy, Daniele, 371 Noyer, Christian, 48, 272 nuclear power, 71 Obama, Barack, 246, 252, 381; Merkel and, 307–8; Spain and, 261–62 Obama administration, 275; on Greek exit, 230 Odysseus, 88 oil, prices of, 364, 367 Olson, Mancur, 52, 377 openness, 105 optimal currency area, 103 Ordoliberalism, 61–67, 238, 290 Organization for Economic Cooperation in Europe, 250 “original sin,” 105–6 Osborne, George, 270, 275, 279 Outright Monetary Transactions (OMT) program, 123–25, 191–92, 346, 352–59; creation of, 5, 313 Pakistan, 295 Papademos, Lucas, 246, 336, 352 Papandreou, George, 246, 298, 336 Paradox of Prudence, 179 Paradox of Thrift, 179 Paulson, Henry, 166 Pellegrini, 239–40 pensions, in Italy, 244–45 Perroux, François, 58 Philip II (king, Spain), 96 Philippon, Thomas, 113 Piaf, Edith, 268 Piketty, Thomas, 72, 73 Pinotti, Paolo, 240–41 planning, in France, 70–74 plucking model, 143 Podemos (Spanish party), 232 Podemos party (Spain), 38 Poland, 43, 147, 275 Portugal: anti-austerity party in, 38; bank failures in, 201–2; downgrading of credit rating of, 347; IMF program for, 308 Pottier, Eugène, 52 pound (British currency), 81–82 Precautionary and Liquidity Line (PLL) facility, 310 price stability: ECB mandate on, 316–21; See also inflation private sector involvement (PSI): Deauville meeting on, 29, 307; ECB’s opposition to, 328–31; IMF on, 299 Prodi, Romano, 243 Putin, Vladimir, 266, 286; Berlusconi and, 285; after global financial crisis, 283; on tax on Cypriot bank deposits, 199 Putnam, Robert, 50, 261 quantitative and qualitative monetary easing (QQE), 364 quantitative easing (QE), 114, 190–91, 344, 346, 361–67 Radicova, Iveta, 130 Rajoy, Mariano, 32, 94, 151 Ramey,.


pages: 193 words: 11,060

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

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

Employment rights are as relevant to investment banking as elsewhere, and so too are intellectual property rights, as will be seen in Chapter 5. Consequentialist ethics Another area of concern heightened by the financial crisis relates to consequentialist ethics. On 14 September 2007, the UK government Developing an Ethical Approach to Investment Banking 43 decided to bail out the failing retail bank Northern Rock, which came under state ownership. The UK Government decided that the negative consequences of allowing this bank to collapse were too great for society to bear, and so it decided to take over the bank to protect the investments of individuals and institutions. Exactly one year later, the US government took the opposite decision with regard to the investment bank Lehman, although it had previously come to the aid of the failing Federal National Mortgage Association and Federal Home Loan Mortgage Corporation (Fannie Mae and Freddie Mac).

., 107 deontological ethics, 34–6 stockholders, 41–2 trust, 40–1 derivative, 27, 30 dharma, 63–4 Dharma Indexes, 57 discounted cash flow (DCF), 27 discount rate, 27 discriminatory behaviour, 129–31 distribution, 15, 35, 66 Dodd–Frank Wall Street Reform and Consumer Protection Act, 25 dotcom crisis, 94 dotcom stocks, 17 Dow Jones, 55–6 downgrade credit, 17, 76 defined, 76 multi-notch, 17, 76 duties, see rights vs. duties duty-based ethics, 66–8 duty of care, 105 Dynegy, 8 Earnings Before Interest Tax Depreciation and Amortisation (EBITDA), 27 economic free-ride, 5, 21 economic reality, 137 effective tax rate (ETR), 140 emissions trading, 14 employees, compensation for, 135 Encyclical, 52 engagement letters, 122–3, 159 Enron, 8, 12, 17, 20, 76 enterprise value (EV), 27 entertainment adult, 56 corporate, 128–9, 159 sexist, 159 equity deferred, 5 private, 2–3, 12, 110 equity research, 88–9, 113–15 insider dealing and, 83–4 ethical behaviour, 38–9 Ethical Investment Advisory Group (EIAG), 53, 58 ethical investment banking, 145–7 ethical standards, 47 Index ethics consequentialist, 36–7, 42 deontological, 34–6 duty-based, 66–8 exceptions and, effects of, 89–90 financial crisis and, 4–8 in investment banking, 1 in moral philosophy, 1 performance and, 8–10 rights-based, 66–8 virtue, 37–8, 43–4 see also business ethics; Code of Ethics Ethics Helpline, 48 Ethics of Executive Remuneration: a Guide for Christian Investors, The, 135 European Commission, 89 European Exchange Rate Mechanism (ERM), 17 exceptions, 89 external regulations, 19, 31 fair dealing, 45 Fannie Mae, 43 Federal Home Loan Mortgage Corporation, 43 Federal National Mortgage Association, 43 fees, 115–18 advisory, 107, 116 restructuring of, 121–2 2 and 20, 13 fiduciary duties, 27–8 financial advisers, 109 Financial Conduct Authority (FCA), 26 financial crisis, business ethics during CDOs during, 90 CDSs during, 90 ethics during, 4–8, 12–34 investment banking and, necessity of, 14–15 market capitalism, 12–14 necessity of, 14–15 non-failure of, 21 positive impact of, 18 problems with, 15–17 reality of, 16 speculation in, 91 173 Financial Crisis Inquiry Commission, 76 Financial Policy Committee (FPC), 25 financial restructuring, 119–20 Financial Services Modernization Act, 19 Financial Stability Oversight Council, 25 firm price, 67 Four Noble Truths, 57 Freddie Mac, 43 free-ride defined, 26 economic, 5, 21 in investment banking, 24 FTSE, 55 Fuhs, William, 8 General Board of Pension and Health Benefits, 54, 59 German FlowTex, 12 Gift Aid, 141 Glass–Steagall Act, 19 Global Settlement, 113 golden parachute arrangements, 133 Golden Rule, 35, 150 Goldman Sachs, 7, 16, 45, 63 Business Principles, 45–6 charges against, 78 Code of Business Conduct and Ethics, 45, 68 Code of Ethics for, 47–8 Goldsmith, Lord, 27 government, 59 business ethics within, 60 guarantees of, 24 intervention by, 22–3 government bonds, 23 greed, 4–5 Green, Stephen, 8–9 gross revenues, 59 Hedge fund behaviour of, 12 failure of, 21 funds for, raising, 2 investment fund, as type of, 3 rules for, 133 174 Index Hennessy, Peter, 42 Her Majesty’s Revenue and Customs (HMRC), 140–1 high returns, 28, 110 Hinduism, 56–7 Hobbes, Thomas, 36 hold-out value, 120–1 honesty, see trust hospitality, 128–9 hot IPOs, 94 hot-stock IPOs, 94 HSBC, 9, 28, 152 Ijara, 55 implicit government guarantee, 22–3 Independent Commission on Banking, 25 inequitable rewards, 6 informal authorisation, 81, 98 Initial Public Offering (IPO), 7 of dotcom stocks, 17 hot, allocation of, 94 hot-stock, 94 insider dealings, 83–4, 155 equity research and, 83–4 ethics of, 66, 70 laws on, 84 legal prohibition on, 82 legal restrictions on, 10 legal status of, 82 legislation on, 74 restrictions on, 83 rules of, 82, 90 securities, 70 insider trading, 12 insolvency, 24–5 institutional greed, 4 integrated bank, 28 integrated investment banking, 2, 30, 67, 106, 108 interest payments, 59–60 interest rate, 60 internal ethical issues, 126–43 abuse of resources, 127–8 corporate entertainment, 128–9 discriminatory behaviour, 129–31 hospitality, 128–9 management behaviour, 131–2 remuneration, 132–9 tax, 139–41 internal review process, managing, 134 investment banking, 94 casino capitalism in, 3 Code of Ethics in, 47–9 commercial and, convergence of, 20–1 defined, 2 ethics in, 1 free-ride in, 24 integrated, 2, 30, 67, 108, 112 in market position, role of, 65–6 moral reasoning and, 38 necessity of, 14–15 non-failure of, 19–20 positive impact of, 18 recommendations in, 94–7 sector exclusions for, 58–9 investment banking adviser, 121 investment banking behaviours, 3 investment banking ethics committee, 151–3 investment bubbles, 95 investment fund, 3 investment grade bonds, 118 investment grade securities, 76 investment recommendations, 94 investments personal account, 128, 156 principal, 15, 28 proprietary, 29 IRS, 140 Islam, 54–5 Islamic banking, 6, 54–5 Jewish Scriptures, 34 Joint Advisory Committee on the Ethics of Investment (JACEI), 54 JP Morgan, 16 Judaism, 56 junior bankers, 139 junior debt, 118 junk bond, 118 “just war” approach, 38 Index Kant, Immanuel, 35, 69 karma, 57 Kerviel, Jérôme, 44, 80 Krishna, 57 Law Society, 19 Lazard International, 9 leading adviser, 41 Leeson, Nick, 12, 44, 81 legislative change, 25–6 Lehman Brothers, 5–6, 15, 21, 23, 31, 43, 76 lenders, 26, 131 lending, 59–60 leverage levels of, 25 over, 75, 80, 119 Levin, Carl, 17, 63–4, 68 light-touch regulations, 4 liquidity market, 95 orderly, 25 withdrawal of, 24 loan-to-own, 80 Locke, John, 34 London Inter-Bank Offered Rate (LIBOR), 23 London School of Economics, 43 London Stock Exchange, 65, 71, 84 long-term values, 147 Lords Grand Committee, 27 LTCM, 23 lying, 101 MacIntyre, Alasdair, 38 management behaviour, 131–2 margin-calls, 121 market abuse, 14, 70, 75, 86–8, 155 market announcements, 88 market behaviours, 74 market capitalism, 12–14 market communications, 88 market liquidity, 95 market maker defined, 65–7 investment bank as, 66 primary activities of, 65 175 market manipulation, 75 market position, role of, 104 market rate, 117 markets advisory, 73 capital, 73, 117–18, 158 communication within, 88 duties to support, 71–2 primary, 103 qualifying, 70, 82 secondary, 103 market trading, 41 Maxwell, Robert, 12 Meir, Asher, 56 mergers and acquisitions (M&As), 41, 79 Merkel, Angela, 93 Merrill Lynch, 8, 16 Methodism, 53 Methodist Central Finance Board, 59 Methodist Church, 54 Midrash, 56 Milken, Michael, 12 Mill, John Stuart, 36 Mirror Newspaper Group, 12 misleading behaviours, 86, 105 mis-selling of goods and services, 77–9, 155 modern capitalism, 54 moral-free zones, 31 moral hazard, 22, 70 moral philosophy, 1 moral reasoning, 38 moral relativism, 38–9, 49, 68 Morgan Stanley, 47 multi-notch downgrade, 17, 79 natural law, 34, 37 natural virtues, 37 necessity of investment banking, 14–15 New York Stock Exchange (NYSE), 65, 71 New York Times, 8 Noble Eightfold Path, 57 Nomura Group Code of Ethics, 47 normal market trading, 71 Northern Rock, 43 176 Index offer price, 64 off-market trading, 71–3, 90, 155 Olis, Jamie, 8 on-market trading, 70–1 oppressive regimes, 61 option value, 121 Orderly Liquidation Authority, 25 orderly liquidity, 25 out-of-pocket expenses, 127–8 over-leverage, 75, 80, 119, 158 overvalued securities, 155 patronage culture, 131, 142 Paulson, Henry M., 86 Paulson & Co., 78 “people-based” activity, 67 P:E ratio, 27 performance, 8–10 personal abuse, 159 personal account investments, 128, 156 personal account trading, 128 personal conflicts of interest, 45 pitching, 102, 159 Plato, 37 practical issues, 110–15 competitors, relationships with, 113 equity research, 113–15 pitching, 111 sell-side advisers, 111–13 pre-IPO financing, 110 prescriptive regulations, 31, 145 price tension, 79, 113 primary market, 103 prime-brokerage, 2 principal investment, 15, 28 private equity, 2–3, 12, 110 private trading, 94 Project Merlin, 133, 141 promises, 100–1 proprietary investment, 29 proprietary trading, 15, 25, 66, 150, 155 Prudential Regulation Authority (PRA), 26 public ownership, bonus pools in, 136–9 “pump and dump” strategy, 86 qualifying instruments, 70, 87 qualifying markets, 70, 82 quality-adjusted life year (QALY), 36 Quantitative Easing (QE), 23 Queen Elizabeth II, 42 Qu’ran, 54 rated debt, 77 rates attrition, 132 discount, 27 interest, 60 market, 117 tax, 140 rating agencies, 76 Rawls, John, 35, 136 recognised exchanges, 71 Regal Petroleum, 84 regulations banking, 16 compliance with, 28 external, 19, 31 light-touch, 4 prescriptive, 31, 145 regulatory changes and, 18–20 securities, 114 self, and impact on legislation, 19 regulatory compliance, 18 religion, business ethics in, 51–62 Buddhism, 56 Christianity, 52–4 Governments, 59 Hinduism, 56–7 interest payments, 59–60 Islam, 54–5 Judaism, 56 lending, 59–60 thresholds, 60 usury, 59–60 remuneration, 132–9 bonus pools in public ownership and, 136–9 claiming credit, 134 ethical issues with, 142–3 internal review process, managing, 134 1 Timothy 6:10, 135–6 Index research, 156 resources, abuse of, 127–8 restricted creditors, 120 restructuring of fees, 121–2 financial, 119–20 syndication and, 118–22 retail banks, 16 returns, 28, 156 Revised Code of Ethics, 47 right livelihood, 57 rights-based ethics, 66–8 rights vs. duties advisory vs. trading/capital markets, 73 conflict between, reconciling, 68–70 duty-based ethics, 66–8 off-market trading, ethical standards to, 71–2 on-market trading, ethical standards in, 70–1 opposing views of, 63–74 reconciling conflict between, 68–70 rights-based ethics, 66–8 Roman Catholic Church, 52 Royal Dutch Shell, 85 Sarbanes–Oxley Act, 20 Schwarzman, Stephen, 20 scope of ethical issues, 7–8 secondary market, 103 sector exclusions for investment banking, 58–9 securities investment grade, 76 issuing, 103–5 overvalued, 155 Securities and Exchange Commission (SEC), 7, 16 Goldman Sachs, charges against, 78 rating agencies, review by, 77 short-selling, review of, 96–7 securities insider dealing, 70 securities mis-selling, 77–9 securities regulations, 114 self-regulation, 19 sell recommendation, 115 177 sell-side advisers, 107, 111–13 Senate Permanent Subcommittee on Investigations, 46 senior debt, 118 sexist entertainment, 159 shareholders, 27–9 shares, deferred, 133 Shariah finance, 55 short-selling, 94–7, 154–5 Smith, Adam, 14, 35–6 social cohesion, 53 socially responsible investment (SRI), 56 Société Générale, 44, 80 solidarity, 53 Soros, George, 17 South Sea Bubble, 90 sovereign debt, 17 speculation, 91–4, 155 in financial crisis, 93 traditional views of, 91–3 speculative casino capitalism, 16, 91 spread, 21 stabilisation, 89 stock allocation, 94–7 stockholders, 41–2 stocks, dotcom, 17 Strange, Susan, 43 strategic issues with business ethics, 30–1 syndication, 119 and restructuring, 118–22 systemic risk, 24–5 Takeover Panel, 109 Talmud, 56 taxes, 139–41 tax optimisation, 158 tax rates, 140 tax structuring, 140 Terra Firma Capital Partners, 79, 112 Theory of Moral Sentiments, The (Smith), 14 3iG FCI Practitioners’ Report, 51 thresholds, 60 1 Timothy 6:10, 135–6 178 Index too big to fail concept, 21–7 ethical duties, and implicit Government guarantee, 22–3 ethical implications of, 26–7 in government, 22–3 insolvency, systemic risk and, 24–5 legislative change, 25–6 Lehman, failure of, 23 systemic risk, 24–5 toxic financial products, 5 trading abusive, 93 emissions, 14 insider, 12 market, 41 normal market, 71 off-market, 71–83, 90, 155 on-market, 70–1 personal account, 128 private, 94 proprietary, 15, 25, 66, 150, 155 unauthorised, 7 “trash and cash” strategy, 86 Travellers, 19 Treasury Select Committee, 26 Trinity Church, 53 Trouble with Markets, The (Bootle), 4 trust, 40, 53 trusted adviser, 108–9, 125 truth, 101–5 bait and switch, 102–3 misleading vs. lying, 101 securities, issuing, 103–5 2 and 20 fee, 13 UBS Investment Bank, 9 unauthorised trading, 7, 80–1, 155 unethical behaviour, 68 UK Alternative Investment Market, 89 UK Business Growth Fund, 133 UK Code of Practice, 141 UK Independent Banking Commission, 4, 22 United Methodist Church, 54, 59 United Methodist Investment Strategy Statement, 59 US Federal Reserve, 24, 25 US Financial Crisis Inquiry Commission, 4 US Open, 126 US Senate Permanent Subcommittee on Investigations, 64, 73 US Treasury Department, 132 universal banks, 2, 21, 28, 67 untoward movement, 85 usury, 59–60 utilitarian, 84 utilitarian ethics, 49, 84, 139 values, 9, 46, 119–21, 148 Vedanta, 57 victimless crime, 82 virtue ethics, 37–8, 43–4 virtues, 9, 34 virtuous behaviours, 37 Vishnu, 57 Volcker, Paul, 25 Volcker Rule, 2, 25 voting shareholders, 29 Wall Street, 12, 19, 53 Wall Street Journal, 20 Wealth of Nations, The (Smith), 14 Wesley, John, 53 Wharf, Canary, 18 Williams, Rowan, 53 Wimbledon, 127 WorldCom, 12, 17, 20, 76 write-off, 80 zakat, 55 zero-sum games, 118–22


pages: 225 words: 11,355

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

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

In other words, the clearing house provided the first system of financial regulation. Voluntary self-regulation is not very popular these days. However, the simple fact is that no private clearing house has ever collapsed during a financial crisis. The history of formal regulation is less stellar. The United States has experienced two devastating structural financial crises and several lesser ones since the Federal Reserve was set up. The Northern Rock bank run in England (the first since 1866) happened after the U.K. abolished the old clearing house ‘‘club’’ and took up formal regulation. LONDON BECOMES MONEY MARKET TO THE WORLD The result of all these accidents of history was that England became the first national economy based on credit. Nothing really new in finance has been invented since. The building blocks have been simple to use once they actually existed.

., 103, 105, 121, 164 Mortgages, 7, 18, 25, 35, 41, 55–58, 61–64, 66, 71–73, 110, 113, 121, 130–134, 142, 165, 176, 185, 187 NASDAQ, 165 National Accounts (US), 6, 113 National Bank Act of 1864 (US), 38 negotiable instrument, 10, 33, 35, 38–39, 130, 145 New Deal, 56, 114, 117, 126, 128, 130, 141–143, 154, 158–159, 162–163, 166, 176, 181–182, 184, 187, 189 Newton, Sir Isaac, 137 Nikkei, stock index, 168, 171 Nixon, Richard M., 154–155 Northern Rock, 86 NOW (Negotiable Order of Withdrawal) account, 130 off-shore banking centers, 150 open market operations, 107–108, 145 OPM or ‘‘Other People’s Money,’’ 15–19, 22, 26–27, 39, 46, 61, 71, 87–88, 92–93, 104, 129, 144–145, 150, 165, 167 Index ‘‘options,’’ 54–55, 75, 77 overdraft, 37–38, 61, 78, 89–90 Pac-Man banking, 157, 159 panics, xix–xx, 2, 5, 19, 45, 48, 98, 102, 109–10, 121, 136, 140–141, 150, 164, 183; of 1873, 5, 103; of 1907, 103; of 2008, 52; use of, 139 ‘‘paper money,’’ xiv–xvi, 14, 29, 33, 35, 83, 97.


pages: 280 words: 79,029

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better by Andrew Palmer

Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, break the buck, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, implied volatility, income inequality, index fund, information asymmetry, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, margin call, Mark Zuckerberg, McMansion, money market fund, mortgage debt, mortgage tax deduction, Myron Scholes, negative equity, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative finance, railway mania, randomized controlled trial, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, Thales of Miletus, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

The downturn in America’s subprime-mortgage market had made it impossible for investors to value their holdings of securities backed by these types of loans. The interbank markets, where banks loan money to each other, had suddenly seized up, as institutions realized that they could not be sure of the standing of their counterparties. Something unexpected was happening to the moneymaking machine. My very first week in the job coincided with a deposit run at Northern Rock, a British lender that came unstuck when it could no longer fund itself in the markets. Some of my earliest interviews on the beat were with people dusting off the manual on how to deal with bank runs. Organizing guide ropes inside bank branches was one tactic: better that than have people spill out onto the street, signaling to others that they should join the line. One HSBC veteran happily recounted stories of the financial crisis that gripped Asia in the late 1990s, when tellers were instructed to bring piles of cash into view to reassure people that banks were overflowing with money.

., 32 Keys, Benjamin, 48 Kharroubi, Enisse, 79 Kickstarter, 172 King, Stephen, 99 Klein, David, 182 Krugman, Paul, xv Lahoud, Sal, 166 Lang, Luke, 153, 161–162 Laplanche, Renaud, 179, 184, 188, 190, 193–194, 196–197 Latency, 53 Law of large numbers, 17 Layering, 57 Left-digit bias, 46 Lehman Brothers, x, 44, 65 Lending direct, 84 marketplace, 184 payday, 200 relationship-based, 11, 151, 206–208 secured, xiv, 76 unsecured, 206 See also Loans; Peer-to-peer lending Lending Club, 172, 179–180, 182–184, 187, 189, 194–195, 197 Leonardo of Pisa (Fibonacci), 19 Lerner, Josh, 59 Lethal pandemic, risk-modeling for demographic profile, 230 exceedance-probability curve, 231–232, 232 figure 3 historical data, 228–229 infectiousness and virulence, 229–230 location of outbreak, 230–231 Leverage, 51, 70–71, 80, 186, 188 Leverage ratio, 76–77 Lewis, Michael, 57 Liber Abaci or Book of Calculation (Fibonacci), 19 LIBOR (London Interbank Offered Rate), 41 Liebman, Jeffrey, 98 Life expectancy government reaction to, 128–129 projections of, 124–127, 126 figure 2 ratio of young to older people, 127–128 Life-insurance policies, 142 Life-settlements industry, 142–143 Life table, 20 Limited liability, 212 Liquidity, 12–14, 39, 185–186 List, John, 109 The Little Book of Behavioral Investing (Montier), 156 Lo, Andrew, 113–115, 117–123 Loans low-documentation, 48–49 secured, 76 small business, 181, 216 student, 164, 166–167, 169–171, 182 syndicated, 41 Victory Loans, 28 See also Lending; Peer-to-Peer lending Logistic regression, 201 London, early fire insurance in, 16–17 London, Great Fire of, 16 London Interbank Offered Rate (LIBOR), 41 Long-Term Capital Management, 123 Longevity, betting on, 143–144 Loss aversion, 136 Lotteries, 212, 213 Low-documentation loans, 48–49 Lumni, 165, 168, 175 Lustgarten, Anders, 111 Lynn, Jeff, 160–161 Mack, John, 180 Mahwah, New Jersey, 52, 53 Marginal borrowers assessment of, 216–217 behavioral finance and, 208–214 industrialization of credit, 206 microfinance and, 203 savings schemes, 209–214 small businesses, 215–219 unsecured lending to, 206 Wonga, 203, 205, 208 Marginal borrowers (continued) ZestFinance, 199, 202, 205–206 Maritime piracy, solutions to, 151–152 Maritime trade, role of in history of finance, 3, 7–8, 14, 17, 23 Market makers, 15–16, 55 MarketInvoice, 195, 207, 217–218 Marketplace lending, 184 Markowitz, Harry, 118 Massachusetts, use of inflation-protected bonds in, 26 Massachusetts, use of social-impact bonds in, 98 Matching engine, 52 Maturity transformation, 12–13, 187–188, 193 McKinsey & Company, ix, 42 Mercator Advisory Group, 203 Merrill, Charles, 28 Merrill, Douglas, 199, 201 Merrill Lynch, 28 Merton, Robert, 31, 113–114, 123–124, 129–132, 142, 145 Mian, Atif, 204 Michigan, University of, financial survey by, 134–135 Microfinance, 203 Micropayment model, 217 Microwave technology, 53 The Million Adventure, 213–214 Minsky, Hyman, 42 Minsky moment, 42 Mississippi scheme, 36 Mitchell, Justin, 166–167 Momentum Ignition, 57 Monaco, modeling risk of earthquake in, 227 Money, history of, 4–5 Money illusion, 73–74 Money laundering, 192 Money-market funds, 43, 44 Monkeys, Yale University study of loss aversion with, 136 Montier, James, 156–157 Moody, John, 24 Moody’s, 24, 235 Moore’s law, 114 Morgan Stanley, 188 Mortgage-backed securities, 49, 233 Mortgage credit by ZIP code, study of, 204 Mortgage debt, role of in 2007–2008 crisis, 69–70 Mortgage products, unsound, 36–37 Mortgage securitization, 47 Multisystemic therapy, 96 Munnell, Alicia, 129 Naked credit-default swaps, 143 Nature Biotechnology, on drug-development megafunds, 118 “Neglected Risks, Financial Innovation and Financial Fragility” (Gennaioli, Shleifer, and Vishny), 42 Network effects, 181 New York, skyscraper craze in, 74–75 New York City, prisoner-rehabilitation program in, 108 New York Stock Exchange (NYSE), 31, 52, 53, 61, 64 New York Times, Merrill Lynch ad in, 28 Noncorrelated assets, 122 Nonprofits, growth of in United States, 105–106 Northern Rock, x NYMEX, 60 NYSE Euronext, 52 NYSE (New York Stock Exchange), 31, 52, 53, 61, 64 OECD (Organization for Economic Co-operation and Development), 128, 147 Oldfield, Sean, 67–68, 80–84 OnDeck, 216–218 One Service, 94–95, 105, 112 Operating expense ratio, 188–189 Options, 15, 124 Order-to-trade ratios, 63 Oregon, interest in income-share agreements, 172, 176 Organization for Economic Co-operation and Development (OECD), 128, 147 Overtrading, 24 Packard, Norman, 60 Pandit, Vikram, 184 Park, Sun Young, 233 Partnership mortgage, 81 Pasion, 11 Pave, 166–168, 173, 175, 182 Payday lending Consumer Financial Protection Bureau, survey on, 200 information on applicants, acquisition of, 202 underwriting of, 201 PayPal, 219 Peak child, 127 Peak risk, 228 Peer-to-peer lending advantages of, 187–189 auction system, 195 big investors in, 183 borrowers, assessment of, 197 in Britain, 181 commercial mortgages, 181 CommonBond, 182, 184, 197 consumer credit, 181 diversification, 196 explained, 180 Funding Circle, 181–182, 189, 197 investors in, 195 Lending Club, 179–180, 182–184, 187, 189, 194–195, 197 network effects, 181 ordinary savers and, 184 Prosper, 181, 187, 195 RateSetter, 181, 187, 196 Relendex, 181 risk management, 195–197 securitization, 183–184, 196 Peer-to-peer lending (continued) small business loans, 181 SoFi, 184 student loans, 182 Zopa, 181, 187, 188, 195 Pensions, cost of, 125–126 Perry, Rick, 142–143 Peterborough, England, social-impact bond pilot in, 90–92, 94–95, 104–105, 112 Petri, Tom, 172 Pharmaceuticals, decline of investment in, 114–115 Piracy Reporting Centre, International Maritime Bureau, 151 Polese, Kim, 210 Poor, Henry Varnum, 24 “Portfolio Selection” (Markowitz), 118 Prediction Company, 60–61 Preferred shares, 25 Prepaid cards, 203 Present value of cash flows, 19 Prime borrowers, 197 Prince, Chuck, 50–51, 62 Principal-agent problem, 8 Prisoner rehabilitation programs, 90–91, 94–95, 98, 108, 112 Private-equity firms, 69, 85, 91, 105, 107 Projection bias, 72–73 Property banking crises and, xiv, 69 banking mistakes involving, 75–80 behavioral biases and, 72–75 dangerous characteristics of, 70–72 fresh thinking, need for, xvii, 80 investors’ systematic errors in, 74–75 perception of as safe investment, 76, 80 Prosper, 181, 187, 195 Provisioning funds, 187 Put options, 9, 82 Quants, 19, 63, 113 QuickBooks, 218 Quote stuffing, 57 Raffray, André-François, 144 Railways, affect of on finance, 23–25 Randomized control trials (RCTs), 101 Raphoen, Christoffel, 15–16 Raphoen, Jan, 15–16 RateSetter, 181, 187, 196 RCTs (randomized control trials), 101 Ready for Zero, 210–211 Rectangularization, 125, 126 figure 2 Regulation NMS, 61 Reinhart, Carmen, 35 Reinsurance, 224 Relendex, 181 Rentes viagères, 20 Repurchase “repo” transactions, 15, 185 Research-backed obligations, 119 Reserve Primary Fund, 44 Retirement, funding for anchoring effect, 137–138 annuities, 139 auto-enrollment in pension schemes, 135 auto-escalation, 135–136 conventional funding, 127–128 decumulation, 138–139 government reaction to increased longevity, 128–129 home equity, 139–140 life expectancy, projections of, 124–127, 126 figure 2 life insurance policies, cash-surrender value of, 142 personal retirement savings, 128–129, 132–133 replacement rate, 125 reverse mortgage, 140–142 savings cues, experiment with, 137 SmartNest, 129–131 Reverse mortgages, 140–142 Risk-adjusted returns, 118 Risk appetite, 116 Risk assessment, 24, 45, 77–78, 208 Risk aversion, 116, 215 Risk-based capital, 77 Risk-based pricing model, 176 Risk management, 55, 117–118, 123, 195–197 Risk Management Solutions, 222 Risk sharing, 8, 82 Risk-transfer instrument, 226 Risk weights, 77–78 Rogoff, Kenneth, 35 “The Role of Government in Education” (Friedman), 165 Roman Empire business corporation in, 7 financial crisis in, 36 forerunners of banks in, 11 maritime insurance in, 8 Rotating Savings and Credit Associations (ROSCAs), 209–210 Roulette wheel, use of in experiment on anchoring, 138 Royal Bank of Scotland, 186 Rubio, Marco, 172 Russia, mortgage market in, 67 S-curve, in diffusion of innovations, 45 Salmon, Felix, 155 Samurai bonds, 27 Satsuma Rebellion (1877), 27 Sauter, George, 58 Save to Win, 214 Savings-and-loan crisis in US (1990s), 30 Savings cues, experiment with, 137 Scared Straight social program, 101 Scholes, Myron, 31, 123–124 Science, Technology, and Industry Scoreboard of OECD, 147 Securities and Exchange Commission (SEC), 54, 56, 57, 58, 64 Securities markets, 14 Securitization, xi, 20, 37–38, 117–122, 183–184, 196, 236 Seedrs, 160–161 Sellaband, 159 Shared equity, 80–84 Shared-equity mortgage, 84 Shepard, Chris, xii–xiii Shiller, Robert, xv–xvi, 242 Shleifer, Andrei, 42, 44 Short termism, 58 SIBs.


pages: 232 words: 76,830

Dreams of Leaving and Remaining by James Meek

Affordable Care Act / Obamacare, agricultural Revolution, anti-communist, bank run, Boris Johnson, centre right, Corn Laws, corporate governance, Donald Trump, Elon Musk, Etonian, full employment, global supply chain, illegal immigration, Jeff Bezos, low skilled workers, Martin Wolf, mega-rich, Neil Kinnock, North Sea oil, Northern Rock, obamacare, offshore financial centre, race to the bottom, Ronald Reagan, savings glut, Skype, sovereign wealth fund, special economic zone, Stephen Hawking, working-age population

But not everyone makes a clear distinction between the Brown who managed the Treasury carefully – which he did – and the Brown who did not act to stop the banks pursuing the demented expansion of their balance sheets. Which he also did. When, in 2007, Northern Rock had to be rescued by the Labour government after it suffered the first bank run in Britain since the nineteenth century, it turned out that the bank’s management had bundled together much of its future income stream from people making monthly mortgage repayments and used it as collateral to borrow £49 billion from around the world, with which it created more mortgages. It did this via a so-called charitable trust called Granite, based in the offshore tax haven of Jersey, which used, as its nominal charity, a tiny organisation from the North-East that helps those with Down’s syndrome. Northern Rock never bothered to tell the charity its name was being exploited in this way. It didn’t occur to the bank or the regulators that there was any problem with what they were doing.


pages: 267 words: 74,296

Unhappy Union: How the Euro Crisis - and Europe - Can Be Fixed by John Peet, Anton La Guardia, The Economist

bank run, banking crisis, Berlin Wall, Bretton Woods, business cycle, capital controls, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, debt deflation, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, fixed income, Flash crash, illegal immigration, labour market flexibility, labour mobility, light touch regulation, market fundamentalism, moral hazard, Northern Rock, oil shock, open economy, pension reform, price stability, quantitative easing, special drawing rights, supply-chain management, The Great Moderation, too big to fail, transaction costs, éminence grise

The trigger was the announcement that BNP Paribas, a French bank, was suspending withdrawals from two funds heavily exposed to subprime credit. It said a shortage of liquidity made the assets impossible to value. Any doubts that Europe would feel the force of the financial crisis were quickly dispelled. A few days earlier IKB, a German bank that had played recklessly with asset-backed investments, had been bailed out; a month later there was a run on Northern Rock, a British lender that would eventually be nationalised. Trichet’s quick and firm response prompted the Financial Times to pick him in December 2007 as its “Person of the Year”. It was the bankruptcy of Lehman Brothers on September 15th 2008 that really caused global panic. The decision by Ireland a fortnight later to extend an unlimited guarantee to all banking debt provoked both anger at a rash move that was sucking deposits from the rest of Europe and a scramble by other countries to issue their own guarantees.

., The Passage to Europe, Yale University Press, 2013 Appendix 4 How The Economist saw it at the time May 1st–7th 2010 July 10th–16th 2010 November 20th–26th 2010 December 4th–10th 2010 January 15th–21st 2011 March 12th-18th 2011 June 11th-17th 2011 June 25th-July 1st 2011 October 29th-November 4th 2011 November 5th-11th 2011 November 12th-18th 2011 November 26th-December 2nd 2011 February 18th–24th 2012 March 31st–April 6th 2012 May 19th–25th 2012 May 26th-June 1st 2012 July 28th-August 3rd 2012 August 11th-17th 2012 November 17th-23rd 2012 March 23rd-29th 2013 May 25th–31st 2013 September 14th–20th 2013 October 26th-November 1st 2013 January 4th-10th 2014 Index 1974–75 global recession 10 A accession treaties 112 accountability 125–129, 162 Alliance of Liberals and Democrats for Europe (ALDE) 130–131 Alogoskoufis, George 42 Amsterdam treaty 111–112, 193 Anastasiades, Nicos 2, 86–88 Anglo Irish Bank 53 Ansip, Anders 104 Arab spring 145–146 Argentina 5, 50 Armenia 149 Ashton, Catherine 28, 43, 144 Asmussen, Jörg 51, 82 Austria 111, 127 influence 108 interest rates 93 Azerbaijan 149 Aznar, José Maria 17 B Bagehot, Walter 9 bail-in rules 83, 90–91, 165 see also Cyprus bail-outs national approval requirement 127 no-bail-out rule 45, 162, 163–165 Balkans war 143 Bank of Cyprus 86–87 Bank of England 47, 157 bank recapitalisation 58–59, 74–77, 84 Bankia 72 banking sector characteristics 35 banking supervision see financial supervision banking union 23, 74–75, 77, 83–85, 90–92, 106, 165, 195 see also deposit guarantees; financial supervision Barnier, Michel 41, 138 Barroso, José Manuel early days of crisis 41 European Commission 97, 98, 141, 172 Greece 3, 78 Italy 63 Batista, Paulo Nogueira 46 Belarus 149 Belgium 17, 100, 127 Berlusconi, Silvio euro currency view 151 Italy’s failure to reform 59, 60, 62–63 People of Freedom party (PdL) 107 resignation 64 Black Wednesday 16–17 Blair, Tony 28, 112 BNP Paribas 40 Bolkestein directive 137 bond yields 37, 38, 61, 70, 89 bond spreads 37, 42, 70, 80, 88 Bootle, Roger 1 Bowles, Sharon 98, 129 Brandt, Willy 10 Bretton Woods 9–10 Brown, Gordon 24, 41, 48, 102, 112, 144 Bruegel think-tank 35, 74, 163, 166 budget deficits Maastricht ceiling 15 timescales for meeting targets 88–89 see also stability and growth pact budgets annual, European 21, 27, 118 central 13, 168–170 federal 164, 168 fiscal capacity 84 Bulgaria 108, 113, 124, 126, 147 Bundesbank 16, 23, 157 C Cameron, David 14, 17, 64–65, 117–119, 132, 140 Cannes G20 summit (2011) 62–64 Capital Economics 1 Cassis de Dijon judgment 21 Catalonia 178 CEBS (Committee of European Banking Supervisors) 35 central banks, national 22–23 Centre for European Policy Studies 34 Centre for European Reform 34 CFSP (Common Foreign and Security Policy) 142, 144 China 33, 139, 167 Chirac, Jacques 18, 23, 100, 127 Christofias, Demetris 86 Churchill, Winston 7, 115, 161 Clark, Christopher 178 climate change 135–136 Clinton, Hillary 144 Cockfield, Arthur 13 Committee of European Banking Supervisors (CEBS) 35 Committee of Permanent Representatives (COREPER) 20 Committee of Regions 21 common fisheries policy 100, 138 Common Foreign and Security Policy (CFSP) 142, 144 community method 19, 21–22 Competitiveness Pact see Euro Plus Pact complacency pre-crisis 36–37 Constâncio, Vítor 34 constitution proposals 26–27 convergence criteria 14–16, 41, 112, 193 COREPER (Committee of Permanent Representatives) 20 COSAC (Conference of Community and European Affairs Committees of Parliaments of the European Union) 133 Council of Ministers 20, 121, 130 Council of the European Union see Council of Ministers Court of Auditors 21 Court of First Instance 21 Crafts, Nicholas 9 credit ratings (countries) 69, 77–78, 108 Crimea 150 Croatia 113, 143, 147 current-account (im)balances 25, 31, 88–89, 167–168 customs union, German 9 Cyprus accession 147 bail-out 2, 85–88 entry to euro 112 finances pre-crisis 30 Cyprus Popular Bank (Laiki) 86–88 Czech Republic 113, 118 D Dayton agreement 143 de Gaulle, Charles 9, 22, 96 de Larosière, Jacques 41, 74 Deauville meeting between Sarkozy and Merkel 51–52, 102 debt mutualisation 74, 103, 166–167 defence and security 8, 143, 145 deflation 92 Delors, Jacques 11, 37, 97 Delpla, Jacques 167 democratic accountability 125–129, 162 democratic deficit 121, 129–132, 162–163, 171–172 Denmark European participation 112 justice and home affairs (JHA) 111, 139 ministerial accountability 133 opt-outs 139 referendums 16, 27, 132 shadowing of euro 113 single currency opt-out 110, 115 UK sympathies 119 deposit guarantees 5, 40–41, 74, 77, 91 Deutschmark 10, 12, 16 devaluation, internal 31, 65–66 Dexia 72 Dijsselbloem, Jeroen 24, 87 double majority voting 20, 114 Draghi, Mario 156 appointment as ECB president 23, 68 crisis-management team 2 demand for fiscal compact 64 Long Term Refinancing Operations (LTRO) 68–70 outright monetary transactions (OMT) 78–81 pressure on Berlusconi 59 “whatever it takes” London speech 79 Duisenberg, Wim 23 E e-commerce 137 east–west divide 108 ECB (European Central Bank) bond-buying 47–49, 59–60 crisis-management planning 2, 4 delays 156 European System of Central Banks 22 liquidity provision 40–42, 68–70 outright monetary transactions (OMT) 79–81, 164, 175–176 role and function 22–24, 39–40, 170–171 supervision 6, 99, 175, 195 troika membership 160–161 EcoFin meetings 20, 114 Economic and Financial Committee 20 economic and monetary union (EMU) 11, 112 Economic and Social Committee 21 economic imbalances 30–34 The Economist on ECB responsibilities 15 fictitious memorandum to Angela Merkel 1 ECSC (European Coal and Steel Community) 7–8 EEAS (European External Action Service) 142, 144 EEC (European Economic Community) 8 EFSF (European Financial Stability Facility) 26, 48, 55, 60–61, 81, 194 see also ESM (European Stability Mechanism) EFSM (European Financial Stabilisation Mechanism) 48 Eiffel group 120, 129, 164 elections, European 121, 129–130 Elysée treaty 100 emissions-trading scheme (ETS) 135–136 EMS (European Monetary System) creation of 11 exchange-rate mechanism 16 membership 15 EMU (economic and monetary union) 11, 112 EMU@10 36 energy policies 136 enhanced co-operation 111 enlargement 33, 146–147 environment summits 135 Erdogan, Recep Tayyip 148 ESM (European Stability Mechanism) 194 establishment 26, 55, 80–81 operations 58, 75, 76, 91 Estonia 65, 108 ETS (emissions-trading scheme) 135–136 EU 2020 strategy 137 euro break-up contingency plans 2–3 convergence criteria 14–16, 41, 112, 193 crash danger 47–48 introduction of 4, 18 notes and coins 18 special circumstances 3–4 euro crisis effect on world influence 143–146 errors 155–161 focus of attention 135–141 Euro Plus Pact 55, 195 euro zone 4 economic dangers 175–178 increasing significance of institutions 113–114, 120 performance compared with US 154–155 political dangers 175–178 political integration 125 trust 173 Eurobonds 54, 59, 74, 166–167 Eurogroup of finance ministers 24, 114 European Banking Authority 114, 195 European Central Bank (ECB) bond-buying 47–49, 59–60 crisis-management planning 2, 4 delays 156 European System of Central Banks 22 liquidity provision 40–42, 68–70 outright monetary transactions (OMT) 79–81, 164, 175–176 role and function 22–24, 39–40, 170–171 supervision 6, 99, 175, 195 troika membership 160–161 European Coal and Steel Community (ECSC) 7–8 European Commission commissioners 19, 172 errors 160 future direction 171–172 influence and power 96–97, 99, 119, 125 intrusiveness 127, 140–141 organisation 19 presidency 131, 144 proposals for economic governance 50 European Community 12 European Council 20, 98–99 European Court of Human Rights 21 European Court of Justice 21 European Defence Community 8 European Economic Community (EEC) 8 European External Action Service (EEAS) 142, 144 European Financial Stabilisation Mechanism (EFSM) 48 European Financial Stability Facility (EFSF) 26, 48, 55, 60–61, 81, 194 see also European Stability Mechanism (ESM) European Financial Stability Mechanism 26 see also European Stability Mechanism (ESM) European Investment Bank 21 European Monetary Institute 22 European Monetary System (EMS) creation of 11 exchange-rate mechanism 16 membership 15 European Parliament 20–21, 97–98, 99, 100, 119, 121, 129–132, 171 European People’s Party 117, 127, 130–131 European Political Co-operation 142 European semester 25, 195 European Stability Mechanism (ESM) 194 establishment 26, 55, 80–81 operations 58, 75, 76, 91 European Systemic Risk Board 41 European Union driving forces for monetary union 12–13 expansion 26 historical background 7–12 treaty making 26–28 world influence 140, 142–150 European Union Act (2011) 117, 132 Eurosceptics 13, 123 Finns Party 124 Jobbik 125 League of Catholic Families 125 National Front 124 Party of Freedom (PdL) 124 UK Independence Party (UKIP) 118, 125, 140 excessive deficit procedure 24, 88–89, 194, 195 exchange-rate systems 3, 9–11 exchange rates 164 F Farage, Nigel 98, 118 Federal Deposit Insurance Corporation (FDIC) 77 Federal Reserve (US) 23, 47, 48, 157 federalism 19, 110, 116, 161–165, 168–170, 177–178 financial integration 35–36 financial supervision 195 ECB 6, 99, 175, 195 Jacques de Larosière proposals 41 national 23, 35 single supervisor 76–77, 83–84, 90 Finland accession 26, 111 Finns Party 124 influence 108 ministerial accountability 133 fiscal capacity 84 fiscal compact treaty 25–26, 64–65, 118, 194–195 fiscal policy, focus on 30–31 Five Star Movement 124, 126 fixed exchange-rate systems 3, 9–10 Foot, Michael 116 forecasts, growth 92 foreign policy 142–143 Fouchet plan 22 France credit rating 69, 103 current-account balance 168 EMS exchange-rate mechanism 16 excessive deficit procedure 89 GDP growth 32 and Greece 44 influence 100–104, 142–143 Maastricht deal 12, 16 public debt 159 public opinion of EU 123, 124 single currency views 16–17 unemployment 159 veto of UK entry 115 vote to block European Defence Community 8 freedoms of movement 8, 13 G Gaulle, Charles de 9, 22, 96 Gazprom 136 GDP growth 32 Georgia 149 Germany 2013 elections 90, 106, 125 bond yields 37, 89 Bundesbank 16, 23, 157 constitutional (Karlsruhe) court 45, 95, 128, 158 credit rating 69, 77–78 crisis management errors 155–156 current-account surplus 89, 105, 167–168 demands post Greek bail-out 50–51 economic strengths and weaknesses 14 GDP growth 32 and Greece 44 influence 100–106 Maastricht deal 12, 15–16 national control and accountability 128, 133 parliamentary seats 100 political parties 93, 125 public debt 159 public opinion of EU 123 unemployment 159 unification 16 Zollverein 9 Giscard d’Estaing, Valéry 11, 18, 26, 100 Glienicker group 163, 170 gold standard 9–10 Golden Dawn 124 government spending (worldwide) 4 governments, insolvency of 50 great moderation 31 Greece 2012 election 73, 126 bail-out deal 45–47, 56–58, 65–67, 70, 158 bond yields 37, 61–62 current-account balance 168 debt crisis 42–45 euro membership 18, 112, 115 finances post bail-out 93–94 finances pre-crisis 30, 71 GDP growth 32 potential euro exit 1–5, 81–83 public debt 159, 166 public opinion of EU and euro 113, 123, 124 referendum on bail-out 2, 61–62 unemployment 159 Gros, Daniel 34 H Hague, William 151 Haider, Jörg 127 Hamilton, Alexander 162, 167 Heath, Edward 10, 116 Heisbourg, François 104 Hollande, François 73–74, 89, 103–104, 127 proposed reforms 177 Hungary 41, 113, 126, 147 Hypo Real Estate 41 I Iceland 53, 147 ideological differences 114–115 IKB Deutsche Industriebank 40 immigration 139–140, 146, 147 impossible trinity 13 inter-governmentalism 96, 128, 174 interest rates 93, 164 internal devaluation 31, 65–66 International Monetary Fund (IMF) banking union 74 crisis-management planning 2, 4–5 Cyprus 86–87 errors 160–161 euro zone support 48 Greece 44–46, 56–57, 66, 83, 93–95, 160 Latvia 65 rainy-day funds 169–170 special drawing rights (SDR) 63 Iraq 143 Ireland 89, 110 bail-out 53–54, 56, 57, 89 bank crises 40, 71 bond yields 37, 47, 53, 61, 89 current-account balance 168 finances pre-crisis 30 GDP growth 32 influence 107 opt-outs 111, 139 public debt 159, 166 public opinion of EU 123 referendums 27, 28, 132 unemployment 159 Italy 2013 elections 107, 124, 126 bond yields 37, 61, 89 convergence criteria 17 current-account balance 168 danger of collapse 59 EMS exchange-rate mechanism 16 excessive deficit procedure 89 GDP growth 32 influence 100, 104, 107 interest rates 93 public debt 159, 166 public opinion of EU 123 single currency views 17 unemployment 159 J Jenkins, Roy 11 Jobbik 125 Juncker, Jean-Claude 98, 104, 177 candidate for Commission Presidency 131 EU 2005 budget crisis 28 Eurobonds 54 Eurogroup president 24 justice and home affairs (JHA) 139 K Karamanlis, Kostas 42 Karlsruhe constitutional court 45, 95, 128, 158 Kauder, Volker 105 Kerry, John 144 Kohl, Helmut 12, 18, 100 L labour markets 14, 33–34 Lagarde, Christine 51, 58, 62, 92 Laiki 86–88 Lamers, Karl 111 Lamont, Norman 17 Larosière, Jacques de 41, 74 Latin Monetary Union 9 Latvia 41, 65, 67, 88, 108 Lawson, Nigel 16 League of Catholic Families 125 legislative path 21–22 Lehman Brothers, ECB reaction to collapse 4 Letta, Enrico 107–108 Libya 143, 145 Lipsky, John 57 Lisbon treaty 28, 45, 194 foreign policy 142 institutions 20, 131 justice and home affairs (JHA) 139 subsidiarity 133 voting 20, 114 Lithuania 88, 113, 153 Long Term Refinancing Operations (LTRO) 68–70, 72 Luxembourg 77–78, 100, 108, 169 Luxembourg compromise 97 M Maastricht treaty 11–12, 15, 22, 142, 193 opt-outs and referendums 16, 110–111 MacDougall report (1977) 13, 169 Major, John 12, 111, 116 Malta 100, 112 Maroni, Roberto 34 Mayer, Thomas 1 McCreevy, Charlie 41 MEPs 20–21, 130 Merkel, Angela 2013 re-election 90 banking union 74–77 Cannes G20 summit (2011) 63–64 crisis response 40–41, 44 European constitution 28 fictitious memorandum to 1 future direction 178 power and influence 89, 102–106, 153 Sarkozy collaboration 60, 61–62, 102–103 support for Cyprus 86 support for Greece 5, 45, 49–52, 81–82 support for UK 118–119 union method 22, 128 voter support 125 Messina conference 8, 115 migration 139–140, 146, 147 Miliband, David 144 Mitterrand, François 11, 12, 18, 100 Mody, Ashoka 163 Moldova 149 Monnet, Jean 8, 152 Montebourg, Arnaud 104 Montenegro 147 Monti, Mario 64 influence 70, 75–76, 107 A New Strategy for the Single Market (2010) 137–138 Morocco 146 Morrison, Herbert 8 Morsi, Muhammad 145 Moscovici, Pierre 75 multi-annual financial framework 21, 27, 118 Mundell, Robert 12–13 mutualisation of debt 74, 103, 166–167 N national budgets 89, 125 National Front 124 NATO defence spending targets 145 European security 8 membership 110 Netherlands credit rating 77–78 excessive deficit procedure 89 influence 100, 108 ministerial accountability 133 UK sympathies 119 Nice treaty 194 no-bail-out rule 45, 162, 163–165 north–south divide 33–34, 108 Northern Rock 40 notes and coins 18 Nouy, Danièle 90 Nuland, Victoria 149 O Obama, Barack 63 official sector involvement (OSI) 83 OMT (outright monetary transactions) 79–81, 164, 175–176 Germany’s constitutional court judgment 95, 128 optimal currency-area theory 12–13, 14–15 Orban, Viktor 126 Osborne, George 117, 119 OSI (official sector involvement) 83 outright monetary transactions (OMT) 79–81, 164, 175–176 Germany’s constitutional court judgment 95, 128 P Pact for the Euro see Euro Plus Pact Papaconstantinou, George 43 Papademos, Lucas 64 Papandreou, George 56, 60 election 43 Greek referendum 61–62 resignation 2, 64 Party of Freedom 124 Poland 109, 113 Policy Exchange 1 political parties 124–125, 139–140 political union 10, 12, 133–134 Pompidou, Georges 10 Poos, Jacques 143 Portugal 110 bail-out 54, 57, 89–90 bond yields 37, 47, 53, 61, 89 public opinion of EU and euro 113 power, balance of 99–101 price stability goal of ECB 23 private-sector involvement (PSI) in debt restructuring 51–52 Prodi, Romano 17, 25, 97 Progressive Alliance of Socialists and Democrats (S&D) 130–131 public debt 15, 158–159 see also sovereign debt public opinion of EU and euro 121–124 Putin, Vladimir 149–150 Q qualified-majority voting 13, 20, 99, 121 negative qualified-majority voting 25, 195 quantitative easing (QE) 47, 15 R Rajoy, Mariano 70, 75–76, 127 recapitalisation, bank 58–59, 74–77, 84 redenomination 3–4, 153–154, 175 Reding, Viviane 139 referendums 27, 28, 121–122, 132 REFIT initiative 172 Regling, Klaus 26 Renzi, Matteo 107–108 rescue fund see European Stability Mechanism (ESM) resolution mechanism 90–91, 165, 195 single resolution mechanism (SRM) 195 single supervisory mechanism (SSM) 195 Romania 41, 108, 113, 124, 126, 147 Rome treaty 8, 97, 110, 193 Rösler, Philipp 78 Rueff, Jacques 9 Rumsfeld, Donald 143 Russia, influence on Ukraine 149–150 Rutte, Mark 77 S Samaras, Antonis 2, 78, 82, 93–94 Santer, Jacques 97 Sarkozy, Nicolas crisis response 40–41, 44 economic governance 49–50 European constitution 28 LTROs and the Sarkozy trade 69 Merkel collaboration 51–52, 60, 61–62, 102–103 Schäuble, Wolfgang 62, 75, 84, 90–91, 106, 111, 154 Schengen Agreement 110, 111–112 Schmidt, Helmut 11, 100 Schröder, Gerhard 18, 101, 127 Schulz, Martin 131 Schuman Day 8 Schuman, Robert 7–8 Scotland 112, 178 SDR (special drawing rights) 63 Securities Market Programme (SMP) 48, 79 services directive 34 Shafik, Nemat 65 Sikorski, Radek 109 Simitis, Costas 18 Simms, Brendan 179 single currency benefits 152 club within a club 112 driving forces 12–14 importance of 113 vision for 9 see also euro Single European Act 13, 193 single market 4, 137–138, 174–175 Sinn, Hans-Werner 101 six-pack 25, 50, 195 Slovakia 112 adoption of euro 41 influence 108 Slovenia 88–89, 112 influence 108 SMP (Securities Market Programme) 48, 79 snake in the tunnel 10 Solana, Javier 142 sovereign debt 165–166 see also public debt Spain 110 bail-out 70–73, 89 bank recapitalisation 84 bond yields 37, 89 CDS premiums 72 current-account balance 168 danger of collapse 59 excessive deficit procedure 89 finances pre-crisis 30 GDP growth 32 influence 107 public debt 159 public opinion of EU 123, 124 single currency views 17 unemployment 159 special drawing rights (SDR) 63 stability and growth pact 18, 24, 29, 50–51, 127, 194 Stark, Jürgen 59, 106 Steinbrück, Peer 43 Strauss-Kahn, Dominique 24, 44, 57 stress tests, bank 72, 175 subsidiarity 133, 141 Sweden 109, 111, 112 euro opt-out 18, 115 UK sympathies 119 Syria 145 Syriza 124 T Target II 157 Thatcher, Margaret 27, 110, 116 third energy package 136 Tilford, Simon 34 Tindemans, Leo 111 trade policy 138 Transatlantic Trade and Investment Partnership (TTIP) 138–139 treaty making and change 26–27, 173–174 Treaty of Amsterdam 111–112, 193 Treaty of Lisbon 28, 45, 194 foreign policy 142 institutions 20, 131 justice and home affairs (JHA) 139 subsidiarity 133 voting 20, 114 Treaty of Nice 194 Treaty of Rome 8, 97, 110, 193 Treaty on European Union (Maastricht treaty) 11–12, 15, 22, 142, 193 opt-outs and referendums 16, 110–111 Treaty on Stability, Co-ordination and Governance (TSCG) see fiscal compact treaty Tremonti, Giulio 54, 60 Trichet, Jean-Claude 151, 156 bond-buying 47–48, 52–53 crisis-management planning 2 early warnings 39–40 ECB president 23 IMF 44 Italy 59 True Finns 124 Turkey 132, 147, 148 Tusk, Donald 109, 114 two-pack 25, 89, 195 U UK Independence Party (UKIP) 118, 125, 140 Ukraine 149–150, 179–180 unemployment 158–159, 170 union method 19, 22 United Kingdom current-account balance 168 economic strengths and weaknesses 14 EMS exchange-rate mechanism 16 euro crisis reaction 117–118 euro membership 112 European budget contribution 27–28 European involvement 8, 10, 12, 115–119 future status 174–175 influence 100–101, 106, 109, 142–143 initial application to join EEC 9 opt-outs 110–111, 139 public opinion of EU 123 single currency views 17 United Left party 124 United States abandonment of gold standard 10 federalism model 177 foreign policy 143 performance compared with euro zone 154–155 Urpilainen, Jutta 77 V Van Gend en Loos v Nederlandse Administratie der Belastingen (1963) 21 Van Rompuy, Herman 98 crisis-management planning 3 Cyprus 87 European Council presidency 20, 28 Italy 63 roadmap for integration 74–75, 84, 173 support for Greece 43–45 Venizelos, Evangelos 57, 62 Verhofstadt, Guy 131 Véron, Nicolas 35 Vilnius summit 149 von Weizsäcker, Jakob 166 W Waigel, Theo 17–18 Wall Street flash crash 47 Weber, Axel 49, 56, 106 Weidmann, Jens 40, 80, 82 Weizsäcker, Jakob von 166 Werner report (1971) 10 Wilson, Harold 116 Wolfson Prize 1 World Bank 33 World Trade Organisation 138–139 Y Yanukovych, Viktor 149 Z Zapatero, José Luis Rodríguez 59, 62 Zollverein 9 PublicAffairs is a publishing house founded in 1997.


pages: 421 words: 128,094

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

activist fund / activist shareholder / activist investor, asset allocation, banking crisis, Bonfire of the Vanities, business cycle, carried interest, collateralized debt obligation, corporate governance, corporate raider, credit crunch, diversification, diversified portfolio, fixed income, Gordon Gekko, margin call, Menlo Park, mortgage debt, new economy, Northern Rock, risk tolerance, Rod Stewart played at Stephen Schwarzman birthday party, Sand Hill Road, sealed-bid auction, Silicon Valley, sovereign wealth fund, The Predators' Ball, éminence grise

There was the collapse of the two Bear Stearns hedge funds the week of Blackstone’s IPO in June. The same month Germany’s IKB Deutsche Industriebank, which had invested heavily in American subprime securities, had to be bailed out. In Britain, which had seen its own subprime boom, there was a run on the giant British savings bank Northern Rock in September 2007 when it could not sell new debt to fund itself. As newspapers filled with photos of depositors lined up around the block at Northern Rock branches waiting to retrieve their money, the British government finally stepped in. Until the spring of 2007, there had been a collective sense of denial about the mortgage problems and a persistent hope that they would not spread to other types of debt. But it was hard not to see the parallels to buyout lending—the escalating prices for companies, the extreme leverage, the loose lending terms, and the narrow margins for error.

Treasury Department and the Federal Reserve Bank scrambled to cobble together bailouts of financial institutions such as Lehman Brothers, Merrill Lynch, and American International Group in the autumn of 2008, they dialed up Blackstone and others, seeking both money and ideas. Private equity firms were also at the table when the British treasury and the Bank of England tried to rescue Britain’s giant, failing savings bank Northern Rock. (Ultimately the shortfalls at those institutions were too great for even the biggest private funds to remedy.) The U.S. government again turned to private equity in 2009 to help fix the American auto industry. As its “auto czar,” the Obama administration picked Steven Rattner, the founder of the private equity firm Quadrangle Group, and to help oversee the turnaround of General Motors Corporation, it named David Bonderman, the founder of Texas Pacific Group, and Daniel Akerson, a top executive of Carlyle Group, to the carmaker’s board of directors.


pages: 545 words: 137,789

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

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

In August and September, the amount of outstanding ABCP fell by about $370 billion. Many more-visible financial institutions also struggled to find financing. In late August, Countrywide Financial secured a $2 billion capital injection from Bank of America. Northern Rock, Britain’s fifth-biggest mortgage lender, wasn’t so lucky. The bank, which was based in Newcastle, a city in the northeast of England, didn’t have any direct connection to the U.S. subprime market, but its practice of raising large amounts of money from other financial institutions had prompted questions about its viability. In the middle of September, many of Northern Rock’s depositors started queuing up to withdraw their savings. The British government, fearing the depositors’ panic would spread, agreed to rescue the bank. Because of their quarterly reporting season, it wasn’t until October and November that the big American banks started to report some of the subprime losses that had been festering on their books since the summer.

Newton, Isaac New York Cotton Exchange New Yorker, The New York Mets baseball team New York State Common Retirement Fund New York Stock Exchange New York Times, The Book Review New York University (NYU) Stern School of Business New York Yankees baseball team Nightingale, Florence “NINJA” mortgage loans Nixon, Richard Nobel Prize noise traders Nordhaus, William Northern Rock Norway Nothaft, Frank Obama, Barack Objectivist Newsletter, The October Revolution oligopoly “On an Economic Equation System and a Generalization of the Brouwer Fixed Point Theorem” (von Neuman) O’Neal, Stan On Liberty (Mill) Only Yesterday (Allen) “On the Economic Theory of Socialism” (Lange) “On the Impossibility of Informationally Efficient Markets” (Grossman and Stiglitz) Organisation for Economic Cooperation and Development Organization of Petroleum Exporting Countries (OPEC) O’Rourke, Kevin O’Toole, Bob Ove Arup Ownit Mortgage Solutions Oxford University Pacific Investment Management Company Padilla, Mathew paradox of thrift Pareto, Vilfredo Pareto efficiency Parker Brothers Pasternak, Boris Paulson, Henry “Hank” Pearl Harbor, Japanese attack on Pender, Kathleen Penn Square Bank Pennsylvania, University of, Wharton School of Business Pentagon Papers, The Pericles Phelps, Edmund Philadelphia 76ers basketball team Philippines Phillips, A.


pages: 611 words: 130,419

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

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

Both of these indexes are based on questions that consumers answer about their impressions of the strength of the current and near-future economy. None of the questions used to construct these indexes asks respondents about the risk of a banking panic or a sudden stampede of investors, reflecting the changed narrative about business. But the change is not total, and financial panic narratives still have a chance to be rekindled, as we saw, for example, in the United Kingdom with the Northern Rock bank in 2007, the first banking panic there since 1866. Crowd Psychology Goes Viral Financial panic narratives have a strong psychological component, and a key concept here is crowd psychology. By the middle of the nineteenth century, Charles Mackay’s popular 1841 book Memoirs of Extraordinary Popular Delusions began to attract public attention to crowd psychology. Gustave Le Bon popularized the term itself in his best-selling 1895 book, The Crowd.

The interest in the Great Depression in 2009 is confirmed in Google Trends search counts as well, though not as dramatically as those shown in Figure 10.4. Ultimately, how do narratives of the Great Depression affect how we think about economic downturns today? Consider a narrative-based chronology of the 2007–9 world financial crisis, which taps into stories about nineteenth-century bank runs that were virtually synonymous with financial crises. After the Great Depression, bank runs were thought to be cured. The Northern Rock bank run in 2007, the first UK bank run since 1866, brought back the old narratives of panicked depositors and angry crowds outside closed banks. The story led to an international skittishness, to the Washington Mutual (WaMu) bank run a year later in the United States, and to the Reserve Prime Fund run a few days after that in 2008. These events then led to the very unconventional US government guarantee of US money market funds for a year.

See also brain Newcomb, Anthony, 35 “New Deal,” coined by Stuart Chase, 185 The New Financial Order (Shiller), 38 news media: creative during major stock market corrections, 75; economic narratives spread through, 3, 21; improving retention with narrative presentation, 77; international economic narratives and, 110; marketing-driven, 61–62; in modified SIR model, 297; reminding public on anniversaries of events, 76; searching for words and phrases in, x Nixon, Richard, 173 normalcy, 244, 252 North, Douglass, 14 Northern Rock bank run in 2007, 119, 135 novels: classical symphony as, 35; understanding human experience and, 16. See also fiction Noyes, Alexander Dana, 127, 164, 231 Nudge (Thaler and Sunstein), 278 nudge units, 277–78 NVIDIA Corporation, 20 O’Barr, William M., 15 Occupy Wall Street protest, 8, 225 office workplace: automation of, 204; labor-saving machinery narrative and, 186 Ohanian, Lee E., 132 oil embargo of 1973, 256 one-hit wonders, 41–42 Only Yesterday (Allen), ix–xi, 139 organ donation, narrative presentation of, 78 overlapping generations model, 24–25, 27f, 303n8 overproduction or underconsumption theory, 187–92 “Ownership Society” (Bush reelection slogan), 155 oxytocin, 54 Oz: The Great and Powerful (film), 172 Palme, Olof, 48–49 panic: at beginning of World War I, 93–94; creation of Federal Reserve and, 117; in financial crisis, 55–56, 86; following complacency, 55–56; Great Depression seen as, 128; inflation in 1970s and, 262; stock prices and, 228.


pages: 275 words: 84,980

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

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

It was caused (and here’s a surprise) by the banking sector, but in that case it was because they had been lending money to railway companies who couldn’t pay it back rather than to American homeowners who couldn’t pay it back. The British government then, as in 2008, had to respond. It suspended the Bank Act of 1844 to allow banks to pay out in paper money rather than gold, which kept them going, but they were not too big to fail and the famous Overend & Gurney went down. When it suspended payments after a run on 10 May 1866 (the last run on a British bank until the Northern Rock debacle) it not only ruined its own shareholders but caused the collapse of about 200 other companies (including other banks). The directors were, incidentally, charged with fraud, but they got off as the judge said that they were merely idiots, not criminals. The railway companies at the time held the same commanding position in the world’s largest economy as companies such as Apple and Exxon do in the United States today, so the impact on UK plc was substantial.

When your builder offers you crystal meth and you pay him, you are participating in the black economy. They define a total ‘shadow economy’ as the sum of the black and grey economies. They consider the financial crisis as one explanation of the growth in cash held but reject it. Looking at the detailed figures shows that there was a jump in cash held outside of banks around the time of the Northern Rock affair, but as public confidence in the banks was restored fairly quickly, and the impact of low interest rates on hoarding behaviour seems pretty marginal, there must be some other explanation for why the amount of cash out there kept rising. Two rather obvious factors that do seem to support the shape of the sterling cash curve are the increase in VAT to 20 per cent and the continuing rise in self-employment, both of which serve to reinforce the contribution of cash to the shadow economy.


pages: 332 words: 81,289

Smarter Investing by Tim Hale

Albert Einstein, asset allocation, buy and hold, buy low sell high, capital asset pricing model, collapse of Lehman Brothers, corporate governance, credit crunch, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, eurozone crisis, fiat currency, financial independence, financial innovation, fixed income, full employment, implied volatility, index fund, information asymmetry, Isaac Newton, John Meriwether, Long Term Capital Management, Northern Rock, passive investing, Ponzi scheme, purchasing power parity, quantitative easing, random walk, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, South Sea Bubble, technology bubble, the rule of 72, time value of money, transaction costs, Vanguard fund, women in the workforce, zero-sum game

Loan instruments are often called ‘fixed income’ securities, because the interest is fixed at the outset, or, alternatively they are called bonds. In general, the higher the risk of not getting your money back and the longer the time you lend your money for, the higher the rate of interest you will expect to be paid by the borrower. When you next place a bank deposit, remember that you are lending your money to the bank. Perhaps in this context, Icesave’s and Northern Rock’s high deposit rates were telling a useful story – their strategies were risky. The fortunes of a company are highly uncertain over time, which can result in wide movements in the price of a company’s shares as the market absorbs the latest release of information and how this will impact on the company’s future earnings. On the other hand, the cash flows of bonds are known, as is the maturity date.

market capitalisation emerging markets market efficiency market returns market risk, 2nd equities, 2nd market timing, 2nd, 3rd, 4th, 5th and DIY investors winning points from market-based returns market-beating strategies see active management/managers markets falling trying and failing to beat the market, 2nd, 3rd, 4th Marshall, Ray maturity (interest rate) risk, 2nd Meriwether, John Modern Portfolio Theory (MPT), 2nd money-weighted returns Morningstar, 2nd MPT (Modern Portfolio Theory) MSCI Emerging Markets Index MSCI World Index mutual funds, 2nd, 3rd MVO (means-variance optimisation) software Myners Report National Savings Certificates nest eggs noise and confusion reducing, 2nd Northern Rock Norway OEICs (open-ended investment companies), 2nd, 3rd, 4th lifestyle, risk-managed product choices off-menu assets, 2nd commodity futures gold hedge funds, 2nd, 3rd private equity, 2nd structured products, 2nd on-menu assets, 2nd, 3rd bonds commercial property defensive asset classes developed global equity markets emerging markets Return Engine asset classes smaller companies value equities online brokerage accounts, 2nd, 3rd, 4th, 5th administration optimisation software passive investors, 2nd fund costs index lifestyle/risk-managed funds product choices passive index fund providers vs active investors, 2nd, 3rd Paulson, John pensions active funds, 2nd contribution rates investing for retirement, 2nd estimating how much to save misselling target date funds tax on performance active managers and performance over time short-term, 2nd see also risk and return philanthropic works philosophy-free investing Piattelli-Palmarini, Massimo pitfalls for investors portfolio choices, 2nd financial capacity for losses financial need to take risk and gold risk profile/emotional tolerance for losses six Smarter portfolios summary matrix portfolio construction, 2nd, 3rd 90/10 portfolios approach to blended, 2nd bonds, 2nd, 3rd Defensive Mix diversification, 2nd, 3rd, 4th, 5th global, 2nd, 3rd, 4th, 5th, 6th and DIY investors emerging markets, 2nd, 3rd, 4th, 5th, 6th equity market diversifiers, 2nd growth-oriented Return Engine, 2nd long-term investors Modern Portfolio Theory (MPT), 2nd non-GBP currency exposure, 2nd past and future events smaller and value companies, 2nd, 3rd see also asset mix portfolios and DIY investors implementation, 2nd, 3rd maintenance, 2nd obsessive monitoring of rebalancing, 2nd, 3rd smarter and the stockbroking model taking an income from in retirement see also asset mix private equity, 2nd probability problems product choices, 2nd building-block benchmark choices choosing your market benchmark/proxy exchange-traded funds (ETFs) global home bias index-fund investing investment trusts lifestyle/risk-managed OEICs, 2nd mapping funds to passive products target date funds unit trusts/OEICs, 2nd product engineering psychometric testing, 2nd, 3rd rational thinking, 2nd, 3rd avoiding irrational behaviour REITs (global real estate), 2nd, 3rd, 4th, 5th return and risk characteristics, 2nd residual risk retirement, investing for, 2nd estimating how much to save return capture Return Engine asset classes developed global equity markets performance portfolio construction, 2nd returns and the average investor bonds conventional inflation-linked commodity futures developed global equity markets emerging markets on equities, and industry costs estimating future gold hedge funds improving on investment policy returns market returns and market timing market-based money-weighted REITs (global real estate), 2nd return history of building blocks time-weighted value equities see also risk and return risk, 2nd, 3rd, 4th bonds, 2nd choices of asset classes currency risk defensive assets equity risk, 2nd, 3rd five key investment risk factors and global diversification handling and hazards limited choices market risk, 2nd and portfolio choices REITs, 2nd residual risk-free assets smaller companies value equities, 2nd risk profiling, 2nd, 3rd psychometric testing risk and return, 2nd bonds conventional inflation-linked commodity futures defensive assets developed global equity markets emerging markets gold hedge funds and portfolio construction private equity REITs, 2nd Return Engine asset classes, 2nd smaller companies, 2nd structured products value equities, 2nd, 3rd risk tolerance and portfolio choices, 2nd risk-managed OEICs ROF (rip off factor) Samsung Electronics saving for retirement versus smarter investing, 2nd school fees Schwab, Charles Schwed, Fred, 2nd securities selection of, 2nd and active managers transfers to online accounts Selftrade Sharpe, William, 2nd, 3rd Shiller, Robert Siegel, Laurence Sinquefield, Rex Sippdeal Sipps smaller companies portfolio construction, 2nd, 3rd product choices, 2nd, 3rd benchmarks return and risk characteristics, 2nd size risk, 2nd the small-cap premium, 2nd, 3rd Spain Standard Chartered Bank stock market crashes stockbroking model strategic asset allocation structural risk on bonds structured products, 2nd and dividends principal protection risk and return Swensen, David, 2nd, 3rd, 4th, 5th on hedge funds on private equity tactical asset allocation see market timing Tanous, Peter target date funds taxes, 2nd, 3rd DIY investors, 2nd, 3rd, 4th personal allowances TER (total expense ratio) time-weighted returns Tobin, James Separation Theorem, 2nd ‘too good to be true’ investments, 2nd top-down approach total equity market total-expense ratios tracker funds see index funds tracking error fees and costs contributing to management experience effect on replication methods affecting size contributing to turnover contributing to Trump, Donald Tversky, Amos, 2nd unit trusts, 2nd, 3rd, 4th United Kingdom active funds, research on performance, 2nd equity funds and diversification industry costs of product choices underperforming the market FTSE 100 Index, 2nd, 3rd, 4th FTSE All-Share Index, 2nd, 3rd, 4th, 5th FTSE Index-linked gilts gilts, 2nd, 3rd, 4th, 5th, 6th and global equity markets index-linked investor behaviour and portfolio construction, global diversification tax breaks United States behaviour of average investors CGM Focus Fund equity fund performance index tracker funds private equity research on active management Russell 1000 Index treasuries Wilshire 5000 university fees value companies, 2nd, 3rd dividends outperformance of growth stocks portfolio construction, 2nd, 3rd product choices, 2nd benchmarks return and risk characteristics, 2nd, 3rd past returns Vanguard, 2nd, 3rd research on UK actively managed funds, 2nd venture capital, 2nd Vinik, Jeff Vodafone volatility bonds equity markets wealth creation ‘get rich, slow’ process wealth-destroying behaviour, 2nd, 3rd zero-sum game and hedge funds and investment philosophy, 2nd ‘A book of investment wisdom and common sense for the ages.


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, Bernie Madoff, Black Swan, buy and hold, centralized clearinghouse, clean water, 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

Carola Frydman and Dirk Jenter, “CEO Compensation,” Rock Center for Corporate Governance at Stanford University Working Paper no. 77 (March 19, 2010): “The literature provides ample evidence that CEO compensation and portfolio incentives are correlated with a wide variety of corporate behaviors, from investment and financial policies to risk taking and manipulation”; Lucian Bebchuk and Yaniv Grinstein, “Firm Expansion and CEO Pay,” National Bureau of Economic Research Working Paper no. 11886 (November 2005). 30. Bebchuk and Grinstein, “Firm Expansion and CEO Pay.” 31. In the United Kingdom, for example, it was RBS, which had embarked on rapid acquisition, and HBOS and Northern Rock, which had been aggressive in the market place, who found themselves in greatest trouble. 32. “Governing Banks” (Global Governance Forum/International Finance Corporation, 2010). 33. Upton Sinclair, “I, Candidate for Governor: And How I Got Licked” (University of California Press, 1994). (Originally printed 1936.) 34. Ronald J. Gilson and Jeffrey N. Gordon, “The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights,” March 11, 2013, Columbia Law Review, 2013, ECGI—Law Working Paper no. 197, Columbia Law and Economics Working Paper no. 438, Rock Center for Corporate Governance at Stanford University Working Paper no. 130, http://papers.ssrn.com/sol3/papers.cfm?

See National Employment Savings Trust (NEST) Nestor, Stilpon, 43 Netherlands, 90, 111, 113 collective pension system in, 60, 197, 199, 209, 264n6 fund governance regulation in, 108–9 pension beneficiaries and investment returns, 265n20 New York Stock Exchange: average holding period of traded stock, 63 financial services as percent of, 16 high-frequency trading and, 88 New York Times (newspaper), 77, 88 Nippon, 18 Normal curve, 161–63, 260n18, 261n38 real world phenomena and, 172–73 Northern Rock, 245n31 Nusseibeh, Saker, 140 One-way market for financial assets, 240n31 Ontario Teachers’ Pension Plan, 59, 111 Opportunities, fiduciary duty and, 140 Organisation for Economic Co-operation and Development, 109 Outcomes, measuring success using, 132 Oversight: regulation and, 150–51 trust in government and, 141 Owner, use of term, 235n25 Ownership: agency capitalism and, 74–80 capitalism and, 62, 83–93, 243n2 changing conception of, 62–63 corporate governance and, 22 derivatives and, 80–83, 93 economic attention deficit hyperactivity disorder and loss of, 63–68 election of directors and, 78–79 exercised by financial agents, 230 for long-term investors, 87 individual investor’s use of technology and, 90–92 institutional investors and, 3–4, 249n3 portfolio management function and, 246n36 promoting culture of, in investment, 222–24 tax policy and, 92 Oxford University, 122 Passive investing, 45 Pax World, 77 Pay for performance, institutional investors and, 112–13 Payments system, banks and, 16–17, 20, 22, 211–12 Pension funds: collective, 197, 199, 209, 263n1, 264n3, 264n6, 266n28 commonsense, 194–96, 199–202 fees, 97–98, 195–96, 233n5 governance of, 100–101, 104–6, 107–9 investment strategy, 195, 196 People’s Pension, 202–11 portability of, 196 purpose of, 194 regulation of, 107–9, 251n22 shift from defined benefit to defined contribution plans, 99–100, 104–5 time frame and, 207 Webster and Wallace’s, 14, 199–202, 209.


pages: 524 words: 143,993

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

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

Worse, contrary to what proponents of the new market-based financial system had long and, alas, all too persuasively argued, risk had been distributed not to those best able to bear it, but to those least able to understand it.7 Examples turned out to include IKB, an ill-managed German Landesbank, and no fewer than eight Norwegian municipalities.8 These plucked chickens duly panicked when it became clear what, in their folly, they had been persuaded to buy. On 13 September 2007, Northern Rock, a specialized UK mortgage-lender, which had been offering home loans of up to 125 per cent of the value of property and 60 per cent of whose total lending was financed by short-term borrowing, suffered the first large depositor ‘run’ on a British bank since the nineteenth century.9 Ultimately, the Labour government nationalized Northern Rock – paradoxically, very much contrary to the company’s wishes. Reliance on short-term loans from financial markets, rather than deposits, for funding of long-term illiquid assets had, it soon turned out, become widespread. This was also a dangerous source of vulnerability, since explicit and implicit insurance had made deposits relatively less likely to run than market-based finance.

Before 2000, unlike in the US, securitised credit had played a small role in the UK mortgage market but by 2007, 18% of UK mortgage credit was funded through securitization … But the UK also saw the rapid growth of on-balance sheet mortgage lending, with UK banks expanding their loan books more rapidly than deposit bases, placing increasing reliance on wholesale funding. At the aggregate level, this implied a significant increase in overseas bank financing of the UK current-account deficit. A crucial feature of the UK system in the run-up to the crisis, was therefore the rapid growth of a number of specific banks – Northern Rock, Bradford & Bingley, Alliance and Leicester and HBOS – which were increasingly reliant on the permanent availability of a large-scale interbank funding and/or on their continuous ability to securitise and sell down rapidly accumulating credit assets, particularly in the mortgage market.25 Second, banking went global. This was true for many institutions and countries, but it was dramatically true of the UK.


pages: 585 words: 151,239

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

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

Alas, Ozymandias had feet of clay: Lehman had invested massively in real estate and real-estate-related instruments, and when the housing market collapsed, so did the company. The financial crisis had been gathering strength long before Lehman’s collapse. In August 2007, BNP Paribas, a French bank, blocked withdrawals from its subprime mortgage funds. In September 2007, Britons lined up to take their money out of Northern Rock, a Newcastle-based bank, in the country’s first bank run since the collapse of Overend, Gurney and Company in 1866, a collapse that had inspired Walter Bagehot to write his great book on central banking, Lombard Street (1873). The Bank of England was eventually forced to take the bank into public ownership. On October 24, 2007, Merrill Lynch reported its biggest quarterly loss, $2.3 billion, in its ninety-three-year history.

Even with the breakdown of sophisticated risk management models and the failures of the credit rating agencies, the financial system would have held together had the third bulwark against crisis—the regulatory system—functioned effectively. But under the pressure of the crisis, the regulatory system also failed. This was not just an American problem. The highly praised UK Financial Services Authority failed to anticipate the bank run that threatened Northern Rock. The global credit rating agencies bestowed ratings that implied triple-A future smooth sailing for many highly toxic derivative products. The Basel Committee on Banking Supervision, representing regulatory authorities from the world’s major financial systems, promulgated a set of capital rules that failed to foresee the need that arose at the height of the crisis for much larger capital and liquidity buffers.

See also populism Nazi Germany, 4, 16, 186, 188, 271, 285 Netscape, 335, 354 New Deal, 25–26, 89, 187, 242–62, 415, 454 evaluation of, 248–62 New Economic Plan, 306 New Orleans Canal Bank, 79 New Republic, 178, 289–90 Newton, Isaac, 32, 163 New York City, 11, 32, 106, 215, 322–23, 392–93 New York Cotton Exchange, 79 New Yorker, 195 New York Port Authority, 412 New York Stock Exchange, 138, 143, 220–21 New York Tribune, 73, 130 Nike, 347 Nineteenth Amendment, 179 Nixon, Richard, 26, 299, 300, 302, 305–10, 318–19 Norris, Frank, 177 Norris, George, 231 Norris-La Guardia Act of 1932, 250 North American Free Trade Agreement (NAFTA), 230, 344, 346–47 Northern Pacific Railway, 114–15, 182 Northern Rock, 374, 384 North Korea, 82, 267 Novak, Michael, 333 Noyce, Robert, 351, 353 nylon, 265 OAPEC (Organization of Arab Petroleum Exporting Countries), 308–9 Obama, Barack, 406 obesity, 428 oil (oil industry), 49, 101–3, 128–29, 132–33 fracking revolution, 356–59 price of kerosene and crude oil, 102, 102 oil shocks, 103, 307–9, 313 Oklahoma! (musical), 111 Olson, Mancur, 300 Omidyar, Pierre, 3, 355 O’Neill, Paul, 368 Oregon, 5, 40 Otis, Elisha Graves, 110 Otis Elevator, 110 Owens-Corning Fiberglass, 265 “ownership society,” 372–73 Pacific Mail, 138 Packard, David, 352 Page, Larry, 354–55, 356 Palmisano, Samuel, 347 Pan Am, 286–87, 335 panic of 1819, 42 panic of 1893, 42, 43, 154, 192, 237 panic of 1907, 42, 131, 425 Papageorgis, Joann, 412 Paris Commune, 162 partnerships, 134 Pasteur, Louis, 430 Patent Act of 1790, 48 Patent Office, U.S., 48, 73, 98–99, 147 patents, 3, 8–9, 45–46, 48, 73, 98–99, 391, 397 issued for inventions (1901–2000), 148 Patterson, John Henry, 422 PayPal, 423, 439 penicillin, 284 Pennsylvania Railroad, 137, 138, 206 People’s Party, 172–73 per capita income (PCI), 84, 92 Perkins, George, 106–7 Perkins, Jacob, 38 Permanent Normal Trade Relations (PNTR), 346 Perot, Ross, 230, 344 personal computers (PCs), 350–51, 353–54 Pfizer, 312, 324 philanthropy, 126, 164, 357 Philip Crosby Associates, 344–45 Philip Morris, 290–91 Phillips curve, 309 Piggly Wiggly, 215–16 Pinckney, Charles Cotesworth, 67 Pittsburgh Steam Engine Company, 52 plows, 33, 47, 72–73 plutocracy, 3, 169 polio vaccines, 284 politics (politicians), 12, 23–26 cult of government, 176–79 Pollock v.


How to Be a Liberal by Ian Dunt

4chan, Alfred Russel Wallace, bank run, battle of ideas, Big bang: deregulation of the City of London, Boris Johnson, bounce rate, British Empire, Brixton riot, Carmen Reinhart, centre right, David Ricardo: comparative advantage, Dominic Cummings, Donald Trump, eurozone crisis, experimental subject, feminist movement, Francis Fukuyama: the end of history, full employment, Growth in a Time of Debt, illegal immigration, invisible hand, John Bercow, Kenneth Rogoff, liberal world order, Mark Zuckerberg, mass immigration, means of production, Mohammed Bouazizi, Northern Rock, old-boy network, Paul Samuelson, Peter Thiel, price mechanism, profit motive, quantitative easing, recommendation engine, road to serfdom, Ronald Reagan, Saturday Night Live, Scientific racism, Silicon Valley, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Winter of Discontent, working poor, zero-sum game

It was the death knell of an entire way of doing business. If the securities could not be valued, they could not be used as collateral. And if they could not be used as collateral, there would be no funding. That signified a general liquidity freeze: a bank run the size of the world. In September 2007, the British bank Northern Rock failed. Savers queued up outside its branches trying to take their money out. It seemed like a replay of the Great Depression, when lack of confidence in banks had pulverised the economy. But in fact, 80 per cent of Northern Rock’s funding had nothing to do with the queueing depositors. It wasn’t even particularly exposed to subprime lending. Its problem was that it relied on the money markets for funding. And they were closing down. Bear Stearns, the smallest of America’s five big investment banks, followed.

See also Nazism national sovereignty 1 Native Americans 1 nativism 1 natural monopolies 1 natural price 1 natural rights 1, 2 Nazism 1, 2, 3, 4, 5, 6, 7, 8, 9 Necker, Jacques 1, 2, 3 Nedelsky, Jennifer 1 The Netherlands, Party for Freedom 1 New Deal 1, 2, 3 New Model Army 1, 2, 3, 4, 5, 6 New Right 1 news 1, 2 newspapers 1, 2, 3, 4, 5 NGO boats 1 Nicolson, Harold 1 non-conformity 1 North American Free Trade Agreement (NAFTA) 1 Northern Ireland 1 Northern League (Lega Nord) 1, 2, 3 Northern Rock 1 novels 1 nudges 1 Oates, Titus 1 Obama, Barack 1, 2, 3, 4, 5, 6 offence 1 Okin, Susan Moller 1 Old Order Amish community 1 Olitskaia, Ekaterina 1 online shaming 1 Open Casket (Schutz painting) 1 Open Society Foundations 1 Operation Swamp 1 2 Operation Themis 1 Operation Triton 1 Operation Vaken 1 Orbán, Viktor 1, 2, 3, 4, 5, 6 Ordinance for the Regulating of Printing 1 Orenstein, Peggy 1 Orwell, George character and early life 1 A Clergyman’s Daughter 1 development of liberal values 1 Down and Out in Paris and London 1 on England 1, 2 identity and belonging 1, 2, 3, 4 language and propaganda 1 The Lion and the Unicorn 1 on nationalist tendency 1, 2 national identity 1 Nineteen Eighty-Four 1, 2 Notes on Nationalism 1 patriotism 1 police in Burma and elephant 1 on religion 1 The Road to Wigan Pier 1 Spanish Civil War 1 writings 1 Osborne, George 1 outrage 1 Overton, Richard 1, 2, 3, 4, 5, 6, 7, 8 The Arraignment of Mr.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

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

The bank kept going for a few days, paying them off as best it could, but in the end the crowd of creditors increased and the bank collapsed and failed, to the detriment of numberless people and great damage to this market, which was without a bank for four years, so that business shrank to an unbelievable extent. The Republic felt the effects of this, and took very extensive measures, but to no avail.36 Today, bank runs usually take a different form. Big depositors such as companies, pension funds and other financial institutions simply decide not to renew lending lines or certificates of deposit, so an ailing bank finds that its sources of funds dry up. Notwithstanding that, the British bank Northern Rock actually experienced in 2007 an old-style run in which worried retail depositors queued up outside branches to withdraw their money. Either way, the reality is that all money lenders that operate on the basis of fractional reserve banking are inherently technically bankrupt. Hence the quip generally attributed to Henry Ford: ‘It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before morning.’

E. 1 morbidity syndrome 1 More, Thomas 1, 2 Morgan, John Pierpont 1 Mozart 1, 2 Mussolini 1 Mutual Assured Production (Richard Katz) 1 Mynors, Humphrey 1 Napoleonic Wars 1 Nash, Ogden 1, 2 Native Americans 1 Nazi Germany 1 Netherlands 1 New Deal 1, 2 New Testament 1 Newton, Isaac 1, 2, 3 Nicholas Nickleby (Dickens) 1, 2, 3 Nigeria 1 Norquist, Grover 1 North, Roger 1 North and South (Mrs Gaskell) 1 North Korea 1 Northern Rock (UK) 1 Novalis 1 Nuffield, Lord 1 Obama, Barack 1, 2 Occupy movement 1, 2 oil states 1 da l’Osta, Andrea 1, 2 outsourcing 1, 2 paper currency 1 Parker, Dorothy 1 Pascal, Blaise 1, 2 Past and Present (Thomas Carlyle) 1 Paulson, John 1 Peasants’ Revolt (England) 1 pension funds 1 Pepys, Samuel 1 Peruzzi family 1 perverse incentives 1, 2 Petronius 1 Picasso 1, 2 Piketty, Thomas 1 Pitt, William the Elder 1 Pitt, William the Younger 1 Plato 1, 2, 3 Political Discourses (Hume) 1 Politics (Aristotle) 1, 2, 3, 4, 5 poll taxes 1 Pope, Alexander 1, 2, 3, 4, 5 Portugal 1 positional goods 1 Poussin, Nicolas 1 Prell, Michael 1 Priestley, Joseph 1 printing 1 Proposition 1 (California) 2 Protestant Ethic and the Spirit of Capitalism (Weber) 1 Prussia 1, 2, 3 public sector debt 1 R.


pages: 312 words: 93,836

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

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

If customers desperately begin to withdraw their deposits from a bank, it can quickly turn into a self-fulfilling prophecy. Because if you think that others will become afraid that the bank will run out of cash, it might be rational to empty your own savings account first. The typical illustration of a bank run is a picture of a very long queue outside a bank branch or an ATM. The images look similar, whether they are black and white and taken in New York or Berlin during the 1930s, outside Northern Rock in Newcastle in 2007, or somewhere in Greece during the summer of 2015. Before the fear spreads to the public, however, the atmosphere in the dealing rooms has already changed. Trading has turned into a situation in which the hot potato is passed around from trader to trader, from bank to bank. Lending money is a risky business and nobody wants the borrower to default. As a precaution, banks desperately try to borrow money from the others before they stop lending.

., General Theory of Employment, 102 Kipling, Rudyard, 127 KLIBOR (Kuala Lumpur), 37 Knight, Angela, 107 Lapavitsas, Costas, 6–7 layering, 204 Leeson, Nick, 250 ‘legacy issues’, 236 Lehman Brothers, 2, 10, 48–9, 59, 105, 162, 272; bankruptcy filing, 160; collapse of aftermath, 96 Lewis, Ken, 164 LIBOR, 19, 28, 76–7, 104, 127, 130, 147, 209, 234, 265; anti-competitive process, 186; banking lobby regulated, 180–1; ‘barometer of fear’, 96; benchmark significance, 192, 225; central banks perfection assumption, 49; controls deception, 184; crisis-induced ‘stickiness’, 106; crucial price, 13; daily individual quotes, 97; derivatives, see below; ‘Eurodollar futures’ origin, 126; FCA regulated, 282; ‘fear’ index, 15; fixing panels, see below; future direction of, 38; inaccuracy possibilities, 74; interbank money market gauge, 39; jurisdiction issue, 115; manipulation, 7, 12, 14, 78; manipulation impossibility assumption, 81; market-determined perception, 88, 149; mechanism, 104; minute change importance, 73; new unpredictability, 62; 1980s invention, 111; objective process ‘evidence’, 148; perception of, 119; players as referees, 80; post 2007 interest, 53; pre-2013 unregulated, 118; predicting difficulty, 70; regulatory oversight lack, 179; retail credit impact, 277; sanctioned secrecy, 181–2; savings and borrowings dominance, 107; scandal breaking, 81; state measure use, 151; three-months, 71; ‘too big to fail’, 279; use of limited post-scandal, 278 LIBOR derivatives market, 8, 45, 137–8, 232; autonomous development of, 111; banks made, 125; ‘community’, 190; -FX connected, 189; imaginary money market, 148; increased abstraction of, 144–6 LIBOR panel banks, 74–5, 79, 98, 118, 172, 282; -LIBOR implications, 52 big banks dominated, 173, 179–80; fixing process, 75; membership criteria, 184–5; punishment idea, 108; post-scandal membership, 186 LIBOR scandal, 77, 152, 167, 245; correctness attempts, 277; post- definition unchanged, 278; breaking of, 81; Wall Street Journal on, 238 LIBOR-OIS spread(s), 51, 54–5, 99, 151 LIFFE, 126–7 liquidity: and credit crunch 2008, 2; credit issues, 45; informal norms need, 284; provision ‘duty’ 229; risk, 42–3, 55, 70 Lloyds Bank, 153, 183; LIBOR fine, 83 long/short positions, 26 Lukes, Steven, 186 makers, price, 24 Malaysia, financial crisis, 36 Mankell, Henning, 235 ‘marked to market’ trading books, 62 market, the financial: ‘colour’ 202; ‘conventions’, 228–33; ‘courtroom’, 171; interbank spread choosing ‘image’, 229; liquidity risk, 42–3; making, see below; perfections of, 15; relationships dependent, 225–6; risks limits management failure, 281 market makers/making, 24, 72, 117, 201, 206, 217, 226–7, 257; ‘ability’, 185; cash-settled derivatives, 133; failure to manage, 281; NIBOR IRS, 132; profession of, 200; two-way price quoting, 228; visibility of, 202 Martin Brokers, 85 Mathew, Jonathan, 139 McAdams, Richard, 231 McDermott, Tracey, 282 Meitan Tradition, 100, 175 Merita Bank, 56 Merrill Lynch, 2–3, 8–9, 12, 46, 49, 59–60, 62, 64, 69, 92–3, 96, 140, 153, 155, 160–1, 164, 188, 272, 285; Bank of America takeover, 67; bonuses, 10, 162–3; financial centre, 48; International Bank Limited Dublin, 4; mismarking, 68; risk taking encouraged, 281; silence rule, 242 Midland Montagu (Midland Bank Stockholm Branch), 20, 22–3, 27, 29; Stockholm, 22, 29 ‘Millenium bug’ fears, LIBOR impact, 44 mismarking, 9 mistakes, fear of, 26 Mollenkamp, Carrick, 98 ‘monetary transmission mechanism’, 39 money market(s): decentralised, 224; freeze, 110; international basis, 112; ‘risk premium’, 42; stable illusion-making, 106; -state link, 224 Moody’s, 96 morals, 66; morality, 69 Morgan Stanley, 49, 193, 223, 272 mortgage bonds, 21 NASDAQ stock exchange, transparency, 220 New York 2001 attacks, 263 New York Times, 4, 9, 11, 163, 241, 243 NIBOR (Norwegian Interbank Offered Rate), 28, 72, 130–1; fixing dates, 76; inaccurate fixing, 74; IRS market, 132; new unpredictability, 62; one month IRS market, 136 nicknames, use of, 25–6 Nordbanken, nationalised, 27 Nordic bank branches, 30 Norges Bank, NIBOR use, 152 Norinchukin Bank, 153 Northern Rock, Newcastle queues, 109 Norway, banking system, 131 ‘objective’ fact, LIBOR, 149 ‘off-balance-sheet’, trading, 137–8 official interest rate, predicting, 38 OIS (overnight index swap), 51; see also LIBOR-OIS one month IRS market, 136 OPEC (Organization of the Petroleum Exporting Countries), US dollar surpluses, 113 options desk, FX, 214 ‘over-the-counter’ trades, 63 derivatives, 129, 134; interest rate options, 130; markets, 227 Philippines, financial crisis, 37 Philips, cassette launch, 111 PIBOR (Paris Interbank Offered Rate), 19, 127 post scandals, reforms, 282 price(s), as interactions, 200; brokers indications role, 87; ‘resolution hypothesis’, 218 primary dealers, 175, 178 privacy, individual rights to, 167 Rabobank, LIBOR fine, 83, 153, 282 RBC, bank, 223 RBS, bank, 92, 153, 185, 188, 192, 220–1, 223, 284; LIBOR scandal fine, 83 reciprocity: -and trust, 226, 284; informal agreements, 228 regret, fear of, 258 regulatory arbitrage: Eurodollar market prompting, 118; platform for, 114 ‘reputation’, 185 respect, among traders, 267 Reuters, 19, 79, 151; Dealing, 41, 195, 260; Dealing 2000–2, 29, 34, 194; indicative prices, 62; screen price, 53 risk, 135; buzz of, 261–2; limits breaking, 274; ‘loss aversion’, 255; managers, 253; organizational limits, 250; pressures for, 63 risk taking: addictive, 262; enjoyment of, 260; fear control, 263; increase, 73; individualistic, 262; reward anticipation, 254; reward interpretation, 259; supervision need, 253 risk takers, 270; respect among, 268–9 Robert, Alain, 260 ‘rogue traders’, 1, 237; ‘bad apples’ narrative, 237, 240, 246, 279; fame, 252; fascination with, 246; losses, 259; ranking list, 250; risk list, 251; scandals, 258; stigma, 247 rogue trading, 274; definitions, 249; labelling, 248; risk link, 250 Royal Bank of Canada, 153 RP Martins, 153 rules of the game, loyalty to, 25 ‘run-throughs’, 87–9, 226–7 Russia, financial crisis, 36 Ryan, Ian, 3, 9, 68 Sanford C.


pages: 305 words: 98,072

How to Own the World: A Plain English Guide to Thinking Globally and Investing Wisely by Andrew Craig

Airbnb, Albert Einstein, asset allocation, Berlin Wall, bitcoin, Black Swan, bonus culture, BRICs, business cycle, collaborative consumption, diversification, endowment effect, eurozone crisis, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, Long Term Capital Management, low cost airline, mortgage debt, negative equity, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, passive income, pensions crisis, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Silicon Valley, smart cities, stocks for the long run, the new new thing, The Wealth of Nations by Adam Smith, Yogi Berra, Zipcar

As John Maynard Keynes said: “The market can remain irrational longer than you can remain solvent.” Put another way, this is a classic example of “greater fool theory”. As long as there was a “greater fool” and an equally foolish bank willing to fund them, the market carried on going up, even though people were making quite ridiculous decisions about the “value” of the property they were buying. The Northern Rock situation in the UK was a direct result of this. In the US the whole edifice began crashing down in 2007, as more and more people were unable to fund their mortgage payments. We have seen how this has played out in the US: the most overheated markets, such as Miami and Los Angeles, have seen prices fall as much as 70 per cent. In some instances, they have still not found a floor. At the time of writing, the Case-Shiller Index of the twenty biggest cities in the US is down 34 per cent since the peak, and house prices are back to where they were nine years ago.

Most individuals are not able to borrow money to invest in shares or commodities, for example, though there are exceptions – usually wealthy individuals with a track record and a private banking relationship, or those that know how to use spread betting effectively. Mortgages enable individuals to control an asset with a value significantly more than the deposit they have saved. In a strong market this is obviously great news for the investor; for the last several years it was common practice to be able to buy a property with only a deposit of between 5 and 10 per cent. Lenders such as Northern Rock were even offering 110 per cent mortgages, effectively lending buyers their deposit. In a strong market, this is good news for property investors. If you can put down £25,000 (or even less) to control a £250,000 property, for example, and that asset then increases in value sufficiently fast, you can build real wealth very quickly. However, using debt (otherwise known as leverage or gearing) to buy any asset is a double-edged sword.


pages: 354 words: 99,690

Thinking About It Only Makes It Worse: And Other Lessons From Modern Life by David Mitchell

bank run, Boris Johnson, British Empire, cognitive dissonance, collapse of Lehman Brothers, credit crunch, don't be evil, double helix, Downton Abbey, Etonian, eurozone crisis, haute cuisine, Julian Assange, lateral thinking, Northern Rock, offshore financial centre, payday loans, plutocrats, Plutocrats, profit motive, sensible shoes, Skype, The Wisdom of Crowds, WikiLeaks

So the country’s development producers have been racking their brains to think of other careers that can be staffed using television shows. Here are just a few of the ideas currently being considered by broadcasters. Bankers You Can Bank on Me! is a collaboration between Channel 4 and HM Treasury. Alistair Darling has given us an unprecedented challenge: we’ve got just 16 weeks to run Northern Rock into the ground. We’re on a quest to find the next generation of ludicrously overpaid alpha males bent on bringing down civilisation with their fecklessness! Just when most bankers are repenting, resigning or both, we’ll scour the country’s estate agencies and lap-dancing clubs for their replacements. We’re looking for people with towering self-esteem and the morals of a virus but who, when the chips are down, behave like a frightened herd of sheep scampering towards a giant mincing machine because it’s been painted to look like grass.

sketch of 1 closest we’ve come to electing a genocidal maniac, 1 and Iraq invasion 1, 2 Blatter, Sepp 1 Blears, Hazel 1 Bloom, Godfrey 1 Blumenthal, Heston 1 Boat Race 1 body weight 1 bottom-wiping 1 Bowers, Judge Peter 1, 2 Box of Delights, The 1 Boyle, Danny 1 Boyle, Frankie 1, 2, 3 Boyle, Susan 1 BP 1, 2 BPP 1, 2 BPPP no such thing Brady, Karren 1 “brainchild” 1 see also words, new, favourite and not so favourite Brand, Russell 1, 2 Branson, Richard 1, 2 Brazil 1 Brett, Jeremy 1 Bristow, Keith 1 Britain’s Next Top Model 1 British National Party (BNP) 1 British Rail 1, 2 British Retail Consortium 1 Brittin, Max 1 Brooker, Charlie 1 Brooks, Mel 1 Brown, Gordon 1, 2, 3, 4, 5 and Boyle’s health 1 Cable’s overrated joke concerning 1 Chilcott Inquiry set up by 1 crises in government of 1 election date confirmed by 1 Brown, Sarah 1 Brunel, Isambard Kingdom 1 Burley, Aiden, Nazi outfit hiring of 1 Burnham, Andy 1 Bush, George W. 1 and Iraq invasion 1 Butlin’s 1, 2 Byrne, Justin 1 Cable, Vince 1 Call the Midwife 1 Cambridge Union Society 1 Cameron, David 1, 2, 3, 4, 5, 6 appearance of 1 appearing to make an effort 1 “change” mantra of 1 and “nasty party” image 1 old Tory background of 1 and platitudes over policies 1 refusing to say anything positive about burglars 1 and UK’s military agreements with France 1 unfitness of, for government 1 Camilla, Duchess of Cornwall 1, 2 Campbell, Alastair 1 Carey, George, and use of the phrase “political correctness gone mad” 1 Carling Black Label, its contribution to world heritage 1 Carlyle, Robert, pants of 1 Carmichael, Laura 1 Carry On at Your Convenience 1 Carry On Up the Khyber 1 Cash in the Attic 1 Catherine, Duchess of Cambridge, filmed having sex (in my imagination) 1 Cavill, Henry 1, 2, 3 Cerf, Vinton 1 Chamberlain, Neville 1 change 1 as Cameron mantra 1 Charles II 1 Charles, Prince of Wales 1, 2 chefs, irritating nature of 1 Cheltenham Science Festival 1 Chilcott Inquiry 1 Chilcott, Sir John 1, 2 China 1 Christmas cards, and the industrialisation of good cheer 1 Chuckle Brothers, televised death of 1 Churchill, Winston 1, 2, 3, 4 Cif/Jif 1 Civil Nuclear Constabulary 1 Clarkson, Jeremy 1, 2 Cleese, John 1 Clegg, Nick 1, 2, 3 breaker of promises 1 and Chilcott Inquiry 1 in leadership debates 1 rowing machine of 1 Cock Jesus 1 Coe, Seb 1 Cole, Cheryl 1 Cole, Sir Henry 1 Comic Relief 1 Communications Data Bill 1, 2 conflict, media’s obsession with 1 Connery, Sean 1 Consignia 1 cookery programmes 1 Cookie Monster 1 Countdown 1, 2 Courage brewery 1 Courage, John, serendipitous name of 1 Coventry City FC 1 Cowboy Trap 1 Cowell, Simon 1 Cox, Dr Lynne 1 Coyote, Wile E. 1, 2 Craig, Daniel 1 credit crunch, see global financial crisis Crest 1 Crick, Francis 1 Crowe, Russell 1 Curtis, Richard 1 Dad’s Army 1 Daily Mail 1, 2, 3, 4 Daily Mirror 1, 2 Daily Planet 1 Daily Telegraph 1 Daly, Tess 1 Darling, Alistair 1 dating 1 via websites 1, 2 Davies, Toby 1 Davis, Paul 1 Dawkins, Richard 1 daytime television 1 de Francisco, Juan 1 de Mooi, CJ, fictional cookery of 1 De Niro, Robert 1, 2 Deepwater Horizon, oil spill in, see Gulf of Mexico Dennis, Hugh 1 Dent, Susie 1, 2 Dexter, Colin 1 Diamond, Bob 1 Disney 1, 2, 3 DNA 1 Doctor Who 1, 2, 3 Dr Strangelove 1 Doctors 1 dogs, dyed to look like other animals as solution to biodiversity crisis 1 Double Falsehood 1 Dowler, Milly 1 Downfall 1 Downton Abbey 1, terribleness and enjoyability of 1, 2 Duffy, Lisa 1 East Midlands, laudable self-loathing of 1 EasyJet 1, 2 Ebdon, Peter, similarity to Vladimir Putin 1 education: and Bibles in schools 1 and students’ complaints 1 and teachers’ pay 1, 2 teaching of history 1 universities 1 Edward II 1 Elizabeth II 1, 2, 3, 4, 5 diamond jubilee of 1, 2 Guardian article on 1, 2 “went bonkers” over corgis’ food 1 see also monarchy Ellison, Jane 1 Elms, Mark 1, 2 Emberg, Bella 1 emigrating and happiness 1 Empire of the Sun 1 Endeavour 1 England soccer team 1, 2 English Heritage 1 English Tourist Board, see Visit England Estinel, Martin 1 Eton College 1 Evans, Sir Richard 1 exercise, women’s attitude towards 1 Facebook: and anonymous messages 1 and food 1 fairytales 1 Fall and Rise of Reginald Perrin, The, remake of 1 Fallon, Michael 1 fan fiction 1 Fantastic Four, The 1 Farage, Nigel 1, 2, 3 and “nasty party” image 1 Farmer, Colin 1 fashion: anti- 1 invoking, as marketing 1 Fawlty Towers 1 Ferguson, Niall 1 Ferrari, Nick 1 Figes, Orlando 1, 2 Financial Services Authority 1, 2 Findus, horse in lasagnes of 1, 2 Fish, Michael 1, 2 fish stocks 1 fitness (and lack of) 1, 2 Flintoff, Andrew 1 Flintstones, The 1, 2 food: and advertising 1, 2 budget 1 cereals 1 horse, not beef 1 and Michelin 1 and neo-Nazis 1 and social media 1 football, and colour of strip 1 Forth Bridge 1 Fournier, Mark 1 Fowler, Steve 1 Fox, Emilia 1 France, UK’s military agreements with 1 Frasier 1, 2 Freegard, Siobhan 1 Freud, Matthew 1 Full Monty, The 1 G, Ali 1 Gaddafi, Col. 1 Gangnam Style 1 Gant, Charles 1 Garfield, Andrew 1 Gascoigne, Paul 1 Gauthier, Alexandre 1 gay people: and B&B owners 1 and football 1 Markovic’s insults against 1 and marriage 1 Silvester’s insults against 1 general elections: 1992 1 1997 1 2010: Brown confirms date of 1 crises preceding 1 DM’s ludicrous predictions concerning 1 and leaders’ wives 1 leadership debates preceding 1 UKIP manifesto for 1 Genesis, Book of 1 Germany: and Hitler salute 1 post-WW 1 2 Gingritch, Callista 1 Gingritch, Newt, meretricious shittiness of 1, 2 Girlguiding UK 1 Glass, Ira 1 global financial crisis 1, 2, 3, 4, 5 and bankers 1, 2 and silver linings 1 gold 1 Goldman Sachs 1, 2 Good Life restaurant 1 Google 1 Android OS of, new name for 1 “Don’t Be Evil” motto of 1 and poppies 1 tax avoidance by 1, 2 Google Street View 1 Goujon, Gilles 1 Gove, Michael 1, 2 and Bibles 1 and WW 1 grammar 1, 2 see also punctuation Grant, Hugh 1 Gray, Andy 1 Grayling, Chris 1 Great British Bake-Off, The 1 Great Expectations 1 Griffin, Nick, crowd-pleasing bankruptcy of 1 Griffiths, Helen 1 Gruffalo, The 1 Guardian 1, 2, 3, 4 DM slated on website of 1 Guides, see Girlguiding UK Guinness, Alec 1 Gulf of Mexico, oil spill in (Deepwater Horizon) 1, 2 Gyngell, Skye, annoyance at critical acclaim of 1 Hague, Fld Mshl Douglas 1 Halifax, Lord 1, 2, 3 Hall, Sir Peter 1 Hamill, Mark 1 Hamlet cigars 1 Hammond, Richard 1 Hare, David 1 Harris, Evan 1 Harry, Prince: party gear of 1 as TV-show idea 1 Harry Potter books/films 1 Hart, Miranda 1 hashtags 1 Hay Festival 1 Hayward, Tony 1 Heart Attack Grill 1 Heat 1 Henry IV of France 1 Henry VIII 1 Heroes 1 Heyhoe Flint, Rachael 1 Hill, Amanda 1 Hillsborough 1 history, teaching of 1 Hitler, Adolf 1 Tussauds likeness of 1 Hoddesdon 1 Hoffman, Dustin 1 Hollande, François, comic love life of 1 Holocaust Educational Trust 1 homelessness 1 Homes Under the Hammer 1 homophobia 1 horsemeat scandal, and why DM is glad it happened 1 Howe, Geoffrey 1 HS2 1 Huhne, Chris 1, 2 Humphrys, John 1, 2 Hunt, Jeremy 1, 2, 3 Hunt, Tristram 1 Hurley, Liz 1 Iceland (company) 1 Idle, Eric 1 Incredibles, The 1 India 1 Inspector Morse 1, 2 internet dating 1, 2 Iraq: invasion of 1 Chilcott Inquiry into 1 IT consultants, as TV-show idea 1 James Bond films 1, 2, 3 Casino Royale 1 Skyfall 1 Janner, Lord 1, 2 Jenkin, Bernard 1 Jif/Cif 1 Jodrell Bank 1 Johnson, Boris 1, 2, 3, 4, 5, 6 Jordan, Queen of 1 Jowell, Tessa 1, 2 Katz, Ian 1, 2 Kellogg’s 1 Kelly, Sir Christopher 1, 2 Kennedy, Charles 1 Kent, Clark 1 Richard Keys, inability to believe that women can understand the offside rule of 1 King, Ledley 1 King’s Speech, The 1 KitKat 1, 2 see also Google: Android OS of Lagerling, John 1 Land Girls 1 Lange, Steffen 1, 2 Langfield, Joanna 1 Leicester City FC 1 Leicester, University of 1 Lewis 1, 2, 3 Lidl 1 Lineker, Gary 1 Lion Bar, retail backlash against fashion industry orchestrated by 1 Liverpool FC 1 Lobdell, Scott 1 Logan, Gaby 1 London Fashion Week 1 Lords, House of, as TV-show idea 1 Louis XIV 1, 2 Louis XVI 1 Lucas, George 1, 2, 3, 4 Lucasfilm 1 Lumley, Joanna 1 Lygo, Carl 1 Lyons, Sir Michael 1 McCluskey, Len 1 McDonald’s 1, 2 McGregor, Ewan 1 Macmillan, Margaret, discomfort with Michael Gove’s admiration of 1 Macpherson, Elle 1 Madame Tussauds, horrible use of language, high entrance fee and general disappointing nature of 1 Madness of King George, The 1 Magic Roundabout, The 1 Magnetar 1, 2 Major, John 1, 2 Manchester United FC 1 Mandelson, Lord 1 Marathon/Snickers 1 Margaret Thatcher: The Long Walk to Finchley 1 marketing, see advertising and marketing Markovic, Vlatko 1 Martin, Steve 1 Massey, Sian 1 Mastermind 1 Matrix, The 1 media: BBC knocked by 1, 2 conflict-obsessed 1 Met Office 1 Michelin stars 1 Midas, King 1 Miliband, David 1, 2 Miliband, Ed 1, 2 and platitudes over policies 1 and presentation skills 1 on Shapps 1 and something-for-nothing culture 1 Miller, Maria 1 Milligan, Spike 1 Mind 1 Minder 1 Mr T 1 Mitchell, Andrew 1, 2 Mo 1 Molotov’s Magic Lantern (Polonsky) 1 Mona Lisa 1, 2 monarchy 1, 2 see also Elizabeth II money 1 as gold 1 Monocled Mutineer, The 1 Moore, Roger 1 Morgan, Nicky 1 Morrissey, Margaret 1 MPs: expenses fiddles of 1, 2, 3 salaries of 1 Mrs Brown 1 Mugabe, Robert, unfair aspersions cast on the punctuality of 1, 2 Mullin, Chris 1 Mumsnet 1 Muppet Show, The 1 Muppets, The 1 Murdoch, Rupert 1 Murphy, Eddie 1 Murray, Andy 1 My Family 1 Mystery Men 1 Napoleon I 1 National Crime Agency 1 National Federation of Fishermen’s Organisations, beef with Royal Mail of 1 National Health Service (NHS) 1 most efficient 1, 2 National Lottery 1 National Victims’ Association, Christmas party of 1 Nationwide 1 Nazis 1 and Cookie Monster 1 uniforms of 1, 2 neologisms, see words, new, favourite and not so favourite Nestlé 1 and powdered milk 1 Netmums 1 New Statesman 1 New York Times 1 News of the World 1 Newsnight 1 Nighy, Bill 1 No Ordinary Family 1 Noor, Queen 1 Northern Rock 1 “Not in My Front Yard” campaign 1 Obama, Barack 1, 2 inauguration of 1 Obama, Michelle 1 Observer 1, 2, 3 Office, The 1 offside rule 1 Oh! What a Lovely War 1 O’Leary, Michael 1, 2 Olsen, Jimmy 1 Olympic Games 1 London (2012) 1 One Show, The 1 online reviews 1 Only Fools and Horses 1 Operation Yewtree 1 opinions 1 Orange 1 O’Rourke, Ray 1 Osborne, George 1, 2 blaming economic problems on snow 1 Our Friends in the North 1 Outnumbered 1, 2 Oxford English Dictionary 1 Panorama 1 Paralympics 1 Parents Outloud 1 Parsons, Nicholas, left on oil rig by Chinese 1 Patterson, James 1 Paxman, Jeremy 1, 2 Peep Show 1 Peppa Pig 1 Petersham Nurseries Cafe 1 Phantom Menace 1 Philpott, William 1 phone-hacking scandal 1 photography 1 and privacy 1 Pickles, Eric 1 Piss Christ 1 Player-Bishop, Jill 1 “Plebgate” 1, 2 Plymouth 1 pole-dancing 1 police: deteriorating public image of 1 and Hillsborough 1 and phone-hacking scandal 1 and “Plebgate” 1 and Tasers 1 Police Federation 1, 2, 3 political parties, funding of 1 politicians, and comedy 1 Polonsky, Rachel 1 Pontin’s 1, 2 poppies 1 sparkly 1 white 1 Pottermore.com 1, 2, 3 Premier League 1 Pride and Prejudice 1 private sector 1 punctuation 1, 2 apostrophes 1, 2, 3 Putin, Vladimir, similarity to Peter Ebdon of 1 Queen, The 1 Queen’s English Society 1 Rainbow 1 Ramsay, Gordon 1, 2 Rantzen, Esther 1 rebranding 1 of cattle 1 of government departments 1 of products 1 Reeves, Rachel 1, 2 Reggie Perrin 1 Reitemeier, Bob 1 religion: and art 1 display of symbols of 1 research 1 Research Excellence Framework 1, 2 Responsibility Deal 1, 2 Return of the Jedi 1, 2 Richard II 1 Richard III 1 Richard, Cliff 1 Robinson, Tony 1 Romeo and Juliet (Shakespeare) 1 as TV-show idea 1 Romney, Ann 1 Rooney, Wayne 1, 2, 3 Ross, Jonathan 1, 2 Rowling, JK 1, 2 Royal Bank of Scotland 1, 2 Royal Mail 1, 2 Rumpole stories 1 RuPaul’s Drag Race 1 Ryanair 1, 2 Saatchi, Charles 1, 2 “Sachsgate” 1 Salisbury, Lord 1 same-sex marriage 1 Samuel Johnson Prize 1 Santorum, Karen 1 Savile, Jimmy 1 School of Saatchi 1 Scott, Andrew 1 Scouts 1 Sellers, Peter 1 Sergeant, John 1 Serrano, Andres 1, 2 Service, Robert 1 Sesame Street 1 Sewell, Brian, horror at artistic success of Al-Qaida of 1 Shakespeare, William 1, 2 Shapps, Grant 1 Sheffield, Prof.


Future Files: A Brief History of the Next 50 Years by Richard Watson

Albert Einstein, bank run, banking crisis, battle of ideas, Black Swan, call centre, carbon footprint, cashless society, citizen journalism, commoditize, computer age, computer vision, congestion charging, corporate governance, corporate social responsibility, deglobalization, digital Maoism, disintermediation, epigenetics, failed state, financial innovation, Firefox, food miles, future of work, global pandemic, global supply chain, global village, hive mind, industrial robot, invention of the telegraph, Jaron Lanier, Jeff Bezos, knowledge economy, lateral thinking, linked data, low cost airline, low skilled workers, M-Pesa, mass immigration, Northern Rock, peak oil, pensions crisis, precision agriculture, prediction markets, Ralph Nader, Ray Kurzweil, rent control, RFID, Richard Florida, self-driving car, speech recognition, telepresence, the scientific method, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Turing test, Victor Gruen, white flight, women in the workforce, Zipcar

There were people queuing down high streets all over the country trying to get their cash out, until the government agreed to use taxpayers’ money to guarantee their savings. It effectively said that it would bail out anyone who invested 140 FUTURE FILES in a major UK financial institution that had forgotten that there should be some balance between borrowing and lending. The problem, of course, was that Northern Rock was too clever by half. Instead of using branch deposits to fund growth it used the global money market, which in turn relies on securitization to transfer risk. As a result the bank, which was essentially a local UK lender, became embroiled in the US subprime mortgage fiasco. Could such a situation happen again? Probably, although chances are it will be wearing different clothes next time. Talking of debt, in the UK household debt will hit 150% of annual income by 2010, which means that it will increase from something in the order of £1 trillion to £1.6 trillion, give or take a few pounds.

A 311 Index ‘O’ Garage 170 3D printers 56 accelerated education 57 accidents 159, 161–6, 173, 246 ACNielsen 126 adaptive cruise control 165 Adeg Aktiv 50+ 208 advertising 115–16, 117, 119 Africa 70, 89, 129, 174, 221, 245, 270, 275, 290, 301 ageing 1, 10, 54, 69, 93, 139, 147–8, 164, 188, 202, 208, 221, 228–9, 237, 239, 251, 261, 292, 295, 297–8 airborne networks 56 airlines 272 allergies 196–7, 234, 236 Alliance Against Urban 4x4s 171 alternative energy 173 alternative futures viii alternative medicine 244–5 alternative technology 151 amateur production 111–12 Amazon 32, 113–14, 121 American Apparel 207 American Express 127–8 androids 55 Angola 77 anti-ageing drugs 231, 237 anti-ageing foods 188 anti-ageing surgery 2, 237 antibiotics 251 anxiety 10, 16, 30, 32, 36, 37, 128, 149, 179, 184, 197, 199, 225, 228, 243, 251, 252, 256, 263, 283–4, 295–6, 300, 301, 305 Apple 61, 115, 121, 130, 137–8, 157 Appleyard, Bryan 79 Argentina 210 Armamark Corporation 193 artificial intelliegence 22, 40, 44, 82 131, 275, 285–6, 297, 300 Asda 136, 137 Asia 11, 70, 78, 89, 129, 150, 174, 221, 280, 290, 292 Asimov, Isaac 44 Asos.com 216 asthma 235 auditory display software 29 Australia 20–21, 72–3, 76, 92, 121, 145, 196, 242, 246, 250, 270, 282 Austria 208 authenticity 32, 37, 179, 194, 203–11 authoritarianism 94 automated publishing machine (APM) 114 automation 292 automotive industry 154–77 B&Q 279 baby boomers 41, 208 bacterial factories 56 Bahney, Anna 145 Bahrain 2 baking 27, 179, 195, 199 Bangladesh 2 bank accounts, body double 132 banknotes 29, 128 banks 22, 123, 135–8, 150, 151 virtual 134 Barnes and Noble 114 bartering 151 BBC 25, 119 Become 207 Belgium 238 313 314 benriya 28 Berlusconi, Silvio 92 Best Buy 223 biofuel 64 biomechatronics 56 biometric identification 28, 35, 52, 68, 88, 132 bionic body parts 55 Biosphere Expeditions 259 biotechnology 40, 300 blended families 20 blogs 103, 107, 109, 120 Blurb 113 BMW 289 board games 225 body double bank accounts 132 body parts bionic 55 replacement 2, 188, 228 Bolivia 73 Bollywood 111 books 29, 105, 111–25 boomerang kids 145 brain transplants 231 brain-enhancing foods 188 Brazil 2, 84, 89, 173, 247, 254, 270, 290 Burger King 184 business 13, 275–92 Bust-Up 189 busyness 27, 195, 277 Calvin, Bill 45 Canada 63, 78, 240 cancer 251 car sharing 160, 169, 176 carbon credits 173 carbon footprints 255 carbon taxes 76, 172 cars classic 168–9 driverless 154–5 flying 156, 165 hydrogen-powered 12, 31, 157, 173 pay-as-you-go 167–8 self-driving 165 cascading failure 28 cash 126–7, 205 cellphone payments 129, 213 cellphones 3, 25, 35, 51, 53, 120, 121, FUTURE FILES 129, 156, 161, 251 chicken, Christian 192 childcare robots 57 childhood 27, 33–4, 82–3 children’s database 86 CHIME nations (China, India, Middle East) 2, 10, 81 China 2, 10, 11, 69–72, 75–81, 88, 92–3, 125, 137, 139–40, 142, 151, 163, 174–5, 176, 200, 222, 228, 247, 260, 270–71, 275, 279, 295, 302 choice 186–7 Christian chicken 192 Christianity, muscular 16, 73 Chrysler 176 cinema 110–11, 120 Citibank 29, 128 citizen journalism 103–4, 108 City Car Club 168 Clarke, Arthur C. 58–9 Clarke’s 187 classic cars 168–9 climate change 4, 11, 37, 43, 59, 64, 68, 74, 77–9, 93, 150, 155, 254, 257, 264, 298–9 climate-controlled buildings 254, 264 cloning 38 human 23, 249 CNN 119 coal 176 Coca-Cola 78, 222–3 co-creation 111–12, 119 coins 29, 128, 129 collective intelligence 45–6 Collins, Jim 288 comfort eating 200 Comme des Garçons 216 community 36 compassion 120 competition in financial services 124–5 low-cost 292 computers disposable 56 intelligent 23, 43 organic 56 wearable 56, 302 computing 3, 33, 43, 48, 82 connectivity 3, 10, 11, 15, 91, 120, Index 233, 261, 275–6, 281, 292, 297, 299 conscientious objection taxation 86 contactless payments 123, 150 continuous partial attention 53 control 36, 151, 225 convenience 123, 178–9, 184, 189, 212, 223, 224 Coren, Stanley 246 corporate social responsibility 276, 282, 298 cosmetic neurology 250 Costa Rica 247 Craig’s List 102 creativity 11, 286; see also innovation credit cards 141–3, 150 crime 86–9 forecasting 86–7 gene 57, 86 Croatia 200 Crowdstorm 207 Cuba 75 cultural holidays 259, 273 culture 11, 17–37 currency, global 127, 151 customization 56, 169, 221–2, 260 cyberterrorism 65, 88–9 Cyc 45 cynicism 37 DayJet 262 death 237–9 debt 123–4, 140–44, 150 defense 63, 86 deflation 139 democracy 94 democratization of media 104, 108, 113 demographics 1, 10, 21, 69, 82, 93, 202, 276, 279–81, 292, 297–8 Denmark 245 department stores 214 deregulation 11, 3 Destiny Health 149 detox 200 Detroit Project 171 diagnosis 232 remote 228 digital downloads 121 evaporation 25 315 immortality 24–5 instant gratification syndrome 202 Maoism 47 money 12, 29, 123, 126–7, 129, 132, 138, 150, 191 nomads 20, 283 plasters 241 privacy 25, 97, 108 readers 121 digitalization 37, 292 Dinner by Design 185 dirt holidays 236 discount retailers 224 Discovery Health 149 diseases 2, 228 disintegrators 57 Disney 118–19 disposable computers 56 divorce 33, 85 DNA 56–7, 182 database 86 testing, compulsory 86 do-it-yourself dinner shops 185–6 dolls 24 doorbells 32 downshifters 20 Dream Dinners 185 dream fulfillment 148 dressmaking 225 drink 178–200 driverless cars 154–5 drugs anti-ageing 231, 237 performance-improving 284–5 Dubai 264, 267, 273 dynamic pricing 260 E Ink 115 e-action 65 Earthwatch 259 Eastern Europe 290 eBay 207 e-books 29, 37, 60, 114, 115, 302 eco-luxe resorts 272 economic collapse 2, 4, 36, 72, 221, 295 economic protectionism 10, 15, 72, 298 economy travel 272 316 Ecuador 73 education 15, 18, 82–5, 297 accelerated 57 lifelong learning 290 Egypt 2 electricity shortages 301 electronic camouflage 56 electronic surveillance 35 Elephant 244 email 18–19, 25, 53–4, 108 embedded intelligence 53, 154 EMF radiation 251 emotional capacity of robots 40, 60 enclosed resorts 273 energy 72, 75, 93 alternative 173 nuclear 74 solar 74 wind 74 enhancement surgery 249 entertainment 34, 121 environment 4, 10, 11, 14, 64, 75–6, 83, 93, 155, 171, 173, 183, 199, 219–20, 252, 256–7, 271, 292, 301 epigenetics 57 escapism 16, 32–3, 121 Estonia 85, 89 e-tagging 129–30 e-therapy 242 ethical bankruptcy 35 ethical investing 281 ethical tourism 259 ethics 22, 24, 41, 53, 78, 86, 132, 152, 194, 203, 213, 232, 238, 249–50, 258, 276, 281–2, 298–9 eugenics 252 Europe 11, 70, 72, 81, 91, 141, 150, 174–5, 182, 190, 192, 209 European Union 15, 139 euthanasia 238, 251 Everquest 33 e-voting 65 experience 224 extended financial families 144 extinction timeline 9 Facebook 37, 97, 107 face-recognition doors 57 fakes 32 family 36, 37 FUTURE FILES family loans 145 fantasy-related industries 32 farmaceuticals 179, 182 fast food 178, 183–4 fat taxes 190 fear 10, 34, 36, 38, 68, 150, 151, 305 female-only spaces 210–11, 257 feminization 84 financial crisis 38, 150–51, 223, 226, 301 financial services 123–53, 252 trends 123–5 fish farming 181 fixed-price eating 200 flashpacking 273 flat-tax system 85–6 Florida, Richard 36, 286, 292 flying cars 165 food 69–70, 72, 78–9, 162, 178–201 food anti-ageing 188 brain-enhancing 188 fast 178, 183–4 functional 179 growing your own 179, 192, 195 history 190–92 passports 200 slow 178, 193 tourism 273 trends 178–80 FoodExpert ID 182 food-miles 178, 193, 220 Ford 169, 176, 213, 279–80 forecasting 49 crime 86–7 war 49 Forrester Research 132 fractional ownership 168, 175, 176, 225 France 103, 147, 170, 189, 198, 267 Friedman, Thomas 278–9, 292 FriendFinder 32 Friends Reunited 22 frugality 224 functional food 179 Furedi, Frank 68 gaming 32–3, 70, 97, 111–12, 117, 130, 166, 262 Gap 217 Index gardening 27, 148 gas 176 GE Money 138, 145 gendered medicine 244–5 gene silencing 231 gene, crime 86 General Motors 157, 165 Generation X 41, 281 Generation Y 37, 41, 97, 106, 138, 141–2, 144, 202, 208, 276, 281, 292 generational power shifts 292 Genes Reunited 35 genetic enhancement 40, 48 history 35 modification 31, 182 testing 221 genetics 3, 10, 45, 251–2 genomic medicine 231 Germany 73, 147, 160, 170, 204–5, 216–17, 261, 267, 279, 291 Gimzewski, James 232 glamping 273 global currency 127 global warming 4, 47, 77, 93, 193, 234 globalization 3, 10, 15–16, 36–7, 63–7, 72–3, 75, 81–2, 88, 100, 125, 139, 143, 146, 170, 183, 189, 193–5, 221, 224, 226, 233–4, 247–8, 263, 275, 278–80, 292, 296, 299 GM 176 Google 22, 61, 121, 137, 293 gout 235 government 14, 18, 36, 63–95, 151 GPS 3, 15, 26, 50, 88, 138, 148, 209, 237, 262, 283 Grameen Bank 135 gravity tubes 57 green taxes 76 Greenpeace 172 GRIN technologies (genetics, robotics, internet, nanotechnology) 3, 10, 11 growing your own food 178, 192, 195 Gucci 221 Gulf States 125, 260, 268 H&M 217 habitual shopping 212 Handy, Charles 278 317 Happily 210 happiness 63–4, 71–2, 146, 260 health 15, 82, 178–9, 199 health monitoring 232, 236, 241 healthcare 2, 136, 144, 147–8, 154, 178–9, 183–4, 189–91, 228–53, 298; see also medicine trends 214–1534–7 Heinberg, Richard 74 Helm, Dieter 77 Heritage Foods 195 hikikomori 18 hive mind 45 holidays 31, 119; see also tourism holidays at home 255 cultural 259 dirt 236 Hollywood 33, 111–12 holographic displays 56 Home Equity Share 145 home baking 225 home-based microgeneration 64 home brewing 225 honesty 152 Hong Kong 267 hospitals 228, 241–3, 266 at home 228, 238, 240–42 hotels 19, 267 sleep 266 human cloning 23, 249 Hungary 247 hybrid humans 22 hydrogen power 64 hydrogen-powered cars 12, 31, 157, 173 Hyperactive Technologies 184 Hyundai 170 IBM 293 identities, multiple 35, 52 identity 64, 71 identity theft 88, 132 identity verification, two-way 132 immigration 151–2, 302 India 2, 10, 11, 70–72, 76, 78–9, 81, 92, 111, 125, 135, 139, 163, 174–5, 176, 247, 249–50, 254, 260, 270, 275, 279, 302 indirect taxation 86 318 individualism 36 Indonesia 2, 174 industrial robots 42 infinite content 96–7 inflation 151 information overlead 97, 120, 159, 285; see also too much information innovation 64, 81–2, 100, 175, 222, 238, 269, 277, 286–8, 291, 297, 299 innovation timeline 8 instant gratification 213 insurance 123, 138, 147–50, 154, 167, 191, 236, 250 pay-as-you-go 167 weather 264 intelligence 11 embedded 53, 154 implants 229 intelligent computers 23, 43 intelligent night vision 162–3 interaction, physical 22, 25, 97, 110, 118, 133–4, 215, 228, 243, 276, 304 interactive media 97, 105 intergenerational mortgages 140, 144–5 intermediaries 123, 135 internet 3, 10, 11, 17–18, 25, 68, 103, 108, 115–17, 124, 156, 240–41, 261, 270, 283, 289, 305 failure 301 impact on politics 93–4 sensory 56 interruption science 53 iPills 240 Iran 2, 69 Ishiguro, Hiroshi 55 Islamic fanaticism 16 Italy 92, 170, 198–9 iTunes 115, 130; see also Apple Japan 1, 18, 26, 28–9, 54–5, 63, 80–81, 114, 121, 128–9, 132, 140, 144–5, 147, 174, 186, 189, 192, 196, 198, 200, 209–10, 223, 240, 260, 264, 271, 279, 291 jetpacks 60 job security 292 journalism 96, 118 journalism, citizen 103–4, 107 joy-makers 57 FUTURE FILES Kaboodle 207 Kapor, Mitchell 45 Kenya 128 keys 28–9 Kindle 60, 121 Kramer, Peter 284 Kuhn, Thomas 281 Kurzweil, Ray 45 Kuwait 2 labor migration 290–91 labor shortages 3, 80–81, 289–90 Lanier, Jaron 47 laser shopping 212 leisure sickness 238 Let’s Dish 185 Lexus 157 libraries 121 Libya 73 life-caching 24, 107–8 lighting 158, 160 Like.com 216 limb farms 249 limited editions 216–17 live events 98, 110, 304 localization 10, 15–16, 116, 128, 170, 178, 189, 193, 195, 215, 220, 222–3, 224, 226, 255, 270, 297 location tagging 88 location-based marketing 116 longevity 188–9, 202 Longman, Philip 71 low cost 202, 219–22 luxury 202, 221, 225, 256, 260, 262, 265–6, 272 machinamas 112 machine-to-machine communication 56 marketing 115–16 location-based 116 now 116 prediction 116 Marks & Spencer 210 Maslow, Abraham 305–6 masstigue 223 materialism 37 Mayo Clinic 243 McDonald’s 130, 168, 180, 184 McKinsey 287 Index meaning, search for 16, 259, 282, 290, 305–6 MECU 132 media 96–122 democratization of 104, 108, 115 trends 96–8 medical outsourcing 247–8 medical tourism 2, 229, 247 medicine 188, 228–53; see also healthcare alternative 243–4 gendered 244–5 genomic 231 memory 229, 232, 239–40 memory loss 47 memory pills 231, 240 memory recovery 2, 228–9, 239 memory removal 29–30, 29, 240 Menicon 240 mental health 199 Meow Mix 216 Merriman, Jon 126 metabolomics 56 meta-materials 56 Metro 204–5 Mexico 2 micromedia 101 micro-payments 130, 150 Microsoft 137, 147, 293 Middle East 10, 11, 70, 81, 89, 119, 125, 129, 139, 174–5, 268, 301 migration 3, 11, 69–70, 78, 82, 234, 275, 290–91 boomerang 20 labor 290–91 Migros 215 military recruitment 69 military vehicles 158–9 mind-control toys 38 mindwipes 57 Mitsubishi 198, 279 mobile payments 123, 150 Modafinil 232 molecular biology 231 monetization 118 money 123–52 digital 12, 29, 123, 126–7, 129, 132, 138, 150, 191 monitoring, remote 154, 168, 228, 242 monolines 135, 137 319 mood sensitivity 41, 49, 154, 158, 164, 187–8 Morgan Stanley 127 mortality bonds 148 Mozilla Corp. 289 M-PESA 129 MTV 103 multigenerational families 20 multiple identities 35, 52 Murdoch, Rupert 109 muscular Christianity 16, 73 music industry 121 My-Food-Phone 242 MySpace 22, 25, 37, 46, 97, 107, 113 N11 nations (Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey, Vietnam) 2 nanoelectronics 56 nanomedicine 32 nanotechnology 3, 10, 23, 40, 44–5, 50, 157, 183, 232, 243, 286, 298 napcaps 56 narrowcasting 109 NASA 25, 53 nationalism 16, 70, 72–3, 139, 183, 298, 302 natural disasters 301 natural resources 2, 4, 11, 64, 298–9 Nearbynow 223 Nestlé 195 Netherlands 238 NetIntelligence 283 networkcar.com 154 networks 28, 166, 288 airborne 56 neural nets 49 neuronic whips 57 neuroscience 33, 48 Neville, Richard 58–9 New Economics Foundation 171 New Zealand 265, 269 newspapers 29, 102–9, 117, 119, 120 Nigeria 2, 73 Nike 23 nimbyism 63 no-frills 224 Nokia 61, 105 Norelift 189 320 Northern Rock 139–40 Norwich Union 167 nostalgia 16, 31–2, 51, 169–70, 179, 183, 199, 203, 225, 303 now marketing 116 nuclear annihilation 10, 91 nuclear energy 74 nutraceuticals 179, 182 Obama, Barack 92–3 obesity 75, 190–92, 199, 250–51 oceanic thermal converters 57 oil 69, 72–3, 93, 151, 174, 176, 272, 273, 301 Oman 2, 270 online relationships 38 organic computers 56 organic food 200, 226 osteoporosis 235 outsourcing 224, 292 Pakistan 2 pandemics 4, 10, 16, 59, 72, 128, 232, 234, 272, 295–7, 301 paper 37 parasite singles 145 passwords 52 pictorial 52 pathogens 233 patient simulators 247 patina 31 patriotism 63, 67, 299 pay-as-you-go cars 167–8 pay-as-you-go insurance 167 payments cellphone 129, 213 contactless 123, 150 micro- 130, 150 mobile 123, 150 pre- 123, 150 PayPal 124, 137 Pearson, Ian 44 performance-improving drugs 284–5 personal restraint 36 personal robots 42 personalization 19, 26, 56, 96–8, 100, 102–3, 106, 108–9, 120, 138, 149, 183, 205–6, 223, 244–5, 262, 267, 269 Peru 73 FUTURE FILES Peters, Tom 280 Pharmaca 244 pharmaceuticals 2, 33, 228, 237 Philippines 2, 212, 290 Philips 114 Philips, Michael 232–3 photographs 108 physical interaction 22, 25, 97, 110, 118, 133–4, 215, 228, 243, 276, 304 physicalization 96–7, 101–2, 106, 110, 120 pictorial passwords 52 piggy banks 151 Pink, Daniel 285 plagiarism 83 polarization 15–16, 285 politics 37, 63–95, 151–2 regional 63 trends 63–5 pop-up retail 216, 224 pornography 31 portability 178, 183–4 power shift eastwards 2, 10–11, 81, 252 Prada 205–6, 216 precision agriculture 181–2 precision healthcare 234–7 prediction marketing 116 predictions 37, 301–2 premiumization 223 pre-payments 123, 150 privacy 3, 15, 41, 50, 88, 154, 165–7, 205, 236, 249, 285, 295 digital 25, 97, 108 Procter & Gamble 105, 280 product sourcing 224 Prosper 124, 135 protectionism 67, 139, 156, 220, 226, 301 economic 10, 15, 72, 299 provenance 178, 193, 226 proximity indicators 32 PruHealth 149 psychological neoteny 52 public ownership 92 public transport 171 purposeful shopping 212 Qatar 2 quality 96–7, 98, 101, 109 Index quantum mechanics 56 quantum wires 56 quiet materials 56 radiation, EMF 251 radio 117 randominoes 57 ranking 34, 83, 109, 116, 134, 207 Ranking Ranqueen 186 reality mining 51 Really Cool Foods 185 rebalancing 37 recession 139–40, 202, 222 recognition 36, 304 refrigerators 197–8 refuge 121 regeneration 233 regional food 200 regional politics 63 regionality 178, 192–3 regulation 124, 137, 143 REI 207 Reid, Morris 90 relationships, online 38 religion 16, 58 remote diagnosis 228 remote monitoring 154, 168, 228, 242 renting 225 reputation 34–5 resistance to technology 51 resorts, enclosed 273 resource shortages 11, 15, 146, 155, 178, 194, 254, 300 resources, natural 2, 4, 11, 64, 73–4, 143, 298–9 respect 36, 304 restaurants 186–8 retail 20–21, 202–27, 298 pop-up 216, 224 stealth 215 theater 214 trends 202–3 Revkin, Andy 77 RFID 3, 24, 50, 121, 126, 149, 182, 185, 192, 196, 205 rickets 232 risk 15, 124, 134, 138, 141, 149–50, 162, 167, 172, 191, 265, 299–300, 303 Ritalin 232 321 road pricing 166 Robertson, Peter 49 robogoats 55 robot department store 209 Robot Rules 44 robotic assistants 54, 206 concierges 268 financial advisers 131–2 lobsters 55 pest control 57 soldiers 41, 55, 60 surgery 35, 41, 249 robotics 3, 10, 41, 44–5, 60, 238, 275, 285–6, 292, 297 robots 41, 54–5, 131, 237, 249 childcare 57 emotional capacity of 40, 60 industrial 42 personal 42 security 209 therapeutic 41, 54 Russia 2, 69, 72, 75, 80, 89, 92–3, 125, 174, 232, 254, 270, 295, 302 safety 32, 36, 151, 158–9, 172–3, 182, 192, 196 Sainsbury’s 215 Salt 187 sanctuary tourism 273 satellite tracking 166–7 Saudi Arabia 2, 69 Schwartz, Barry 186 science 13, 16, 40–62, 300 interruption 53 trends 40–42 scramble suits 57 scrapbooking 25, 108, 225 Sears Roebuck 137 seasonality 178, 193–4 second-hand goods 224 Second Life 133, 207–8 securitization 124, 140 security 16, 31, 151 security robots 209 self-driving cars 165 self-medication 242 self-publishing 103, 113–14 self-reliance 35, 75 self-repairing roads 57 322 self-replicating machines 23, 44 Selfridges 214 sensor motes 15, 50, 196 sensory internet 56 Sharia-based investment 125 Shop24 209 shopping 202–27 habitual 212 laser 212 malls 211–5 purposeful 212 slow 213 social 207 Shopping 2.0 224 short-wave scalpels 57 silicon photonics 56 simplicity 169–70, 179, 186, 202, 218, 224, 226, 272 Singapore 241 single-person households 19–20, 202–3, 208–9, 221, 244, 298, 304 skills shortage 293, 302 sky shields 57 sleep 159–60, 188, 228, 231, 246–7, 265 sleep debt 96, 266 sleep hotels 266 sleep surrogates 57 slow food 178, 193 slow shopping 213 slow travel 273 smart devices 26–7, 28, 32, 35, 44, 50, 56, 57, 164, 206, 207 smart dust 3, 15, 50, 196 smartisans 20 Smartmart 209 snakebots 55 social networks 97, 107, 110, 120, 133, 217, 261 social shopping 207 society 13, 15–16, 17–37 trends 15–16 Sodexho 193 solar energy 74 Sony 114, 121 South Africa 84, 149, 242 South America 82, 270 South Korea 2, 103, 128–9 space ladders 56 space mirrors 47 space tourism 271, 273 FUTURE FILES space tugs 57 speed 164, 202, 209, 245, 296–7 spirituality 16, 22, 282, 298, 306 spot knowledge 47 spray-on surgical gloves 57 St James’s Ethics Centre 282 stagflation 139 starch-based plastics 64 stealth retail 215 stealth taxation 86 Sterling, Bruce 55 storytelling 203 Strayer, David 161 street signs 162–3 stress 32, 96, 235, 243, 245–6, 258–9, 265, 257–9, 275, 277, 283–5 stress-control clothing 57 stupidity 151, 302 Stylehive 207 Sudan 73 suicide tourism 236 Super Suppers 185 supermarkets 135–6, 184–6, 188, 191–2, 194, 202–3, 212, 215, 218–19, 224, 229 surgery 2, 31 anti-ageing 2, 237 enhancement 249 Surowiecki, James 45 surveillance 35, 41 sustainability 4, 37, 74, 181, 193–5, 203, 281, 288, 298–9 Sweden 84 swine flu 38, 251, 272 Switzerland 168, 210, 215 synthetic biology 56 Taco Bell 184 Tactical Numerical Deterministic Model 49 tagging, location 86, 88 Taiwan 81 talent, war for 275, 279, 293; see also labor shortages Target 216 Tasmania 267 Tata Motors 174, 176 taxation 85–6, 92, 93 carbon 76, 172 conscientious objection 86 Index fat 190 flat 85–6 green 76 indirect 86 stealth 86 Tchibo 217 technology 3, 14–16, 18, 22, 26, 28, 32, 37, 40–62, 74–5, 82–3, 96, 119, 132, 147–8, 154, 157, 160, 162, 165–7, 178, 182, 195–8, 208, 221, 229, 237, 242–3, 249, 256, 261, 265–6, 268, 275–6, 280, 283–4, 292, 296–7, 300 refuseniks 30, 51, 97 trends 40–42 telemedicine 228, 238, 242 telepathy 29 teleportation 56 television 21, 96, 108, 117, 119 terrorism 67, 91, 108, 150, 262–3, 267, 272, 295–6, 301 Tesco 105, 135–6, 185, 206, 215, 219, 223 Thailand 247, 290 therapeutic robots 41, 54 thermal imaging 232 things that won’t change 10, 303–6 third spaces 224 ThisNext 207 thrift 224 Tik Tok Easy Shop 209 time scarcity 30, 96, 102, 178, 184–6, 218, 255 time shifting 96, 110, 116 time stamps 50 timeline, extinction 9 timeline, innovation 8 timelines 7 tired all the time 246 tobacco industry 251 tolerance 120 too much choice (TMC) 29, 202, 218–19 too much information (TMI) 29, 51, 53, 202, 229; see also information overload tourism 254–74 cultural 273 ethical 259 food 273 323 local 273 medical 2, 229, 247 sanctuary 273 space 271, 273 suicide 238 tribal 262 Tourism Concern 259 tourist quotas 254, 271 Toyota 48–9, 157 toys, mind-control 38 traceability 195 trading down 224 transparency 3, 15, 143, 152, 276, 282, 299 transport 15, 154–77, 298 public 155, 161 trends 154–6 transumerism 223 travel 2, 3, 11, 148, 254–74 economy 272 luxury 272 slow 273 trends 254–6 trend maps 6–7 trends 1, 5–7, 10, 13 financial services 123–5 food 178–80 healthcare 228–9 media 96–8 politics 63–5 retail 202–3 science and technology 40–42 society 15–16 transport 154–6 travel 254–6 work 275–7 tribal tourism 262 tribalism 15–16, 63, 127–8, 183, 192, 220, 260 trust 82, 133, 137, 139, 143, 192, 203, 276, 282–3 tunnels 171 Turing test 45 Turing, Alan 44 Turkey 2, 200, 247 Twitter 60, 120 two-way identity verification 132 UAE 2 UFOs 58 324 UK 19–20, 72, 76, 84, 86, 90–91, 100, 102–3, 105, 128–9, 132, 137, 139–42, 147–9, 150, 163, 167–8, 170–71, 175, 185, 195–6, 199, 200, 206, 210, 214–16, 238, 259, 267–8, 278–9, 284, 288 uncertainty 16, 30, 34, 52, 172, 199, 246, 263, 300, 303 unemployment 151 Unilever 195 University of Chicago 245–6 urban rental companies 176 urbanization 11, 18–19, 78, 84, 155, 233 Uruguay 200 US 1, 11, 19–21, 23, 55–6, 63, 67, 69, 72, 75, 77, 80–83, 86, 88–90, 92, 104–5, 106, 121, 129–33, 135, 139–42, 144, 147, 149, 150, 151, 162, 167, 169–71, 174, 185, 190–3, 195, 205–6, 209, 211, 213, 216, 218, 220, 222–3, 237–8, 240–8, 250, 260, 262, 267–8, 275, 279–80, 282–4, 287, 291 user-generated content (UGC) 46, 97, 104, 289 utility 224 values 36, 152 vending machines 209 Venezuela 69, 73 verbal signatures 132 VeriChip 126 video on demand 96 Vietnam 2, 290 Vino 100 113 Virgin Atlantic 261 virtual adultery 33 banks 134 economy 130–31 protests 65 reality 70 sex 32 stores 206–8 vacations 32, 261 worlds 157, 213, 255, 261, 270, 305 Vocation Vacations 259–60 Vodafone 137 voice recognition 41 voice-based internet search 56 voicelifts 2, 237 FUTURE FILES Volkswagen 175 voluntourism 259 Volvo 164 voting 3, 68, 90–91 Walgreens 244 Wal-Mart 105, 136–7, 215, 219–20, 223, 244, 282 war 68–9, 72 war for talent 275, 279; see also labor shortages war forecasting 49 water 69–70, 74, 77–9, 199 wearable computers 55 weather 64 weather insurance 264 Web 2.0 93, 224 Weinberg, Peter 125 wellbeing 2, 183, 188, 199 white flight 20 Wikipedia 46, 60, 104 wild swimming 273 Wilson, Edward O. 74 wind energy 74 wine producers 200 wisdom of idiots 47 Wizard 145 work 275–94 trends 275–94 work/life balance 64, 71, 260, 277, 289, 293 worldphone 19 xenophobia 16, 63 YouTube 46, 103, 107, 112 Zara 216–17 Zipcar 167 Zopa 124, 134


pages: 371 words: 98,534

Red Flags: Why Xi's China Is in Jeopardy by George Magnus

3D printing, 9 dash line, Admiral Zheng, Asian financial crisis, autonomous vehicles, balance sheet recession, banking crisis, Bretton Woods, BRICs, British Empire, business process, capital controls, carbon footprint, Carmen Reinhart, cloud computing, colonial exploitation, corporate governance, crony capitalism, currency manipulation / currency intervention, currency peg, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, full employment, Gini coefficient, global reserve currency, high net worth, hiring and firing, Hyman Minsky, income inequality, industrial robot, Internet of things, invention of movable type, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, land reform, Malacca Straits, means of production, megacity, money market fund, moral hazard, non-tariff barriers, Northern Rock, offshore financial centre, old age dependency ratio, open economy, peer-to-peer lending, pension reform, price mechanism, purchasing power parity, regulatory arbitrage, rent-seeking, reserve currency, rising living standards, risk tolerance, smart cities, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, speech recognition, The Wealth of Nations by Adam Smith, total factor productivity, trade route, urban planning, Washington Consensus, women in the workforce, working-age population, zero-sum game

The anecdotal evidence for widespread fraudulent collateral in China in the form of buildings, private apartments and commodities is ‘haunting loans across a wide swath of business and industry’.22 Yet the liabilities or the funding of the loans are absolutely key. In fact in important respects, they matter more. Few banks fail because they are insolvent, in the sense that their assets are worth less than their liabilities. But they can and do fail when they become illiquid, and can’t raise deposits or borrow funds in the financial markets any more. This is precisely what happened to the British bank Northern Rock in 2007, which was one of the first financial institutions to fail in the build-up to the financial crisis. Other bigger institutions, such as Bear Stearns and Lehman Brothers, would later fail in the same way. The liabilities of the financial sector, then, are what we really need to focus on because banks are always vulnerable to so-called ‘funding shocks’, since their business revolves around mismatches in the maturities of their assets and liabilities.

–China Strategic and Economic Dialogue (i) Hua Guofeng (i) Huangpu district (Shanghai) (i) Huawei (i), (ii), (iii), (iv) hukou (i), (ii), (iii), (iv) Human Freedom Index (i) Human Resources and Social Security, Ministry of (i) Hunan (i) Hungary (i), (ii), (iii), (iv) ICORs (incremental capital-output ratios) (i), (ii), (iii) n4 IMF Article IV report (i) on broadening and deepening of financial system (i) China urged to devalue (i) China’s integration and (i) concern over smaller banks (i) concern over WMPs (i) credit gaps (i) credit intensity (i) GP research (i) ICOR (i) n4 laissez-faire ideas (i) pensions, healthcare and GDP research (i), (ii), (iii) Renminbi reserves (i) risky corporate loans (i) Special Drawing Rights (i), (ii), (iii), (iv), (v) WAPs (i) immigrants see migrants income inequality (i) India Adam Smith on (i) ASEAN (i) BRI misgivings (i) BRICS (i), (ii) comparative debt in (i) demographic dividend (i) economic freedom level (i) frictions with (i) Nobel Prize (i) pushing back against China (i) regional allies of (i) SCO member (i) Indian Ocean access to ports (i) African rail projects and (i) Chinese warships enter (i) rimland (i) shorelines (i) Indo-Pacific region (i), (ii) Indonesia Asian crisis (i) BRI investment (i) debt and GDP (i) GDP (i) rail transport projects (i) RCEP (i) retirement age (i) trade with China (i) Industrial and Commercial Bank of China (i), (ii) Industrial Revolution (i), (ii) industrialisation (i), (ii) Industry and Information Technology, Minister of (i) infrastructure (i), (ii), (iii), (iv) Initial Public Offerings (IPOs) (i) Inner Mongolia (i), (ii) innovation (i), (ii) Inquiry into the Nature and Causes of the Wealth of Nations (Adam Smith) (i) Institute for International Finance (i) institutions (i), (ii) insurance companies (i), (ii), (iii) intellectual property (i) interbank funding (i), (ii), (iii), (iv), (v) investment (i), (ii), (iii) Iran (i) Ireland (i), (ii), (iii) Iron Curtain (i) ‘iron rice bowl’ (i) Israel (i), (ii) Italy (i), (ii), (iii) Jakarta (i), (ii) Japan acts of aggression by (i) aftermath of war (i) ASEAN (i) between the wars (i) bond market (i) Boxer Rebellion and (i) Chiang Kai-shek fights (i) China and (i) China’s insecurity (i) credit gap comparison (i) dispute over Diaoyu islands (i), (ii) export-led growth (i), (ii) financial crisis (i) friction with (i) full-scale war with China (i), (ii) growth (i) high-speed rail (i) India and (i) Liaodong peninsula (i) Manchuria taken (i), (ii), (iii) Mao fights (i) middle- to high-income (i) migrants to (i) Okinawa (i) old-age dependency ratio (i) pensions, healthcare and GDP research (i) pushing back against China (i) RCEP (i) Renminbi block, attitude to (i) research and development (i) rimland (i) robots (i) seas and islands disputes (i) Shinzō Abe (i) TPP (i) trade and investment from (i) yen (i) Jardine Matheson Holdings (i) Jiang Zemin 1990s (i) Deng’s reforms amplified (i), (ii), (iii) influence and allies (i) Xiao Jianhua and (i) Johnson, Lyndon (i) Julius Caesar (i) Kamchatka (i) Kashgar (i) Kashmir (i) Kazakhstan (i), (ii) Ke Jie (i) Kenya (i) Keynes, John Maynard (i) Kharas, Homi (i) Kissinger, Henry (i), (ii), (iii), (iv) Korea (i), (ii), (iii) see also North Korea; South Korea Korean War (i), (ii) Kornai, János (i), (ii), (iii) n16 Kowloon (i), (ii) Krugman, Paul (i) Kunming (i) Kuomintang (KMT) (i), (ii) Kyrgyzstan (i) Kyushu (i) labour productivity (i) land reform (i) Laos (i), (ii), (iii) Latin America (i), (ii), (iii) Lattice Semiconductor Corporation (i) leadership (i) Leading Small Groups (LSGs) (i), (ii), (iii), (iv) Lee Kuan Yew (i) Lee Sodol (i) Legendary Entertainment (i) Lehman Brothers (i) lending (i) Leninism governance tending to (i) late 1940s (i) party purity (i) Xi’s crusade on (i), (ii) Lenovo (i), (ii) Lewis, Arthur (i) Lewis turning point (i) LGFVs (local government financing vehicles) (i) Li Keqiang (i), (ii) Liaodong peninsula (i), (ii) LinkedIn (i) Liu He (i), (ii), (iii) Liu Xiaobo (i) local government (i), (ii), (iii) London (i), (ii), (iii) Luttwak, Edward (i), (ii), (iii) Macartney, Lord George (i), (ii), (iii) Macau (i), (ii) Made in China 2025 (MIC25) ambitious plans (i) importance of (i) mercantilism (i) priority sectors (i) robotics (i) Maddison, Angus (i), (ii), (iii) n3 (C1) Maghreb (i) major banks see individual entries Malacca, Straits of (i) Malay peninsula (i) Malaysia ASEAN member (i) Asian crisis (i) high growth maintenance (i) Nine-Dash Line (i) rail projects (i), (ii) Renminbi reserves (i) TPP member (i) trade with (i) Maldives (i) Malthus, Thomas (i), (ii) Manchuria Communists retake (i) Japanese companies in (i) Japanese puppet state (i), (ii), (iii) key supplier (i) North China Plain and (i) Pacific coast access (i) Russian interests (i) targeted (i) Manhattan (i), (ii) see also New York Mao Zedong arts and sciences (i) China stands up under (i) China under (i) Communist Party’s grip on power (i) consumer sector under (i) Deng rehabilitated (i) Deng, Xi and (i) east wind and west wind (i) Great Leap Forward (i) industrial economy under (i) nature of China under (i) People’s Republic proclaimed (i) positives and negatives (i) property rights (i) women and the workforce (i) Xi and (i) Maoism (i) Mar-a-Lago (i) Mark Antony (i) Market Supervision Administration (i) Marshall Plan (i), (ii) Marxism (i), (ii), (iii), (iv) Mauritius (i) May Fourth Movement (i) McCulley, Paul (i) n18 Mediterranean (i) Menon, Shivshankar (i) mergers (i) MES (market economy status (ii)) Mexico completion of education rates (i) debt comparison (i) GDP comparison (i) NAFTA (i) pensions comparison (i) TPP member (i) US border (i) viagra policy (i) Middle East (i), (ii), (iii) middle-income trap (i), definition (i) evidence and argument for (i) governance (i) hostility to (i) hukou system (i) lack of social welfare for (i) low level of (i) migrant factory workers (i) patents and innovation significance (i) significance of technology tech strengths and weaknesses (i) total factor productivity focus (i) vested and conflicted interests (i) ultimate test (i) World Bank statistics (i) migrants (i), (ii), (iii), (iv), (v) Ming dynasty (i) Minsky, Hyman (i) mixed ownership (i), (ii) Modi, Narendra (i) Mombasa (i) monetary systems (i) Mongolia (i), (ii) Monogram (i) Moody’s (i) Morocco (i) mortality rates (i) see also population statistics mortgages (i) motor cars (i), (ii) Moutai (i) Mundell, Robert (i) Muslims (i) Mutual Fund Connect (i) Myanmar ASEAN (i) Chinese projects (i) disputes (i) low value manufacturing moves to (i) Qing Empire in (i) ‘string of pearls’ (i) ‘Myth of Asia’s Miracle, The’ (Paul Krugman) (i) NAFTA (North American Free Trade Agreement) (i) Nairobi (i) Namibia (i) Nanking (i) Treaty of (i), (ii) National Bureau of Statistics fertility rates (i) GDP figures (i) ICOR estimate (i), (ii), (iii) n4 SOE workers (i) National Cyberspace Work Conference (i) National Development and Reform Commission (i), (ii), (iii) National Financial Work Conferences (i) National Health and Family Planning Commission (i) National Medium and Long-Term Plan for the Development of Science and Technology (i) National Natural Science Foundation (i) National People’s Congress 2007 (i) 2016 (i) 2018 (i), (ii), (iii), (iv) National People’s Party of China (i) National Science Foundation (US) (i) National Security Commission (i) National Security Strategy (US) (i), (ii) National Supervision Commission (i), (ii), (iii), (iv) Needham, Joseph (i) Nepal (i), (ii) Netherlands (i) New Development Bank (i), (ii) New Eurasian Land Bridge (i) New Territories (i), (ii) New York (i) see also Manhattan New Zealand (i), (ii), (iii) Next Generation AI Development Plan (i) Nigeria (i) Nine-Dash Line (i) Ningpo (i) Nixon, Richard (i) Nobel Prizes (i), (ii) Nogales, Arizona (i) Nogales, Sonora (i) Nokia (i) non-communicable disease (i) non-performing loans (i), (ii), (iii), (iv), (v), (vi) North China Plain (i) North Korea (i) see also Korea Northern Rock (i) Norway (i) Nye, Joseph (i) Obama, Barack Hu Jintao and (i) Pacific shift recognised (i) Renminbi (i) US and China (i), (ii) OECD (Organisation for Economic Co-operation and Development) China’s ranking (i) GDP rates for pension and healthcare (i) GP doctors in (i) tertiary education rates (i) US trade deficit with China (i) Office of the US Trade Representative (i) Official Investment Assistance (Japan) (i) Okinawa (i) old-age dependency ratios (i), (ii), (iii) Olson, Mancur (i) Oman (i) one-child policy (i), (ii) Opium Wars financial cost of (i) First Opium War (i), (ii), (iii) Qing dynasty defeated (i) Oriental Pearl TV Tower, Shanghai (i) Pacific (i), (ii), (iii) Padma Bridge (i) Pakistan Economic Corridor (i) long-standing ally (i) Renminbi reserves (i) SCO member (i) ‘string of pearls’ (i) Paris (i) Party Congresses see numerical list at head of index patents (i) Peking (i), (ii), (iii) see also Beijing pensions (i) People’s Bank of China see also banks cuts interest rates again (i) floating exchange rates (i) lender of last resort (i), (ii) long term governor of (i) new rules issued (i) new State Council committee coordinates (i) places severe restrictions on banks (i) publishing Renminbi values (i) Renminbi/dollar rate altered (i) repo agreements (i) sells dollar assets (i) stepping in (i) Zhou Xiaochuan essay (i) People’s Daily front-page interview (i), (ii) on The Hague tribunal (i) riposte to Soros (i) stock market encouragement (i) People’s Liberation Army (i), (ii) Persia (i) Persian Gulf (i), (ii) Peru (i) Pettis, Michael (i) n12 Pew Research (i) Peyrefitte, Alain (i) Philippines (i), (ii), (iii), (iv) Piraeus (i) PISA (Programme for International Student Assessment) (i) Poland (i), (ii), (iii) ‘Polar Silk Road’ (i) Politburo (i), (ii), (iii), (iv) pollution (i) Polo, Marco (i) Pomeranz, Kenneth (i) population statistics (i) see also ageing trap; WAP (working-age population) consequences of ageing (i) demographic dividends (i), (ii) hukou system and other effects (i) low fertility (i), (ii), (iii) migrants (i), (ii) old-age dependency ratios (i), (ii), (iii) one-child policy (i), (ii) places with the most ageing populations (i) rural population (i) savings trends (i) technology and (i) under Mao (i) women (i) Port Arthur (i) Port City Colombo (i), (ii) Portugal (i), (ii), (iii), (iv) pricing (i), (ii) private ownership (i), (ii) productivity (i), (ii) Propaganda, Department of (i) property (i) property rights (i) Puerto Rico (i) Punta Gorda, Florida (i) Putin, Vladimir (i) Qianlong, Emperor (i) Qing dynasty (i), (ii), (iii) Qingdao (i) Qualcomm (i) Qualified Domestic Institutional Investors (i), (ii) Qualified Foreign Institutional Investors (i), (ii) Qiushi, magazine (i) rail network (i), (ii) RCEP (Regional Comprehensive Economic Partnership) (i), (ii), (iii) real estate (i), (ii) reform authoritative source warns of need for (i), (ii) different meaning from West (i) of economy via rebalancing (i), (ii) as embraced by Deng Xiaoping (i) fiscal, foreign trade and finance (i), (ii) Hukou (i) of ownership (i) state-owned enterprises (i) third plenum announcements (i) in Xi Jinping’s China (i) ‘Reform and Opening Up’ (Deng Xiaoping) (i), (ii), (iii) regulations and regulatory authorities (financial) (i), (ii) Reinhart, Carmen (i) Renminbi (i) 2015 mini-devaluation and capital outflows (i), (ii) appreciates (i) banking system’s assets in (i) bloc for (i) capital flight risk (i) devaluation (i), (ii), (iii), (iv) dim sum bonds (i) efforts to internationalise (i) end of peg (i) foreign investors and (i) fully convertible currency, a (i) growing importance of (i) IMF’s Special Drawing Rights (i) Qualified Institutional Investors (i) in relation to reserves (i) Renminbi trap (i), (ii), (iii), (iv) share of world reserves (i) significance of (i), (ii) Special Drawing Rights and (i), (ii) US dollar and (i), (ii), (iii), (iv), (v) repo markets (i), (ii) research and development (R&D) (i), (ii) Resources Department (i) retirement age (i) Rhodium Group (i) rimland (i) Robinson, James (i) robots (i) Rogoff, Kenneth (i) Roman Empire (i) Rotterdam (i) Rozelle, Scott (i) Rudd, Kevin (i) Rudong County (i) Rumsfeld, Donald (i) Rural Cooperative Medical Scheme (i) rural workers (i) Russia see also Soviet Union 19th century acquisitions (i), (ii) ageing population (i) BRI and (i) BRICS (i), (ii), (iii) C929s (i) China’s view of (i) early attempts at trade (i) fertility rates (i) Human Freedom Index (i) middle income trap and (i) Pacific sea ports (i) Polar Silk Road (i) Renminbi reserves (i) SCO member (i) Ryukyu Islands (i) Samsung (i) San Francisco (i) SASAC (i), (ii) Saudi Arabia (i) savings (i), (ii), (iii) Scarborough Shoal (i) Schmidt, Eric (i) Schumpeter, Joseph (i) SCIOs (i) Second Opium War (i) Second World War China and Japan (i), (ii) economic development since (i) Marshall Plan (i), (ii) US and Japan (i) Senkaku islands see Diaoyu islands separatism (i), (ii) Serbia (i) service sector (i), (ii) Seventh Fleet (US) (i) SEZs (special economic zones) (i), (ii), (iii), (iv) shadow banks (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix) n18 see also banks Shandong (i), (ii) Shanghai 1st Party Congress (i) arsenal (i) British influence in (i) central bank established (i) Deng’s Southern Tour (i) firms halt trading (i) income per head (i) interbank currency market (i) PISA scores (i) pollution (i) property price rises (i) stock market (i), (ii), (iii) Western skills used (i) Shanghai Composite Index (i), (ii) Shanghai Cooperation Organisation (SCO) (i), (ii), (iii) Shanghai Free Trade Zone (i), (ii), (iii) Shanghai–Hong Kong Bond Connect Scheme (i) Shanghai–Hong Kong Stock Connect Scheme (i), (ii) Shanghai World Financial Centre (i) Shenzhen first foreign company in (i) n3 (Intro.)


pages: 349 words: 98,868

Nervous States: Democracy and the Decline of Reason by William Davies

active measures, Affordable Care Act / Obamacare, Amazon Web Services, bank run, banking crisis, basic income, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Climategate, Climatic Research Unit, Colonization of Mars, continuation of politics by other means, creative destruction, credit crunch, decarbonisation, deindustrialization, discovery of penicillin, Dominic Cummings, Donald Trump, drone strike, Elon Musk, failed state, Filter Bubble, first-past-the-post, Frank Gehry, gig economy, housing crisis, income inequality, Isaac Newton, Jeff Bezos, Johannes Kepler, Joseph Schumpeter, knowledge economy, loss aversion, low skilled workers, Mahatma Gandhi, Mark Zuckerberg, mass immigration, meta analysis, meta-analysis, Mont Pelerin Society, mutually assured destruction, Northern Rock, obamacare, Occupy movement, pattern recognition, Peace of Westphalia, Peter Thiel, Philip Mirowski, planetary scale, post-industrial society, quantitative easing, RAND corporation, Ray Kurzweil, Richard Florida, road to serfdom, Robert Mercer, Ronald Reagan, sentiment analysis, Silicon Valley, Silicon Valley startup, smart cities, statistical model, Steve Jobs, the scientific method, Turing machine, Uber for X, universal basic income, University of East Anglia, Valery Gerasimov, We are the 99%, WikiLeaks, women in the workforce, zero-sum game

Reactions against expertise may seem like an irrational rejection of truth itself, yet they are more often a rejection of the broader political edifice from which society is governed. It’s not just truth that is at stake but the manner in which feelings of security and trust are generated. The NAO put the cost of the bank rescue package at £850 billion, over half of Britain’s GDP at the time. This sum covered the purchase of shares in RBS, Lloyds, and Northern Rock banks, plus the provision of guarantees, insurance of assets, liquidity provisions, and loans to the financial sector. The government was able to do this thanks to a vast increase in public borrowing, which saw the UK’s national debt roughly double between 2007 and 2011. The rescue of the financial sector was dramatic and unprecedented, occurring through a series of rapid decisions made among a small group of senior politicians and advisers, often late at night or over weekends while the banks were closed.

., Martin Luther, 21, 224 knowledge economy, 84, 85, 88, 151–2, 217 known knowns, 132, 138 Koch, Charles and David, 154, 164, 174 Korean War (1950–53), 178 Kraepelin, Emil, 139 Kurzweil, Ray, 183–4 Labour Party, 5, 6, 65, 80, 81, 221 Lagarde, Christine, 64 Le Bon, Gustave, 8–12, 13, 15, 16, 20, 24, 25, 38 Le Pen, Marine, 27, 79, 87, 92, 101–2 Leadbeater, Charles, 84 Leeds, West Yorkshire, 85 Leicester, Leicestershire, 85 Leviathan (Hobbes), 34, 39, 45 liberal elites, 20, 58, 88, 89, 161 libertarianism, 15, 151, 154, 158, 164, 173, 196, 209, 226 Liberty Fund, 158 Libya, 143 lie-detection technology, 136 life expectancy, 62, 68–71, 72, 92, 100–101, 115, 224 Lindemann, Frederick Alexander, 1st Viscount Cherwell, 138 Lloyds Bank, 29 London, England bills of mortality, 68–71, 75, 79–80, 81, 89, 127 Blitz (1940–41), 119, 143, 180 EU referendum (2016), 85 Great Fire (1666), 67 Grenfell Tower fire (2017), 10 and gross domestic product (GDP), 77, 78 housing crisis, 84 insurance sector, 59 knowledge economy, 84 life expectancy, 100 newspapers, early, 48 Oxford Circus terror scare (2017), ix–x, xiii, 41 plagues, 67–71, 75, 79–80, 81, 89, 127 Unite for Europe march (2017), 23 London School of Economics (LSE), 160 loss aversion, 145 Louis XIV, King of France, 73, 127 Louisiana, United States, 151, 221 Ludwig von Mises Institute, 154 MacLean, Nancy, 158 Macron, Emmanuel, 33 mainstream media, 197 “Make America Great Again,” 76, 145 Manchester, England, 85 Mann, Geoff, 214 maps, 182 March For Our Lives (2018), 21 March for Science (2017), 23–5, 27, 28, 210, 211 marketing, 14, 139–41, 143, 148, 169 Mars, 175, 226 Marxism, 163 Massachusetts Institute of Technology (MIT), 179 Mayer, Jane, 158 McCarthy, Joseph, 137 McGill Pain Questionnaire, 104 McKibben, William “Bill,” 213 Megaface, 188–9 memes, 15, 194 Menger, Carl, 154 mental illness, 103, 107–17, 139 mercenaries, 126 Mercer, Robert, 174, 175 Mexico, 145 Million-Man March (1995), 4 mind-reading technology, 136 see also telepathy Mirowski, Philip, 158 von Mises, Ludwig, 154–63, 166, 172, 173 Missing Migrants Project, 225 mobilization, 5, 7, 126–31 and Corbyn, 81 and elections, 81, 124 and experts, 27–8 and Internet, 15 and Le Bon’s crowd psychology, 11, 12, 16, 20 and loss, 145 and Napoleonic Wars, xv, 127–30, 141, 144 and Occupy movement, 5 and populism, 16, 22, 60 and violence, opposition to, 21 Moniteur Universel, Le, 142 monopoly on violence, 42 Mont Pelerin Society, 163, 164 moral emotion, 21 morphine, 105 multiculturalism, 84 Murs, Oliver “Olly,” ix Musk, Elon, 175, 176, 178, 183, 226 Nanchang, Jiangxi, 13 Napoleonic Wars (1803–15), 126–30 chappe system, 129, 182 and conscription, 87, 126–7, 129 and disruption, 170–71, 173, 174, 175, 226 and great leader ideal, 146–8 and intelligence, 134 and mobilization, xv, 126–30, 141, 144 and nationalism, 87, 128, 129, 144, 183, 211 and propaganda, 142 Russia, invasion of (1812), 128, 133 Spain, invasion of (1808), 128 National Aeronautics and Space Administration (NASA), 23, 175 National Audit Office (NAO), 29–30 national citizenship, 71 National Defense Research Committee, 180 National Health Service (NHS), 30, 93 National Park Service, 4 National Security Agency (NSA), 152 national sovereignty, 34, 53 nationalism, 87, 141, 210–12 and conservatism, 144 and disempowerment, 118–19 and elites, 22–3, 60–61, 145 ethnic, 15 and health, 92, 211–12, 224 and imagined communities, 87 and inequality, 78 and loss, 145 and markets, 167 and promises, 221 and resentment, 145, 197, 198 and war, 7, 20–21, 118–19, 143–6, 210–11 nativism, 61 natural philosophy, 35–6 nature, 86 see also environment Nazi Germany (1933–45), 137, 138, 154 Netherlands, 48, 56, 129 Neurable, 176 neural networking, 216 Neuralink, 176 neurasthenia, 139 Neurath, Otto, 153–4, 157, 160 neurochemistry, 108, 111, 112 neuroimaging, 176–8, 181 Nevada, United States, 194 new atheism, 209 New Orleans, Louisiana, 151 New Right, 164 New York, United States and climate change, 205 and gross domestic product (GDP), 78 housing crisis, 84 JFK Airport terror scare (2016), x, xiii, 41 knowledge economy, 84 September 11 attacks (2001), 17, 18 New York Times, 3, 27, 85 newspapers, 48, 71 Newton, Isaac, 35 Nietzsche, Friedrich, 217 Nixon, Robert, 206 no-platforming, 22, 208 Nobel Prize, 158–9 non-combatants, 43, 143, 204 non-violence, 224 North Atlantic Treaty Organization (NATO), 123, 145, 214 North Carolina, United States, 84 Northern Ireland, 43, 85 Northern League, 61 Northern Rock, 29 Norwich, Norfolk, 85 nostalgia, xiv, 143, 145, 210, 223 “Not in my name,” 27 nuclear weapons, 132, 135, 137, 180, 183, 192, 196, 204 nudge techniques, 13 Obama, Barack, 3, 24, 76, 77, 79, 158, 172 Obamacare, 172 objectivity, xiv, 13, 75, 136, 223 and crowd-based politics, 5, 7, 24–5 and death, 94 and Descartes, 37 and experts, trust in, 28, 32, 33, 51, 53, 64, 86, 89 and Hayek, 163, 164, 170 and markets, 169, 170 and photography, 8 and Scientific Revolution, 48, 49 and statistics, 72, 74, 75, 82, 88 and telepathic communication, 179 and war, 58, 125, 134, 135, 136, 146 Occupy movement, 5, 10, 24, 61 Oedipus complex, 109 Office for National Statistics, 63, 133 Ohio, United States, 116 oil crisis (1973), 166 “On Computable Numbers” (Turing), 181 On War (Clausewitz), 130 Open Society and Its Enemies, The (Popper), 171 opiates, 105, 116, 172–3 opinion polling, 65, 80–81, 191 Orbán, Viktor, 87, 146 Organisation for Economic Co-operation and Development (OECD), 72 Oxford, Oxfordshire, 85 Oxford Circus terror scare (2017), ix–x, xiii, 41 Oxford University, 56, 151 OxyContin, 105, 116 pacifism, 8, 20, 44, 151 pain, 102–19, 172–3, 224 see also chronic pain painkillers, 104, 105, 116, 172–3 Palantir, 151, 152, 175, 190 parabiosis, 149 Paris climate accord (2015), 205, 207 Paris Commune (1871), 8 Parkland attack (2018), 21 Patriot Act (2001), 137 Paul, Ronald, 154 PayPal, 149 Peace of Westphalia (1648), 34, 53 peer reviewing, 48, 139, 195, 208 penicillin, 94 Pentagon, 130, 132, 135, 136, 214, 216 pesticides, 205 Petty, William, 55–9, 67, 73, 85, 167 pharmacology, 142 Pielke Jr., Roger, 24, 25 Piketty, Thomas, 74 Pinker, Stephen, 207 plagues, 56, 67–71, 75, 79–80, 81, 89, 95 pleasure principle, 70, 109, 110, 224 pneumonia, 37, 67 Podemos, 5, 202 Poland, 20, 34, 60 Polanyi, Michael, 163 political anatomy, 57 Political Arithmetick (Petty), 58, 59 political correctness, 20, 27, 145 Popper, Karl, 163, 171 populism xvii, 211–12, 214, 220, 225–6 and central banks, 33 and crowd-based politics, 12 and democracy, 202 and elites/experts, 26, 33, 50, 152, 197, 210, 215 and empathy, 118 and health, 99, 101–2, 224–5 and immediate action, 216 in Kansas (1880s), 220 and markets, 167 and private companies, 174 and promises, 221 and resentment, 145 and statistics, 90 and unemployment, 88 and war, 148, 212 Porter, Michael, 84 post-traumatic stress disorder (PTSD), 111–14, 117, 209 post-truth, 167, 224 Potsdam Conference (1945), 138 power vs. violence, 19, 219 predictive policing, 151 presidential election, US (2016), xiv and climate change, 214 and data, 190 and education, 85 and free trade, 79 and health, 92, 99 and immigration, 79, 145 and inequality, 76–7 and Internet, 190, 197, 199 “Make America Great Again,” 76, 145 and opinion polling, 65, 80 and promises, 221 and relative deprivation, 88 and Russia, 199 and statistics, 63 and Yellen, 33 prisoners of war, 43 promises, 25, 31, 39–42, 45–7, 51, 52, 217–18, 221–2 Propaganda (Bernays), 14–15 propaganda, 8, 14–16, 83, 124–5, 141, 142, 143 property rights, 158, 167 Protestantism, 34, 35, 45, 215 Prussia (1525–1947), 8, 127–30, 133–4, 135, 142 psychiatry, 107, 139 psychoanalysis, 107, 139 Psychology of Crowds, The (Le Bon), 9–12, 13, 15, 16, 20, 24, 25 psychosomatic, 103 public-spending cuts, 100–101 punishment, 90, 92–3, 94, 95, 108 Purdue, 105 Putin, Vladimir, 145, 183 al-Qaeda, 136 quality of life, 74, 104 quantitative easing, 31–2, 222 quants, 190 radical statistics, 74 RAND Corporation, 183 RBS, 29 Reagan, Ronald, 15, 77, 154, 160, 163, 166 real-time knowledge, xvi, 112, 131, 134, 153, 154, 165–70 Reason Foundation, 158 Red Vienna, 154, 155 Rees-Mogg, Jacob, 33, 61 refugee crisis (2015–), 60, 225 relative deprivation, 88 representative democracy, 7, 12, 14–15, 25–8, 61, 202 Republican Party, 77, 79, 85, 154, 160, 163, 166, 172 research and development (R&D), 133 Research Triangle, North Carolina, 84 resentment, 5, 226 of elites/experts, 32, 52, 61, 86, 88–9, 161, 186, 201 and nationalism/populism, 5, 144–6, 148, 197, 198 and pain, 94 Ridley, Matt, 209 right to remain silent, 44 Road to Serfdom, The (Hayek), 160, 166 Robinson, Tommy, ix Roosevelt, Franklin Delano, 52 Royal Exchange, 67 Royal Society, 48–52, 56, 68, 86, 133, 137, 186, 208, 218 Rumsfeld, Donald, 132 Russian Empire (1721–1917), 128, 133 Russian Federation (1991–) and artificial intelligence, 183 Gerasimov Doctrine, 43, 123, 125, 126 and information war, 196 life expectancy, 100, 115 and national humiliation, 145 Skripal poisoning (2018), 43 and social media, 15, 18, 199 troll farms, 199 Russian Revolution (1917), 155 Russian SFSR (1917–91), 132, 133, 135–8, 155, 177, 180, 182–3 safe spaces, 22, 208 Sands, Robert “Bobby,” 43 Saxony, 90 scarlet fever, 67 Scarry, Elaine, 102–3 scenting, 135, 180 Schneier, Bruce, 185 Schumpeter, Joseph, 156–7, 162 Scientific Revolution, 48–52, 62, 66, 95, 204, 207, 218 scientist, coining of term, 133 SCL, 175 Scotland, 64, 85, 172 search engines, xvi Second World War, see World War II securitization of loans, 218 seismology, 135 self-employment, 82 self-esteem, 88–90, 175, 212 self-harm, 44, 114–15, 117, 146, 225 self-help, 107 self-interest, 26, 41, 44, 61, 114, 141, 146 Semi-Automatic Ground Environment (SAGE), 180, 182, 200 sentiment analysis, xiii, 12–13, 140, 188 September 11 attacks (2001), 17, 18 shell shock, 109–10 Shrecker, Ted, 226 Silicon Fen, Cambridgeshire, 84 Silicon Valley, California, xvi, 219 and data, 55, 151, 185–93, 199–201 and disruption, 149–51, 175, 226 and entrepreneurship, 149–51 and fascism, 203 and immortality, 149, 183–4, 224, 226 and monopolies, 174, 220 and singularity, 183–4 and telepathy, 176–8, 181, 185, 186, 221 and weaponization, 18, 219 singularity, 184 Siri, 187 Skripal poisoning (2018), 43 slavery, 59, 224 smallpox, 67 smart cities, 190, 199 smartphone addiction, 112, 186–7 snowflakes, 22, 113 social indicators, 74 social justice warriors (SJWs), 131 social media and crowd psychology, 6 emotional artificial intelligence, 12–13, 140–41 and engagement, 7 filter bubbles, 66 and propaganda, 15, 18, 81, 124 and PTSD, 113 and sentiment analysis, 12 trolls, 18, 20–22, 27, 40, 123, 146, 148, 194–8, 199, 209 weaponization of, 18, 19, 22, 194–5 socialism, 8, 20, 154–6, 158, 160 calculation debate, 154–6, 158, 160 Socialism (Mises), 160 Society for Freedom in Science, 163 South Africa, 103 sovereignty, 34, 53 Soviet Russia (1917–91), 132, 133, 135–8, 177, 180, 182–3 Spain, 5, 34, 84, 128, 202 speed of knowledge, xvi, 112, 124, 131, 134, 136, 153, 154, 165–70 Spicer, Sean, 3, 5 spy planes, 136, 152 Stalin, Joseph, 138 Stanford University, 179 statactivism, 74 statistics, 62–91, 161, 186 status, 88–90 Stoermer, Eugene, 206 strong man leaders, 16 suicide, 100, 101, 115 suicide bombing, 44, 146 superbugs, 205 surveillance, 185–93, 219 Sweden, 34 Switzerland, 164 Sydenham, Thomas, 96 Syriza, 5 tacit knowledge, 162 talking cure, 107 taxation, 158 Tea Party, 32, 50, 61, 221 technocracy, 53–8, 59, 60, 61, 78, 87, 89, 90, 211 teenage girls, 113, 114 telepathy, 39, 176–9, 181, 185, 186 terrorism, 17–18, 151, 185 Charlottesville attack (2017), 20 emergency powers, 42 JFK Airport terror scare (2016), x, xiii, 41 Oxford Circus terror scare (2017), ix–x, xiii, 41 September 11 attacks (2001), 17, 18 suicide bombing, 44, 146 vehicle-ramming attacks, 17 war on terror, 131, 136, 196 Thames Valley, England, 85 Thatcher, Margaret, 154, 160, 163, 166 Thiel, Peter, 26, 149–51, 153, 156, 174, 190 Thirty Years War (1618–48), 34, 45, 53, 126 Tokyo, Japan, x torture, 92–3 total wars, 129, 142–3 Treaty of Westphalia (1648), 34, 53 trends, xvi, 168 trigger warnings, 22, 113 trolls, 18, 20–22, 27, 40, 123, 146, 148, 194–8, 199, 209 Trump, Donald, xiv and Bannon, 21, 60–61 and climate change, 207 and education, 85 election campaign (2016), see under presidential election, US and free trade, 79 and health, 92, 99 and immigration, 145 inauguration (2017), 3–5, 6, 9, 10 and inequality, 76–7 “Make America Great Again,” 76, 145 and March for Science (2017), 23, 24, 210 and media, 27 and opinion polling, 65, 80 and Paris climate accord, 207 and promises, 221 and relative deprivation, 88 and statistics, 63 and Yellen, 33 Tsipras, Alexis, 5 Turing, Alan, 181, 183 Twitter and Corbyn’s rallies, 6 and JFK Airport terror scare (2016), x and Oxford Circus terror scare (2017), ix–x and Russia, 18 and sentiment analysis, 188 and trends, xvi and trolls, 194, 195 Uber, 49, 185, 186, 187, 188, 191, 192 UK Independence Party, 65, 92, 202 underemployment, 82 unemployment, 61, 62, 72, 78, 81–3, 87, 88, 203 United Kingdom austerity, 100 Bank of England, 32, 33, 64 Blitz (1940–41), 119, 143, 180 Brexit (2016–), see under Brexit Cameron government (2010–16), 33, 73, 100 Center for Policy Studies, 164 Civil Service, 33 climate-gate (2009), 195 Corbyn’s rallies, 5, 6 Dunkirk evacuation (1940), 119 education, 85 financial crisis (2007–9), 29–32, 100 first past the post, 13 general election (2015), 80, 81 general election (2017), 6, 65, 80, 81, 221 Grenfell Tower fire (2017), 10 gross domestic product (GDP), 77, 79 immigration, 63, 65 Irish hunger strike (1981), 43 life expectancy, 100 National Audit Office (NAO), 29 National Health Service (NHS), 30, 93 Office for National Statistics, 63, 133 and opiates, 105 Oxford Circus terror scare (2017), ix–x, xiii, 41 and pain, 102, 105 Palantir, 151 Potsdam Conference (1945), 138 quantitative easing, 31–2 Royal Society, 138 Scottish independence referendum (2014), 64 Skripal poisoning (2018), 43 Society for Freedom in Science, 163 Thatcher government (1979–90), 154, 160, 163, 166 and torture, 92 Treasury, 61, 64 unemployment, 83 Unite for Europe march (2017), 23 World War II (1939–45), 114, 119, 138, 143, 180 see also England United Nations, 72, 222 United States Bayh–Dole Act (1980), 152 Black Lives Matter, 10, 225 BP oil spill (2010), 89 Bush Jr. administration (2001–9), 77, 136 Bush Sr administration (1989–93), 77 Bureau of Labor, 74 Central Intelligence Agency (CIA), 3, 136, 151, 199 Charlottesville attack (2017), 20 Civil War (1861–5), 105, 142 and climate change, 207, 214 Clinton administration (1993–2001), 77 Cold War, see Cold War Defense Advanced Research Projects Agency (DARPA), 176, 178 Defense Intelligence Agency, 177 drug abuse, 43, 100, 105, 115–16, 131, 172–3 education, 85 Federal Bureau of Investigation (FBI), 137 Federal Reserve, 33 Fifth Amendment (1789), 44 financial crisis (2007–9), 31–2, 82, 158 first past the post, 13 Government Accountability Office, 29 gross domestic product (GDP), 75–7, 82 health, 92, 99–100, 101, 103, 105, 107, 115–16, 158, 172–3 Heritage Foundation, 164, 214 Iraq War (2003–11), 74, 132 JFK Airport terror scare (2016), x, xiii, 41 Kansas populists (1880s), 220 libertarianism, 15, 151, 154, 158, 164, 173 life expectancy, 100, 101 March For Our Lives (2018), 21 March for Science (2017), 23–5, 27, 28, 210 McCarthyism (1947–56), 137 Million-Man March (1995), 4 National Aeronautics and Space Administration (NASA), 23, 175 National Defense Research Committee, 180 National Park Service, 4 National Security Agency (NSA), 152 Obama administration (2009–17), 3, 24, 76, 77, 79, 158 Occupy Wall Street (2011), 5, 10, 61 and opiates, 105, 172–3 and pain, 103, 105, 107, 172–3 Palantir, 151, 152, 175, 190 Paris climate accord (2015), 205, 207 Parkland attack (2018), 21 Patriot Act (2001), 137 Pentagon, 130, 132, 135, 136, 214, 216 presidential election (2016), see under presidential election, US psychiatry, 107, 111 quantitative easing, 31–2 Reagan administration (1981–9), 15, 77, 154, 160, 163, 166 Rumsfeld’s “unknown unknowns” speech (2002), 132 Semi-Automatic Ground Environment (SAGE), 180, 182, 200 September 11 attacks (2001), 17, 18 Tea Party, 32, 50, 61, 221 and torture, 93 Trump administration (2017–), see under Trump, Donald unemployment, 83 Vietnam War (1955–75), 111, 130, 136, 138, 143, 205 World War I (1914–18), 137 World War II (1939–45), 137, 180 universal basic income, 221 universities, 151–2, 164, 169–70 University of Cambridge, 84, 151 University of Chicago, 160 University of East Anglia, 195 University of Oxford, 56, 151 University of Vienna, 160 University of Washington, 188 unknown knowns, 132, 133, 136, 138, 141, 192, 212 unknown unknowns, 132, 133, 138 “Use of Knowledge in Society, The” (Hayek), 161 V2 flying bomb, 137 vaccines, 23, 95 de Vauban, Sébastien Le Prestre, Marquis de Vauban, 73 vehicle-ramming attacks, 17 Vesalius, Andreas, 96 Vienna, Austria, 153–5, 159 Vietnam War (1955–75), 111, 130, 136, 138, 143, 205 violence vs. power, 19, 219 viral marketing, 12 virtual reality, 183 virtue signaling, 194 voice recognition, 187 Vote Leave, 50, 93 Wainright, Joel, 214 Wales, 77, 90 Wall Street, New York, 33, 190 War College, Berlin, 128 “War Economy” (Neurath), 153–4 war on drugs, 43, 131 war on terror, 131, 136, 196 Watts, Jay, 115 weaponization, 18–20, 22, 26, 75, 118, 123, 194, 219, 223 weapons of mass destruction, 132 wearable technology, 173 weather control, 204 “What Is An Emotion?”


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Fred Schwed's Where Are the Customers' Yachts?: A Modern-Day Interpretation of an Investment Classic by Leo Gough

Albert Einstein, banking crisis, Bernie Madoff, corporate governance, discounted cash flows, diversification, fixed income, index fund, Long Term Capital Management, Northern Rock, passive investing, Ralph Waldo Emerson, random walk, short selling, South Sea Bubble, The Nature of the Firm, the rule of 72, The Wealth of Nations by Adam Smith, transaction costs, young professional

~ PROSECUTOR IN THE BARLOW CLOWES CASE Although the better regulated countries, of which Britain is one (although you might not think so), provide various compensation schemes to protect investors, there are always exceptions (things that aren’t covered by the scheme) and it often takes years before you get all or part of your money back. From January 2010, the FSA (the UK’s regulator) has covered investments of up to £50,000 with the scheme. But having to wait and worry is no fun, which is why there was a run on the Northern Rock bank in 2007; people didn’t have much confidence in the compensation scheme, and rightly so! What can we do to avoid these kinds of problems? There is no cast iron method for avoiding loss, but here are a few things you can do to minimise the risks: First, don’t put all your savings into one scheme. For example, if only the first 50,000 of any investment is covered by a compensation scheme, then don’t put more than 50,000 in.


pages: 358 words: 106,729

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

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

One possibility is to retain deposit insurance for small and medium-sized banks in return for their paying a fair insurance premium, but to reduce it progressively for larger banks until it is eliminated. Clearly, if banks are seen as too big to fail, eliminating deposit insurance is moot, as the bank will be bailed out anyway. The United Kingdom deposit insurance system, which was partial, did not prevent Northern Rock from getting into trouble or the government from coming to the rescue. The point of eliminating deposit insurance, however, is to make depositors think before they make a bank too big. Unlike depositors in the United Kingdom (where all bank deposits were partially insured, and therefore depositing in a large bank was significantly safer), depositors in large banks under my proposal would have the choice between being fully insured in a small bank and largely uninsured in a large bank.

., See also JP Morgan Morrice, Brad mortgage-backed securities: credit risk of Fannie Mae and Freddie Mac issues federal purchases of held by banks investors in ratings of risks of, subprime mortgages in tail risks of tranches of mortgage brokers mortgage insurance mortgages: defaults on deregulation of thrift industry FHA foreclosures of historical evolution of interest rates on predatory lending traditional lending process for, See also subprime mortgage market motivations multilateral financial institutions: influence of lending by reforms of See also International Monetary Fund; World Bank mutual fund management companies national home ownership strategy, See also home ownership nationalism Nehru, Jawaharlal New Century Financial New Deal New York City No Child Left Behind Act of noncognitive skills Northern Rock Obama, Barack Obama administration Office of Thrift Supervision O’Neal, Stanley opportunities organizational capital ownership society, See also home ownership Park Chung Hee Paulson, Henry J. Paulson, John PBOC. See People’s Bank of China Pension Benefit Guarantee Corporation pensions People’s Bank of China (PBOC) Peugeot Phillips curve physicians: malpractice suits and salaries of See also health care Pinto, Edward A Plan of the English Commerce (Defoe) Plaza Accord (1945) political fault lines politics: economics and of immigration pressures for easy credit, pressures for fiscal stimulus Poole, Keith populist credit expansion Populist movement poverty: cycle of in developing countries family instability and opportunities for escape from Prasad, Eswar predatory lending prices: food functions of, See also asset prices; housing market; inflation Prince, Charles professional credentials proprietary trading protectionism racism rating agencies Rato, Rodrigo de recession of: Federal Reserve responses to fiscal stimulus response to jobless recovery from recessions: of of cleansing role of jobless recoveries from Keynesian policies and overreactions to political pressure for economic stimulus during redundancy, in financial systems reforms: in access to credit in Brazil in China in deposit insurance educational fault lines addressed by of Federal Reserve financial in global economic governance goals of guiding principles of of health insurance in housing finance of incentives in India of monetary policy of multilateral financial institutions, need for reducing government intervention reducing search for tail risk regulatory tort of unemployment benefits regulation: antitrust cycle-proof enforcement of failures of history of laissez-faire ideology and in New Deal reforms of See also deregulation regulation, banking: capital requirements central bank responsibilities for cognitive capture and Community Reinvestment Act effectiveness of enforcement of history of of new products reforms of resolution of bank failures risk monitoring and transparency of relationship capitalism.


pages: 350 words: 109,220

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

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

TAKING OUT INSURANCE By the time the FOMC convened in Washington on September 18, a couple of weeks after Jackson Hole, the government had reported that employers had cut their payrolls for the first time in seven years. Britain had witnessed its first bank run in a century, humiliating Mervyn King at the Bank of England. King had chided the Fed and ECB for rushing to pump money into credit markets. Doing so “encourages herd behavior and increases the intensity of future crises,” he charged. Then in response to a run on a bank misleadingly named Northern Rock — which employed a Countrywide-like strategy of borrowing in short-term markets to finance mortgages that it planned to sell to securities markets — King had been forced to do in the markets what other central banks had. In Washington, the ghost of Greenspan loomed as he released his memoir with an appearance on 60 Minutes, an excerpt in Newsweek, and headlines nearly everywhere days before the FOMC meeting.

Despite the misgivings of some regional bank presidents, the Fed delivered a rate cut twice that size. The stock market cheered the news loudly. The Dow Jones Industrial Average had its best day since 2003, rising 2.5 percent. In Fedspeak, the aggressive half-point move amounted to “taking out insurance,” preemptively cutting interest rates to reduce the risk of a nightmare scenario becoming reality. Especially in the wake of the run on Northern Rock, the Fed needed — as Geithner often put it — to get the ratio of drama to impact right. Too much drama, and the Fed conveyed unsettling panic. Too little action, and the Fed looked wimpy. The September rate cut was one instance in the Great Panic where the Fed appeared to hit the ratio exactly right. The first rate cut of Bernanke’s tenure was a clear success. Yet despite the deft touch, surprising numbers of ordinary Americans were angry, and getting more so.


pages: 363 words: 107,817

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

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

In practice, wholesale funders are typically able to withdraw their own funds from a bank before members of the public, and therefore tend to enjoy 'seniority' in terms of repayment as a result of their better access to information and the slower speed of normal depositors (due to deposit insurance). As Huang and Ratnovski (2010) explain in an IMF working paper: “This was the main reason why in almost all recent bank failures (e.g., Continental Illinois, Northern Rock, IndyMac) short-term wholesale financiers were able to exit ahead of retail depositors without incurring significant losses. Interestingly, the well-publicized retail run on Northern Rock took place only after the bank had nearly exhausted its liquid assets to pay off the exit of short-term wholesale funds.” Box 2.E - Repos (Sale and Repurchase Agreements) The standard method by which the Bank of England creates reserves is through what is known as a sale and repurchase agreement (a 'repo').


pages: 385 words: 111,807

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

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

She knows that her bank actually does not have the cash to pay all her fellow depositors, should a sufficient number of them want to withdraw their deposits in cash at the same time. Even though the belief may be totally unfounded – as was the case with the Fidelity Fiduciary Bank – it will become a ‘self-fulfilling prophecy’ if enough account holders think and act in this way. This situation is known as a bank run. We have seen examples of it in the wake of the 2008 global financial crisis. Customers queued up in front of Northern Rock bank branches in the UK, while online depositors in the UK and the Netherlands clogged up the website of Icesave, the internet arm of the collapsing Icelandic bank Landsbanki. Banking is a confidence trick (of a sort), but a socially useful one (if managed well) So, is banking a confidence trick? It is – sort of. Strictly speaking, a confidence trick involves making the victim believe in something that is false.

In this situation, the bank in trouble owns assets (loans that it has made, bonds and other financial assets it has bought, etc.) whose values are greater than its liabilities (deposits, bonds it has issued, loans from another bank, etc.) but it cannot immediately sell those assets and meet all liabilities that are due. If the bank has a solvency crisis, which means that the total value of its liabilities exceeds that of its assets, no amount of central bank lending will fix the problem. Either the bank will go bankrupt or require a government bail-out, which happens when the government injects new capital into the troubled bank (as happened with Northern Rock and Icesave). Government bail-out of banks has become highly visible after the 2008 crisis, but it is a practice that has been going on throughout the history of capitalism. Shoring up confidence further: deposit insurance and prudential regulation A country can also shore up confidence in its banks through deposit insurance, as well as through central banking. Under this insurance scheme, the government commits itself to compensate all depositors up to a certain amount (for example, €100,000 in the Eurozone countries at the moment), if their banks are unable to pay their money back.


Money and Government: The Past and Future of Economics by Robert Skidelsky

anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, market clearing, market friction, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, mobile money, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, placebo effect, price stability, profit maximization, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

is much less serious than a solvency crisis; temporary funds from the central bank can alleviate a liquidity crisis, but are of no use if the bank is insolvent. Still, the two are somewhat related. In the period 2007–8, confusion over who was solvent and who was not meant that banks stopped lending to each other, drying up their principal source of liquidity; this led to the bank run on the UK’s Northern Rock in 2007. Similarly, illiquidity can force a bank into insolvency if its financing costs exceed the interest it receives on its assets, or if it has to ‘fire-sell’ its assets in order to pay its debts on time. Leverage A bank’s leverage is the ratio of its debt to its equity. It can be expressed either as a ratio of assets to capital (say, 25:1) or as the percentage of assets that are backed by capital (4 per cent).

The principle of separating retail from speculative banking underlines the Paul Volcker-inspired Dodd–Frank Act in the USA, the Vickers-inspired Financial Services Act in the UK, and the Liikanen Report sponsored by the European Commission.13 The main idea behind all three is that deposit-taking banks should not also be investment houses. Such separation would reduce ‘moral hazard’: risky lending would not be publicly insured against loss. The problem is that the core activity of retail banks has become the mortgage business. It was the retail not the ‘shadow banking’ sector which initiated the banking crisis of 2007: the British bank Northern Rock, which had to be rescued by the government and nationalized early in 2008, provided mortgages for a quarter of the population. Securitization made this supposedly safe business unexpectedly risky. Functional separation on its own will do little to check the credit cycle generated by mortgage-lending or limit taxpayer liability for its excesses. 362 r e i n v e n t i ng p ol i t ic a l e c onom y Compelling banks to hold mortgages for a period of years, plus a big boost to social house-building, would cool this particular inflammation.

., 171, 208 Napoleonic wars, 43, 45–8, 80, 81, 84 national debt and 2007–8 crash, 76, 217–18, 219–20, 223–4, 224, 225–36, 237 British experience (1692–2012), 77 British long-term securities, 43 ‘burden on future generations’ fallacy, 236 bust at end of Lawson boom, 193 in eighteenth-century Britain, 80–81 four big spikes (since 1815), 84 and ‘Geddes Axe’ (1920s), 108 Alexander Hamilton on, 92 international bond markets, 90–92, 235 in Keynesian era, 156, 159–60, 161 Merkel’s ‘Swabian housewife’, 236 and modern tax systems, 32 monetary financing of deficits, 246–7, 285 during Napoleonic wars, 45–8 nineteenth-century money lenders, 90–91, 332 ‘off-budget’ accounting, 108–9 and PFI, 222–3 post-crash deficit, 226–33, 229, 237–9, 328, 352 public sector net borrowing (PSNB), 185, 227–8, 237, 238 Reagan’s budget deficits, 186, 190–91 recession of early 1980s, 186–7, 191 sinking fund, 83, 84, 85, 106, 108, 112, 114, 355 Sinking Fund Act (1875), 114 Smith and Ricardo’s view, 81–2, 83–4, 109, 110 ‘structural’ or ‘cyclically-adjusted’ deficit, 237–41, 238 US in 1950s/60s, 159–60, 161 Victorian fiscal constitution, 85–8, 86 and warfare, 83 483 i n de x nationalism, 17, 92, 95, 351, 371–3, 375 nationalization, 15–16, 142, 158 during 2008 crisis, 217 Labour’s renationalization proposals, 356 naval power, 78, 79–80, 87 Navigation Acts, British, 78 neo-classical economics tradition, xviii and 2008 collapse, 310–16, 328 comparisons with Keynesian view, 204, 204 and deregulation of banking, 310–11 distribution in perfect markets of, 292 formula for multiplier, 134–6 and Friedman, 177–83 and growth in inequality, 245–6 in Hutchison’s continua, 349 and Keynes, 122–3, 128 Keynesian synthesis, 172, 173–4, 201–2 microeconomics of Walras, 10, 173, 181, 385 model of rationality, 120 ‘natural’ rate of unemployment, 2, 163, 195, 197, 208, 232–3 and New Consensus, 199 and ‘optimal’ rate of investment, 368 pivotal role of banks ignored, 311 Solow growth model, 293 theoretical abolition of Keynesianism, 201 wage-adjustment story, 107, 108, 115, 121–2, 123, 128, 130, 132, 172 see also classical economics tradition; New Classical economics neo-liberal ideology ‘anti-state’ deception of, 93 capture of politics by, 6, 16–17, 292 and Eurozone constitution, 274 and Eurozone design flaw, 376, 377 implosion of growth model, 305 need for jettisoning of, 351, 367 term coined by Rustow (1938), 175 totalitarianism as original target, 175–6 as unchallenged since Cold War, 374 Netherlands, 78 New Classical economics and 2008 collapse, 2–3, 5 DSGE modelling, 196, 211–12 and erroneous austerity arguments, 232–4 and growth in inequality, 4 inflation targeting, 2 and microeconomics of Walras, 10 ‘natural’ rate of unemployment, 2, 195, 197, 208, 232–3 New Classical economics – (c0nt.) and neo-liberal capture of politics, 6, 16–17 and policies of austerity, 3 pre-crash models/mindset of 2000s, 212–13, 221, 229–35, 310–16 REH as analytic core of, 194–7, 385–6 synthesis with New Keynesians, 195–7, 199–201, 202 and unimpeded financial markets, 5, 6–7 unrealism of assumptions, 200, 310–16, 321–2 victory of in 1970s, 16–17 New Consensus, 9, 196–8, 202 based on supply not demand, 200 Brown constitution, 221–3 main features of, 199–201 primacy of monetary policy, 200–201, 212 ‘Washington consensus’, 198 484 i n de x New Keynesianism, 195–7, 199, 200, 201, 202, 212, 358 Brown constitution, 221–3, 227 and inflation targeting, 196, 251 ‘new stagnation’ theorists, 151 New Zealand, 188 Newton, Isaac, 42, 43, 47–8 Nielsen, Robert, 389 Niemeyer, Sir Otto, 108 Nixon, Richard, 153, 162 Norman, George, 49 Norman, Montagu, 115 North, Douglass, 198–9 Northern Rock, 317, 319*, 362 Obama, Barack, 225, 241–2, 274 O’Brien, Denis, 78 Office for Budgetary Responsibility (OBR), 228, 229–30, 237 oil prices, 271, 272 oil price shock (1973–4), 166–7, 189, 190 price spike (1980–82), 189, 190 OPEC surpluses, 308, 332 Orbán, Viktor, 373 Osborne, George, 114, 227–8, 229, 231, 233 and cost of austerity, 243–4, 244, 245 crucial mistake in austerity policy, 229–30 ‘deficit’ obsession of, 237 and Reinhart-Rogoff work, 232 and ‘structural’ deficit, 237–9 output gaps, 144, 197, 212–13, 229, 235, 237, 258, 286 ‘over-consumption’ theory, Austrian, 296 Overstone, Lord, 49 Palley, Thomas, 302–3, 304, 305 Papandreou (Greek Prime Minister), 324 Pareto-efficiency, 290, 291 Paulson, Henry, 217 Peel, Robert, 47–8, 86 Péreire brothers, 91 Pettifor, Ann, 246, 309 Pettis, Michael, 339 Petty, William, 28 Phillips, A.


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Hard Times: The Divisive Toll of the Economic Slump by Tom Clark, Anthony Heath

Affordable Care Act / Obamacare, British Empire, business cycle, Carmen Reinhart, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, deindustrialization, Etonian, eurozone crisis, falling living standards, full employment, Gini coefficient, hedonic treadmill, hiring and firing, income inequality, interest rate swap, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, low skilled workers, MITM: man-in-the-middle, mortgage debt, new economy, Northern Rock, obamacare, oil shock, plutocrats, Plutocrats, price stability, quantitative easing, Right to Buy, Ronald Reagan, science of happiness, statistical model, The Wealth of Nations by Adam Smith, unconventional monetary instruments, War on Poverty, We are the 99%, women in the workforce, working poor

In his 2007 Budget speech, Chancellor Gordon Brown could boast that Britain was enjoying ‘the longest period of economic stability and sustained economic growth in our country's history’, just before he moved unchallenged into No. 10 Downing Street.1 The long expansion in the US economy had been briefly interrupted by 9/11, but felt just as assured. Few outside the financial sector discerned the first whispers of a credit crunch during that notably wet English summer,2 but then September brought something unseen since 1866 – a run on a British bank. It was not yet obvious that the queues of savers that formed outside branches of the smallish, provincial Northern Rock represented a threat to the financial universe as we knew it. But a year later – almost to the day – Lehman Brothers came crashing down in New York, heralding the start of the most catastrophic phase of the crisis. Within weeks, America's biggest insurer, AIG, the Washington Mutual Bank and Britain's own financial giant, RBS, would be respectively bailed out, bust, and bought up by the taxpayer.

(i), (ii) Gallup polls (i), (ii), (iii), (iv) Galton, Francis (i) GDP (gross domestic product) (i), (ii), (iii), (iv) Geithner, Tim (i) gender divide (i) General Social Survey (GSS) (i), (ii), (iii) generational divide (i), (ii), (iii), (iv), (v) Gen X (i), (ii), (iii) Gen Y (i) Germany employment protection (i), (ii) human unhappiness (i), (ii), (iii), (iv) inequality (i) social networks (i), (ii), (iii) social security (i), (ii) unemployment (i) girls, employment of (i) graduates (i), (ii), (iii) The Grapes of Wrath (Steinbeck) (i) Great Depression change in GDP (i), (ii) crime rates (i) death rates (i) Europe (i) and Great Recession (i), (ii), (iii), (iv), (v) growth and national income (i) human unhappiness (i), (ii), (iii) hysteresis (i) lynchings (i) polarised public opinion (i), (ii) public policy (i) social mood (i) social networks (i), (ii), (iii) social security (i), (ii), (iii) Steinbeck on (i) unemployment (i), (ii), (iii), (iv) ‘Great Gatsby Curve’ (i) Great Hanshin earthquake (i) Great Recession change in GDP (i), (ii) economic gap (i) and Great Depression (i), (ii), (iii), (iv), (v) growth and national income (i), (ii) human unhappiness (i), (ii), (iii), (iv), (v), (vi) long shadow of class action (i) future generations (i) overview (i) unemployment (i) young people (i) low-grade jobs (i), (ii) polarised public opinion (i), (ii), (iii) post-recession agenda (i) Cameron conundrum (i) future policy (i) polarisation (i) public policy (i), (ii) social mood (i) social networks (i), (ii), (iii), (iv), (v), (vi) social security (i) start of (i) unemployment (i), (ii), (iii), (iv), (v) uneven impact (i) Greece (i), (ii), (iii) Greenberg Quinlan Rosner (i), (ii) Greenspan, Alan (i) Gregg, Paul (i) growth see economic growth Hacker, Jacob (i) Hansard (i) Hansard Society (i) happiness (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) Happiness (Layard) (i) ‘Happy Days Are Here Again’ song (i) hardship (i), (ii), (iii), (iv), (v), (vi), (vii) Hatton, Timothy (i), (ii) health (i), (ii), (iii), (iv), (v), (vi), (vii) healthcare (i), (ii), (iii), (iv) ‘hedonic treadmill’ (i) helping (informal volunteering) (i), (ii), (iii) Help to Buy (i) heritability of unemployment (i) Heritage Foundation (i), (ii) Hills, Sir John (i) Hispanic community (i), (ii) home ownership (i), (ii) Hoover, Herbert (i), (ii), (iii) household incomes (i), (ii), (iii), (iv), (v) household leverage (i) housing costs (i), (ii), (iii), (iv) home ownership (i), (ii) housing benefit (i) poverty (i) social housing (i) wealth reduction (i) human unhappiness (i) family life (i) overview (i) public policy (i) suicide (i) unemployment (i) well-being data (i) working population (i) hysteresis (i), (ii) identity (i), (ii) immigration (i), (ii), (iii), (iv) incapacity benefit (i), (ii), (iii), (iv), (v) income (i), (ii), (iii), (iv), (v) income distribution (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) income support (i), (ii) inequality (i) causes (i) economic gap (i) income distribution (i), (ii) job insecurity (i) life satisfaction (i) polarised public opinion (i), (ii), (iii), (iv), (v) post-recession agenda (i), (ii), (iii), (iv), (v) poverty (i) public policy (i), (ii) social mobility (i), (ii), (iii) social security (i) unemployment (i) inflation (i), (ii), (iii) informal volunteering (helping) (i), (ii), (iii) insecurity austerity (i) class divide (i) human unhappiness (i), (ii), (iii) job insecurity (i) pay gap (i) polarised public opinion (i) post-recession agenda (i), (ii), (iii) social networks (i), (ii) unemployment (i) Institute for Employment Research (i) Institute for Fiscal Studies (IFS) (i), (ii), (iii), (iv), (v), (vi) intergenerational income (i) investment (i) Ipsos MORI (i), (ii) Ireland (i) isolation (i), (ii) Italy (i), (ii) Japan (i), (ii), (iii), (iv), (v), (vi) Jarrow March (i) job insecurity see insecurity Jobseeker's Allowance (i), (ii), (iii), (iv) jobs growth (i), (ii), (iii), (iv) Kahn, Lisa (i) Kan, Naoto (i) Kantar (i) Keynes, John Maynard (i), (ii), (iii), (iv), (v) King, Mervyn (i) Kobe (i) Komarovsky, Mirra (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x) Krueger, Alan (i), (ii) Krugman, Paul (i) Labour Force Survey (i) labour market (i), (ii) labour productivity (i), (ii), (iii) ladder of opportunity (i) Layard, Richard (i) Lehman Brothers (i), (ii) Leunig, Tim (i) Lewis, Michael (i), (ii) life expectancy (i), (ii), (iii), (iv), (v) life satisfaction (i), (ii), (iii), (iv), (v) Lilley, Peter (i) living standards (i), (ii), (iii), (iv), (v), (vi) Li, Yaojun (i) loans (i), (ii), (iii), (iv), (v) London (i), (ii), (iii), (iv), (v), (vi), (vii) lone parents (i), (ii), (iii), (iv) long-term unemployment (i), (ii), (iii), (iv) low-grade jobs (i), (ii), (iii), (iv), (v), (vi), (vii) Machin, Stephen (i) Macmillan, Harold (i) macroeconomic policy (i) male employment (i), (ii), (iii), (iv), (v) male suicide (i) manufacturing (i), (ii), (iii) ‘marginalised’ workers (i) Marie Antoinette (i) Marienthal hardship (i), (ii), (iii) human unhappiness (i), (ii), (iii), (iv), (v) neighbours informing on each other (i) social networks and groups (i) unemployment (i), (ii), (iii), (iv) marriage rates (i), (ii), (iii) medical bills (i) medical staff (i) mental health (i), (ii), (iii), (iv) Mexico (i) middle class (i), (ii) migration (i) minimum wage (i), (ii), (iii), (iv), (v), (vi) mobility (i), (ii), (iii), (iv) monetary policy (i), (ii) money-saving activities (i) money supply (i) money worries (i), (ii), (iii) mortality rates (i), (ii) motivation (i) National Child Development Survey (NCDS) (i), (ii) National Conference on Citizenship (i) National Government (i) National Housing Federation (i) national income (i), (ii), (iii) National Longitudinal Survey of Youth (i) necessities (i), (ii) NEETs (not in education, employment or training) (i) neighbourliness (i), (ii), (iii) neoliberalism (i) net worth (i) New Deal (i), (ii) New Labour (i), (ii) New Right (i), (ii) New York Times (i) New Zealand (i) Nixon, Richard (i) Northern Rock (i) North–South divide (i), (ii), (iii), (iv) Obama, Barack (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) Occupy (i) OECD see Organisation for Economic Co-operation and Development old age (i), (ii), (iii) O'Loughlan, Joel (i), (ii) optimism (i), (ii), (iii) Organisation for Economic Co-operation and Development (OECD) (i), (ii), (iii), (iv), (v), (vi), (vii) Orwell, George (i), (ii), (iii), (iv) Osborne, George (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) Packer, George (i) Pakistani community (i) parental income (i), (ii), (iii) parenting (i), (ii), (iii), (iv) parent–teacher associations (PTAs) (i), (ii), (iii) participation careers (i), (ii), (iii), (iv) part-time work (i), (ii) path dependency (i) pay squeeze (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix) Peck, Don (i) pensions (i), (ii), (iii), (iv), (v) People's Budget (1909) (i) Personal Responsibility and Work Opportunity Reconciliation Act (i) Pew Center (i), (ii), (iii) Philip, Prince (i) Philpott, Mick (i) The Pinch (Willetts) (i) polarised public opinion (i) desired level of inequality (i) divided communities (i) economic divide (i) genetic discrimination in healthcare (i) post-recession agenda (i) social security (i), (ii) solidarity (i), (ii), (iii), (iv) unemployment (i) policy see public policy postal deliveries (i) poverty absolute poverty (i), (ii), (iii), (iv), (v), (vi) debt (i) health (i) housing costs (i), (ii) income distribution (i) losing face (i), (ii) low-grade jobs (i), (ii) post-recession agenda (i), (ii), (iii), (iv) public policy (i), (ii) relative poverty (i), (ii) social security (i), (ii) UK (i), (ii), (iii) unemployment (i), (ii) uneven impact of recessions (i) US (i), (ii), (iii), (iv) working population (i), (ii) poverty pay (i), (ii), (iii), (iv) pregnancy (i), (ii) Prescott, John (i) Priestley, J.B.


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