South Sea Bubble

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pages: 495 words: 136,714

Money for Nothing by Thomas Levenson

Albert Einstein, asset-backed security, bank run, British Empire, carried interest, clockwork universe, credit crunch, Edmond Halley, Edward Lloyd's coffeehouse, experimental subject, failed state, Fellow of the Royal Society, fiat currency, financial innovation, Fractional reserve banking, income inequality, Isaac Newton, joint-stock company, market bubble, Money creation, open economy, price mechanism, quantitative easing, Republic of Letters, risk/return, side project, South Sea Bubble, The Wealth of Nations by Adam Smith

A KIND OF FINANCIAL GRAVE ROBBING John Carswell, The South Sea Bubble (Phoenix Mill, UK: Alan Sutton, 1993), pp. 30–32. A PERFECT AVATAR OF EXCHANGE ALLEY John G. Sperling, The South Sea Company: An Historical Essay and Bibliographical Finding List (Boston: Baker Library, Harvard Graduate School of Business Administration, 1962), p. 6. “BURLY AND OVERBEARING” Carswell, South Sea Bubble, p. 19. A DODGY LAND DEAL Dale, First Crash, p. 44, drawing on Carswell, South Sea Bubble, p. 35. IN A MOVE THAT PLAUSIBLY ORIGINATED WITH BLUNT HIMSELF Carswell, South Sea Bubble, p. 35. BY ONE ESTIMATE, BLUNT AND HIS ASSOCIATES MADE AT LEAST £25,000 For the £25,000 figure, see Carswell, South Sea Bubble, p. 35.

THOMAS GUY WAS NO MAN’S FOOL Roger Jones, “Roger Mead, Thomas Guy, the South Sea Bubble and the Founding of Guy’s Hospital,” Journal of the Royal Society of Medicine 103, no. 3 (March 1, 2010): 87–92. GUY WAS A CHARITABLE MAN Jones, “Roger Mead, Thomas Guy.” HE DID WELL WITH HIS FIRST TRANSACTIONS John Carswell, The South Sea Bubble (Phoenix Mill, UK: Alan Sutton, 1993), p. 26. HE OWNED 54,040 SHARES Carswell, South Sea Bubble, p. 136. JUST UNDER THEIR PAR VALUE OF £100 Andrew Odlyzko, “Newton’s Financial Misadventures in the South Sea Bubble,” Notes and Records of the Royal Society 73, no. 1 (February 2019): 40.

A CARGO OF 1,100 TONS Sperling, The South Sea Company, p. 18. THE GOODS WITHIN THE HOLDS OF THE WAITING SHIPS HAD BEGUN TO ROT Richard Dale, The First Crash: Lessons from the South Sea Bubble (Princeton, NJ: Princeton University Press, 2004), p. 49. ABOUT £100,000 IN PROFITS Dale, First Crash, p. 49. For more detail on the Company’s early activities, see Carswell, The South Sea Bubble, pp. 47–67. THE COMPANY COULDN’T EVEN GET PAID PROPERLY Dale, First Crash, p. 49. SELLING STOLEN LIVES TOOK SKILL Carswell, South Sea Bubble, pp. 66–68. THE FLOW OF GOODS AND BODIES For this overview of the Company’s trading efforts I relied most heavily on Helen Paul’s work and that of several historians whose primary interest was in understanding the financial side of the company.


pages: 297 words: 108,353

Boom and Bust: A Global History of Financial Bubbles by William Quinn, John D. Turner

accounting loophole / creative accounting, algorithmic trading, bank run, banking crisis, barriers to entry, Bear Stearns, Big bang: deregulation of the City of London, bitcoin, blockchain, Bretton Woods, business cycle, buy and hold, capital controls, Celtic Tiger, collapse of Lehman Brothers, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, debt deflation, deglobalization, Deng Xiaoping, different worldview, discounted cash flows, Donald Trump, Ethereum, ethereum blockchain, eurozone crisis, financial deregulation, financial intermediation, Flash crash, Francis Fukuyama: the end of history, George Akerlof, information asymmetry, intangible asset, Irish property bubble, Isaac Newton, joint-stock company, Joseph Schumpeter, light touch regulation, margin call, market bubble, market fundamentalism, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Network effects, new economy, Northern Rock, oil shock, Ponzi scheme, quantitative easing, quantitative trading / quantitative finance, railway mania, Right to Buy, Robert Shiller, Robert Shiller, Shenzhen special economic zone , short selling, Silicon Valley, smart contracts, South Sea Bubble, special economic zone, technology bubble, the built environment, total factor productivity, transaction costs, tulip mania, urban planning

Kleer, ‘Folly of particulars’, 176. 30. House of Commons, The Several Reports. 31. Kleer, ‘Folly of particulars’; Kleer, ‘Riding a wave’. 32. Carswell, South Sea Bubble; Paul, South Sea Bubble. 33. Dale, The First Crash, pp. 98–101; Dickson, Financial Revolution, pp. 144–5. 34. Dale, The First Crash, p. 6. 35. Dickson, Financial Revolution, p. 108; Hoppit, ‘Myths’, 150. 36. Dale, The First Crash, pp. 98–101; Dickson, Financial Revolution, pp. 144–5. 37. Dale, The First Crash, pp. 14–16. 38. Paul, ‘The “South Sea Bubble”, 1720’. 39. Dale, The First Crash, p. 18; Kleer, ‘Riding a wave’, 274–5; Wilson, Anglo-Dutch Commerce, p. 104. 40.

M. and Neal, L. ‘The micro-foundations of the early London capital market: Bank of England shareholders during and after the South Sea Bubble, 1720–21’, Economic History Review, 59, 498–538, 2006. Carlos, A. M., Maguire, K. and Neal, L. ‘A knavish people . . . ’: London Jewry and the stock market during the South Sea Bubble’, Business History, 50, 728–48, 2008. Carlos, A. M., Maguire, K. and Neal, L. ‘Financial acumen, women speculators, and the Royal African Company during the South Sea Bubble’, Accounting, Business & Financial History, 16, 219–43, 2006. Carpenter, J. N. and Whitelaw, R. F. ‘The development of China’s stock market and stakes for the global economy’, Annual Review of Financial Economics, 9, 233–57, 2017.

Prospectus of the Anglo-Mexican Mining Association in English, A General Guide to the Companies, pp. 4–8. 16. English, A Complete View of Joint Stock Companies, p. 30. 17. Sources: Anon., The South Sea Bubble, pp. 171–9; Report of the Select Committee on Joint Stock Companies, 1844, Appendix 4, pp. 334–9. 18. Gayer, Rostow and Schwartz, Growth and Fluctuation, Vol. I, pp. 377–410. 19. Head, Rough Notes Taken During Some Rapid Journeys Across the Pampas, pp. 303–4. 20. Cited in Dawson, The First Latin American Debt Crisis, p. 101. 21. Excerpt in Anon., The South Sea Bubble, pp. 160–1. 22. Francis, History of the Bank of England, Vol. II, p. 3. Francis recalls seeing this prospectus at the time and refers to it as jocularity emanating from the Stock Exchange.


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, Bear Stearns, 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

Kelley, 1969), pp. 33–4. A separate list for the South Sea Bubble, prepared by a contemporary and less detailed, is set out in Wirth, Handelskrisen, pp. 67–79. 26. A. Andréadès, History of the Bank of England (London: P.S. King, 1909), p. 133. 27. Carswell, South Sea Bubble, p. 142. 28. Scott, Joint-Stock Companies, p. 450. 29. Hans Rosenberg, Die Weltwirtschaftskrise von 1857–59 (Stuttgart: W. Kohlhammer, 1934), p. 103. 30. Wirth, Handelskrisen, p. 480. 31. Anthony Trollope, The Three Clerks (New York: Harper & Brothers, 1860), p. 346. 32. Carswell, South Sea Bubble, p. 177. 33. Fritz Stern, Gold and Iron: Bismarck, Bleichröder, and the Building of the German Empire (London: Allen & Unwin, 1977), p. 358. 34.

., vol. 47 (September 1960), pp. 333–53. 6. E. Ray McCartney, The Crisis of 1873 (Minneapolis: Burgess, 1935), p. 15. 7. John Carswell, The South Sea Bubble (London: Cresset, 1960), p. 13. 8. Maximillian E. Novak, Economics and the Fiction of Daniel Defoe (Berkeley: University of California Press, 1962), p. 103. 9. Bray Hammond, Banks and Politics in America from the Revolution to the Civil War (Princeton: Princeton University Press, 1957), p. 268. 10. Carswell, South Sea Bubble, pp. 222–4. 11. William G. Shepheard, Wall Street editor of Business Week, in the preface to Donald H. Dunn, Ponzi, the Boston Swindler (New York: McGraw-Hill, 1975), p. x. 12.

Morier Evans, Facts, Failures and Frauds (1839; reprint edn, New York: Augustus M. Kelley, 1968), p. 235. 69. See Robert Shaplen, Kreuger: Genius and Swindler (New York: Knopf, 1960). 70. Carswell, South Sea Bubble, pp. 225, 265–6. 71. Bouvier, Le krach, pp. 211, 219. 72. Herbert I. Bloom, The Economic Activities of the Jews of Amsterdam in the Seventeenth and Nineteenth Centuries (Williamsport, Pa.: Bayard Press, 1937), p. 199. 73. Carswell, South Sea Bubble, p. 210. 74. Dreiser, The Titan, p. 237. 75. Christina Stead, House of All Nations (New York: Simon & Schuster, 1938), p. 643. 8 International Contagion 1618–1930 1.


pages: 319 words: 64,307

The Great Crash 1929 by John Kenneth Galbraith

Bernie Madoff, business cycle, Everybody Ought to Be Rich, full employment, housing crisis, invention of the wheel, joint-stock company, margin call, market fundamentalism, short selling, South Sea Bubble, the market place

To repeat, I make no prediction; I only observe that this phenomenon has manifested itself many times since 1637, when Dutch speculators saw tulip bulbs as their magic road to wealth, and 1720, when John Law brought presumptive wealth and then sudden poverty to Paris through the pursuit of gold, to this day undiscovered, in Louisiana. In these years also the great South Sea Bubble spread financial devastation in Britain. Later there was more. In the United States in the nineteenth century there was a speculative splurge every twenty or thirty years. This was already a tradition, for the colonies, north and south, had experimented at no slight eventual cost with currency issues that had no visible backing.

Another boom came to an equally dramatic end in 1907, but the big New York banks were able, this time, to limit the damage. Earlier a considerable flow of British funds had fueled the American speculation, notably that just mentioned in railroads. There was also a renewed British involvement in South America, the South Sea Bubble now forgotten. The greatly distinguished Baring Brothers had to be rescued by the Bank of England from bankruptcy occasioned by its loans to Argentina. This is currently interesting, for in the 1990s Barings was caught up in the more or less incredible operations of one of its minor minions in Singapore.

It was widely understood that things had gone to pieces in Florida. While the number of speculators was almost certainly small compared with the subsequent participation in the stock market, nearly every community contained a man who was known to have taken "quite a beating" in Florida. For a century after the collapse of the South Sea Bubble, Englishmen regarded the most reputable joint stock companies with some suspicion. Even as the Florida boom collapsed, the faith of Americans in quick, effortless enrichment in the stock market was becoming every day more evident. III It is hard to say when the stock market boom of the nineteen-twenties began.


pages: 482 words: 121,672

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition) by Burton G. Malkiel

accounting loophole / creative accounting, Albert Einstein, asset allocation, asset-backed security, beat the dealer, Bernie Madoff, bitcoin, butter production in bangladesh, buttonwood tree, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Detroit bankruptcy, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial innovation, financial repression, fixed income, framing effect, George Santayana, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Long Term Capital Management, loss aversion, margin call, market bubble, money market fund, mortgage tax deduction, new economy, Own Your Own Home, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stocks for the long run, survivorship bias, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond, zero-sum game

“large-cap” portfolios and, 265–66, 274–77, 283 tax efficiency and, 261, 280, 283 tilting (flavoring) of portfolio and, 261–71, 274–77, 282 value and, 262–64, 273, 274–77, 283 “value” vs. “growth” and, 261–62, 273, 274–75, 283 volatility and, 262, 265–70, 276 Smith, Adam, 239 “Smith, Adam,” 109, 155 Social Security, 372 Sony, 69 Soros, George, 284 South Sea Bubble, 36, 41–47, 67, 84 South Sea Bubble, The (Carswell), 42 South Sea Company, 41–47 Space-Tone, 58 SPDRs (Spiders), 281, 391 speculation, 37–78 behavioral finance, 234 investment vs., 28 in Japanese real estate, 76–78 in Japanese stock market, 76–78 Spitzer, Eliot, 89, 172 stagflation, 192 Standard and Poor’s 500-Stock Index, 66, 153, 175, 180, 204–7, 222, 270, 273, 340, 344, 352, 380–82, 385–86 beta of, 210–11 bond ratings by, 318 index funds and, 193–94, 381, 391 vs. performance of Morgan Stanley EAFE, 202–4 vs. performance of mutual funds, 179, 181 standard deviation, 191, 192–94, 212 start-ups, Internet, 84–87 State Street Global Advisors, 381 state taxes, 305 Statman, Meir, 229 status quo bias, 247 Stein, Jeremy, 242, 253 Stengel, Casey, 169 Stern, Howard, 92 Stigler, George J., 209 Stiglitz, Joseph, 287 stock charts, 110–18, 136, 154 bear traps in, 114 channels in, 113 construction of, 111–13, 118, 138–39 head-and-shoulders formation in, 113–14, 139, 144 information obtained from, 110–15 inverted bowl formation in, 111 pennant formation in, 111 as produced from coin tossings, 138–39 trends revealed by, 112–15, 134–41, 144–45 stock market: in 1980s, 341–43 call options in, 39 efficiency of, see random-walk theory emerging markets vs., 204–8 hot streaks in, 235–36 Japanese, boom and bust in, 76–78 Japanese, collapse and correction of (1992), 77 language of, 134 momentum in, 136–37, 161, 266–68 P/E crash in (1970s), 341, 343 rationality of, 229–32 reversion to mean in, 266–68 total, 222, 386, 387, 410 underlying rationality of, 128, 359 see also NASDAQ; New York Stock Exchange stock-market crash (1929–32), 52–54, 57 stock-market crash (1987), 125, 196 hemline indicator and, 147–48 stock market gurus and, 152–53 stock-market crash (2000s), 25, 97–104, 307, 364 stock-market returns, 150 stock options, managers and, 332 stock prices: behavior of, 266 predictability of, 237–38 stocks, 359–61, 376–77 “big capitalization,” 68–69 blue-chip, see blue-chip stocks bonds vs., 125, 208, 354–55 claim represented by, 339 common, see common stocks concept, see concept stocks future of, 345–48 high-beta, 223 holding period of, 350, 352–55 of Internet companies, see Internet low-beta, 223 “one-decision,” 69 price-to-book value ratios of, 264 projecting returns for individual, 347–48 return on, 344–46, 351, 353 return on, in 1980s, 341, 342 small, 310 Stocks for the Long Run (Siegel), 292 stock valuation: assessing levels of, 329–36 dividend payout and, 123, 126 from 1960s into 1990s, 56–79 future expectations and, 31–33 in historical perspective, 35–36, 37–55, 329 Internet bubble and, 81–83, 89–90 price-dividend multiples in, 330–32, 341, 344 theories of, 30–33, 394 variability and, 129 stop-loss order, 142 structured investment vehicles (SIVs), 100 Stuff Your Face, Inc., 70 Substitute-Player Step, 379, 398–400 Sullivan, Arthur, 134 Sunbeam, 167 Super Bowl indicator, 148 support area, 116, 142 support levels, 116 SwapIt.com, 85 Swedroe, Larry, 235–36 swings, 210–11 synergism, 60–66 systematic risk, 211–15 beta as a measure of, see beta defined, 210–11 non-beta elements of, 224–26 takeovers, 25 TAO, 398 taxes, 255, 256, 311–13, 367 and annuities, 375 avoidance of, 300–305 capital gains, 158, 246, 331, 382–83 estate, 305 gift, 305 income, 158, 292, 298, 300, 311–13, 317–18, 320, 339, 365n, 378 overtrading and, 255 property, 314 retirement plans and, 293, 300–304 state, 305 technical analysis, 26, 110–33, 134–58, 408 buy-and-hold strategy compared to, 140, 143, 158 castle-in-the-air theory and, 110, 132–33, 134 defined, 110 fundamental analysis used with, 130–33 fundamental analysis vs., 110–11, 118–19 gurus, 151–54 implications for investors of, 158 limitations of, 116–17, 135–36, 154–58, 160 random-walk theory and, 137–41, 154–57 rationale for, 115–16 types of systems of, 141–51 see also chartists; stock charts Technical Analysis of Stock Trends (Magee), 113, 144 telecom companies, 90, 95 Teledyne, Inc., 64 Telegraph, 173 television, Internet bubble and, 92 term4sale.com, 296 term bonds, 317 Texas Instruments, 57 Thaler, Richard, 247–48 theGlobe.com, 86 Theory of Investment Value, The (Williams), 31 Thorp, Edward O., 156n 3Com, 83 Time, 97 timing penalty, 242–43, 254, 255 Total Bond Market index funds, 386 total capitalization, 261, 271, 265 Total Stock Market Portfolio, 261, 386, 387, 391, 410 Total World index funds, 391 trading, limiting of, 395–98 tranches, 99 Treasury, U.S., 316, 319, 344–45, 352, 353 Treasury bills, 152, 293, 298, 299 rate of return on, 194–96, 351 treasurydirect.gov, 300 Treasury inflation-protection securities (TIPS), 306, 308, 316, 319–20, 386 trends, 113–15, 144–45 perpetuation of, 115 Tri-Continental Corporation, 54 “tronics” boom, see new issues, of 1959–62 T.

NORTON & COMPANY New York • London FOR NANCY AND PIPER CONTENTS Preface Part One STOCKS AND THEIR VALUE 1. FIRM FOUNDATIONS AND CASTLES IN THE AIR What Is a Random Walk? Investing as a Way of Life Today Investing in Theory The Firm-Foundation Theory The Castle-in-the-Air Theory How the Random Walk Is to Be Conducted 2. THE MADNESS OF CROWDS The Tulip-Bulb Craze The South Sea Bubble Wall Street Lays an Egg An Afterword 3. SPECULATIVE BUBBLES FROM THE SIXTIES INTO THE NINETIES The Sanity of Institutions The Soaring Sixties The New “New Era”: The Growth-Stock/New-Issue Craze Synergy Generates Energy: The Conglomerate Boom Performance Comes to the Market: The Bubble in Concept Stocks The Nifty Fifty The Roaring Eighties The Return of New Issues Concepts Conquer Again: The Biotechnology Bubble ZZZZ Best Bubble of All What Does It All Mean?

It was Santayana who warned that if we did not learn the lessons of the past we would be doomed to repeat the same errors. Therefore, I will describe some spectacular crazes—both long past and recently past. Some readers may pooh-pooh the mad public rush to buy tulip bulbs in the seventeenth-century Netherlands and the eighteenth-century South Sea Bubble in England. But no one can disregard the new-issue mania of the early 1960s, or the “Nifty Fifty” craze of the 1970s. The incredible boom in Japanese land and stock prices and the equally spectacular crash of those prices in the early 1990s, the “Internet craze” of 1999 and early 2000, and the U.S. real estate bubble that ended in 2007 provide continual warnings that neither individuals nor investment professionals are immune from the errors of the past. 2 THE MADNESS OF CROWDS October.


pages: 196 words: 57,974

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

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

It was not until a combination of legal and economic changes from the 1820s onward that the modern company began to take shape.3 SLAVERS AND INDUSTRIALISTS In Britain, the prejudice against joint-stock companies created by the South Sea Bubble was later reinforced by scandals involving both the Charitable Corporation and the York Building Company. As we have already noted, the ironically named South Sea Bubble Act survived the scandal. It required every joint-stock company to possess a charter from parliament—something that involved huge costs in terms of money, time, and uncertainty. Most British businessmen preferred other sorts of organizations, such as partnerships and various unincorporated companies (partnerships that tried to mimic some of the qualities of companies by making their shares freely transferable and doing something to limit the liability of sleeping partners who were not directly involved in the business).4 There were several frenzies of joint-stock company creation—most notably to build canals.

The early history of companies was often one of imperialism and speculation, of appalling rip-offs and even massacres. People who now protest about the new evil of global commerce plainly have not read much about slavery or opium. People who talk in terrified tones about the unprecedented skulduggery at WorldCom seem to have forgotten about the South Sea Bubble. Those who fear the unparalleled might of Bill Gates could do with a little reading on J. P. Morgan. Today, the number of private-sector companies that a country boasts—the United States had 5½ million corporations in 2001, North Korea, as far as we can tell, none—is a better guide to its status than the number of battleships it can muster.

And it was thanks to their abuses that, as late as 1800, many reformers saw the joint-stock company as dangerous and old-fashioned. The main evidence for the prosecution came from the most remarkable company of the period, the English East India Company, and from its most remarkable financial scandal—the frothy combination of the South Sea Bubble and the collapse of the Mississippi Company. THE HONORABLE COMPANY The East India Company was more than just a modern company in embryo. “The grandest society of merchants in the Universe” possessed an army, ruled a vast tract of the world, created one of the world’s greatest civil services, built much of London’s docklands, and even provided comfortable perches for the likes of James Mill and Thomas Love Peacock.7 It all began on September 24, 1599, when a group of eighty merchants and adventurers, including veterans of the Levant Company and a few of Francis Drake’s crew, met at the Founders Hall in the City of London.


Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, impact investing, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Performance of Mutual Funds in the Period, Ponzi scheme, Post-Keynesian economics, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Savings and loan crisis, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, tail risk, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, two and twenty, underbanked, Vanguard fund, working poor, yield curve

These later acts were accomplished by the purchase and sale of the company’s stock in the open market and originally, therefore, by transactions undertaken between existing shareholders (the sellers) and other existing or new shareholders (the buyers). The South Sea Bubble No sooner had the modern corporate form emerged than the need for its regulation did as well. The South Sea Bubble, economically ruinous to a host of early investors, highlighted the dangers of a lack of adherence to fiduciary duty and revealed some of the weaknesses of this new form. The South Sea Bubble began with the South Sea Company, founded by Robert Harley and John Blunt in 1711. The company was given unrestricted and monopolized access to trade in South America in return for agreeing to purchase the public debt that resulted from the War of Spanish Succession.

Mira Wilkins, The History of Foreign Investment in the United States to 1914. Harvard Studies in Business History 41 (Cambridge, MA: Harvard University Press, 1989), 3–4. 5. Ibid., 4–5. 6. “South Sea Bubble Short History,” Baker Library, Harvard Business School, accessed 2014, http://www.library.hbs.edu/hc/ssb/history .html; Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (New York: Free Press, 2004), 6–8. 7. “South Sea Bubble Short History.” 8. Bakan, The Corporation, 6–7. 9. Colin Arthur Cooke, Corporation, Trust and Company: An Essay in Legal History (Cambridge, MA: Harvard University Press, 1951), 83. 10.

See Singapore International Monetary Index Simonide, 24 Singapore International Monetary Index (SIMEX), 170–72 Singleton, Henry, 7 Small Business Act of 1958, 278 Small Business Administration, 275 Index 433 smart-beta funds, 302 Smith, Adam: South Sea Bubble and, 68–69; theories of, 70, 79, 326; The Wealth of Nations, 36, 69 snowball effect, 94 social change, 320–25 Social Security: private investment accounts, 116; private pensions and, 109–10; retirement age and, 59, 107 societas, 50–51 societas maris, 53–54 societas publicanorum, 51, 56, 64 Société Générale, 172–74 Socrates, 18–19, 24 Soros, George, 263 South Sea Bubble, 67–69, 87 sovereign wealth funds (SWFs), 128–31, 145 S&P 500. See Standard & Poor’s 500 speculation: art, stamps, coins, and wine, 283; in derivatives, 221; excesses, 197; impacts of, 232; value and, 4–5 spinning jenny, 71 split-strike conversion, 151–52 sponsor, 286–87 Stabilizing an Unstable Economy (Minsky), 214 Stagecoach Corporate Stock Fund, 284–85 Standard & Poor’s 500 (S&P 500), 187, 228, 285, 305–6, 309 Stanford, Allen, 153–56 Stanford, Leland, 155 Stanford Financial Group, 154 Starbucks, 277 State Street Corporation, 299 State Street Global Advisors, 299 State Street Investment Trust, 141 statistical arbitrage, 267 steam engine, 71 steamships, 90 Stefanadis, Chris, 94 sterling, 65 stock company, 134 stock exchanges: national or international, 94; new, 96; regional, 94–95 stock market: dislocations, 205; in England, 86–87; in Paris, 85 stock ownership: age and, 93–94; direct and indirect, 91, 93; gender and, 93–94; regulations prohibiting too much, 123; study of, 96; in United States, 90–94, 97 stock ticker, 89–90; network, 95 stones (horoi), 27, 60 Strong, Benjamin, 200–203, 206, 226 strong-form efficiency, 249 Studebaker-Packard Corporation, 111 sub hasta (public auction), 50 subprime, 39 subprime-mortgage lending, 223 Suetonius, 59 sugar consumption, in England, 75, 77 Sumerian city-states, 15–16 supply curve, 229 Supreme Court, 108 survivorship bias, 252 swap spread, 266 Swensen, David, 296, 328 SWFs.


pages: 416 words: 118,592

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

accounting loophole / creative accounting, Albert Einstein, asset allocation, asset-backed security, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, BRICs, butter production in bangladesh, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Long Term Capital Management, loss aversion, margin call, market bubble, money market fund, mortgage tax deduction, new economy, Own Your Own Home, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stocks for the long run, survivorship bias, The Myth of the Rational Market, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

FIRM FOUNDATIONS AND CASTLES IN THE AIR What Is a Random Walk? Investing as a Way of Life Today Investing in Theory The Firm-Foundation Theory The Castle-in-the-Air Theory How the Random Walk Is to Be Conducted 2. THE MADNESS OF CROWDS The Tulip-Bulb Craze The South Sea Bubble Wall Street Lays an Egg An Afterword 3. SPECULATIVE BUBBLES FROM THE SIXTIES INTO THE NINETIES The Sanity of Institutions The Soaring Sixties The New “New Era”: The Growth-Stock/New-Issue Craze Synergy Generates Energy: The Conglomerate Boom Performance Comes to the Market: The Bubble in Concept Stocks The Nifty Fifty The Roaring Eighties The Return of New Issues Concepts Conquer Again: The Biotechnology Bubble ZZZZ Best Bubble of All What Does It All Mean?

It was Santayana who warned that if we did not learn the lessons of the past we would be doomed to repeat the same errors. Therefore, in the pages to come I will describe some spectacular crazes—both long past and recently past. Some readers may pooh-pooh the mad public rush to buy tulip bulbs in seventeenth-century Holland and the eighteenth-century South Sea Bubble in England. But no one can disregard the new-issue mania of the early 1960s, or the “Nifty Fifty” craze of the 1970s. The incredible boom in Japanese land and stock prices and the equally spectacular crash of those prices in the early 1990s, as well as the “Internet craze” of 1999 and early 2000, provide continual warnings that neither individuals nor investment professionals are immune from the errors of the past.

Dealers went bankrupt and refused to honor their commitments to buy tulip bulbs. A government plan to settle all contracts at 10 percent of their face value was frustrated when bulbs fell even below this mark. And prices continued to decline. Down and down they went until most bulbs became almost worthless—selling for no more than the price of a common onion. THE SOUTH SEA BUBBLE Suppose your broker has called you and recommended that you invest in a new company with no sales or earnings—just great prospects. “What business?” you say. “I’m sorry,” your broker explains, “no one must know what the business is, but I can promise you enormous riches.” A con game, you say.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

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

Note the typical bubble phenomenon that people stopped buying for long-term economic reasons and merely bought to sell on at a short-term profit. This feedback phenomenon, which has been better understood by novelists and poets than many Chicago economists, was also at work in the South Sea Bubble, as we saw in my initial quotation from Alexander Pope. Pope, incidentally, was himself one of those irresistibly charmed by the South Sea Bubble. So, too, was the greatest genius of the day, Isaac Newton. As Master of the Royal Mint and the man who put England onto the gold standard when he was not busy discovering the physical laws of the universe, he was hardly a novice in finance.

It also sits oddly with the extreme booms and busts that take place in the property market, which are so often the cause of financial crises. The recurring collective memory loss exhibited by bankers in property lending does not look like the result of measured deliberations by homo economicus. And how can the efficient markets hypothesis be reconciled with great financial aberrations such as the South Sea Bubble, of which Alexander Pope wrote: At length Corruption, like a gen’ral flood, (So long by watchful Ministers withstood) Shall deluge all; and Av’rice creeping on, Spread like a low-born mist, and blot the Sun; Statesman and Patriot ply alike the stocks, Peeress and Butler share alike the Box, And Judges job, and Bishops bite the town, And mighty Dukes pack cards for half a crown.

Yet from then on he spent much time justifying the ever increasing level of the market by reference to a productivity miracle. He did this in the face of considerable scepticism on the part of senior Fed staff members. When the market was at its wildest, Michael Prell, a Fed economist, told the FOMC that initial public offerings of dot.com stocks were redolent of the atmosphere in the South Sea Bubble. Yet the chairman had little time for such input. And those members of the FOMC who worried about the bubble were sidelined by Greenspan in the committee’s deliberations. He exerted rigid control throughout his tenure.75 As the dot.com saga spiralled out of hand, Greenspan’s view, which became highly influential, was that since it was impossible for central banks to identify and prick bubbles, all they could do was to clean up after the event.


pages: 382 words: 105,166

The Reckoning: Financial Accountability and the Rise and Fall of Nations by Jacob Soll

accounting loophole / creative accounting, bank run, Bear Stearns, Bonfire of the Vanities, British Empire, collapse of Lehman Brothers, computer age, corporate governance, creative destruction, Credit Default Swap, delayed gratification, demand response, discounted cash flows, double entry bookkeeping, financial independence, Frederick Winslow Taylor, God and Mammon, High speed trading, Honoré de Balzac, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, new economy, New Urbanism, Nick Leeson, Ponzi scheme, Ralph Waldo Emerson, Scientific racism, South Sea Bubble, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade route

Quotations from Helen Paul, “Limiting the Witch-Hunt: Recovering from the South Sea Bubble,” Past, Present and Policy Conference 3–4 (2011): 2 and John Richard Edwards, “Teaching ‘merchants accompts’ in Britain During the Early Modern Period,” Cardiff Business School Working Paper Series in Accounting and Finance A2009/2 (2009), 20; Deringer, “Calculated Values,” 146. 23. Paul, “Limiting the Witch-Hunt,” 7; Pearce, The Great Man, 95; John Carswell, The South Sea Bubble (Stanford, CA: Stanford University Press, 1960), 260–261. 24. Plumb, Sir Robert Walpole, 1:332. 25. Deringer, “Calculated Values,” 149; Carswell, The South Sea Bubble, 237; Paul, “Limiting the Witch-Hunt,” 3. 26.

For this reason, Walpole, a Whig, had initially been a foe of the company. In spite of interparty debate over the debt scheme and an admission that he had, at first, found the South Sea scheme “a chimera,” Walpole eventually embraced it. If it seems surprising that Walpole would have gotten entangled in the South Sea bubble, it should be remembered that even Isaac Newton, the great astronomer, lost the immense sum of £20,000 speculating at the height of the scheme. Walpole believed in the scheme in spite of public financial data that put it into question. He was no less shrewd than Newton, but he very well could have been blinded by greed.

The Parliamentary Commission of Accounts to oversee government spending would not be called again until after the War of American Independence. Walpole had managed to bail out Britain, but he had not brought the kind of reform and accountability he promised in his first years in politics. He certainly did not hold himself accountable. In 1722, in the years following the South Sea bubble, Walpole began building Houghton Hall on his lands in Norfolk, one of the great Palladian mansions of the eighteenth century, with a sumptuous interior by William Kent, the great architect and designer who would go on to build the Treasury and Horse Guards buildings at Whitehall. It was a testimony to Walpole’s power that when he left office in 1742 and his painting collection was moved to Norfolk from 10 Downing Street, it became one of the great artistic treasures of the world, containing four hundred masterworks.


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, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Black Swan, bond market vigilante , 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, eat what you kill, 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, foreign exchange controls, 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, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, 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, Savings and loan crisis, 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

When the bubble burst three months later, Newton had lost his entire fortune of £20,000, equivalent to $5 million today if adjusted for consumer prices or roughly $90 million in relation to the average wages in eighteenth-century England.2 Newton retreated from public life and soon left London, venting his bitterness against the world of finance in a famous quote: “I can calculate the motions of the heavenly bodies, but not the madness of people.”3 Recurrent booms and busts have shaken capitalism since its inception, with routine financial panics occurring every few decades and earth-shattering crises, such as the South Sea Bubble or the Lehman bankruptcy, every generation or two. These financial manias, going back even before the South Sea Bubble to Tulipmania in seventeenth-century Holland, often caused severe economic dislocations, especially in financially oriented countries. Such disruptions have usually been powerful enough to overwhelm, at least temporarily, the strongest of favorable historic trends.

As in the case of Tulipmania, this structural transformation in economic conditions gave rise to an unsustainable financial boom, the South Sea Bubble. This bubble burst in 1720, exposing colossal fraud and political corruption. It brought ruin to many notable British business and aristocratic families. Financial acumen and analytical brainpower were no defense against the bubble’s devastation, as Newton discovered. The indiscriminate nature of its financial devastation may explain why the South Sea Bubble, along with Tulipmania, is usually considered the quintessential case of the financial markets’ detachment from reality, a view expressed in the title of probably the most famous book on the history of finance, Charles MacKay’s Extraordinary Popular Delusions and the Madness of Crowds.

Yet I find it easier to imagine than the continuation of the present regime.1 —George Soros, February 1995, twelve years before the subprime crisis SIR ISAAC NEWTON was not just the world’s greatest mathematician and scientist. He was also Master of the Royal Mint in London from 1699 to 1727, a period that took in the South Sea Bubble, perhaps the most notorious of all the booms and busts that have punctuated financial history. With his incomparable intellect and his access to what today might be called insider information, he invested in the South Sea Company and cashed out his shares with a 100 percent profit in April 1720, judging that their price had advanced too far.


pages: 218 words: 63,471

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

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

As soon as 70 HOW WE GOT HERE the stock starts dropping, if only because it has exhausted its buyers, the whole thing unwinds. People who had borrowed money sold the stock to pay off the loans, which sent the stock price lower, the upside in exact reverse. Gravity works. In fact, Sir Isaac Newton himself dropped 20,000 pounds faster than an apple falls from a tree. The South Sea bubble is a great story, especially in relation to the Internet Bubble of 1999-2000, when shares of Priceline.com, which sold discount tickets on airlines such as Delta Airlines, were worth more than the airline companies themselves. But it is the ramifications of the burst Bubble that is more telling.

Businessmen became so disgusted with government mandated monopolies, that mercantilism probably peaked on that same June 24th day when South Sea hit 1050 pounds. Adam Smith was born in 1723, and his book Wealth of Nations would not be published until 1776 at the dawn of the Industrial Revolution, but the memory of the South Sea bubble kept England in the muck for 50 years. A minor footnote in the Bubble Act also forbade any company except for the Royal Exchange Assurance and London Assurance from writing marine insurance policies. Lloyd’s of London slipped through a loophole since it wasn’t a company, but a meeting place for individuals who underwrote insurance.

Undersea telegraphs opened America to British capital markets, and tons of money flowed to the U.S. to finance the build out of the U.S. railroads. But rather than owning equity in these railroads, the British mainly lent money, still more comfortable with getting paid interest and their eventual money back, rather than take the risk in equity, 250 years after the South Sea Bubble burst. Even today, you find a much less developed venture capital business in England and all of Europe vs. the risk junkies of Silicon Valley. *** But the consols allowed England to raise capital, and never have to pay it back! The French never invented such an instrument after their Mississippi Company bubble, and were forced to borrow capital with very short duration, meaning they had to pay back their debts within a year.


The Corporation: The Pathological Pursuit of Profit and Power by Joel Bakan

Berlin Wall, Cass Sunstein, corporate governance, corporate personhood, corporate social responsibility, creative destruction, energy security, Exxon Valdez, IBM and the Holocaust, joint-stock company, laissez-faire capitalism, market fundamentalism, Naomi Klein, new economy, race to the bottom, Ralph Nader, Ronald Reagan, shareholder value, South Sea Bubble, The Wealth of Nations by Adam Smith, Triangle Shirtwaist Factory, urban sprawl

As for the corporation itself, in 1720 Parliament passed the Bubble Act, which made it a criminal offense to create a company "presuming to be a corporate body," and to issue "transferable stocks without legal authority." Page 8 JOEL BABAN Today, in the wake of corporate scandals similar to and every bit as nefarious as the South Sea bubble, it is unthinkable that a government would ban the corporate form. Even modest reforms-such as, for example, a law requiring companies to list employee stock options as expenses in their financial reports, which might avoid the kind of misleadingly rosy financial statements that have fueled recent scandals '-seem unlikely from a U.S. federal government that has failed to match its strong words at the time of the scandals with equally strong actions.

., 35-39, 41, 46,57 see also regulatory laws corporate mascots, 26 corporations: amorality of, 53-59, 69, 79, 88-89, 110,134 backlash against, 25-27, 140-43 benevolent, 18-19, 151 church replaced by, 134 definition of, 3 democracy corrupted by, 101-2 devastation as opportunity for, 111, 124-25 dominance of, 5, 21-27, 134, 139-40,153,159 elimination of, 159-60 English banning of, 6-8, 9 exploitation by, 74, 112, 118, 122, 123, 138, 139, 140, 148, 149, 163 as "Frankenstein monsters," 19, 149 as government creations, 153-58, 164 grant theory of, 16 historical development of, 5-21, 153,156 as institutions, 1-3, 28, 50, 56-57, 59,64 as instruments of destruction, 71-73,110 natural entity theory of, 16, 154-55 Nazis assisted by, 87-89 no accountability of, 152 nonprofit, 166 philanthropy of, 30, 31, 45, 47-49 political systems as viewed by, 88-89 profits and, 31, 34, 36, 41, 45, 48, 49, 50,51,52,53,55,57,58,62,69, 88-89 profits and, 31, 34, 36, 41, 45, 48, 49, 50,51,52,53,55,57,58,62,69, 73,82,88-89,101,103,105, 113,117,122,126-27,138,154, 165 psychopathy of, 28, 56-59, 60, 69, 79, 85, 110, 122, 134, 158, 161 public good and, 156, 158 public-purpose, 160-61 "rising tide lifts all boats" principle of, 142-43 and self-interest as human nature, 116-17,134-35,138 self-interest of, 1-2, 28, 37-39, 44-50,58-59,60,61,80,101-2, 105,109-10,117-18,134,142, 149, 156, 160, 161, 167 cost-benefit analysis, 62-65, 79-80, 149-50,152 in oil industry, 82-83 costs: externalized, 61, 62-65, 71-73, 149-50 of social responsibility, 45, 47-48, 49 'creative destruction" toys, 126-27 Croix de Feu, 91 Back Matter Page 1 70 2 NOTES 6. Carswell, The South Sea Bubble, 210. 7. Especially in high-technology companies, where stock options are widely used to compensate employees, failure to account for them unduly inflates reported earnings, sometimes by hundreds of millions of dollars. Yet, despite criticism of the practice by investor groups, accounting bodies, and the likes of Alan Greenspan and Warren Buffett, the federal government seems reluctant to stop it.

What You Should Know About the War Against America's Public Schools. Boston: Allyn & Bacon, 2002. Brummer, James J. Corporate Responsibility and Legitimacy: An Interdisciplinary Analysis. New York: Greenwood Press, 1991. Cadman, John W. The Corporation in New Jersey. Cambridge, Mass.: Harvard University Press, 1949. Carswell, John. The South Sea Bubble. London: Cresset Press, 1960. Cassels, Jamie. The Uncertain Promise of Law: Lessons from Bhopal. Toronto and London: University of Toronto Press, 1993. Chandler, Afred D., Jr., ed. The Railroads: The Nation's First Big Business. Back Matter Page 27 And What You Can Do About It. New York: Tarcher/Putnam, 2003.


pages: 695 words: 194,693

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

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

By the late 1730s, Sevillian merchants complained that the British had so thoroughly crowded out the Latin American markets for textiles that they could sell nothing at all in the New World.10 EXCHANGE ALLEY Few people think of slavery when they think of the South Sea Company. It conjures up instead the South Sea Bubble—the great inflation of share prices in 1720 that burst in spectacular fashion. Most economic studies of the South Sea Bubble focus on the company’s complex financial engineering in 1719 and 1720: a series of new share issues that were eagerly snapped up by the British aristocracy, creating and destroying vast fortunes. This disjunction between the company’s business—slavery—and the strange behavior of its shares in 1720 may be partly an accident of history’s selective memory: our fascination with crashes and blindness to the central role that slavery played in the eighteenth-century world economy.

In true Defoe style, he wrote: And here it must be confessed with the greatest concern that unreasonable Jealousies, groundless fears, the most unaccountable Apprehensions, or rather an universal Infatuation, has so far seized on Mankind, as to run down the stock much below its Value, and beyond all expectation to the undoing of many, and the Loss of most … by purchasing vastly beyond what their abilities could make good … plunged into irretrievable ruin.17 Defoe correctly perceived that the true adverse effect of the bursting of South Sea bubble was a sudden contraction of credit and that the solution would require the concerted effort of government and people: A decay of credit must unavoidably end in a decay of substance. The farmer will find no Market to take the Produce and Effects of his labor, and consequently will be unable to pay his landlord.

The plan, if fully realized, would have been an alternative form of democracy—a shareholder democracy—in which investors participated in the future economic gains to government grants and rights—as well as in the exploration and exploitation of French-controlled territories around the world held by the company. It would have been a one share–one vote model, as opposed to a one person–one vote model. What was missing from the Mississippi Bubble, in contrast to the South Sea Bubble, was the wellspring of innovation. France had its projectors, with plans for public works and trading companies, but there seems to be no evidence that any other shares were seriously traded in the Rue Quinquepoix. Law apparently had no successful competitors for the public appetite for share investing.


pages: 309 words: 54,839

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

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

The key point is the “mania phase.” Charles Mackay’s superlative Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, first published in 1841, remains an excellent and accessible introduction to economic bubbles and the thinking behind them, starting with the Tulip Mania of 1637 and the South Sea Bubble of 1720.51 Bitcoin is a completely standard example. “Stages in a bubble” by Jean-Paul Rodrigue, 2008.52 Bitcoin prices, January 2012 to January 2015. Totally no resemblance to the above. Data: coindesk.com The first bitcoin was mined in January 2009, but for the first year the enthusiasts just exchanged them amongst themselves for fun.

Both the Bancor and Status ICOs filled the blocks on the day of their release, with Status’s higher transaction fees blocking all smaller transaction fees for several hours. Some exchanges had to stop trading ETH because they couldn’t get transactions onto the Ethereum blockchain.324 History doesn’t repeat, but it does rhyme. One of the most famous share offerings from the South Sea Bubble of 1719-1720 was “A company for carrying on an undertaking of great advantage, but nobody to know what it is”:325 The man of genius who essayed this bold and successful inroad upon public credulity, merely stated in his prospectus that the required capital was half a million, in five thousand shares of 100 pounds each, deposit 2 pounds per share.

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


pages: 632 words: 159,454

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, foreign exchange controls, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liberal capitalism, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, Plutocrats, plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

., pp. 118, 133. 23Murphy, John Law, p. 327. 24Ibid., p. 125; DNB, ‘John Law’. 25Antoin E. Murphy, Richard Cantillon: Entrepreneur and Economist, Oxford, 1986, p. 67. 26John Carswell, The South Sea Bubble, Dover, NH, 1993 (1st edn, London, 1960), p. 35. 27Murphy, Cantillon, pp. 67–8; Edward Chancellor, Devil Take the Hindmost: A History of Financial Speculation, London, 1999, p. 93. 28Carswell, The South Sea Bubble, p. 79. 29Ibid., p. 83. 30William Coxe, Memoirs of the Life and Administration of Sir Robert Walpole, Earl of Orford, 3 vols, London, 1798, vol. 1, pp. 131–3; Chancellor, Devil Take the Hindmost, pp. 63–4. 31Coxe, Memoirs of Sir Robert Walpole, vol. 1, p. 135. 32Chancellor, Devil Take the Hindmost, pp. 73, 88. 33Malcolm Balen, A Very English Deceit: The Secret History of the South Sea Bubble and the First Great Financial Scandal, London, 2002, p. 119. 34Ibid., p. 92. 35Chancellor, Devil Take the Hindmost, p. 88. 36Ibid., p. 93. 37Dickson, The Financial Revolution in England, pp. 11–12.

He had lived a life of adventure and excitement such as few of his contemporaries could match.24 As we have seen, Law’s innovations attracted the attention of the English, but, in many ways, his scheme had been modelled on an English example. The story of the South Sea Company, and its denouement in the South Sea Bubble, has been told countless times. Both bubbles had a common origin in the need to find new ways to finance government spending, aggravated by lengthy military campaigns in the struggle between Britain and France. Both the South Sea Company and Law’s Compagnie d’Occident owed their immediate origin to the ‘accumulated debts created during the War of the Spanish Succession which was waged from 1701 to 1713’.

It has been calculated that the inherent, or ‘fair’, value of the shares, based simply on the fixed income the government gave the Company, was around £150.36 The idea behind the Company taking on the national debt was that the revenue from the trade would meet the burden of the interest on the national debt, and so, inevitably, if such trade failed to materialize, the worth of the Company’s shares would be considerably lower. Both the South Sea Bubble and John Law’s Mississippi system can be easily categorized. Behind all the drama and fascination of the bubbles, both companies represented an early attempt to solve the problem of government indebtedness. By substituting equity, or shares, in a company for government debt, it was hoped that a lower interest rate could be achieved on the debt, while giving the equity investor a prospect of capital appreciation.


pages: 117 words: 31,221

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, disinformation, 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

~ PROFESSOR IRVING FISHER, ECONOMIST, 1929, JUST BEFORE THE WALL STREET CRASH Back in the bad old days of the Roaring Twenties, Fred Schwed tells us, the prospectuses for new issues, or Initial Public Offerings (IPOs) as they are now called in the US, did not give investors much information. It was almost as bad as the days of the South Sea Bubble in the early 1700s, when one enterprising promoter managed to raise thousands from the public ‘for carrying on an undertaking of great advantage but no-one to know what it is’. Then, in the 1930s, the SEC began to insist on much more careful regulation of what could be said – and what had to be said – in a prospectus, and this still applies to most stock markets around the world today.

Seeing many other eager buyers appears to give a bidder more confidence that the item is valuable. You often see investment crazes in the stock market, and people who really ought to know better get caught up in them. One of the first big crazes was in 1720 in England, when speculation in a firm, the South Sea Company, caused a serious financial crisis known as the South Sea Bubble. The South Sea Company was a fairly unprofitable outfit that transported slaves from Africa to the Americas, but through some creative financing (including the bribery of senior members of the government) it sparked a wild boom in its shares, which went from about £100 in 1719 to £1,000 in August 1720.

L. 44 mergers and acquisitions (M&As) 88–9 middle age 99 Milken, Michael 73 millionaires, behaviour of 46 Minogue, Kenneth 24 misinformation 72–3, 90, 91 Modern Portfolio Theory 49 modernity and globalisation 78–9 momentum 38–9 mutual funds 86 average returns 105 N Nabisco 89 ‘Names’ 45 new issues 56–7 newsletters 96–7 O Ogilvy, David 88 online brokers 71 ‘open-end’ funds 86 optimism 42–3 ‘options’ 32 OTC (Over The Counter) market 70 overseas markets and diversification 49 P passive investment 111 patterns, identifying 40–1 Patton, George 80 pension schemes 99 Pope, John 104 popular investments 30–1 positive news about companies 42–3 predicting by analysts 97 the market 40–1 returns 80–1 small changes 38–9 ‘present value’ 94 price/book ratio 92 price/earnings (P/E) ratio 55 price/equity to growth (PEG) ratio 93 price/sales ratio 93 probability 26–7 professional stock-pickers 20–1 professionals 96, 98 commissions 72 and investment skills 47, 54–5 risk aversion 58 profit and company size 105 hiding 91 prospectuses 35, 56–7, 87 public overspending 28–9 R Random Walk theory 27 ratio price/book 92 price/earnings (P/E) 55 price/equity to growth (PEG) 93 price/sales 93 reading about stock markets 112–13 ‘regression to the mean’ 105 regulators 84–5 retirement 99 planning for 60–1 returns and diversification 49 estimating 80–1 inflation-adjusted 103 on investments 58–9 long term 64–5 risk adjustment 80–1 and hedge funds 100–1 in large investments 44–5 perception of 108 relative 50–2 in short selling 82–3 in speculation 12–13 and variance 81 Rogers, Jim 36, 77 Rogers, Will 58 Rowe, David 38 Royal Mail 66–7 ‘rule of 72’ 103 rumours, affecting the market 83 Russia, government bonds 51 S Sarbanes-Oxley Act (2002) 85 Schwed, Fred, background 8–9 SEC (Securities and Exchange Commission) 14, 84 Seneca 46 Seven (bank) 41 Shakespeare, William 86 share analysts 37 shares popular 30–1 prices 14–15 releasing 25 short sellers 82–3 short-term fluctuations in share prices 38–9 short-term investing 63 size of company and profit 105 Soros, George 77, 101 South Sea Bubble 56, 109 speculation 12–13 spread betting companies 83 stages of life, planning for 98–9 start-up businesses 106–7 Steinherr, Alfred 20, 33 stock indices 34–5 stock markets share prices 14–15 speculation in 12–13 stock-picking 20–1 stockbrokers 71 T Taiwan 87 takeovers 88–9 tax on trust funds 58–9 technical analysis (TA) 40–1, 112 telecoms companies 108 Thinc Group 84 timing of investments 64–5 tracker funds 21, 62–3 tracking error 63 ‘traction’ 38–9 traders, investment skills 47 see also professionals transaction costs 70–1 trusts 35, 48–9 low returns 58–9 turnarounds 66–7 Twain, Mark 12, 14 U ‘unit trusts’ 86 US, government bonds 80 V Vanderbilt family 16 variance 81 volatility in the Far East 76–7 and risk 51–2, 58 W Wall Street crash 82, 104 Walsh, David 73 wealth passing down through generations 16–17 and relative risk 44–5 and skill in investment 46–7 Wells, H.


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, Bear Stearns, Berlin Wall, Bernie Madoff, Black Swan, bond market vigilante , Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, 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 creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, Plutocrats, 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

They buy apartments sight unseen and purchase Internet stocks with no dividends or even revenues. Investors who take part in such bubbles will usually feel much more sophisticated than the naïve fools who fall for pyramid schemes, but they are making a similar mistake. Even Isaac Newton lost money in the South Sea bubble of the early eighteenth century, declaring afterwards, ‘I can calculate the motions of heavenly bodies, but not the madness of people.’ In the long run, the value of an asset must be linked to the income that can be generated from it (rent in the case of property, dividends in the case of shares).

Some suspect that, as a result of this constraint, central banks may never get round to reducing their bond holdings. If one thinks back to the early eighteenth century, John Law’s scheme also amounted to quantitative easing, as it involved the creation of money, which was used to buy stock in the Mississippi Company, which was then used to buy government debt. The British South Sea bubble was a similar scheme; the company bid for the right to take over the national debt, relying on speculative interest in its shares to make the plan work. These schemes did not last very long, because of their Ponzi-like nature, and because the newly created money tended to leak into other speculative propositions, including a plan to drain the bogs of Ireland and turn lead into silver.10 Japan’s experience also raises the question of whether it is as easy for central banks to generate inflation as Mr Bernanke suggested.

IGNORING POLONIUS 1 James Macdonald, A Free Nation Deep in Debt: The Financial Roots of Democracy, Princeton, 2003. 2 Sidney Homer and Richard Sylla, A History of Interest Rates, 4th edn, New York, 2005. 3 Macdonald, A Free Nation. 4 Charles Kindleberger, A Financial History of Western Europe, London, 1984. 5 Virginia Cowles, The Great Swindle: The Story of the South Sea Bubble, London, 1960. 6 Hilaire Belloc, Usury, London, 1931. 7 Homer and Sylla, Interest Rates. 8 Ibid. 9 Plutarch, Life of Lucullus. 10 Homer and Sylla, Interest Rates. 11 Ibid. 12 Ibid. 13 Ian Mortimer, The Perfect King: The Life of Edward III, the Father of the English Nation, London, 2006. 14 Macdonald, A Free Nation. 15 Carmen Reinhart and Kenneth Rogoff, This Time Is Different, Princeton, 2009. 16 All quotes from Ron Chernow, Alexander Hamilton, London, 2004. 17 From ibid. 18 Homer and Sylla, Interest Rates. 19 One might raise the objection that the debtor is making no such rational calculation, that he or she is unable to wait to get his or her hands on the desired goods.


pages: 471 words: 124,585

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, Bear Stearns, 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, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, 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, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, Nelson Mandela, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, tail risk, 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, two and twenty, undersea cable, value at risk, Washington Consensus, Yom Kippur War

He left France with next to nothing, thanks to his bet with Londonderry that English East India stock would fall to £180. By April 1720 the price had risen to £235 and it continued to rise as investors exited the Paris market for what seemed the safer haven of London (then in the grip of its own less spectacular South Sea Bubble). By June the price was at £420, declining only slightly to £345 in August, when Law’s bet fell due. Law’s London banker, George Middleton, was also ruined in his effort to honour his client’s obligation. The losses to France, however, were more than just financial. Law’s bubble and bust fatally set back France’s financial development, putting Frenchmen off paper money and stock markets for generations.

A naked Fortuna rains down Mississippi stock and options on a mob emanating from the rue Quincampoix, while a juggernaut drawn by Indians crushes an accountant under a huge wheel of fortune and two men brawl in the foreground.71 Brokers turning coin into Mississippi stock and wind: engraving from The Great Scene of Folly (1720) Bernard Picart, Monument Consecrated to Posterity (1721) In Britain, by contrast, the contemporaneous South Sea Bubble was significantly smaller and ruined fewer people - not least because the South Sea Company never gained control of the Bank of England the way Law had controlled the Banque Royale. In essence, his English counterpart John Blunt’s South Sea scheme was to convert government debt of various kinds, most of it created to fund the War of the Spanish Succession, into the equity of a company that had been chartered to monopolize trade with the Spanish Empire in South America.

And the financial arrangements were what would now be called pay as you go - that is, the aim was to collect sufficient premiums in any given year to cover that year’s payments out and leave a margin of profit. Limited liability came to the insurance business with the founding of the Sun Insurance Office (1710), a fire insurance specialist and, ten years later (at the height of the South Sea Bubble), the Royal Exchange Assurance Corporation and the London Assurance Corporation, which focused on life and maritime insurance. However, all three firms still operated on a pay-as-you-go basis. Figures from London Assurance show premium income usually, but not always, exceeding payments out, with periods of war against France causing huge spikes in both.


pages: 333 words: 76,990

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

"Robert Solow", asset allocation, banking crisis, banks create money, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, Fall of the Berlin Wall, financial innovation, fixed income, Flash crash, foreign exchange controls, forward guidance, Francis Fukuyama: the end of history, George Akerlof, household responsibility system, housing crisis, index fund, invention of the printing press, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kickstarter, liberal capitalism, light touch regulation, liquidity trap, Live Aid, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, Nixon triggered the end of the Bretton Woods system, oil shock, open economy, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Shenzhen special economic zone , Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, tail risk, Tax Reform Act of 1986, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve

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

Many high-profile celebrities and politicians became investors in the railway stocks. The Brontë sisters were among them, as were several leading thinkers and politicians such as John Stuart Mill, Charles Darwin and Benjamin Disraeli.14 They were in good company: King George I was an investor in the South Sea bubble (see Chancellor 2000, p. 73), as was Sir Isaac Newton, who reportedly lost £20,000, equivalent to about £3m in today's terms, when the market collapsed.15 This breadth of interest had led more people to believe in the ‘sure bet’ of the investment. In 1845 an author known as ‘successful operator’ wrote, ‘A short and sure guide to railroad speculation – a few plain rules how to speculate with safety and profit in railway shares’.

The cost of a three-minute telephone call from New York to London fell from $4.37 in 1990 (in 2000 dollars) to $0.40 in 2000.19 Deregulation and Financial Innovation Light touch regulation, or deregulation, is often an ingredient in the buildup of financial bubbles. In the railway boom of the early 19th century in Great Britain, for example, the repeal of the Bubble Act in 1825, introduced after the collapse of the South Sea bubble in 1720, was an important development. Aimed at controlling the formation of new companies, it limited the number of investors in joint stock companies to just five. In rescinding the act, the government made it easier to register, and set up, companies. It also made it much easier for large numbers of an increasingly enthralled public to invest in the new companies.


pages: 442 words: 39,064

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

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

This remarkable event is often discussed by present-day commentators, and parallels are drawn with modern speculation mania. The question is asked, Do the tulip market’s build-up and its subsequent crash have any relevance for today’s markets? The South Sea Bubble The South Sea bubble is the name given to the enthusiatic speculative fervor that ended in the first great stock market crash in England, in 1720 [454]. The South Sea bubble is a fascinating story of mass hysteria, political corruption, and public upheaval. (See Figure 1.2.) It is really a collection of thousands of stories, tracing the personal fortunes of countless individuals who rode the wave of stock speculation for a furious six months in 1720.

www.pupress.princeton.edu Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 Contents xiii Preface Chapter 1 3 financial crashes: what, how, why, and when? 3 What Are Crashes, and Why Do We Care? 5 The Crash of October 1987 Chapter 2 fundamentals of financial markets 26 7 7 9 12 Historical Crashes The Tulip Mania The South Sea Bubble The Great Crash of October 1929 15 Extreme Events in Complex Systems 20 Is Prediction Possible? A Working Hypothesis 27 27 30 33 The Basics Price Trajectories Return Trajectories Return Distributions and Return Correlation 38 The Efficient Market Hypothesis and the Random Walk The Random Walk 38 vi contents 42 45 A Parable: How Information Is Incorporated in Prices, Thus Destroying Potential “Free Lunches” Prices Are Unpredictable, or Are They?

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


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

accounting loophole / creative accounting, asset-backed security, banking crisis, Bear Stearns, 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 and loan crisis, 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

One author reported that ‘at the Company’s governor’s birthday gala he was helped out of his coach by the Duke of Marlborough’.24 Like Sassetti’s at the Medici Bank, Grigsby’s head had been turned away from the books and ledgers towards more remunerative and glamorous possibilities. The bursting of the South Sea Bubble induced a British recession deeper than any until that following the 2008 financial crash.25 The affair had even farther-reaching consequences for business. So-called joint stock companies, which brought together investors as ‘shareholders’ and had sprung up in imitation of the South Sea Company, were banned. This, however, meant that a critical lesson for the long term was missed. Companies, especially monopolistic ones, will always be prone to abuse and corruption. The real message of the South Sea Bubble was the paramount importance of professional and, above all, independent accounting to expose and prevent such things.

Roxburgh, Representing Public Credit. 23. Histories of the South Sea Bubble used include that by J. Bruce Tabb in Chatfield and Vangermeersch, and Balen. 24. Benjamin Wardhaught, Poor Robin’s Prophecies: A Curious Almanac and the Everyday Mathematics of Georgian Britain, Oxford University Press, 2012. 25. It took the economy around seven years to return to its pre-bubble-level GDP. In the wake of the 2008 crash, the same point was reached after six years. See David Blanchflower, ‘Britain has taken longer to recover from recession than at any time since the South Sea Bubble’, Independent, 3 August 2014, citing research by Spectator editor Fraser Nelson.

Once again, I am grateful to my agent Karolina Sutton and editor at Atlantic Books, Mike Harpley, for helping me tell a story in a way that I hope informs and entertains, to Jane Selley for expert copy-editing and Kate Ballard for work on images. Finally, as ever my deepest thanks go to my family and partner Brigitte for immeasurable support throughout my preoccupation with the bean counters. BIBLIOGRAPHY BOOKS Pre twentieth century Balen, M., The Secret History of the South Sea Bubble (Fourth Estate, US, 2002) Chatfield, R., and Vangermeersch, R. (eds), The History of Accounting: An International Encyclopedia (Routledge, UK, 1996) de Roover, R., The Medici Bank: Its Organization, Management, Operations and Decline (New York University Press, US, 1948) Galbraith, J. K., A Short History of Financial Euphoria (Penguin Business, US, 1994) Gleeson-White, J., Double-Entry: How the Merchants of Venice Created Modern Finance (Allen & Unwin, Australia, 2011) Micklethwaite, J., and Woolridge, A., The Company: A Short History of a Revolutionary Idea (Weidenfeld & Nicolson, UK, 2003) Pacioli, L., The Rules of Double-Entry Bookkeeping [Particularis de Computis et Scripturis, originally published Venice 1494].


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Mastering the Market Cycle: Getting the Odds on Your Side by Howard Marks

activist fund / activist shareholder / activist investor, Albert Einstein, business cycle, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, financial innovation, fixed income, if you build it, they will come, income inequality, Isaac Newton, job automation, Long Term Capital Management, margin call, money market fund, moral hazard, new economy, profit motive, quantitative easing, race to the bottom, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, secular stagnation, short selling, South Sea Bubble, stocks for the long run, superstar cities, The Chicago School, The Great Moderation, transaction costs, VA Linux, Y2K, yield curve

The last capitulator makes the top or bottom and sets the scene for a cyclical swing in the opposite direction. He is the “fool in the end.” The following account from history shows that even the most brilliant among us can fall prey to capitulation: Sir Isaac Newton, who was the Master of the Mint at the time of the “South Sea Bubble,” joined many other wealthy Englishmen in investing in the stock [of the South Sea Company]. It rose from £128 in January of 1720 to £1,050 in June. Early in this rise, however, Newton realized the speculative nature of the boom and sold his £7,000 worth of stock. When asked about the direction of the market, he is reported to have replied “I can calculate the motions of the heavenly bodies, but not the madness of the people.”

When they continue to a significant extent, they’re called bull markets and bear markets. Even further and they’re called booms, manias and crazes; busts, crises and panics. The most popular terms today for describing extreme bull and bear markets are “bubble” and “crash.” These latter terms have been around for a long time. The “South Sea Bubble” cited above, a mania for investing in the company that supposedly would pay off the national debt by exploiting a monopoly to trade with South America, caught England by storm in 1720. And the market collapse that kicked off the Great Depression is called the Great Crash of 1929. But it was the “tech bubble,” “Internet bubble” and “dot-com bubble” of 1995–2000—and the housing and mortgage bubbles that ended in 2007, bringing on significant crashes in markets around the world—that brought the word “bubble” into everyday use.

A Abbey Mortgage Bank, 122–24 Alchian, Armen, 43 Altman, Roger, 5 B Bank of Ireland, 122, 124 Bernanke, Ben, 239 Bernstein, Peter, 5, 13, 268–69, 315 bond defaults, two-year rule, 44–45 Brooks, Jon, 97 bubbles and crashes extremes, 265, 297–98, 314 Internet bubble, 217–22 patterns, 240, 263 South Sea Bubble, 195–96 tech bubble, 146, 196, 198–99, 231, 264–65, 292–93 See also Global Financial Crisis of 2007–08; sub-prime mortgage crisis of 2007 Buffett, Warren, 5, 10, 50, 125–26, 193, 211 bull and bear markets, 29, 99, 147 bear market stages, 193–96, 201–3, 219 “bubble” and “crash,” 196–99 bull market stages, 191–93, 200–201, 306–7 great bull market of 1982, 278 Bush, George W., 151 Business Week, 49 “Can We Measure Risk with a Number?”


pages: 407 words: 114,478

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein

asset allocation, Bretton Woods, British Empire, business cycle, butter production in bangladesh, buy and hold, buy low sell high, carried interest, corporate governance, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dava Sobel, diversification, diversified portfolio, Edmond Halley, equity premium, estate planning, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, George Santayana, German hyperinflation, high net worth, hindsight bias, Hyman Minsky, index fund, invention of the telegraph, Isaac Newton, John Harrison: Longitude, Long Term Capital Management, loss aversion, market bubble, mental accounting, money market fund, mortgage debt, new economy, pattern recognition, Paul Samuelson, Performance of Mutual Funds in the Period, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Savings and loan crisis, South Sea Bubble, stocks for the long run, stocks for the long term, survivorship bias, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

This process feeds on itself, like a bonfire, until all the fuel is exhausted, and it finally collapses. The fuel, as Minsky points out, is usually borrowed cash or margin purchases. The South Sea Bubble The diving company bubble was, in fact, simply the warm-up for a far greater speculative orgy. Most bubbles are like Shakespeare’s dramas and comedies: the costumes, dialect, and historical setting may be foreign, but the plot line and evocation of human frailty are intimately familiar to even the most casual observer of human nature. The South Sea Bubble’s origins were complex and require a bit of exposition. For starters, it was not one bubble, but two, both beginning in 1720: the first in France, followed almost immediately by one in England.

Financial writer Fred Schwed astutely observed that, “The burnt customer certainly prefers to believe that he has been robbed rather than that he has been a fool on the advice of fools.” History shows that when an entire nation has acted unwisely on bad advice, the rules of the game are likely to change drastically, and that the sources of that advice should beware. The political reaction to the South Sea Bubble was violent. Many of the company’s directors, including four MPs, were sent to the Tower. Most of their profits were confiscated, despite the fact that such a seizure of assets was a violation of common law. No one cared about such niceties, and the directors were lucky to escape with their lives.

PILLAR THREE The Psychology of Investing The Analyst’s Couch The biggest obstacle to your investment success is staring out at you from your mirror. Human nature overflows with behavioral traits that will rob you faster than an unlucky nighttime turn in Central Park. We discovered in Chapter 5 that raw brainpower alone is not sufficient for investment success, as demonstrated by Sir Isaac Newton, one of the most notable victims of the South Sea Bubble. We have no historical record of William Shakespeare’s investment returns, but I’m willing to bet that, given his keen eye for human foibles, his returns were far better than Sir Isaac’s. In Chapter 7, we identify the biggest culprits. I guarantee you’ll recognize most of these as the face in the looking glass.


Rummage: A History of the Things We Have Reused, Recycled and Refused To Let Go by Emily Cockayne

Cape to Cairo, carbon footprint, card file, Fellow of the Royal Society, full employment, invisible hand, Isaac Newton, joint-stock company, Kickstarter, New Journalism, oil shale / tar sands, On the Economy of Machinery and Manufactures, paper trading, South Sea Bubble

He suggested that the nation’s potters buy up ‘old broken China’, to be ground down and refashioned into new porcelain clay – a process that permitted chinaware to make ‘some kind of Amends for its Brittleness by giving a Value, even after ’tis broke, to that which is now but unprofitable Rubbish’.42 The South Sea Bubble burst in 1720, spewing forth a ferment of criticism about speculation. One of the schemes highlighted as worthy of mockery in the wake of the South Sea Bubble bursting in 1720 was a scheme to fatten pigs.43 In 1642 the fattening of beasts without grass, hay or grain had been presented as one of the horrifying schemes to project the nation into a dire future.44 By the eighteenth century, for ‘the sake of cheapness’, urban pigs ate ‘greaves’, a waste product from tallow chandling.

A joint-stock company called the South Sea Company was founded as a public–private partnership in 1711 with the aim of reducing the national debt. The company was granted a monopoly to trade in the South Seas, but foreign conflict meant the company never gained any significant profit. Stock in the company rose as it focused more on the government debt, with a peak inflating the share price in 1720: this was ‘The South Sea Bubble’, followed by a collapse which burst the bubble. Other companies also sought to raise money from investors around this time, and some projects and companies made extravagant claims about their ventures. These were also nicknamed ‘bubbles’. A few of these outlined schemes involved the reuse or recycling of materials, as we will see.

Critics argued that hogs fattened on greaves ‘are blown up with such nasty Filth which runs from most Brewerys and Distillerys’, and even that the pigs were ‘always kept Drunk’.45 In 1733 Lewis Smart, a distiller who kept several hundred pigs near Tottenham Court Road, argued that his pigs were a ‘public convenience’, as they consumed the waste products of his trade.46 In common with later economic crises, the bursting of the South Sea Bubble had an impact on how material values were perceived and affected enthusiasm for material reuse. Patching and piecing Five hundred Millions, Notes and Bonds, Our stocks are worth in Value, But neither lie in Goods or Lands, Or Money let me tell ye. Yet tho’ our Foreign Trade is lost, Of mighty Wealth we vapour, When all the Riches that we boast Consist in Scraps of Paper.47 So concludes a poem written by the satirist and publican Ned Ward.


pages: 478 words: 126,416

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

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

From crisis to crisis I can predict the motion of heavenly bodies but not the madness of crowds. Isaac Newton18 Speculative booms and busts have recurred throughout financial history. In the 1630s Dutch merchants pushed the price of tulips to levels at which a prize bulb was as valuable as a house. A century later, the cream of English society participated in the South Sea Bubble. In the 1840s railway mania seized the public imagination. The 1920s saw boom and bust in stock and land values and ended in the Wall Street Crash and the Great Depression. The immediate consequences of the Crash and Depression were political as well as economic: the rise of political extremism led to the Second World War.

Even highly intelligent people overestimate their ability to time the correction of market mispricing. Legendary investors such as Julian Robertson and George Soros misjudged the new economy bubble and damaged their reputations. Warren Buffett stayed resolutely on the sidelines, and was derided for his failure to ‘get it’. Isaac Newton famously lost money in the South Sea Bubble, an early Ponzi scheme. As the new economy bubble expanded, I asked myself often, ‘Do people in financial conglomerates selling products really believe these things, or are they cynical in their deception?’ I came to realise that the truth lay somewhere in between: neither naïveté nor fraud provided sufficient explanation.

Casablanca (1942), Warner Bros We were all appalled and shocked when we heard about these allegations yesterday. I have to tell you that I am sickened that these events are alleged to have happened. Not just because I was editor of the News of the World at the time. Rebekah Brooks, Chief Executive, News International, in a memo to staff, 8 July 2011 After the South Sea Bubble burst in 1721, John Aislabie, chancellor of the exchequer, was found guilty of ‘the most notorious, dangerous and infamous corruption’, and sent to prison.15 The last significant bank failure in the UK before the global financial crisis was that of the City of Glasgow Bank, which collapsed in 1878.


pages: 273 words: 93,419

Let them eat junk: how capitalism creates hunger and obesity by Robert Albritton

Bretton Woods, California gold rush, clean water, collective bargaining, computer age, corporate personhood, creative destruction, deindustrialization, Food sovereignty, Haber-Bosch Process, illegal immigration, immigration reform, invisible hand, joint-stock company, joint-stock limited liability company, Kickstarter, land reform, late capitalism, means of production, offshore financial centre, oil shale / tar sands, peak oil, price stability, profit maximization, profit motive, South Sea Bubble, the built environment, union organizing, Unsafe at Any Speed, upwardly mobile

Second, the mobilization and concentration of social savings through institutions, such as banks and stock markets, that grant credit to capital, also facilitate concentration into larger units. 44 L E T T H E M E AT J U N K In order to understand something like the “merger movement” of the late nineteenth century, however, we need to move to midrange theory and historical analysis, because many of the causal factors are phase-specific and cannot therefore be derived from capital in the abstract and in general. In England, for example, the leading capitalist power in the world until the late nineteenth century, the corporate form had been legally constrained since the burst of the South Sea Bubble in 1720, which nearly bankrupted the country.39 Giving the limited-liability joint stock company the legal go-ahead was a prerequisite for the merger movement of the late nineteenth century. Other causal factors or conditions of existence of the merger movement would include: • • • • • • • • • the development of financial institutions, like banks and stock markets the increasing movement of capital into resource extraction and heavy industry where economies of scale are important protective tariffs and dumping government spending on infrastructure and military build-ups the need to control a more militant work force the need for corporations to influence government policy better transportation and communication technologies the increasing importance of having a global reach in many industries for the cheapest resource extraction inter-imperialist rivalry.

Marx (1976: 548). 32. For an analysis of Marxian crisis theory see Albritton (2008). 33. Marx (1976: Chapter 25). 34. Marx (1976: Chapter 6). 35. See Albritton (2008) for an explication of crisis theory. 36. See Chapter 5. 37. Bales (1999, 2005) and Bowe (2007). 38. Roberts (2008: 44). 39. The South Sea Bubble involved the collapse in the value of the stock of a large monopolistic trading company, and as a result, legislation was passed limiting the corporate form to existing banks and trading companies. 40. Seeing the writing on the wall, US Sugar has agreed to sell its Everglades sugar plantations for $1.75 billion to the state of Florida, which will take possession in six years. 41.

B. 57, 217 judicial system 85–7, 169–70, 183–4, 190 junk food 2, 3, 5–6, 92, 123, 172, 174, 176–7, 191 see also empty calories junk capitalism 5–6 K King, David 194 knowledge 8 Kyoto Accord 154 L labelling 162, 189, 236 labour 124 labour-intensive 140, 143–4, 220 land 21, 156–8 degradation 156–7 landless workers movement (MST) 203 Las Vegas 159 legal subjectivity 46, 47, 207 levels of analysis 10–14, 202 liberal-democracy 9, 14, 182–97 see also democracy liberalism 183 livestock 150, 155, 224 living conditions 142 long run 22–3 M Malawi 140 Malaysia 142 Mali 129 malnutrition x, 90, 106–7, 212 Marie Antoinette 2 256 INDEX market failure 15–16 marketing 86, 140, 168, 171–2, 177, 220 marketing to children 69, 70, 140, 165, 166, 172–7 markets 14–15, 19, 43, 144, 208 see also democratizing markets Marlboro Man 169, 171 Marx, Karl 9, 10, 11, 12, 18, 19, 20, 21, 22, 28, 30, 31, 39, 43, 46, 76, 81 massacre x meat production 149, 155 meatification 101, 104 mechanization 64, 128, 202 media 45, 85, 169, 172–77, 183–6, 195–7 medicalization 90, 91 mental illness 173, 177 merger movement 44 Mexico 136 mid-range theory 12–13, 51–78, 202, 216 see also levels of analysis military Keynesianism 75 military-industrial complex 75 miscarriages 151 monoculture 34, 66, 118, 151, 161, 203 see also homogenization, species diversity monopolistic trading companies 44–5 Monsanto 162, 189 movements xii, 8, 33, 203 see also cooperation, international cooperation N National Cancer Institute 62 nation-state xiii see also government, state, state intervention natural disasters 204 nemagon 137, 190, 193 Nestle, Marion 115, 149 Nicaragua 138 nitrates 151 nitrous oxide (N2O) 151, 155 Nixon, President Richard 63, 146 non-governmental organization (NGO) 211 North American Free Trade Agreement (NAFTA) 107, 136 nutrients 4, 115–17 nutrition 6, 80–122, 195 O obesity 4, 41, 90, 91, 93, 97–9, 104, 109, 172–3, 180, 188, 190, 221 obesity epidemic 32, 43–6 89, 93 objectification 47–9 see also subjectification oceans 154, 159–60 ocean levels 154 oestrogen 109–10, 225 Ogallala aquifer 157 oligopoly 43–6, 70–2 organic farming 144, 162, 205, 212 organic food 167 Organization of Petroleum Exporting Countries (OPEC) 57 P palm oil 142–3, 151 palm oil workers 142–3 peak oil 142–54 per capita emissions 155 perfect storm ix pesticides 58, 86, 110, 127–8, 130, 137–40, 142–4, 161, 179, 195, 206 petro-chemicals 147, 179 see also pesticides, petroleum petro-dollars 134 petro-food 58, 149, 150, 195 petroleum x, 57, 147, 149, 217 pharmaceutical industry 153 phase of consumerism 13, 51–77, 217 phase of imperialism 54 phase of liberalism 54 phase of mercantilism 54 INDEX Pimentel, David 5, 149 plankton 159 planning 14 policy 8 politics of fear xiii pollution 14, 146–7, 157, 159, 217 portion size 104, 121 possessive individualism 26, 46, 72, 166, 184 see also atomism, individualism, islandization, subjectification pouring rights 175 poverty 107, 128, 134, 141, 210, 213 poverty line 126, 127, 130, 227 power 21, 167, 175, 183, 185 see also class, corporations, state preference schedules 166–7 private property 21, 46–7, 207 privatize profits 62, 84, 180, 206, 208 processed food 92, 120, 149 profit 6, 9, 11, 15, 20, 22–3, 26–33, 62–3, 77, 82–4, 86–7, 92, 108, 112, 115, 121, 127, 129–33, 139, 142–3, 147–8, 153, 159, 162–3, 169, 171–2, 179–80, 189–90, 192–3, 197, 201–2, 206, 224 Proctor, Robert 192 public health 190 public sector 144, 180, 185, 191–2, 194, 204, 206 public transportation 179, 209, 217 pulp and paper industry 157 pure capitalism 23, 26, 38, 39, 42, 43, 43, 44, 48, 49, 50 see also abstract theory, deep structure, inner logic putting-out system 25, 54 Q quality versus quantity 20, 22, 27, 28, 32–3, 35, 37, 47 see also indifference to use-value R race 99 257 racism 66–7, 111, 124 rainforest 157, 179 Randall, Peggy 96 rationality xii, 19, 49, 86–7, 126, 164 capitalist rationality 9, 11, 15, 18, 19, 20, 146, 166, 169, 192 Reagan, President Ronald 62, 74, 140, 171–2 redistribution of wealth 123, 144, 204, 209 see also distributive justice, equality, inequality, progressive taxation reductionism 9 refrigeration 149 reproduction 109–110 rice 108 right to food 122, 226 rights x, 126, 132 formal rights 122 individual rights x social rights x Roundup 118–19, 195 see also glyposate rule of law 183 S salmonella 114 salt 108–9 schools 123, 172, 175–6 science 85, 90, 169, 183, 190–7 seeds 66, 83 see also genetically modified organisms, monoculture, species diversity self-regulating markets 48, 50 sense of community 49, 73 shopping malls 65 silent tsunami ix, xiii slaughterhouse workers 131–2 slavery 49, 127–8, 138–9, 144, 179, 227, 229 smoker’s bill of rights 170, 196 snacks 41 social costs xii, 8–9 14–15, 24, 28, 32, 258 INDEX 57, 64, 76, 83, 87, 102–4, 111, 183, 186, 200, 206–8 social injustice 144, 152, 164 social needs 210 social responsibility 26, 191, 197, 205 socialism 52–3, 62, 65, 74–5 socialization of costs 14, 62, 180, 206, 208 soft drinks/soda pop 92, 96, 98, 100, 174, 222 soil 18, 117–18, 215 South Sea Bubble 216 soy 109, 142, 151 soy formula 109 space 33–7, 64–6 see also homogenization, monoculture species diversity 34, 160–1 see also homogenization, monoculture speed 24, 30–3 53, 61–64, 72, 126, 131–2, 147, 178, 193, 218 see also intensification, space, time Sri Lanka 142 starvation ix, 88, 90, 105, 108, 153 see also hunger state see warfare state, welfare state state intervention 12, 15, 20, 38, 75, 75, 77, 186 see also regulation status symbol 73, 166 sterility 137–8, 193 Stern Report 16, 157 stewardship 23, 36, 45 strict settlement 215 structural adjustment policies (SAPs) 134, 141, 203, 205 subjectivity 46–9, 72–6 subsidies 15, 59, 69, 71, 75, 78, 86, 100–1, 107–8, 121, 124, 128–9, 131, 133, 135–6, 139, 141, 144, 150, 152, 154, 159, 171, 180, 187, 189, 204–6, 208–9, 236 suburbanization 65–6, 72 see also homogenization, space sugar 91, 95–6, 172, 177, 227 sugar industry 15, 45, 47, 97, 100, 127–8, 139, 151, 171, 188 suicide 129–30, 162, 228 Sumatra 155 supermarkets 119–20, 132–3 supply/demand 24, 37, 43, 48 Surgeon General (US) 170 surtax 208–9 sustainability 10, 16, 50, 164, 200, 201, 209, 210 T Tanzania 140 tax evasion 204–5, 207 taxation 194, 204–5, 220 Taylorism 30 tea workers 142 television 66, 69–70, 172–3, 217 Thatcher, Prime Minister Margaret 74 time 30–33, 61–4, 177, 215 see also intensification, speed tobacco industry 8, 60, 70, 84–7, 139–40, 143, 157, 168–71, 174, 182, 191, 217 tomatoes 34 toxic food environment 91, 173, 190, 226 toxic waste 156 toxicity 32, 61–2, 112–12, 127, 147, 167 toys 175 trade 152 deficit 171 trade unions 133, 215, 216 trans fat 102 transition 54 transparency 73, 207 transportation 149, 153 see also public transportation tree plantations 157 tropical commodities 14, 72, 141 tween strategy 173 see also marketing to children INDEX U underconsumption 25, 41–3, 68–71 underfunding of schools 175 undocumented workers 126–8, 132, 136 unemployment 227 uneven development 54 United Nations 107, 155, 160, 197, 211 United States Center for Disease Control (CDC) 112 government 3 food security 4 hegemony see American hegemony military 149 urban slums 107, 125, 136, 141 use-value 22, 28, 33 see also indifference to use-value, quality versus quantity V Valium 72 259 W water 108 wages 24–5, 37, 40–1, 67, 124–33, 137 warfare state 74, 76 war on cancer 63 welfare state 74–6 Winfrey, Oprah 189 women 6, 40, 72, 99, 107, 133 Wootan, M. 93 workers 7, 18, 21, 24, 28, 37–41, 124–45 food workers 125 working class 4, 80, 92–3 working conditions 67, 131–2 working day 31 World Bank 93 Z Ziegler, Jean 100


pages: 358 words: 104,664

Capital Without Borders by Brooke Harrington

banking crisis, Big bang: deregulation of the City of London, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, complexity theory, corporate governance, corporate social responsibility, diversified portfolio, estate planning, eurozone crisis, family office, financial innovation, ghettoisation, haute couture, high net worth, income inequality, information asymmetry, Joan Didion, job satisfaction, joint-stock company, Joseph Schumpeter, liberal capitalism, mega-rich, mobile money, offshore financial centre, race to the bottom, regulatory arbitrage, Robert Shiller, Robert Shiller, South Sea Bubble, the market place, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, transaction costs, upwardly mobile, wealth creators, web of trust, Westphalian system, Wolfgang Streeck, zero-sum game

But while trusts have retained “nearly unlimited flexibility in design,” the corporate form has been “encumbered with restrictions of a regulatory character, designed to protect creditors and shareholders.”144 This is partly because, almost immediately after their emergence in the seventeenth century, corporations became associated with fraud and the instigation of economic crises.145 After one particularly serious crisis, the South Sea Bubble of 1720, the government drastically tightened restrictions on the establishment of new corporations—restrictions that endured for a century. During this time, many commercial enterprises were organized through trusts; these were known as “deed of settlement” firms.146 By the mid-nineteenth century, corporations were once again made widely available, and by the twentieth century they had become the dominant form of organization for manufacturing and trading.

Langbein, “The Contractarian Basis,” 638. 43. Langbein, “Rise of the Management Trust,” 53. 44. The Bubble Act of 1720 forbade the creation of new joint-stock companies, except by royal charter. Passage of this law was intended to prevent the kind of speculation that that had led to the ruinous South Sea Bubble earlier that year. Brooke Harrington, “States and Financial Crises,” in Benedikte Brincker, ed., Introduction to Political Sociology, 267–282 (Copenhagen: Gyldendal Akademisk, 2013). 45. Michael Parkinson and Dai Jones, Trust Administration and Accounts, 4th ed. (Birmingham, UK: Central Law Training, 2008), 111. 46.

See also privacy self-presentation, 93, 94, 98, 121–22 Sen, Amartya, 230 Seoul Declaration (OECD), 12–13 service, 38, 43 Seychelles, 32, 185, 255–56, 265 Seychelles Institute of Management, 256 shar’ia law, 166, 174, 300 shell corporations, 13, 207, 299 Sherman (British Virgin Islands–based wealth manager), 55, 83, 87, 92, 105, 147, 265, 287 Shiller, Robert, 6 Shivani (England-based wealth manager), 119–20 shooting parties, 91 Simon (Singapore-based wealth manager), 70–72, 73, 222 Singapore: challenges Switzerland as global center of offshore finance, 106; as former British colony, 254; informal relationship between regulators and professionals in, 222; interviews for this study in, 32; percentage of offshore wealth held by, 130 social democracy, 228 social identity, trust and, 119–20 social networks, 72, 90, 92, 102, 262 Social Security, 224 Society of Trust and Estate Practitioners. See STEP (Society of Trust and Estate Practitioners) sole practitioners, 70–72, 73 South Africa: political instability in, 141–42; trust failure in, 58; white male expats in wealth management, 265, 266 South Sea Bubble (1720), 49, 181, 314n44 sovereignty: elites “hack,” 259–62, 267, 269; impaired system of state, 293; of Jersey, 294; of offshore nations, 296–97; popular, 18, 268–69, 289; strategic uses of, 289; in tax havens, 256–57, 259–62; who benefits from, 267 special-purpose vehicles, 19 spendthrift trusts, 155, 157, 216 Stan (Chicago-based wealth manager), 69 standardization, 61–62, 280, 282 Stanford, R.


The Craft: How Freemasons Made the Modern World by John Dickie

anti-communist, bank run, barriers to entry, Boris Johnson, British Empire, cuban missile crisis, ghettoisation, glass ceiling, Isaac Newton, Johann Wolfgang von Goethe, Mahatma Gandhi, offshore financial centre, Picturephone, Republic of Letters, Rosa Parks, South Sea Bubble, The Structural Transformation of the Public Sphere, white flight, women in the workforce

Whig power is stamped all over Freemasonry as it emerged after the fateful meeting in the Goose and Gridiron in 1717. But the subsequent history of the Craft would also be shaped by a crisis that nearly brought the regime down. The political season that permitted the Whig power-grab following the accession of George I turned out to be short. In 1720, the South Sea Bubble calamitously exposed the state’s weakness. Whole swathes of the élite, both Whig and Tory, were implicated in the fraud and corruption that fuelled the boom in the stock price of the South Sea Company, and most made huge losses when the bubble burst. Suddenly, protecting the establishment from the fallout overrode all other political priorities.

One sign of how close the Craft was to these developments is that, although the date of his initiation is uncertain, Walpole had become a Freemason by 1731 at the latest. Among Free and Accepted Masons, as in British politics generally, there was a panicked outbreak of hatchet-burying in the aftermath of the South Sea Bubble. The Whigs remained in charge, but their arrogance was now subdued. Freemasonry sought internal peace at all costs, and needed to bind itself tightly to the Whig regime. Drawing on his contacts, in 1721 Desaguliers recruited the Duke of Montagu, a Whig insider and member of the Royal Society, as Freemasonry’s first blue-blooded Grand Master.

The sideswipes at Wren are not the only sign that something suspicious was going on behind the scenes. The Constitutions mention the destruction of highly significant historical documents that took place at various points in the recent history of Freemasonry. In particular, in 1720, the year of the South Sea Bubble crisis, ‘at some private Lodges, several very valuable Manuscripts (for they had nothing yet in Print) concerning the Fraternity, their Lodges, Regulations, Charges, Secrets, and Usages […] were too hastily burnt by some scrupulous Brothers’. Cryptically, the only explanation offered for this drastic cleansing of the historical record is ‘a Fear of making Discoveries’ and the need to stop the papers falling ‘into strange Hands’.


pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, business cycle, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Vilfredo Pareto, Washington Consensus, white flight

But what makes this episode particularly curious is that there were, in fact, plenty of models to help explain what had been going on under the economy’s hood. Bubbles—steady increases in asset prices divorced from their underlying value—are not a new phenomenon. Their presence was known going back at least to the tulip craze of the seventeenth century and the South Sea bubble of the early eighteenth century. They were the object of study in models of varying complexity, including models based on perfectly rational, forward-looking investors (so-called rational bubbles). The financial crisis of 2008 had all the features of a bank run, and that, too, was a staple of economics.

., 177n Schumpeter, Joseph, 31 science, simplicity and, 179 Scott, Joan, xiv Second Fundamental Theorem of Welfare Economics, 47n segregation, tipping points in white flight and, 42 self-interest, 21, 104, 158, 186–88, 190 Shaw, George Bernard, 151 Shiller, Robert, 154, 157, 159 signaling, 69 Simon, Herbert, 203 Singapore, congestion pricing and, 3 single market (partial-equilibrium) analysis, 56, 58, 91 skill-biased technological change (SBTC), 142–43 skill premium, 138–40, 142 skill upgrading, 140, 141, 142 Smith, Adam, xi 48–49, 50, 98, 116, 182, 203 Smith, John Maynard, 35n Smith, Noah, 148 social choice theory, 36 social media, big data and, 38 social sciences: critical review in, 79–80 economics and, xii–xiii, 45, 181–82, 202–7 universal theories and, 116 Sokal, Alan, 79n “Sokal’s Hoax” (Weinberg), 66n South Africa, 24, 86, 91, 111 South Sea bubble, 154 Soviet Union, 98, 151–52 White and, 1n Spain, 207 speculative capital flow, 2 Spence, Michael, 68 stagflation, 130–31 statistical analysis, 7 Steil, Benn, 1n–2n Stiglitz, Joseph, 31, 68 Stockholm, Sweden, congestion pricing and, 3 Stolper, Wolfgang, 58n, 140n Stolper-Samuelson theorem, 58n, 140n stotting, 35n strategic interactions, economic models and, 61–62, 63 string theory, 113 Structure of Scientific Revolutions, The (Kuhn), 64n Subramanian, Arvind, xv subsidies, 4, 34–35, 75, 105, 149, 193, 194 Sugden, Robert, 112, 172n Summers, Larry, 136, 159 sunk costs, 70, 73 Superiority of Economists, The (Fourcade, Ollion, and Algan), 79n, 200n supply and demand, 3, 13–14, 20, 99, 122, 128–30, 132, 136–37, 170 prices and, 14, 119 taxes and, 14 surrogate mothers, 192 Switzerland, 188 Taiwan, 163 Tanzania, 55 tariffs, 149, 161, 162 taxes, taxation, 14, 17, 27–28, 87, 88, 136, 137, 151, 174, 180–81 carbon emissions and, 188–90, 191–92 entrepreneurship and, 74 fiscal stimulus and, 74, 75, 149, 171 negative income and, 171 technology, income inequality and, 141–43 telecommunications, game theory and, 5, 36 Thailand, 166 Thatcher, Margaret, 49 theories: models vs., 113–45 specific events explained by, 138–44 universal validity of, 114 time-inconsistent preferences, 62–63 “Time to Build and Aggregate Fluctuation” (Kydland and Prescott), 101n tipping points, 42 Tirole, Jean, 208–9 trade, 11, 87, 91, 136, 141, 182–83, 194 in business cycles, 127 comparative advantage in, 52–55, 58n, 59, 139, 170 computational models in tracking of, 41 current account deficits and, 153 general-equilibrium effects and, 41, 56–58, 69n, 91, 120 income inequality in, 139–40 liberalization of, 160, 162–63, 165, 169 outsourcing and, 149 public sector size and, 109–10 second-best theory applied in, 58–61, 163–64, 166 2x2 model of, 52–53 trade creation effect, 59 trade diversion effect, 59 trade unions, 124, 143 Transatlantic Trade and Investment Partnership (TTIP), 41 Transforming Traditional Agriculture (Schultz), 75n transportation, congestion pricing and, 2–3 Truman, Harry S., 151 tulip bubble, 154 Turkey, 166 Ulam, Stanislaw, 51 ultimatum game, 104 unemployment, 102 in business cycles, 125–37 classical view of, 126 in Great Recession, 153 wages and, 118, 150 see also employment Unger, Roberto Mangabeira, xi United States: comparative advantage principle and, 59–60, 139 deficit in, 149 educational vouchers in, 24 federal system in, 187 garment industry in, 57–58 Gold Standard in, 127 Great Depression in, 128 Great Recession in, 115, 134–35, 152–59 housing bubble in, 153–54, 156 immigration issue in, 56–57 income inequality in, 117, 124–25, 138–44 labor productivity and wages in, 123–24, 141 national debt in, 153 outsourcing in, 149 trade agreements of, 41 universal validity, 66–67 Uruguay, 86 validity, external vs. internal types of, 23–24 value, theories of, 117–21 Varian, Hal, 20 verbal models, 34 Vickrey, William, 2–3 Vietnam, 57–58 Vietnam War, 108 “Views among Economists: Professional Consensus or Point-Counterpoint?”


Capital Ideas Evolving by Peter L. Bernstein

Albert Einstein, algorithmic trading, Andrei Shleifer, asset allocation, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, computerized trading, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, diversification, diversified portfolio, endowment effect, equity premium, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, high net worth, hiring and firing, index fund, invisible hand, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, mental accounting, money market fund, Myron Scholes, paper trading, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, price anchoring, price stability, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical model, survivorship bias, systematic trading, tail risk, technology bubble, The Wealth of Nations by Adam Smith, transaction costs, yield curve, Yogi Berra, zero-sum game

“Rational bubble” sounds like an oxymoron, but it helps to describe conditions in which the presumably smart people—the socalled rational investors who pick off the mispricings provided for them by the noise traders—follow the crowd into a bubble on the assumption that this irrational exuberance is an opportunity to make money and that they will be so smart they will know how to get out in time. Smart investors taking advantage of rational bubbles are by no means a new phenomenon. Peter Temin of MIT and Hans-Joachim Voth of the Universitat Pompeu Fabra in Barcelona report on a major London bank, Hoare’s Bank, which rode the great South Sea bubble in 1720 and 1721.14 Contemporary writings of the time made it clear that the South Sea Company could never earn enough to justify its bubbly price, but Hoare’s Bank kept buying on the way up until August 1721, when it liquidated its position. The bubble burst in October. A study of the recent NASDAQ bubble by Markus Brunnermeier of Princeton and Stegan Nagel of Stanford shows a similar pattern to Hoare’s Bank.15 At that time, a large sample of hedge funds was heavily tilted toward technology stocks, where the bubble of 1998–2000 was most visible.

“Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice,” Management Science, Vol. 36, No. 6 ( June), pp. 643– 660. Thaler, Richard, Daniel Kahneman, and J. L. Knetsch, 1992. “The Endowment Effect, Loss Aversion and Status Quo Bias,” in Richard Thaler, The Winner ’s Curse, Princeton, NJ: Princeton University Press. Temin, Peter, and Hans-Joachim Voth, 2003. “Riding the South Sea Bubble,” MIT Economics Department Working Paper No. 04-02 ( December). Treynor, Jack, 1961. “Toward a Theory of Market Value of Risky Assets.” Unpublished manuscript. Treynor, Jack, and Fischer Black, 1973. “How to Use Security Analysis to Improve Portfolio Selection,” Journal of Business, Vol. 46, pp. 66–73.

., 32 Quantitative Investment Strategies, 114 277 Quasi-Rational Economics (Thaler), 15 Quebec Separatists (Canada), 121 A Random Walk Down Wall Street (Malkiel), 21 Rational-agent model bounded, 15–16 Capital Ideas supported by, 10 critique of the, 4 –5, 30 empirical failures of, 6 Kahneman on failures of, 71 Rational bubbles, 29–30 Rational expectations model, 66– 68 Real estate risk, 82–84 Regulation T ( Federal Reserve), 105 REITs (real estate investment trusts) described, 84, 211 Leibowitz’s calculation of passive alphas in, 206–209 Leibowitz’s early work on risk of, 202–205 Renaissance Investment Management, 31–32 Replicating portfolios, 52–53, 54 Retirement Economics, 96–99 Returns alpha expected difference in actual/beta, 38, 92 CAPM on expected, 92–93 equilibrium of risk and, 215, 216, 218, 220, 224 –228, 234, 244 Kurz on trade-offs of risk and, 71 Leibowitz’s return/covariance matrix on, 203–204 Leibowitz on trade-off between risk and, 212 liquidity premium, 118 Markowitz’s optimizing trade-off of risk and, 166–167 bern_z04bindex.qxd 278 4/3/07 8:20 AM Page 278 INDEX Returns (Continued) Monte Carlo simulation on, 97, 162 portable alpha focus on generating excess, 244 separating alpha from beta sources of, 173–177 Treynor on systematic errors providing excess, 24 See also Portfolio performance Risk calculating hedge fund, 24 equilibrium of return and, 215, 218 impact on pricing by changing, 115 Kurz on trade-offs of return and, 71 Leibowitz’s list of dragon, 210, 211, 225 Leibowitz on trade-off between return and, 212 Markowitz’s optimizing trade-off of return and, 166–167 momentum, 27 portfolio management and, 218–219, 237 real estate, 82–84 of selecting stocks, 219 Shiller’s instruments to hedge against, 82–86 trade-off between expected return and, 31 See also Alphas ( beating the market); Beta (systematic risk) Risk management Capital Ideas on applications of, 237 diversif ication for, 42, 92–93, 154, 155, 159, 173 Litterman’s approach to, 221–223 Risk transfer forecasting versus, 123–124 hedging bets by, 114 of longer-term and shorter-term bonds, 121–123 miller-farmer example of, 115–117 omega, 111–112, 118 providing liquidity similarity to, 118 Scholes’ perspective of, 117–124 Rosenberg, Barr BARRA started by, 137 on confronting uncertainty, 11–12 multifactor models designed by, 143–144, 171 theory into practice by, 237 Rosengarten, Jacob, 216 Ross, Stephen, 26, 27, 201, 244 Royal Dutch Petroleum, 27 Rubinstein, Mark, 108–109, 237 Salomon Brothers & Hutzler, 76, 150, 151, 196, 198–200 S&P 500 as benchmark, 38, 140, 186 compared to Yale portfolio growth, 148–149 diversif ication of, 107 StocksPLUS exposure in, 182 StocksPLUS successful beating of, 179–180 synthetic bond strategy to outperform the, 188–191 Yale’s tracking error against, 160 Samuelson, Paul on Behavioral Finance, 39 on behavior of investors, 39–40 bern_z04bindex.qxd 4/3/07 8:20 AM Page 279 Index on existence of positive alpha, 40 –42 Merton, Lo, and Shiller as protégés of, 42–43 on micro eff iciency, 73 on no easy pickings, 25, 38 “A Note on Measurement of Utility” by, 39 Shiller’s work with, 39, 42, 43, 65 Sarbanes-Oxley, 243 Savage, Leonard, 109 Schneeweis, Thomas, 175 Scholes, Myron alpha and beta excluded by, 112 Black-Scholes-Merton options pricing model by, 52, 67, 85, 110, 195 on CAPM return discrepancy, 132 inf luence on BGI by, 143 LTCM partnership by, 76, 78 professional development of, 110 risk transfer as perceived by, 117–124 Stagecoach Fund designed by, 128, 133 StocksPLUS strategy inf luenced by, 180 valuation of options study by, 52 See also Platinum Grove Asset Management Schumpeter, Joseph, 40, 246 Schwarz, Eduardo, 175 Sellers f inancial market transactions by, 113–114 rational-agent model on, 4 –5, 6, 10, 15–16, 30, 71 See also Behavioral Finance; Capital Ideas 279 Sharpe, Bill “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” by, 91 CAPM as perceived by, 92–96 Financial Engines model of, 97–98, 162 on f inancial theory, 144 inf luence on BGI by, 143 Leibowitz’s celebration of, 212–213 Nobel Prize awarded to, 91, 212–213, 239 original case for CAPM by, 91 on portfolio selection, 106 practical applications by, 96–99 Retirement Economics approach by, 96–97 on simplifying Markowitz’s optimizing approach, 166–167 on state-preference theory, 94 –96 on stock valuation and betas, 172 Sharpe-Treynor-Lintner-Mossin CAPM, 165 Shearson-Lehman bond index, 84 Shiller, Robert Capital Ideas applications by, 43, 65– 66, 240 –241 Eff icient Market Hypothesis studies on micro-eff iciency by, 72–76 excess volatility studies by, 68–71, 79–80, 82 f inance as perceived by, 80 –82 inf luence on Swensen by, 164 inf luences on work of, 71–72 instruments to hedge against risk developed by, 82–86 Irrational Exuberance by, 43, 65, 70, 73, 75 bern_z04bindex.qxd 280 4/3/07 8:20 AM Page 280 INDEX Shiller, Robert (Continued) on macro-ineff iciency of markets, 41 Macro Markets: Creating Institutions for Managing Society’s Largest Economic Risks by, 81, 82 The New Financial Order by, 81, 82 professional background of, 65– 66 on rational expectations model, 66– 68 as Samuelson’s protégé, 39, 42, 43, 65 Shleifer, Andrei, 26, 27 Simon, Herbert, 15 Simscript (computer language), 197 Simulations, 101–104, 162 Single-Index Model, origins of, 100 Slow ideas, 25 Small-Cap Value Equity (1996), 16, 17 Small Mid-Cap Core Equity (1996), 16, 17 Small Mid-Cap Growth Equity (1992), 16, 17 Smith, Adam, 246 Smith, Gary, 172 Social Security income, 97 South Sea bubble (1720 –1721), 29 Stagecoach Fund, 128, 132–133 Stanford Research Institute, 197 State-preference theory, 94 –96 Stock markets Chicago Mercantile Exchange, 85 day trading, 56 globalization of, 242–243 NASDAQ, 29–30, 54 New York Stock Exchange, 54, 56 Taiwan, 56–57 understanding drivers of, 146 Stock momentum, 141 Stocks beta and volatility of, 168, 172 dividends of, 74 –76, 79–80 high-quality risk of selecting, 219 short-selling, 143 See also Bubbles StocksPLUS BondsPLUS product of, 180 –182 described, 179, 179–180 f inancing strategies of, 195 optimal selection approach used by, 185 S&P 500 beat by, 179–180 Scholes’ inf luence on strategy used by, 180 synthetic bond strategy used by, 188–191 See also Gross, Bill Structured notes, 121–122 Swensen, David alpha used as part of portfolio strategy of, 169–170 on Behavioral Finance, 164 Capital Ideas applications by, 154 –164 diversif ication strategy used by, 154, 155, 159 f inancial philosophy of, 161 IBM-World Bank f inancial swap transaction by, 151 on market eff iciency, 244 mean/variance approach by, 155–156, 162–163 Modern Portfolio developed by, 154 –163 Monte Carlo simulations used by, 162 on personnel relationships, 161–162 Pioneering Investment Management by, 152, 163–164 bern_z04bindex.qxd 4/3/07 8:20 AM Page 281 Index portfolio strategies used by, 153–163 Salomon Brothers experience by, 150 –151 Shiller’s inf luence on, 164 Yale Investment Committee relationship with, 152–153 as Yale University endowment CIO, 148–150 See also Yale University endowment Synthetic bond strategy, 188–191 Taiwan stock market, 56–57 Tech bubble (1990s), 145–147, 245 Temin, Peter, 29 Thaler, Richard anomalous behaviors listed by, 15 on house money effect, 8 professional background and interests of, 14 –16 rationality ideas of, 15–16 See also Fuller & Thaler Theories of choice Kahneman’s failure of invariance in, 6–8 Kahneman and Tversky’s work on, 4 –5 Theory of Rational Beliefs ( Kurz), 71, 72 TIAA-CREF 50-50 choice used by, 9–10 Leibowitz’s work with, 196, 200 –202 TIPs (inf lation-protected bonds), 12 Tobin, James, 105, 106–107, 151 Transaction cost management, 223–224 Treynor, Jack on asset valuation, 167 on CAPM, 144, 166, 171 281 on challenges of CAPM, 171 on optimal portfolio selection, 185 on reaching equilibrium, 245 recommendations for Yale portfolio management by, 152–153 on search for alpha, 174 –175 on slow ideas, 25 on systematic errors producing excess returns, 24 “The Trouble with Econometric Models” ( Black), 215 Tversky, Amos inf luence on Behavioral Finance by, 10 theory of choice work by, 4 Uncertainty Heisenberg Uncertainty Principle, 244 Rosenberg on confronting, 11–12 Universitat Pompeu Fabra ( Barcelona), 29 University of Chicago, 201 U.S. bonds BondsPLUS, 180 –182, 195 f ixed-income management of, 200 Leibowitz on beta and volatility of, 206 Leibowitz’s return/covariance matrix on, 203–204 Leibowitz’s yield book on prices of, 199–200 risk transfer and, 121–123 U.S. equities Leibowitz’s return/covariance matrix on, 202, 203–204 reductions of institution use of, 205–206 Swensen’s strategies for, 160 –161 bern_z04bindex.qxd 4/3/07 8:20 AM Page 282 282 INDEX U.S. f inancial markets Capital Ideas observations on, 241 globalization of, 242–243 U.S.


pages: 395 words: 116,675

The Evolution of Everything: How New Ideas Emerge by Matt Ridley

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, AltaVista, altcoin, anthropic principle, anti-communist, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Boris Johnson, British Empire, Broken windows theory, Columbian Exchange, computer age, Corn Laws, cosmological constant, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, cryptocurrency, David Ricardo: comparative advantage, demographic transition, Deng Xiaoping, discovery of DNA, Donald Davies, double helix, Downton Abbey, Edward Glaeser, Edward Lorenz: Chaos theory, Edward Snowden, endogenous growth, epigenetics, Ethereum, ethereum blockchain, facts on the ground, falling living standards, Ferguson, Missouri, financial deregulation, financial innovation, Frederick Winslow Taylor, Geoffrey West, Santa Fe Institute, George Gilder, George Santayana, Gunnar Myrdal, Henri Poincaré, hydraulic fracturing, imperial preference, income per capita, indoor plumbing, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jane Jacobs, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Khan Academy, knowledge economy, land reform, Lao Tzu, long peace, Lyft, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, means of production, meta-analysis, mobile money, Money creation, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, Necker cube, obamacare, out of africa, packet switching, peer-to-peer, phenotype, Pierre-Simon Laplace, price mechanism, profit motive, RAND corporation, random walk, Ray Kurzweil, rent-seeking, reserve currency, Richard Feynman, rising living standards, road to serfdom, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, sharing economy, smart contracts, South Sea Bubble, Steve Jobs, Steven Pinker, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, twin studies, uber lyft, women in the workforce

In his influential book Lombard Street, he effectively conceded that the only reason a central bank needed to be a lender of last resort was because of the instability introduced by the existence of a central bank. The history of central banking bears this out. The Bank of England was created in 1694. By 1720 Britain was in its most desperate financial crisis, the South Sea Bubble, a speculative fraud based around persuading people to swap government debt for shares in a trading company that never traded. Rather than take away the punchbowl as the party got going, the Bank of England enthusiastically tried to join in, by submitting a rival bid to take over the national debt and issue shares.

The state spends money before it even exists; the privileged banks then get first access to newly minted money and can invest it before assets have increased in cost. By the time it reaches ordinary people, the money is worth less. This outward percolation is known as the Cantillon Effect – after Richard Cantillon, who noticed that the creation of paper money in the South Sea Bubble benefited those closest to the source first. Frisby argues that the process of money creation by an expansionary government effectively redistributes money from the poor to the rich. ‘This is not the free market at work, but a gross, unintended economic distortion caused by the colossal government intervention.’

(with Paul Paddock) 207 Page, Larry 188 Pagel, Mark 80, 81–2 Pakistan 32, 206 Paley, William 38–9, 41–2, 51 Panama 286 Paris 102, 121, 254 Park, Walter 139 Parris, Matthew 303 Parys Mine Company, Anglesey 278 Pascal, Blaise 273 Paul, Senator Rand 241 Paul, Ron 114, 285, 292, 295 Paul, St (Saul of Tarsus) 8, 258, 264 Pauling, Linus 121 Pax Romana 239 Peace High School, Hyderabad (India) 181 Peel, Robert 246, 283–4 Peer-to-Peer Foundation 308 Peninsular War 280 People’s Printing Press 288 personality: and the blank slate 156–7, 158–9; and genes 159, 160–2; and homicide 169–71; innateness of behaviour 157–8; intelligence from within 165–7; non-genetic differences 162–5; and parenting 159–60, 161–2; and sexual attraction 172–3; and sexuality 167–9 Peterloo massacre (1819) 245 Pfister, Christian 276 Philippe, duc d’Orléans 286 Philippines 190 Philips, Emo 140 Philostratus 258 Phoenicia 101 Pinker, Steven 28, 30, 31–3, 172–3; The Better Angels of Our Nature 28–9 Pinnacle Technologies 136 Pitt-Rivers, Augustus 127 Pixar 124 Planned Parenthood Foundation 204 Plath, Robert 126 Plato 7, 11 Plomin, Robert 165, 167 Poincaré, Henri 18, 121 Polanyi, Karl 133 Polanyi, Michael 253 politics 314–16 Poor Law (1834) 195 Pope, Alexander 15 Popper, Karl 253; ‘Conjectures and Refutations’ 269 Population: American eugenics 200–3; control and sterilisation 205–8; and eugenics 197–9; impact of Green Revolution 208–10; Irish application of Malthusian doctrines 195–7; Malthusian theory 193, 194–5; and one-child policy 210–14; post-war eugenics 203–5 Population Crisis Committee 206 Portugal, Portuguese 134 Pottinger, Sir Harry 233 ‘Primer for Development’ (UN, 1951) 232 Prince, Thomas 242 Pritchett, Lant 179–80; The Rebirth of Education 176 Procter & Gamble 130 Proudhon, Pierre-Joseph 194–5 Prussia 176 Psychological Review 159 Putin, Vladimir 305 ‘The Puzzle of Monogamous Marriage’ (Henrich, Boyd & Richerson) 89 Pythagoras 85 Pythagorism 259 Qian XingZhong 213 Quesnay, François 98 Raines, Franklin 292 Ramsay, John 25 RAND Corporation 206, 300 Ravenholt, Reimert 206 Ray Smith, Alvy 124 Reagan, Ronald 254, 290 Red Sea 82 Reed, Leonard 43 Reformation 216, 220 religion: and climate change/global warming 271–6; and cult of cereology (crop circles) 264–6; existence of God 14–15; heretics and heresies 141–2; as human impulse 256–8; predictability of gods 259–60; and the prophet 260–3; temptations of superstition 266–8; variety of beliefs 257–8; vital delusions 268–71 Renaissance 220 Ricardo, David 104–5, 106, 246 Richardson, Samuel 88 Richerson, Pete 78, 89 Ridley, Matt, The Rational Optimist: How Prosperity Evolves 110–11, 126–7 Rio de Janeiro 92 Roberts, Russ 4 Robinson, James 97–8 Rockefeller Foundation 229, 230–1 Rodriguez, Joã 47–8 Rodrik, Dani 228 Rome 257, 259, 260 Romer, Paul 109 Roosevelt, Franklin Delano 251 Roosevelt, Theodore 197 Rothbard, Murray 243 Rousseau, Jean-Jacques 165, 216 Rowling, J.K. 122 Royal Bank 281 Royal Mint 278, 279 Royal Navy 297 Royal United Services Institution 198 Rudin, Ernst 202 Rufer, Chris 226 Runciman, Garry, Very Different, But Much the Same 94 Rusk, Dean 206–7 Russell, Lord John 195 Russia 119, 204, 227–8, 250, 303 Russian Revolution 318 Sadow, Bernard 126 Safaricom 296 St Louis (ship) 202–3 St Maaz School, Hyderabad (India) 181 Salk Institute, California 67 San Marco, Venice 53 Sandia National Laboratory 136 Sanger, Margaret 201, 204 Santa Fe Institute 93, 126 Santayana, George 10 Sapienza, Carmen 67 Satoshi Nakamoto 307–8, 309–10, 312 Schiller, Friedrich 248 Schmidt, Albrecht 222 Schumpeter, Joseph 106, 128, 251; Capitalism, Socialism and Democracy 106–7; Theory of Economic Development 106 science: as driver of innovation 133–7; as private good 137–9; pseudo-science 269 Science (journal) 70 Scientology 263 Scopes, John 49 Scotland 17, 280–2, 286 Scott, Sir Peter 211 Scott, Sir Walter (‘Malachi Malagrowther’) 283 Second International Congress of Eugenics 200 Second World War 105, 138, 203, 231, 252, 254, 318 Self-Management Institute 226 Selgin, George 297; Good Money 279, 280 Shade, John 188 Shakespeare, William 15, 131, 216, 224 Shanker, Albert 180 Shaw, George Bernard 197 Shaw, Marilyn 155–6 Shelley, Mary, Frankenstein 16 Shelley, Percy 16 Shockley, William 119 Shogun Japanese 130 Sierra Club 204 Silk Road 311–12 Silvester, David 274 Simon, Julian 209 Singapore 190 Sistine Chapel, Rome 256 Skarbek, David, The Social Order of the Underworld 237–8 Skinner, B.F. 156, 267–8 Skirving, William 244 skyhooks 7, 13, 14, 18, 65, 67, 71, 150, 267 Slumdog Millionaire (film, 2008) 185 Smith, Adam 3, 20, 21, 22–7, 28, 33, 110, 112, 117, 234, 243, 244, 246, 249; The Theory of Moral Sentiments 23–4, 27, 28, 37–8, 98; The Wealth of Nations 24, 38, 98–100, 103–4, 137 Smith, John Maynard 53 Smith, Joseph 263, 264, 266 Smithism 110 Snowden, Edward 303 SOLE (self-organised learning environment) 186 Solow, Robert 108, 137 Somalia 32 Song, Chinese dynasty 101 Song Jian 210–11, 212–13 South America 247 South Korea 125, 190, 229 South Sea Bubble (1720) 285, 294 South Sudan 32 Soviet-Harvard illusion 3 Soviet Union 114, 122 Spain 101, 247 Sparkes, Matthew 313 Sparta 101 Spencer, Herbert 216–17, 249, 253 Spenser, Edmund 15 Spinoza, Baruch 20, 141–2, 148, 268; Ethics 142; l’Esprit des lois 142–3 Sputnik 138 Stalin, Joseph 250, 252, 253 Stalling, A.E. 10 Stanford University 184, 185 Stealth bomber 130 Steiner, George, Nostalgia for the Absolute 266 Steiner, Rudolf 271 Steinsberger, Nick 136 Stephenson, George 119 Stewart, Dugald 38, 244 Stiglitz, Joseph 292 Stockman, David 288, 289–90; The Great Deformation 294 stoicism 259 Stop Online Piracy Act (US, 2011) 304 Strawson, Galen 140 Stuart, Charles Edward ‘The Young Pretender’ 282 Stuart, James Edward ‘The Old Pretender’ 281 Sudan 32 Summers, Larry 110 Sunnis 262 Suomi, Stephen 161 Sveikauskas, Leo 139 Swan, Joseph 119 Sweden 101, 284 Switzerland 32, 190, 247, 254 Sybaris 93 Syria 32 Szabo, Nick 307, 310; ‘Shelling Out: The Origins of Money’ 307 Tabarrok, Alex 132; Launching the Innovation Renaissance 132 Taiwan 190 Tajikistan 305 Taleb, Nassim 3, 92, 107, 135, 285, 312 Tamerlane the Great 87 Taoism 259, 260 Taylor, Winslow 250 Taylorism 250, 251 Tea Act (UK, 1773) 282n Tea Party 246 technology: biological similarities 126–31; boat analogy 128; computers 123–5, 126; copying 132–3; electric light 1–2; and fracking 136; inexorable progress 122–6, 130–1; innovation as emergent phenomenon 139; and the internet 299–316; light bulbs 118–19, 120; many-to-many 300; mass-communication 200; open innovation 130; patents/copyright laws 131–2; and printing 220; and science 133–9; simultaneous discovery 120–2; skunk works 130; software 131 TED (Technology, Entertainment, Design) lecture 177 Thatcher, Margaret 217 Third International Congress of Eugenics 201–2, 204 Third World 231–2 Thrun, Sebastian 185 Time (magazine) 241 The Times 308 Togo 94 Tokyo 92 Tolstoy, Leo 217 Tooby, John 43 Tooley, James 181–4 Toy Story (film, 1995) 124 Trevelyan, Charles 195 Tuchman, Barbara, A Distant Mirror 29 Tucker, William 90; Marriage and Civilization 89 Tullock, Gordon 35 Turner, Ted 213 Twister (messaging system) 313 Twitter 310, 313 U-2 reconnaissance plane 130 Uber 109 UK Meteorological Office 275 UN Codex Alimentarius 254 UN Family Planning Agency 213 UN Framework Convention on Climate Change 254–5 UN General Assembly 305 UNESCO 205 Union Bank of Scotland 281 United Nations 131, 213, 232, 305 United States 34, 122, 125, 138, 139, 176, 200–2, 232, 235–8, 245, 247, 250, 254, 284–5, 286, 302 United States Supreme Court 50 universe: anthropic principle 18–20; designed and planned 7–10; deterministic view 17–18; Lucretian heresy 10–12; Newton’s nudge 12–13; swerve 14–15 University of Czernowitz 106 University of Houston 71 University of Pennsylvania 133 UNIX 302 Urbain Le Verrier 120–1 US Bureau of Land Management 240 US Department of Education 240 US Department of Homeland Security 240, 241 US Federal Reserve 285, 286, 288, 293, 297, 309 US Financial Crisis Inquiry Commission 294 US Internal Revenue Service (IRS) 240 US National Oceanographic and Atmospheric Administration 240 US Office of Management and Budget 290 Utah 89 Uzbekistan 305 Vancouver 92 Vanuatu 81 Vardanes, King 258 Veblen, Thorstein 249 Verdi, Giuseppe: Aida 248; Rigoletto 248 Veronica (search engine) 120 Versailles Treaty (1919) 318 Victoria, Queen 89 Virgil (Publius Vergilius Maro) 10, 23 vitalism 270–1 Vodafone 296 Vogt, William 205, 209; Road to Survival 204 Voltaire, François-Marie Arouet 14, 15, 20, 22, 25, 41, 143, 243, 268; Candide 15 Volvo 101 Wagner, Andreas 47 Wall Street Journal 125, 132 Wallace, Alfred Russell 20, 54–5, 196 Wallison, Peter 294 Walras, Léon 106 Waltham, David, Lucky Planet 19 Walwyn, Thomas 242 Wang Mang, Emperor 267 Wang Zhen 212 Wannsee conference 198 Wapinski, Norm 136 Washington, George 220, 222, 240 Washington Post 241 Watson, James 121, 145 Webb, Beatrice 197 Webb, Richard 5, 319 Webb, Sidney 197 Webcrawler 120 Wedgwood family 38 Wedgwood, Josiah 199 Weismann, August 55 Wells, H.G. 197, 251 West, Edwin 178; Education and the State 177 West, Geoffrey 93 West Indies 134, 286 Whitney, Eli 128 Whittle, Frank 119 Whole Foods 227 Wikipedia 188, 304–5 Wilby, Peter 315 Wilhelm II, Kaiser 198, 247 Wilkins, Maurice 121 Wilkinson, John 278–9 Willeys 278–9, 280 Williams, Thomas 278 Williamson, Kevin 33; The End is Near and it’s Going to be Awesome 238–9 Wilson, Catherine 12 Wilson, Margo 171 Wolf, Alison, Does Education Matter?


The City on the Thames by Simon Jenkins

Big bang: deregulation of the City of London, Boris Johnson, British Empire, clean water, computerized trading, congestion charging, Corn Laws, cross-subsidies, deindustrialization, estate planning, Frank Gehry, housing crisis, informal economy, Isaac Newton, Jane Jacobs, John Snow's cholera map, light touch regulation, Louis Blériot, negative equity, new economy, New Urbanism, Northern Rock, Peace of Westphalia, place-making, railway mania, Richard Florida, Right to Buy, South Sea Bubble, sovereign wealth fund, strikebreaker, the built environment, The Death and Life of Great American Cities, the market place, upwardly mobile, urban renewal, Winter of Discontent, women in the workforce

The estate developer John Prince and his (Tory and Catholic) architect, James Gibbs, were the most ambitious builders London had yet seen. The Duke of Chandos offered to build a mansion on the square’s north side. A chapel of ease, St Peter’s, was built in Vere Street to the south. Though Chandos’s house was abandoned after the South Sea Bubble, a grid of townhouses soon ran west to Marylebone Lane and east to Lord Berners’s estate above Soho. In an effort to emphasize its rus in urbe, Prince even put sheep to grazing in Cavendish Square. Edward and Henrietta Harley were again without a male heir, and their daughter Margaret was talked of as the richest young woman in England.

Indeed, in the opinion of The Times, ‘a more filthy and disgusting crew we have seldom had the misfortune to encounter’. The racecourse, like the villas, was a failure. By 1841 Allason’s villas had been replaced, like Nash’s at Regent’s Park, with terraces. Trapped by its leases in a downward spiral, Notting Hill was to become the South Sea Bubble of London’s estate development. Thousands lost their savings. Points north and east More success attended the Eyre estate north of Regent’s Park. An auction plan as early as 1794 indicated a development of villas, detached and ‘semi-detached’, on land round Thomas Lord’s first cricket ground.

The most noted feature of the new railway was its profitability. At a time when savings would commonly realize 3 to 5 per cent interest, the railway companies were declaring dividends of 10–12 per cent. The result was a second mania in 1843–45, far more intense than the first. It gripped the stock market and parliament as recklessly as had the South Sea Bubble of 1720. The atmosphere was akin to the contemporary Californian gold rush, that of the ‘’forty-niners’. The mania marked the end of the piecemeal expansion that had characterized Stuart and Georgian London. Unlike the arrival of the railway in most European cities – under the authority of civic or national government – in London there seemed no question of curbing competition or planning the impact on the urban fabric.


pages: 193 words: 11,060

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

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, banking crisis, Bear Stearns, collapse of Lehman Brothers, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, financial independence, 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, two and twenty, zero-sum game

CDSs are instruments not historically traded on any recognised market, but nonetheless are now traded on a global scale. The scale of fraud relating to mortgage application and approval in the sub-prime mortgage market in the US is also different from problems in the recent past. There have been historical precedents of large-scale bubbles in unlisted securities – such as the notorious South Sea Bubble of 1720. However, such a widespread development of a massive market in unlisted securities in such a short time frame was a distinguishing feature of the sub-prime crisis. This in itself does not raise ethical concerns, but given the novelty of the products, the duty of care on Recent Ethical Issues in Investment Banking 91 institutions trading in or investing in such products should have been very high.

., 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: 232 words: 70,835

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan by Ben Carlson

Albert Einstein, asset allocation, backtesting, Bernie Madoff, Black Swan, business cycle, buy and hold, buy low sell high, Commodity Super-Cycle, corporate governance, delayed gratification, discounted cash flows, diversification, diversified portfolio, endowment effect, family office, financial independence, fixed income, Gordon Gekko, high net worth, index fund, loss aversion, market bubble, medical residency, Occam's razor, paper trading, passive investing, Ponzi scheme, price anchoring, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, South Sea Bubble, sovereign wealth fund, stocks for the long run, technology bubble, Ted Nelson, transaction costs, Vanguard fund, Vilfredo Pareto

Admitting the fact that you don't know everything is a good first step towards becoming a better investor and understanding your own biased behavior. Understand history. Without a firm grasp of history investors are doomed to repeat past mistakes. The cycle of manias and panics repeats itself throughout history because human nature remains. From the South Sea Bubble to the Great Recession and everything in between if there's one constant across time in all markets it's the fact that human nature eventually causes the pendulum to swing too far in either direction, leading to the boom-and-bust cycle. Investors forget their history and simply extrapolate the most recent market cycle forever into the future at their own peril.

Market Munger, Charlie Murray, Nick mutual fund closures mutual fund flows NASA NASDAQ negative knowledge New York Stock Exchange newsletters Nifty Fifty large-cap growth stocks Nobel Prize Norton, Michael O'Shaughnessy, Jim Occam's razor Odean, Terrance Ono, Jiro overdiversification Paine, Thomas paradox of skill Pareto, Vilfredo patience pension plans perma-bears perma-bulls persistence Peter Lynch Pioneering Portfolio Management (Swensen) Playsted Wood, James Ponzi scheme Poor Charlie's Almanack (Munger) Poor Richard's Almanack precious metals preferred stocks quantitative investment strategies real estate rebalancing recessions regret minimization REITs Research Affiliates restaurant menus Richards, Carl risk aversion risk premium risk tolerance questionnaire robo-advisors Roth IRA Rule Number Russell 3000 S&P, 500 42 Saban, Nick San Francisco saving Schwed, Fred self-awareness self-regulation sell-side research Siegel, Jeremy signaling Significant Objects Project smallcaps smartbeta Soros, George South Sea Bubble standard deviation Statman, Meir Stewart, Porter Stock Picking Stocks for the Long Run (Siegel) stress sushi Swensen, David symptoms of groupthink Tannen, Biff taxes Taylor, John Templeton, John ten-year Treasury bonds Thaler, Richard trading activity Treasury bills Truman, Harry tulip bubble uncertainty unemployment rate and stock market returns value investing value-add from financial advice Vanguard volatility Vonnegut, Kurt Walker, Rob Walmart wealthfront What Works on Wall Street (O'Shaughnessy) will power Yale University Endowment Fund yield Zweig, Jason WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA.


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, Bear Stearns, 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, National Debt Clock, 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

HOW TO BUILD FINANCIAL WEAPONS OF MASS DESTRUCTION 45 4. HURRICANE SEASON 69 5. MADLY IN ALL DIRECTIONS 99 6. TOMORROW CAPITALISM? 129 MY DEBTS 157 NOTES 159 REFERENCES 167 INDEX 179 Preface I can calculate the motions of the heavenly bodies, but not the madness of people. -Isaac Newton, after losing a fortune in the South Sea Bubble in 1720 In the fall of 1991, a high-pressure system from northern Canada collided with a powerful low-pressure system over the coast of New England. The large temperature contrast in such a small area gave rise to a cyclone. The cyclone, in turn, absorbed a nearby dying hurricane, which created an enormously powerful storm.

And on top of that, you also get a whole new battery of regulations that may well make the next crisis considerably worse. We do not know where the next crisis will come from. From history we learn that we do not learn from history. Even Isaac Newton, one of the greatest geniuses of all time, lost a fortune in the South Sea Bubble. Not even those whose job it is to make forecasts know what will happen next. One of those who did that best, Economic Cycle Research Institute founder Geoffrey Moore, told his students that someone who can predict a recession at the exact time when it starts is a very successful forecaster.


pages: 249 words: 77,342

The Behavioral Investor by Daniel Crosby

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

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

Martin Heidegger, a well-respected philosopher, used his keen mind in support of the Nazi party, using spurious arguments to defend reprehensible behavior. William Crookes, who discovered the element thallium, was repeatedly swindled by spiritual mediums but could never be persuaded to give up his spiritualist beliefs. And Isaac Newton, a scientist without equal, lost his fortune in the South Sea Bubble through a fundamental misunderstanding of the nature of markets and human behavior. Smarts, it would seem, are no guarantee of being a rational actor. Yes, the lessons you have just learned will be least available to your mind when they are most needed. Studies suggest that we lose roughly 13% of our cognitive capacity under stress, lending credence to Nassim Taleb’s advice: “Even once we are aware of our biases, we must recognize that knowledge does not equal behavior.


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, bond market vigilante , 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, foreign exchange controls, 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 creation, money market fund, moral hazard, mortgage tax deduction, Nixon triggered the end of the Bretton Woods system, 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, tail risk, 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

The dull euphoria of a market entranced by the commercial possibilities of the internet can quite quickly morph into a full-blown mania like the dot.com boom of the 1990s. THE FIRST BUBBLE Everybody who has even a passing interest in economic history has a favorite folly. I confess that the South Sea Bubble of the 1720s is my own top pick, although the extraordinary adventures of the Scots financier John Law in France during the same period makes for even more exciting reading in Ferguson’s hands. In London, bubble mania even swept up Sir Isaac Newton, perhaps the smartest man who ever lived. (While most of us struggled with calculus in school, he largely invented it from scratch.)

See Money payments system, 12, 16, 28, 105, 173 Phillips curve, 153 ‘‘Plunge Prevention Committee’’ (PPC) as a myth, 140 political risk to markets, 187, 189 Ponzi, Charles, Ponzi schemes, 23, 175, 187 prices, xiii, xix–xx, 7, 27, 30, 109, 112–114, 120–121, 131, 146, 153, 158, 167; how set in markets, xii–xv, 20, 28, 41, 44–51, 53, 55, 70, 87, 93–99, 138; price discovery, xii, 136; ‘‘law of supply and demand,’’ xii; in war, 125 private equity, 27 ‘‘product’’ concept in banking, in structured finance, 25, 60–61, 67–68, 71, 91, 167, 176–177 Progressive era, politics, 125, 163, 180, 182 Promissory notes, 38 Public Banks in Italy, conflict with private bankers, 78–79, 100, 102 RAROC (Risk Adjusted Return on Capital), 68, 71–72, 74 Rating Agencies, 41, 65–68, 74 RCC, Japan, 171 Reagan, Ronald, 48, 182, 184, 188 Real economy, 1–6, 14, 42, 110, 150, 152, 155, 169 regulation, 12, 25, 60, 70, 74, 85–86, 117–119, 121–122, 125–128, 130, 132–133, 136, 142, 148, 150, 159, 167, 171, 176, 184, 187; regulatory state, 127 Regulation Q, 130 retail banking revolution, 61 Riegle-Neal Act of 1994, 158 risk management, as science, 68–69, 176 Roosevelt, Franklin Delano (FDR), 110, 114, 126, 154, 181, 187, 189 Roosevelt, Theodore, 125 Roubini, Nouriel, 185 Royal Exchange, London, 82, 95 RTC (Resolution Trust Corporation), 132, 171 rule of law, and markets, 99, 119, 121, 126 runs (on banks), 16, 86, 110, 122, 128 S&L (Savings and Loan), 56–57, 130–132, 140, 144, 156, 159, 186 Sarbanes-Oxley Act, 136 SEC (Securities and Exchange Commission), 130, 142 self regulation, origins in Clearing Houses, in practice, 85–86 sell side, 22, 24–25, 67–68, 146 Semenenko, Serge, and term loans, 143 settlement, 13–14, 28, 84, 87, 90, 138 shares. See Stocks silver, xv, xvi, 8, 34, 83, 95 197 198 Index Sixteenth Amendment (to US constitution), 181 Smith, Adam, 179–180 Social Security, 23, 157 Socialism, 124–126, 182–183, 188–189 South Sea Bubble, 137 sovereign immunity, 151 sovereign lending, 151–152 speculation, 53, 109, 132, 138 Spitzer, Eliot, 138 stimulus and crisis management in US, Japan, 114, 169, 172 stocks, x–xi, xix, 3, 7, 13, 20, 22, 25, 27, 42, 49, 50–55, 60, 70–73, 80, 87, 137, 139, 142, 165, 167–168, 188; defined, 46; in Great Depression, 109–110; stock exchange, 88–89; stock prices, 47; versus bonds, 48; why stocks are risky, 47 Strong, Benjamin (‘‘Ben Strong’’), 105–106, 108–111 ‘‘structured finance,’’ 60, 64–68, 72, 133, 175–176, 185 sub prime, 55, 63–64, 176, 185 SVA (Shareholder Value Added), 71 Sweden banking crisis, 166 TARP (Troubled Asset Relief Program), 170 technology in banking and finance, xviii, 11, 40, 61–62, 70, 100, 117, 184 Term Loans, defined, 38–39; history, 143, 146 Thatcher, Margaret, 182, 184, 188 Thrift.


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, impact investing, 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, Savings and loan crisis, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, tail risk, Thales of Miletus, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

He responded by, among other things, buying up government debt in order to prop up its price and protect the banks that owned it and by channeling cash to lenders that needed it. For the first time in US history, but not the last, the state stepped in when finance got into trouble. Other countries had already been through booms and busts of their own. In Britain there was the South Sea bubble of 1720, a crash in the share price of the South Sea Company, which had been granted a monopoly to trade with South America. That same year, French investors were hit by the collapse of the so-called Mississippi scheme, under which they subscribed to the shares of a company set up to exploit economic opportunities in what is now the United States.

See Social-impact bonds Sims, Kath, 96 Single-family-home rental sector, 85 Single-family rental bond, 85 Skype, 190 Sleeping sickness, SIB program for elimination of, 103 Small businesses, as marginal borrowers, 215–219 Smart money, comparison of to dumb money, 155–158 SmartNest, 129–131, 211 Social Finance, 93, 97 Social-impact bonds (SIBs) benefits of, 91, 98–102, 104, 106 in Britain, 95–97 cost-effectiveness of, 100–102 data collection, 104 defined, 90 financial incentive, effect of on donors, 110–111 flexibility of, 105–106 Fresno, California, pilot program in, 103–104 G-8 task force on, 97 health-impact bonds, 103–104 individual givers, attraction of, 109 Massachusetts, prisoner-rehabilitation programs in, 98 New York City, prisoner-rehabilitation program in, 108 Peterborough, England, pilot in, 90–91, 94–95, 104–105, 107 philanthropists, role of, 108 possible abuses of, 111 purpose, 107 risk management in, 108 in United States, 98 Social-impact bonds (SIBs), uses for accomodation for homeless people, 96–97, 106–107 adoption of hard-to-place children, 97 cutting HIV infection rates in Swaziland, 103 early detection of health conditions, 102–104 elimination of sleeping sickness in Uganda, 103 improving educational outcomes for girls in India, 103 keeping troubled adolescents out of foster care, 96 prisoner rehabilitation programs, 90–91, 94–95, 98, 108 soldiers reentering civilian life, 102 Social insurance, 183 Social-investment bank, 92–93 Social Security, 128 Societas publicanorum, 7 SoFi, 184 South Sea Bubble, 36 South Sea Company, 36 S&P 500 index, 29, 40, 157 Spain, banking crisis in, xiv–xv, 69, 75 Spanish flu outbreak (1918–1919), 228, 230 Spear, Leeds & Kellogg, 61 St. Mungo’s, 96 Standard & Poor’s (S&P), 24, 49, 157, 184, 234 Standardization, 39–41, 45, 47 Stevens, David, 151–152 Stevens, Teresa, 151–153 Stock exchanges, 14–16 Stocker, Anil, 207, 217 Stop-loss orders, 56 Straw, Jack, 94 Structured Bioequity, xii–xiii Structured finance, 237–238 Structured investment vehicle, 37 Stub quotes, 56 Student loans, 164, 166–167, 169–171 Stumpf, John, 192 Subprime mortgage tranches, loss amounts on, 233 Subprime mortgages, x, 79, 197–198, 233 Sufi, Amir, 204 Summers, Larry, 180 Suppa, Enrico, 9 Sutherland, Martinez, 89–90, 95, 105, 112 Svenska Handelsbanken, 206–207 Swaps, credit-default, 29–30 Swaps, interest-rate, 29 Swaziland, social-impact bonds (SIBs) in Sweden, banking crisis in, 75 Syndicated loans, 41 Tail risks, 221, 237 Tanzania, financial liberalization and, 34 Testosterone and cortisol, effect of on risk appetite and aversion, 116 Thailand, insurance claims for flooding, 225 Thaler, Richard, 137 Thales of Miletus, 10 Thayer, Ignacio, 210–211 Thiel, Peter, 163 This Time is Different (Reinhart and Rogoff), 35 Titmuss, Richard, 110 TransferWise, 190–192 Trente demoiselles de Genève, 22 True Link Financial, 144 Tufano, Peter, 59, 213–214 Tulipmania, 33, 36 Tversky, Amos, 137 UBS, 60 Uganda, social-impact bonds (SIBs) in, 103 Unbanked households, 200 United States aggregate value of property, 69 consumer debt, 183, 204 corporate debt, 120 cost of diagnosed diabetes, 102 cost of entitlements, 100 credit card debt, 183 general solicitation by private firms, 153–154 government interest in alternatives to student debt, 168 government spending, 99 home-ownership rates, 28, 85, 170 household debt, 205 leverage ratio, 2007, 77 life expectancy, 125 median house price, 70 monetary charitable gifts, 109 money raised through IPOs, 120 mortgage debt, 69 nonprofits in, 105–106 prepaid cards, 203 property bubbles, 74–75 real estate cycles, 237 savings-and-loan crisis (1990s), 30 social-impact bonds (SIBs), 98 student debt, 169 Unsecured lending, 206 Upstart, 166–168, 173, 175, 182 Used-car market, use of heuristics in, 46 Vega, Joseph de la, 24 Venture capital (VC), 150–151 Veterans, SIB program for, 102 Veterans Support Organization, 102 Viatical settlements, 142 Victory Loans, 28 Vishny, Robert, 42, 44 Volcker, Paul, xv, 30 Wachovia, xiv Wadhwa, Vivek, xv Warren, Elizabeth, xiv Washington Mutual, xiv Westlake, Darren, 153–154, 158, 161–162 “What Everybody Ought to Know About This Stock and Bond Business” Merrill Lynch ad, 28 When the Money Runs Out (King), 99 Wonga, 203, 205, 208 Woo, Gordon, 221–222, 227–229, 231, 233, 238 World Bank, 169 Wren, Christopher, 16 Wyman, Oliver, 204 Yale University, income-contingent financing program of, 165 Yale University, study of loss aversion, 136 Yunus, Muhammad, 203 Zaccaria, Benedetto, 9 ZestFinance, 199, 201, 205–206 Zombanakis, Minos, 41 Zopa, 181, 187, 188, 195 Zuckerberg, Mark, 174


pages: 253 words: 79,214

The Money Machine: How the City Works by Philip Coggan

activist fund / activist shareholder / activist investor, algorithmic trading, asset-backed security, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, bond market vigilante , bonus culture, Bretton Woods, call centre, capital controls, carried interest, central bank independence, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, disintermediation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, endowment effect, financial deregulation, financial independence, floating exchange rates, foreign exchange controls, Hyman Minsky, index fund, intangible asset, interest rate swap, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", 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

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

In the US, supervision has been hampered by the existence of a network of overlapping bodies. It is, in any case, inevitable that the private sector will be able to pay more than the regulators and will attract people who will find ways around the rules. People like to speculate; even Sir Isaac Newton lost money in the South Sea Bubble. Without speculation, Britain would be a far less vibrant society. Fewer new businesses would be started and new products invented. Busts are a price worth paying, the creative destruction that allows an economy to start anew. But the 2007–9 bust is a severe test of that thesis. Bibliography Margaret Allen, A Guide to Insurance (Pan, 1982) Al Alletzhauser, The House of Nomura (Bloomsbury, 1990) A.


pages: 505 words: 137,572

Dr. Johnson's London: Coffee-Houses and Climbing Boys, Medicine, Toothpaste and Gin, Poverty and Press-Gangs, Freakshows and Female Education by Liza Picard

A. Roger Ekirch, clean water, double entry bookkeeping, joint-stock company, New Urbanism, Plutocrats, plutocrats, South Sea Bubble

After all, ‘the poor are a large as well as useful part of the community … they have a just claim to the protection of the rich … If affluence and independence could universally prevail, the benevolent would not experience the inexpressible pleasure of relieving the distressed.’1 The state did not yet concern itself with welfare. At parish level, the administration of the Poor Law left much to be desired. It was unlikely that an individual would ever again have the money and the inclination to found a charity on his own. So, despite the shadow over joint-stock companies since the South Sea Bubble had burst in 1720, the answer had to be a joint exercise of concerned individuals. By mid-century an Englishman could pride himself on ‘the many noble Foundations for the relief of the miserable and the friendless, [and] the large annual supplies from voluntary charities to these Foundations’.2 Foundlings Think of a pregnant girl without resources, employed in a job – almost certainly domestic service – which she will lose if she bears a child.

The same impulse that had driven medieval men to endow monasteries to care for the souls and bodies of the poor impelled eighteenth-century philanthropists to found hospitals to care for their bodies. The concept of funding a project by joint effort had become familiar in business circles, and could be applied to hospital-building, despite the slight reverse to its reputation caused by the collapse of the South Sea bubble in 1720. Cliques of well-heeled gentlemen, often of the same political persuasion, with an appropriate president at their head, gathered together to found hospitals. It may be that the advance in medical knowledge, itself, was a contributory cause of this wave of new hospitals: yet I doubt it.

Dorothy: London Life in the Eighteenth Century Gill, John (‘Miss Beasley’) gin Gin Acts: (1736); (1751) girls: education of see schools Glasse, Hannah: Servant’s Directory Goldsmith, Oliver: The Deserted Village gonorrhea Goodge’s brickworks Gordon Riots (1780) Gough, Mr (menagerie owner) gout Grand Tour see foreign tours grave robbers Great Fire (1666) Green Park Gresham’s Institute Gretna Green Grosley, Pierre Jean: as source (A Tour to London); on lack of law enforcement officers; on road accidents; falls asleep in Kensington Gardens; on St James’s Park; on Lincoln’s Inn statues; visits Bedlam; sees executed highwaymen on gibbets; on teaching of French in England; on apprentices; attends synagogue service; on manners and behaviour; dislikes wine in England; admitted to club; on men’s conduct of business; bagnios; on prostitutes; and women’s fashion; on London dirt; lodgings; on maintaining lawns; on English seriousness at pleasure gardens; on shopping; on British Museum; on theatre; confused by English language; on smuggled French silk; on accepting gambling losses; describes trial of Lord Byron Grosvenor estate Grosvenor, Henrietta, Lady: adultery with Duke of Cumberland Grosvenor, Lord Grosvenor, Mary, Lady (née Davies) Grosvenor, Sir Thomas Grosvenor Square Guild of Master Bakers Guy Fawkes night Guy, Thomas Guy’s Hospital Gwynn, John Gwynn, Nell hackney coaches hairstyles Hamley’s toy shop Hampstead: as leisure area Handel, George Frederick: music for the royal fireworks, with rehearsal; Judas Maccabeus; Portugese wine-making may have caused death; statue in Vauxhall; life and works hanging in chains hangings see executions hangmen Hanover Hanover Square Hanway, Jonas Hanway, Captain Thomas Hardwicke, Lord Harley, Lord Hartshorne Lane Water Company harvest workers hats: men’s; etiquette of; caps hatters Hayman, Francis health; through gardening Henrietta Maria, wife of Charles I hernias Hervey, Lord highwaymen; women as Hill, Dr John: Old Man’s Guide to Health and Longer Life Hoare, Henry Hogarth, Mary and Anne Hogarth, William: portrait of Coram; designs uniforms for Foundling Hospital children; paints supper boxes at Vauxhall; designs trade cards; as governor of Foundling Hospital; Analysis of Beauty (book); Beer Street; The Cockpit; The Enraged Musician; Evening; The First Stage of Cruely; The Four Stages of Cruelty; Gin Lane; The Good Samaritan; A Harlot’s Progress; The March to Finchley; Marriage à la Mode; Morning; Night; Noon; Pool of Bethesda; Rake’s Progress; The Reward of Cruelty; The Sleeping Congregation; Times of Day holidays homes homosexuality: brothels; sodomites pilloried hoops (petticoats) Horse Guards parade horses hospitals; governors and administration; efficacy; see also individual hospitals household remedies housemaids houses: middle-sized; small; regulations for; leases; for the rich; see also mansions housework Howard, John Huguenots: charitable aid for Hunt, John Hunter, John Hunter, William (surgeon) Hyde Park hygiene (personal) illness: among the poor; see also fevers; industrial diseases; kwashiorkor; rickets; scurvy immigrants: charitable aid for incomes: and occupation; businessmen’s; in professions; see also poor, the; wages Indians (North American) infant mortality Inns of Court inoculation see smallpox insanity: hospitals for; private madhouses interior decoration Irish: poor in London; undercut agreed wage rates ironing jewellery Jews: aid for immigrants; status as aliens Jockey Club Johnson, Samuel: in London; compiles Dictionary of the English Language; bad manners; on driving in post-chaise; travels by stage coach; on horseless carriages; on the poor; on deaths by starvation; visits Bedlam; on slavery; on gin; dismisses efficacy of Dominicetti’s fumigation; disapproves of periodic bloodletting; on Methodism; on marriage and celibacy; attends clubs; indifference to personal cleanliness; praises Ranelagh pleasure gardens; defends The Beggar’s Opera; on Boswell’s accent; on English speech; granted pension by George III; writes for Gentleman’s Magazine; employs negro servant; Irene (play) Johnson (servant): shot by Earl Ferrers Jonathan’s (coffee-house) Justices of the Peace Kalm, Per Keith, Revd Dr Kensington Gardens Kensington Palace Kent, William Kew: Royal Botanic Gardens kidnapping Kilmarnock, Lord King, Tom: coffee-house king’s evil Knightsbridge kwashiorkor labour relations Ladies’ Complete Pocket Book Ladies’ Diary or Women’s Almanac Ladies Dispensatory, The, or Every Woman Her Own Physician Ladies’ Magazine, The lady’s maid, duties of lap-dogs laundry work lavatories: indoor; in gardens; public lavatories; lack of, in St James’s Park; in Chesterfield House law enforcement lawyers: apprentices to; profession Layard (male midwife) Leadenhall market leases (building) Leicester House Leicester Fields (Square) libraries, circulating licensing laws life expectancy lighting: street; domestic Lincoln’s Inn literacy among the poor Literary Club Little Theatre, Haymarket livery companies livestock see animals Lloyd’s of London Lock Hospital, The (for venereal disease) locusts Loddiges, Joachim lodgings see accommodation London: population; geographical area London Advertiser London Bridge London Evening Post London Hospital, The Lord Mayor’s Christmas collection Lord Mayor’s procession lotteries Loudon (nurseryman) Lovat, Lord (execution of) love: and marriage Low-Life (anonymous pamphlet) Lowther, Lord Lowther, Sir James Lud Gate luncheon Lying-In Charity for Delivering Poor Women in Their Own Homes lying-in hospitals see maternity hospitals McLean (or Maclean; highwayman) Magdalen Charity mahogany make-up see cosmetics manners: at table; children’s; see also etiquette Mansfield, Lord Chief Justice mansions mantuas manure Marine Society market gardens markets; see also individual markets marriage: Fleet weddings; women and; Lord Hardwicke’s Act; ceremonies; legal age of; average age at; among rich; see also weddings Marylebone reservoir Masquier, Mrs (boarding-school keeper) Massie, Joseph: on family incomes; on charity for girls; on pepper consumption; on middle-income household expenses; on merchants’ earnings; on professions; and funeral costs; on the rich; Calculations of the Present Taxes … of each Rank, Degree or Class masturbation maternity hospitals Mauclerc, John Henry May Day May Fair Mead, Dr Richard measles medicine: folk remedies; patent medicines; see also doctors (medical) men: and conduct of business; clothes menageries: in the Tower of London; private menageries mental illness see insanity Merchant Taylors’ school merchants and traders mercury Methodism Methuen wine Middlesex Hospital Middleton, Sir Hugh midwifery and midwives Mile End militia: patrols in 1745 milk Mint, The Misaubin, ‘Dr’ Mitre Tavern, Charing Cross mobs: at public executions; and King Modena, Duke of Molesworth, Lady (house fire) money (coins and notes) Monument morality: and crime Moritz, Peter (Thames water-wheels) ‘Morocco men’ Morris, Arabella mourning Mozart, Leopold Mozart, Wolfgang Amadeus muffs mumps music; see also oratorios Mutiny Act (1720) Napoleon Bonaparte: allegedly poisoned by arsenic Navy: recruits from Marine Society; seamen’s tickets; living conditions; as profession; prize money negroes: as slaves and servants New River New River Water Company New Road, the New Theatre, Haymarket Newberry, John Newgate Calendar: on Brownrigg trial Newgate prison newspapers Newton, Revd James night soil: collection of night wear Noble, Francis (bookshop and library) Norfolk, Duke of North Briton (journal) Northumberland House Northumberland, Duke of nursery maids nurserymen (‘florists’) nurses: in hospitals ‘oars’ (water taxis) occupations: and income; see also Massie, Joseph Old Bailey trials old people: charitable aid for; health opera opium: as anaesthetic oratorios orphans: asylums for; sale of outdoor relief Oxford, coaches to Oxford Street see Tyburn Road painting and decorating palaces, royal pardons parishes: within the Bills of Mortality; and poor relief; parish constables Park Lane see Tyburn Lane parks; see also individual parks parties: for rich patches (cosmetic) pattern books: French silks; furniture paving pawnshops pearls peine fort et dur Penley, Bosavern pensions: Johnson and Pepys, Samuel perquisites for servants personal hygiene philanthropy Physic Garden, Chelsea physicians see doctors Piccadilly pickpockets picture exhibitions pillory Pimlico Pitt, William, the Elder Place, Francis: as source; boyhood; father; sisters’ education; hairstyles plague plaster work pleasure gardens plumbing: and burst pipes pneumonia Pollard, Elizabeth (peruke maker) pollution Pomfret Castle, Arlington Street Pomfret, Countess of Poole, Robert poor: Massie’s analysis; parish liability, babies; apprentices; workhouses; contracting out; badges; the Irish; death; homes; food; schooling; Fleet weddings; children; clothes; loans; imprisonment for debt; funerals; foundlings; work; gin; street games and amusements; crime; influence of Wesley; see also philanthropy; hospitals; slums poorhouses; see also workhouses population pornography port see Methuen wine porters Portman Square Postlethwaite, Malarchy Potts, Dr Percival: Treatise on Ruptures Powell, Mr (Holborn garden supplier) pregnancy: plea in criminal trial; advice books on; see also childbirth; midwifery press-gangs prices Pringle, Sir John prisons: debtors’; conditions in; prostitution in the Bridewell at Clerkenwell prize money processions professions property: entailing of prostitutes: recovery of; child; vengeance on; activities Purefoy, Elizabeth quacks (doctors) Quakers (Society of Friends): refusal to observe royal mourning Raffald, Elizabeth Raikes, Robert Ranelagh pleasure gardens: robberies at; women at; features; songs at; George III enjoys Raper, Elizabeth Rathbone Place Redmond, William rents see accommodation respiratory diseases Reynolds, Sir Joshua Richmond, Duke of rickets Rigg, John riots; theatre; see also mobs river traffic see Thames road-rage roads: new (1756); condition of; accidents robbers; see also highwaymen; thieves Robin Hood club Rocque, John: Plan of the Cities of London and Westminster and the Borough of Southwark Roman Catholicism: services Roubiliac, Louis François round-houses Royal Exchange Royal Society royalty rumour Russell, Lady Caroline Russia Company Sadler’s Wells sailors: and marriage; wage disputes; and press-gangs; cheated; prize-money St Bartholomew’s fair St Bartholomew’s Hospital St George’s Hospital St James’s Palace St James’s Park St James’s Square St Luke’s Hospital ‘Saint Monday’ St Paul’s coffee-house St Paul’s School St Thomas’s Hospital Sandwich, Lord Saussure, César de Scarbrough, Earl of scarlet fever scavengers schools: charity schools; day schools for girls; and for boys; boarding schools; public schools Scotland: marriage laws in; unpopularity Scots Corporation scullions scurvy seamen see sailors Searchers: employed by parish to report cause of death sedan chairs sentences (penal) servants: living accommodation; domestic service; foreign servants settlement (in parish) Seven Years War (1756–63) Severs, Dennis sewage and drainage sex: marital intercourse; prostitution; among the rich shaving Shepherd’s Market shirts shoes shop signs shoplifting shops and shopping: food shops; buying from catalogues; shopping as a pastime; goods on approval/credit; shop premises sightseeing silk: smuggled silks; Spitalfields designs; silk velvet; prices silk weavers silver, domestic Silvie, Mme (maker of teeth) Sion House, Middlesex skating slang slaves: in London; Somerset’s case; in America; cost of slums smallpox: inoculation against; hospitals for; among servants; among children; symptoms Smellie, William (obstetrician); Treatise on the Theory and Practice of Midwifery Smith, Eliza: home treatment for tuberculosis; cookery recipes and menus; cosmetics; Compleat Housewife or Accomplish’d Gentlewoman’s Companion Smithfield meat market Smollett, Tobias: as source; on body odours; on bread; on diseased prostitutes; Humphry Clinker; Roderick Random snuffboxes soap Society of Artists of Great Britain (later Royal Academy of Arts) Society for the Propagation of Christian Knowledge Society for the Propagation of the Gospel Soho: name Soho Square: built; Mrs Cornelys’ house Somerset, Duchess of Somerset House ‘Soupe, La’ South Sea Bubble (1720) spas Spence, Joseph (garden planner) Spencer House Spencer, John, 1st Earl Spitalfields; market sports and pastimes: of the poor; of the rich sprinkler carts stage coaches Star and Garter Tavern, Pall Mall starvation: as cause of death Stavordale, Lord stays Sterne, Laurence stockings stone: operation for Strand street vendors streets: layout; cleaning; paving; lighting; trees in; fashionable Stuart, James (‘Athenian’); The Antiquities of Athens Sunday: for the poor; schools; ‘Sunday men’ superstition: and folk remedies surgery; see also doctors (medical) Sutton (inoculator) Swallow Street Swift, Jonathan swimming swords syphilis tables tailors talleymen tapestries taverns Tavistock, Lord taxes; see also window tax teachers and teaching; see also schools teeth: care of; transplanting; babies’ teething; see also dentistry; false teeth teetotalism: as cure for gout Temple Bar Temple, Lady tenter grounds textiles see fabrics Thames, river: bridges; waterwheels; watermen; not embanked; frozen; traffic; state occasions and processions on; see also water supply theatre-going Theatre Royal, Covent Garden thieves: in parks; see also crime and punishment; criminals; highwaymen throwing at cocks tips see vails toothpaste Tottenham Court Tower of London; see also menageries town planning and developments toys trade unions (‘combinations’) traffic transport see traffic Transportation Act (1718) transportation (of criminals to America) trees: in streets and courts; in gardens trials (criminal) trusses tuberculosis see consumption turnpikes Twelfth Night Twining, Thomas Tyburn Tyburn Lane (Park Lane) Tyburn Road (Oxford Street) Tyers, Jonathan typhus: in prisons umbrellas undertakers (funeral directors) underwear: women’s; men’s unions (combinations) see trade unions universities urine: uses of vagabonds: accommodation for Vagrancy Act vails (tips) Vardy, John Vauxhall pleasure gardens: robberies at; layout and facilities; pictures at; songs at venereal disease: hospitals for; among prostitutes; mercury treatment and ‘salivation’; patent medicines verdigris Viagra wages; see also incomes wagons waistcoats wallpaper and wall coverings Walpole, Horace: describes London life; attacked by thieves; disapproves of Adelphi; and servants; encounters highwayman; on popularity of McLean (highwayman); uses alum on teeth; hears Wesley preach; on gambling; on English summers; visits Vauxhall; on Ranelagh jubilee masquerade; on earthquake Ware, Isaac (architect) warships: classification of washerwomen Watch, the water supply:; lead pipes to houses; water-wheels on the Thames; water mains (wooden pipes); undrinkable water; supply to the middling sort; to the poor water closets see lavatories water companies watermen: complain of London Bridge; and frozen Thames; wage rates; exempt from impressment water-taxis weather weddings Wedgwood, Josiah Welch, Saunders welfare: and poor relief Wellington, Arthur Wellesley, 1st Duke of Wells, Mrs (procuress) Wesley, Charles Wesley, John: medical knowledge; travels by stage coach; on Kensington Gardens; on workhouses; on treatment for consumption; recommends massage brush; recommends mercury treatment; on medical treatment by electricity; opposes education of girls; ministry and popular appeal; hears Handel oratorio; on averting earthquake West End: described Westbourne (river) Westminster: defined; slums; street cleaning Westminster Abbey: tombs Westminster Bridge Westminster Hall Westminster Hospital Westminster School whales Whigs: dominance whipping Whitbread, Samuel Whitehall Palace White’s club Whittington, Sir Richard (‘Dick’) whooping cough Wigmore Row wigs; theft of Wilberforce, William Wilkes, John: fights duel; rules on impressment case; provokes riots; and commitment to pillory; popularity William III, King William of Orange: marries Princess Anne William, Prince (later King William IV): inoculated Wilson, Revd Dr wind power window tax wine: as curative; see also Methuen wine wise women women: as governors of General Dispensary; sentenced to transportation; masturbation; emigration of; in employment; marriage; household management; family planning; gambling; in prison; dress and fashion; hairstyles Wood, Robert: The Ruins of Palmyra Worcester, Isaac Maddox, Bishop of (on inoculation for smallpox) work workhouses Wren, Sir Christopher York Buildings Water Company York, Edward Augustus, Duke of York, Frederick Augustus, Duke of York, William (child murderer) DR.


Adam Smith: Father of Economics by Jesse Norman

"Robert Solow", active measures, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Bear Stearns, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

Even so, life was hard for the young mother. Adam was a sickly boy and Hugh not a strong one, in a period when one child in every four died at birth or in infancy. And at times there was very little money. In 1730 Margaret had to write to Lord Loudon, who had been financially destroyed by the collapse of the South Sea Bubble, seeking six years’ interest on a bond owed to the young Adam; she described herself then as ‘very much straiten’d’. Nor were her Douglas relatives of much financial help: she did not receive the cash from her dowry or her father’s inheritance until December 1750, twenty-seven years after Adam’s birth.

Inductive generalizations should be regarded as true pending further data, and the scientist thus open to future exceptions or confirming evidence. This is not the closed world of geometrical proof, but the provisional, hypothetical world of modern scientific inquiry. Newton was quoted as saying in relation to the South Sea Bubble of 1720–1721, a stock-market panic in which he lost a fortune, that ‘I can calculate the movement of the stars, but not the madness of men.’ Similarly, Smith’s Newtonianism is not naive: he does not suppose that human beings behave like inanimate atoms, planets or billiard balls, and that their movements are exactly predictable by scientific law.

See specific topics Smith, Margaret, 3, 6–8, 17, 133, 140, 155–156, 218 Smith, Vernon, 196–197, 222 Smoot-Hawley Tariff Act of 1930, 276 smuggling, 16 sociability, 20, 37, 57, 62 social contract, 21–22, 296 social media, 329 social norms, 146–147 social renewal, 331–332 society commercializing, 311–319 governing, 149 justice and, 75 religion in, 121 See also commercial society Solow, Robert, 281 South Sea Bubble, 167 Spain, 11–12, 32 specialization, 78, 105–106, 119, 230 stadial theory, of human development, 57, 78–80 Standard Oil Company, 283 standing army, 118–119 state church and, 120–121 commercial societies in, 327 market pressures in, 305 state of nature, 77 Steuart, James, 154, 176 Stewart, Dugald, 3, 10, 21, 26, 50–53, 137, 152–153 on conjectural history, 77–78 on government, 187 Millar, J., and, 74 on political economy, 162 on Smith, M., 7–8, 218 on The Wealth of Nations, 179 Stigler, George, 181 Strahan, William, 91, 129–131, 140, 142, 302 Stuart, Charles Edward, 34–35 the Stuarts, 31–33 sympathy, 58–59, 62–65, 75, 105, 220 system of natural liberty, 53, 177 commerce in, 292 free commerce and, 200 freedoms in, 115–116 inequality and, 272 the invisible hand and, 253–254 market imperfections and, 188 regulation and, 254 systems, 45 systems of law, 75 tar water, 25 Tassie, 160 taxation, 71 of American colonies, 101–102 for commercial initiatives, 116–117 in England, 121–122 four maxims of good, x, 122–123 French system, 150–151 by government, 189 Townshend on, 102 without representation, 103 technology, 280–284 “That Politics may be Reduced to a Science” (Hume), 28 Thatcher, Margaret, x–xi theory of evolution, 168–170 The Theory of Moral Sentiments (Smith, A.), xi–xii, 27, 39, 44, 53–54, 143, 168–169 on behaviour, 201 Burns and, 61 on Calas, 289–290 on compassion, 58 corrections, to third edition of, 87–88 on economy of regard, 307–308 French Revolution and, 150 on government, 71, 271 Hume on, 66–67 on impartial spectator, 296 on the invisible hand, 173 on justice, 75–76 moral philosophy in, 55, 146 on norms, values, 230 publication of, 65–66, 144–145 on the rich, 185 on selfishness, 183 on slavery, 233, 235 on sociability, 57 on sympathy, 62–63 on tranquility, 155 on wealth, 172 The Wealth of Nations and, 160–161, 166–167, 178–180, 237–238 Wollstonecraft and, 220 on women, 218 Thiel, Peter, 282 Thomas Aquinas, 163–164 Tories, 32, 40, 52 Toulouse, 288–289 Townshend, Charles, 50, 81–84, 88, 102 trade, 106 balance of, 115 British monopoly on, 115–116 comparative advantage and, 199 of England, 113, 115–116, 136 free, 258–259, 277, 280 government and, 186–187 Pitt and, 141–142 regulation of, 327 Scotland and, 90 slave, 232–234 uses of, 276–280 value in, 107 The Wealth of Nations on, 279 tranquility, 155 Treatise of Human Nature (Hume), 27, 48, 129, 297–298 Treaty of Utrecht, 32 Tronchin, Théodore, 84, 289 Tucker, Josiah, 141 Tullock, Gordon, 271 Turgot, Anne Robert Jacques, 79 Turnbull, William, 17 United Kingdom of Great Britain, 14–16 See also England; Scotland United States.


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, Bear Stearns, 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, Garrett Hardin, 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, Nixon triggered the end of the Bretton Woods system, 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, Savings and loan crisis, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, tail risk, Tax Reform Act of 1986, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

The notion of financial markets as rational and self-correcting mechanisms is an invention of the last forty years. Before that, most economists sympathized with Charles Mackay, the journalist and sometime colleague of Charles Dickens whose 1841 book, Extraordinary Popular Delusions and the Madness of Crowds, compared speculative manias, such as the “tulipomania” that gripped Holland in the 1630s and the South Sea bubble of 1720s London, to witch trials, millennialism, and other examples of collective insanity. The transition from Mackay’s jaundiced opinion of finance to Greenspan’s sunny view took a long time, and it was based, at least partially, on a misreading of the theory of the invisible hand, which Smith had never intended to be applied to finance.

The notion that rational behavior on the part of individual investors can lead to a collectively irrational outcome—a bubble—goes back a long way. In his 1841 book, Extraordinary Popular Delusions and the Madness of Crowds, the Scottish journalist Charles Mackay gave a pointed account of the famous South Sea bubble of 1720, which was based on the promise of unbounded riches to be garnered from trade with Spain’s colonies in Latin America. Many of the investors who took part in the bubble knew full well that the South Seas trade had been exaggerated, and that many of the bubble companies that issued stock in the London market were fraudulent, but they seized on the chance to make some quick money anyway.

Banking Committee Senior, Nassau September 11, 2001, terrorist attacks (9/11) shadow banking system Shakespeare, William Shearson Lehman Sherman Antitrust Act (1890) Shiller, Robert Shin, Hyun Song Shleifer, Andrei Shmelev, Nikolai Shultz, George Simons, Henry Sinai, Todd 60 Minutes Skidelsky, Robert Smith, Adam on banking death of divison of labor described by on duties of government Greenspan influenced by Hayek and legacy of invisible hand metaphor of moral philosophy of public goods addressed by Smith, Debbie Smith, Vernon Smoot-Hawley Tariff Act (1930) Socialism (Mises) Socialist Party Social Security Société Générale Solomon, Amit Solow, Robert Sonnenschein, Hugo Soros, George Soros Fund Mangement South Africa Southern California, University of Southern Pacific Railroad South Korea South Sea bubble Soviet Union collapse of Ministry of Light Industry Spain Spamann, Holger special-purpose vehicles (SPVs) speculative bubbles, see bubbles Spence, Michael Sperry Lease Finance Corporation spillovers Spitzer, Eliot Sputnik I Sraffa, Piero stability, illusion of Stabilizing an Unstable Economy (Minsky) Stack, Brian E.


pages: 493 words: 145,326

Fire and Steam: A New History of the Railways in Britain by Christian Wolmar

accounting loophole / creative accounting, Beeching cuts, carbon footprint, collective bargaining, computer age, Corn Laws, creative destruction, cross-subsidies, financial independence, hiring and firing, James Watt: steam engine, joint-stock company, low cost airline, railway mania, rising living standards, Silicon Valley, South Sea Bubble, strikebreaker, union organizing, upwardly mobile, working poor, yield management

Other banks were until then restricted to the amount of capital that could be raised by six people, but once the regulation had been removed several banks operating on the joint stock principle quickly emerged. Moreover, railway companies had a privileged position in relation to other enterprises. Until 1860, they were the only type of companies that could raise capital from more than five people, a restriction imposed on manufacturers following the South Sea Bubble collapse in the eighteenth century. This ensured that the railway companies were the most favoured alternative investment to government stocks. While, at best, the latter yielded 4 per cent, people with a bit of spare cash saw that the Liverpool & Manchester was paying dividends of just under 10 per cent.

Railway shares became far more sought after than the government securities that had been the staple fare of the big brokers and traders. The relationship between shareholder and promoter became more distant and consequently more fraught with risk. The investor had little to go on other than the often sparse information in the prospectus. Yet the momentum of the boom – just like the South Sea Bubble of the early eighteenth century or the dotcom madness of the late twentieth – swept along people who were in too much of a hurry to consider what they were doing. Dealings in railway securities became the lifeblood of both the London stock exchange and the host of smaller exchanges that had emerged in provincial towns, which frequently sold stock at a premium compared to the price in the capital.

., ref1 Romans, ref1, ref2 Rosslare, ref1 rostering, flexible, ref1 rotten boroughs, ref1 Rouen, ref1 Roulette, ref1 Royal Commission on Metropolis Railway Termini, ref1, ref2, ref3 Royal Engineers, ref1 Royal George, ref1 Royal Greenwich Observatory, ref1 Royal Scots, ref1 royal trains, ref1 Rugby, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10, ref11, ref12 rugby specials, ref1 Runcorn, ref1 running rights, ref1, ref2, ref3, ref4 Russia, ref1, ref2, ref3 Ryde, ref1 Saatchi & Saatchi, ref1 safety, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9; train protection systems, ref10, ref11; under Big Four, ref12; under BR, ref13, ref14; under privatization, ref15, ref16; legislation, ref17; see also accidents sails, ref1 St Helens, ref1, ref2, ref3 St Mary Cray, ref1 St Mungo, ref1 St Pancras station, ref1, ref2, ref3, ref4, ref5, ref6, ref7; construction, ref8; Gothic grandeur, ref9, ref10; Midland Grand Hotel, ref11; undercroft, ref12; bombed, ref13; compared with Euston, ref14; see also Bedford–St Pancras line St Patrick (liner), ref1 Salford, ref1 Salisbury, ref1, ref2; accident, ref3 Salisbury Plain, ref1 Salmon, Roger, ref1 Sampson, Anthony, ref1 Sandars, Joseph, ref1, ref2 Sandwich, ref1 Sandy Lodge (Moor Park) station, ref1 Sankey viaduct, ref1, ref2 Sans Pareil, ref1 Saturday-only services, ref1 Save Our Railways, ref1 Saville, Jimmy, ref1 Scapa Flow, ref1 Scarborough, ref1 Schull & Skibbereen Railway, ref1 Schwarzenberg, Prince von, ref1 Scotland, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8; railway network, ref9, ref10; connection with England, ref11, ref12, ref13, ref14, ref15; and Settle & Carlisle line, ref16, ref17; labour conflict, ref18; and amalgamation, ref19, ref20; air service, ref21; branch lines, ref22 Scotrail, ref1 Scots Fusiliers, ref1 Scotsman, ref1 Scott, Sir George Gilbert, ref1 Scott, Jane, ref1 Scott, John, ref1 Scottish Region, ref1, ref2 seaside holidays, ref1 Sebastopol, fall of, ref1 Second World War, ref1, ref2, ref3, ref4, ref5, ref6; impact on railways, ref7; legacy for railways, ref8, ref9 Sefton, Lord, ref1, ref2, ref3 Selby, ref1 Selsey, ref1 Serpell, Sir David, ref1, ref2 Settle & Carlisle line, ref1, ref2, ref3; cost, ref4; death toll, ref5 Severn tunnel, ref1, ref2 Shanklin, ref1 Shap, ref1 Sharland, Charles, ref1 sheep, ref1, ref2 Sheffield, ref1, ref2, ref3, ref4, ref5 Sheffield and Rotherham Independent, ref1 Sheffield, Ashton-under-Lyne & Manchester Railway, ref1 Shenfield, ref1, ref2 Shepperton, ref1 Shepton Mallet, ref1 ships, ref1, ref2, ref3, ref4; see also liners; steamships Short, Clare, ref1 Shrewsbury, ref1 Shrewsbury & Chester Railway, ref1, ref2 Shropshire, ref1, ref2, ref3 signalling, ref1, ref2, ref3; and accidents, ref4, ref5, ref6, ref7; interlocking, ref8, ref9; and high-speed trains, ref10, ref11; radio, ref12, ref13, ref14 signals passed at danger (SPADs), ref1 Silver Jubilee, ref1 Simmons, Jack, ref1, ref2, ref3, ref4, ref5, ref6; on Watkin, ref7, ref8; on Big Four, ref9 Skerne, river, ref1 Skibbereen, ref1 Skipton, ref1 Skye, ref1 slave trade, ref1 Sleaford, ref1 sleeper services, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9 sleepers, ref1, ref2, ref3 Slesser, Sir Henry, ref1 Slough, ref1 smallpox, ref1 Smith, Adam, ref1 Smith, Delia, ref1 Smithfield, ref1 Snailbeach District Railway, ref1 ‘snow, wrong type of’, ref1 Snow Hill station, ref1 Snowdon, ref1 Soham, ref1 Somers Town, ref1 Somerset & Dorset line, ref1, ref2, ref3 Somersetshire Midland Railway, ref1 Sonning, ref1 Souter, Brian, ref1 South Africa, ref1 South America, ref1 South Croydon accident, ref1 South Devon Railway, ref1, ref2 South Eastern & Chatham Railway, ref1, ref2, ref3; and amalgamation, ref4, ref5, ref6 South Eastern Railway, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8; Staplehurst accident, ref9; and Great Central Railway, ref10; electrification, ref11 South Kensington station, ref1 South Korea, ref1 South Sea Bubble, ref1, ref2 South West Trains, ref1, ref2 Southall, ref1; accident, ref2, ref3 Southampton, ref1, ref2, ref3, ref4; and wartime, ref5, ref6 Southampton & Dorchester Railway, ref1 Southampton Docks, ref1, ref2, ref3, ref4 Southend, ref1, ref2 Southern Railway, ref1, ref2, ref3, ref4; formation of, ref5; electrification, ref6, ref7, ref8, ref9; commuter base, ref10; public relations, ref11; profitability, ref12, ref13, ref14, ref15; standardized running times, ref16; livery, ref17; food and drink, ref18; service improvements, ref19; platform lighting, ref20; and wartime, ref21, ref22, ref23; and diesels, ref24 Southern Region, ref1, ref2, ref3 Southgate, ref1 Southport Chapel Street station, ref1 Spain, ref1, ref2 ‘sparks effect’, ref1, ref2 ‘Special Scotch Express’, ref1 specials, ref1, ref2, ref3 Spence, Elizabeth Isabella, ref1 Stafford, Marquess of, ref1 Stafford, ref1 Staffordshire, ref1 Stagecoach, ref1, ref2 stagecoaches, ref1, ref2, ref3, ref4, ref5; heyday of, ref6; journey times, ref7, ref8, ref9; decline of, ref10; train connections, ref11 Stamp, Joshua, ref1, ref2 standard gauge, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8; half-standard gauge, ref9; see also broad gauge Stanier, William, ref1 Stanley, Albert, ref1, ref2 Stanley Junction, ref1 Staplehurst accident, ref1 stations, ref1, ref2, ref3, ref4; private, ref5, ref6; closures, ref7, ref8, ref9; refurbishment, ref10, ref11, ref12, ref13; lighting, ref14; platform edges, ref15; numbers of, ref16; reopened, ref17; platform extensions, ref18 Statutes (Definition of Time) Act, ref1 steam, high-pressure, ref1 Steam Horse, ref1 steamships, ref1, ref2, ref3, ref4, ref5, ref6 Stephens, Colonel Holman Fred, ref1, ref2 Stephenson, George, ref1, ref2, ref3, ref4, ref5, ref6, ref7; and standard gauge, ref8, ref9, ref10, ref11; reputation, ref12; and Liverpool & Manchester Railway, ref13, ref14, ref15, ref16, ref17, ref18, ref19; salary, ref20; described by Fanny Kemble, ref21; and Midland railways, ref22, ref23, ref24; Tyne bridge, ref25 Stephenson, Robert, ref1, ref2, ref3, ref4, ref5; and London & Birmingham Railway, ref6, ref7; bridge collapses, ref8 Stirlingshire, ref1 stock exchanges, ref1, ref2 Stockport, ref1 Stockton, ref1, ref2, ref3, ref4 Stockton & Darlington Railway, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10; origins and building, ref11; gauge, ref12, ref13; horses on, ref14, ref15; opening, ref16, ref17, ref18; passenger services, ref19; economics, ref20; single track, ref21, ref22; turnpike system, ref23, ref24; dividends, ref25; carriages, ref26; amalgamation, ref27; workmen’s trains, ref28 Stoke, ref1 Strategic Rail Authority, ref1, ref2, ref3 Stratford & Moreton Railway, ref1, ref2 Stratford-on-Avon & Midland Junction Railway, ref1 Stratford-upon-Avon, ref1, ref2 Strathmore, Earl of, ref1 strikes, ref1, ref2, ref3, ref4; and wartime, ref5, ref6; post-war, ref7; General Strike, ref8; under BR, ref9, ref10 Stromeferry, ref1 Strood, ref1, ref2 Submarine Railway Company, ref1 subsidies, ref1, ref2, ref3, ref4, ref5, ref6, ref7 suburbs, ref1, ref2, ref3; and electrification, ref4, ref5 suffragettes, ref1 Sunday services, ref1, ref2 Sunderland, ref1 suppliers, to railways, ref1 Surbiton, ref1 Surrey, ref1, ref2, ref3 Surrey Iron Railway, ref1, ref2 Sussex, ref1 Sutherland, Duke of, ref1 Swannington, ref1 Swansea, ref1, ref2 Swansea & Mumbles Railway, ref1 Swindon, ref1, ref2, ref3, ref4, ref5, ref6, ref7; railway hotel, ref8; workshops, ref9, ref10, ref11 Swiss Cottage, ref1 Szlumper, Gilbert S., ref1 Taff Vale Railway, ref1 Taiwan, ref1 Taunton, ref1 Tay Bridge, ref1 Tebay, ref1 Tees, river, ref1 telephones, ref1, ref2 Telford, Thomas, ref1 Telford, Tony, ref1 Templecombe, ref1 tenders, corridor, ref1 Territorial Army, ref1 TGV Est, ref1 Thames, river, ref1, ref2, ref3, ref4; boat services, ref5; tunnel, ref6 Thames & Medway Canal Company, ref1 Thatcher, Margaret, ref1, ref2, ref3, ref4, ref5, ref6 Thomas, David St John, ref1, ref2, ref3, ref4 Thomas, Jimmy, ref1, ref2 Thurso, ref1, ref2, ref3 tickets, ref1, ref2; seat reservations, ref3; through booking, ref4; standardization of, ref5; season, ref6, ref7, ref8, ref9; hunters’, ref10; interchangeable, ref11; concessions scrapped, ref12; excursion and tourist, ref13, ref14; cheap day, ref15; and privatization, ref16 Tilling, ref1 tilting trains, ref1 time, standardization of, ref1 Times, The, ref1, ref2, ref3, ref4 timetables, ref1, ref2, ref3, ref4, ref5, ref6; and accidents, ref7, ref8; and railway races, ref9; summer, ref10; wartime, ref11, ref12; pre-war, ref13, ref14, ref15; standardized running times, ref16, ref17; and high-speed trains, ref18; under privatization, ref19; working, ref20 Tinsley, James, ref1 Tiptree, ref1 toilet breaks, ref1, ref2, ref3 Tonbridge, ref1, ref2 Torquay, ref1, ref2 Torr, Cecil, ref1 Tottenham, ref1 TPOs, ref1 Trades Union Congress, ref1, ref2 traffic management, ref1 train paths, ref1 Train Protection and Warning System (TPWS), ref1, ref2 trainspotting, ref1, ref2, ref3 trams, ref1, ref2, ref3 ‘tramways’, ref1 Transport Acts, ref1, ref2 travel agents, ref1 travelcards, ref1 Travellers Fare, ref1 Trent Valley Railway, ref1, ref2 trespassers, ref1 Trevithick, Richard, ref1, ref2, ref3 troop trains, see military trains tunnels, ref1, ref2 Turkey, ref1 turkey specials, ref1 turnpikes, ref1, ref2, ref3 Tyndall Centre for Climate Change, ref1 Tyne, river, ref1 Tyne Mercury, ref1 Tyneside, ref1 typists, travelling, ref1 U-boats, ref1 Ufton Nervet accident, ref1 unions, ref1, ref2, ref3, ref4; and wartime, ref5, ref6, ref7, ref8; and women’s employment, ref9, ref10, ref11; post-war position, ref12; and nationalization, ref13; and General Strike, ref14; opposition to closures, ref15; under BR, ref16, ref17 United Pointsmen and Signalmen, ref1 United States of America, ref1, ref2, ref3, ref4, ref5, ref6 Unwin, Philip, ref1, ref2, ref3 Usk valley, ref1 Vaughan, Adrian, ref1, ref2, ref3, ref4 Vauxhall Bridge station, ref1 Verney Junction, ref1 Versailles, ref1, ref2 Victoria, Queen, ref1, ref2, ref3, ref4, ref5, ref6 Victoria station, ref1, ref2, ref3 Vienna, ref1 Vignoles, Charles, ref1, ref2 Virgin Trains, ref1, ref2 Voyager trains, ref1 Waddington, David, ref1 Wadebridge, ref1 wagon ways, ref1, ref2, ref3 Wales, ref1, ref2, ref3, ref4, ref5, ref6, ref7; iron works, ref8; railway network, ref9, ref10, ref11, ref12; coal, ref13, ref14, ref15; and amalgamation, ref16, ref17; branch line, ref18, ref19 Walker, Sir Herbert, ref1, ref2, ref3, ref4 Walsall, ref1 Walthamstow, ref1 Wandle valley, ref1 Wandsworth, ref1 War Department railways, ref1 Warburton, Ivor, ref1 Ware, ref1 Ware, Hadham & Buntingford Railway, ref1 Wareham, ref1 Warrenpoint, ref1 Warrington, ref1, ref2 Warrington & Newton Railway, ref1 Washington DC, ref1 water troughs, ref1 Waterloo & City Railway, ref1 Waterloo Necropolis station, ref1 Waterloo station, ref1, ref2, ref3, ref4, ref5, ref6 Watford, ref1, ref2, ref3, ref4 Watkin, Edward, ref1, ref2, ref3, ref4, ref5, ref6, ref7; and Great Central Railway, ref8; character, ref9, ref10; and Channel Tunnel, ref11 Watt, James, ref1 Watt, James (son), ref1, ref2 wayleave, ref1 Wear, river, ref1 Weaver, river, ref1 Wellington, Duke of, ref1 Welshpool, ref1 Welwyn Garden City, ref1 Wembley, ref1, ref2 West Coast main line, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9; and railway races, ref10, ref11; and accidents, ref12, ref13; expresses, ref14, ref15; electrification, ref16, ref17, ref18, ref19, ref20; work stops, ref21; tilting trains, ref22; and privatization, ref23 West End & Crystal Palace Railway, ref1 West Highland Railway, ref1 West Indies, ref1 ‘West of England Express’, ref1 Western Region, ref1, ref2, ref3 Westinghouse, George, ref1 Weston, Clevedon & Portishead Railway, ref1 Weston-super-Mare, ref1 Weymouth, ref1, ref2 wheels, flanged, ref1, ref2; cogged, ref3; steel tyres, ref4 whistles, steam, ref1 Whitelaw, William, ref1 Whiteley, William, ref1 Whitstable, ref1 Wick, ref1, ref2 Wigan, ref1; Wallgate station, ref2 Wilkinson, Norman, ref1 Willetts, David, ref1 Wilson, Harold, ref1, ref2 Windsor, ref1, ref2 Wisonsin Central, ref1 Wojtczak, Helena, ref1, ref2, ref3, ref4 Woking, ref1 Wolverhampton, ref1, ref2 Wolverton, ref1 Wood Green, ref1 Woodhead tunnel, ref1, ref2 Woolwich, ref1 workmen’s trains, ref1, ref2 Worrall, Terry, ref1 Wright brothers, ref1 Wylam, ref1 Yarmouth, ref1 Yelverton, ref1, ref2 Yeovil, ref1, ref2 York, ref1, ref2, ref3, ref4, ref5, ref6; London services, ref7, ref8, ref9, ref10, ref11, ref12, ref13, ref14; and electrification, ref15 York & North Midland Railway, ref1, ref2, ref3 York, Newcastle & Berwick Railway, ref1, ref2 Yorkshire, ref1, ref2, ref3, ref4, ref5; coal, ref6, ref7, ref8 Ypres, ref1 Zeppelins, ref1 LIST OF MAPS AND ILLUSTRATIONS MAPS 1.


pages: 395 words: 94,764

I Never Knew That About London by Christopher Winn

Alfred Russel Wallace, British Empire, Clapham omnibus, Desert Island Discs, Edmond Halley, Edward Lloyd's coffeehouse, God and Mammon, Isaac Newton, John Snow's cholera map, joint-stock company, Khartoum Gordon, Mahatma Gandhi, Nelson Mandela, Nick Leeson, old-boy network, Ronald Reagan, South Sea Bubble

In 1859 the CORNHILL MAGAZINE was first published at No. 65, with Charlotte Brontë’s literary hero WILLIAM MAKEPEACE THACKERAY as its first editor. The magazine continued until 1975. St Michael, Cornhill On the corner of Lombard Street and Cornhill was the shop of bookseller and stationer THOMAS GUY (1644–1724), the founder of Guy’s Hospital. He made much of his fortune by selling out of South Sea Stock before it collapsed in the South Sea Bubble of 1720. Coffee-Houses The First Information Superhighway BETWEEN CORNHILL AND Lombard Street there is a maze of narrow passageways and alleys created so that messengers could flit to and fro between all the different businesses that were based around here. And they were also home in the 17th and 18th centuries to dozens of coffee-houses and taverns where merchants, bankers and traders would meet to exchange news and ideas.

A few years later JONATHAN’S COFFEE-HOUSE opened up in Change Alley and became a favourite meeting-place for the stock dealers who had been expelled from the Royal Exchange for rowdiness. THE FIRST RECORDED ORGANISED TRADING IN MARKETABLE STOCKS took place at Jonathan’s in 1698, and this was the origin of the London Stock Exchange. Both Garraways’s and Jonathan’s were at the centre of the frantic activity of THE FIRST MAJOR STOCK MARKET CRASH, the SOUTH SEA BUBBLE of 1720. Also in Change Alley, its site now marked with a blue plaque, was the KING’S ARMS TAVERN, where THE FIRST MEETING OF THE MARINE SOCIETY WAS HELD on 25 June 1756. Further west, in POPE’S HEAD ALLEY, stood the Pope’s Head tavern, where the first edition of JOHN SPEED’S 1611 ATLAS OF BRITAIN was sold by JOHN SUDBURY and GEORGE HUMBLE, THE FIRST LONDON PRINT-SELLERS.


pages: 324 words: 90,253

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, Bear Stearns, Berlin Wall, Bernie Madoff, bond market vigilante , British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, 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, risk free rate, Savings and loan crisis, 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

The elixir of ever rising wealth that, temporarily, had been Japan's monopoly to enjoy in the 1980s had been uncovered by the US and, in patchy fashion, by Europe too. Technology companies with only the vaguest of business plans found that money grew on trees, a repeat of the extraordinary events first seen in the 1720 South Sea Bubble when, famously, a company hoped to raise money ‘for carrying out an undertaking of great advantage, but nobody to know what it is’. Such was the enthusiasm for the new economy that Business Week ran the following story at the end of January 2000 under the headline ‘The New Economy: It works in America: Will it go global?’

(i) painkillers (i), (ii) ‘The Panic of 1873’ (i) Paul, Ron (i) Peasants' Revolt (i) Pension Protection Fund (PPF) (i) pensioners' voting patterns (i) pensions (i), (ii), (iii), (iv), (v) per capita incomes (i), (ii), (iii), (iv) Argentina and Germany (i) China (i) France (i), (ii) Germany (i), (ii) India (i), (ii) Indonesia (i) Japan (i) Korea (i) Malaysia (i) UK (i), (ii), (iii), (iv) US (i), (ii), (iii) Perón, Eva (i) Perón, Juan (i) Pew Center report (i) Pickett, Kate (i) Pigou, Arthur (i) policies and central bankers (i) fiscal (i), (ii), (iii), (iv), (v) macroeconomic (i), (ii), (iii), (iv), (v), (vi) monetary (i), (ii), (iii), (iv), (v), (vi) new monetary framework (i) political extremism (i) politics and central bankers (i), (ii), (iii) and economics (i), (ii), (iii), (iv), (v) and the eurozone (i), (ii) and expectations (i) and income inequality (i) and lack of trust (i), (ii) and monetary regimes (i) voters (i), (ii), (iii), (iv), (v) poll tax (i) populations, ageing (i), (ii), (iii) age-related expenditure (i) generational divide (i), (ii), (iii) Germany (i) Japan (i), (ii) Portugal (i), (ii), (iii), (iv) precious metal standards (i) see also Gold Standard prices asset (i) commodity (i), (ii), (iii) rising (i) see also deflation; inflation property sector see housing markets protectionism (i) capital controls (i), (ii), (iii), (iv) tariffs (i) Protestant work ethic (i), (ii) public sector see governments public spending (i), (ii), (iii), (iv), (v) government spending (i), (ii), (iii) social spending (i) quantitative easing (QE) (i), (ii), (iii), (iv), (v) ratings agencies (i) rationing (i), (ii) recessions (i) recovery from the Asian crisis (i), (ii), (iii), (iv) UK in the 1930s (i) redistribution by stealth (i) Reform Acts (i), (ii) regulation (i), (ii) dangers of further (i), (ii) dollar transactions (i) reduction (i) the regulatory trap (i) Statute of Labourers (i) renminbi (currency) (i) Réveillon, Jean-Baptiste (i) Ricardo, David (i) Richard II (i) ringgit (currency) (i) risk and banks (i) creditors and debtors imbalance (i) and financial services (i) and rapid economic change (i) risk aversion (i) Roosevelt, Franklin Delano (i), (ii), (iii), (iv) Royal Bank of Scotland (i) Royal Navy (i) Russia (i), (ii) Rwanda (i) Samuel, Herbert (i) Saudi Arabia (i), (ii) savers and banks (i) confidence (i) and illusions (i) and income inequality (i) and interest rates (i), (ii), (iii) and the subprime boom (i) schisms between debtors and creditors (i), (ii) generational (i) income inequality (i) Schwartz, Anna (i), (ii), (iii) second-hand car market (i) Sierra Leone (i) silver standard (i) SIVs (structured investment vehicles) (i) Skidelsky, R. and E. (i) Smith, Adam (i), (ii) melancholy state (i), (ii), (iii) Snowden's budget (i), (ii) soccer (i) social contract, between generations (i) social insurance (i) social security systems (i) social spending (i) Soros, George (i) South Korea (i), (ii), (iii), (iv), (v) South Sea Bubble (i) space exploration (i), (ii) Spain deficit (i), (ii) and the eurozone (i), (ii) exports (i) fiscal position (i) government borrowing (i) interest rates (i) political disenfranchisement (i) property bubble (i) suicide of Amaia Egana (i) spending government (i), (ii), (iii) public sector (i), (ii), (iii), (iv), (v) social (i) stagnation (i), (ii), (iii), (iv), (v) and political extremism (i) Standard & Poor's (i) ‘stately home’ effect (i) Statute of Labourers (i), (ii) sterling (i), (ii) Stern Review (i) stimulus (i) and jobs (i) monetary and fiscal (i), (ii), (iii) Paul Krugman (i), (ii) policy (i), (ii), (iii) political debate (i) prior to the financial crisis (i) stock markets (i), (ii), (iii) stock-market crashes (i), (ii), (iii), (iv), (v) Straw, Jack (i) structured investment vehicles (SIVs) (i) subprime boom (i), (ii) crisis (i) Suharto (i), (ii) surpluses (i), (ii), (iii), (iv) Sweden (i), (ii) Switzerland (i), (ii) Taiwan (i) Takeshita, Noburo (i) Tanzania (i) tariffs (i) tax avoidance (i), (ii), (iii) taxation ancien régime and the French Revolution (i) death duties (i) medieval poll tax (i) taxpayers (i), (ii), (iii), (iv), (v) technological progress (i), (ii) dotcom bubble (i) and financial industry wages (i) Industrial Revolution (i) Thailand (i), (ii) Thaler, R.


pages: 1,239 words: 163,625

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated by Gautam Baid

activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, Andrei Shleifer, asset allocation, Atul Gawande, availability heuristic, backtesting, barriers to entry, beat the dealer, Benoit Mandelbrot, Bernie Madoff, bitcoin, Black Swan, business process, buy and hold, Cal Newport, Cass Sunstein, Checklist Manifesto, Clayton Christensen, cognitive dissonance, collapse of Lehman Brothers, commoditize, corporate governance, correlation does not imply causation, creative destruction, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, discounted cash flows, disintermediation, disruptive innovation, Dissolution of the Soviet Union, diversification, diversified portfolio, dividend-yielding stocks, Edward Thorp, Elon Musk, Everything should be made as simple as possible, financial independence, financial innovation, fixed income, follow your passion, framing effect, George Santayana, Hans Rosling, hedonic treadmill, hindsight bias, Hyman Minsky, index fund, intangible asset, invention of the wheel, invisible hand, Isaac Newton, Jeff Bezos, Joseph Schumpeter, Kickstarter, knowledge economy, Lao Tzu, Long Term Capital Management, loss aversion, Louis Pasteur, Mahatma Gandhi, mandelbrot fractal, margin call, Mark Zuckerberg, mental accounting, Milgram experiment, moral hazard, Nate Silver, Network effects, Nicholas Carr, offshore financial centre, oil shock, passive income, passive investing, pattern recognition, Peter Thiel, Ponzi scheme, price anchoring, quantitative trading / quantitative finance, Ralph Waldo Emerson, Ray Kurzweil, reserve currency, Richard Feynman, Richard Thaler, risk free rate, risk-adjusted returns, Robert Shiller, Robert Shiller, salary depends on his not understanding it, Savings and loan crisis, shareholder value, six sigma, software as a service, software is eating the world, South Sea Bubble, special economic zone, Stanford marshmallow experiment, Steve Jobs, Steven Levy, Steven Pinker, stocks for the long run, sunk-cost fallacy, tail risk, the market place, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, time value of money, transaction costs, tulip mania, Upton Sinclair, Walter Mischel, wealth creators, Yogi Berra, zero-sum game

The game does not change and neither does human nature.9 Human nature has not changed in centuries, and the perennial emotions of greed and fear ensure that speculative follies keep playing out, leading to endless cycles of booms and busts. Prominent historical events include the Dutch tulip mania; the South Sea Bubble (during which a mythical company was chartered “for carrying on an undertaking of great advantage but no one to know what it is”); the Roaring Twenties (including the Florida land bubble), followed by the Great Crash of 1929; the “tronics boom” in the 1960s; and the Nifty Fifty in the 1970s.

—Phil Fisher Failure to ignore and avoid the temptation that comes from watching other people get rich thanks to a sharp rise in the prices of their stock holdings may lead to the destruction of your wealth, if you fall prey to the fear of missing out. Even the legendary Isaac Newton succumbed to this bias during the South Sea Bubble of 1720 (figure 31.1). He had invested in South Sea stock before its euphoric rise and had exited with a handsome profit of more than 100 percent in a few months. Lured by social proof—his friends continued to make even bigger returns on the stock after his exit—he caved and bought the stock again near its peak.

See savings and loan crisis “Slow Dance” (Weatherford), 375–376 Smith, Adam, 10, 13, 93, 278 Smith, Edgar Lawrence, 215 Smith, Terry, 175 Snowball, The, 5–6 social media, 14, 105 Socrates, 38 software as a service (SaaS), 311 Solin, Dan, 271 “Solitude and Leadership” (Deresiewicz), 30 Son, Masayoshi, 314 Soros, George, 190, 247, 285, 319 South Sea Bubble, 282, 339 S&P 500, 167, 255, 270, 279–280; constituents of, 336; largest companies in, 231 specialists, Munger on, 27 special situations, Graham on, 199–200 Spier, Guy, 46, 48, 87, 137, 370 spinoffs: Greenblatt on, 202–203; Klarman on, 201; long-term potential of, 205; Lynch on, 204; performance of, 202, 204; returns from, 200; in United States, 204; Wall Street on, 204–205 Srivastava, Anup, 312–313 stalwarts, Lynch on, 231–232 Stanley, Thomas, 79 status quo bias, 135 staying power, 266 stereotyping, 240; Kahneman on, 238–239 stock market: luck in, 331; as pari-mutuel system, 297 stocks: anchoring and, 337–338; blue-chip, 230–231; bonds and, 121–122; Buffett on, 121; certainty and, 212; commodity, 191–192; comparison of returns, 220; Graphite India, 188; HEG, 188, 195; high-quality, 234; Loeb on, 216; Lynch on, 236; maturity of, 121; par value of, 121; penny, 313; performance of, 299; time frame and, 185; total real returns on, 274 strangers, kindness of, 264–265 stress-influence tendency, 342–343 Subex, 334–335 subtractive epistemology, Taleb on, 21 success: Buffett on, 209, 327; core test of, 209 sum of parts valuation, 311 Sunstein, Cass, 345 Sun Tzu, 142 super-cat insurance, 313 Superforecasting (Tetlock & Gardner), 292 supply deficits, 194 Surat Diamond Bourse, 198 surfing, Munger on, 315 Surowiecki, James, 241 Swensen, David, 247 switching costs: in business models, 211; ROIC and, 223 syntopical reading, 17 Tagore, Rabindranath, 76 Taleb, Nassim Nicholas, 15, 145, 253, 259, 261, 266, 319; on life, 321; on Lindy effect, 16; on subtractive epistemology, 21 Talent is Overrated (Colvin), 42 tangible equity, pretax return on, 132 target prices, 122 taxes, 130; profit before, 132 tax-free municipal bonds, 88–89 tech bubble, 282 Techno-Funda, 185–186 technology: Munger on, 289; proprietary, 211 Templeton, John, 236; on bull markets, 233; on investment, 299 Teresa (Mother), 66, 370 Tetlock, Philip, 294–295; on Bayesian methods, 292–293 Thailand, 326 Thaler, Richard, 345 Theory of Moral Sentiments, The (Smith, A.), 93 Thiel, Peter, 319 thinking: calculation and, 309–313; Darwin on, 296; fine-tuning, 305–306; first principles, 19–21; flexibility of, 300; Franklin on, 297; golden rule of, 296; Griffin on, 29–30; happiness and, 352; about market conditions, 232–240; mental models and, 29–30; Munger on, 158–159; opportunity costs and, 305–306; positive, 351–356; second-level, 306; time management and, 11–13 Thinking, Fast and Slow (Kahneman), 292 Thorndike, William, 227 Thorp, Ed, 249, 259 three-bucket framework, 28 thumb-sucking, Munger on, 300 Tide, 222 time: Buffett on, 216; nonrenewability of, 11–12; stocks and, 185; wealth and, 78–79 timelessness, of wisdom, 16 time management, 6; learning and, 11–13; reading and, 11–13; thinking and, 11–13 Toffler, Alvin, 284 Tolle, Eckhart, 351 Tolstoy, Leo, 12 Torrent Pharmaceuticals, 197–198 total debt, 131 total real returns, 274 trade-offs, 40–41 Treasury bonds, 255 Treasury rate, 58 Truman, Harry, 281 trust: building, 49; earning, 49–50; Munger on, 49; Welch on, 49 truths, absolute, 55–56 turnarounds, Buffett on, 294 Tversky, Amos, 141, 344 twaddle tendency, 335 Twain, Mark, 16, 39, 187, 264, 346 Twitter, market conditions and, 236 Tzu, Lao, 285 Uber, 225, 286 uncertainty: certainty and, 54–55; Feynman on, 55; risk and, 240, 314 underspending, 79 understanding, 31 Undervalued Corporation, 217 unforced errors, 219 United States (US): equity markets in, 280; GDP of, 278; spinoffs in, 204 United Technologies, 39–40 Upanishads, 33 US.


pages: 334 words: 98,950

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

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

During his time as chancellor of the exchequer, he enhanced the creditworthiness of his government by creating a ‘sinking fund’ dedicated to repaying the debts. He became prime minister in 1721 because he was considered the only person who had the ability to manage the financial mess left behind by the infamous South Sea Bubble.* Upon becoming prime minister, Walpole launched a policy reform that dramatically shifted the focus of British industrial and trade policies.Prior to Walpole, the British government’s policies were, in general, aimed at capturing trade through colonization and the Navigation Act (which required that all trade with Britain should be conducted in British ships) and at generating government revenue.

He was an extremely successful financier, making huge killings on currency speculation, setting up and merging large banks and trading companies, getting royal monopolies for them and selling their shares at huge profits. His financial scheme was too successful for its own good. It led to the Mississippi Bubble – a financial bubble three times bigger than the contemporary South Sea Bubble discussed in chapter 2 – which wrecked the French financial system.* Law was also known as a great gambler with an incredible ability to calculate the odds. As an economist, he advocated the use of paper money backed by a central bank.13 The idea that we can make worthless paper into money through government fiat was a radical notion then.


pages: 347 words: 99,317

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

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

During his time as chancellor of the exchequer, he enhanced the creditworthiness of his government by creating a ‘sinking fund’ dedicated to repaying the debts. He became prime minister in 1721 because he was considered the only person who had the ability to manage the financial mess left behind by the infamous South Sea Bubble.i Upon becoming prime minister, Walpole launched a policy reform that dramatically shifted the focus of British industrial and trade policies. Prior to Walpole, the British government’s policies were, in general, aimed at capturing trade through colonization and the Navigation Act (which required that all trade with Britain should be conducted in British ships) and at generating government revenue.

He was an extremely successful financier, making huge killings on currency speculation, setting up and merging large banks and trading companies, getting royal monopolies for them and selling their shares at huge profits. His financial scheme was too successful for its own good. It led to the Mississippi Bubble – a financial bubble three times bigger than the contemporary South Sea Bubble discussed in chapter 2 – which wrecked the French financial system.ii Law was also known as a great gambler with an incredible ability to calculate the odds. As an economist, he advocated the use of paper money backed by a central bank.13 The idea that we can make worthless paper into money through government fiat was a radical notion then.


pages: 471 words: 97,152

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

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

Who has not heard of the Great Tulip Bubble of the seventeenth-century Netherlands— a country famous, we might add, for its stalwart Rembrandt burghers and often caricatured as the home of the world’s most cautious people. Who does not know that even Isaac Newton—the father of modern physics and of the calculus—lost a fortune in the South Sea bubble of the eighteenth century? All of which takes us back to Trondheim. Akerlof had stored the observation prompted by his relative’s million-dollar home in the wrong place in his brain. He should have seen that home prices in Trondheim were not merely indicative of curiously high real estate prices in Scandinavia; they were part of a worldwide real estate bubble.

., 189n15 Snake oil, 26–27, 28, 35, 37, 87, 146–47, 155, 175 Snower, Dennis, 189n17 Snow Shovel price vignette, 21 Socialism, xxii, 2 Social Security, 124–25, 129–30, 146 sociology, 23–25 Solow, Robert, 46, 188n2 Sorensen, Elaine, 197n15 Sorkin, Andrew Ross, 186n13 South Sea bubble, 13 Soviet Union, 26 spiritus animalis, 3, 178n3 sporting events, studies of outcomes, 179n3 staggered contracts, 5 Staiger, Douglas, 183n8 Stalin, Joseph, 26 Standard & Poor’s Composite Stock Price Index, 59 status, 24–25 Steeples, Douglas, 62, 184n8,11 Stein, Jeremy C., 182n21, 195n36 Sternberg, Robert J., 52, 184n4 Sticky wages, 48, 109, 110, 111, 183n14, 185n32 Stiglitz, Joseph E., 104–5, 188n12 Stock, James H., 183n8 stock market, xxi, 174; depression of the 1890s and, 59; margin credit of, 64; in the 1920s, 64, 66–67; price volatility in, 131–40, 145–46, 193n6; rate of return in, 117; real estate market and, 149, 152–53, 154; recession of 2001 and, 33, 35; stories and, 55 stock market crash of 1902, 11 stock market crash of 1929, 15, 66, 67, 68, 131, 145, 177n7 stock market crash of 2000, 169 Stoft, Steven, 188n12 stories, 5, 6, 51–56, 167, 170, 172, 174, 183–84n1–14; on central banks, 75–78; changes in, 173, 174–75; confidence and, 55–56; of corporate investments, 144, 145; depression of the 1890s and, 61; epidemics of, 56; of financial crisis of 2007–8, 88; financial prices and, 137, 138, 142, 146, 147; minorities and, 159–60, 162, 163, 164; new era, 55–56, 66; of our time, 171; overheated economy and, 66–67; patterns to, 52; political-economic, 53–54; real estate market and, 149, 151, 156; relevant to whole economies, 54; saving and, 119, 127–28; Tobin’s q as, 145; World War II and, 72 strikes, 138, 139, 140, 194n23 subprime mortgages, 73, 149; corruption and, 36–37, 38, 182n21; effect on housing prices, 155 Summers, Lawrence, 103, 188n9, 189n17, 191n11, 194n30,36, 195n37 Sunde, Uwe, 183n14 sunspot equilibria, 12, 179n2 supply and demand: for labor, 98, 99–100, 103, 104; open market operations and, 76 Swedish financial crisis, 93, 188n15 Switzerland, 109 Tabasco, Mexico, 53 TAF.


pages: 121 words: 31,813

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

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

But not all success will last forever. Investors seem to be hard-wired to follow the herd, so we need to be careful when riding a winning stock. Charles Mackay, in his 1841 book Extraordinary Popular Delusions and the Madness of Crowds, examined three bubbles (the 18th-century Mississippi project, the South Sea bubble, and the 17th-century Dutch tulip mania). His research showed how people lose the ability to think rationally under pressures of crowd behaviour. At the height of a bull market or in the depths of a bear market people become herd-minded. And it is rarely safe to be relying on irrationality for profit for too long.


pages: 113 words: 37,885

Why Wall Street Matters by William D. Cohan

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

For instance, in 1636 and early 1637, in Holland, there was the “mania” related to Dutch tulip bulbs, which sent the price of the bulbs soaring to ridiculous levels before the price collapsed in February 1637. In 1720, there were two bubbles in two European countries, both of which ended very badly: the South Sea Bubble, in Britain, which was the ill-fated idea where the British government granted the South Sea Company exclusive trading rights with South American countries in exchange for the South Sea Company’s refinancing Britain’s war debt; and the Mississippi Bubble, in France, a strange scheme by a Scottish economist, John Law, to try to compensate a frustrated French populace with the shares of a company that had been created to try to exploit the supposed riches of the land that France owned in the Mississippi River valley, known as Louisiana.


Trading Risk: Enhanced Profitability Through Risk Control by Kenneth L. Grant

backtesting, business cycle, buy and hold, commodity trading advisor, correlation coefficient, correlation does not imply causation, delta neutral, diversification, diversified portfolio, fixed income, frictionless, frictionless market, George Santayana, implied volatility, interest rate swap, invisible hand, Isaac Newton, John Meriwether, Long Term Capital Management, market design, Myron Scholes, performance metric, price mechanism, price stability, risk free rate, risk tolerance, risk-adjusted returns, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, two-sided market, value at risk, volatility arbitrage, yield curve, zero-coupon bond

When he tired of academic life, he moved seamlessly into government affairs, serving in what one can only assume was among the most lucrative bureaucratic posts ever devised, the Master of the Royal Mint. By all accounts, he prospered for most of the nearly seven decades of his adult life. However, his record as an investor is, to be sure, somewhat mixed. Most notably, he is known to have lost a bundle in the infamous South Sea Bubble episode, a bizarre scheme under which the British government appears to have created a full boom/bust cycle in the single, fateful year of 1720, by issuing on no less than four occasions a form of convertible debt—without ever bothering to inform the investing public what the conversion ratio was.

See Exposure range determination Risk-free rate, exposure ranges, 112 Index Risk-free return, 65–66 Risk Management Investment, 1–5, 9–18 Risk mitigation, 136, 152 Risk models, 28–29 Risk of ruin, 245–246, 250–251 Risk profile, 12 Risk-taking capacity, 115–117, 233 Risk tolerance, 26–27, 63 Risk transference, 241 Scenario analysis, 84, 104–106 Scientific method, 5–6 Self-directed traders, 123 Self-funded traders, 110 Serial correlation, 76–78 Sharpe Ratio, 65–68 equation, 65 Inverted, 111–114, 248–250 limitations, 67–68 Sustainable, 112, 249 Short put options, 153 Short selling, 148–149, 152–154, 207 Short-side P/L, 166–168 /P/L, 62, 95, 116, 118 Size of position, significance of, 134–135, 159, 231 Skewness, 64–65, 70, 201 Slippage, 198 South Sea Bubble, 54–55 Spreadsheet programs, 61 Standard deviation, 57–65 confidence intervals and, 59–62 equation, 61 of returns, 66 sigma, 62 VaR parameters, 99–100 Static parameters, 87 Statistical significance, 40–42 Statistics: average P/L, 56–57, 69 confidence intervals, 59–62, 100 consolidated statistical profile, 79–80 correlations, 73–79 drawdown, 70–73 historical perspective, 53–56 257 median P/L, 68 percentage (%) of winning days, 68–69 performance ratio, 68–69 Sharpe Ratio, 64–68, 100 standard deviation, 57–66 winning days vs. losing days, 69–70 Stock index, benchmark, 73–74 Stock market crashes, impact of, 14–15, 43, 136, 173, 227 Stop-loss orders, 9, 207–208 Stop-out level, 20–21, 26–32, 118–119, 122–124, 190, 193, 227, 233–234 Strike price, 149–150 Support level, 107–108 Sustainable Sharpe Ratio, 112, 249–250 Target return(s): nominal, 20, 24–26 optimal, 20–24 Technical analysis, 77, 106–108 10% Rule, 116, 122–123, 249, 251 Time horizon, 53, 56, 142–144 Time series, generally: analysis/construction of, 6–7, 39 charts, 107 Time spans, 39–40, 43–48 Time units, 39–42, 46–48 Time unit/time span matrix, 39, 48 Timing, significance of, 220–221 Total long/short capital utilized, 161 Trade level P/L, 162 Trade selection, 187 Trading capital, risk exposure determination, 114–126 Trading Capital Equation, 122–123, 125 Trading efficiency, 223–224 Trading environment, assessment of, 22–23 Trading frequency, 203–204 Trading psychology, 208 Trading styles, 200 Trading with an edge, 219–225 Transaction, defined, 158–160 Transaction flow, 221–222 258 Transactions-level analysis: benefits of, 79 core statistics, 161–168 database, overview, 156–158 position snapshot statistics, 160–161 transaction defined, 158–160 Two-sided market, 135–137, 140 Underlying markets, 117 Underlying price, 149–150 Unit impact ratio, 187 Value at Risk (VaR) calculation: accuracy testing, 98–99, 103 and correlation analysis, 178–179 implications of, generally, 84, 91–92 justification of, 92–94 parameter setting, 99–100 in portfolio management, 102–104 purpose of, 178 types of, 94–98 Variance/covariance approach, VaR, 94–97, 99 Vince, Ralph, 246 Volatility: -adjusted exposure, 83–84 correlation analysis, 177–179 INDEX exposure range determination, 111–126 historical, 84–88, 96–97 impact of, generally, 40, 49–51, 65, 67, 74, 79 implied, 86–87, 89, 150 options implied, 86–89 position level, 141–142 risk management, as trading capital percentage, 114–126 size of position and, 134–135 skew/smile, 88 trading capital, impact on, 124 Volume-Weighted Average Price (VWAP), 159, 186 Wealth-management program, 30 Weekly P/L, 41, 43 Weighted average P/L, 164 Win/loss ratio, 184–186 Winning days, percentage (%) of, 68–70 Winning trades, 186–188, 191, 193 Working capital, 29, 122 Zero/low correlation, 172–173


pages: 403 words: 111,119

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

"Robert Solow", 3D printing, Asian financial crisis, bank run, basic income, battle of ideas, Berlin Wall, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, en.wikipedia.org, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, Garrett Hardin, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, land reform, land value tax, Landlord’s Game, loss aversion, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, mobile money, Money creation, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, Richard Thaler, Ronald Reagan, salary depends on his not understanding it, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, Steve Ballmer, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, Tragedy of the Commons, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

Trends are launched when a product’s popularity boosts its desirability to others, further raising its popularity, generating this season’s must-have toy, the hottest me-too gadget, and the latest viral dance craze (who can forget ‘Gangnam Style’?). Less fun but almost as frequent are asset bubbles in which the price of a stock builds higher and higher before it ultimately bursts. The name of that phenomenon originated with the South Sea Bubble of 1720, an event that the great Sir Isaac Newton forbade to be mentioned in his presence ever after. In March of that year, the price of shares in the South Sea Company – which had been granted a British monopoly on trading with South American colonies – began to rise fast as false rumours of its successes abroad started to spread.

., 6 micro-businesses, 9, 173, 178 microeconomics, 132–4 microgrids, 187–8 Micronesia, 153 Microsoft, 231 middle class, 6, 46, 58 middle-income countries, 90, 164, 168, 173, 180, 226, 254 migration, 82, 89–90, 166, 195, 199, 236, 266, 286 Milanovic, Branko, 171 Mill, John Stuart, 33–4, 73, 97, 250, 251, 283, 284, 288 Millo, Yuval, 101 minimum wage, 82, 88, 176 Minsky, Hyman, 87, 146 Mises, Ludwig von, 66 mission zero, 217 mobile banking, 199–200 mobile phones, 222 Model T revolution, 277–8 Moldova, 199 Mombasa, Kenya, 185–6 Mona Lisa (da Vinci), 94 money creation, 87, 164, 177, 182–8, 205 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 Monoculture (Michaels), 6 Monopoly, 149 Mont Pelerin Society, 67, 93 Moral Consequences of Economic Growth, The (Friedman), 258 moral vacancy, 41 Morgan, Mary, 99 Morogoro, Tanzania, 121 Moyo, Dambisa, 258 Muirhead, Sam, 230, 231 MultiCapital Scorecard, 241 Murphy, David, 264 Murphy, Richard, 185 musical tastes, 110 Myriad Genetics, 196 N national basic income, 177 Native Americans, 115, 116, 282 natural capital, 7, 116, 269 Natural Economic Order, The (Gessel), 274 Nedbank, 216 negative externalities, 213 negative interest rates, 275–6 neoclassical economics, 134, 135 neoliberalism, 7, 62–3, 67–70, 81, 83, 84, 88, 93, 143, 170, 176 Nepal, 181, 199 Nestlé, 217 Netherlands, 211, 235, 224, 226, 238, 277 networks, 110–11, 117, 118, 123, 124–6, 174–6 neuroscience, 12–13 New Deal, 37 New Economics Foundation, 278, 283 New Year’s Day, 124 New York, United States, 9, 41, 55 Newlight Technologies, 224, 226, 293 Newton, Isaac, 13, 15–17, 32–3, 95, 97, 129, 131, 135–7, 142, 145, 162 Nicaragua, 196 Nigeria, 164 nitrogen, 49, 52, 212–13, 216, 218, 221, 226, 298 ‘no pain, no gain’, 163, 167, 173, 204, 209 Nobel Prize, 6–7, 43, 83, 101, 167 Norway, 281 nudging, 112, 113, 114, 123–6 O Obama, Barack, 41, 92 Oberlin, Ohio, 239, 240–41 Occupy movement, 40, 91 ocean acidification, 45, 46, 52, 155, 242, 298 Ohio, United States, 190, 239 Okun, Arthur, 37 onwards and upwards, 53 Open Building Institute, 196 Open Source Circular Economy (OSCE), 229–32 open systems, 74 open-source design, 158, 196–8, 265 open-source licensing, 204 Organisation for Economic Co-operation and Development (OECD), 38, 210, 255–6, 258 Origin of Species, The (Darwin), 14 Ormerod, Paul, 110, 111 Orr, David, 239 Ostrom, Elinor, 83, 84, 158, 160, 181–2 Ostry, Jonathan, 173 OSVehicle, 231 overseas development assistance (ODA), 198–200 ownership of wealth, 177–82 Oxfam, 9, 44 Oxford University, 1, 36 ozone layer, 9, 50, 115 P Pachamama, 54, 55 Pakistan, 124 Pareto, Vilfredo, 165–6, 175 Paris, France, 290 Park 20|20, Netherlands, 224, 226 Parker Brothers, 149 Patagonia, 56 patents, 195–6, 197, 204 patient capital, 235 Paypal, 192 Pearce, Joshua, 197, 203–4 peer-to-peer networks, 187, 192, 198, 203, 292 People’s QE, 184–5 Perseus, 244 Persia, 13 Peru, 2, 105–6 Phillips, Adam, 283 Phillips, William ‘Bill’, 64–6, 75, 142, 262 phosphorus, 49, 52, 212–13, 218, 298 Physiocrats, 73 Pickett, Kate, 171 pictures, 12–25 Piketty, Thomas, 169 Playfair, William, 16 Poincaré, Henri, 109, 127–8 Polanyi, Karl, 82, 272 political economy, 33–4, 42 political funding, 91–2, 171–2 political voice, 43, 45, 51–2, 77, 117 pollution, 29, 45, 52, 85, 143, 155, 206–17, 226, 238, 242, 254, 298 population, 5, 46, 57, 155, 199, 250, 252, 254 Portugal, 211 post-growth society, 250 poverty, 5, 9, 37, 41, 50, 88, 118, 148, 151 emotional, 283 and inequality, 164–5, 168–9, 178 and overseas development assistance (ODA), 198–200 and taxation, 277 power, 91–92 pre-analytic vision, 21–2 prescription medicines, 123 price-takers, 132 prices, 81, 118–23, 131, 160 Principles of Economics (Mankiw), 34 Principles of Economics (Marshall), 17, 98 Principles of Political Economy (Mill), 288 ProComposto, 226 Propaganda (Bernays), 107 public relations, 107, 281 public spending v. investment, 276 public–private patents, 195 Putnam, Robert, 76–7 Q quantitative easing (QE), 184–5 Quebec, 281 Quesnay, François, 16, 73 R Rabot, Ghent, 236 Rancière, Romain, 172 rating and review systems, 105 rational economic man, 94–103, 109, 111, 112, 126, 282 Reagan, Ronald, 67 reciprocity, 103–6, 117, 118, 123 reflexivity of markets, 144 reinforcing feedback loops, 138–41, 148, 250, 271 relative decoupling, 259 renewable energy biomass energy, 118, 221 and circular economy, 221, 224, 226, 235, 238–9, 274 and commons, 83, 85, 185, 187–8, 192, 203, 264 geothermal energy, 221 and green growth, 257, 260, 263, 264, 267 hydropower, 118, 260, 263 pricing, 118 solar energy, see solar energy wave energy, 221 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 rentier sector, 180, 183, 184 reregulation, 82, 87, 269 resource flows, 175 resource-intensive lifestyles, 46 Rethinking Economics, 289 Reynebeau, Guy, 237 Ricardo, David, 67, 68, 73, 89, 250 Richardson, Katherine, 53 Rifkin, Jeremy, 83, 264–5 Rise and Fall of the Great Powers, The (Kennedy), 279 risk, 112, 113–14 Robbins, Lionel, 34 Robinson, James, 86 Robinson, Joan, 142 robots, 191–5, 237, 258, 278 Rockefeller Foundation, 135 Rockford, Illinois, 179–80 Rockström, Johan, 48, 55 Roddick, Anita, 232–4 Rogoff, Kenneth, 271, 280 Roman Catholic Church, 15, 19 Rombo, Tanzania, 190 Rome, Ancient, 13, 48, 154 Romney, Mitt, 92 Roosevelt, Franklin Delano, 37 rooted membership, 190 Rostow, Walt, 248–50, 254, 257, 267–70, 284 Ruddick, Will, 185 rule of thumb, 113–14 Ruskin, John, 42, 223 Russia, 200 rust belt, 90, 239 S S curve, 251–6 Sainsbury’s, 56 Samuelson, Paul, 17–21, 24–5, 38, 62–7, 70, 74, 84, 91, 92, 93, 262, 290–91 Sandel, Michael, 41, 120–21 Sanergy, 226 sanitation, 5, 51, 59 Santa Fe, California, 213 Santinagar, West Bengal, 178 São Paolo, Brazil, 281 Sarkozy, Nicolas, 43 Saumweder, Philipp, 226 Scharmer, Otto, 115 Scholes, Myron, 100–101 Schumacher, Ernst Friedrich, 42, 142 Schumpeter, Joseph, 21 Schwartz, Shalom, 107–9 Schwarzenegger, Arnold, 163, 167, 204 ‘Science and Complexity’ (Weaver), 136 Scotland, 57 Seaman, David, 187 Seattle, Washington, 217 second machine age, 258 Second World War (1939–45), 18, 37, 70, 170 secular stagnation, 256 self-interest, 28, 68, 96–7, 99–100, 102–3 Selfish Society, The (Gerhardt), 283 Sen, Amartya, 43 Shakespeare, William, 61–3, 67, 93 shale gas, 264, 269 Shang Dynasty, 48 shareholders, 82, 88, 189, 191, 227, 234, 273, 292 sharing economy, 264 Sheraton Hotel, Boston, 3 Siegen, Germany, 290 Silicon Valley, 231 Simon, Julian, 70 Sinclair, Upton, 255 Sismondi, Jean, 42 slavery, 33, 77, 161 Slovenia, 177 Small Is Beautiful (Schumacher), 42 smart phones, 85 Smith, Adam, 33, 57, 67, 68, 73, 78–9, 81, 96–7, 103–4, 128, 133, 160, 181, 250 social capital, 76–7, 122, 125, 172 social contract, 120, 125 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 social media, 83, 281 Social Progress Index, 280 social pyramid, 166 society, 76–7 solar energy, 59, 75, 111, 118, 187–8, 190 circular economy, 221, 222, 223, 224, 226–7, 239 commons, 203 zero-energy buildings, 217 zero-marginal-cost revolution, 84 Solow, Robert, 135, 150, 262–3 Soros, George, 144 South Africa, 56, 177, 214, 216 South Korea, 90, 168 South Sea Bubble (1720), 145 Soviet Union (1922–91), 37, 67, 161, 279 Spain, 211, 238, 256 Spirit Level, The (Wilkinson & Pickett), 171 Sraffa, Piero, 148 St Gallen, Switzerland, 186 Stages of Economic Growth, The (Rostow), 248–50, 254 stakeholder finance, 190 Standish, Russell, 147 state, 28, 33, 69–70, 78, 82, 160, 176, 180, 182–4, 188 and commons, 85, 93, 197, 237 and market, 84–6, 200, 281 partner state, 197, 237–9 and robots, 195 stationary state, 250 Steffen, Will, 46, 48 Sterman, John, 66, 143, 152–4 Steuart, James, 33 Stiglitz, Joseph, 43, 111, 196 stocks and flows, 138–41, 143, 144, 152 sub-prime mortgages, 141 Success to the Successful, 148, 149, 151, 166 Sugarscape, 150–51 Summers, Larry, 256 Sumner, Andy, 165 Sundrop Farms, 224–6 Sunstein, Cass, 112 supply and demand, 28, 132–6, 143, 253 supply chains, 10 Sweden, 6, 255, 275, 281 swishing, 264 Switzerland, 42, 66, 80, 131, 186–7, 275 T Tableau économique (Quesnay), 16 tabula rasa, 20, 25, 63, 291 takarangi, 54 Tanzania, 121, 190, 202 tar sands, 264, 269 taxation, 78, 111, 165, 170, 176, 177, 237–8, 276–9 annual wealth tax, 200 environment, 213–14, 215 global carbon tax, 201 global financial transactions tax, 201, 235 land-value tax, 73, 149, 180 non-renewable resources, 193, 237–8, 278–9 People’s QE, 185 tax relief v. tax justice, 23, 276–7 TED (Technology, Entertainment, Design), 202, 258 Tempest, The (Shakespeare), 61, 63, 93 Texas, United States, 120 Thailand, 90, 200 Thaler, Richard, 112 Thatcher, Margaret, 67, 69, 76 Theory of Moral Sentiments (Smith), 96 Thompson, Edward Palmer, 180 3D printing, 83–4, 192, 198, 231, 264 thriving-in-balance, 54–7, 62 tiered pricing, 213–14 Tigray, Ethiopia, 226 time banking, 186 Titmuss, Richard, 118–19 Toffler, Alvin, 12, 80 Togo, 231, 292 Torekes, 236–7 Torras, Mariano, 209 Torvalds, Linus, 231 trade, 62, 68–9, 70, 89–90 trade unions, 82, 176, 189 trademarks, 195, 204 Transatlantic Trade and Investment Partnership (TTIP), 92 transport, 59 trickle-down economics, 111, 170 Triodos, 235 Turkey, 200 Tversky, Amos, 111 Twain, Mark, 178–9 U Uganda, 118, 125 Ulanowicz, Robert, 175 Ultimatum Game, 105, 117 unemployment, 36, 37, 276, 277–9 United Kingdom Big Bang (1986), 87 blood donation, 118 carbon dioxide emissions, 260 free trade, 90 global material footprints, 211 money creation, 182 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 New Economics Foundation, 278, 283 poverty, 165, 166 prescription medicines, 123 wages, 188 United Nations, 55, 198, 204, 255, 258, 279 G77 bloc, 55 Human Development Index, 9, 279 Sustainable Development Goals, 24, 45 United States American Economic Association meeting (2015), 3 blood donation, 118 carbon dioxide emissions, 260 Congress, 36 Council of Economic Advisers, 6, 37 Earning by Learning, 120 Econ 101 course, 8, 77 Exxon Valdez oil spill (1989), 9 Federal Reserve, 87, 145, 146, 271, 282 free trade, 90 Glass–Steagall Act (1933), 87 greenhouse gas emissions, 153 global material footprint, 211 gross national product (GNP), 36–40 inequality, 170, 171 land-value tax, 73, 149, 180 political funding, 91–2, 171 poverty, 165, 166 productivity and employment, 193 rust belt, 90, 239 Transatlantic Trade and Investment Partnership (TTIP), 92 wages, 188 universal basic income, 200 University of Berkeley, 116 University of Denver, 160 urbanisation, 58–9 utility, 35, 98, 133 V values, 6, 23, 34, 35, 42, 117, 118, 121, 123–6 altruism, 100, 104 anthropocentric, 115 extrinsic, 115 fluid, 28, 102, 106–9 and networks, 110–11, 117, 118, 123, 124–6 and nudging, 112, 113, 114, 123–6 and pricing, 81, 120–23 Veblen, Thorstein, 82, 109, 111, 142 Venice, 195 verbal framing, 23 Verhulst, Pierre, 252 Victor, Peter, 270 Viner, Jacob, 34 virtuous cycles, 138, 148 visual framing, 23 Vitruvian Man, 13–14 Volkswagen, 215–16 W Wacharia, John, 186 Wall Street, 149, 234, 273 Wallich, Henry, 282 Walras, Léon, 131, 132, 133–4, 137 Ward, Barbara, 53 Warr, Benjamin, 263 water, 5, 9, 45, 46, 51, 54, 59, 79, 213–14 wave energy, 221 Ways of Seeing (Berger), 12, 281 Wealth of Nations, The (Smith), 74, 78, 96, 104 wealth ownership, 177–82 Weaver, Warren, 135–6 weightless economy, 261–2 WEIRD (Western, educated, industrialised, rich, democratic), 103–5, 110, 112, 115, 117, 282 West Bengal, India, 124, 178 West, Darrell, 171–2 wetlands, 7 whale hunting, 106 Wiedmann, Tommy, 210 Wikipedia, 82, 223 Wilkinson, Richard, 171 win–win trade, 62, 68, 89 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 Wizard of Oz, The, 241 Woelab, 231, 293 Wolf, Martin, 183, 266 women’s rights, 33, 57, 107, 160, 201 and core economy, 69, 79–81 education, 57, 124, 178, 198 and land ownership, 178 see also gender equality workers’ rights, 88, 91, 269 World 3 model, 154–5 World Bank, 6, 41, 119, 164, 168, 171, 206, 255, 258 World No Tobacco Day, 124 World Trade Organization, 6, 89 worldview, 22, 54, 115 X xenophobia, 266, 277, 286 Xenophon, 4, 32, 56–7, 160 Y Yandle, Bruce, 208 Yang, Yuan, 1–3, 289–90 yin yang, 54 Yousafzai, Malala, 124 YouTube, 192 Yunnan, China, 56 Z Zambia, 10 Zanzibar, 9 Zara, 276 Zeitvorsoge, 186–7 zero environmental impact, 217–18, 238, 241 zero-hour contracts, 88 zero-humans-required production, 192 zero-interest loans, 183 zero-marginal-cost revolution, 84, 191, 264 zero-waste manufacturing, 227 Zinn, Howard, 77 PICTURE ACKNOWLEDGEMENTS Illustrations are reproduced by kind permission of: archive.org


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, the strength of weak ties, Tragedy of the Commons, 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

The debate about public spending is not whether it will have to be cut, but rather how much and how quickly. It is hard to see where jobs will come from for the next few years. Financial crises have happened frequently throughout the history of capitalism. Many are relatively brief and small in scale, but a few do go down in the history books as major catastrophes, from the South Sea Bubble to the Great Crash of 1929, to our own recent experience.1 Part of the continuing debate about the merits of capitalism concerns precisely this constant vulnerability to crises, and to boom and bust. Market economies are unstable. The price of increasing prosperity is uncertainty about what the future holds.

See distribution Inconvenient Truth, An (Gore), 60 Index of Sustainable Economic Welfare (ISEW), 36 India, 212; emerging middle class of, 125; fairness and, 122–26, 133; inequality and, 125–26; nature and, 63, 65, 81; posterity and, 108; purchasing power parity (PPP) and, 306n19; Satyam and, 146; trust and, 146, 149, 163, 172; wage penalties and, 133; World Bank influence and, 163 Industrial Revolution, 27, 149, 290, 297 inequality, 4–5, 11, 17, 84, 306n19, 308n34; Bush and, 127–28; consequences for growth, 135–36; decline in trust and, 139–44; dramatic increase in, 126–27, 131; extraction ratio for, 124; fairness and, 114–16, 122–43; fractal character of, 134; Gini coefficient and, 126; globalization and, 122–24, 127, 131, 155; happiness and, 25, 36, 42, 44, 53; high salaries and, 130, 143–44, 193, 223, 277–78, 286, 296; historical perspective on, 126–27; institutions and, 116, 127–31, 141; measurement of, 126; policy recommendations for, 267, 276, 295–97; poverty and, 43, 55–56, 100, 125, 128, 138, 142, 168–69, 261, 267; reduction of, 276–77; Republican administrations and, 127–28; social corrosiveness of, 139–44; structural causes of, 131–35; superstar effect and, 134; taxes and, 115–16, 123, 127–28, 131, 135–36; trends in, 125–30; unequal countries and, 124–30; United Kingdom and, 125–30; United States and, 122, 125–31, 135, 276; values and, 223–24, 234–36; well-being and, 137–43; within/between countries, 123–24 inflation, 37, 43, 61, 89, 102–5, 110–11, 189, 281, 305n17 information and communication technology (ICT), 6–7, 15, 17; data explosion and, 205, 291; decreased cost of, 254; fairness and, 133; happiness and, 24–25; institutional impacts of, 252–53; structural effects of, 194–98; trust and, 156–60, 165–67, 174 innovation, 6–7, 12; consumer electronics and, 36–37; fairness and, 121, 134; growth and, 271–73, 281, 290–92; happiness and, 37; institutions and, 244, 258, 263, 290–91; measurement and, 183, 196, 201–8, 273–74; musicians and, 195; nature and, 69–70, 81; policy recommendations for, 290–91; posterity and, 102; statistics and, 201–7; trust and, 157; values and, 210, 216, 220, 236 In Praise of Slowness, 27 institutions, 18; anomie and, 48, 51; balance and, 12–17; blindness of to financial crises, 87–88; broad framework for, 249–52; capitalism and, 240; consumption and, 254, 263; decentralization and, 246; democracy and, 242–43, 251–52, 262; downsizing and, 175, 246, 255; economies of scale and, 253–58; efficiency and, 245–46, 254–55, 261; extinction crisis and, 288; face-to-face contact and, 7, 147, 165–68; failures of, 240–44, 257, 262–63, 267, 289–90; fall of communism and, 226, 239–40, 252; freedom and, 244, 262; globalization and, 244; governance and, 242, 247, 255–58, 261–62; government and, 240–63; growth and, 258, 261, 263; health care and, 247, 252–53; high salaries and, 130, 143–44, 193, 223, 277–78, 286, 296; impact of new technologies and, 252–54; importance of, 261–63; inequality and, 116, 127–31, 141; innovation and, 244, 258, 263, 290–91; legitimacy and, 8, 16, 50, 66, 68–69, 162–63, 213, 226, 269, 274, 292, 296–97; managerialism and, 259; morals and, 254; nature and, 66–69, 82–84; New Public Management and, 245–47; outsourcing and, 159, 161, 175, 219, 287; policy recommendations for, 269, 284–91; politics and, 239–48, 251, 256–63; pollution and, 15, 35, 228; productivity and, 244–47, 257, 263; public choice theory and, 242–43; public deliberation and, 258–60; reform and, 245–48, 256, 285, 288–91, 296–97; responsibility to posterity and, 296; shareholders and, 145, 248, 257–58, 277; statistics and, 245; technology and, 244–46, 251–54, 257–63 (see also technology); values and, 240–42, 246–47, 258–60 intangible assets: measurement and, 199–201, 204–6; satellite accounts and, 38, 81, 204–6, 271; social capital and, 149–52, 157, 161, 199–201 InterAcademy Council, 66–67 interbank market, 1–2 Intergovernmental Panel on Climate Change (IPCC), 59, 66–69, 82, 297 International Monetary Fund (IMF), 90, 101–3, 111, 162–64, 176, 211, 287, 297 International Price Comparison, 124 International Telecommunications Union, 219 Internet, 155, 195, 245, 260, 273, 287–89, 291, 296 invisible hand, 209 iPods, 195 Ipsos Mori poll, 66, 247 Ireland, 172 Iron Curtain, 183, 239, 252 Italy, 95, 97–98, 146, 152 Jackson, Michael, 198 Japan, 42; debt of, 102; equal income distribution in, 125; fairness and, 125–26, 140–41; inequality and, 126; lost decade of, 102; posterity and, 91–92, 95, 97–98, 102; savings rates in, 280; trust and, 169, 175; voter turnout and, 175 Jazz Age, 127 Jefferson, Thomas, 184, 253–54 Johns, Helen, 41 Johnson, Simon, 256–57 Johnson, Steven, 187 Justice (Sandel), 237 Kahneman, Daniel, 215 Kamarck, Elaine, 247–48 Kay, John, 139, 245–46, 257 Kennedy School of Government, 247 Keynes, John Maynard, 101, 183–84, 190 Kleinwort, Dresdner, 87 knowledge economy, 191 Kobayashi, Keiichiro, 102 Korea, 126 Krugman, Paul, 100–103, 127–29, 232, 282 Kyoto Protocol, 62–64 labor: absorbing work and, 10, 48–49; call centers and, 131, 133, 161; creativity and, 166–68, 205–7; downsizing and, 175, 246, 255; global cities and, 165–70; globalization and, 131, 149 (see also globalization); human capital and, 81, 203–4, 282; measurement and, 189–99; migration and, 108–10, 172; outsourcing and, 159, 161, 175, 219, 287; pensions and, 4, 25, 85–86, 90, 92–100, 103–7, 111–13, 174–76, 191, 203, 243, 269–71, 275, 280, 286, 289–90, 293; Protestant work ethic and, 13–14, 236; retirement age and, 94, 97–99, 106–7, 112; skilled, 132–33, 159, 166–67, 276; specialization and, 160–61; technology and, 131–33; unemployment and, 3, 10, 43, 51, 56, 89, 107, 169, 207, 212–13, 243; unions and, 15, 51, 224, 249; unskilled, 132–33, 158, 172, 193; well-being and, 137–39; Whitehall Studies and, 139 lack of control, 47, 138–39 Lawson, Neal, 26 Layard, Richard, 31, 39–40, 43 Lehman Brothers, 1, 85, 87–88, 145, 211, 275–76 Leipzig marches, 239 Leviathan (Hobbes), 114 light bulbs, 59–61 Linux, 205 Lipsky, John, 102, 111 List, John, 117 literacy, 36 Live Nation, 197 living standards, 78–79, 106, 113, 136, 151, 162, 190, 194, 267 lobbyists, 15, 71, 247, 257, 276, 285, 289, 296 Lolapaloozza, 197 Louis Vuitton, 150 Luxury Fever (Frank), 40 Mackenzie, Donald, 221 Madonna, 194 Malthusianism, 95 Mama Group, 197 managerial competence, 2, 16, 150, 209, 259 Manzi, Jim, 231–32 Mao Zedong, 10 markets: asymmetric information and, 17, 186, 214, 219–20, 229, 248, 254, 262–63; black, 225; boom–bust cycles and, 4, 22, 28, 93, 102, 106–9, 136–37, 145, 147, 213, 222–23, 233, 277, 280, 283; capitalism and, 182, 230–38 (see also capitalism); culture and, 230–38; declining population and, 86, 89–90, 95–99, 103, 113; democracy and, 230–38; deregulation and, 7, 212; evidence–based policy and, 233–34; exchange advantage and, 214; externalities and, 15, 70, 80, 211, 228–29, 249, 254; failures of, 226–30, 240–44, 257, 262–63, 267, 289–90; Fama hypothesis and, 221–22; flaws of, 215–16; fractal character of, 134; free market model and, 14, 121, 129, 182–83, 210–11, 218–24, 232, 240, 243, 251; fundamentalism for, 213; gift economy and, 205–7; interbank, 1–2; international trade and, 110, 148, 159, 163; invisible hand and, 209; mathematical models of, 214; merits of, 211–17; missing, 229; moral, 210, 213, 220–25, 230–33; music, 194–98; network effects and, 253, 258; options, 222; as organizing economy, 218; performativity and, 224–25; Protestant work ethic and, 13–14, 236; public choice theory and, 220, 242–45; public domain and, 196; rational calculation and, 214–15; satellite accounts and, 81; shorting of, 86; social, 217–20; stability issues and, 2–4, 25, 70, 101, 124, 135, 140–41, 174, 176, 218, 296; trilemma of, 230–38; values and, 209–10 (see also values); winner take all, 134 Marx, Karl, 14, 28, 131, 221 McDonalds, 27 McKitrick, Ross, 68 Mean Fiddler Group, 197 Measuring Australia’s Progress, 274 measurement: asymmetric information and, 17, 186, 214, 219–20, 229, 248, 254, 262–63; Australian model and, 271, 274; balance and, 12–17; bankers and, 193, 200; capitalism and, 182; challenges of, 188–93; consumption and, 181–82, 198; distribution and, 191–99; evidence–based policy and, 233–34; GDP, 10 (see also gross domestic product [GDP]); Gini coefficient and, 126; governance and, 183, 186; government and, 182–88, 191, 193, 196, 202–3, 206; growth and, 181–85, 188–90, 194, 201–5, 208; happiness and, 35–39; health issues and, 181, 188–93, 200, 207; hedonic techniques and, 274; importance of, 184–85, 187–89; of inequality, 126; innovation and, 183, 196, 201–8, 273–74; intangible assets and, 199–201, 204–6; labor and, 189–99; less publication of, 271–72; living standards and, 13, 65, 78–79, 106, 113, 136, 139, 151, 162, 190, 194, 267; Measuring Progress exercise and, 294; policy recommendations for, 270–74; politics and, 182–84, 191, 193, 203, 208; productivity and, 189–90, 194, 199–201, 206–7; resources for, 294; social capital and, 154; statistics and, 187–89, 198–208; technology and, 181–85, 188–91, 194–201, 204–6; time constraints and, 204–7; trust and, 152–57; uncertainty of accuracy and, 273; unmeasurable entities and, 187; values and, 209, 212–13, 224 Medicare, 93–94 Meek, James, 26 metrification, 184 Metropolitan Museum of Art symposium, 100–101 Mexico, 226 Microsoft, 253, 258 migration, 108–10, 172 Milanovic, Branko, 123–24 Mill, John Stuart, 31–32 Minsky, Hyman, 226 monopolies, 196, 245, 252, 254 Montreal Protocol, 59 Moore’s Law, 156 morals: bankers and, 90, 277–78; criticism of poor and, 142; fairness and, 116–20, 127, 131, 142, 144; greed and, 221 (see also greed); growth and, 275–76, 279, 293, 295, 297; happiness and, 22, 26, 30, 34, 43, 48–49; institutions and, 254; nature and, 55, 70–72, 76, 78; performativity and, 224–25; posterity and, 90; trust and, 149, 174; values and, 185, 210, 213, 220–25, 230–33 MP3 players, 195 music, 11, 194–98, 204, 208, 229, 254 nature: Brundtlandt Report and, 77; carbon prices and, 70–71; climate change and, 57–84 (see also climate change); consumption and, 58–61, 71–76, 79, 82; Copenhagen summit and, 62, 64–65, 68, 162, 292; democracy and, 61, 66, 68; efficiency and, 61–62, 69, 82; environmentalists and, 29, 55–59, 69–70, 99; freedom and, 79; future and, 75–83; global warming and, 57, 64, 66, 68; government and, 58–62, 65–71, 82–84; greenhouse gases and, 23, 29, 35, 59, 61–63, 68, 70–71, 83; green lifestyle and, 55, 61, 76, 289, 293; gross domestic product (GDP) and, 56–60, 75–76, 80–82; growth and, 56–59, 62–66, 69–72, 76, 79–82; happiness and, 56–59, 75–76, 80–84; health issues and, 81; hybrid cars and, 61; innovation and, 69–70, 81; institutions and, 66–69, 82–84; InterAcademy Council and, 66–67; Intergovernmental Panel on Climate Change (IPCC) and, 59, 66–69, 82, 297; Kyoto Protocol and, 62–64; light bulbs and, 59–61; Montreal Protocol and, 59; morals and, 55, 70–72, 76, 78; natural capital and, 79–81, 151, 271, 273; philosophy and, 69–70; plastic and, 61; politics and, 57–71, 75, 77, 82–84; population issues and, 99; productivity and, 78, 82; satellite accounts and, 81; self-interest and, 65; squandered natural wealth and, 181–82; statistics and, 66, 81–82; stewardship and, 78, 80; technology and, 69–72, 76–77, 80, 84; TEEB project and, 78–79 network effects, 253, 258 New Deal, 129 New Economics Foundation, 36 New Public Management theory, 245–47 Newton, Isaac, 214–15 Niger, 122 Nobel Prize, 18, 60, 102, 215, 220, 236, 250, 261 noise, 47 No Logo (Wolf), 34 Nordhaus, William, 37, 70, 73, 156 North, Douglass, 261 Northern Rock, 1, 146 Obama, Barack, 62–63, 87, 173, 260, 285, 288 Oberholzer-Gee, Felix, 197 obesity, 137–38, 279 Office for National Statistics, 274 Olson, Mancur, 242 opinion formers, 61 option pricing theory, 222 Orchestra of the Age of Enlightenment, 194 Organization for Economic Cooperation and Development (OECD), 4, 11, 201, 305n11; happiness and, 38, 52; inequality in, 125–26; nature and, 60, 68; policy recommendations for, 273–74, 281, 283, 287, 291, 293; posterity and, 87, 93–94, 97–99, 112; trust and, 160, 171; values and, 212, 243–44, 246 organized crime, 277 Ormerod, Paul, 41 Orwell, George, 56 Ostrom, Elinor, 17, 220, 250–51, 261–63 Pakistan, 81, 226 Paradox of Choice, The (Schwartz), 10–11, 40 Parmalat, 146 partisanship, 2, 16, 101, 128, 269, 285 Peake, Mervyn, 9 pensions, 4, 25, 243; burden of, 92–95; Chinese savings and, 94; measurement and, 191, 203; policy recommendations for, 269–71, 275, 280, 286, 289–90, 293; posterity and, 85–86, 90–100, 103–7, 111–13; retirement age and, 92, 97–99, 106–7, 112; trust and, 174–76 performativity, 224–25 Persson, Torsten, 136 Pew surveys, 140 philanthropy, 33 philosophy, 16; fairness and, 114–15, 123; freedom and, 237; happiness and, 21, 27, 31–32, 49–50; nature and, 69–70; utilitarian, 31–32, 78, 237; values and, 237–39 Pickett, Kate, 137–40 Piereson, James, 183 Piketty, Thomas, 127, 129 Pimco, 287 Pinch (Willetts), 98–99 Pinker, Steven, 118, 305n4 Poland, 239 police service, 5, 35, 163, 193, 200, 247 policy: Commission on the Measurement of Economic Performance and Social Progress and, 37–38; deregulation and, 7, 212; errors in standard, 8; evidence–based, 233–34; first ten steps for, 294–98; future and, 75–83, 291–98; Intergovernmental Panel on Climate Change (IPCC) and, 59, 66–69, 82, 297; legitimacy and, 8, 16, 50, 66, 68–69, 162–63, 213, 226, 269, 274, 292, 296–97; measurement and, 187–89; OECD countries and, 4, 11, 38, 52, 60, 68, 87, 93–94, 97–99, 112, 125–26, 160, 171, 201, 212, 243–44, 246, 273–74, 281, 283, 287, 291, 293; population growth and, 95–100; practical recommendations for, 269–91; reform and, 8, 82–83, 85 (see also reform); stability issues and, 2–4, 25, 70, 101, 124, 135, 140–41, 174, 176, 218, 296; stimulus packages and, 91, 100–103, 111; sustainability and, 57 (see also sustainability); tradition and, 9; transparency and, 83, 164, 288, 296; trilemma of, 13–14, 230–36, 275; World Forum on Statistics, Knowledge, and Policy and, 38 political correctness, 173, 231 political economy, 27–28 pollution, 15, 35, 228 Population Bomb, The (Ehrlich), 70 population issues: aging, 4, 95–100, 106, 109, 206, 267, 280, 287, 296; baby boomers and, 4, 106, 109; declining population and, 86, 89–90, 95–99, 103, 113; demographic implosion and, 95–100; environmentalists and, 99; global cities and, 165–70; Malthusianism and, 95; migration and, 108–10; one-child policy and, 95–96; posterity and, 89–90, 94–95, 105–6, 109, 112–13; retirement age and, 94, 97–99, 106–7, 112 Porter, Roy, 184 Portugal, 126, 287 posterity, 298; aging population and, 89–90, 94–95, 105–6, 109, 112–13; bankers and, 85–91, 94, 99–102; consumption and, 86, 104–6, 112–13; current generation’s debt to, 90–92, 112–13; declining population and, 86, 89–90, 95–99, 103, 113; default and, 110–12; democracy and, 106; demographic implosion and, 95–100; freedom of investors and, 108; globalization and, 108; government and, 84–95, 98–113; gross domestic product (GDP) and, 91–94, 98–99, 103, 108, 111; growth and, 90, 95, 97, 99, 102, 105–8, 111; health issues and, 89, 93–94, 97–99, 103, 106, 111–13; higher retirement age and, 94–98, 106–7, 112; innovation and, 102; institutional responsibility and, 296; less leisure and, 106–7; Medicare and, 93–94; migration and, 108–9; morals and, 90; pensions and, 85–86, 90, 92–100, 103–7, 111–13; politics and, 86–94, 98, 101–8, 111–13; poverty and, 100; productivity and, 88, 97–99, 102, 105–8, 112; public debt and, 85–86; reform and, 85–86, 98, 111–12; savings and, 86–87, 94, 98, 100–101, 105–8, 112; Social Security and, 93–94; social welfare and, 85, 100, 112; sustainability and, 79 (see also sustainability); taxpayer burden and, 85–91, 94, 99, 103–5; technology and, 107; welfare burden and, 92–95 poverty, 261, 267; desire to spend and, 55–56; fairness and, 125, 128, 138, 142; happiness and, 43; posterity and, 100; trust and, 168–69 printing press, 7 productivity, 16; balance and, 268, 271, 273–76, 281, 287; bureaucratic obstacles to, 285–86; Commission on the Measurement of Economic Performance and Social Progress and, 37–38; fairness and, 131, 135; globalization and, 131 (see also globalization); governance and, 173–77; happiness and, 27, 38, 42, 51; improvements in, 107–8; institutions and, 244–47, 257, 263; measurement and, 189–90, 194, 199–201, 206–7; nature and, 78, 82; posterity and, 88, 97–99, 102, 105–8, 112; public services and, 257; Soviet method and, 246; technology and, 107–8, 157–59, 268; trilemma of, 13–14, 230–36, 275; trust and, 156–59, 162, 166–67, 170, 174 property rights, 80, 174, 195–96, 261 Protestant work ethic, 13–14, 236 psychology: altruism and, 118–22; anomie and, 48, 51; anxiety and, 1, 25, 47–48, 136–38, 149, 174; behavioral economics and, 116–17, 121, 282; choice and, 10–11; coherence and, 49; commuting and, 47; conflict in relationships and, 47; Easterlin Paradox and, 39–44; face-to-face contact and, 7, 147, 165–68; freedom and, 237 (see also freedom); game theory and, 116–18, 121–22; gift economy and, 205–7; greed and, 26, 34, 54, 88, 129, 150, 221–23, 248, 277–79; happiness and, 9–12, 44–50 (see also happiness); lack of control and, 47; noise and, 47; paradox of prosperity and, 174; positive, 9–10, 49–50, 303n51; public choice theory and, 220, 242–45; rational choice theory and, 214–15; shame and, 47; Slow Movement and, 27–28, 205; thrift education and, 283–84, 294–95; well-being and, 137–43 Ptolemy, 274 public choice theory, 220, 242–45 Public Domain, The (Boyle), 196 public goods, 185–86, 190, 199, 211, 229, 249, 261 purchasing power parity (PPP), 306n19 Putnam, Robert, 140–41, 152–54 Quiet Coup, The (Johnson), 256–57 Radio Corporation of America (RCA), 195 Rajan, Raghuram, 136 Rank, Robert, 40 rational choice theory, 214–15 Rawls, John, 31 Reagan, Ronald, 93, 121, 127, 211, 240, 243, 247–48 recession, 9, 11–12, 275; happiness and, 22, 24, 41, 54; nature and, 55–56, 66; plethora of books following, 55; posterity and, 85, 88, 91–93, 100–101, 108, 110; recovery from, 3, 103; trust and, 182; values and, 209–10, 213, 222 reciprocal altruism, 118–22 reform, 8; benchmark for, 218; bankers and, 277–79; bonus taxes and, 278; collective assent to, 269; courage needed for, 203; first ten steps for, 294–98; health care, 285; improving statistics and, 271; institutions and, 245–48, 256, 285, 288–91, 296–97; nature and, 82–85; New Public Management and, 245–46; politics and, 287–88; posterity and, 98, 111–12; public sector, 288–90; trust and, 162–64, 176–77; values and, 218, 233, 275–78, 295 Reinhardt, Carmen, 111 religion, 10; happiness and, 32–33, 43, 50; nature and, 76, 78; Protestant work ethic and, 13–14, 236; trust and, 147 Renaissance, 7 retirement age, 94, 97–99, 106–7, 112 revalorization, 275 Road to Wigan Pier, The (Orwell), 56 Rodrik, Dani, 136 Rogoff, Kenneth, 111 Romantic Economist, The (Bronk), 28 Romanticism, 27 Rothschilds, 147 Rousseau, Jean–Jacques, 114 Royal Bank of Scotland, 146 runs, 1 Ruskin, John, 27–28 Russia, 97–98, 123; Cold War and, 93, 112, 147, 209, 213, 239; Iron Curtain and, 183, 239, 252; production targets and, 246; as Soviet Union, 228, 246 Saez, Emmanuel, 127, 129 salaries: high, 130, 143–44, 193, 223, 277–78, 286, 296; measurement and, 191–99; paradox of, 193; superstar effect and, 134; technology and, 2, 89 Sandel, Michael, 224–25, 237 Sarkozy, Nicolas, 37, 202, 274 satellite accounts, 38, 81, 204–6, 271 Satyam, 146 savings, 1, 280–82, 293; China and, 87, 94, 100, 108; necessary increasing of, 105–6; negative, 105; policy recommendations for, 280–84; posterity and, 86–87, 94, 98, 100–101, 105, 108, 112; thrift education and, 283–84, 294–95 savings clubs, 283 Schumpeter, Joseph, 14 Schwartz, Barry, 10–11, 40 Seabright, Paul, 148–49, 170, 213–14, 228 self-interest: fairness and, 114–22; greed and, 26, 34, 54, 88, 129, 150, 221–23, 248, 277–79; moral sentiments and, 119–20, 142, 221; nature and, 65; reciprocal altruism and, 118–22; values and, 214, 221 Selfish Gene, The (Dawkins), 118 Sen, Amartya, 18, 37, 43, 82, 202, 237, 274, 310n25 shame, 47 shareholders, 88, 145, 248, 257–58, 277 Silicon Valley, 166 Simon, Herbert, 249–50, 254, 261, 270 Simon, Julian, 70 Singapore, 126 Sloan School, 256 Slow Food, 27 Slow Movement, 27–28, 205 smart cards, 252–53 Smith, Adam, 119–20, 209, 221, 255 Smith, Vernon, 215 social capital, 8, 12, 17; definition of, 152–53; fairness and, 116, 121, 139–43; intangible assets and, 149–52, 157, 161, 199–201; measurement of, 154, 185; policy recommendations for, 267, 271, 273, 276; Putnam on, 152–54; trust and, 5, 151–57, 168–74, 177; values and, 223–25, 231, 257 social justice, 31, 43, 53, 65, 123, 164, 224, 237, 286 Social Limits to Growth, The (Hirsch), 190, 231 social markets, 217–20 social networks, 260, 270, 288–89 Social Security, 93–94 social welfare. See welfare Socrates, 32 software, 253 Solow, Robert, 77–78, 80, 82 Soulful Science, The (Coyle), 121 South Sea Bubble, 3 Spain, 126, 287 spillovers, 186, 228–29 Spirit Level, The (Wilkinson and Pickett), 137–39 Stagecoach Festival, 197 Standard & Poor’s, 201 statistics, 10; fairness and, 115, 138; growth and, 270–74, 290–94; happiness and, 35–42, 51–52; innovation and, 12, 201–7; institutions and, 245; measurement and, 187–89, 198–208; nature and, 66, 81–82; policy recommendations for, 270–74; posterity and, 92; resources for, 294; trust and, 154; user–generated content and, 273; values and, 13; World Forum on Statistics, Knowledge, and Policy and, 38.


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

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

Perhaps the most famous bubble was the 1636 Tulip Mania that caused the Dutch to wildly bid up prices—some writers suggest even so high that the value of one bulb could feed a merchant ship’s crew for one year; woe the unfortunate sailor who munched one, mistaking it for an onion.9 In the eighteenth century, the Mississippi Scheme in France and the South Sea Bubble in England caused 1720 to be a particularly bad year for deregulation—worse even than the Great Depression. In the first case, a financial engineer John Law snookered the French aristocracy, selling them shares in bogus Louisiana gold deposits. Share speculation in the riches to be had—never mind the Indians and malarial mosquitoes or the absence of gold—reached a fever pitch in 1720 when shares soared 36-fold before the bubble burst.10 The impact devastated Continental commerce and entered national lore so forcefully that the French remain leery of stock speculation to this day.

For us today in interpreting Adam Smith, an especially important bubble arose in 1772 in Scotland, when the giant Ayr Bank and others collapsed, impoverishing Scotland for years. P.J. O’Rourke explained the environment in which Smith wrote the Wealth of Nations in a February 2009 column in the Financial Times: “The Mississippi Scheme and the South Sea Bubble had both collapsed in 1720, three years before his (Smith’s) birth. In 1772, while Smith was writing The Wealth of Nations, a bank run occurred in Scotland. Only three of Edinburgh’s 30 private banks survived.”94 As he looked out his study window, Adam Smith could scarcely avoid the financial news of the day, and realized the barrier such abuses posed to his hopes for advancing the condition of his day.95* That accounts for his abiding support for prudent government regulation to channel the business community’s greed into competition.

Goodman, as quoted in “A Fresh Look at the Apostle of Free Markets,” New York Times, April 13, 2008. 9 Catherine Rampell, “Same Old Hope: This Bubble Is Different,” New York Times, Sept. 14, 2009. 10 Mathias Döpfner, “On the Search for the Honor of the Merchant,” Handelsblatt, Nov. 19, 2011. 11 John Carswell, The South Sea Bubble (London: Cresset Press, 1960). Catherine Rampell, “Same Old Hope: This Bubble Is Different.” 12 Timothy H. Parsons, The Rule of Empires (New York: Oxford University Press, 2010), 170, 194, 201–202. 13 John Gillespie and David Zweig, Money for Nothing (New York: Free Press, 2010), 20–24 and Jan Edwards, “Challenging Corporate Personhood,” Multinational Monitor, November 2002. 14 Amrit Dhillon, “Fresh Brew,” Sydney Morning Herald, June 5, 2010. 15 Ralph Nader, The Nader Reader, Feb. 21, 2000, speech. 16 R.


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Surviving AI: The Promise and Peril of Artificial Intelligence by Calum Chace

"Robert Solow", 3D printing, Ada Lovelace, AI winter, Airbnb, artificial general intelligence, augmented reality, barriers to entry, basic income, bitcoin, blockchain, brain emulation, Buckminster Fuller, cloud computing, computer age, computer vision, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, dematerialisation, discovery of the americas, disintermediation, don't be evil, Elon Musk, en.wikipedia.org, epigenetics, Erik Brynjolfsson, everywhere but in the productivity statistics, Flash crash, friendly AI, Google Glasses, hedonic treadmill, industrial robot, Internet of things, invention of agriculture, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Kevin Kelly, life extension, low skilled workers, Mahatma Gandhi, means of production, mutually assured destruction, Nicholas Carr, pattern recognition, peer-to-peer, peer-to-peer model, Peter Thiel, Ray Kurzweil, Rodney Brooks, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley ideology, Skype, South Sea Bubble, speech recognition, Stanislav Petrov, Stephen Hawking, Steve Jobs, strong AI, technological singularity, The future is already here, The Future of Employment, theory of mind, Turing machine, Turing test, universal basic income, Vernor Vinge, wage slave, Wall-E, zero-sum game

The reason was (again) the under-estimation of the difficulties of the tasks being addressed, and also the fact that desktop computers and what we now call servers overtook mainframes in speed and power, rendering very expensive legacy machines redundant. The boom and bust phenomenon was familiar to economists, with famous examples being Tulipmania in 1637 and the South Sea Bubble in 1720. It has also been a feature of technology introduction since the industrial revolution, seen in canals, railways and telecoms, as well as in the dot-com bubble of the late 1990s. The second AI winter thawed in the early 1990s, and AI research has been increasingly well funded since then.


pages: 447 words: 126,219

The Subterranean Railway: How the London Underground Was Built and How It Changed the City Forever by Christian Wolmar

Boris Johnson, British Empire, full employment, invention of the telephone, lateral thinking, profit motive, railway mania, South Sea Bubble, urban sprawl, V2 rocket, women in the workforce

Railway companies were fortunate in having a privileged position which allowed them to adopt a corporate form that meant they were able to raise capital from more than six people. Other companies operated under a restriction which limited the number of investors to five or fewer, a result of legislation introduced in response to the scandal of the South Sea Bubble in the eighteenth century and which remained in force for manufacturing companies until the 1860s. Moreover, the railways could compulsorily purchase property, but to obtain planning permission they had to introduce a private Bill and successfully negotiate it through both houses of Parliament.

., ref1 Shillibeer, George, ref1 Shoreditch, ref1, ref2, ref3 Siemens, Sir William (Wilhelm), ref1 signalling, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8 Sloane Square, ref1, ref2 Smithfield, ref1, ref2, ref3 smoking, ref1, ref2, ref3, ref4, ref5 Snow Hill, ref1, ref2 songs, ref1 South Acton, ref1 South Eastern Railway, ref1, ref2, ref3, ref4, ref5, ref6 South Harrow, ref1, ref2, ref3 South Kensington, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10, ref11, ref12 South Kentish Town, ref1 South London Press, ref1 South Sea Bubble, ref1 Southend, ref1 Southern Railway, ref1 Southgate, ref1, ref2 Southwark, ref1 Speyer, Sir Edgar, ref1, ref2, ref3, ref4, ref5, ref6 Spiers and Pond, ref1 spivs, ref1 Stalin, Josef, ref1 Stamford Hill, ref1 Stanley, Albert, see Ashfield, Lord Stanmore, ref1, ref2 Star, ref1 station staff, ref1 stations architecture, ref1, ref2, ref3, ref4, ref5, ref6 cast-iron construction, ref1 distance between, ref1 on inclines, ref1 lighting, ref1 upgrades, ref1 steamboats, ref1 Stephenson, George, ref1 Stephenson, Robert, ref1 Stockwell, ref1, ref2, ref3, ref4 Stoke Mandeville, ref1 Strand, The, ref1 straphanging, ref1 Stratford, ref1, ref2 strip tickets, ref1, ref2 Submarine Railway Company, ref1 Sunday Dispatch, ref1 Sutherland, Graham, ref1 Sutton, ref1, ref2 Swiss Cottage, ref1, ref2, ref3, ref4 Tate Gallery, ref1 Tavistock Square, ref1 Temple, ref1, ref2 Tennant, Henry, ref1 terrorist attacks, ref1, ref2 Thames Embankment, ref1, ref2 Thames Tunnel, ref1, ref2 Thameslink, ref1, ref2, ref3 Thatcher, Margaret, ref1 theatres, ref1, ref2, ref3, ref4, ref5 Thomas, J.P., ref1 Thrush, Ernest, ref1 Times, The, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10 and Central London Railway, ref1, ref2 and City & South London Railway, ref1 and electrification, ref1 and Metropolitan and District construction, ref1 and strip tickets, ref1 Tooting, ref1 Tottenham, ref1, ref2 Tottenham Court Road, ref1, ref2 Tower Bridge, ref1 Tower Hill, ref1, ref2, ref3 Tower of London, ref1, ref2 Tower Subway, ref1 track gauge, ref1 Trafalgar Square, ref1, ref2 train stop system, ref1, ref2 trams, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10 and network integration, ref1, ref2, ref3, ref4 tramways American, ref1 LCC, ref1 Transport & General Workers Union, ref1 Transport for London, ref1, ref2 Travelcards, ref1, ref2 Trav-o-lators, ref1, ref2 Tring, ref1 Trinity Square, ref1 Tube Lines, ref1 tunnel collapses, ref1, ref2 tunnels cut and cover method, ref1, ref2, ref3, ref4 deepest on network, ref1 East London line, ref1 shield method, ref1, ref2, ref3, ref4, ref5, ref6 Tunnicliffe, Denis, ref1, ref2 Turnham Green, ref1, ref2, ref3 Twain, Mark, ref1 Underground Electric Railways Company of London (UERL), ref1, ref2, ref3, ref4, ref5, ref6, ref7 attention to detail, ref1 improvements, ref1 and London & North Western, ref1 and network integration, ref1, ref2 and wartime, ref1 Underground Group of Companies, ref1, ref2, ref3, ref4, ref5, ref6 unemployment, ref1, ref2, ref3, ref4, ref5, ref6, ref7 United States Steel Corporation, ref1 university boat race, ref1 Upminster, ref1, ref2 Uxbridge, ref1, ref2, ref3, ref4 Uxendon Hill, ref1 Verney Junction, ref1 Victoria, Queen, ref1 Victoria, ref1, ref2, ref3, ref4, ref5, ref6, ref7 Victoria & Albert Museum, ref1 Victoria Line, ref1, ref2, ref3, ref4 Vienna, ref1 Walthamstow, ref1, ref2 Wanstead, ref1, ref2 Wapping, ref1 Waterloo, ref1, ref2, ref3, ref4 Waterloo & City Line, ref1, ref2, ref3, ref4, ref5 Watford, ref1, ref2, ref3, ref4 Watford Junction, ref1 Watford Observer, ref1, ref2, ref3 Watkin, Edward, ref1, ref2, ref3 Channel Tunnel scheme, ref1 expansion plans, ref1, ref2 rivalry with Forbes, ref1, ref2, ref3, ref4, ref5, ref6 ‘Watkin’s folly’, ref1, ref2 Watling Estate, ref1 Wealdstone, ref1 Webb, Sidney and Beatrice, ref1 weighing machines, ref1 Wells, H.G., ref1 Wembley, ref1, ref2 Wembley Park, ref1, ref2, ref3, ref4, ref5 Wendover, ref1 West Brompton, ref1, ref2 West Croydon, ref1, ref2 West Hampstead, ref1 West India Dock, ref1 West Indians, ref1 West Kensington, ref1, ref2 West London Advertiser, ref1 West London Line, ref1, ref2, ref3, ref4, ref5 West London Railway, see West London Line West Ruislip, ref1 Westbourne, river, ref1 Westbourne Grove, ref1 Westminster, ref1, ref2, ref3, ref4, ref5 Westminster Central Hall, ref1 White City, ref1 White Star Line, ref1 Whitechapel, ref1, ref2, ref3 Whiteleys, ref1 Willesden, ref1, ref2 Willesden Green, ref1 Willesden Junction, ref1, ref2 Williams, Watkin, ref1 Willing, J., ref1 Wimbledon, ref1, ref2 Windsor, ref1, ref2, ref3, ref4 Wire, David, ref1 Wolseley, Lieutenant General Sir Garnet, ref1 women staff, ref1, ref2, ref3, ref4 Wood Green, ref1, ref2, ref3, ref4 Wood Lane, ref1, ref2 Woodcock Hill and Woodcock Dell Estates, ref1 Woolwich, ref1, ref2 workmen’s trains, ref1, ref2, ref3, ref4, ref5 Wright, Whitaker, ref1 Yerkes, Charles Tyson, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10 in America, ref1 his death, ref1, ref2 District Railway takeover, ref1, ref2, ref3, ref4 fares policy, ref1, ref2, ref3 forward thinking, ref1 and J.P.


pages: 823 words: 220,581

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

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

It documents the links between business and government figures in the USA, and leading neoclassical economists like Larry Summers feature prominently (see http://blog.littlesis.org/2011/01/10/evidence-of-an-american-plutocracy-the-larry-summers-story/). 11 | THE PRICE IS NOT RIGHT Why finance markets can get the price of assets so badly wrong In the first edition of this book, this chapter began with the following paragraphs: The Internet stock market boom was1 the biggest speculative bubble in world history. Other manias have involved more ridiculously overvalued assets, or more preposterous objects of speculation – such as the tulip craze in 17th century Holland, the South Sea Bubble and Mississippi Bubble of the 18th century, or Japan’s 1980s Bubble Economy speculation over Tokyo real estate. But no other bubble – not even the ‘Roaring Twenties’ boom prior to the Great Depression – has involved so many people, speculating so much money, in so short a time, to such ridiculous valuations.

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

Shedlock, Mish Shiller, Robert shocks, exogenous short run short-term funding, dependence on Simulink system dynamics program Sippel, Reinhard size, importance of Smith, Adam; The Wealth of Nations Smith, Edgar, Common Stocks as Long Term Investment Smith, Yves social conflict, not taken into account social security social welfare; maximization of social well-being socialism; perceived inevitability of; scientific socialist economies, shortages in society, as sum of individuals soft budget constraint Solow, Robert Sonnenschein, H. F. Sonnenschein-Mantel-Debreu (SMD) conditions Sornette, Didier Soros, George South Sea Bubble speculation; debt-financed; in housing; on stock market Sraffa, Piero; alternative outlook of; and law of diminishing marginal returns; ‘The law of returns under competitive conditions’; neoclassical response to; on aggregation; The Production of Commodities by Means of Commodities; summing up of Sraffian economics stability: negative; of markets stagflation standard deviation measurement state, role in creating money static analysis Steedman, Ian Stevens, Glenn Stigler, George Stiglitz, Joseph stock market: behavior of; Keynes’s view of; volatility of Stoekel, A.


pages: 725 words: 221,514

Debt: The First 5,000 Years by David Graeber

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

The Dutch Republic, which pioneered the development of stock markets, had already experienced this in the tulip mania of 1637—the first of a series of speculative “bubbles,” as they came to be known, in which future prices would first be bid through the ceiling by investors and then collapse. A whole series of such bubbles hit the London markets in the 1690s, in almost every case built around a new joint-stock corporation formed, in imitation of the East India Company, around some prospective colonial venture. The famous South Sea Bubble in 1720—in which a newly formed trading company, granted a monopoly of trade with the Spanish colonies, bought up a considerable portion of the British national debt and saw its shares briefly skyrocket before collapsing in ignominy—was only the culmination. Its collapse was followed the next year by the collapse of John Law’s famous Banque Royale in France, another central-bank experiment—similar to the Bank of England—that grew so quickly that within a few years it had absorbed all the French colonial trading companies, and most of the French crown’s own debt, issuing its own paper money, before crashing into nothingness in 1721, sending its chief executive fleeing for his life.

On the one end were the periodic bubbles, propelled in part by rumor and fantasy and in part by the fact that just about everyone in cities like Paris and London with any disposable cash would suddenly become convinced that they would somehow be able to profit from the fact that everyone else was succumbing to rumor and fantasy. Charles MacKay has left us some immortal descriptions of the first of these, the famous “South Sea Bubble” of 1710. Actually, the South Sea Company itself (which grew so large that at one point it bought up most of the national debt) was just the anchor for what happened, a giant corporation, its stock constantly ballooning in value, that seemed, to put it in contemporary terms, “too big to fail.”

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


pages: 436 words: 76

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

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

While Spanish colonists were soldiers in search of gold, British and Dutch colonization was managed by businesses such as the East India Company and the VOC (Vereenigde Oostindische Compagnie) and its purpose was commercial exploitation. The beginning of the eighteenth century was a period of rapid financial innovation, which culminated in the boom and bust of the South Sea bubble. The Market Economy Crosses the Atlantic ••••••••••••••••••••••••••••••••••••• The Pilgrim fathers came to Plymouth from Britain via the Netherlands. Thus the connection with the two countries at the forefront of the development of economic institutions in the seventeenth and eighteenth centuries was established at the inception of modern America.

The Limited Liability Corporation ••••••••••••••••••••••••••••••••••••• The process by which corporations came to exercise that dominance was lengthy. In Greek and Roman times and in the Middle Ages, business was conducted by individuals, or partnerships of people who knew each other well-who else would take on the risks? When larger partnerships were formed, speculation and fraud followed, and after the South Sea bubble large-scale commercial organization was prohibited. The objective was to restrict investment to ventures the participants might expect to understand. But throughout history, from the tulip mania of 1636 to the dot-com bubble of 1999, greed and gullibility have defeated that purpose. The precursors of the modern corporation were international trading companies, such as the English East India Company or the Dutch VOC.


pages: 461 words: 128,421

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

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

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

., 355n. 2 Sloan School of Industrial Management, 70–71, 71–72 Slutsky, Eugene, 41–42, 51 small-cap stocks, 205–6, 208–9 small-stock effect, 225, 296 Smith, Adam and agricultural futures, 39–40 and corporations, xiv, 153–54 and equilibrium theory, 78, 193 Smith, Adam and the “invisible hand,” 9, 158–59, 335n. 11 and neoclassical economics, 29–30 and rational market hypothesis, xiii Smith, Edgar Lawrence, 21–22, 25, 38, 99, 141, 256 Smith, Vernon, 188–89, 289 social Darwinism, 9, 93 social responsibility, 159–61 socialism, 91 Society for the Advancement of Behavioral Economics, 187 Soros, George, 266 South Africa, 12 South Sea Bubble, 16, 153 S&P 500, 19–20, 38, 128, 163, 196, 219–20, 227, 230, 249, 260 Sparkman, John, 124 spectral analysis, 70 Standard & Poor’s, 16–17. See also S&P 500 standard deviation, 6 Standard Oil, 15 Standard Statistics Co., 15, 16–17, 19, 38, 116 Stanford Business School, 135 Stanford Center for Advanced Study in Behavioral Sciences, 106–7 State Street Global, 112, 143 Statistical Research Group, 47–48, 52 Statman, Meir, 186–87, 200, 359n. 25 Stern, Joel, 163–64, 222, 270 Stigler, George, 90, 92, 95, 159, 182 Stiglitz, Joseph, 181, 196, 202, 207, 288, 328 Stocks for the Long Run (Siegel), 256 Strong, Benjamin, 20, 24 The Structure of Scientific Revolutions (Kuhn), 107, 203 Stulz, René, 251–52 subprime lending, 313–15 subsidies, 194 Summers, Lawrence, 328 and Black, 200 and the efficient market hypothesis, 203 and Fama, 207 and market crashes, 232 and the National Bureau of Economic Research, 183 and overvaluations, 269–70 and political appointments, 252 and Samuelson, 198, 358n. 19 and the Santa Fe conference, 302 and Shiller, 198–99 and Shleifer, 248, 250–51, 363n. 4 Sumner, William Graham, 9, 10, 12, 31, 93 Sun Life Canada, 27 Sunstein, Cass, 295 superior intrinsic-value analysis, 97 supply-demand graphs, 30 Surowiecki, James, 307 Taleb, Nassim Nicholas, 239 taxes, 244, 274–77, 280 tech bubble, 261–62 Technical Analysis of Stock Trends (Edwards and Magee), 68 technological advance, 120, 258.


pages: 177 words: 54,421

Ego Is the Enemy by Ryan Holiday

activist fund / activist shareholder / activist investor, Airbnb, Ben Horowitz, Berlin Wall, Bernie Madoff, Burning Man, delayed gratification, Google Glasses, Jeff Bezos, Joan Didion, Lao Tzu, Paul Graham, Ponzi scheme, Ralph Waldo Emerson, Richard Feynman, side project, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, sunk-cost fallacy, Upton Sinclair

There’s a video you can watch on YouTube of a man on a CBS game show, “I’ve Got a Secret,” in 1956, in an episode that also happened to feature a famous actress named Lucille Ball. His secret? He was in Ford’s Theatre when Lincoln was assassinated. England’s government only recently paid off debts it incurred as far back as 1720 from events like the South Sea Bubble, the Napoleonic wars, the empire’s abolition of slavery, and the Irish potato famine—meaning that in the twenty-first century there was still a direct and daily connection to the eighteenth and nineteenth centuries. As our power or talents grow, we like to think that makes us special—that we live in blessed, unprecedented times.


The Great Turning: From Empire to Earth Community by David C. Korten

Albert Einstein, banks create money, big-box store, Bretton Woods, British Empire, business cycle, clean water, colonial rule, Community Supported Agriculture, death of newspapers, declining real wages, different worldview, European colonialism, Francisco Pizarro, full employment, George Gilder, global supply chain, global village, God and Mammon, Hernando de Soto, Howard Zinn, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, joint-stock company, land reform, market bubble, market fundamentalism, Monroe Doctrine, Naomi Klein, neoliberal agenda, new economy, peak oil, planetary scale, Plutocrats, plutocrats, Project for a New American Century, Ronald Reagan, Rosa Parks, sexual politics, shared worldview, social intelligence, source of truth, South Sea Bubble, stem cell, structural adjustment programs, The Chicago School, trade route, Washington Consensus, wealth creators, World Values Survey

Armed skirmishes with the rival North West Company were common until the British government forced their merger in 1821 into a single company with a monopoly over the fur trade in much of North America, including the Northwest Territories. The British South Sea Company, which was chartered primarily to sell African slaves to Spanish colonies in America, became the centerpiece of the “South Sea Bubble,” one of history’s most famous financial scams.13 The new corporate form, the joint stock company created to fulfill the above functions, combined two ideas from the Middle Ages: the sale of shares in public markets and the protection of owners from personal liability for the corporation’s obligations.

., 269–270 Skull and Bones Society, 182 slavery, 102, 112, 118, 131, 146, 214 abolishment of, 202 antislavery petition, 204 Aristotle’s defense of, 150–151 desperate volunteers/runaways, 168 in early American colonies, 173 guarantees for, 185–186 involuntary conscripts, 167–168 race, 168–169 Thirteenth Amendment, 187 use of term, 166–167 social authority, 45 social classes Aristotle on, 150 division among, 216 middle class, 206–212, 213–214, 215, 227 owning class, 139–140, 186, 208–209, 215–216, 243, 289 producing classes, 118, 206, 210 separation of, 67 working class, 206–212 social contract, 153 social Darwinism, 247–248 social ills, 225 Socialized Consciousness, 44–46, 48, 52, 53, 55, 56, 84, 250, 286 social movements, 84, 134 social pathology, 35–36, 108, 124 social relationships, 37 social roles, women’s rejection of definitions of, 323 Social Security, 212–213 social systems, 20–21, 94 social units, 103 social welfare, 227–228 society, balancing feminine and masculine principles in, 105 sociopaths, 46, 49, 51 institutional, 132–133 Socrates, 144–145, 146, 147–148, 151, 154 solar system, 255 Somoza, Anastasio, 196 Sons of Neptune, 175 Soros, George, 239 Soul of Adulthood, The (Friel and Friel), 271 South America, 356 South Sea Bubble, 131 Soviet Empire, 134, 196 Soviet Union, 194 Spain, 127–128, 131, 134 Spanish-American War, 193 spirit model, 262 spiritual awakening, 21–22, 73, 75, 80, 322 spiritual bankruptcy, 340 Spiritual Consciousness, 47–48, 52, 53, 56, 78–79, 289, 316–317, 330 Spiritual Creatives, 80–81, 323–324, 326, 330, 353 spiritual identity, 105–106 spiritual inquiry, 324–326 INDEX spiritual intelligence, 308 spiritual wisdom, 73 Stamp Act, 175, 176 Stanton, Elizabeth Cady, 204 Star Trek, “The Cloud Minders,” 56, 63, 67, 68, 173, 182 State of the Possible retreats, 18 statesmanship, 104 status quo, threats to U.S., 70–72 stealth politics, 223–227 stock market (share market), 68 stock shares, number of households owning, 68 Stone, Merlin, 98, 99 stories.


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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, Bear Stearns, 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, Ida Tarbell, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, Louis Pasteur, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, McDonald's hot coffee lawsuit, means of production, Menlo Park, Mexican peso crisis / tequila crisis, 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

American representative government was arguably formed in 1630 when the Massachusetts Bay Company transformed itself from a company into a commonwealth and converted its stockholders from members of a limited business venture into representatives in a public government.12 The American Revolution gave chartered companies a new lease on life. In Britain, chartered companies went into decline after the Bubble Act was passed in 1720 to deal with the problems created by the South Sea Company. (The reaction to the South Sea Bubble was an early example of the government’s response to a financial panic being worse than the panic itself.) In postrevolutionary America, the states enthusiastically created chartered companies. More than 350 businesses were incorporated between 1783 and 1801. Two-thirds of these were in the business of providing inland navigations via turnpikes or toll bridges.

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


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

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

Although that talent is impressive, being able to read and critique a balance sheet doesn’t necessarily translate into knowing when and how much to buy or sell as trend following trader Richard Donchian pointed out (see Chapter 2, “Great Trend Followers”). Crash and Panic What do Julian Robertson, the concept of losers average losers, the dot-com stock crash, and October 2008 have in common? Bubbles. The 2008 crash is no different from the tulip bubble made famous in Holland. In 1720, when the south sea bubble was at its height, even the greatest genius of his time, Sir Isaac Newton, got sucked into the hysteria. Investing as if his brilliance in science carried over to his finances, Newton eventually lost £20,000. Although bubbles might appear as short-term blips in economic history, more often the aftermath is long term, resulting in severe recessions and government intervention that usually makes the situation worse.

American Economic Review, 71 (1981). Sloan, Allen. Even With No Bull Market, Baby Boomers Can Thrive. March 2002. See www.washingtonpost.com. Slywotzky, Adrian J. Value Migration: How to Think Several Moves Ahead of the Competition. Boston: Harvard Business School Press, 1996. Smant, Dr. D.J.C. Famous First Bubbles, South Sea Bubble? The Fundamentals of Early Manias. October 2001. Soros, George. The Alchemy of Finance: Reading the Mind of the Market. New York: John Wiley & Sons, Inc., 1994. Spurgin, Richard. Some Thoughts on the Source of Return to Managed Futures. CISDM and School of Management at University of Massachusetts.


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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, Bear Stearns, 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, disinformation, 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, long term incentive plan, 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 creation, 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, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, tail risk, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, éminence grise

(Bolingbroke would have behaved in exactly the same way, had their roles been reversed.) By the nineteenth century, Parliament itself was being lampooned as the ‘Old Corruption’. The greatest scandal had occurred in 1720, when shares in a slave-trading monopoly – the South Sea Company – had departed far from economic reality. The result was the so-called South Sea Bubble. Even the Chancellor of the Exchequer speculated on it. Then the bubble popped. The losses and devastation were unprecedented. However, Parliament learned its lesson: in future it would be more circumspect to which joint stock companies it granted a monopoly – and whether they should have monopolies at all.

., 64, 65 Rowthorn, Robert, 292, 363 Royal Bank of Scotland (RBS), 25, 150, 152, 157, 173, 181, 199, 251, 259; collapse of, 7, 137, 150, 158, 175–6, 202, 203, 204; Sir Fred Goodwin and, 7, 150, 176, 340 Rubin, Robert, 174, 177, 183 rule of law, x, 4, 220, 235 Russell, Bertrand, 189 Russia, 127, 134–5, 169, 201, 354–5, 385; fall of communism, 135, 140; oligarchs, 30, 65, 135 Rwandan genocide, 71 Ryanair, 233 sailing ships, three-masted, 108 Sandbrook, Dominic, 22 Sands, Peter (CEO of Standard Chartered Bank), 26 Sarkozy, Nicolas, 51, 377 Sassoon, Sir James, 178 Scholes, Myron, 169, 191, 193 Schumpeter, Joseph, 62, 67, 111 science and technology: capitalist dynamism and, 27–8, 31, 112–13; digitalisation, 34, 231, 320, 349, 350; the Enlightenment and, 31, 108–9, 112–13, 116–17, 121, 126–7; general-purpose technologies (GPTs), 107–11, 112, 117, 126–7, 134, 228–9, 256, 261, 384; increased pace of advance, 228–9, 253, 297; nanotechnology, 232; New Labour improvements, 21; new opportunities and, 33–4, 228–9, 231–3; new technologies, 232, 233, 240; universities and, 261–5 Scotland, devolving of power to, 15, 334 Scott, James, 114–15 Scott Bader, 93 Scott Trust, 327 Second World War, 134, 313 Securities and Exchanges Commission, 151, 167–8 securitisation, 32, 147, 165, 169, 171, 186, 187, 196 self-determination, 85–6 self-employment, 86 self-interest, 59, 60, 78 Sen, Amartya, 51, 232, 275 service sector, 8, 291, 341, 355 shadow banking system, 148, 153, 157–8, 170, 171, 172, 187 Shakespeare, William, 39, 274, 351 shareholders, 156, 197, 216–17, 240–4, 250 Sher, George, 46, 50, 51 Sherman Act (USA, 1890), 133 Sherraden, Michael, 301 Shiller, Robert, 43, 298, 299 Shimer, Robert, 299 Shleifer, Andrei, 62, 63, 92 short selling, 103 Sicilian mafia, 101, 105 Simon, Herbert, 222 Simpson, George, 142–3 single mothers, 17, 53, 287 sixth form education, 306 Sky (broadcasting company), 30, 318, 330, 389 Skype, 253 Slim, Carlos, 30 Sloan School of Management, 195 Slumdog Millionaire, 283 Smith, Adam, 55, 84, 104, 112, 121, 122, 126, 145–6 Smith, John, 148 Snoddy, Ray, 322 Snow, John, 177 social capital, 88–9, 92 social class, 78, 130, 230, 304, 343, 388; childcare and, 278, 288–90; continued importance of, 271, 283–96; decline of class-based politics, 341; education and, 13, 17, 223, 264–5, 272–3, 274, 276, 292–5, 304, 308; historical development of, 56–8, 109, 115–16, 122, 123–5, 127–8, 199; New Labour and, 271, 277–9; working-class opinion, 16, 143 social investment, 10, 19, 20–1, 279, 280–1 social polarisation, 9–16, 34–5, 223, 271–4, 282–5, 286–97, 342; Conservative reforms (1979-97) and, 275–6; New Labour and, 277–9; private education and, 13, 223, 264–5, 272–3, 276, 283–4, 293–5, 304; required reforms for reduction of, 297–309 social security benefits, 277, 278, 299–301, 328; contributory, 63, 81, 283; flexicurity social system, 299–301, 304, 374; to immigrants, 81–2, 282, 283, 284; job seeker’s allowance, 81, 281, 298, 301; New Labour and ‘undeserving’ claimants, 143, 277–8; non-contributory, 63, 79, 81, 82; targeting of/two-tier system, 277, 281 socialism, 22, 32, 38, 75, 138, 144, 145, 394 Soham murder case, 10, 339 Solomon Brothers, 173 Sony, 254–5 Soros, George, 166 Sorrell, Martin, 349 Soskice, David, 342–3 South Korea, 168, 358–9 South Sea Bubble, 125–6 Spain, 123–4, 207, 358–9, 371, 377 Spamann, Holger, 198 special purpose vehicles, 181 Spitzer, Matthew, 60 sport, cheating in, 23 stakeholder capitalism, x, 148–9 Standard Oil, 130–1, 132 state, British: anti-statism, 20, 22, 233–4, 235, 311; big finance’s penetration of, 176, 178–80; ‘choice architecture’ and, 238, 252; desired level of involvement, 234–5; domination of by media, 14, 16, 221, 338, 339, 343; facilitation of fairness, ix–x, 391–2, 394–5; investment in knowledge, 28, 31, 40, 220, 235, 261, 265; need for government as employer of last resort, 300; need for hybrid financial system, 244, 249–52; need for intervention in markets, 219–22, 229–30, 235–9, 252, 392; need for reshaping of, 34; pluralism, x, 35, 99, 113, 233, 331, 350, 394; public ownership, 32, 240; target-setting in, 91–2; threats to civil liberty and, 340 steam engine, 110, 126 Steinmueller, W.


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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, Bear Stearns, 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, Savings and loan crisis, 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

Here, unfortunately, the answer is mostly no. Speculative markets have succumbed to occasional bubbles for as long as there have been speculative markets. Indeed, one of the first common stocks ever issued, in the South Sea Company in England, was hyped into the first stock-market bubble—the famed South Sea Bubble of 1720—which devastated, among others, a pretty smart fellow named Isaac Newton. And the Dutch had managed to grow a gigantic bubble in—of all things—tulip bulbs almost a century earlier. No, while we may be lucky enough to nip a few bubbles in the bud, we will never stamp them out. The herding behavior that produces them may well be programmed into our DNA.

See also Mortgage-backed securities (MBS) collateralized debt obligation (CDO), 74–79 Dodd-Frank provisions, 307, 311 early forms, 73–74 process of, 72–74 regulatory needs for, 286–88, 294 tranches, 74–79 Senior tranche, 74–75 Shadow banking system, 59–64 institutions related to, 59–60 markets related to, 60 size of, 60 Shareholders, protecting in future, 434–35 Shelby, Richard, 305 Shiller, Robert, 17, 31–32. See also Case-Shiller index warning about crisis, 92 Shorting, 282 Signaling theory, 189–90 Simpson, Alan, 360, 397 Simpson-Bowles, deficit reduction plan, 397, 401–2, 405–8 Social Security, and deficit reduction, 407 Sorkin, Andrew Ross, 184, 186–87 Soros, George, 181 South Sea Bubble (1720), 46–47 Sovereign crisis, European as, 169, 409, 412, 419, 425–26 Spain, financial crisis, 168, 410, 418, 419, 428 Spector, Warren, 102 Sperling, Gene, 216 Spread. See Interest-rate spreads Standard & Poor’s, 400 rating failures, 79–81 Starr, C.V., 130–31 State Street Bank, TARP funds for, 201 Steel, Bob, 79, 110, 122–23, 158–60 Stiglitz, Joseph, 181 Stigma avoiding and TARP, 189–91, 202 defined, 190 Stimulus under Bush (G.W.), 224 Keynesian view, 210–12 Stimulus package, 223–36 amount requested, 225, 228 effectiveness of, 233–34 and federal budget deficit, 234–36 Republicans against, 225–28, 351 shortcomings of, 229–32 as timely/targeted/temporary, 224–26, 229, 232–34 Stock market S & P losses (2007–2008), 114, 193 S & P losses (2009), 256–57 Stock options call option, 53–54 as derivative, 53–54, 61 option premium, 52–53 potential losses from, 54 strike price, 52–53 as synthetic leverage, 53–54 Stock value, determinants of, 29 Stress tests on American banks, 257–60 on European banks, 420 Strike price, 52–53 Structured investment vehicles (SIVs), 50–52 features of, 50–52 leverage ratio of, 50–51 in shadow banking system, 60 Subprime mortgages, 68–72 borrowing balance (2005), 58 collapse of market, 88–90 and credit default swaps (CDS), 68 default as design of, 57, 70–71, 84 and Fannie Mae/Freddie Mac, 71–72, 116–17 and financial crisis, 71–72 liar loans, 69, 70 as low-doc/no-doc loans, 69, 70 negative amortization loans, 71 NINJA loans, 70 nonbank lenders, 59 originations (1994–2005), 70 rationale for product, 69–70 regulatory failure related to, 58–59 securitization of, 72–79 unregulated lenders of, 59 warnings about, 58 Sullivan, Martin, 133–34 Summers, Lawrence on AIG bailout, 138 derivatives regulation failure, 63 on effective stimulus, 224–25 as Obama national economic adviser, 214–16, 259 Suskind, Ron, 215 Suspensions of specie payments, 90 Swagel, Phillip, 178–79, 197–98, 202, 328 Synthetic leverage credit default swaps (CDS) as, 66–67 and derivatives, 53–55, 62, 281 stock options example, 53–54 Systemically important financial institutions (SIFIs), regulatory needs for, 269–70, 294–95, 298, 302 Systemic risk Dodd-Frank provisions, 307 regulatory needs for, 270–71, 293 Systemic risk exception, by FDIC, 162–63 TARP (Troubled Assets Relief Program), 126, 159, 177–209 and AIG bailout, 137 amount requested, 184–85, 228 bait and switch tactics, 193, 197, 200, 205, 208 Bernanke/Paulson conflicts, 180–81 Break-the-Glass Memo, 178–80, 184 and capital injections, 179–81, 192, 193, 195–99 Capital Purchase Program (CPP) flaws, 202–3 Citigroup bailout, 163 congressional leaders briefing about, 181–84 effectiveness of, 178, 203, 207–9 evaluation of, 191, 207–9 executive pay issue, 183, 188–91, 202 final disbursements, types/amount of, 205 and foreclosure mitigation, 179, 332–33 initial draft, flaws of, 185–87, 195, 207 investment banks, funds forced on, 200–203, 208 oversight of, 192 passage of, 161, 192–93, 200 political issues, 181, 187–88, 190–91, 193 profitability, 203, 206, 209 purposes/necessity of, 179–80 redesign by Congress, 187–93 stigma avoidance, 189–91, 202 troubled asset purchase, 181, 192, 194–95, 205 troubled asset purchase canceled, 179, 208 Tax cuts by Bush (G.W.), 97–98, 224, 360, 389, 391 by Obama, 360 Tax reform, and deficit reduction, 405–6, 430 Taylor, John, 349, 351 Taylor Bean & Whitaker, 354–56 Taylor rule, 352 Tea Party, 7, 339, 344, 349, 362, 397 Tech bubble, 39 TED spread, 114 Temporary Liquidity Guarantee Program (TLGP), 161–62, 208, 242–43 Term Asset-Backed Securities Loan Facilities (TALF), 206–7, 223 Term Auction Facility (TAF), 96 Term Securities Lending Facility (TSLF), 98–99 Thain, John, 150, 152–53.


pages: 524 words: 155,947

More: The 10,000-Year Rise of the World Economy by Philip Coggan

"Robert Solow", accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Andrei Shleifer, anti-communist, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Bear Stearns, Berlin Wall, Bob Noyce, bond market vigilante , Branko Milanovic, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, credit crunch, Credit Default Swap, crony capitalism, currency peg, debt deflation, Deng Xiaoping, discovery of the americas, Donald Trump, Erik Brynjolfsson, European colonialism, eurozone crisis, falling living standards, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, Frederick Winslow Taylor, full employment, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, global supply chain, global value chain, Gordon Gekko, greed is good, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, Ignaz Semmelweis: hand washing, income inequality, income per capita, independent contractor, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, Modern Monetary Theory, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, TaskRabbit, Thales and the olive presses, Thales of Miletus, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, Tragedy of the Commons, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, Yom Kippur War, you are the product, zero-sum game

Britain also had an active capital market for those who needed it. In 1701, Daniel Defoe was sufficiently exercised about speculators to write a book called The Villainy of Stock-Jobbers Detected. The rapid rise to wealth achieved by some pioneers, such as Sir Richard Arkwright, encouraged others to follow the same path. The South Sea Bubble, in which a company issued shares and promised to repay the national debt, set back the development of the corporate structure for more than a century. The bubble’s collapse was the scandal of the age. Yet it did not taint British attitudes to commerce in the same way that attitudes were changed by the Mississippi bubble of the same era.

But the share price of the South Sea Company followed a similar trajectory to that of its French counterpart: up like a rocket, down like a stick. Even Sir Isaac Newton was caught up in the mania, leading to one of his most famous quotes: “I can calculate the motion of heavenly bodies but not the madness of people.” The demise of the South Sea Bubble left the Bank of England unchallenged as Britain’s premier financial institution. And the bank played an important role in the rise of Britain as a global power in the 18th century. The sound finances of Britain and the Netherlands meant that they could borrow at low interest rates, and not only did this make it easier for them to finance military spending, but industry also benefited from access to cheap capital.


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, Bear Stearns, 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, eat what you kill, 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, Kōnosuke Matsushita, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Money creation, Moneyball by Michael Lewis explains big data, Monty Hall problem, 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

As has been widely recognised, people tend to overstate the short-run impact of a new technology and to understate the long-run impact. The seminal work on financial bubbles is Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds . This book, written during the 1840s railway mania, traced an early history of contagious financial folly through the Dutch tulip craze of the 1630s and the South Sea bubble a century later. Recent scholarship is more sceptical about the nature and scale of the Dutch tulip craze, which seems to have been particularly silly. But the reference to delusion fails to recognise the kernel of truth commonly found in these narratives. No one can doubt that the growth of international trade from the eighteenth century, the construction of railways in the nineteenth century or the development of radio and commercial aviation in the 1920s were transformational economic events.

., 198 , 201 , 203–4 , 206 , 217 Singell, Larry, 74 , 78 Slaughter, Anne-Marie, 214 Sloan, Alfred, 286–7 , 412 small world models: Arrow–Debreu world, 343–5 ; and behavioural economics experiments, 116 , 141–7 ; and classical statistics, 247 ; and engineering, 352–6 ; and framing of problems, 261 , 362 , 398–400 ; and legal reasoning, 203 , 204 ; and machine intelligence, 173–7 , 185 , 263 ; of Malthus and Jevons, 358–62 ; maps as not the territory, 391–4 ; and narratives, 249–61 , 303–4 , 307–10 , 320–1 , 346 , 385 , 397 ; and non-human species, 274 ; as not ‘the world as it really is’, 96 , 100 , 252–5 , 261 , 309–10 , 320 , 342–5 , 346–51 , 352–5 , 376 , 399–400 ; and optimising behaviour, 112–13 , 116 , 129 – 30 , 155 , 166 , 170 , 334 , 382 , 399–400 ; and policy making, 346–9 ; and risk in finance theory, 421 ; and Savage’s analysis, 112–14 , 249 , 309–10 , 345 ; and styles of reasoning, 137–9 smartphones, 30–1 , 344 Smets, Philippe, 78–9 Smith, Adam, 163 , 254 , 343 , 382 , 387 ; The Wealth of Nations , 172 , 190 , 191 , 249 , 253 Smith, Ed, 263–4 Smith, John Maynard, 158 Snow, Dr John, 283 social choice theory, 440 social insurance, 161 , 192 , 427 social media, 351 social relationships: and altruism, 157 , 158 , 159–60 ; cooperation/collective intelligence, 155 , 162 , 176 , 231 , 272–7 , 279–82 , 343 , 412 , 413–17 , 432 ; economic advantages of cooperating, 159 , 160–1 ; and entrepreneurship, 431–2 ; and evolutionary science, 156–65 , 401 ; human capacity for communication/language, 159 , 161 , 162 , 172–3 , 216 , 272–7 , 408 ; mutualisation of risk, 160 , 162 , 192 , 325–6 ; networks of trust/cooperation/coordination, 17 , 155 , 272 , 274–6 , 432 ; process of forming expectations, 350–1 ; reciprocity in, 190–2 , 328 ; round of drinks phenomenon, 189–90 ; social class structure, 324 ; social kinship groups, 156 , 159–62 , 215–16 , 325 , 328–9 , 413–14 ; and trust, 162–3 , 165 social welfare, xiv–xv , 41 Socratic dialogue, 162 Solomon, King, 196 Solow, Robert, 42 Sony, 28 Soros, George, 36 , 319–20 , 336 South Korea, chaebol of, 276 South Sea bubble, 315 Soviet Union, 276 , 279 , 280 , 281 Spanish flu, 57 spectrum auctions, 257 Spence, Michael, 254 Spencer, Herbert, 157–8 Sperber, Dan, 162 , 272 , 415 St Athanasius, 99 St Francis, 116 , 127 , 130 , 167 Stalin, Joseph, 25 , 219 , 292 standard deviation, 234 Stanford, Leland, 48–9 , 427 Stanford University, 49 stationarity (mathematical/statistical term): as assumed in modelling, 333 , 339 , 340–1 , 349 , 350 , 366–7 , 371–2 , 382 ; and astronomical laws, 70 ; China and Japan’s turn inwards, 419–20 , 430 ; economics as ‘non-stationary’, 16 , 35–6 , 45–6 , 102 , 236 , 339–41 , 349 , 350 , 394–6 ; and the environment, 362 ; evolution as ‘non-stationary’, 407 , 428–9 , 430–1 ; financial sector as non-stationary, 16 , 202–3 , 268–9 , 320–1 , 331 , 333 , 339 , 366–8 , 402–3 , 406 ; and frequency distribution, 58 , 69–70 , 87 , 202 , 247 , 327 ; ‘Goodhart’s Law’, 36 ; and insurance underwriting, 327 ; and mortality tables, 57 , 69 ; and natural phenomena, 39 ; and opinion pollsters’ models, 242 ; and planetary motion, 18–19 , 35 , 373–4 , 392 , 394 ; and progress in science, 429–31 ; and reflexivity, 36 , 394 ; and resolvable uncertainties, 37 ; and risk-averse individuals, 306 ; and scientific reasoning, 18–19 , 35 , 236 , 373–4 , 388 , 392 , 429–31 ; and Value at risk models (VaR), 366–8 statistical discrimination, 207–9 , 415 statistics, xiii , xvi ; 25 standard deviation events, 6 , 68 , 235 , 331 , 366 ; bell-shaped ‘normal’ distribution, 57–8 , 233–5 , 237 ; classical statisticians, 58 , 247 ; false stories and bogus statistics, 242–6 ; frequency distribution, 38 , 40 , 57–8 , 69–70 , 72 , 86 , 87 , 202 , 247 ; lognormal distribution, 237 , 238 ; measures of central tendency , 237 ; models ignoring radical uncertainty, 15–16 ; opinion pollsters’ models, 240–2 , 390 ; power laws, 236–9 ; quota sampling, 240–1 ; random sampling, 234 , 239–41 ; ‘randomised controlled trials’ (RCTs), 243–5 ; regression analysis, 351 ; ‘scale invariance’, 238 ; standard deviation, 234 ; statistical distributions, 232–6 ; tails of ‘normal’ distribution, 14 , 40 , 166 , 233 , 234–5 , 401 ; see also probabilistic reasoning; subjective probabilities Stewkley church, 376 Stiglitz, Joseph, 254 Stockdale, Admiral James, 167–8 , 330 stomach ulcers, 284 Stoppard, Tom, Travesties , 89 strategy weekends, 180–3 , 194 , 296 , 407 string theory, 219 , 357 STS-119 space shuttle, 374 subjective probabilities: and 9 /11 terror attacks, 74–6 , 202 ; Appiah’s ‘cognitive angels’, 117–18 ; and belief in emerging scientific truth, 100 ; and Chicago School, 73–4 , 342–3 ; definition of term, 72 ; details of problem specification, 76–8 ; Ellsberg’s ‘ambiguity aversion’, 135 ; expected utility , 111–14 , 115–18 , 124–5 , 127 , 128–30 , 135 , 400 , 435–44 ; and extension of probabilistic reasoning, 71–2 ; Keynes and Knight, 72 ; and linguistic ambiguity, 98 , 100 ; and narrative complexity, 218–19 ; ‘pignistic probability’, 78–84 , 438 ; Ramsey describes, 73 ; ‘rational expectations theory, 342–5 , 346–50 ; small world-large world distinctions, 112–14 , 116 , 129–30 , 137–9 , 141–7 , 155 , 166 , 170 , 171 , 173–7 , 382 , 400 ; see also small world models; triumph over radical uncertainty, 15–16 , 20 , 72–84 , 110–14 ; two-child problem, 76–8 , 81 , 98 , 139 ; see also axiomatic rationality ‘sudden infant death syndrome’ (SIDS), 197–8 , 200–1 , 202 , 204 Suez crisis (1956), 174 Sumerians, 39 Survation, 242 Suter, Johann, 427 Sutter, John, 48–9 Swiss Re, 325–6 Switzerland, 418–19 , 426 , 428 Syrian conflict, 99 , 428 Tacoma Narrows Bridge collapse (1940), 33 , 341 Taleb, Nassim Nicholas, 14 , 38–9 , 166 , 422 , 438–9 Tay Bridge disaster (1879), 33 , 341 technological advances, 161 , 258 , 275–6 , 315 , 329 , 362 , 373–4 ; America’s innovative hegemony in, 427–8 ; and evolutionary science, 429 , 430 , 431 Tehran embassy siege (1979), 8 terrorism, 7 , 74–6 , 202 , 220 , 230 , 296 Tetlock, Philip, 21–2 , 221–2 , 294–5 Thaler, Richard, 118 , 148 Thales of Miletus, 303–4 , 319 , 320 , 422 Thames embankments, London, 424–5 Thatcher, Margaret, 290–2 , 412 Theranos, 228–9 Thiel, Peter, 361–2 , 427 The Third Man (film, 1949), 418–19 Thompson, Warren, 359 Thorp, Edward, 38 , 83 Tinbergen, Jan, 134 , 341 , 346 Tolkien, J.


pages: 566 words: 160,453

Not Working: Where Have All the Good Jobs Gone? by David G. Blanchflower

active measures, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, bank run, banking crisis, basic income, Bear Stearns, 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, independent contractor, 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, 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, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, trade liberalization, universal basic income, University of East Anglia, urban planning, working poor, working-age population, yield curve

The United States also had five quarters of negative growth from 2008 Q1 through 2009 Q2, with a quarter of positive growth in 2008 Q2: −0.7, +0.5, −0.5, −2.1, −1.4, and −0.1 percent, making a drop of 4.3 percent. This took eight quarters—to 2011 Q2— to be restored. The UK’s recovery was the third-slowest peacetime recovery in six hundred years. The South Sea Bubble, which was a speculation mania that ruined many British investors in 1720 when the South Sea Company collapsed, was the next slowest. The Black Death, from 1347 to 1351, which resulted in the deaths of more than 75 million, was the slowest. It was good for productivity, though. Recovery from the Great Recession was even slower than it was from the year without a summer, which occurred in 1816.

This view was most famously advanced in the 1930s by the staff of the British Chancellor of the Exchequer. In 2010 the UK Chancellor George Osborne implemented huge public spending cuts that he argued would result in an expansionary fiscal contraction but resulted in the slowest peacetime recovery in three hundred years since the South Sea Bubble. Depicted in the cartoon are John Maynard Keynes, Prime Minister Neville Chamberlain, Chancellor of the Exchequer Viscount John Allsebrook Simon, and the fictional character Colonel Blimp. The Treasury officials wrapped in towels at the Downing Street “Temple of Sunshine” next to a sign that the weather is “set fair indefinitely” are saying the feller ought to be ashamed for encouraging rain.


pages: 542 words: 145,022

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest by Andrew W. Lo, Stephen R. Foerster

"Robert Solow", Albert Einstein, asset allocation, backtesting, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, Charles Lindbergh, compound rate of return, corporate governance, Covid-19, COVID-19, credit crunch, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, Edward Glaeser, equity premium, estate planning, Eugene Fama: efficient market hypothesis, family office, fiat currency, financial innovation, financial intermediation, fixed income, hiring and firing, Hyman Minsky, implied volatility, index fund, interest rate swap, Internet Archive, invention of the wheel, Isaac Newton, John Meriwether, John von Neumann, joint-stock company, Kenneth Arrow, linear programming, Long Term Capital Management, loss aversion, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, new economy, New Journalism, Own Your Own Home, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, prediction markets, price stability, profit maximization, quantitative trading / quantitative finance, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, selection bias, shareholder value, Sharpe ratio, short selling, South Sea Bubble, stochastic process, stocks for the long run, survivorship bias, tail risk, Thales and the olive presses, Thales of Miletus, The Myth of the Rational Market, The Wisdom of Crowds, Thomas Bayes, time value of money, transaction costs, transfer pricing, tulip mania, Vanguard fund, yield curve, zero-coupon bond, zero-sum game

For a detailed portrait of Law, see Buchan (2018). See also Mackay ([1841] 2006), Murphy (2005), and Kindleberger and Aliber (2015). For a short account, see “Mississippi Bubble,” Britannica, https://www.britannica.com/event/Mississippi-Bubble. 29. See Velde (2007). 30. While there are many accounts of the South Sea Bubble, this brief accounting is based on Hoppit (2002). 31. See Velde (2009). 32. Murphy (1991, 1112). 33. Velde (2009, 119). 34. In a review of Garber’s book, John Cochrane (2001, 1154) concludes that Garber’s careful accounting of these purported bubbles provides an important lesson for researchers: “The traditional historian’s rhetoric of checking original sources can delightfully undress the occasional emperor.” 35.

“The Historical Evolution of Today’s Bond Market.” Explorations in Economic Research 2, no. 3: 378–89. Homer, Sidney, and Martin L. Leibowitz, with Anthony Bova and Stanley Kogelman. 2013. Inside the Yield Book: The Classic That Created the Science of Bond Analysis. 3rd ed. Hoboken, NJ: Wiley. Hoppit, Julian. 2002. “The Myths of the South Sea Bubble.” Transactions of the Royal Historical Society 12: 141–65. Ilmanen, Antti, Martin Leibowitz, and Rodney N. Sullivan. 2014. “Words from the Wise: Martin Leibowitz.” AQR Capital Management, December 9, https://www.aqr.com/Insights/Research/Interviews/Words-From-the-Wise-Martin-Leibowitz. Written permission received from AQR to quote from this article.


pages: 180 words: 61,340

Boomerang: Travels in the New Third World by Michael Lewis

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

“The Perfect Bubble,” Aliber calls Iceland’s financial rise, and he has the textbook in the works: an updated version of Charles Kindleberger’s 1978 classic, Manias, Panics, and Crashes. Aliber is editing the new edition. In it, Iceland, he decided back in 2006, would now have its own little box, along with the South Sea Bubble and tulip mania—even though Iceland had yet to crash. For him the actual crash was a mere formality. Word spread in Icelandic economic circles that this distinguished professor at Chicago had taken a special interest in Iceland. In May 2008, Aliber was invited by the University of Iceland’s economics department to give a speech.


pages: 200 words: 60,987

The Invention of Air: A Story of Science, Faith, Revolution, and the Birth of America by Steven Johnson

Albert Einstein, conceptual framework, Copley Medal, Danny Hillis, discovery of DNA, Edmond Halley, Edward Lloyd's coffeehouse, Isaac Newton, James Watt: steam engine, Kevin Kelly, planetary scale, side project, South Sea Bubble, stem cell, Stewart Brand, the scientific method, Thomas Kuhn: the structure of scientific revolutions, zero-sum game

How much of the Enlightenment do we owe to coffee? Most of the epic developments in England between 1650 and 1800 that still warrant a mention in the history textbooks have a coffeehouse lurking at some crucial juncture in their story. The restoration of Charles II, Newton’s theory of gravity, the South Sea Bubble—they all came about, in part, because England had developed a taste for coffee, and a fondness for the kind of informal networking and shoptalk that the coffeehouse enabled. Lloyd’s of London was once just Edward Lloyd’s coffeehouse, until the shipowners and merchants started clustering there, and collectively invented the modern insurance company.


pages: 581 words: 162,518

We the Corporations: How American Businesses Won Their Civil Rights by Adam Winkler

1960s counterculture, affirmative action, Affordable Care Act / Obamacare, anti-communist, Bernie Sanders, British Empire, Cass Sunstein, clean water, collective bargaining, corporate governance, corporate personhood, corporate social responsibility, desegregation, Donald Trump, financial innovation, glass ceiling, income inequality, invisible hand, joint-stock company, laissez-faire capitalism, land reform, obamacare, offshore financial centre, Plutocrats, plutocrats, Powell Memorandum, profit maximization, profit motive, race to the bottom, Ralph Nader, Ralph Waldo Emerson, refrigerator car, Robert Bork, Ronald Reagan, Rosa Parks, shareholder value, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, the scientific method, too big to fail, trade route, transcontinental railway, Unsafe at Any Speed, Upton Sinclair, yellow journalism

The Framers at the Constitutional Convention who drafted Article III never paused to consider whether corporations, like ordinary people, should be guaranteed any rights under the Constitution, much less whether they enjoyed a right to sue in federal court. This was due in part to the fact that, during the colonial era, England had significantly curtailed the formation of ordinary business corporations after the South Sea Bubble of 1720. Foreshadowing what would happen with the East India Company half a century later, stock prices for the South Sea Company, which held a monopoly on trade with South America, soared in a speculative buying binge, only to tumble precipitously. It was the first international stock market collapse and it led Parliament to adopt the Bubble Act, which prohibited any unincorporated entity from having transferable shares.

., 117 Smith, Adam, 26 Smock, Harry, 166, 176 Smokey the Bear, 300 smoking, 279–80, 287–89, 295, 299, 321 smuggling, 26–27 snuff, 170 social conservatives, 348–49 social Darwinism, 140 socialism, xix, 214, 232, 233, 238, 285, 325, 343 “Social Responsibility of Business Is to Increase Its Profits, The,” (Friedman), 247–48 Social Security Administration, US, 377 social welfare organizations, 367–68 societas publicoranum, 44–45, 399 Solicitor General, US, 262, 340, 345, 354, 358 Sons of Liberty, 29–30 Sotomayor, Sonia, 358, 360, 363, 363, 366n Souter, David, 357, 358, 360, 363, 367, 368 South Carolina, 107, 124, 125 Southern Department Stores, 284 Southern Manifesto, 272 Southern Pacific Railroad, xii, xiii–xv, xxi, xxiii, 36, 111, 113–33, 116, 138, 140, 141, 142–48, 152–59, 160, 180, 286, 339, 392 South Sea Bubble (1720), 43 sovereignty, 24–25, 28, 43, 45, 48–49, 101, 133, 390–91 Spain, 7, 11, 45 special assessments, 330–32 special interests, 103–4, 123, 196–97, 223–26, 232, 281, 286, 302–4, 322, 371, 372, 375 speculation, financial, 26, 43 speech, freedom of, xvi, xx, 48, 164, 177, 192, 222–26, 228, 229, 234, 239, 238–44, 250, 268–72, 282, 291, 292–300, 309–10, 313–23, 354–55, 361, 367, 370, 393, 402 spousal abuse, 23–24 Stamp Act (1765), 28–29, 133 Standard Oil Co., xxi, 36, 141, 167, 168–69, 169, 170, 171–72, 189, 197, 201, 202, 207, 213, 234–35, 280, 382 Standard Oil of New Jersey, 168–69 Stanford, Leland, 119, 123, 140, 141, 142, 148 Starr, Kenneth, 346 “Star-Spangled Banner, The,” 59 “starving time,” 10 “state action” requirement, 267–68, 269 state banks, 38, 39, 93, 100 see also Bank of the United States, Second state bars, 244 state constitutions, 24–25, 177 state courts, 41–42, 44, 53, 64, 78–79, 104–6, 107, 258–59 State Department, US, 93 state elections, 197–98, 332 state licensing authorities, 290–300 State of the Union address (1905), 217 State of the Union address (2010), 370–72 states’ rights, xvii, xviii, 40, 43, 88, 92, 97–103, 164, 218, 272, 275–76, 298, 316 state taxes, 90, 99, 100, 305–23 Statue of Liberty, 292 Stephens, William, 53, 55 Stevens, John Paul, 313, 336, 358, 363, 363, 366–70, 380 Stewart, Malcolm, 354–55 Stewart, Potter, 313 Stites, Francis, 76 stock certificates, 123, 155, 197 stock market, 26, 56, 106, 122, 123, 198, 235, 248, 344, 384–88 stock market crash (1929), 198, 235 Stone, Harlan Fiske, 231–34, 233, 238, 251, 252, 256, 264, 269, 276–77, 278 Stone, John W., 224 Story, Joseph, 53, 75–76, 79, 81–82, 85, 88, 222 “Story of a Great Monopoly, The,” (Lloyd), 171–72 Strine, Leo, 382–89, 384 Students for a Democratic Society (SDS), 349 submarines, 292–93 subpoenas, 161, 174–75, 185, 187 subprime mortgage derivatives, 359–60 Sugar Trust, 197 Sullivan, J.


pages: 253 words: 69,529

Britain's 100 Best Railway Stations by Simon Jenkins

Beeching cuts, British Empire, joint-stock company, Khartoum Gordon, market bubble, railway mania, South Sea Bubble, starchitect, the market place, urban renewal, wikimedia commons

The routes approved in 1835–6 had proved mostly profitable, with some paying shareholders what were considered huge dividends of 10–12 per cent. Soon the industry was again straining at the leash, as if readying itself for a new burst of expansion. The Mania At the start of 1843, money suddenly surged back into railway shares, leading to a stock market boom on a scale not seen since the South Sea Bubble of 1720. It was spurred on its way by William Gladstone’s 1844 bill instituting the joint stock company, which allowed companies to be formed by shareholders without needing a full act of parliament as previously. They did, however, need an act to compel landowners to surrender rights of way.


The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William J. Bernstein

asset allocation, backtesting, buy and hold, capital asset pricing model, commoditize, computer age, correlation coefficient, diversification, diversified portfolio, Eugene Fama: efficient market hypothesis, fixed income, index arbitrage, index fund, intangible asset, Long Term Capital Management, p-value, passive investing, prediction markets, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, South Sea Bubble, stocks for the long run, survivorship bias, the rule of 72, the scientific method, time value of money, transaction costs, Vanguard fund, Yogi Berra, zero-coupon bond

The most effective way of coping with current market conditions is to learn as much about market history as you possibly can. A superb place to start is Charles Mackay’s Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, originally published in 1841, and easily available from reprinted editions. The first chapters detail the Mississippi Scheme, South Sea Bubble, and Tulipomania of centuries ago. Change a few of the names and you’re reading about Internet stocks. Also, I suggest almost anything by James Grant, whose entertaining prose and grasp of financial history are second to none. (Money of the Mind, Minding Mr. Market, and The Trouble with Prosperity are all excellent places to start.)


pages: 231 words: 72,656

A History of the World in 6 Glasses by Tom Standage

Berlin Wall, British Empire, Colonization of Mars, Copley Medal, Edmond Halley, Edward Lloyd's coffeehouse, Eratosthenes, European colonialism, interchangeable parts, invention of agriculture, Isaac Newton, joint-stock company, Kickstarter, laissez-faire capitalism, Lao Tzu, multiplanetary species, out of africa, South Sea Bubble, spice trade, spinning jenny, The Wealth of Nations by Adam Smith, trade route, transatlantic slave trade

The coffeehouse spirit of innovation and experiment extended into the financial sphere too, giving rise to new business models in the form of innumerable novel variations on insurance, lottery, or joint-stock schemes. Of course, many of the ventures hatched in coffeehouses never got off the ground or were spectacular failures; the drama of the South Sea Bubble, a fraudulent investment scheme that collapsed in September 1720, ruining thousands of investors, was played out in coffeehouses such as Garraway's. But among the successful examples, the best known began in the coffeehouse opened in London in the late 1680s by Edward Lloyd. It became a meeting place for ship captains, shipowners, and merchants, who went to hear the latest maritime news and to attend auctions of ships and their cargoes.


pages: 247 words: 68,918

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

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

Profiting from access to markets in Russia, the Persian Gulf, and elsewhere means welcoming investment from these places—even from state-owned companies. Free markets will always move in cycles. Greed will fuel more booms, and fear will drive more busts. Each time a bubble bursts, someone will retell the story of the tulip mania of 1636, the South Sea bubble of 1720, and the dot-com bubble of the 1990s. But markets are not to blame when governments fail to properly regulate them. As Philip Stephens wrote in the Financial Times at the height of the crisis in March 2009, “Prominent among the causes of the financial crash was the failure of politics to keep up with economic integration.


pages: 603 words: 182,781

Aerotropolis by John D. Kasarda, Greg Lindsay

3D printing, air freight, airline deregulation, airport security, Akira Okazaki, Asian financial crisis, back-to-the-land, barriers to entry, Bear Stearns, Berlin Wall, big-box store, blood diamonds, borderless world, Boris Johnson, British Empire, business cycle, call centre, carbon footprint, Cesare Marchetti: Marchetti’s constant, Charles Lindbergh, Clayton Christensen, cleantech, cognitive dissonance, commoditize, conceptual framework, credit crunch, David Brooks, David Ricardo: comparative advantage, Deng Xiaoping, deskilling, digital map, disruptive innovation, edge city, Edward Glaeser, failed state, food miles, Ford paid five dollars a day, Frank Gehry, fudge factor, full employment, future of work, Geoffrey West, Santa Fe Institute, George Gilder, global supply chain, global village, gravity well, Haber-Bosch Process, Hernando de Soto, hive mind, if you build it, they will come, illegal immigration, inflight wifi, intangible asset, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), intermodal, invention of the telephone, inventory management, invisible hand, Jane Jacobs, Jeff Bezos, Joan Didion, Kangaroo Route, Kickstarter, knowledge worker, kremlinology, low cost airline, Marchetti’s constant, Marshall McLuhan, Masdar, mass immigration, McMansion, megacity, Menlo Park, microcredit, Network effects, New Economic Geography, new economy, New Urbanism, oil shale / tar sands, oil shock, peak oil, Pearl River Delta, Peter Calthorpe, Peter Thiel, pets.com, pink-collar, pre–internet, RFID, Richard Florida, Ronald Coase, Ronald Reagan, Rubik’s Cube, savings glut, Seaside, Florida, Shenzhen special economic zone , Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Skype, smart cities, smart grid, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, spinning jenny, starchitect, stem cell, Steve Jobs, sunk-cost fallacy, supply-chain management, sustainable-tourism, telepresence, the built environment, The Chicago School, The Death and Life of Great American Cities, The Nature of the Firm, thinkpad, Thomas L Friedman, Thomas Malthus, Tony Hsieh, trade route, transcontinental railway, transit-oriented development, traveling salesman, trickle-down economics, upwardly mobile, urban planning, urban renewal, urban sprawl, walkable city, white flight, white picket fence, Yogi Berra, zero-sum game

The Amsterdam exchange made markets in 360 commodities, none of which were tulips. Fueled by the gross margins of the spice trades, bulb auctions devolved into speculative frenzies. At the peak of tulipomania in the 1630s, a single bulb could fetch a row house along Amsterdam’s canals. The tulip bubble set the pattern for all that followed—from the South Seas Bubble in 1720 to the railroad bust of 1847 and on through the Roaring Twenties and subsequent Depression. Every bubble, at its core, was a bet on greater global integration—whether by trade or trains or effervescent auto and radio stocks. Most recently, the Internet boom promised us a frictionless, one-click world, while our splattered housing bubble was financed by China’s savings and spent on Chinese goods.

., 7, 60–61, 63, 79, 86, 213, 386; see also Federal Express Smith, Gerry, 125–26 Smithson, Robert, 93 SNC-Lavalin, 53 Snyder, Daryl, 421 Snyder, Wes, 77–78 Social Security, 268 Soden, Jack, 84, 85–86 Solazyme, 348 Solley-Kanipe, Linda, 88, 89 Southeastern Pennsylvania Transportation Authority, 176 Southeast Michigan Council of Governments, 180 South Korea: automotive industry in, 203–205; IMF bailout of, 354; as trading partner with China, 354; see also New Songdo City Southlake, Tex., 105, 119 South Seas Bubble, 210 Southwest Airlines, 118 space: friction posed by, 12, 168; overcome by speed, 11, 25–26, 270 Spain, high-speed rail in, 352 speed: in competition, 180, 369,375; as critical to aerotropoli development, 174, 192, 195–96; of floral auctions, 214; luxury rendered obsolete by, 412; space overcome by, 11, 25–26; of successful supply chains, 61, 76, 174, 183–84, 369 Spirit AeroSystems, 172 “Spruce Goose,” 27 Stansted Airport, 16 Stapleton International Airport, 131–34; death and rebirth of, 147–52; history of, 423–24 start-ups: Chinese manufacturing for, 366–68; as decentralized, 127; Internet and, 42–43 steel industry, 187, 332 Stemmons, John M., 111–12 Stewart, Amy, 217, 221 Stough, Roger, 114 Subic Bay Freeport Zone, 171, 372 suburban age, cities of, 11, 23 Suez Canal, 386 supply chains: in auto industry, 199; Chinese cities specializing along, 365; competition across, 8, 174–75; jobs created by, 87, 338, 339; oil prices and airborne, 331–33; Sea Air Model (SAM) across, 317–25; speed of successful, 174, 183–84 Supreme Court, Thailand, 253–54, 258 Suvarnabhumi International Airport, 19–20, 245–48, 250–53, 254–56, 258, 428;construction problems at, 254–55; failure of, 259–63; governance of, 251; Kasarda’s attempt to salvage, 258; opposition to, 255; political turf wars over, 251–52; renderings of, 250–51; shut down by protesters, 256–57, 428 Swift Freight, 317–25; flowers handled by, 317, 319 Synder, Wes, 77–78 Synthetic Genomics, 349 Synthia, 349 tablets, 371 Taipei, Taiwan, aerotropolis plans in, 388–89 Taiwan: China’s relations with, 388–89; economy of, 389; electronics manufacturing in, 369–71; production freeze in, 257 Tam, Jim, 104–105, 106, 118, 119 Tata, J.R.D., 280 Tata Group, 280 tea trade, 385 technology: in aviation, 341; commodity prices lowered by, 340; connectivity via, 112–13; in floral industry, 210–11; and growth of travel, 341; human drive for, 343, 349; and Kasarda’s Law, 113–19; road warriors and, 102; shipping changed by, 66–68; and urbanization, 11–12 telecommuting, 341 Tellinghuisen, Brian, 131–32, 147 Temasek Holdings, 253 Tempo Group, 205–206 Tennessee, business costs in, 193–94 Terminal, The, 97, 98 Tesco, carbon footprint reduction plans of, 228–30, 232, 241 textiles, 374–75, 391 Thai Airways, 252 Thailand, 245–75; airports in recovery of, 257, 261; economy of, 248–49, 257; floral industry in, 221; tourism in, 256–57, 264–65; see also medical tourism; see also Bangkok Thanarat, Sarit, 245 Third Ring Road, 338–39 Thirteen Factories, 384–85 Thompson, Clive, 371 Thompson, Emma, 15 Thompson, James, 48 Tianjin, China, airport in, 406–408 Tin Goose, 179 Toffler, Alvin, 174, 175 Tokyo, Akihabara district in, 364 tomatoes, carbon footprint of, 231–32 Tomlin, Steve, 30 Topis, David, 107 Toral, Ruben, 265–66, 267, 268, 269, 270, 271, 272, 273–74, 277, 278 Toronto, Canada, airport expansion in, 193 tourism: cheap fares fueling, 334; in developing countries, 338; in developing world, 264–65;as foreign investment, 265; growth in, 428–29; in Japan, 403; jobs created by, 334; in Memphis, 85–86; as part of GDP, 338; in Thailand, 256–57, 264–65 Town and Country Planning Association, 16 Toy Center, 374–75 trains: high-speed rail, 432; as links to airports, 155–56; as part of Detroit aerotropoli plans, 197, 198; stimulus money for, 198, 353 transparks, as early aerotropolis prototype, 169–73 transportation: diffusion of, 414; spending on, 10 Tri-Motors, 179 Tsukiji fish market, 226 Tucker, Preston, 365–66 tulips, 209–10, 212 TWA, 27, 58, 179 Twitter, 113 Tysons Corner, Va., 40, 46 Ultimus, 127 United Airlines, 48, 421; Continental merger with, 193 United Arab Emirates: oil reserves in, 294; see also Abu Dhabi; Dubai United Kingdom: coal use in, 328; home ownership in, 334; Open Skies agreement signed by, 282 United Nations, 19 United Parcel Service (UPS), 64–69; Louisville airport expansion for, 87–90; outsourcing by, 63; relations with Lousiville, 86–87 United States: China as largest trading partner to, 393, 398; floral market in, 221, 223; health care costs in, 267–68; high-speed rail plans in, 351; job loss in, 393; medical community in, 271–72; medical tourists from, 266, 276; medical tourists to, 271; national markets in, 243; number of airports in, 283; Open Skies agreement signed by, 282 United Steelworkers, medical tourism opposed by, 273–74 universal health care coverage, 268 Unnithan, Shaju, 320–21, 322, 323–24 Up in the Air (Kirn), 97–98 UPS Supply Chain Solutions, 69 UPS Worldport, 64, 65–68, 72; Bantu working at, 68; jobs deskilled at, 68; technology at, 66–68 urbanization: in Chicago, 12; of China, 5, 10, 18–19, 360, 364–65, 381, 389, 394–95; as green lifestyle, 356; as inevitable, 176; pace of, 12, 19; spending on, 10; technology and, 11–12 Ussher, Kitty, 14 Venice, as shaped by shipping, 12 Venter, Craig, biofuel development by, 349 Verenigde Bloemenveiling Aalsmeer, 211, 212–17, 218–19, 222, 322 Verni, Ron, 127–28 Vietnam, airports in, 263 Virgin Atlantic, 21; environmental efforts of, 345–48, 350 Virgin Green Fund, 345 virtual density, 293–94 Visteon, 199–201 Visteon Village, 199, 200–201, 202 von Klemperer, Jamie, 355, 357 Walmart, sustainability index of, 240–41 Walsh, Willie, 16 Wang Chuanfu, 204 Wanisubut, Suwat, 259–62, 263 Wanxiang Group, 206 Washington, D.C., 355 Washington National Airport, 38–39 Washtenaw County, Mich., 188 water, recycling of, 356 Waterfront City, 293 Wayne County, Mich., 182–83 Wayne State University, 188 Webber, Melvin, 11, 12, 115–16, 124–25 Welch, Jack, 202 Wen Jiabao, 369 Weymouth, Leanne, 124 whaling, 327–28 Whitehaven, Tenn., 83 Whitman, Walt, 23 Whyte, William H., 139 Why Your World Is About to Get a Whole Lot Smaller (Rubin), 332 Wice, Nathaniel, 367 Wilkes-Barre, Pa., 7 Williams, Adrian, 233 Williams, Fred, 89–90 Willow Run, Mich., 180, 182, 188, 425 Willow Run Airport, 180, 188; auto shipments through, 182 Wilmington, Ohio, 87–88 Wilson, Charles E., 186 Window on the World, 409–10 Wipro, 281, 283 Wongsawat, Somchai, 252, 256 World Bank, 337 World’s Fair (1939), 192 “World’s Unofficial Longest Line” video, 13–14 World Trade Organization, Seattle clashes and, 168 World War II: aviation and aerospace industry in, 27; Ford production during, 179–80, 188 Wright Brothers, 341, 349, 412, 413 Wrigley Field, 411, 413, 414 Xi’an, China, 387, 390 YouTube, 13–14 Zahavi, Yakov, 117 Zappos.com, 66, 69–77, 422; business expansion of, 72;customer service at, 70–71; as decentralized, 74; fulfillment by, 73–74; inventory management at, 73, 74; ordering from, 71–73; shipping strategy of, 70, 72 Zemcik, Marty, 142–44 Zhang Qian, 409 Zhao, Jeff, 205–207 Zheng He, 390 Zhou Tianbao, 205–206 Zhuhai, China, 378, 383 Zimbabwe, economy of, 325 Zoellick, Robert, 400 A Note About the Authors John D.


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, Bear Stearns, 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, buy the rumour, sell the news, 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, foreign exchange controls, 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, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", 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, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, 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 free rate, 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, tail risk, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

In the carry trade, how do you define high and low rates and what kind of investments and borrowing do you do and for how long? The process gives you an idea of the risks. How often will the strategy work? What kind of profits does it produce? How often will it lose money and how much? Margin and Smitz’s answers to my probing are vague, reminiscent of the investment strategy in a prospectus during the South Sea bubble: “A company for carrying on an undertaking of great advantage, but nobody to know what it is.” Ambush “I have analyzed a number of your past trades in detail.” Margin and Smitz look at me, surprised. Dr Woori, the Korean nuclear physicist in charge of risk, has supplied me details of Margin and Smitz’s trading, unaware of the reasons for my interest.

Financial Gravity In 2007, everyone discovered what Joseph Conrad knew: “[a civilized life is] a dangerous walk on a thin crust of barely cooled lava which at any moment might break and let the unwary sink into fiery depths.”1 The end arrived unexpectedly, reflecting author Alexander Pope’s description of the collapse of the 1720 South Sea Bubble: “Most people thought it wou’d come but no man prepar’d for it; no man consider’d it would come like a thief in the night, exactly as it happens in the case of death.”2 Air Pockets As interest rates increased from 1 percent to 5.25 percent per annum, reflecting higher oil and food prices, U.S. house prices stalled and then fell.


pages: 238 words: 73,121

Does Capitalism Have a Future? by Immanuel Wallerstein, Randall Collins, Michael Mann, Georgi Derluguian, Craig Calhoun, Stephen Hoye, Audible Studios

affirmative action, blood diamonds, Bretton Woods, BRICs, British Empire, business cycle, butterfly effect, creative destruction, deindustrialization, demographic transition, Deng Xiaoping, discovery of the americas, distributed generation, eurozone crisis, fiat currency, full employment, Gini coefficient, global village, hydraulic fracturing, income inequality, Isaac Newton, job automation, joint-stock company, Joseph Schumpeter, land tenure, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, loose coupling, low skilled workers, market bubble, market fundamentalism, mass immigration, means of production, mega-rich, Mikhail Gorbachev, mutually assured destruction, offshore financial centre, oil shale / tar sands, Ponzi scheme, postindustrial economy, reserve currency, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, too big to fail, transaction costs, Washington Consensus, WikiLeaks

And indeed popular participation in financial markets has grown a good deal during the late 20th century and the early 21st, through employee pension funds, millions of small stock market investors, and speculating through mortgaged home ownership in the Ponzi scheme of the inflationary housing market. How far can this go? Can it save capitalism? It would surely be a rocky road, given the inherent volatility of financial markets, their tendency to booms and busts. This has been a long-term historical pattern, ever since the Dutch tulip investment mania in 1637 and the South Sea bubble in 1720. Speculative collapses have been so common that Schumpeter [1939] regarded business cycles as intrinsic to capitalism, and their presence a historical marker of the existence of self-driven capitalist dynamics. One could turn the historical argument around; speculative busts have always bottomed out and eventually financial markets have gone up again.


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

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

Courtappointed receivers of bankrupted telecommunications companies were recovering an average of less than 10 per cent of the original cost of building the networks when they tried to sell the assets. 156 The cemetery of ‘dot.coms’ after the NASDAQ collapse is another witness to the madness of late-Frenzy. 152. Neither the Tulip mania of the 1630s nor the South Sea Bubble of 1720 qualifies in this particular sense. In fact there are many collective psychology phenomena associated with speculative behavior, but not related to the assimilation of technological revolutions in a capitalist context. There are also many other financial crises in capitalism, following particular episodes of speculation, which have more immediate explanatory factors. 153.


pages: 240 words: 73,209

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

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

We might like to perceive ourselves as potential Isaac Newtons, but it’s perilous to forget that we also have this other aspect of our nature. Indeed, Newton himself would have been better off if he’d recognized this, given that he was an infamously dumb investor who lost his life savings in the South Sea Bubble. As Newton wryly observed: “I can calculate the movement of stars, but not the madness of men.” The problem is not just that our brains are highly irrational. It’s also that the economic universe operates in ways that are mind-blowingly complicated. The elegant economic theories that I learned at Oxford and Harvard blinded me to this awesome complexity.


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, Bear Stearns, 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, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jane Jacobs, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, 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, Savings and loan crisis, shareholder value, South Sea Bubble, statistical model, Tax Reform Act of 1986, The Great Moderation, the payments system, too big to fail, tulip mania, value at risk

At the beginning of the new millennium, however, both of them were going through an odd patch. The stock market had undergone a spectacular bubble in Internet and new-economy stocks. Some of what was happening seemed to belong to a classic hysteria equal to that of the great historical bubbles such as the Dutch tulip mania, the South Sea bubble, or the nineteenth-century bubble in railway stocks. The broad rules of these bubbles and implosions are well known. They were first systematized by the economist Hyman Minsky, and their best-known popular formulation is in the classic text by Charles P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises.


pages: 636 words: 202,284

Piracy : The Intellectual Property Wars from Gutenberg to Gates by Adrian Johns

active measures, banking crisis, Berlin Wall, British Empire, Buckminster Fuller, business intelligence, commoditize, Corn Laws, demand response, distributed generation, Douglas Engelbart, Douglas Engelbart, Edmond Halley, Ernest Rutherford, Fellow of the Royal Society, full employment, Hacker Ethic, Howard Rheingold, informal economy, invention of the printing press, Isaac Newton, James Watt: steam engine, John Harrison: Longitude, Marshall McLuhan, Mont Pelerin Society, new economy, New Journalism, Norbert Wiener, pirate software, Republic of Letters, Richard Stallman, road to serfdom, Ronald Coase, software patent, South Sea Bubble, Steven Levy, Stewart Brand, Ted Nelson, the scientific method, traveling salesman, Whole Earth Catalog

And because many projects failed – editions as much as engines – questions of plausibility dogged the entire culture of projecting. The enterprise of books was credit dependent and risk prone at a time when risk was publicly notorious. It is telling that the most famous of all the swindles of the South Sea Bubble period was rumored to be that of a printer, who pocketed £2,000 from subscribers to his project for “an undertaking of Great Advantage, but no one to know what it is.” What is even more telling is that the scam itself seems to have been a figment of Grub Street machinations – there is no substantive evidence that it ever really happened.

Their debate proved critical not only to the outcome of the contest itself, but to the subsequent history that that outcome made possible. Mechanical invention was a child of the projecting age. Attended by the same problems of credit and speculation as stockjobbing and publication, projectors blossomed and crashed as fast as South Sea Bubble companies. We now tend to perceive the first signs of the Industrial Revolution in their schemes, but that perception requires a lot of hindsight. For contemporaries the problem was to discern the plausible – or even possible – from the fanciful or fraudulent. Something of a market arose in expertise dedicated to making such distinctions.


pages: 670 words: 194,502

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

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

The sales charge is universally stated as a percentage of the selling price, which includes the charge, making it appear lower than if applied to net asset value. We consider this a sales gimmick unworthy of this respectable industry. 2. The Money Managers, by G. E. Kaplan and C. Welles, Random House, 1969. 3. See definition of “letter stock” on p. 579. 4. Title of a book first published in 1852. The volume described the “South Sea Bubble,” the tulip mania, and other speculative binges of the past. It was reprinted by Bernard M. Baruch, perhaps the only continuously successful speculator of recent times, in 1932. That was locking the stable door after the horse was stolen. Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds (Metro Books, New York, 2002) was first published in 1841.

Sequoia has been closed to new investors since 1982, which has reinforced its superb performance. 15 Jason Zweig, “What Fund Investors Really Need to Know,” Money, June, 2002, pp. 110–115. 16 See interview with Ellis in Jason Zweig, “Wall Street’s Wisest Man,” Money, June, 2001, pp. 49–52. 1 Alternatively, you could buy back the call option, but you would have to take a loss on it—and options can have even higher trading costs than stocks. 1 To put this statement in perspective, consider how often you are likely to buy a stock at $30 and be able to sell it at $600. 2 Benjamin Graham, The Intelligent Investor (Harper & Row, 1949), p. 4. 3 A “hedge fund” is a pool of money, largely unregulated by the government, invested aggressively for wealthy clients. For a superb telling of the LTCM story, see Roger Lowenstein, When Genius Failed (Random House, 2000). 4 John Carswell, The South Sea Bubble (Cresset Press, London, 1960), pp. 131, 199. Also see www.harvard-magazine.com/issues/mj99/damnd. html. 5 Constance Loizos, “Q&A: Alex Cheung,” InvestmentNews, May 17, 1999, p. 38. The highest 20-year return in mutual fund history was 25.8% per year, achieved by the legendary Peter Lynch of Fidelity Magellan over the two decades ending December 31, 1994.


pages: 706 words: 206,202

Den of Thieves by James B. Stewart

Bear Stearns, corporate raider, creative destruction, discounted cash flows, diversified portfolio, fixed income, fudge factor, George Gilder, index arbitrage, Internet Archive, Irwin Jacobs, margin call, money market fund, Oscar Wyatt, Ponzi scheme, rolodex, Ronald Reagan, Savings and loan crisis, shareholder value, South Sea Bubble, Tax Reform Act of 1986, The Predators' Ball, walking around money, zero-coupon bond

Then the screen vanished and Diana Ross, dazzling in a sequined gown, stepped into the spotlight as the evening's surprise star. She sang a medley of Motown hits and managed to change outfits twice. Most participants were suitably impressed. Yet a few doubts remained. "What you don't know is if you have a watershed in American business," one participant that year told the San Francisco Chronicle, "or a South Sea Bubble." 5. Wilkis answered the phone in his office at Lazard Freres. It was the first call of the morning and, not surprisingly, it was Levine. "Don't work today," he began. "Dennis," Wilkis replied wearily, "you know I can't." Wilkis was amazed that Levine had so much free time; nothing had really changed since his days of playing hookey at Citibank.

page 118 The quotation is from Peter Dworkin, "The Inside Story on the High Tech of Finance," San Francisco Chronicle, Apr. 4, 1985. The full quotation is " 'You have to be pretty impressed by the aggressiveness and acuity of these fellows,' said Tully Friedman, a partner in the San Francisco investment firm of Hellman & Friedman. 'What you don't know is if you have a watershed in American business or a South Sea bubble,' he said, referring to one famous speculative binge." Chapter 5 page 119 Levine's receipt from the River Cafe was included in the expense receipts disclosed by the SEC. page 121 Ken Auletta, Greed and Glory on Wall Street: The Fall of the House of Lehman (New York: Random House, 1986). page 124 Reich's effort to distance himself from Levine, and his re-ensnarement, are described in Reich sentencing memo, pp. 18-21.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, Bitcoin Ponzi scheme, blockchain, borderless world, Bretton Woods, BRICs, business cycle, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, Dogecoin, eurozone crisis, fiat currency, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Herbert Marcuse, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kickstarter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liberal capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, National Debt Clock, negative equity, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer, peer-to-peer lending, Ponzi scheme, post scarcity, Post-Keynesian economics, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Veblen good, Wave and Pay, Westphalian system, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

After revolutions in 1688 and 1776, the British and the Americans adopted Dutch-style finance, funding wars by selling bonds to citizen creditors rather than resorting to excessive taxation or inflation. The contrast between France and England in the eighteenth century is especially illuminating: in both countries there were serious economic problems, triggered by the Mississippi and South Sea bubbles, respectively. The French devalued their currency, regulated finance tightly, and confiscated wealth gained from speculation, seriously damaging its creditor class. The English did exactly the opposite, canceling the South Sea Company’s debt to the government. The English approach led to an accommodation whereby two separate classes (merchants handling financial affairs, landholders dealing in politics) eventually merged until the system operated in a unified fashion, much as the Dutch system had done.

See also total social fact social inequality, 79, 339; and debt, 91, 102; and money, 389 social lending, 14 social, power 32, 51, 72, 392 social welfare, 79 socialism, 14, 115, 146, 160, 240, 244, 313, 315, 337, 357; and bank bailouts, 116; in Benjamin, 146; ethical, 320; versus liberalism, 323–25, 329, 382, 383; and money, 315, 316–17, 321, 322; in Simmel, 14, 139, 140, 197, 314n3, 316, 322–25, 329, 344, 355, 382–83 Société Générale, 258 society, 8, 13, 14, 71, 101; as community, 8, 93, 309, 351; of control, 239–40; and debt, 25, 94; and faith, 137; and fictitious commodities, 280; and finance, 122; and the financial crisis, 79, 102; and God, 148, 158; hierarchical concept of, 352; and the individual, 125; and money, 4, 7, 8, 13, 14, 26, 92, 93, 94, 102, 103, 124, 125, 133, 226, 238, 267, 268, 281; and the multitude, 293; as nation, 8, 309; as nation-state, 8, 309; in Nietzsche, 138; and power, 102; in Rousseau, 37–38; and the sacred, 173; and self-repression, 150; as state, 8, 26, 106, 211, 226; and territory, 226; and trust, 137. See also Gemeinschaft, Gesellschaft; perfect society socius, 251 Sontag, Susan, 190 South Sea bubble, 126 South Sea Company, 126 sovereign debt, 2, 58, 66n17, 71, 91, 110, 127, 129, 131, 219, 242, 253, 257–58, 265, 388 sovereign wealth funds, 66, 220–21 sovereignty, 216, 245, 250, in Agamben, 266n; and banks, 116, 237; in Balibar, 261–62; in Bodin, 223–24, 261–62; in Derrida, 165, 185, 209; in the Eurozone, 46, 127, 129, 252, 253, 255, 261, 264–66, 267; and the fiscus, 261–62; in Hardt and Negri, 238, 239, 244, 245, 247; of the individual, 185, 360; and insolvency, 260–61; in Karatani, 86–87; and law, 224; in Marx, 53; and monetary governance, 45, 246, 307–8; and money, 20, 43, 44, 77, 110, 217, 237, 246–47, 249, 251; and the multitude, 247; in Proudhon, 53; in Schmitt, 223–24, 266, 267; and the state, 106; and territory, 226.


pages: 263 words: 84,410

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

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

Amsterdam: Hendrik Hondius, 1632. Brereton, William. Travels in Holland, the United Provinces etc … 1634–1635. London: Chetham Society, 1844. Bulgatz, Joseph. Ponzi Schemes, Invaders from Mars and More Extraordinary Popular Delusions and the Madness of Crowds. New York: Harmony, 1992. Carswell, John. The South Sea Bubble. Stroud: Alan Sutton, 1993. Cassels, Lavender. The Struggle for the Ottoman Empire, 1717–1740. London: John Murray, 1966. Cos, P. Verzameling van een Meenigte Tulipaanen, naar het Leven Geteekend met Hunne Naamen, en Swaarte der Bollen, zoo als die Publicq Verkogt Zijn, te Haarlem in den Jaare A.1637, door P.


pages: 258 words: 83,303

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization by Jeff Rubin

addicted to oil, air freight, banking crisis, Bear Stearns, big-box store, BRICs, business cycle, carbon footprint, collateralized debt obligation, collective bargaining, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, energy security, food miles, hydrogen economy, illegal immigration, immigration reform, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Watt: steam engine, Just-in-time delivery, market clearing, megacity, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit maximization, reserve currency, South Sea Bubble, the market place, The Wealth of Nations by Adam Smith, trade liberalization, zero-sum game

And the minds of 17th-century London required great clarity. It was a time of rapid innovation and even revolution in nearly every field: politics, philosophy, science and, perhaps above all, finance. Both the great failures and enduring successes of the early days of capitalism played out in London’s coffeehouses. The notorious South Sea Bubble—a fraudulent investment scheme that has provided fodder for generations of economics textbooks—unfolded largely in a coffeehouse called Garraway’s. A coffee shop that opened in 1680 created a legacy that has lasted much longer. Called Lloyd’s, it was a meeting place for ship captains, investors and merchants.


pages: 302 words: 86,614

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

activist fund / activist shareholder / activist investor, Asian financial crisis, asset allocation, asset-backed security, backtesting, Bear Stearns, Bernie Madoff, Bretton Woods, business process, call centre, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, en.wikipedia.org, family office, fixed income, high net worth, impact investing, interest rate derivative, Isaac Newton, Long Term Capital Management, Marc Andreessen, Mark Zuckerberg, merger arbitrage, Myron Scholes, NetJets, oil shock, pattern recognition, Ponzi scheme, quantitative easing, quantitative trading / quantitative finance, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, Savings and loan crisis, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, systematic trading, tail risk, two and twenty, zero-sum game

Investment advisors. I. Title. HG4530.A389 2012 332.64’524—dc23 2012010363 To God — The Ultimate Alpha Master Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, ‘I can calculate the movement of the stars, but not the madness of men.’ If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases. —Warren Buffett Foreword The Less Mysterious World of Hedge Funds Mohamed A.


pages: 290 words: 83,248

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

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

Behavioural finance experts favour psychological interpretations of the mass hysteria that at times threatened to overrun markets. Historians look for context to explain recent events, turning for parallels to previous examples of markets overshooting such as the seventeenth-century Dutch tulip mania, the South Sea Bubble in the eighteenth century and the Roaring Twenties. Defenders of the free market have been quick to use these explanations to deflect criticism from the system and the institutions they believe in. Prominent figures such as Alan Greenspan have qualified their criticism of corporate excess by saying that the nineties saw no increase in human greed, just an increase in the opportunities to be greedy resulting from economic growth.


pages: 309 words: 85,584

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

banking crisis, Bear Stearns, 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, foreign exchange controls, full employment, gig economy, inflation targeting, Just-in-time delivery, light touch regulation, liquidity trap, Martin Wolf, moral hazard, negative equity, Neil Kinnock, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, North Sea oil, Northern Rock, oil shock, Parkinson's law, Paul Samuelson, pre–internet, price mechanism, quantitative easing, Ronald Reagan, school vouchers, short selling, South Sea Bubble, The Chicago School, transaction costs, tulip mania, Winter of Discontent, Yom Kippur War

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


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 free rate, 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

With class ‘A’ drugs encouraging bad behaviour on the upside, and the part of the brain that responds to mortal danger processing losses on the downside, it is not hard to see the emotional perils that lie in wait for us all as investors. Perhaps surprisingly, success in investing is not about deep investment knowledge or intelligence. After all, Sir Isaac Newton managed to lose all his money on the stock market when the South Sea Bubble collapsed, despite his ability to calculate the motion of heavenly bodies. It is about the ability to understand human nature, as suggested by Henry Ford, and to control the harmful decisions that it often drives. Warren Buffett too, concurs. ‘Success in investing doesn’t correlate with IQ once you’re above the level of 100.


pages: 348 words: 82,499

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

asset allocation, bank run, Bear Stearns, 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

A bumpy ride Europe and America’s economies have been on an upward trend for many decades now and equity investors have benefited from the ride. But it hasn’t all been plain sailing. In fact, history shows us stock markets have crashed with depressing regularity. One of economic historians’ favourite crashes, if you can have such a thing, is the so-called South Sea Bubble of 1720. Stock in the South Sea Company, a British company with the rights to exploit parts of South and Central America, started a seemingly inexorable rise from £100 a share to almost £1,000 in a matter of just a few months. Blinded by greed, investors rich and poor ploughed their savings into what they believed was a one-way bet, without regard to the fact that the territories the company held the rights to exploit were all controlled by Spain, with whom Britain was at war.


pages: 261 words: 86,905

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

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

This is a reckless strategy, for the obvious reason that at some point the price is going to stop going up; but it is very difficult thing to resist the momentum of a rising market, especially when everyone around you is coining it. Isaac Newton, who has a claim to be the most intelligent person ever to have lived, and who knew a lot about the operation of money thanks to his day job as master of the King’s Mint, himself fell victim to the Greater Fool theory. When the South Sea bubble came along, Newton could see it was based on nothing and was certain to collapse; it was certain to collapse; it was certain to . . . oh, the hell with it, since everyone else was making to much money, he piled in too. Then the bubble collapsed, and he lost all his money. The moral of the story is (a) that it’s hard even for very bright people to hold their nerve during a bubble and (b) that the temptations of Greater Fool theory are strong, and should be resisted.


pages: 304 words: 80,965

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It by Stephen Davis, Jon Lukomnik, David Pitt-Watson

activist fund / activist shareholder / activist investor, Admiral Zheng, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black Swan, buy and hold, centralized clearinghouse, clean water, compensation consultant, computerized trading, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crowdsourcing, David Brooks, Dissolution of the Soviet Union, diversification, diversified portfolio, en.wikipedia.org, financial innovation, financial intermediation, fixed income, Flash crash, income inequality, index fund, information asymmetry, invisible hand, Kenneth Arrow, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, moral hazard, Myron Scholes, Northern Rock, passive investing, performance metric, Ponzi scheme, post-work, principal–agent problem, rent-seeking, Ronald Coase, shareholder value, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, Steve Jobs, the market place, The Wealth of Nations by Adam Smith, transaction costs, Upton Sinclair, value at risk, WikiLeaks

In the finance-speak of today, you can “diversify the risk” by sharing it.9 For such systems of mutual obligation to work, you need to be sure that those who promote them will fulfill their promises. In the 1700s, few people would have been foolhardy enough to place their money in commercial ventures. Within Wallace and Webster’s lifetime, people had seen fortunes wiped out in the manipulations known as the South Sea bubble. The widows of Scottish clergymen would hardly have trusted financial markets to meet their needs in any future crisis. But Wallace and Webster were clerics who offered their service in good faith to other ministers of the Church of Scotland. They could not have been seen as more trustworthy.10 Here was the formula for success.


pages: 252 words: 80,636

Bureaucracy by David Graeber

a long time ago in a galaxy far, far away, Affordable Care Act / Obamacare, airport security, Albert Einstein, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, David Graeber, George Gilder, High speed trading, hiring and firing, Kitchen Debate, late capitalism, means of production, music of the spheres, new economy, obamacare, Occupy movement, Parkinson's law, Peter Thiel, planetary scale, post-work, price mechanism, Ronald Reagan, self-driving car, Silicon Valley, South Sea Bubble, transcontinental railway, union organizing, urban planning, zero-sum game

The sort of thinkers most likely to come up with new conceptual breakthroughs are the least likely to receive funding, and if, somehow, breakthroughs nonetheless occur, they will almost certainly never find anyone willing to follow up on the most daring implications. • Let me return in more detail to some of the historical context briefly outlined in the introduction. Giovanni Arrighi, the Italian political economist, has observed that after the South Sea Bubble, British capitalism largely abandoned the corporate form. The combination of high finance and small family firms that had emerged after the industrial revolution continued to hold throughout the next century—Marx’s London, a period of maximum scientific and technological innovation; or Manchester; or Birmingham were not dominated by large conglomerates but mainly by capitalists who owned a single factory.


When Money Dies by Adam Fergusson

Albert Einstein, British Empire, fixed income, full employment, large denomination, Plutocrats, plutocrats, Right to Buy, South Sea Bubble, strikebreaker

As soon as inflation ceases to increase and deflation sets in, there will be the devil to pay. Behrenstrasse here, which corresponds to Lombard Street, reminds me of San Francisco after the Earthquake. Almost every bank is being increased or rebuilt, and one can hardly get along the roadway. Something like the South Sea Bubble. It must have been very hard for the ordinary man with little knowledge of finance to determine whether the outlook was good or bad. The truth, no doubt, as the Ship of State steamed headlong downstream towards the cataract, was that it was good for some and bad for others. At any rate, people knew whom to blame if, despite some of the trappings of prosperity, the nation's survival was in danger.


pages: 294 words: 89,406

Lying for Money: How Fraud Makes the World Go Round by Daniel Davies

bank run, banking crisis, Bernie Madoff, bitcoin, Black Swan, Bretton Woods, business cycle, business process, collapse of Lehman Brothers, compound rate of return, cryptocurrency, financial deregulation, fixed income, Frederick Winslow Taylor, Gordon Gekko, high net worth, illegal immigration, index arbitrage, Nick Leeson, offshore financial centre, Peter Thiel, Ponzi scheme, price mechanism, principal–agent problem, railway mania, Ronald Coase, Ronald Reagan, Savings and loan crisis, short selling, social web, South Sea Bubble, tail risk, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, time value of money, web of trust

There were a number of reasons why the collapse was not felt to be the fault of one of its directors in particular. First, she was unaware that the company existed. Second, she had not given permission for her name to be used in the flotation. And finally, she was Queen Victoria.† This sort of thing happened a lot. Corporations had been made legal again in 1825, after a long period following the South Sea Bubble during which you had needed a special Act of Parliament to found one. This facilitated a particular species of fraud – get hold of a worthless company (or found a new one), falsify its accounts and sell shares in it by lying. Investors, however, still needed a little bit of persuasion to take their money out of government bonds and put it into new shares, so it was considered a good marketing tool to get some famous names on the board of directors and make it look like the investors’ money would be well scrutinised.


Deep Value by Tobias E. Carlisle

activist fund / activist shareholder / activist investor, Andrei Shleifer, availability heuristic, backtesting, business cycle, buy and hold, corporate governance, corporate raider, creative destruction, Daniel Kahneman / Amos Tversky, discounted cash flows, fixed income, intangible asset, joint-stock company, margin call, passive investing, principal–agent problem, Richard Thaler, risk free rate, riskless arbitrage, Robert Shiller, Robert Shiller, Rory Sutherland, shareholder value, Sharpe ratio, South Sea Bubble, statistical model, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tim Cook: Apple

There “crowds of men bought and sold shares and bonds of tax-farming companies, various goods for cash and on credit, farms and estates in Italy and in the provinces, houses and shops in Rome and elsewhere, ships and storehouses, slaves and cattle.”34 Described as being comparable to the speculative fever that swept over Britain in the 1720s South Sea bubble, there was said to be “scarcely a soul one might say, who does not have some interest in these [tax-farming] contracts and profits which are derived from them.”35 Petronius Arbiter, a Roman courtier during the reign of Nero believed to be the author of the satirical novel the Satirycon, wrote later that, “filthy usury and the handling of money had caught the common people in a double whirlpool, and destroyed them.”36 The conglomerate fad was just one more speculative mania in a long line of speculative manias.


pages: 332 words: 93,672

Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy by George Gilder

23andMe, Airbnb, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, AltaVista, Amazon Web Services, Asilomar, augmented reality, Ben Horowitz, bitcoin, Bitcoin Ponzi scheme, blockchain, Bob Noyce, British Empire, Brownian motion, Burning Man, business process, butterfly effect, carbon footprint, cellular automata, Claude Shannon: information theory, Clayton Christensen, cloud computing, computer age, computer vision, crony capitalism, cross-subsidies, cryptocurrency, Danny Hillis, disintermediation, distributed ledger, don't be evil, Donald Knuth, Donald Trump, double entry bookkeeping, Elon Musk, Erik Brynjolfsson, Ethereum, ethereum blockchain, fault tolerance, fiat currency, Firefox, first square of the chessboard, first square of the chessboard / second half of the chessboard, floating exchange rates, Fractional reserve banking, game design, George Gilder, Google Earth, Google Glasses, Google Hangouts, index fund, inflation targeting, informal economy, Internet of things, Isaac Newton, iterative process, Jaron Lanier, Jeff Bezos, Joan Didion, John Markoff, John von Neumann, Julian Assange, Kevin Kelly, Law of Accelerating Returns, Marc Andreessen, Mark Zuckerberg, means of production, Menlo Park, Metcalfe’s law, Money creation, money: store of value / unit of account / medium of exchange, move fast and break things, move fast and break things, Network effects, new economy, Norbert Wiener, Oculus Rift, PageRank, pattern recognition, Paul Graham, peer-to-peer, Peter Thiel, Ponzi scheme, prediction markets, quantitative easing, random walk, ransomware, Ray Kurzweil, Renaissance Technologies, Robert Mercer, Robert Metcalfe, Ronald Coase, Ross Ulbricht, Ruby on Rails, Sand Hill Road, Satoshi Nakamoto, Search for Extraterrestrial Intelligence, self-driving car, sharing economy, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Singularitarianism, Skype, smart contracts, Snapchat, software is eating the world, sorting algorithm, South Sea Bubble, speech recognition, Stephen Hawking, Steve Jobs, Steven Levy, Stewart Brand, stochastic process, telepresence, Tesla Model S, theory of mind, Tim Cook: Apple, transaction costs, tulip mania, Turing complete, Turing machine, Vernor Vinge, Von Neumann architecture, Watson beat the top human players on Jeopardy!, WikiLeaks, Y Combinator, zero-sum game

If bitcoin matched gold’s higher historical growth rate of 2.5 percent, it would reach 347,119,614 units. As Kendall concludes, the limit of 21 million total bitcoin units “is highly deflationary over time and unworkable.” If people believe in the scheme, most of the world’s wealth might flow to bitcoin in periodic buying panics like the tulip mania, South Sea Bubble, and other derangements catalogued in 1841 by Charles Mackay in Extraordinary Popular Delusions and the Madness of Crowds.9 This outcome might be gratifying to current bitcoin holders, but it would obviously lead to government interventions, confiscations, crashes, and other reactions that would end this otherwise redemptive human project.


pages: 343 words: 101,563